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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 20-F**

 

**(MarkOne)**

 

| **o**      | **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, 2008** |
| ** ** | ** **                                                                                                                                                      |
| **OR**     |
| ** ** | ** **                                                                                                                                                      |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                         |
| ** ** | ** **                                                                                                                                                      |
| **OR**     |
| ** ** | ** **                                                                                                                                                      |
| **o**      | **SHELL COMPANY REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                      |

 

Date of event requiring this shell companyreport

 

**For thetransition period from                      to                        **

 

Commissionfile number:  1-13464

 
| **TELECOM ARGENTINA S.A.**                                                                                                                                                                     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of Registrant as specified in its charter)                                                                                                                                         |
|                                                                                                                                                                                           |
| **Republic of Argentina**                                                                                                                                                                      |
| (Jurisdiction of incorporation or organization)                                                                                                                                                |
|                                                                                                                                                                                           |
| **Alicia Moreau de Justo 50**

**(C1107AAB) - Buenos Aires**

**Argentina**                                                                                                                    |
| (Address of principal executive offices)                                                                                                                                                       |
|                                                                                                                                                                                           |
| **Pedro Insussarry**

**(Tel: 54-11-4968-3602, Fax: 54-11-4968-3616,  E-mail: pinsussa@ta.telecom.com.ar,**

**Alicia Moreau de Justo 50, 10 th Floor,  (C1107AAB), Buenos Aires, Argentina)** |
| (Name, Telephone, E-mail and/or Facsimile number and Address of  Company Contact Person)                                                                                                       |

 

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

 

| Title of each  class                                              |   | Name of each  exchange on which registered |
|-------------------------------------------------------------------|--------|--------------------------------------------|
| American Depositary Shares,

representing Class B Ordinary Shares |   | New York Stock Exchange                    |
| Class B Ordinary Shares,

nominal value P$1.00 per share          |   | New York Stock Exchange*                   |

 

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*              Not for trading, but only inconnection with the registration of American Depositary Shares, pursuant to therequirements of the Securities and Exchange Commission.

 

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

 
| ** ** |
|------------|

 

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Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act:  **None**

 
| ** ** |
|------------|

 

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report.
| Class  A Ordinary Shares, nominal value P$1.00 each | 502,034,299 |
|-----------------------------------------------------|-------------|
| Class  B Ordinary Shares, nominal value P$1.00 each | 440,910,912 |
| Class  C Ordinary Shares, nominal value P$1.00 each | 41,435,767  |

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

x Yes   o No

 

Ifthis report is an annual or transition report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.

o Yes   x No

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days.

x Yes   o No

 

Indicate by check mark whether the registranthas submitted electronically and posted on its corporate Web site, if any,every Interactive Data File required to be submitted and posted pursuant toRule 405 of Regulation S-T during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files)

Yes o   No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large accelerated filer x |   | Accelerated filer o |   | Non-accelerated filer o |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicateby check mark which basis of accounting the registrant has used to prepare thefinancial statements included in this filing:

 

| US GAAP o |   | International Financial Reporting Standards as issued  by the International Accounting Standards Board o |   | Other x |
|-----------|--------|----------------------------------------------------------------------------------------------------------|--------|---------|

 

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

o Item 17   x Item 18

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

 

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**TABLEOF CONTENTS**

 
| ** **    | ** **                            | **Page**                                                                      |
|---------------|---------------------------------------|-------------------------------------------------------------------------------|
| ** **    | ** **                            |                                                                          |
|          | PRESENTATION OF FINANCIAL INFORMATION | i                                                                             |
|          | FORWARD-LOOKING STATEMENTS            | ii                                                                            |
|          | GLOSSARY  OF TERMS                    | iii                                                                           |
| 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                                                   | 18 |
|          | ITEM 4A.                              | UNRESOLVED  STAFF COMMENTS                                                    | 51 |
|          | ITEM 5.                               | OPERATING  AND FINANCIAL REVIEW AND PROSPECTS                                 | 52 |
|          | ITEM 6.                               | DIRECTORS, SENIOR  MANAGEMENT AND EMPLOYEES                                   | 103 |
|          | ITEM 7.                               | MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            | 115 |
|          | ITEM 8.                               | FINANCIAL INFORMATION                                                         | 122 |
|          | ITEM  9.                              | THE  OFFER AND LISTING                                                        | 131 |
|          | ITEM 10.                              | ADDITIONAL INFORMATION                                                        | 135 |
|          | ITEM 11.                              | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 148 |
|          | ITEM 12.                              | DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 150 |
| PART II  |                                  | 151                                                                           |
|          | ITEM 13.                              | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES                              | 151 |
|          | ITEM 14.                              | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 151 |
|          | ITEM 15.                              | CONTROLS AND  PROCEDURES                                                      | 151 |
|          | ITEM 16A.                             | AUDIT  COMMITTEE FINANCIAL EXPERT                                             | 151 |
|          | ITEM  16B.                            | CODE  OF ETHICS                                                               | 152 |
|          | ITEM 16C.                             | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       | 152 |
|          | ITEM 16D.                             | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 154 |
|          | ITEM 16E.                             | PURCHASES  OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS      | 154 |
|          | ITEM 16F.                             | CHANGE IN  REGISTRANT’S CERTIFYING ACCOUNTANT                            | 154 |
|          | ITEM 16G.                             | CORPORATE  GOVERNANCE                                                         | 154 |
| PART III |                                  | 156                                                                           |
|          | ITEM 17.                              | FINANCIAL  STATEMENTS                                                         | 156 |
|          | ITEM 18.                              | FINANCIAL  STATEMENTS                                                         | 156 |
|          | ITEM 19.                              | EXHIBITS                                                                      | 156 |

 

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**PRESENTATION OF FINANCIAL INFORMATION**

** **

Inthis Annual Report on Form 20-F (the “Form 20-F” or “Annual Report”),the terms “the Company,” “Telecom,” “Telecom Group,” “we,” “us,” and “our”refer to Telecom Argentina S.A. and its consolidated subsidiaries as of December 31,2008, unless otherwise indicated.

 

Theterm “Telecom Argentina” refers to Telecom Argentina S.A. excluding itssubsidiaries, as of December 31, 2008, Telecom Personal S.A., NúcleoS.A., Telecom Argentina USA, Inc., Micro Sistemas S.A. and Cubecorp ArgentinaS.A. Unless otherwise stated, references to the financial results of “Telecom”are to the consolidated financial results of Telecom Argentina and itsconsolidated subsidiaries.

 

Theterms “Telecom Personal” or “Personal” refer to Telecom Personal S.A., oursubsidiary engaged in the provision of wireless communication services inArgentina. The term “Núcleo” refers to Núcleo S.A., Telecom Personal’sconsolidated subsidiary engaged in the provision of wireless communication andInternet services in Paraguay.

 

*ConsolidatedFinancial Statements*. Our Consolidated Financial Statementsas of December 31, 2008 and 2007 and for the years ended December 31,2008, 2007 and 2006, and the notes thereto (the “Consolidated FinancialStatements”) are set forth on pages F-1 through F-75 of this AnnualReport.

 

TheConsolidated Financial Statements are presented in Argentine pesos and areprepared in accordance with Argentine GAAP considering the regulations of theComisión Nacional de Valores (the Argentine National SecuritiesCommission—“CNV”). Differences exist between Argentine GAAP and US GAAP whichmight be material to the financial information herein. Such differences involvemethods of measuring the amounts shown in the Consolidated FinancialStatements, as well as additional disclosures required by US GAAP andRegulation S-X of the Securities Exchange Commission (“SEC”). See Note 15 toour Consolidated Financial Statements contained elsewhere in this Annual Reportfor a description of the principal differences between Argentine GAAP and USGAAP, as they relate to us, and a reconciliation to US GAAP of net income andshareholders’ equity.

 

*ExchangeRates*. In this Form 20-F, except as otherwise specified,references to “US$” and “dollars” are to U.S. dollars, references to “P$” and“pesos” are to Argentine pesos, references to the “yen” or “¥” are to Japanesecurrency, and references to “euro” or “€” are to the single currency of theparticipants in the European Economic and Monetary Union. The exchange ratebetween the dollar and the peso as of December 31, 2008 wasP$3.453=US$1.00. Prior to January 6, 2002, the exchange rate had beenfixed at one peso per U.S. dollar in accordance with the Convertibility Lawduring the period April 1, 1991 through January 6, 2002. However, asa result of the elimination of the fixed exchange rate and the devaluation ofthe peso, the exchange rate between the dollar and the peso has since declinedsubstantially. As of June 24, 2009, the exchange rate (ask price) wasP$3.79=US$1.00. Unless otherwise indicated, our Consolidated FinancialStatements use the exchange rate as of each relevant date or year-end quoted byBanco de la Nación Argentina (“Banco Nación”). Such translation should not beconstrued as representing that the peso amounts actually represent actualdollar amounts or that any person could convert the peso amounts into dollarsat the rate indicated or at any other exchange rate. For more informationregarding historical exchange rates and the peso, see “Item 3—Key Information—ExchangeRates.” We have provided as a convenience, translations as of December 31,2008 for other currencies which are mentioned in this Annual Report, includingthe Japanese yen (P$3.813=¥100), and the euro (P$4.791=€1).

 

Certainamounts and ratios contained in this Annual Report (including percentageamounts) have been rounded up or down in order to facilitate the summation ofthe tables in which they are presented. The effect of this rounding is notmaterial. These rounded amounts are also included within the text of thisAnnual Report.

 

Thecontents of our website are not part of this Annual Report.

 

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**FORWARD-LOOKING STATEMENTS**

** **

ThePrivate Securities Litigation Reform Act of 1995 provides a “safe harbor” forforward-looking statements. Certain information included in this Annual Reportcontains information that is forward-looking, including, but not limited to:

 

·                  the impact of the emergency laws andsubsequent related laws enacted by the Argentine Government;

 

·                  our expectations for our future performance,revenues, income, earnings per share, capital expenditure, dividends, liquidityand capital structure;

 

·                  the implementation of our business strategy;

 

·                  our expectations regarding payments andprepayments of outstanding indebtedness;

 

·                  the effects of operating in a competitiveenvironment; and

 

·                  the outcome of certain legal proceedings.

 

ThisAnnual Report contains certain forward-looking statements and informationrelating to the Telecom Group that are based on the current expectations,estimates and projections of its management and information currently availableto the Telecom Group. These statements include, but are not limited to,statements made in “Item 5— Operating and Financial Review and Prospects” underthe captions “Critical Accounting Policies” and “Trend Information” and otherstatements about the Telecom Group’s strategies, plans, objectives, expectations,intentions, capital expenditures, and assumptions and other statementscontained in this Annual Report that are not historical facts. When used inthis document, the words “anticipate,” “believe,” “estimate,” “expect,”“intend,” “plan” and “project” and other similar expressions are generallyintended to identify forward-looking statements.

 

Thesestatements reflect the current views of the Telecom Group with respect tofuture events. They are not guarantees of future performance and involve certainrisks and uncertainties that are difficult to predict. In addition, certainforward-looking statements are based upon assumptions as to future events thatmay not prove to be accurate.

 

Manyfactors could cause the actual results, performance or achievements of theTelecom Group to be materially different from any future results, performanceor achievements that may be expressed or implied by such forward-lookingstatements. These factors include, among others:

 

·                  uncertainties relating to political andeconomic conditions in Argentina;

 

·                  inflation, the devaluation of the peso andexchange rate risks;

 

·                  restrictions on the ability to exchange pesosinto foreign currencies and transfer funds abroad;

 

·                  the elimination of indexes to adjust ratescharged for certain public services;

 

·                  the final results of the contractrenegotiation process with the Argentine Government regarding the adjustment toour rates charged for public services;

 

·                  the creditworthiness of our actual orpotential customers;

 

·                  nationalization;

 

·                  technological changes;

 

·                  the impact of legal or regulatory matters orreform and changes in the legal or regulatory environment in which we operate;and

 

·                  the effects of competition.

 

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Manyof these factors are macroeconomic in nature and are therefore beyond thecontrol of the Telecom Group’s management. Should one or more of these risks oruncertainties materialize, or should underlying assumptions prove incorrect,actual results may vary materially from those described herein as anticipated,believed, estimated, expected, intended, planned or projected. The TelecomGroup does not intend, and does not assume any obligation, to update theforward-looking statements contained in this Annual Report.

 

Theseforward-looking statements are based upon a number of assumptions and otherimportant factors that could cause the Company’s actual results, performance orachievements to differ materially from its future results, performance orachievements expressed or implied by such forward-looking statements. Readersare encouraged to consult the Telecom Group’s periodic filings made on Form 6-K,which are filed with or furnished to the United States Securities and ExchangeCommission.

 

**GLOSSARY OF TERMS**

** **

Thefollowing explanations are not intended as technical definitions, but to assistthe general reader to understand certain terms as used in this Annual Report.

 

*Accesscharge:*  Amount paidper minute charged by network operators for the use of their network by othernetwork operators.

 

*Accessdeficit:*  The portionof costs related to the access network that are not covered by the revenuesgenerated by the use or availability of subscribers connected to such network.

 

*Accessnetwork:*  The elementsthat allow the connection of each subscriber to the corresponding local switch.They consist of the termination point, elements of outside plant and specificparts of the local switching equipment that make available the permanentconnection from the termination point to the local switch.

 

*ADS:*  Telecom Argentina’s American DepositaryShare, listed on the New York Stock Exchange, each representing 5 Class BShares.

 

*ADSL(Asymmetric Digital Subscriber Line):*  A compression technology that allowscombinations of services including voice, data and one-way full motion video tobe delivered over existing copper feeder distribution and subscriber lines.

 

*AFIP(Administración Federal de Ingresos Públicos):*  The Argentine federal tax authority.

 

*AFJP(Administradoras de Fondos de Jubilaciones y Pensiones):*  Private entities in charge of managing thefunds of the Retirement and Pension System contributions in the individualcapitalization regime established by Law 24,241 enacted in 1993.

 

*AMBA(Área Múltiple Buenos Aires):* The area of the Federal District (or Buenos Aires city) and greaterBuenos Aires (Gran Buenos Aires), which extends to the city of La Plata to theSouth, the city of Campana to the North, the city of General Rodríguez to theWest and the city of Monte Grande to the Southwest.

 

*Analog:*  A mode of transmission or switching which isnot digital, e.g., the representation of voice, video or other modulatedelectrical audio signals which are not in digital form.

 

*ANSES:*The Argentine administrator of Social Security pension and retirement benefits.

 

*APE(Acuerdo Preventivo Extrajudicial):*  An out-of-court restructuring agreement governedby Argentine Law No. 24,522.

 

*Argentina:*  Republic of Argentina.

 

*ArgentineBankruptcy Law:*  Law No. 24,522,as amended.

 

*ArgentineGAAP:*  GenerallyAccepted Accounting Principles in Argentina.

 

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*ARPU(Average Revenue per User):* Calculated by dividing total revenue excluding mainly handset,outcollect (wholesale) roaming, cell site rental and activation fee revenue byweighted-average number of subscribers during the period.

 

*Basictelephone services: *Thesupply of fixed telecommunications links which form part of the publictelephone network, or are connected to such network, and the provision of localand long-distance telephone service (domestic and international).

 

*BCRA(Banco Central de la República Argentina):*  The Central Bank of Argentina.

 

*CAT:*  Compañía Argentina de Teléfonos S.A.

 

*Cellularservice:*  A wirelesstelephone service provided by means of a network of interconnected low-poweredbase stations, each of which covers one small geographic cell within the totalcellular system service area.

 

*CER(Coeficiente de Estabilización de Referencia):*  The reference stabilization coefficient ascalculated by the BCRA or any successor thereto, in accordance with the formulaset forth in Annex I of Argentine Law No. 25,713. If the CER is abrogated,found to be inapplicable or not published, references to “CER” shall refer toany replacement measure adopted under Argentine law or, in the absence of anysuch replacement measure, any adjustment that shall be necessary to provide asubstantially equivalent rate of return on the notes denominated in pesos (the“Peso Notes”) in comparison with similar notes issued in dollars.

 

*CETs:*  Telecommunication centers where publictelephone services are offered.

 

*CNC (Comisión Nacional de Comunicaciones):* The Argentine National Communications Commission.

 

*CNT(Comisión Nacional de Telecomunicaciones):*  The Argentine National TelecommunicationsCommission, the former regulatory body, later replaced by the CNC.

 

*CNV(Comisión Nacional de Valores):*  The Argentine National Securities Commission.

 

*Company*:  Telecom Argentina S.A. and its consolidatedsubsidiaries.

 

*Concursopreventivo:*  Avoluntary reorganization proceeding governed by Argentine law.

 

*ConvertibilityLaw:*  Law No. 23,928and its Regulatory Decree No. 529/91. The Convertibility Law fixed theexchange rate at one peso per U.S. dollar during the period April 1, 1991through January 6, 2002. The Convertibility Law was partially repealed on January 6,2002 by the enactment of the Public Emergency Law.

 

*CPCECABA(Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de BuenosAires):*  TheProfessional Council of Economic Sciences of the City of Buenos Aires.

 

*CPP(Calling Party Pays):* The system whereby the party placing a call to a wireless phone ratherthan the wireless subscriber pays for the air time charges for the call.

 

*Cubecorp:*  Cubecorp Argentina S.A.

 

*Decree No. 92/97:*  Decree issued on January 31, 1997 whichimplemented the Rate Rebalancing.

 

*Digital:*  A mode of representing a physical variablesuch as speech using digits 0 and 1 only. The digits are transmitted in binaryform as a series of pulses. Digital networks allow for higher capacity andhigher flexibility through the use of computer-related technology for thetransmission and manipulation of telephone calls. Digital systems offer lowernoise interference and can incorporate encryption as a protection from externalinterference.

 

*FACPCE(Federación Argentina de Consejos Profesionales en Ciencias Económicas):*  Argentine Federation of Professional Councilsof Economic Sciences.

 

*FCR:*  France Cables et Radio S.A.

 

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*FranceTelecom Group*: We refer to FCR and Atlas Services BelgiumS.A. collectively as the “France Telecom Group.”

 

*February Agreement:*  An agreement entered into on February 28,1992 and subsequently ratified by Decree No. 506/92 between the ArgentineGovernment and Telecom Argentina. This agreement provides for the reduction ofdomestic long-distance rates from their then-current level. The reductionbecame effective on May 1, 1992.

 

*FiberOptic:*  A transmissionmedium which permits extremely high capacities. It consists of a thin strand ofglass that provides a pathway along which waves of light can travel fortelecommunications purposes.

 

*FreePulses:*  The number ofFree Pulses included in the monthly basic charge prior to the issuance ofDecree No. 92/97.

 

*GPRS(General Packet Radio Service):*  An enhanced second-generation wirelesstechnology used to transmit data over wireless networks. GPRS transmits andreceives packets of data in bursts instead of using continuous open radiochannels, and it is used to add faster data transmission speed to GSM networks.GPRS is packet based rather than circuit based technology.

 

*GSM(Global System for Mobile Communications):*  A standard for digital cellular technology,originated in Europe, to provide pan-European roaming capabilities. Thetechnology has been introduced and installed in almost all continents and it isthe leading technology in the worldwide mobile industry. This standard is basedon a digital transmission scheme providing expanded capacity by allowingmultiple users over a single channel. GSM has supported the implementation ofsecond generation services and is currently used to also provide third generationservices.

 

*Internet:*  A collection of interconnected networksspanning the entire world, including university, corporate, government andresearch networks from around the globe. These networks all use the IP(Internet Protocol) communications protocol.

 

*IssuanceDate:*  The date ofissuance and delivery of the notes, cash consideration and cash interestpayments pursuant to Telecom Argentina’s APE, or August 31, 2005.

 

*Law No. 25,561:  Ley de Emergencia Económica y Reforma delRégimen Cambiario*(see “Public Emergency Law”).

 

*List ofConditions:*  ThePrivatization Regulations, including the *Pliego de Bases yCondiciones* was approved by Decree No. 62/90, as amended.Pursuant to the List of Conditions, Telecom Argentina was required to complywith tariff regulations and meet certain minimum annual standards regarding theexpansion of its telephone system and improvements in the quality of itsservice in order to maintain and extend the exclusivity of its non-expiringlicense to provide fixed-line public telecommunications services and Basictelephone services in the northern region of Argentina. After the market wasopened to competition, the outstanding obligations that continue in force arethe tariff regulations and those related to the quality of service; theobligations related to the expansion of the network are no longer required.

 

*Microsistemas:*  Micro Sistemas S.A.

 

*NDF (Non Deliverable Forward)*: A genericterm for a set of derivatives which cover national currency transactionsincluding foreign exchange forward swaps, cross currency swaps and coupon swapsin non-convertible or highly restricted currencies. The common characteristicsof these contracts are that they involve no exchange of principal, are fixed ata pre-determined price and are typically settled in US dollars (or sometimes inEuros) at the prevailing spot exchange rate taken from an agreed source, time,and future date.

 

*Network:*  An interconnected collection of elements. Ina telephone network, these consist of Switches connected to each other and toconsumer equipment for the transmission of data. The transmission equipment maybe based on Fiber Optic or metallic cable or point-to-point radio connectors.

 

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*NGN (NextGeneration Networks):* A packet-based network able to provide services includingtelecommunication services and able to make use of multiple broadband, QoS(Quality of Service)-enabled transport technologies and in whichservice-related functions are independent from underlying transport-relatedtechnologies.

 

*Nortel:*  NortelInversora S.A.

 

*November Agreement:*  An agreement between Telecom Argentina andthe Argentine Government providing for rates to be dollar-based and, at theelection of each of Telecom Argentina and Telefónica, adjusted semi-annuallyaccording to the U.S. consumer price index. The November Agreement wasratified by Decree No. 2585/91 and became effective on December 18,1991. Subsequently, in accordance with the Public Emergency Law, these rates werepesified at the exchange rate of US$ 1.00 = P$ 1.00. See “Item 4—Information onthe Company—The Business—Voice, Data and Internet—Rates.”

 

*Núcleo*:  Núcleo S.A.

 

*PCS (PersonalCommunications Service):* A wireless communications service with systems that operate in a mannersimilar to cellular systems.

 

*Penetration:*  The measurement of the take-up of services.As of any date, the Penetration is calculated by dividing the number ofsubscribers by the population of the region and expressed as a percentage.

 

*Personal*:  Telecom Personal S.A.

 

*Pesification:*  Modification of the exchange rate by theArgentine Government pursuant to the Public Emergency Law.

 

*Presubscriptionof Long-Distance Service:* The selection by the customer of international and domesticlong-distance telecommunications services from a long-distance telephoneservice operator.

 

*PriceCap:*  Tariff regulationmechanism applied in order to determine tariff discounts based on a formulamade up by the U.S. Consumer Price Index and an efficiency factor. Thementioned factor was established initially in the List of Conditions andafterwards in different regulations by the SC.

 

*PrivatizationRegulations:*  TheArgentine Government’s privatization program as set forth in the State ReformLaw approved in August 1989 and subsequent decrees.

 

*PublicEmergency Law:*  ThePublic Emergency and Foreign Exchange System Reform Law No. 25,561 adoptedby the Argentine Government on January 6, 2002, as amended by Law No. 25,790,Law No. 25,820, Law No. 25,972, Law No. 26,077, Law No. 26,204and Law No. 26,456. Among others, the Public Emergency Law grants theexecutive branch of the Argentine Government the power to set the exchange ratebetween the peso and foreign currencies and to issue regulations related to theforeign exchange market and to renegotiate public service agreements.

 

*Pulse:*  Unit on which the tariff structure of theregulated fixed line services is based.

 

*Rate Agreement:*  The November Agreement, as supplementedby the February Agreement. The Rate Agreement, among other things, permitsTelecom Argentina to effect aggregate rate reductions required pursuant to theList of Conditions by lowering rates for some or all categories of service, *provided* that the net reductions meet applicable targets.

 

*RateRebalancing:*  The RateRebalancing established by Decree No. 92/97 which provides for asignificant reduction in domestic and international long-distance tariffs, anincrease in basic telephone charges, the elimination of Free Pulses and anincrease in urban rates.

 

*RegulatoryBodies:*  Collectively,the SC and the CNC.

 

*RT:*  Technical resolutions issued by the FACPCE.As of December 31, 2008, the RT effective and which applied to the Companywere: 6, 7, 8, 9, 11, 14, 15, 16, 17, 18, 21, 22 and 23.  These collective technical resolutionsconstitute Argentine GAAP, with the exception of RT 7 which establishes theauditing rules and RT 15 which

 

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regulates the role of the public accountant. Inaddition, RT 17 establishes that specific measurement questions not addressedby existing RTs must be resolved by applying general accounting measurementrules, the Argentine GAAP conceptual framework, the International FinancialReporting Standards issued by the International Accounting Standards Board(“IASB”), the International Accounting Standards developed by the InternationalAccounting Standards Committee (“IASC”), the interpretations issued by theStanding Interpretation Committee (“SIC”) of the IASB and the interpretationsof the International Financial Reporting Interpretations Committee  (“IFRIC”) in the order listed.

 

*SAC(Subscriber Acquisition Costs):*  In the wireless telecommunications industry,agent’s commissions, advertising expenses and handset subsidies are usuallycalled subscriber acquisition costs.

 

*Satellite:*  Satellites are used, among other things, forlinks with countries that cannot be reached by cable to provide an alternativeto cable and to form closed user networks.

 

*SC(Secretaría de Comunicaciones):*  The Argentine Secretary of Communications.

 

*SEC:*  Securities and Exchange Commission of theUnited States of America.

 

*Sofora:*  SoforaTelecomunicaciones S.A.

 

*SRMC (Servicios de Radiocomunicaciones MóvilesCelular):*  Mobile Cellular Radiocommunications Service.

 

*STM(Servicio Telefónico Móvil):* Mobile Telephone Service.

 

*Switches:*  These are used to set up and route telephonecalls either to the number called or to the next switch along the path. Theymay also record information for billing and control purposes.

 

*TDMA(Time Division Multiple Access):*  A standard of digital cellular technologythat divides a single channel into a number of slots, enabling the transmissionof multiple voice circuits per channel.

 

*TelcoS.p.A.*:   joint companymade up of Assicurazioni Generali S.p.A., Intesa San Paolo S.p.A., MediobancaS.p.A., Sintonia S.A. and Telefónica, S.A. (of Spain).

 

*Telecom/TelecomGroup*:  TelecomArgentina and its consolidated subsidiaries.

 

*TelecomArgentina*:  TelecomArgentina S.A.

 

*TelecomItalia:*  Telecom ItaliaS.p.A.

 

*TelecomItalia Group:*  TelecomItalia and its consolidated subsidiaries, except where referring to the TelecomItalia Group as Telecom Argentina’s operator in which case it means TelecomItalia and Telecom Italia International, N.V.

 

*TelecomPersonal*:  TelecomPersonal S.A.

 

*Telefónica:*  Telefónica de Argentina S.A.

 

*Telefónicade España*:  Telefónica,S.A. (of Spain).

 

*TLRD(Terminación Llamada Red Destino):*  Termination charges from third parties’wireless networks.

 

*TransferDate:*  November 8,1990, the date upon which Telecom Argentina commenced operations upon thetransfer from the Argentine Government of the telecommunications system in thenorthern region of Argentina that was previously owned and operated by *Empresa Nacional de Telecomunicaciones*.

 

*UNIREN(Unidad de Renegociación y Análisis de Contratos de Servicios Públicos):*Renegotiation and Analysis of Contracts of Public Services Division.

 

*UniversalService:*  Theavailability of Basic telephone service, or access to the public telephonenetwork via different alternatives, at an affordable price to all personswithin a country or specified area.

 

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*US GAAP:*  Generally Accepted Accounting Principles in theUnited States of America.

 

*ValueAdded Services:* Services that provide additional functionality to the basic transmissionservices offered by a telecommunications network such as voicemail, messagesignaling, caller-ID, call transferring, call waiting, call conferencing, IVRdialing, ring back tones, personal e-cards, short message systems (SMS),national and international roaming, automatic call routing, access to wirelessinternet and access to email via BlackBerry.

 

*W de Argentina—Inversiones: * W deArgentina—Inversiones S.L.

 

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**PART I**

 

**ITEM 1.          IDENTITYOF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

** **

Notapplicable.

 

**ITEM 2.          OFFERSTATISTICS AND EXPECTED TIMETABLE**

** **

Notapplicable.

 

**ITEM 3.          KEYINFORMATION**

** **

**Selected FinancialData**

** **

Thefollowing tables set forth our selected consolidated financial data for each ofthe years in the five-year period ended December 31, 2008. Ourconsolidated selected financial data should be read in conjunction with, andare qualified in their entirety by, our Consolidated Financial Statements and “Item5—Operating and Financial Review and Prospects.”

 

Ourselected consolidated income statement data for the years ended December 31,2008, 2007 and 2006 and the selected consolidated balance sheet data as of December 31,2008 and 2007 have been derived from our Consolidated Financial Statementsincluded elsewhere in this Annual Report. Our selected consolidated balancesheet data as of December 31, 2006 has been derived from our consolidatedfinancial statements as of December 31, 2006 and 2005 and for the threeyears in the period ended December 31, 2006, which are not included inthis Annual Report.

 

Ourselected consolidated income statement data for the years ended December 31,2005 and 2004 and our selected consolidated balance sheet data as of December 31,2005 and 2004 have been derived from our consolidated financial statements asof December 31, 2005 and 2004 and for the three years in the period ended December 31,2005. The consolidated financial statements as of December 31, 2005 and2004 and for the three years in the period ended December 31, 2005 are notincluded in this Annual Report.

 

Wemaintain our financial books and records and prepare our financial statementsin pesos in conformity with Argentine GAAP, which differ in certain aspectsfrom US GAAP. For a summary description of the principal differences betweenArgentine GAAP and US GAAP as they relate to us, see Note 15 to ourConsolidated Financial Statements.

 

*Recent AccountingPronouncements*

* *

In March 2009,the FACPCE issued RT 26, “Adoption of the International Financial ReportingStandards from the International Accounting Standards Board,” which will befully effective for fiscal years beginning on or after January 1, 2011. RT26 also establishes certain disclosure requirements applicable to annualfinancial statements beginning on or after January 1, 2009. As of the dateof this Annual Report, RT 26 has not been adopted by the CNV. The Company iscurrently analyzing the impact that the adoption of RT 26 will have on theCompany’s financial position and results of operations.

 

*SupplementaryUnconsolidated Financial Information*

* *

Forinformation regarding our financial and operating results on an unconsolidatedbasis, see Note 14 to our Consolidated Financial Statements.

 

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**CONSOLIDATED SELECTEDINCOME STATEMENT AND BALANCE SHEET DATA**

 
| ** **                                                           | ** ** | **As of and for the Year Ended December 31,**        | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2008**                                                  | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                           | ** ** | **(P$ millions, except per share and per ADS data)** | ** ** |
| INCOME STATEMENT DATA                                                |       |                                                      |       |   |   |   |   |   |   |   |   |
| *Argentine GAAP Amounts*                                             |       |                                                      |       |   |   |   |   |   |   |   |   |
| Continuing operations                                                |       |                                                      |       |   |   |   |   |   |   |   |   |
| Net sales                                                            |       | 10,608                                                    |       | 9,074 |   | 7,372 |   | 5,668 |   | 4,451 |   |
| Cost of services, general and administrative and  selling expenses   |       | (8,567                                                    | )          | (7,438 | ) | (6,478 | ) | (5,171 | ) | (4,057 | ) |
| Operating income                                                     |       | 2,041                                                     |       | 1,636 |   | 894 |   | 497 |   | 394 |   |
| Other, net (1)                                                       |       | (545                                                      | )          | (562 | ) | (685 | ) | (471 | ) | (1,248 | ) |
| Gain on debt restructuring, net                                      |       | —                                                    |       | — |   | — |   | 1,424 |   | 209 |   |
| Income tax (expense) benefit, net                                    |       | (535                                                      | )          | (292 | ) | 22 |   | (119 | ) | (24 | ) |
| Net income (loss) from continuing operations                         |       | 961                                                       |       | 782 |   | 231 |   | 1,331 |   | (669 | ) |
| Discontinued operations (2)                                          |       |                                                      |       |   |   |   |   |   |   |   |   |
| Net income from discontinued operations                              |       | —                                                    |       | 102 |   | 13 |   | 3 |   | 3 |   |
| Net income (loss)                                                    |       | 961                                                       |       | 884 |   | 244 |   | 1,334 |   | (666 | ) |
| Net income (loss) per share (3)                                      |       | 0.98                                                      |       | 0.90 |   | 0.25 |   | 1.36 |   | (0.68 | ) |
| Net income (loss) per ADS (4)                                        |       | 4.88                                                      |       | 4.49 |   | 1.24 |   | 6.78 |   | (3.38 | ) |
| *US GAAP Amounts (5)*                                                |       |                                                      |       |   |   |   |   |   |   |   |   |
| Operating income                                                     |       | 1,805                                                     |       | 1,592 |   | 814 |   | 440 |   | 430 |   |
| Net income (loss)                                                    |       | 1,109                                                     |       | 1,148 |   | 572 |   | 1,138 |   | (782 | ) |
| Net income (loss) from continuing operations per  share (3)          |       | 1.13                                                      |       | 1.06 |   | 0.57 |   | 1.16 |   | (0.79 | ) |
| Net income from discontinued operations per share  (3)               |       | —                                                    |       | 0.11 |   | 0.01 |   | — |   | — |   |
| Net income (loss) per share (3)                                      |       | 1.13                                                      |       | 1.17 |   | 0.58 |   | 1.16 |   | (0.79 | ) |
| Net income (loss) from continuing operations per  ADS (4)            |       | 5.63                                                      |       | 5.31 |   | 2.84 |   | 5.77 |   | (3.99 | ) |
| Net income from discontinued operations per ADS  (4)                 |       | —                                                    |       | 0.52 |   | 0.07 |   | 0.01 |   | 0.02 |   |
| Net income (loss) per ADS (4)                                        |       | 5.63                                                      |       | 5.83 |   | 2.91 |   | 5.78 |   | (3.97 | ) |
|                                                                 |       |                                                      |       |   |   |   |   |   |   |   |   |
| BALANCE SHEET DATA                                                   |       |                                                      |       |   |   |   |   |   |   |   |   |
| *Argentine GAAP Amounts*                                             |       |                                                      |       |   |   |   |   |   |   |   |   |
| Current assets                                                       |       | 2,592                                                     |       | 2,384 |   | 1,767 |   | 1,542 |   | 4,439 |   |
| Fixed assets, net                                                    |       | 6,188                                                     |       | 5,738 |   | 5,739 |   | 5,958 |   | 6,894 |   |
| Total assets                                                         |       | 9,649                                                     |       | 9,171 |   | 8,720 |   | 8,563 |   | 12,335 |   |
| Current liabilities                                                  |       | 4,061                                                     |       | 3,643 |   | 3,373 |   | 2,206 |   | 10,232 |   |
| Current debt                                                         |       | 1,355                                                     |       | 1,474 |   | 1,395 |   | 905 |   | 9,434 |   |
| Non-current liabilities                                              |       | 1,487                                                     |       | 2,419 |   | 3,146 |   | 4,449 |   | 1,547 |   |
| Non-current debt                                                     |       | 688                                                       |       | 1,724 |   | 2,703 |   | 3,996 |   | 1,219 |   |
| Minority Interest                                                    |       | 81                                                        |       | 79 |   | 72 |   | 41 |   | 30 |   |
| Common stock                                                         |       | 984                                                       |       | 984 |   | 984 |   | 984 |   | 984 |   |
| Total shareholders’ equity                                      |       | 4,020                                                     |       | 3,030 |   | 2,129 |   | 1,867 |   | 526 |   |
| Total liabilities, minority interest, and  shareholders’ equity |       | 9,649                                                     |       | 9,171 |   | 8,720 |   | 8,563 |   | 12,335 |   |
| *US GAAP Amounts (5)*                                                |       |                                                      |       |   |   |   |   |   |   |   |   |
| Total assets                                                         |       | 9,512                                                     |       | 9,112 |   | 8,814 |   | 8,711 |   | 12,688 |   |
| Current liabilities                                                  |       | 3,195                                                     |       | 2,909 |   | 2,644 |   | 1,856 |   | 10,225 |   |
| Non-current liabilities                                              |       | 2,103                                                     |       | 3,609 |   | 4,727 |   | 6,000 |   | 2,758 |   |
| Minority interest                                                    |       | 81                                                        |       | 56 |   | 56 |   | 36 |   | 31 |   |
| Total shareholders’ equity (deficit)                            |       | 4,133                                                     |       | 2,538 |   | 1,387 |   | 819 |   | (326 | ) |

 

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----

(1)        Other, net includes gain on equityinvestees, “financial results, net,” other expenses, net and minority interest.

(2)        Corresponds to the sale in April 2007of our equity interest in Publicom (representing 99.99% of the capital stockand voting shares of Telecom Argentina’s former subsidiary, a publisher ofdirectories) to Yell Publicidad S.A.

(3)        Calculated based on 984,380,978 sharesoutstanding during each year.

(4)        Calculated based on 196,876,196 ADSs equivalentto the shares outstanding during each year.

(5)        For a description of these differencesplease refer to Note 15 to the Consolidated Financial Statements. The followingtables show the principal reconciling items between our consolidated selectedArgentine GAAP and US GAAP amounts shown for all years presented.

 
| ** **                                              | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **2008**                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                              | ** ** | **(P$ millions)**      | ** ** |
| **Total assets under Argentine  GAAP**                  | ** ** | **9,649**                   | ** ** | **9,171** | ** ** | **8,720** | ** ** | **8,563** | ** ** | **12,335** | ** ** |
| *Valuation differences*:                                |       |                        |       |   |   |   |   |   |   |   |   |
| Foreign-currency translation                            |       | —                      |       | (72 | ) | (50 | ) | (10 | ) | 5 |   |
| Capitalization of foreign currency exchange differences |       | (67                         | )          | (106 | ) | (210 | ) | (314 | ) | (443 | ) |
| Other adjustments                                       |       | (11                         | )          | 5 |   | (3 | ) | 6 |   | 6 |   |
| Tax effects on US GAAP adjustments                      |       | 27                          |       | 35 |   | 75 |   | 110 |   | 155 |   |
| Valuation allowance                                     |       | —                      |       | — |   | — |   | — |   | (285 | ) |
| *Balance sheet classification  differences*:            |       |                        |       |   |   |   |   |   |   |   |   |
| Deferred income taxes                                   |       | (27                         | )          | 88 |   | 295 |   | 363 |   | 935 |   |
| Other classifications (i)                               |       | (59                         | )          | (9 | ) | (13 | ) | (7 | ) | (20 | ) |
| **Total assets under US GAAP**                          | ** ** | **9,512**                   | ** ** | **9,112** | ** ** | **8,814** | ** ** | **8,711** | ** ** | **12,688** | ** ** |
| ** **                                              | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **As of December 31,** | ** ** |
| ** **                                              | ** ** | **2008**                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                              | ** ** | **(P$ millions)**      | ** ** |
| **Total current liabilities under  Argentine GAAP**     | ** ** | **4,061**                   | ** ** | **3,643** | ** ** | **3,373** | ** ** | **2,206** | ** ** | **10,232** | ** ** |
| *Valuation differences:*                                |       |                        |       |   |   |   |   |   |   |   |   |
| Other adjustments                                       |       | —                      |       | — |   | — |   | — |   | 5 |   |
| Tax effects on US GAAP adjustments                      |       | —                      |       | — |   | — |   | — |   | (2 | ) |
| Valuation allowance                                     |       | —                      |       | — |   | — |   | — |   | 2 |   |
| *Balance sheet classification  differences:*            |       |                        |       |   |   |   |   |   |   |   |   |
| Deferred income taxes                                   |       | 273                         |       | 173 |   | — |   | — |   | — |   |
| Financial indebtedness                                  |       | (1,137                      | )          | (901 | ) | (716 | ) | (348 | ) | — |   |
| Other classifications (i)                               |       | (2                          | )          | (6 | ) | (13 | ) | (2 | ) | (12 | ) |
| **Total current liabilities under  US GAAP**            | ** ** | **3,195**                   | ** ** | **2,909** | ** ** | **2,644** | ** ** | **1,856** | ** ** | **10,225** | ** ** |

 

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(i)           Includes the classifications corresponding to theacquisition and sale of indefeasible right of use. No classification wasrecorded for revenue recognition (installation fees), since the amountsinvolved were immaterial. See Notes 15.II.h and 15.II.i to the ConsolidatedFinancial Statements.

 

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| ** **                                              | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **2008**                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                              | ** ** | **(P$ millions)**      | ** ** |
| **Total  non-current liabilities under Argentine GAAP** | ** ** | **1,487**                   | ** ** | **2,419** | ** ** | **3,146** | ** ** | **4,449** | ** ** | **1,547** | ** ** |
| *Valuation differences:*                                |       |                        |       |   |   |   |   |   |   |   |   |
| Foreign-currency translation                            |       | —                      |       | — |   | (1 | ) | (3 | ) | (6 | ) |
| Debt Restructurings                                     |       | —                      |       | 579 |   | 875 |   | 1,300 |   | 235 |   |
| Fair value option for Notes of Telecom Argentina        |       | (254                        | )          | — |   | — |   | — |   | — |   |
| Other adjustments                                       |       | 2                           |       | 2 |   | 3 |   | 3 |   | — |   |
| Tax effects on US GAAP adjustments                      |       | 88                          |       | (204 | ) | (307 | ) | (455 | ) | (82 | ) |
| Valuation allowance                                     |       | —                      |       | — |   | — |   | — |   | 137 |   |
| *Balance sheet classification  differences:*            |       |                        |       |   |   |   |   |   |   |   |   |
| Deferred income taxes                                   |       | (300                        | )          | (85 | ) | 295 |   | 363 |   | 935 |   |
| Financial indebtedness                                  |       | 1,137                       |       | 901 |   | 716 |   | 348 |   | — |   |
| Other classifications (i)                               |       | (57                         | )          | (3 | ) | — |   | (5 | ) | (8 | ) |
| **Total non-current liabilities  under US GAAP**        | ** ** | **2,103**                   | ** ** | **3,609** | ** ** | **4,727** | ** ** | **6,000** | ** ** | **2,758** | ** ** |

 

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(i)           Includes the classifications corresponding to theacquisition and sale of indefeasible right of use. No classification wasrecorded for revenue recognition (installation fees), since the amountsinvolved were immaterial. See Notes 15.II.h and 15.II.i to the ConsolidatedFinancial Statements.

 
| ** **                                                    | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                    | ** ** | **2008**                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | **(P$ millions)**      | ** ** |
| **Total minority interest under  Argentine GAAP**             | ** ** | **81**                      | ** ** | **79** | ** ** | **72** | ** ** | **41** | ** ** | **30** | ** ** |
| *Valuation differences:*                                      | ** ** | ** **                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   |
| Foreign-currency translation                                  | ** ** | **—**                  |       | (23 | ) | (16 | ) | (5 | ) | 1 |   |
| **Total minority interest under  US GAAP**                    | ** ** | **81**                      | ** ** | **56** | ** ** | **56** | ** ** | **36** | ** ** | **31** | ** ** |
| ** **                                                    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **As of December 31,** | ** ** |
| ** **                                                    | ** ** | **2008***                   | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | **(P$ millions)**      | ** ** |
| **Total shareholders’ equity  under Argentine GAAP**     | ** ** | **4,020**                   | ** ** | **3,030** | ** ** | **2,129** | ** ** | **1,867** | ** ** | **526** | ** ** |
| *Valuation differences:*                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Foreign-currency translation                                  |       | —                      |       | (72 | ) | (49 | ) | (7 | ) | 11 |   |
| Capitalization of foreign currency exchange  differences, net |       | (67                         | )          | (106 | ) | (210 | ) | (314 | ) | (443 | ) |
| Debt Restructurings                                           |       | —                      |       | (579 | ) | (875 | ) | (1,300 | ) | (235 | ) |
| Fair value option for Notes of Telecom Argentina              |       | 253                         |       | — |   | — |   | — |   | — |   |
| Other adjustments                                             |       | (12                         | )          | 3 |   | (6 | ) | 3 |   | 1 |   |
| Tax effects on US GAAP adjustments                            |       | (61                         | )          | 239 |   | 382 |   | 565 |   | 239 |   |
| Valuation allowance                                           |       | —                      |       | — |   | — |   | — |   | (424 | ) |
| Minority interest                                             |       | —                      |       | 23 |   | 16 |   | 5 |   | (1 | ) |
| **Total shareholders’ equity  (deficit) under US GAAP**  | ** ** | **4,133**                   | ** ** | **2,538** | ** ** | **1,387** | ** ** | **819** | ** ** | **(326** | **)** |

 

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* On January 1, 2008, the Company adopted theprovisions of SFAS No.159, “The fair value option for financial assets andfinancial liabilities — Including an amendment of FASB Statement No. 115”(“SFAS No.159”). The adjustment under US GAAP, net of tax effect, at theadoption date was P$408 million (P$0.41 per share) which was recorded as acumulative-effect adjustment to retained earnings as of January 1, 2008,while the subsequent effects of fair value measurement were shown as areconciliation item to income statement in the US GAAP reconciliation as of andfor the year ended December 31, 2008.

 

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| ** **                                                                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                    | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                    | ** ** | **(P$ millions)**           | ** ** |
| **Operating income under  Argentine GAAP**                                                    | ** ** | **2,041**                        | ** ** | **1,636** | ** ** | **894** | ** ** | **497** | ** ** | **394** | ** ** |
| *Valuation differences:*                                                                      |       |                             |       |   |   |   |   |   |   |   |   |
| Foreign–currency translation                                                             |       | —                           |       | 2 |   | 6 |   | 2 |   | 1 |   |
| Depreciation of foreign currency exchange  differences                                        |       | 39                               |       | 104 |   | 104 |   | 117 |   | 119 |   |
| Inventories                                                                                   |       | (14                              | )          | (51 | ) | (5 | ) | (14 | ) | (6 | ) |
| Reversal of amortization of Telecom Debt issuance  costs recorded under Argentine GAAP        |       | 7                                |       | — |   | — |   | — |   | — |   |
| Other adjustments                                                                             |       | —                           |       | (1 | ) | (1 | ) | — |   | — |   |
| Income statement classification differences:                                                  |       |                             |       |   |   |   |   |   |   |   |   |
| Other expenses, net as operating loss under US  GAAP                                          |       | (268                             | )          | (98 | ) | (184 | ) | (162 | ) | (78 | ) |
| **Operating income under US GAAP**                                                            | ** ** | **1,805**                        | ** ** | **1,592** | ** ** | **814** | ** ** | **440** | ** ** | **430** | ** ** |
| ** **                                                                                    | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                    | ** ** | **Year ended December 31,** | ** ** |
| ** **                                                                                    | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                    | ** ** | **(P$ millions)**           | ** ** |
| **Total net income (loss) under  Argentine GAAP**                                             | ** ** | **961**                          | ** ** | **884** | ** ** | **244** | ** ** | **1,334** | ** ** | **(666** | **)** |
| *Valuation differences:*                                                                      |       |                             |       |   |   |   |   |   |   |   |   |
| Foreign-currency translation                                                                  |       | —                           |       | (4 | ) | (17 | ) | (10 | ) | 9 |   |
| Depreciation of foreign currency exchange  differences, net of reversal of its capitalization |       | 39                               |       | 104 |   | 104 |   | 129 |   | 123 |   |
| Debt Restructurings                                                                           |       | —                           |       | 296 |   | 418 |   | (1,230 | ) | (235 | ) |
| Extinguishment of Personal’s and Núcleo’s  restructured debts                  |       | —                           |       | — |   | 7 |   | 165 |   | — |   |
| Personal Pre–APE Debt Restructurings                                                     |       | —                           |       | — |   | — |   | — |   | 20 |   |
| Fair value option for Notes of Telecom Argentina                                              |       | 205                              |       | — |   | — |   | — |   | — |   |
| Other adjustments                                                                             |       | (16                              | )          | 9 |   | (2 | ) | (5 | ) | (6 | ) |
| Tax effects on US GAAP adjustments                                                            |       | (80                              | )          | (143 | ) | (185 | ) | 328 |   | 34 |   |
| Valuation allowance                                                                           |       | —                           |       | — |   | — |   | 424 |   | (60 | ) |
| Minority interest                                                                             |       | —                           |       | 2 |   | 3 |   | 3 |   | (1 | ) |
| **Total net income (loss) under  US GAAP**                                                    | ** ** | **1,109**                        | ** ** | **1,148** | ** ** | **572** | ** ** | **1,138** | ** ** | **(782** | **)** |

 

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**Exchange Rates**

** **

Thefollowing tables show, for the periods indicated, certain information regardingthe exchange rates for U.S. dollars, expressed in nominal pesos per dollar (askprice). See “Item 10—Additional Information—Foreign investment and exchangecontrols in Argentina.”

 
| ** **                                                   | ** ** | **High** | ** ** | **Low** | ** ** | **Average(1)** | ** ** | **End of  Period** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|---------|------------|----------------|------------|--------------------|------------|
| Year Ended December 31, 2004                            |       | 3.06     |       | 1.95    |       | 2.94           |       | 2.98               |       |
| Year Ended December 31, 2005                            |       | 3.04     |       | 2.86    |       | 2.92           |       | 3.03               |       |
| Year Ended December 31, 2006                            |       | 3.11     |       | 3.03    |       | 3.07           |       | 3.06               |       |
| Year Ended December 31, 2007                            |       | 3.16     |       | 3.08    |       | 3.12           |       | 3.15               |       |
| Year Ended December 31, 2008                            |       | 3.45     |       | 3.03    |       | 3.18           |       | 3.45               |       |
| Month Ended December 31, 2008                           |       | 3.47     |       | 3.38    |       | 3.42           |       | 3.45               |       |
| Month Ended January 31, 2009                            |       | 3.49     |       | 3.45    |       | 3.46           |       | 3.49               |       |
| Month Ended February 28, 2009                           |       | 3.57     |       | 3.48    |       | 3.51           |       | 3.57               |       |
| Month Ended March 31, 2009                              |       | 3.72     |       | 3.60    |       | 3.66           |       | 3.72               |       |
| Month Ended April 30, 2009                              |       | 3.72     |       | 3.67    |       | 3.69           |       | 3.71               |       |
| Month Ended May 31, 2009                                |       | 3.75     |       | 3.70    |       | 3.73           |       | 3.75               |       |
| Month Ended June 30, 2009 (through  June 24, 2009) |       | 3.79     |       | 3.74    |       | 3.76           |       | 3.79               |       |

 

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(1)          Yearlydata reflect average of month-end rates.

 

*Sources*:  *Banco Nación*

 

On June 24,2009, the closing exchange rate (ask price) quoted by Banco Nación was P$3.79=US$1.00.

 

**Capitalization andIndebtedness**

** **

Notapplicable.

 

**Reasons for theOffer and Use of Proceeds**

 

Notapplicable.

 

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**Risk Factors**

 

*Youshould consider the following risks with respect to an investment in Telecomand investments in Argentine corporations that are not normally associated withinvestments in the securities of issuers in the United States and otherjurisdictions.*

 

***Risks Relating to Argentina***

*** ***

**Overview**

** **

Substantiallyall of our property, operations and customers are located in Argentina, andmost of our indebtedness is denominated in foreign currencies. Accordingly, ourfinancial condition and results of operations depend to a significant extent oneconomic and political conditions prevailing in Argentina and on the rates ofexchange between the peso and foreign currencies. In 2001 and 2002 theArgentine economy experienced a severe recession as well as a political crisis.The abandonment of dollar-peso parity in 2002 led to significant devaluation ofthe peso against major international currencies and our need to restructure ourfinancial indebtedness. Although Argentina has experienced economic growth andpolitical conditions have shown improvement in recent years, these conditionshave affected and may continue to affect our financial condition and results ofoperations.

 

**Devaluation of thepeso may adversely affect our results of operations, our capital expenditureprogram and the ability to service our debt obligations.**

 

Sincewe realize a substantial portion of our revenues in Argentina in pesos, anydevaluation in the peso may negatively affect the U.S. dollar value of ourearnings while increasing, in peso terms, our expenses and capital costsdenominated in foreign currency (including costs of servicing our indebtednessdenominated in foreign currencies). A significant depreciation in the Argentinepeso against major foreign currencies also may have a material adverse impacton our capital expenditure program and significantly increase the amount of ourdebt obligations. It should be noted, however, that the exposure to the risk ofdevaluation of the peso has significantly decreased as a result of themandatory and optional prepayments as well as the repurchases of the notes ofTelecom Argentina. See “Item 5—Operating and Financial Review andProspects—Liquidity and Capital Resources—Debt Obligations and Debt ServiceRequirements” and “Item 11—Quantitative and Qualitative Disclosures AboutMarket Risk.”

 

TheArgentine peso has been subject to significant devaluation in the past and maybe subject to significant fluctuations in the future. In the five-month periodended May 31, 2009 the devaluation of the peso against the U.S. dollar was9%. Given the economic and political uncertainties in Argentina, it isimpossible to predict whether, and to what extent, the value of the peso maydepreciate or appreciate against the U.S. dollar, the euro or other foreigncurrencies. We cannot predict how these uncertainties will affect theconsumption of services provided by the Telecom Group or our ability to meetour debt obligations denominated in currencies other than the peso. Moreover,we cannot predict whether the Argentine Government will further modify itsmonetary policy and, if so, what impact any of these changes could have on thevalue of the peso and, accordingly, on our financial condition and results ofoperations.

 

**Substantialinflation may have an adverse effect on the economy and would negatively impactTelecom Argentina’s margins.**

** **

In therecent past, Argentina has experienced periods of high levels ofinflation.  More recently, levels ofinflation have increased since 2005 and have remained relatively high from 2006to 2008. The IMF expects the current economic crisis will cause regionalinflation to decrease in 2009.

 

The *Instituto Nacional de Estadística y Censos* (the ArgentineNational Statistics and Census Institute or “INDEC”) estimates that theArgentine consumer price increased from 9.8% in 2006, 8.5% in 2007, and 7.2% in2008; and the wholesale price index increased 7.1% in 2006, 14.6% in 2007 and8.8% in 2008.  In the five months ending May 31,2009, the consumer price index in Argentina increased 2.3% and the wholesaleprice index increased 2.1%. The INDEC**has undergonechanges both in its management and in the methodology used to calculate the CPIindex (Consumer Price Index). As a result, public credibility of the INDEC as areference for publishing Argentine inflation indexes has been adverselyaffected. There is also a substantial disparity between the inflation indexespublished by the INDEC and the overall evolution of prices in the economy.

 

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TheArgentine Government has implemented several actions in order to monitor andcontrol prices for the most relevant goods and services, such as price controlsand restrictions on imports and exports. Despite such actions and the effectsof the current global economic crisis, the Argentine economy continues toexperience significant inflation. If the BCRA issues significant amounts ofcurrency to finance public sector spending, to intervene in the foreignexchange market or to assist financial institutions in distress, or if thevalue of the peso cannot be stabilized through strict fiscal and monetarypolicies, a significant increase in inflation rates can be expected.

 

Inaddition, public sector spending has increased over the past years, a trend,that if it continues, may cause the Government to incur a fiscal deficit andlead to higher inflation.  Since wederive the majority of our revenues from fees payable in pesos, any furtherincrease in the rate of inflation not accompanied by a parallel increase in ourrates would decrease our revenues in real terms and adversely affect ourresults of operations. As discussed below under “Risks Associated with Telecomand its Operations,” Telecom Argentina’s ability to increase its regulatedrates is subject to approval of regulatory authorities. We cannot guaranteethat the permitted increases will be sufficient to counter inflationarypressures and cannot assure you that the results of any future ratenegotiations will be favorable to us and to our financial condition.

 

**Future policies ofthe Argentine Government are likely to significantly affect the economy as wellas the operations of the telecommunications industry.**

 

TheArgentine Government has historically exercised significant influence over theeconomy, and telecommunications companies in particular have operated in ahighly regulated environment. Due to the Argentine economic crisis of 2001 and2002, the Argentine Government promulgated numerous, far-reaching regulationsaffecting the economy and telecommunications companies in particular. In thiscontext, the CNC adopted new interpretations of applicable regulations andimposed fines on telecommunications companies, particularly incumbent operatorssuch as our company. See “Item 8—Financial Information—Legal Proceedings” formore information. In addition, local municipalities in the regions where weoperate have also introduced regulations and proposed various taxes and feesfor the installation of infrastructure, equipment and expansion of fixed lineand wireless networks. Local and federal tax authorities have also brought anincreasing number of claims against us. We disagree with these proceedings andwe are contesting them. However, we cannot assure you that the laws andregulations currently governing the economy or the telecommunications industrywill not change, that the claims will be resolved in our favor, or that anychanges to the existing laws and regulations will not adversely affect ourbusiness, financial condition or results of operations.

 

**The ArgentineGovernment may exercise greater intervention in private sector companies,including Telecom Argentina.**

** **

Theglobal financial crisis has resulted in a significant reduction in global GDPand a loss in consumer confidence in the financial sectors of manycountries.  In order to improve thecountries’ financial condition and assist certain troubled industries, certaingovernments have responded with extraordinary intervention in the privatesector.  Certain governments of theleading industrialized nations have implemented various financial rescue plansoutlining new regulatory frameworks that would be expected to remain in effectat least until market conditions and investor and consumer confidence havestabilized.

 

As aresult of changes in the Argentine governmental policies, domestic problems inArgentina, and given the global conditions described above, in November 2008Argentina nationalized, through Law No. 26,425, all of its private pensionand retirement system, which had been previously administered by AFJP, andappointed ANSES as its administrator. Argentina’s nationalization of itspension and retirement system constitutes a significant change in thegovernment’s approach to exercising influence over Argentina’s mainpublicly-traded companies.  On average,approximately 20% of the share ownership and a significant portion of thepublic float of these companies were owned by AFJP and are now held by ANSES.

 

Thegovernment could exercise significant influence over corporate governancedecisions of companies in which it owns shares by combining its ability to exerciseits shareholder voting rights to designate board and

 

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supervisory committee members with its ability to dictatetax and regulatory matters. Additionally, since AFJP was the primary institutional investor inArgentina, the nationalization of the private retirement system has had asignificant impact on the levels of access to financing in capital markets forpublicly-traded companies.  The role thatthe government will play, acting through ANSES, in making investments in newissuances of equity and debt in capital markets, is unclear due to the absenceof clearly established policies.  Thishas caused a significant reduction in the volume of trading on and liquidity ofArgentina’s capital markets. Furthermore, the government’s selection criteria for electingindividuals to boards of directors in publicly-traded companies in which itowns shares is still unknown, as are its mandates to directors or supervisorycommittee members of said companies and the government’s response to situationssuch as, among others, companies’ participation in governmental biddingprocesses. Until the government’s practices and policies are defined, thesematters could create uncertainties for investors of public companies inArgentina, including Telecom Argentina.

 

Article 8of Law No. 26,425 (which ratifies Article 76(f) of Law 24,241)limits ANSES’ voting power to 5% of the company’s total voting shares, even if ANSESholds a greater ownership position. However, there is a risk that the Argentine government could claim fullvoting rights at annual shareholder meetings, rather than limiting its votingrights to 5% of company shares, in accordance with the limitation prescribed byLaw No. 26,425.  In fact, ANSES, hasalready attempted to exercise voting powers commensurate with its total shareownership at various shareholder meetings of other companies.  In the majority of these cases, thesecompanies have opposed ANSES’ actions and the parties have reached anagreement.  As of the date of this AnnualReport, the CNV has not yet taken a particular stance on this matter.

 

It isdifficult for us to predict the actions that ANSES will take at TelecomArgentina’s next shareholders’ meeting. Additionally, we cannot predict the impact on the Company’s corporatematters if ANSES were to designate members of the Company’s Board and/orSupervisory Committee.

 

**Argentina’seconomy may not continue to grow at current rates or may contract in thefuture.**

** **

Theeffects of the recent global financial crisis and general weakness in theglobal economy may negatively affect emerging economies like Argentina.Although Argentina has experienced economic growth in recent years, currentglobal financial instability has impacted and may continue to impact theArgentine economy and cause Argentina to return to a period of recession,higher inflation, unemployment and greater social unrest.

 

Therecent global financial crisis has affected the Argentine economy in a numberof ways, including the following: reduction in the level of economic activityand the level of investments, depreciation of the currencies of Argentina’smain international trading partners, increased pressure on the devaluation ofthe peso as a result of greater investor and public risk aversion, a sharpdecline in Argentina’s export product prices and contraction of consumer andinvestor spending. Further, although the nationalization of Argentina’s privatepension system would likely help to maintain a positive primary surplus, itwould complicate private access to the financial markets.

 

Substantiallyall of our operations, properties and customers are located in Argentina, and,as a result, our business is, to a large extent, dependent upon economicconditions prevailing in Argentina. If economic conditions in Argentina were todeteriorate, they would be expected to have an adverse effect on our financialcondition and results of operations.

 

**Argentinacontinues to face considerable economic, legal and political uncertainty.**

** **

Althoughgeneral economic conditions have shown improvement, and political protests andsocial disturbances have diminished considerably since the economic crisis of2001 and 2002, the rapid and radical nature of the changes in the Argentinesocial, political, economic and legal environment over the past several yearshave given rise to significant uncertainties about the country’s economic andpolitical future.

 

In thepast, the Argentinean government has responded to economic instability throughsignificant government intervention that exacerbated social unrest.  During 2008, the decision of the Governmentof Cristina Fernández de Kirchner to raise export taxes on certain keyagricultural products has resulted in conflicts between the Government and theagricultural sector. If economic instability returns, there could be a materialadverse effect on our results of operations and financial condition.

 

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In theevent of further economic, social or political crises, companies in Argentinamay also face the risk of further civil and social unrest, strikes,expropriation, nationalization, forced renegotiation or modification ofexisting contracts, and changes in taxation policies including tax increasesand retroactive tax claims. In addition, Argentine courts have issued rulingschanging existing jurisprudence on labor matters and requiring companies toassume increasing responsibility for and assumption of costs and risksassociated with utilizing sub-contracted labor. Since we operate in a contextin which the governing law and applicable regulations change frequently, it isdifficult to predict whether our commercial activities will be affectedpositively, negatively or at all by such changes.

 

**Argentina’s fiscalproblems and the incomplete restructuring of Argentina’s sovereign debt may negativelyaffect the macroeconomic environment.**

** **

TheArgentine Government’s history of fiscal deficit was aggravated by thedevaluation of the Argentine peso in early 2002. Since almost all of thefinancial obligations of the Argentine Government were denominated in foreigncurrencies at the time the dollar-peso parity was eliminated, there was anincrease in the cost of financial services (in terms of Argentine pesos) of thedebt of the Argentine Government. Since the Government’s fiscal revenues weredenominated in large part in Argentine pesos, the Government was severelyaffected in its ability to carry out its payment obligations using foreigncurrency and defaulted on a significant part of its public debt in 2002.  The Government’s sovereign debt default andits consequences may continue to negatively affect the ability of privatecompanies, including Telecom, to obtain access to capital markets or otherforms of financing.

 

TheArgentine Government implemented a debt restructuring effort through a debtexchange offer that closed on February 25, 2005.  Despite a 76.15% acceptance of the offer,amounts not tendered for exchange totaled approximately US$20 billion.  The settlement of the debt exchange wascompleted on June 2005 and, in 2006, the Argentine Government made anearly payback of Argentina’s debt to the IMF, which involved a disbursement ofUS$9.5 billion.  Nonetheless, a number ofbondholders who held out from the exchange offer have initiated legal actionsagainst the Argentine government.  A judgmentagainst the Argentine government in these pending cases could reduce sourcesfor funding and investment capital and could potentially impact the government’sability to adopt measures that promote economic growth.

 

Afterthe economic crisis in 2001, the Argentine Government has maintained a policyof fiscal surplus. To be able to repay its debt, the Argentine Government maybe required to continue adopting austere fiscal measures that could adverselyaffect economic growth. As of December 31, 2008, the outstanding principalamount of Argentina’s public debt was equivalent to US$146 billion (of whichapproximately 52.5% is denominated in foreign currency).

 

Therecan be no assurance that the Argentine Government will not default on itsobligations under its bonds in the event that it experiences another economiccrisis. A new default by the Government could lead to a new recession, higherinflation, restrictions for Argentine companies to access funds, andunemployment and social unrest, which would negatively affect our financialcondition, funding and results of operations.

 

**The Argentinebanking system may be subject to instability.**

** **

TheArgentine banking system collapsed during 2001 and 2002 when the ArgentineGovernment restricted bank withdrawals and required the conversion of dollardeposits to pesos.  From 2003 to 2007, aperiod of economic growth coupled with relative stability of the country’sexchange rate and inflation have resulted in the restoration of publicconfidence, a gradual accumulation of deposits in Argentine financialinstitutions, and improved liquidity of the financial system. However, during2008 certain events such as conflicts between the Argentine Government andcertain sectors of the economy have deteriorated depositors’ confidence,leading to a decrease in deposits, the dollarization of certain deposits and anincrease in interest rates. The capital outflow of the private sector in 2008reached approximately US$11.7 billion and in the first quarter of 2009 it wasapproximately US$3.6 billion.

 

Despiteimprovements in stability since 2002 and the high level of reserves held by theBCRA, we cannot be sure that another collapse will not occur in the future. TheArgentine banking system’s collapse or the collapse of one or more of thelarger banks in the system would have a material adverse effect on theprospects for economic growth and political stability in Argentina, resultingin a loss of consumer confidence, lower disposable income and fewer financingalternatives for consumers. These conditions would have a material adverseeffect on us by resulting in lower usage of our services and the possibility ofa higher level of delinquent and uncollectible accounts.

 

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**Shareholders maybe liable under Argentine law for actions that are determined to be illegal orultra vires.**

** **

UnderArgentine law, a shareholder’s liability for losses of a company is limited tothe value of his or her shareholdings in the company. Under Argentine law,however, shareholders who vote in favor of a resolution that is subsequentlydeclared void by a court as contrary to Argentine law or a company’s bylaws (orregulations, if any) may be held jointly and severally liable for damages tosuch company, to other shareholders or to third parties resulting from suchresolution. In connection with recommending any action for approval byshareholders, the Board of Directors of Telecom Argentina frequently obtainsand intends to obtain in the future, opinions of counsel concerning thecompliance of the actions with Argentine law and Telecom Argentina’s bylaws (orregulations if any). Although the issue is not free from doubt, based on adviceof counsel, Telecom Argentina believes that a court in Argentina in which acase has been properly presented would hold that a non-controlling shareholdervoting in good faith and without a conflict of interest in favor of such aresolution based on the advice of counsel that such resolution is not contraryto Argentine law or the Company’s bylaws or regulations, would not be liableunder this provision.

 

***Risks Associated with Telecom and its Operations***

*** ***

**The Pesificationand freezing of rates may continue to adversely affect Telecom Argentina’srevenues.**

** **

Inaccordance with the Public Emergency Law, in January 2002, rates for Basictelephone services and long distance services were converted to pesos and fixedat an exchange rate of P$1.00=US$1.00. The rates Telecom Argentina may chargein the future will be determined by negotiation between Telecom Argentina andthe Argentine Government. According to the Public Emergency Law, whileundertaking these negotiations, the Argentine Government must consider theeffect of these rates on the competitiveness of the general economy, thequality of service and investment plans of service providers, as contractuallyagreed.  The Argentine government mustalso consider consumer protection, accessibility of the services and theprofitability of public services providers such as Telecom Argentina. ThePublic Emergency Law has been subsequently extended through December 31,2009. See “Item 4—Information on the Company—Regulatory Framework—RegulatoryEnvironment—Rates.”

 

On March 6,2006, Telecom Argentina executed a Letter of Understanding (the “Letter ofUnderstanding 2006”) with the Argentine Government pursuant to which TelecomArgentina will be permitted to raise certain rates and incorporate certainmodifications to the current regulatory framework. Under the Letter ofUnderstanding 2006, rate increases will be restricted to the termination chargefor international incoming calls and the extension of the time bands forpeak-hour tariffs applied to local and domestic long distance calls. See “Item4—Information on the Company—Regulatory Framework—RegulatoryEnvironment—Rates—Letter of Understanding 2006.”

 

TheLetter of Understanding 2006 contemplated the signing and effectiveness of theMinutes of Agreement of the Renegotiation upon the fulfillment of certainnecessary steps. As of the date hereof, such fulfillment has yet to occur.Although we expect such fulfillment and effectiveness to occur, we cannotguarantee if or when this will happen. We are unable to predict the outcome ofthe negotiations that are continuing with regard to further rate increases andthe rate scheme which will be applied in the future. Moreover, we are unable topredict whether the Argentine Government, as a result of the current raterenegotiations, will impose additional conditions or requirements, and if theseconditions or requirements are imposed, whether we will be able to meet them.

 

Raterestrictions may continue for a number of years and may affect revenues fromfixed line and other services. While we intend to continue to strive to controloperating costs and capital expenditures and improve productivity, thoseefforts may not offset, in whole or in part, the decline in operating marginsthat may result from mandatory rate freezing and the increase in costs due tohigh levels of inflation.

 

Additionally,since the end of the year 2005, the Argentine Government has implementedvarious measures to control inflation such as price controls of certain goodsand services.  It is possible thatservices not currently regulated in this manner by the Argentine Government maybe the subject to future price controls or that similar mechanisms affectingour economic and financial situation may be implemented.

 

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**We are leveragedin foreign currency.**

 

As of December 31,2008, our total nominal consolidated bank and financial indebtedness,denominated in dollars, euro, yen and guaraníes amounted to the equivalent ofapproximately US$590 million, including accrued but unpaid interest and relatedderivatives. Our total consolidated peso-denominated debt amounted to P$15million, equivalent to US$4 million. As of December 31, 2008, our totalconsolidated cash and banks and financial investments denominated in dollars,euro, yen and guaraníes amounted to the equivalent of approximately US$244million and our total consolidated peso-denominated cash and banks andfinancial investments amounted to P$282 million, the equivalent of US$82million. Our leverage in foreign currency, in addition to the restrictions onaccess to foreign currency imposed by the BCRA, as described in this RiskFactors section, may affect our ability to service our indebtedness or obtainadditional financing in the future, to withstand competitive pressure andadverse economic conditions or to take advantage of significant businessopportunities that may arise.

 

Inaddition, our subsidiary Telecom Personal is and will continue to be leveragedin foreign currency. As of December 31, 2008, Telecom Personal’sstand-alone outstanding debt was the equivalent of approximately US$226million, which is denominated in U.S. dollars and Paraguayan guaraníes. As of December 31,2008, Telecom Personal’s total cash and banks and current investmentsdenominated in dollars amounted to approximately US$89 million and TelecomPersonal’s total peso-denominated cash and banks and current investmentsamounted to P$242 million, the equivalent of US$70 million.

 

Itshould be noted, however, that the exposure to the risk of devaluation of thepeso has significantly decreased as a result of the mandatory and optionalprepayments on the notes of Telecom Argentina and the strong financialperformance of Personal which has reduced its indebtedness.  See “Item 5—Operating and Financial Reviewand Prospects—Liquidity and Capital Resources—Debt Obligations and Debt ServiceRequirements” and “ Item 11—Quantitative and Qualitative Disclosures AboutMarket Risk.”

 

**We must complywith conditions in our license, and regulations and laws related thereto, andsuch compliance may at times be outside of our control.**

** **

We aresubject to a complex series of laws and regulations with respect to most of thetelecommunications services we provide. Such laws and regulations are oftengoverned by considerations of public policy. We provide telecommunicationsservices pursuant to licenses that are subject to regulation by variousregulatory bodies. Any partial or total revocation of the licenses would belikely to have a material adverse impact on our financial condition and resultsof operations. Our dissolution and the declaration of bankruptcy, among others,are events which may lead to a revocation of our licenses.

 

Certainlicense conditions are not within our control. For example, any transfer ofshares resulting in a direct or indirect loss of control in Telecom Argentinawithout prior approval of the regulatory authorities may result in therevocation of Telecom Argentina’s license. Pursuant to the provisions ofTelecom Argentina’s List of Conditions as amended by Resolutions S.C. No. 111/03and No. 29/04: (i) any reduction of ownership of Nortel in ourcapital stock to less than 51% without prior approval of the Regulatory Bodies;or (ii) any reduction of ownership of currently common shareholders in thecapital stock with voting power of Nortel to less than 51% without priorapproval of the Regulatory Bodies, may result in the revocation of TelecomArgentina’s telecommunications license.

 

Nortelowns all of our Class A Ordinary Shares (51% of our total capital stock)and approximately 8.35% of our Class B Ordinary Shares (3.74% of our totalcapital stock) which, in the aggregate, represents approximately 54.74% of ourtotal capital stock. We are directly controlled by Nortel by virtue of Nortel’sownership of a majority of our capital stock; however, Nortel’s controllinginterest is subject to certain agreements among Sofora’s shareholders. Inaddition, the Telecom Italia Group and W de Argentina—Inversiones (a companythat is part of the Argentine Werthein Group) are each required to maintaindirect ownership of at least 15% of the common stock of Sofora.

 

As ofthe date of this Annual Report, we cannot predict if any measures will be takenby the Regulatory Bodies, the Argentine Antitrust Commission or relevantauthorities, and whether if taken, they will affect our operations or the priceof our shares. 

 

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**We operate in acompetitive environment which may result in a reduction in our market share inthe future.**

 

Wecompete with licensed provider groups, comprised of, among others, independentfixed line service providers, wireless (cellular) and cable operators, as wellas individual licensees, some of which are affiliated with major serviceproviders outside Argentina. As of December 31, 2008, more than 500licenses for local and/or long distance services, payphones and value addedservices had been granted since the end of the exclusivity period.

 

Weexpect that we will face pressure on the rates we charge for services and wecould experience a loss of market share for Voice, Data and Internet servicesas a result of this competition, particularly in the long distance service andInternet businesses. In addition, the market for wireless services is verycompetitive as certain of our competitors have substantial telecommunicationsexperience. The Internet services and wireless telecommunications markets,which we expect will continue to account for an increasing percentage of ourrevenues in the future, are characterized by rapidly changing technology,evolving industry standards, changes in customer preferences and the frequentintroduction of new services and products. To remain competitive in the Voice,Data and Internet services market, we must invest in our fixed-line network andinformation technology in order to maintain and improve service quality,sustain the growth in broadband services and continue developing the NGN.Specifically, in the Internet services market, we must constantly upgrade ouraccess technology and software, embrace emerging transmission technologies andimprove the responsiveness, functionality, coverage and features of ourservices. To remain competitive in the wireless telecommunications market, wemust enhance our wireless networks by expanding our network infrastructure andextending 3G technology and bandwidth for mobile data transmission.  We also aim to facilitate the synergy betweenfixed and mobile communications. In the Wireless segment, we expect to continueto devote resources to customer retention and loyalty and to the replacement ofhandsets due to technological updates. These enhancements and the introductionof new services will demand increased capital expenditures and high subscriberretention costs. We must also adapt to changing market conditions. Future technologicaldevelopments may result in decreased customer demand for certain of ourservices or even render them obsolete. In addition, as new technologiesdevelop, equipment may need to be replaced or upgraded or network facilities(in particular, wireless network facilities) may need to be rebuilt in whole orin part, at substantial cost, to remain competitive. Responding to thesechanges may require us to devote substantial capital to the development,procurement or implementation of new technologies.

 

Wealso anticipate that we will have to devote significant resources to therefurbishment and maintenance of our existing network infrastructure in orderto comply with regulatory obligations regarding fixed line services and toremain competitive with the quality of our services.

 

Themacroeconomic situation in Argentina and certain operating and financialrestrictions under the terms of our indebtedness (including limits on capitalexpenditures by Telecom Argentina) may adversely affect our ability to successfullyinvest in, and implement, new technologies, coverage and services in a timelyfashion. Accordingly, we cannot assure you that we will have the ability tomake needed capital expenditures and operating expenses. If we are unable tomake these capital expenditures, or if our competitors are able to invest intheir businesses to a greater degree than we are, our competitive position willbe adversely impacted.

 

Moreover,the products and services we offer may fail to generate revenues or attract andretain customers. If our competitors present similar or better responsiveness,functionality, services, speed, plans or features, our customer base and ouruser traffic may be materially affected.

 

Competitionis and will continue to be affected by our competitors’ business strategies andalliances. Accordingly, we may face additional pressure on the rates we chargefor our services or experience loss of market share in these areas. Inaddition, the general business and economic climate in Argentina, includingeconomic turbulence and changes in levels of growth, interest rates, inflationrates and the instability of the dollar/peso exchange rate may affect us andour competitors differently, potentially to our relative disadvantage. We alsoexpect that the level of competition in our markets will continue to increasein the future.

 

Inlight of the range of regulatory, business and economic uncertainties we face,as discussed in this “Risk Factors” section, it is difficult for us to predictwith meaningful precision and accuracy our future market share in relevantgeographic areas and customer segments, the speed with which change in ourmarket share or prevailing prices for services may occur or the effects ofcompetition. Those effects could be material and adverse to our overallfinancial condition and results of operations.

 

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**Future allocationsof wireless frequency bands may affect the competitiveness of the Argentinewireless industry and could impact Telecom Personal’s competitive positionwithin it.**

** **

The SC is responsible for the allocation of bands inthe wireless spectrum within promulgated regulations. Telecom Personal cannotguarantee that its requests to participate in the reallocation process relatedto the bands to be released by Telefónica Móviles, S.A. will be granted, orthat the frequency bands will not be reallocated to existing or futurecompetitors of Telecom Personal, negatively affecting Telecom Personal’scompetitive position and ability to offer cellular services to its customers ona competitive basis. See “Item 4—Information on the Company—RegulatoryFramework—Other Regulatory Regulations—Regulations Applicable to PCS Services”for a detailed description of Telecom Personal’s license.

 

**Nortel, as our controllingshareholder, and Sofora as Nortel’s controlling shareholder, exercise controlover significant matters affecting us.**

 

Nortelis our direct controlling shareholder. Sofora owns 100% of the common stock ofNortel, which represents 67.79% of the total capital stock of Nortel. Sofora is50% owned by Telecom Italia Group and 50% owned by W de Argentina—Inversiones. 

 

Throughtheir ownership of Sofora, the Telecom Italia Group and W de Argentina—Inversioneshave, as a general matter, the ability to determine the outcome of any actionrequiring our shareholders’ approval, including the ability to elect a majorityof directors.  In addition, we have beeninformed that pursuant to the shareholders’ agreement entered into between theTelecom Italia Group and the Werthein Group, the Telecom Italia Group and W deArgentina—Inversiones have agreed amongst themselves certain matters relatingto the election of our directors and of Nortel’s and have given W de Argentina—Inversionesveto power with respect to certain matters relating to us.  However, as a result of the legal proceedingsdescribed below under “Our principal shareholders are involved in various legalproceedings which may impact our corporate governance,” the influence of ourprincipal shareholders has been limited pending the outcome of suchproceedings.  See “Item 8— FinancialInformation—Legal Proceedings—Legal Proceedings Relating to Share Ownership.”

 

Wehave engaged in and will continue to engage in transactions with theseshareholders of Nortel and, at the present time, of Sofora, and theiraffiliates. Certain decisions concerning our operations or financial structuremay present conflicts of interest between these shareholders as direct orindirect owners of Telecom Argentina’s capital stock and as parties withinterests in these related party contracts.

 

Nevertheless,any transactions with related parties for an amount of over 1% of the shareholders’equity of Telecom Argentina are put through a prior approval processestablished by Decree No. 677/01 and requiring involvement of the AuditCommittee and/or an opinion of two independent valuation firms as well assubsequent approval by the Board of Directors in order to verify that theagreement could reasonably be considered to be in accordance with normal andhabitual market practice.  See “Item7—Major Shareholders and Related Party Transactions—Related Party Transactions.”

 

**Our principalindirect shareholders are involved in various legal proceedings which mayimpact our corporate governance.**

** **

Ourprincipal indirect shareholders are party to a number of legal proceedingswhich may affect our Board of Directors and matters of corporate governance. Wde Argentina-Inversiones S.L., one of Telecom Argentina’s principal indirectshareholders, has initiated a legal proceeding against another principalindirect shareholder of Telecom Argentina, Telecom Italia S.p.A. and themembers appointed at the request of Telecom Italia S.p.A. to Telecom Argentina’sBoard of Directors, alleging that Telefónica de España’s stake in Telco S.p.A.engenders a conflict of interest, since Telecom Argentina’s main competitor isTelefónica de Argentina S.A. (a subsidiary of Telefónica de España). Argentine antitrustauthorities are currently examining this matter. In connection with theirreview, in April 2009, Argentine antitrust authorities ordered members ofthe Board of Directors of Telecom Argentina appointed at the request of TelecomItalia S.p.A to abstain from exercising — directly or indirectly — their

 

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votingrights until this issue had been resolved. Also, an Argentine courtprovisionally suspended Telecom Argentina’s annual shareholder meeting pendingresolution of an appeal of the voting ban. In May 2009, the ArgentineAntitrust Commission requested, among other things, the reestablishment of thepreviously-dissolved Steering Committee (an internal committee of the Board ofDirectors) and revocation of Telecom Argentina’s decision to merge the roles ofGeneral Directors of Corporate Matters and Operations into one position ofChief Executive Officer.  With regards to this request of theArgentine Antitrust Commission, an Argentine court has ordered TelecomArgentina to abstain from considering Resolution 64/09 and related measures, atthe meeting of the Board of Directors to be held on June 12, 2009.

 

Regulatoryreview and litigation over this matter is ongoing and we cannot predict itsoutcome.  For further detail, see “Item8— Financial Information—Legal Proceedings—Legal Proceedings Relating to ShareOwnership.”

 

**Our ability tooperate our business will be constrained by the indenture governing the notesthat we issued in connection with the APE.**

 

Theindenture governing the notes issued pursuant to Telecom Argentina’s APE and,as modified in 2006, contains certain standard operating and financialrestrictions and covenants that could adversely affect our ability to financeour future operations or capital needs or to engage in certain businessactivities. These agreements limit, and in some cases prohibit, except in certainpermitted situations, our ability to:

 

·                  incur liens;

·                  incur indebtedness;

·                  sell certain types of assets;

·                  enter into sale and leaseback transactions;

·                  engage in transactions with our shareholdersand affiliates;

·                  make capital expenditures not expresslypermitted;

·                  make restricted payments (including loans andinvestments);

·                  impose payment restrictions affectingrestricted subsidiaries;

·                  issue equity interests of Telecom Personalresulting in a loss of control of Telecom Personal;

·                  engage in other lines of business; or

·                  engage in certain mergers.

 

Ourfailure to comply with the covenants and restrictions in our indenture couldaccelerate the repayment of the notes which could have an adverse effect on ourliquidity and our business.

 

In addition,the notes issued pursuant to Telecom Argentina’s APE contain cash sweepprovisions which will require Telecom Argentina to use any “excess cash” asdefined in the notes, to prepay Telecom Argentina’s notes, which will furtherlimit our ability to finance our future operations or capital needs.

 

**Our Series Anotes contain mandatory prepayment terms and permit redemption at the option ofTelecom Argentina.**

 

Theterms of the Series A notes that Telecom Argentina issued pursuant to theAPE include mandatory prepayment terms that may require Telecom Argentina toprepay the principal amortization of the notes before their scheduled paymentdate. As of the date of this Annual Report, Telecom Argentina has cancelled allscheduled amortizations of the Series A notes payable through October 2011and 48.75% of the scheduled principal amortization payments of the Series Anotes due in April 2012.  Therefore,as of the date of this Annual Report, 37.679% of the original principal amountof Series A notes remain outstanding. All principal amortization paymentswere made on a pari passu basis, as required by the notes. In addition tomaking note payments (which are applied to prepay the remaining installments ofthe notes in direct order of maturity) or optional redemptions (which areapplied pro rata 10 at par value), Telecom Argentina may retire the notesthrough purchases of the notes in the secondary market if the notes areavailable for purchase at a price below their par value. Telecom Argentinaprovides no assurance regarding the amount, timing or mechanism for anyprepayment or redemption of the notes.

 

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**Our operations andfinancial condition could be affected by union activity.**

** **

InArgentina, labor organizations have substantial support and have considerablepolitical influence. The demands of our labor organizations have increased as aresult of the general labor dissatisfaction resulting from the disparitybetween the cost of living (which was significantly affected by the increasedlevel of inflation) and salaries in Argentina (although the ArgentineGovernment has attempted to alleviate this economic disparity by increasing theminimum legal wage, imposing salary amounts which will initially be treated asnon remunerative and setting target annual wage increases). Certain claimsinitiated in 2005 by labor organizations with respect to fixed line servicesled to negotiations that resulted in the improvement of salary levels and areduction of working hours. See “Item 8—Financial Information—LegalProceedings—Civil, tax, commercial, labor and regulatory proceedings—OtherLabor Claims.” Moreover, certain labor organizations have advocated thatcertain of our non-unionized employees should be represented by trade unions.Union organizations could also request that we delegate currently outsourcedtasks to Company employees.  Furthermore,if the number of employees covered by trade unions increases, we may incurincreased costs for the higher compensation that we and our contractors mayneed to pay to unionized employees.

 

Inthis context, we reached several agreements with various labor organizationsrepresenting in particular our fixed-line telephony employees. Please see “Item8—Financial Information—Legal Proceedings—Civil, tax, commercial, labor andregulatory proceedings.”

 

**The ArgentineGovernment may order salary increases to be paid to employees in the privatesector or changes in labor regulations, which would increase our cost of doingbusiness.**

** **

TheArgentine Government has in the past and may in the future promulgate laws,regulations and decrees requiring companies in the private sector to maintainminimum wage levels and provide specified benefits to employees (includinghigher levels of severance payments to former employees dismissed withoutproper cause). In the aftermath of the 2002 Argentine economic crisis, both theGovernment and private sector companies have experienced significant pressurefrom employees and labor organizations relating to wage levels and employeebenefits. However, since early 2005, the Argentine Government has decided notto order new salary increases by decree. We cannot guarantee that theGovernment will not again adopt measures that will increase salaries or requireus to provide additional benefits, which would increase our costs and, amongother things, in the absence of an adjustment of regulated tariffs, reduce ourprofitability.

 

Moreover,the Argentine Congress has discussed certain modifications to labor regulationsthat, if approved, could materially impact our relationship with our employeesby increasing the labor cost and decreasing the flexibility to provide servicesto our clients.

 

**We are involved invarious legal proceedings which could result in unfavorable decisions andfinancial penalties for us.**

** **

We areparty to a number of legal proceedings, some of which have been pending forseveral years. We cannot be certain that these claims will be resolved in ourfavor, and responding to the demands of litigation may divert management time,attention, and financial resources.

 

Inaddition, in recent years, certain changes in the treatment of employmentmatters under Argentine law have created new incentives for individuals topursue employment-related litigation in Argentine courts. These changes includeholdings that an employee of a subcontractor may file a direct action againstthe firm contracting the work, that any cap on severance pay in cases ofdismissal without cause is unconstitutional, that an employee may bring a civilaction in the event of an occupational accident, and the passage of anamendment to the Employment Contract Act to restrict an employer’s ability tochange the form and conditions of work expected of an employee. As a result ofthese changes, there may be a heightened risk of employment-related litigation.See “Item 8—Financial Information—Legal Proceedings—Civil, tax, commercial,labor and regulatory proceedings.”

 

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**We may be subject to measures by the ArgentineGovernment that may modify or impose obligations to provide telecommunicationsservices without or with reduced compensation which may result in losses.**

** **

Certain regulatory measures that are still pendingimplementation, including regulations governing the unbundling of the localaccess (commonly known as local loop) and number portability, could have theeffect of increasing competition for the services we offer and increasingcapital expenditures. Moreover, the Government could modify some of the currentregulations, without granting the Company corresponding compensation forchanges in service requirements, could change its interpretation of existingregulations or introduce new obligations such as, among others, those relatingto Universal Service regulation (See “Item 4—Information on theCompany—Regulatory Framework—Regulatory Environment—Decree No. 764/00”),those relating to the provision of new customer services and those resultingfrom the 2000 and 2001 Price Cap SC reviews still pending. Any such changescould have a material impact on our operations. However, these potentialobligations may be offset by measures in Telecom Argentina’s favor, such asthose contemplated in Resolution 41/07 (See “Item 4—Information on theCompany—Regulatory Framework—Regulatory Environment—Rate Regulation—TaxStability: Social Security Contribution Variations”).

 

**The enforcement of regulations aimed at protectingconsumers might have an adverse effect on us.**

** **

The Consumer Protection Act No. 24,240, asamended and/or supplemented (the “Consumer Protection Act”) establishes aseries of principles and rules for the protection of consumers and users.The Consumer Protection Act applies to the telecommunications industry and toany other industry in which consumers and users are involved.

 

On March 12, 2008, the Argentine Congress passedthe legislative bill to reform the Consumer Protection Act, which waspromulgated by the Executive Branch in Decree No. 565/2008 dated April 3,2008, and published in the Official Bulletin on April 7, 2008.

 

This reform substantially amends various aspects ofthe Consumer Protection Act, the most important of which are: (i) theextension of the definition of a consumer; (ii) an increase in the finesthat could be imposed to providers and the possibility that relevantadministrative authorities may order providers to pay direct damages up to amaximum amount; (iii) the courts may order providers to pay punitivedamages to consumers up to a maximum amount of P$5 million, depending on theseriousness of the breach, among other circumstances; and (iv) provisionsgoverning the possibility that consumer associations commence class actions inrepresentation of the rights of an indeterminate group of consumers.

 

These amendments may increase the number of legalactions commenced against various companies that provide goods and services toindividual users or consumers. This possibility might entail risks for TelecomArgentina and Personal concerning, among others, the prices charged for itsservices, or the obligation to return amounts charged for its services. If suchwere the case, any of such consequences could have an adverse effect on ourfinancial situation and on the results of our operations.

 

**The BCRA has imposed restrictions on the transfer offunds outside of Argentina in the past; some restrictions currently exist andmay increase in the future, which could prevent us from making payments on our dividends,debt and trade liabilities.**

** **

In the past, the Argentine Government has imposed anumber of monetary and currency exchange control measures, includingrestrictions on the free disposition of funds deposited with banks andrestrictions or limitations on the access to foreign exchange markets andtransfer of funds abroad, including for purposes of paying principal andinterest on debt, trade liabilities to foreign suppliers and dividend paymentsto foreign shareholders. Although most significant restrictions or limitationshave been eliminated, certain restrictions imposed by the BCRA on the access toforeign exchange markets and transfer of funds continue to apply to us and mayin the future limit our ability to make payments on our debt to creditors andtrade liabilities outside of Argentina. There can be no assurance that the BCRAwill not increase restrictions for making payments of principal, interestand/or trade liabilities to our foreign creditors, dividend payments to foreignshareholders or require its prior authorization for such purposes, which wouldlimit our ability to service our debt and/or comply with payments related totrade contracts with foreign suppliers. Limitations on the early repayment ofour debt increase our exposure to foreign exchange risks. See “Item10—Additional Information—Foreign Investment and Exchange Controls inArgentina.”

 

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**There is no assurance that the market for oursecurities will provide proper levels of liquidity.**

** **

The future liquidity position of our securities,including Telecom Argentina’s Series A notes, is uncertain. The liquidityof our securities will depend on numerous factors, many of which are outside ofour control. The liquidity of our securities could be adversely affected bychanges in market conditions and interest rates, both in Argentina and theglobal economy, as well as by any change in our financial condition and resultsof operations.

 

In particular, the liquidity of Telecom Argentina’s Series Anotes could be reduced by prepayments and repurchases carried out in accordancewith the terms of the notes.

 

**Fluctuations in Telecom Argentina’s share price dependon various factors, some of which are outside of our control.**

** **

The market price of our shares is subject to changedue to various factors which are outside of our control such as changes inmarket expectations, changes in the economic and political situation ofArgentina, changes in measures used by investors or analysts to value our stockor market trends unrelated to our performance and operations. We cannot predictwhen such external factors will affect our stock price or whether their effectswill be positive or negative.

 

In addition, future conversions of Telecom Argentina’sClass C Shares could affect the trading price of Telecom Argentina’sshares if a large number of converted shares are sold in the public marketswithin a short time period. See “Item 6—Directors, Senior Management andEmployees—Share Ownership—Share Ownership Plan.”

 

Finally, currency fluctuations could impact the valueof an investment in Telecom Argentina. Although Telecom Argentina’s ADSs listedon the New York Stock Exchange are U.S. dollar denominated securities, they donot eliminate the currency risk associated with an investment in an Argentinecompany.

 

**Our consolidated financial statement under ArgentineGAAP may not give you the same information as financial statements preparedunder US GAAP.**

** **

There is a lower level of regulation of the Argentinesecurities markets and of the activities of investors in these markets ascompared with the securities markets in the United States and certain otherdeveloped countries. We maintain our financial books and records and prepareour financial statements in conformity with Argentine GAAP, which differs incertain significant aspects from US GAAP. In this regard, we have included a description of the principaldifferences between Argentine GAAP and US GAAP as they relate to us in Note 15to the Consolidated Financial Statements.

 

**ITEM 4.          INFORMATION ON THE COMPANY**

** **

**INTRODUCTION**

** **

**The Company**

** **

Telecom is one of the largest private-sectorcorporations in Argentina in terms of revenues. Telecom Argentina  has a non-expiring license (the “License”) toprovide fixed-line telecommunications services in Argentina. We also provideother telephone-related services such as international long-distance service,data transmission, IT solutions outsourcing and Internet services, and throughour subsidiaries, wireless telecommunications services and internationalwholesale services.

 

As of December 31, 2008, our telephone systemincluded approximately 4.3 million lines in service. This is equivalent toapproximately 22 lines in service per 100 inhabitants in the Northern Region ofArgentina and 384 lines in service per employee.

 

As of December 31, 2008, our Internet businesshas approximately 1.1 million customers and our Wireless reportable segment hasapproximately 12.6 million customers in Argentina and approximately 1.8 millioncustomers in Paraguay.

 

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***Business Strategy***

*** ***

Our goal is to be a leading provider of integratedcommunications, providing a wide variety of fixed and mobile telecommunicationservices, mainly in the territory of Argentina. Our purpose is to be a leaderin operational excellence, in the provision of innovative services and incustomer satisfaction.

 

We believe that the main drivers of growth willcontinue to be our broadband business and mobile service offerings, enabled byhigher access speeds and the incorporation of new attractive and innovativealternatives that our competitors will find hard to imitate.

 

Telecommunication services in Argentina have shownhigh growth rates in recent years, particularly in the mobile and broadbandfixed access segments. However, as is usual in developed markets, they havealready reached the point of saturation or are close to saturation, resultingin tighter competition, increased costs for operators, and declining prices inreal terms. The use of high-technology exacerbates this situation even more byfacilitating the entry of new players, the so-called technology competitors,which, with low and highly focused investments, fuel competitive pressure andreduce the industry’s profitability.

 

Our industry is evolving towards an ICT (Information &Communication Technology) paradigm, where the boundaries betweentelecommunication businesses, information technology and mass mediaincreasingly fade, which translates into another significant challenge for all marketparticipants.

 

Customers, for their part, are starting to place valueon the increasing levels of empowerment, personalization and interactivity intelecommunication services. Increasingly, the services for which consumers arewilling to pay a premium are value-added, and the price of connectivity —eitherfixed or mobile- no longer represents a determining factor in the purchasedecision.

 

In this context, the convergence of servicesconstitutes a key opportunity to achieve market positioning by keeping abreastof emerging demands and counteracting the erosion of traditional revenuestreams. Conceptually, the convergence of services comprises differentimplementation stages ranging from commercial branding to integration oftechnological platforms and customer care.

 

The Telecom Group has made great progress in thisdirection, introducing changes to its organization and processes that seek toimprove business synergies. To this end, we are implementing a coordinatedroadmap of our networks and systems, which allow us to launch several offeringpackages, including broadband access and local calls; innovative wirelessdigital handsets; SMS services compatible with the fixed and mobile networks;fixed video-telephony; and, more recently, the combination of ADSL technologywith Wi-Fi connectivity at homes, and access to mobile Internet through theThird Generation (“3G”) Mobile Broadband Technology network  of Telecom Personal.

 

Some of the key components of our strategy include:

 

·                  Strengthen the actions aimed atenhancing our performance as an integrated fixed/mobile operator;

 

·                  Retain customers and traffic on fixednetworks through offering packages for residential and business customers andincrease ARPU on traditional products, maximizing the profitability of maturebusinesses;

 

·                  Continue the migration of ourtraditional telephone infrastructure to the NGN, which as of December 31,2008 reached 590,000 lines of new technology;

 

·                  Increase the penetration anddeployment of broadband, the adoption of which should be a catalyst that willspeed up fixed/mobile service convergence and the offering of combined ValueAdded Services (VAS);

 

·                  Continue the deployment of fiberoptics, to improve transmission capacity and access speed for our customers;

 

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·                  Expand coverage with our mobileservice based on a differentiated strategy per region, and continue with thedeployment of 3G technology. In 2008, the migration of mobile TDMA customers toGSM network was completed;

 

·                  Explore new technologies, such as IMS(IP Multimedia Subsystem), Wimax (Worldwide Interoperability for MicrowaveAccess), Home Networking (which allows multiple computers to share files,printers and Internet connection) and fixed and mobile interactive multimediaservices. To this end, Telecom has been developing a pilot test of newmultimedia services so as to be prepared to offer such advanced services whenand as permitted by the Regulatory Bodies.

 

·                  Develop a broad range of services inthe Information and Communication Technology (ICT) market aimed at satisfyingbusiness costumers’ needs. In order to increase our positioning in this market,in July 2008 Telecom acquired the entire capital of Cubecorp, an Argentinecompany specialized in offering data center solutions.

 

We understand that success will largely depend on ourflexibility and ability to quickly adapt to the requirements of a rapidlychanging market, which demands a technological evolution to continue deliveringthe kind of leading-edge services that are provided in more developedcountries.

 

***OrganizationalStructure***

*** ***

The following chart shows our principal subsidiariesand affiliated companies as of December 31, 2008, and jurisdiction of organization.

 

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| (*)    | Dormant entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (**)   | Cubecorp’s activities  are being carried out by Telecom Argentina since January 1, 2009 due to  a merger process between both companies. The merger was approved by  Cubecorp’s shareholders’ meeting on March 19, 2009 and it is still  pending approval by Telecom Argentina’s shareholders’ meeting, which was  provisionally suspended. (See “Item 8—Financial Information—Legal  Proceedings—Legal Proceedings Relating to Share Ownership.”) |

 

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***ConsolidatedSubsidiary Information***

*** ***

The following table presents information relating toour consolidated subsidiaries for the fiscal year ended as of December 31,2008:

 
| **Subsidiary (1)**                | ** ** | **Activity**               | ** ** | **Reportable  Segment**  | ** ** | **Percent   Ownership** | ** ** | **Percentage of  Telecom’s  Total  Consolidated  Net Sales** | ** ** |
|-----------------------------------|------------|----------------------------|------------|--------------------------|------------|-------------------------|------------|-------------------------------------------------------------------|------------|
| Telecom Personal S.A.             |       | Wireless Services          |       | Wireless                 |       | 99.99                   |       | 61.9                                                              |       |
| Núcleo S.A. (2)              |       | Wireless Services          |       | Wireless                 |       | 67.50                   |       | 3.7                                                               |       |
| Cubecorp Argentina S.A.  (3)      |       | Datacenter Services        |       | Voice, Data and Internet |       | 100.00                  |       | 0.1                                                               |       |
| Telecom Argentina  USA, Inc. |       | International Service      |       | Voice, Data and Internet |       | 100.00                  |       | 0.4                                                               |       |
| Micro Sistemas S.A. (4)           |       | Electronic Equipment Sales |       | Voice, Data and Internet |       | 99.99                   |       | —                                                            |       |
| **Total**                         |       |                       |       |                     |       |                    | ** ** | **66.1**                                                          | ** ** |

 

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(1)   Allincorporated in Argentina, except for Núcleo S.A. (Paraguay) and TelecomArgentina USA, Inc. (USA).

         

(2)   Interestheld indirectly through Telecom Personal.

         

(3)**  **Entity acquired during 2008 andsubsequently merged with Telecom Argentina since January 1, 2009. See Note12 to our Consolidated Financial Statements.

         

(4)   Dormant subsidiary as of December 31,2008.

 

Our principal executive offices are located at AliciaMoreau de Justo 50, C1107AAB, Buenos Aires, Argentina, telephone number:54-11-4968-4000.

 

Our authorized agent in the United States for SECreporting purposes is Puglisi & Associates, 850 Library Avenue, Suite 204,P.O. Box 885, Newark, Delaware, 19715.

 

**Recent Developments**

 

*Telecom Personal and Núcleo Dividend Payments*

 

In April and June 2009, Telecom Personalpaid its shareholders (Telecom Argentina and Nortel) P$730 million,corresponding to the cash dividend approved at Telecom Personal’s AnnualShareholders Meeting held on March 31, 2009.

 

In April 2009, Núcleo paid its shareholders adividend in guaraníes equivalent to P$36 million, as approved at Núcleo’sAnnual Shareholders Meeting held on March 25, 2009. Telecom Personalreceived P$24 million of this distribution.

 

*Acquisition of Springville S.A.*

 

In April 2009, Telecom Personal acquired theshares of Springville S.A., for an amount of Uruguayan pesos 237,180,equivalent to US$9,892.  Springville S.A.is a Uruguayan company that, since its formation, has not carried out any operations.  It was acquired by Telecom Personal for thepurposes of rendering resale services relating to mobile telephony in Uruguay.

 

*Legal Proceedings Relating to Share Ownership*

 

Nortel and Telecom Argentina’s principal indirectshareholders are party to a number of legal proceedings which may affect theirBoards of Directors and matters of corporate governance.  In 2009, the Argentine Antitrust Commissionhas issued various resolutions regarding this matter. See “Item 8—FinancialInformation—Legal Proceedings—Legal Proceedings Relating to Share Ownership.”

 

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**History**

** **

Telecom Argentina was created by Decree No. 60 ofthe executive branch dated January 5, 1990 and incorporated as “SociedadLicenciataria Norte S.A.” on April 23, 1990. In November 1990, itslegal name was changed to “Telecom Argentina STET-France Telecom S.A.” and on February 18,2004, it was changed to “Telecom Argentina S.A.”

 

Telecom Argentina is organized as a *sociedad anónima* under Argentine law. The duration ofTelecom Argentina is 99 years from the date of registration with the BuenosAires Public Registry of Commerce (July 13, 1990). Telecom Argentinaconducts business under the commercial name “Telecom.”

 

Telecom Argentina commenced operations on November 8,1990 (the “Transfer Date”), upon the transfer from the Argentine Government ofthe telecommunications system in the Northern Region previously owned andoperated by Empresa Nacional de Telecomunicaciones (“ENTel”). This transfer wasmade pursuant to the Argentine Government’s privatization program as set forthin the State Reform Law approved in August 1989 and subsequent decrees(the “Privatization Regulations”) which specified the privatization procedurefor ENTel.

 

The Privatization Regulations provided for:

 

·                  the division of the Argentinetelecommunications network operated by ENTel into two regions, the NorthernRegion and the southern region of Argentina (the “Southern Region”);

 

·                  the granting to Telecom Argentina andTelefónica of non-expiring licenses to provide basic telecommunication servicesin the Northern Region and Southern Region, respectively;

 

·                  the granting to Telintar and Startel, eachjoint subsidiaries of Telecom Argentina and Telefónica, of non-expiringlicenses to provide international long-distance and data transmission,respectively; and

 

·                  the transfer by ENTel of substantially all ofits assets and certain contracts into Telecom Argentina, Telefónica, Telintarand Startel.

 

On the Transfer Date, pursuant to the terms andconditions of a transfer contract (the “Transfer Agreement”), the ArgentineGovernment sold 60% of the common stock to Nortel, a holding company formed bya consortium of investors including Telecom Italia among others.  Nortel’s common stock was subsequentlytransferred to an Argentine company named Sofora.  As of December 31, 2008, Sofora was held50% by the Telecom Italia Group, 48% by W de Argentina—Inversiones, a holdingcompany incorporated in the Kingdom of Spain, and a company of the WertheinGroup, and 2% by France Telecom Group. See “Item 7—Major Shareholders andRelated Party Transactions—Major Shareholders.”

 

Pursuant to the Privatization Regulations, 10% ofTelecom Argentina’s common stock was transferred to a Share Ownership Plan forcertain ex employees of ENTel and CAT by the Argentine Government, and theremaining 30% of Telecom Argentina’s common stock was sold to investors,principally in Argentina, the United States and Europe, in an offeringcompleted in March 1992. A portion of the shares in the Share OwnershipPlan has been sold in the public market, and the remaining shares in the ShareOwnership Plan are expected to be gradually sold in the public market.  See “Item 6—Directors, Senior Management andEmployees—Share Ownership—Share Ownership Plan.”

 

On the Transfer Date, Telecom Argentina entered into amanagement agreement (the “Management Agreement”) with Telecom Italia and FCR,a subsidiary of France Telecom S.A. (jointly, the “Operators”). Since December 2003the Telecom Italia Group has been the sole operator of Telecom Argentina.

 

Through September 30, 1999, Telecom Argentinaprovided domestic and international communication services in the NorthernRegion on an exclusive basis. Commencing in October 1999, the ArgentineGovernment implemented a deregulation plan introducing competition into theBasic telephone service market. See “Regulatory Framework—Liberalization of theArgentine Telecommunications Industry.” The Argentine telecommunications marketwas opened to full competition beginning in November 2000. As a result,Telecom Argentina now offers services throughout Argentina and competes withTelefónica and with a number of additional operators throughout its markets.

 

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**THEBUSINESS**

** **

**General**

** **

As of the date of this Annual Report, we conduct ourbusiness through six legal entities which represent five operating segments. Weaggregate these operating segments into two reportable segments —Voice, Dataand Internet and Wireless- following the nature of the products and servicesprovided.

 

The companies we aggregated to create the reportablesegments are as follows:

 
| **Reportable segment**   | ** ** | **Consolidated Company/Operating   Segment** |
|--------------------------|------------|----------------------------------------------|
| Voice, Data and Internet |       | Telecom Argentina                            |
|                     |       | Telecom Argentina USA, Inc.             |
|                     |       | Cubecorp Argentina S.A. (i)                  |
|                     |       | Micro Sistemas S.A. (ii)                     |
|                     |       |                                         |
| Wireless                 |       | Telecom Personal                             |
|                     |       | Núcleo                                  |

 

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| (i)    | Cubecorp’s activities are being carried out by Telecom Argentina since  January 1, 2009 due to a merger process between both companies. The  merger was approved by Cubecorp’s shareholders’ meeting on March 19,  2009 and it is still pending approval by Telecom Argentina’s shareholders’  meeting, which was provisionally suspended. (See “Item 8—Financial  Information—Legal Proceedings—Legal Proceedings Relating to Share  Ownership.”) |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (ii)   | Dormant  entity at December 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

***Voice, Data and Internet***.Telecom Argentina owns a local telephone line network, public long-distancetelephone transmission facilities and a data transmission network in theNorthern Region. Telecom Argentina also owns a network in the Southern Region.Voice, Data and Internet services are comprised of the following:

 

·                  *Basic telephone services.*TelecomArgentina provides Basic telephone services, including local and domesticlong-distance telephone services and public telephone services. As of December 31,2008, Telecom Argentina had approximately 4.30 million lines in service;

 

·                  *Internationallong-distance services.*Telecom Argentina provides internationaltelecommunications service in Argentina including voice and data services andinternational point-to-point leased circuits;

 

·                  *Data transmission andInternet services.*Telecom Argentina provides data transmission andInternet connectivity services, including traditional dial-up and broadbandconnections, ADSL dedicated lines, private networks, national and internationalbroadcasting signal transport and videoconferencing services. As of December 31,2008, Telecom Argentina had approximately 1.1 million subscribers to ourInternet service;

 

·                  *Information andCommunication Technology Services.*The Telecom Group provides ICTservices and value-added solutions; and

 

·                  *Other Basic telephoneservices.*Other services provided by Telecom Argentina includesupplementary services such as call waiting, call forwarding, conference calls,caller ID, voice mail, video calls and itemized billing, and telecommunicationsconsulting and telecommunications equipment and maintenance services.

 

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***Wireless Telecommunication***.We provide wireless services through our subsidiaries in Argentina andParaguay. Our subsidiary Telecom Personal provides wireless telephone servicethroughout Argentina via cellular and PCS networks. Telecom Personal’s serviceofferings include supplementary wireless Value Added Services. We also providecellular and PCS services in Paraguay through Núcleo, a subsidiary of TelecomPersonal. As of December 31, 2008, Telecom Personal had approximately 12.6million wireless subscribers in Argentina and approximately 1.8 million inParaguay.

 

See Note 13 to our Consolidated Financial Statementsand: “Item 5—Operating and Financial Review and Prospects—Years ended December 31,2008, 2007 and 2006—Results of Operations by Reportable Segment” for additionalinformation as to our results of operations by reportable segment.

 

**Voice, Data and Internet**

** **

Telecom Argentina is the principal provider of Basictelephone services in the Northern Region, and since late 1999 has alsoprovided Basic telephone services in the Southern Region.

 

Since October 2000, the telecommunications sectorin Argentina is completely open to competition. Our operations are subject to acomplex series of laws and regulations of the Argentine Government. Inaddition, we are subject to the supervision of the Regulatory Bodies. See “RegulatoryFramework—Rate Regulations” below.

 

The Argentine Government has taken certain measuresthat have affected revenues from the services we provide. By the enactment ofthe Public Emergency Law since January 6, 2002, the rates charged byTelecom Argentina for fixed line services such as measured service, publictelephone service, national and international long-distance and monthly basiccharges and installation charges have been pesified (regulated services sincethe Transfer Day). We cannot predict when the Public Emergency Law will ceaseto be effective or how these or other government regulations may affect ourfuture revenues. See “Regulatory Framework—Rate Regulations” below and “Item5—Operating and Financial Review and Prospects—Economic and PoliticalDevelopments in Argentina.”

 

*TelecomArgentina’s Telephone Network*

* *

Telecom Argentina’s fixed-line telephone networkincludes installed telephones and switchboards, a network of access linesconnecting customers to exchanges and trunk lines connecting exchanges andlong-distance transmission equipment. The following table illustrates thedeployment of Telecom Argentina’s telephone network:

 
| ** **                               | ** ** | **December 31,  2008** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Number of installed  lines(1)            |       | 4,442,629                   |       | 4,238,542                   |       | 3,896,637                   |       | 3,828,147                   |       | 3,803,006                   |       |
| Net lines installed (during  each year)  |       | 204,087                     |       | 341,905                     |       | 68,490                      |       | 25,141                      |       | 2,921                       |       |
| Net lines installed  cumulative(2)       |       | 2,871,665                   |       | 2,667,578                   |       | 2,325,673                   |       | 2,257,183                   |       | 2,232,042                   |       |
| Number of lines in  service(3)           |       | 4,298,820                   |       | 4,207,744                   |       | 4,094,653                   |       | 3,949,911                   |       | 3,790,298                   |       |
| Net lines in service added  for the year |       | 91,076                      |       | 113,091                     |       | 144,742                     |       | 159,613                     |       | 134,439                     |       |
| Net lines in service added  cumulative   |       | 2,896,851                   |       | 2,805,775                   |       | 2,692,684                   |       | 2,547,942                   |       | 2,388,329                   |       |
| Lines in service per 100  inhabitants(4) |       | 22                          |       | 22                          |       | 21                          |       | 21                          |       | 20                          |       |
| Pending applications(5)                  |       | 67,400                      |       | 65,700                      |       | 60,800                      |       | 52,000                      |       | 44,800                      |       |
| Public phones installed                  |       | 58,375                      |       | 70,550                      |       | 81,568                      |       | 82,771                      |       | 83,847                      |       |

 

----

| (1)    | Reflects total number of lines available in Switches. Since the year  2006, also includes NGN lines.                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                     |
| (2)    | Cumulative net lines installed since the Transfer Day.                                                                                   |
|   |                                                                                                                                     |
| (3)    | Reflects number of lines capable of generating traffic. Includes  direct inward dialing lines, which do not use installed line capacity. |
|   |                                                                                                                                     |
| (4)    | Corresponds to the Northern Region of Argentina.                                                                                         |
|   |                                                                                                                                     |
| (5)    | Corresponds  to lines requested by clients, but not yet installed.                                                                       |

 

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***Revenues***

*** ***

Voice, Data and Internet Services include, among othercharges, monthly basic charges, measured service charges, installation charges,public telephone services and interconnection services related to “essentialfacilities.” The rates for these charges are regulated by rules governingour license, which establish “maximum prices” that can be charged to clients.Telecom Argentina is able to charge prices below the maximum regulated pricesas long as the discount is applied equally to clients who share the samecharacteristics (under the so called principle of “non-discrimination”). Inaccordance with this ability, Telecom Argentina charges lower prices than themaximum regulated prices for many of the services offered.

 

The remaining services included in the Voice, Data andInternet reportable segment are not subject to regulation and, as a result,Telecom Argentina is able to set the corresponding rates.

 

*a)    Retail —Residential and Business customers*

 

*Monthly Basic Charges*. TelecomArgentina bills a monthly basic charge to its customers. The charge is based onpulses, valued at the price per pulse prevailing during the periods included inthe invoice.  The number of pulses variesdepending on the type of customer. As of December 31, 2008, approximately78% of lines in service were for residential customers and public telephony andapproximately 22% were for professional, commercial and government customers.Additionally, due to the regulatory regime, Telecom Argentina is obliged tooffer discounts to low consumption residential and retired customers.

 

*Measured Service Charges*. Inaddition to a monthly basic charge, Telecom Argentina bills a monthly measuredservice charge from almost all of its customers which is based on telephoneusage. Measured service is billed at the price per minute at the time the callis made. Charges for local and domestic long-distance measured service varywith the price per unit of usage. The number of units of usage depends on thetime of day, the day of the week, the distance traveled and the duration ofcalls. During the summer months (December through March) there isdecreased consumption due to the fact that many customers are on vacation.Additionally, due to competition, Telecom Argentina offers discounts tocustomers mainly for domestic long-distance service, as semi-flat rate plansthat include a set quantity of minutes for a fixed charge.

 

Local minutes were approximately 13.0 billion in 2008,13.6 billion in 2007 and 13.8 billion in 2006. During the past three years,despite increased economic activity in Argentina and the growth in our fixedline customer base, the volume of local minutes has decreased slightly due tothe strong growth in wireless telephony and the resulting migration of trafficto wireless service. During 2008, we launched targeted and selective offerplans in urban areas with the objective of offsetting this trend and promotingcustomer loyalty in our fixed line customer base.

 

Domestic long-distance minutes have remained stable at3.0 billion since 2006.  Since theNorthern Region was opened to competition in 1997, Telecom Argentina has maintainedits position as the market leader for domestic long-distance traffic in theregion.

 

In the years ended December 31, 2008 and 2007,approximately 78% of measured service revenue was generated by residential andprofessional customers, and approximately 22% was generated by business andgovernment customers.

 

*International Long-Distance Service*.International long-distance traffic minutes increased to 157 million in 2008from 142 million in 2007 and 128 million in 2006. Despite competition and theintroduction of VoIP (Voice Over Internet Protocol), traffic volumes show apositive trend due to promotions targeted to the sector and an increase incommercial activity with foreign countries requiring increased internationalcall volumes.

 

Since 1992, international tariffs have been reducedannually as a consequence of the application of the Price Cap described in “RegulatoryFramework—Rate Regulations—Price Cap.” Telecom Argentina also has reducedinternational long-distance rates in order to compete with the new providers oflong-distance calling services.

 

Although Telecom Argentina still retains an importantmarket share of international long-distance traffic in the Northern Region,over the past several years, there has been a gradual and constant decrease inTelecom Argentina’s market share in that region due to strong growth in prepaidcards and the adoption of VoIP technology at competitive rates. However,Telecom Argentina continued to be the market leader for internationallong-distance in the Northern region in the last year.

 

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*Installation Charges*. Revenuesfrom installation charges consist primarily of fees levied for installation ofnew phone lines. Telecom Argentina offers discounts in multiple localities toreduce the rate authorized by the government, with the aim of stimulatingdemand in those areas. The penetration of fixed-line telephony has continued todemonstrate a slow growth in Argentina, whereas it is decreasing in variousother parts of the world.

 

*Public Telephone Services*. As of December 31,2008, there were 58,375 public lines installed of which 6,032 are in theSouthern Region. Local and domestic long-distance traffic saw a systematicreduction as a result of the strong development of the cellular telephoneindustry in Argentina. As a result, public-telephony local traffic for the year2008 fell to 394 million minutes compared to 556 million minutes for the year2007 and 702 million minutes for the year 2006. Domestic long-distancepublic-telephony traffic over the same period was 182 million minutes, 243million minutes and 306 million minutes for 2008, 2007 and 2006, respectively.In contrast, international long-distance public-telephony traffic hasexperienced consistent increases reaching 69 million minutes during the year2008, from 64 million minutes in the year 2007 and 52 million minutes in theyear 2006 due to several promotions used to generate increased demand.

 

*Other National Telephone Services.*TelecomArgentina provides dedicated lines to businesses. Dedicated lines are dedicatedpoint-to-point leased lines. In addition to installation fees, TelecomArgentina receives revenues from dedicated analog urban/interurban lines.  These revenues are calculated according to theprice for long distance codes of urban/interurban calls.

 

Additionally, other national telephone servicesinclude charges for supplementary services (such as call waiting, callforwarding, conference calls, caller ID, voicemail and itemized billing).

 

*New Voice Products and Services.*Throughout2008, Telecom Argentina introduced new products and services in the market, inresponse to customer needs and in line with its goal to increase ARPU in itsaccess lines. The new products and services include the new line of “Aladino”handsets and the offering of value-added packages for voice.  Additionally, Telecom Argentina continuedproviding customers with innovative services such as SMS from fixed telephoneand video-call phones. The number of customers subscribing to these value-addedpackages significantly increased as compared to the previous year.

 

*Data Transmission Services*. Thedata services business includes nationwide data transmission services, virtualprivate networks, symmetric Internet access, national and internationalbroadcasting signal transport and videoconferencing services. These servicesare provided mainly to corporations and governmental agencies. TelecomArgentina also provides certain Value Added Services, including electronicstandard documents telecommunication software exchange and fax storage anddelivery service. The data services business also includes the lease ofnetworks to other providers, telecommunications consulting services, operationand maintenance of telecommunications systems, supply of telecommunicationsequipment and provision of related services. Corporate data transmissionservices are provided mainly through frame relay and ATM networks. In 2007,Telecom Argentina developed an IP Virtual Private Network and began themigration of lines connected to the ATM networks to the IP Virtual PrivateNetwork. Telecom Argentina has a non-expiring license to provide theaforementioned services.

 

In response to market needs, a new division, TelecomLarge Accounts Department, was created to serve as the integrated provider ofconvergence and ICT solutions. The new strategy is supported by the datacenter, a key component in this process, as well as by the creation of theDelivery Management Data Center and Value Added Services Support center. As aresult of these efforts, we provide convergence solutions in which traditionalvoice and data services are bundled with Internet access, web, multimedia, ICTand Data Center services.

 

In 2008, Telecom Argentina acquired Cubecorp ArgentinaS.A. Cubecorp owns a 5,500 square-meter Data Center and has a significantclient portfolio which will allow Telecom to further leverage its platform byselling ICT services and value-added solutions.

 

We have developed many successful partnerships withglobal IT leaders, allowing us to provide high-quality solutions. For example,we act as Positron’s exclusive representative in Argentina for the provision of911 services.

 

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*Internet*.Telecom Argentina introduced residential Internet service under the brand nameArnet in 1998 and has been providing Internet-related services directly to itscustomers since November 2001. Telecom Argentina mainly offers thisservice in the major cities of Argentina. In recent years, Telecom Argentina’sInternet service has experienced higher demand and usage in less populatedareas of the country. The Internet services include Dial-Up and broadband ADSL.

 

Duringthe past several years, Internet service has experienced a significanttechnological change as a result of the introduction of ADSL. We have seen aconstant decrease in Dial-Up access that has been more than offset by increasedADSL access. This change is illustrated in the following table:

 
| ** ** | ** ** | **December 31,** | ** ** |
|------------|------------|-----------------------|------------|
| ** ** | ** ** | **2008**              | ** ** | **2007** | ** ** | **2006** | ** ** |
| ADSL (1)   |       | 1,042,000             |       | 783,000 |   | 457,000 |   |
| Dial-Up    |       | 65,000                |       | 76,000 |   | 88,000 |   |

 

----

(1)          Includes ADSL access in the Northern Region and ADSL clients in theSouthern Region

 

Theincrease in number shown in the table above are the result of Dial-Up customersmigrating to ADSL service over the years and the acquisition of new ADSLcustomers.

 

Themarket for broadband has experienced significant growth in the years 2007 and2008 throughout the country, increasing 60% and 35% respectively to reachapproximately 3.4 million connections at December 31, 2008.

 

BroadbandInternet can be delivered through three technologies: cable modem, ADSL andwireless; cable modem and ADSL being the most widely used. In the local marketADSL connections exceeded the number of cable modem and wireless connections.Telecom Argentina markets its ADSL service through its Arnet brand and inpartnership with other ISPs.

 

In2006 Telecom Argentina introduced the Arnet 640 Kb service (a 640 kb speed ADSLservice offered at a flat rate). Following the introduction of Arnet 640 Kb,our ADSL service demonstrated strong growth.****During2007 and 2008, Telecom Argentina continued to increase its customer base, inline with the market’s expansion. Telecom Argentina’s ADSL customer basereached 1 million clients in November 2008, thereby securing itsleadership position in the broadband market. As of December 2008 our nationwide market share was 30.7%.Consistent with its previous strategy, Telecom Argentina increased the minimumconnection speed of its main product from 640Kb to 1Mb in 2008.

 

TelecomArgentina implemented new broadband products in 2008. Among others, TelecomArgentina introduced “Arnet Recargable,” targeted to non-intensive users (whichmade Telecom Argentina the first Internet provider to introduce a broadbandservice with no fixed charge that provides customers with prepaid access to theInternet) and “Arnet Go,” targeted to users who value the ability to connect tothe Internet from mobile computers. With this launch, Telecom Argentina becamethe only Internet service provider of a broadband product with combined ADSL,Wi-Fi and 3G technologies.

 

Additionally,Internet revenues include Internet access services. Telecom Argentina offersits 0610, 0611 and 0612 ISP services. The 0610 service at rates reflecting upto a 30% discount compared to normal city rates for connections lasting 30minutes, depending on the time and day of the connection. Traffic generated bythese services has been decreasing, falling from 4.0 billion minutes in 2006 to2.3 billion minutes in 2007 and to 1.4 billion minutes in 2008 with similareffects on net sales.  After theimplementation of an agreement reached with the Argentine Government, TelecomArgentina offers Internet dial-up access to locations in its region throughmore than 98% of the installed lines.

 

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*b)    Wholesale*

 

*InterconnectionRevenues*. Telecom Argentina collects fees from otheroperators related to interconnection services which primarily include localaccess, termination, and long-distance transport of calls, rent of networkcapacity and commission on calling party pays fees. These fees are payable bymobile operators as well as fixed line operators. The increased revenues fromthe mobile operators reflect the dynamic growth of the cellular market.

 

Newinterconnection agreements with fixed and mobile operators went into effectduring 2008. These agreements discontinued the application of CER anddollarized the rates of interconnection charges.

 

Additionally,Telecom Argentina signed new invoice and collection agreements with mobileoperators for the Calling Party Pays service, increasing the collection ratefrom an average of 6%-7% to 15%. Collection of delinquent payments remainsTelecom Argentina’s responsibility.

 

*InternationalLong-Distance Service.*Telecom Argentina holds a non-expiringlicense to provide international telecommunications services in Argentina,including voice and data services and international point-to-point leasedcircuits.

 

Revenuesfrom wholesale international long-distance service reflect payments underbilateral agreements between Telecom Argentina (or our predecessorsubsidiaries) and foreign telecommunications carriers, covering virtually allinternational long-distance calls into or out of Argentina using our network.Revenues from international long-distance service therefore consist mainly of:

 

·                  amountsearned from foreign telecommunications carriers for connection to the Argentinetelephone network;

 

·                  bandwidthcapacity under an Indefeasable Right of Use basis (IRU’S)

 

·                  internationalpoint-to-point leased circuits; and

 

·                  internationaldata services.

 

Operatingrevenues from international long-distance service depend on the volume oftraffic, the rates charged to local customers and the rates charged by eachparty under agreements between the Argentine provider and foreigntelecommunications carriers. Settlements among carriers are usually made on anet basis. Incoming traffic with carriers measured in minutes accounted for 618million in year 2008, 605 million in year 2007 and 578 million in year 2006.

 

TelecomArgentina is connected to international telecommunications networks mainlythrough the following submarine Fiber Optic cables:  Unisur (Argentina — Brazil — Uruguay),Americas 1 and Americas 2, Columbus 2 and 3 (Europe), Atlantis 2 (Brazil —Europe), Sea-Me-We (Europe — Asia), Latin American Nautilus (LAN), a company ofthe Telecom Italia Group, and other minor cables.

 

Inorder to meet the growth in our ADSL customer base, Telecom Argentina hasacquired several Indefeasable Rights of Use (IRUs) on a submarine facility ofLatin America Nautilus (LAN) (a subsidiary of Telecom Italia), which connectsArgentina with the U.S. (Miami) in a submarine fiber optic ring. These rights,which last for 15 years, allow the interconnection of the IP backbone ofTelecom Argentina with IP Transit providers in the U.S.

 

Throughour wholly-owned subsidiary in the United States, Telecom Argentina USA, Inc.,a corporation organized under the laws of the State of Delaware, we weregranted an FCC 214 license by the Federal Communications Commission, or theFCC, to permit us to provide international long-distance telecommunicationsservices in the United States. Telecom Argentina USA routes the majority of itstraffic through its own switching capabilities. Its business, at the moment, isfocused mainly on wholesale long-distance international traffic.  Nonetheless, its penetration of the retailmarket, through sales of prepaid cards and A.N.I. recognition services (atechnology similar to caller ID that allows customer identification of aparticular prepaid card), grew by more than 35% during 2008.

 

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***Networkand Equipment***

*** ***

Inline with the previous fiscal year, coverage, capacity, quality andavailability have been the focus for the development and execution of TelecomArgentina’s network strategy during 2008.

 

Withinthis context, Telecom Argentina continued with the deployment of fiber opticconnections to ensure that broadband availability in each city conforms to theincreasing requirements of our customers. Additionally, Telecom Argentinacontinued with its strategy of having a single transmission backbone for allservices, from fixed and mobile voice, to Internet and corporate connectivitysolutions.

 

TelecomArgentina have started a process to update the IP structure, enabling highernode and link capacities.  This processis expected to be completed during 2009 upon the introduction of 40 Gbit linksto meet the increasing demands of current and future systems.

 

TheDWDM implementation continues to be of great importance in the nationallong-distance network, which has allowed Telecom Argentina to exceed priorcapacity limits and facilitated the availability of national long-distanceEthernet transmission (local area computer network standard) in the capitalcities of all the provinces and in most locations with higher customer volume.

 

Withregards to Telecom Argentina’s fixed access network, it has a need to replacesubscriber centers - which are already 100% digitalized — with other NGNcenters, and the need to reach customers’ homes with an increasingly higherbroadband. In order to achieve these goals, Telecom Argentina is deploying astrategy called Fiber to the Cabinet (FTTC) and exploring Fiber to the Building(FTTB) and Fiber to the Home (FTTH) alternatives, depending on implementationcharacteristics and needs. Today Telecom Argentina has over 250 outdoor nodeswith voice and data capacity of up to 20Mb.

 

Moreover,the deployment speed of new generation lines has been maintained; these linesare used to supply the new demand and replace the current old-generationdigital lines.

 

**Wireless**

** **

Weprovide wireless services via cellular and PCS networks through our subsidiariesin Argentina and Paraguay.

 

***WirelessTelecommunication Services in Argentina—Telecom Personal***

*** ***

Themarket for wireless telephone services in Argentina is characterized by rapidgrowth and intense competition. Operators are generally free from regulation todetermine the pricing of services, with the limited exception of calling partypays, or CPP, charges for termination of calls originating on a fixed linenetwork. See “Regulatory Framework—Other Regulatory Regulation—Calling PartyPays—CPP.” There are currently three wireless operators offering nationwideservice. According to the CNC, penetration of cellular service in Argentina hasincreased from approximately 76% of the population as of December 31, 2006to approximately 96% and 107.5% as of December 31, 2007, and 2008,respectively.

 

Serviceproviders in Argentina are making significant capital expenditures in newnetwork infrastructure for the deployment of 3G technology, which allows forthe higher transmission speeds required for value-added services such as datatransfer, video calling, and internet browsing.

 

Ourwireless telephony services in Argentina are provided through our wholly-ownedsubsidiary, Telecom Personal. We provide wireless services throughout Argentinavia STM, SRMC and PCS networks. Telecom Personal utilizes GSM technology and 3Gtechnology in its networks and primarily offers its services of STM and SRMCservices on the 850 MHZ frequency band, and PCS service on the 1900 MHZfrequency band.

 

TelecomPersonal’s business is growing rapidly. From December 31, 2007 to December 31,2008, its subscriber base in Argentina grew approximately 18%. As of December 31,2008, Telecom Personal had approximately 12.6 million subscribers. At December 31,2007, Telecom Personal had approximately 10.7 million subscribers and at December 31,2006, Telecom Personal had approximately 8.4 million subscribers. Growth inTelecom Personal’s cellular subscriber base results in growth in net sales inthe wireless segment. Net sales of Telecom Personal for the year 2008, 2007 and2006 were P$6,565 million, P$5,339 million and P$3,964 million, respectively.

 

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TelecomPersonal offers advanced supplementary wireless services, known as Value AddedServices. During 2008, Telecom Personal capitalized on the increased speed ofits 3G network to expand and improve its roster of services, including thefollowing:

 
| · | Full  Mp3                                                                                                                                                                                            |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                 |
| · | Mobile  TV                                                                                                                                                                                           |
|   |                                                                                                                                                                                                 |
| · | Blog  and Photo album                                                                                                                                                                                |
|   |                                                                                                                                                                                                 |
| · | “Internet  en tu Personal”: Unlimited access to the mobile version of Windows Live  Messenger, Hotmail, Yahoo mail, MySpace, Facebook, Hi5, Yahoo Weather and  Yahoo Finance.              |
|   |                                                                                                                                                                                                 |
| · | Personal  Finder: Allows the customer to locate friends, addresses and points of  interest.                                                                                                          |
|   |                                                                                                                                                                                                 |
| · | SIM Messenger: Allows the customer to enter MSN and chat with  contacts as if using a PC. Personal was the first mobile company in Argentina  and the second in the world in providing this service. |

 

Additionally,services in development include text messaging, multimedia messaging and dataconnectivity, BlackBerry (mobile e-mail), Ring Back Tones (musical ringtones)and mobile Intranet (wireless access to the corporate network).

 

Theoffering of Value Added Services is expected to increase profitability byincreasing ARPU and facilitating growth in MMS Mobile Message Service/ Dataservices thereby differentiating our service offerings from SMS. TelecomPersonal’s ARPU in Argentina was approximately P$41 per month for year 2008 andP$39 for year 2007.

 

*ServicePlans.*  Telecom Personal wireless customers areoffered a variety of flexible pricing options for wireless services. Theseoptions include prepaid, post-paid and “cuentas claras” plans.

 

*PrepaidPlans*. Under prepaid plans, the customer pays in advance fortelephone calls and Value Added Services using a prepaid card. When the cardruns out of minutes, the customer can recharge the prepaid card using a prepaidsystem or can purchase virtual prepaid phone cards on Telecom Personal’swebsite, at ATMs, at kiosks and drugstores or through authorized agents. Sincethere are no monthly bills, prepaid plans allow subscribers to communicate withmaximum flexibility while maintaining control over their consumption. Asubscriber can add credit to the card and make and receive local, national andinternational calls. With the Ultra Light Plan, the more credit a subscriberputs on the card, the lower the rates are per minute.  During the year, a plan for the provision ofnew features, products and services was implemented, including the followingpackages: Personal Te Conviene, Pack Plus for Data, P$12 Calling Card as wellas other holiday offerings (for Christmas and Mother’s Day, among others).

 

*Post-paidPlans*. Telecom Personal offers a National Flat Rate post-paidplan and a Local Flat Rate post-paid plan. Post-paid plans include caller ID,voicemail and a personalized greeting, call forwarding, GPRS, a multimediapersonalized greeting, telephone technical support and call waiting. The plansdeploy Personal Digital Invoicing, enabling customers to view, download andprint their invoices from the web.

 

Underboth plans, a subscriber pays a monthly bill consisting of a monthly user feeplus Value Added Services and a charge for minutes used in excess of the amountincluded in the plan. These plans generally offer 100 to 400 free minutes permonth. Once the free minutes have been used, the subscriber can continue usingthe wireless service at a set price per minute. The charges for additionalminutes will be added to the next month’s bill. Under the National Flat RatePlan, a subscriber can make calls to and from any location within Argentina ata constant rate because the per minute rate includes the local public network,national long-distance and national roaming. Under the Local Flat Rate Plan,where the per minute rate includes the Local Public Network and Roaming, asubscriber can make local calls within any locality in the country but callsfrom one locality to another are charged at an extra rate.

 

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*“CuentasClaras” Plans*. Under the “cuentas claras” plans, a subscriberpays a set monthly bill and, once the contract minutes per month have beenused, the subscriber can obtain additional minutes by recharging the phone cardthrough the prepaid system.

 

As of December 31,2008, Telecom Personal had approximately 12.6 million subscribers. Of these,approximately 8.3 million were prepaid subscribers, representing 66.1% ofTelecom Personal’s total customer base, approximately 1.4 million werepost-paid subscribers, representing 11.6% of Telecom Personal’s total customer baseand approximately 2.8 million were “cuentas claras” plan subscribers,representing 22.3% of Telecom Personal’s total customer base. From December 31,2007 to December 31, 2008, the percentage of prepaid and “cuentas-claras”plan subscribers out of Telecom Personal’s total customer base remained stablewhile the percentage of post-paid subscribers increased. As of December 31,2007, Telecom Personal’s prepaid subscribers accounted for 66.2% of its totalcustomer base, post-paid subscribers represented 10.6% of Telecom Personal’stotal customer base and “cuentas claras” plan subscribers represented theremaining 23.2% of Telecom Personal’s total customer base. As of December 31,2006, Telecom Personal’s prepaid subscribers accounted for 65.7% of its then totalcustomer base, post-paid subscribers represented 9.0% of Telecom Personal’stotal customer base and “cuentas claras” plan subscribers represented theremaining 25.3% of Telecom Personal’s total customer base.

 

Thefollowing table presents selected information regarding Telecom Personal’spost-paid, prepaid, “cuentas claras” and total cellular subscriber bases forthe periods indicated:

 
| ** **                 | ** ** | **As of December 31,** | ** ** |
|----------------------------|------------|-----------------------------|------------|
| ** **                 | ** ** | **2008**                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Cellular subscribers:(1)   |       |                        |       |   |   |   |   |
| Prepaid                    |       | 8,303,000                   |       | 7,062,000 |   | 5,539,000 |   |
| Post-paid                  |       | 1,454,000                   |       | 1,134,000 |   | 759,000 |   |
| “Cuentas Claras” |       | 2,807,000                   |       | 2,470,000 |   | 2,127,000 |   |
| Total                      |       | 12,564,000                  |       | 10,666,000 |   | 8,425,000 |   |

 

----

(1)   Cellular subscribers means total registeredand active cellular subscribers at the end of the relevant period. An “activecellular subscriber” is a cellular subscriber who makes or receives 3 phonecalls within the last 90 days of such relevant period.

 

*Networkand Equipment*

* *

TelecomPersonal is an operator of mobile networks at a national level, and uses world-classtechnology providing GSM and third-generation services.

 

TelecomPersonal’s network infrastructure supplements the infrastructure of Telecom’sfixed network.  Therefore, thedevelopment strategy for Telecom Personal’s network as an integrated operatorgroup (both fixed and mobile) aims to maximize the synergies of investments ofthe Telecom Group.

 

Tothis end, Telecom Personal’s radio access network is supported by a regionaltransmission network that is shared with the fixed telephony business. Thecoverage of this access network is constantly undergoing improvements inbreadth, depth and capacity. Improvements in breadth address the number ofcities covered; improvements in depth address continuity of coverage andlastly, improvements in capacity address strategies to meet simultaneouscustomer demands. In order to continuously guide this process, Telecom Personalmeasures relevant parameters and benchmarks its network against those of itscompetitors.

 

By theend of fiscal year 2008, the access network’s radio bases exceeded 2600distributed throughout the country. Total customer migration to GSM wascompleted and the remainder of the TDMA network was shut down. As a result, theradio spectrum allocated to analog services was completely freed, therebyenabling its reallocation to second and/or third generation services accordingto needs.

 

In2008, Telecom Personal completed migration of its core network to a distributedarchitecture.  This migration and networkredistribution will facilitate the lowering of Telecom Personal’s transmissioncosts and improve its awareness of service availability.

 

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Giveninternational trends and business evolution, we are deploying a 3G access layerthat enables a general roll-out of mobile broadband services. This new wirelessaccess technology substantially increases voice and data traffic capacity,speed and flexibility for the introduction of new services. During fiscal year2008, Telecom Personal accelerated its deployment of 3G access nodes,installing over 600 new nodes and achieving over 60% of GSM traffic.

 

***WirelessTelecommunications Services in Paraguay—Núcleo***

 

Weprovide nationwide cellular services in Paraguay through our subsidiary Núcleounder the commercial name of “Personal.” Núcleo is 67.5% owned by TelecomPersonal and 32.5% owned by ABC Telecomunicaciones S.A., a Paraguayancorporation.  Núcleo has been grantedlicenses to provide commercial cellular services, internet access andvideoconference and data transmission services in Paraguay.

 

Themarket for cellular telephony in Paraguay continued experiencing a significantlevel of competition in 2008, due to aggressive rate policies, new product andservice launches, and marketing promotions. As of December 31, 2008,Núcleo had an approximate 36% share of the cellular services market inParaguay, with about 1,811,000 customers, an increase of about 192,000 customers,or approximately 11.9%, from December 31, 2007. Núcleo’s wireless clientsare divided into three categories: 1,647,000 prepaid subscribers, 140,000subscribers under the segment “Plan Control” and 24,000 postpaidsubscribers.  As of December 31,2007, Núcleo had approximately 1,619,000 wireless subscribers, an increase ofapproximately 455,000 subscribers, or about 39.0%, from December 31, 2006.Núcleo’s internet subscribers amounted to 15,000 on December 31, 2008 ascompared to 7,000 on December 31, 2007.

 

Núcleo’srevenues from connection charges with other operators have been affected by theissuance of Resolution No 379/08, which decreased interconnection chargesbetween mobile and basic service networks. However, Núcleo believes this resolution will promote increasedcompetition among operators, since it reduces extra charges for communicationbetween clients subscribing to different service providers.

 

In2008, Núcleo launched a variety of services for both its residential andbusiness clients.  In June 2008,Núcleo launched the “Personal Free” plan, which eliminated the interconnectioncharge to customers communicating with customers of other serviceproviders.  Two other market operatorshave followed Núcleo in implementing this measure. Overall, the elimination ofthis interconnection charge has helped to further develop Paraguay’s mobiletelephony market.  Another significantoffering consisted of the “Reduced Time Segment,” a plan through which thecustomer may choose a time segment in the morning, the afternoon or at night tomake calls at lower prices. The “Reduced Time Segment” and “Personal Free”plans were the key factors to improving and maintaining Núcleo’s competitivemarket position.

 

Amongthe new services, Núcleo’s launch of the 3.5G technology enabled increase ofthe range of services it offers and provided the fastest mobile internetnavigation for customers to access the internet.  During 2008, coverage of the InternationalRoaming service was also expanded including Roaming for prepaid lines, whichaccount for the largest portion of Núcleo’s customers.

 

Duringthe first quarter of 2008, the Internet business unit substantially expandedits services through an extension of the Wimax network coverage, which enableddata and Internet connection to 19 new sites in the interior of Paraguay.

 

Additionally, during 2008 several strategicalliances were made with local providers specializing in different accesstechnologies. This allowed Núcleo to enhance its internet service andexpand its portfolio of products under the “Hipuu!” brand, which provides Internet and data transmissionthrough Wimax wireless accesses, mobile access through the 3G network, fiberoptic-based access for high-capacity needs, and satellite solutions forrequests for access coming from geographically isolated sites.

 

*Network and Equipment*

 

Withrespect to Núcleo’s network, in 2008 Núcleo focused on extending its GSMtechnology coverage.  Núcleo installedninety new sites, amounting to a 40% increase in installed capacity as comparedto the beginning of the fiscal year. At present, Núcleo provides potentialcoverage to approximately 90% of the Paraguayan population.

 

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One ofthe year’s milestones was the deployment of the Paraguay’s first 3.5Gnetwork.  In March of 2008, Núcleolaunched 100 locations, several months before its competition.

 

Núcleocontinued with the realization of various projects at the network level,implementing an intelligent platform with two nodes, one in Asunción andanother one in Ciudad del Este.  Thesenodes enable online metering and the development of new services.

 

RegardingValue Added Services, in order to facilitate the evolution to 3G networks, theGPRS node was replaced.  This enableshigher traffic capacity and better data service, transmitting at rates higherthan 1Mbps, which allows the introduction of new mobile broadband applications.

 

**Description of theOperator**

** **

TheTelecom Italia Group, which holds an indirect interest in the Telecom Group,has been our exclusive operator since December 2003. The Telecom ItaliaGroup is engaged primarily in the communications sector, specifically, in thefixed and mobile national and international telecommunications sector, thetelevision sector and the office products sector.  The Telecom Italia Group operates mainly inEurope, the Mediterranean Basin and in South America.

 

As of December 31,2008, the Telecom Italia Group was one of the world’s largest fixedtelecommunications operators. In particular, by the end of 2008, in Italy, theTelecom Italia Group had reached approximately 20.0 million fixed networkconnections, 17.4 million physical accesses (“accesses” refers to anytelecommunications connections offered by the Telecom Italia Group, includingconsumer and business connections), a wholesale customer portfolio of 5.0million accesses for telephone services and 34.8 million mobile telephonelines. In addition, the Telecom Italia Group’s broadband portfolio in Italyreached 8.1 million accesses as of December 31, 2008 (including 6.8million retail accesses and 1.3 million wholesale accesses). As of December 31,2008, the Telecom Italia Group had 36.4 million mobile telephone lines inBrazil.

 

**Competition**

** **

*Voice, Data and Internet Services*

* *

*BasicTelephony and International Long-Distance Services*. Prior to November 1999,Telecom Argentina held an exclusive license to provide Basic telephone servicesto the Northern Region. The Argentine telecommunications market has been opento full competition since November 2000. As of the date of this AnnualReport, the main licensees providing local and/or fixed long-distance telephoneservice are Techtel (now commercially known as Telmex), Telephone2, Impsat(commercially known as “Global Crossing”), Claro, IPlan, Comsat, Telefónica(principally in the Southern Region) and Telecom Argentina (principally in theNorthern Region). Telefónica has the dominant market share for provision oftelecommunications service in the Southern Region. Some of these competitorsmay be better capitalized than us and have substantial telecommunicationsexperience. Accordingly, if economic conditions in Argentina improve andcompetitors increase their presence in the Northern Region, Telecom Argentinaexpects that it will face additional pressure on the rates it charges for itsservices and experience limited loss in market share in the Northern Region.

 

*Internetand Data Services*. We face nationwide competition in theInternet service market in Argentina from Telefónica, Grupo Clarín (Prima),Netizen, Fullzero, UOL, Ertach (which was recently acquired by Telmex) andCablevisión (Fibertel), among others. Our data services business faces competitionfrom Telefónica, Comsat, Grupo Telmex Argentina, and from several providers ofniche data services such as Impsat, IPlan and others.

 

*Wireless Telecommunications Services*

* *

*Wireless Telecommunications Services in Argentina.*The wireless telecommunications market in Argentina has been open tocompetition since 1993 and was expanded to include PCS services in 1999. Duringrecent years, GSM technology has created intense competition for subscribersamong the various service providers, including giving rise to severe pricingpressure, significant handset subsidies and increased sales incentives providedto dealers. The introduction of 3G technology since May 2008 allowedoperators to focus competition on Value Added Services.

 

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Currently,there are three operators providing nationwide services. These three operatorsare Telecom Personal, Telefónica Móviles and América Móvil. Nextel competes ona limited level, offering trunking telephony services in Buenos Aires andselected cities in the interior, in addition to offering wirelesstelecommunication services in those cities.

 

AméricaMóvil, operating in Argentina under the trade name “Claro” (formerly CTI) isone of the country’s largest wireless operators in terms of number of customersand has provided STM cellular services in the Northern and Southern Regionsoutside of the AMBA since 1994 through the 850 MHz band (25 Mhz in eachregion). Claro also holds a 40 MHz license for its PCS services in the AMBA anda 20 MHz license for PCS in each of the Northern and Southern Regions.

 

TelefónicaMóviles, operating in Argentina under the trade name “Movistar,” is another of thelargest wireless operators in Argentina in terms of number of customers.Movistar is the result of Telefónica’s merger of Unifón and Movicom in 2005.Movistar operates in the AMBA through the 850 MHz band with a total of 37.5MHz(25 + 12.5MHz), and a total of 50 MHz (20 + 30) for PCS. It also holds a totalof 80 MHz (40MHz + 40 MHz) for its PCS licenses for the Northern Region, and atotal of 60 MHz (20 MHz + 40 MHz) for its PCS license in the SouthernRegion.  This Southern region is Unifon’soriginal service area, where it also holds 25MHz license for STM. The economicconcentration that resulted from Unifon and Movicom’s merger exceeds themaximum limit of the 50 MHz of spectrum assignation (for the services ofSTM-SRMC-PCS and SRCE) permitted by Article 4 of the Annex to the Article 1of Decree 266/1998. In Reg. 343/05, regulatory authorities approved the mergeron the condition that the resulting entity decrease its spectrum holdings tothe permitted levels in accordance with a schedule ending at year-end 2008.Currently Movistar has not completed the required decrease in its spectrum.

 

NextelArgentina provides trunking telephony services in Buenos Aires. NextelArgentina’s service currently focuses on business customers in the principalcities of Argentina.

 

See “—RegulatoryFramework—Other Regulatory Regulations—Regulations Applicable to PCS Services”for additional details on Telecom Personal’s license.

 

*Wireless Telecommunications Services in Paraguay.*Currently there are four participants in the wireless service market inParaguay. As of December 31, 2008, Núcleo had an approximate 36% share ofthe cellular services market in Paraguay, Telefónica Celular del Paraguay S.A.(a Millicom International Cellular subsidiary) had approximately 51%, Hola ParaguayS.A. had approximately 5% and América Móvil (under the brand name “Claro”) hadapproximately 8%. Official statistics are not published in Paraguay and,therefore, this information regarding subscriber amounts represents anestimate.

 

**REGULATORY FRAMEWORK**

** **

**Regulatory Bodies andgeneral legal framework**

** **

TelecomArgentina and Telecom Personal operate in a regulated industry. Regulation notonly covers rates and service terms, but also the terms on which variouslicensing and technical requirements are imposed.

 

Theactivities of Telecom Argentina and Telecom Personal are supervised andcontrolled by the CNC, a governmental agency under the supervision of the SC(which is presently supervised by the Ministry of Federal Planning, PublicInvestments & Services). The CNC is in charge of general oversight andsupervision of telecommunications services. The SC has the power to develop,suggest and implement policies which are applicable to telecommunicationsservices, to ensure that these policies are applied, to review the applicablelegal regulatory framework, to act as the enforcing authority with respect tothe laws governing the relevant activities, to approve major technical plansand to resolve administrative appeals filed against CNC resolutions.

 

The principalfeatures of the regulatory framework in Argentina have been created by:

 

·                  The Privatization Regulations, including theList of Conditions;

 

·                  The Transfer Agreement;

 

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·                  The Licenses granted to Telecom Argentina andits subsidiaries;

 

·                  The Tariff Agreements; and

 

·                  Various governmental decrees, includingDecree No. 764/00, establishing the regulatory framework for licenses,interconnection, universal service and radio spectrum management.

 

Núcleo,Telecom Personal’s Paraguayan controlled company, is supervised by the ComisiónNacional de Telecomunicaciones de Paraguay, the National CommunicationsCommission of Paraguay (“CONATEL”). Telecom Argentina USA, Telecom’ssubsidiary, is supervised by the Federal Communications Commission (“FCC”).

 

**Licenses granted as of December 31,2008**

** **

As of December 31,2008, Telecom Argentina has been granted the following non-expiring licenses toprovide the following services in Argentina:

 

·                  Local fixed telephony;

 

·                  Public telephony;

 

·                  Domestic and international long-distancetelephony;

 

·                  Domestic and international point-to-pointlink services;

 

·                  Domestic and international telex services;

 

·                  Value added services, data transmission,videoconferencing and broadcasting signal services; and

 

·                  Internet access.

 

As of December 31,2008, the Company’s subsidiaries have been granted the following licenses:

 

·                  Telecom Personal has been granted anon-exclusive, non-expiring license to provide mobile telecommunicationservices in the northern region of Argentina and data transmission and valueadded services throughout the country. In addition, Personal owns licenses toprovide mobile radio communication services in the Federal District and GreaterBuenos Aires areas, as well as a non-expiring license to provide PCS servicesthroughout the country and it is registered to provide national andinternational long-distance telephone services; and

 

·                  Núcleo has been granted a renewable five-yearperiod license to provide mobile telecommunication services in Paraguay as wellas PCS services and Internet access in certain areas of that country.

 

**Revocation of the License**

** **

TelecomArgentina’s license is revocable in the case of non-compliance with certainobligations, including but not limited to:

 

·                  an interruption of all or a substantialportion of service;

 

·                  a serious non-performance of materialobligations;

 

·                  a modification of corporate purpose or changeof domicile to a jurisdiction outside Argentina;

 

·                  a sale or transfer of the license to thirdparties without prior approval of the Regulatory Bodies;

 

·                  any sale, encumbrance or transfer of assetswhich has the effect of reducing services supplied without the prior approvalof the Regulatory Bodies;

 

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·                  a reduction of ownership of Nortel in the capitalstock of Telecom Argentina to less than 51%, or the reduction of ownership ofSofora in the Capital Stock with voting power of Nortel to less than 51%, ineither case without prior approval of the Regulatory Bodies;

 

·                  any transfer of shares resulting in a director indirect loss of control in Telecom Argentina without prior approval of theRegulatory Bodies;

 

·                  an assignment or delegation of the Operator’sfunctions without the prior approval of the Regulatory Bodies; and

 

·                  a bankruptcy of Telecom Argentina.

 

TelecomPersonal’s licenses are revocable in case of non-compliance with certainobligations, including but not limited to:

 

·                  repeated interruptions of Telecom Personal’sservices;

 

·                  any transfer of the license and/or therelated rights and obligations, without the prior approval of the RegulatoryAuthority;

 

·                  any encumbrance of the license;

 

·                  any voluntary insolvency proceedings orbankruptcy of Telecom Personal and,

 

·                  a liquidation or dissolution of TelecomPersonal, without the prior approval of the Regulatory Authority.

 

Núcleo’slicenses are revocable mainly in the case of:

 

·                  an interruption of services;

 

·                  a bankruptcy of Núcleo and,

 

·                  non-compliance with certain obligations.

 

**Liberalization of theArgentine Telecommunications Industry**

** **

In March 1998,the Argentine Government issued Decree No. 264/98, introducing a plan forthe liberalization of the Argentine telecommunications industry, or the “Plan.”Decree No. 264/98 provided for the extension of the period of exclusivitywith respect to the provision of basic telephony and internationallong-distance services until some time between October 8, 1999 and November 8,1999, depending on the particular region. The Plan also provided for: (i) theimmediate liberalization of pay telephone services and (ii) during July 1998,the liberalization of telephone service in rural areas. In addition, the Plancontemplated that in January 1999, data transmission services within thecountries included in Mercosur would be open to competition, subject to thefollowing conditions: (i) each of the Mercosur countries enters intoagreements providing for the liberalization of these services and establishingsimilar regulatory bodies and (ii) reciprocity exists between countrieswith respect to the granting of licenses, which is still pending. Finally, thefull liberalization of local, domestic and international long-distance servicestook place in November 2000. See “Decree No. 764/00” below. Beginningin late 1999, two new operators, formed by independent operators, wirelessoperators and cable television operators, were permitted to offer services.These new operators, together with the existing licensees of Basic telephoneservice, allowed customers to choose from four operators until the fullliberalization of services occurred. The Plan also granted data transmissionoperators existing prior to the privatization of ENTel the right to operatedomestic and international long-distance services by the end of 2000.

 

ThePlan focused on three central principles:

 

·                  providing universal telephone service to allsegments of the Argentine population;

 

·                  establishing limitations on anti-competitiveactivities; and

 

·                  creating fair and transparent guidelines forgranting future licenses.

 

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Duringthe “Transition Period” (1998-1999), new regulatory obligations were alsointroduced with respect to quality and service targets applicable to bothTelecom Argentina and Telefónica. For example, all localities with more than 80inhabitants had to be incorporated into the network by means of theinstallation of semi-public long-distance services and all localities with morethan 500 inhabitants had to be incorporated into the residential network bymeans of fixed-line or wireless services. During the Transition Period, 640,000new lines had to be installed, of which 15% of these new lines were required tobe installed for customers in suburban areas; 19,000 new public telephones hadto be added to the existing network (50% of which are to be coin-operatedtelephones), and 2,000 telephones were required to be installed in low incomeareas.

 

Theannual 4% price cap formula was in effect during the Transition Period.

 

Aslong-distance services were liberalized, competition was introduced byPresubscription of Long-Distance Service for locations with more than 5,000clients. Following the introduction of Presubscription of Long-DistanceService, a call-by-call selection service will be installed. These requirementsobligate the telephone companies to make significant investments andmodifications to their networks.

 

During1999, competition in local and national and international long-distanceservices was established among Telecom Argentina and Telefónica and CompañíaTelefónica del Plata (CTP, Movicom Bell South) and Compañía deTelecomunicaciones Integrales S.A. (CTI, now Telmex), the two new nationaloperators permitted to offer services by Decree No. 264/98. Someprovisions of Decree No. 264/98 and related resolutions were modified byDecree No. 764/00, mainly provisions related to licensing conditions,interconnection and Universal Service. Decree No. 764/00 established thegeneral regulation of licenses and provided that each licensed company wasallowed to launch its services in November 2000 when the fullliberalization of the telecommunications market began. As of the date of thisAnnual Report, the main licensees providing local and/or fixed long-distancetelephone service are Techtel (Telmex), Telephone2, Global Crossing, Comsat,IPlan, Telefónica (in the Northern Region) and Telecom (in the SouthernRegion).

 

Pursuantto the Plan, the liberalization of public telephone services began. On December 9,1998, Telecom Argentina entered into an agreement with the Argentine Governmentwhereby Telecom Argentina was granted (upon the subsequent issuance of SCGeneral Resolution No. 2627/98) a license to provide public telephoneservices in the Southern Region. In accordance with the terms of the agreement,Telecom Argentina installed in excess of 2,500 public phones in the SouthernRegion between 1998 and 2001.

 

As of December 31,2008, Telecom Argentina had installed 6,032 public lines in the SouthernRegion. Telecom Argentina has installed public telephony telecommunicationcenters, or CETs, providing access to public telephony services, Internet andfax services in the Southern Region in major cities including Buenos Aires, LaPlata, Mar del Plata, Mendoza, San Luis, Villa Mercedes, Tandil, San Juan,Ushuaia and Junín. Telecom Argentina competes with a number of other companiesfor the provision of public telephone services.

 

**Regulatory Environment**

 

***Decree No. 764/00***

 

On September 5,2000, the Argentine executive branch issued Decree No. 764/00 whichenacted four new regulations:

 

·                  the regulation of licenses fortelecommunications services;

 

·                  the Argentine interconnection regulation;

 

·                  the regulation governing the administration,management and control of the wireless spectrum; and

 

·                  the Universal Service regulation.

 

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The basicguidelines for these regulations are as follows:

 

*GeneralRegulation of Licenses.* This regulation establishes a singlenationwide license for the provision of all telecommunication services to thepublic, including fixed-line, wireless, national and international,irrespective of whether these services are provided through telecommunicationsinfrastructure owned by the service provider. Under the regulation, a licensee’scorporate purpose does not need to be exclusively the provision oftelecommunications services. In addition, the regulation does not establish anyminimum investment or coverage requirements. The regulation further authorizesthe resale of telecommunications services subject to the receipt of a license,and there are no restrictions on participation by foreign companies. This regulationgoverns the license through which Telecom Argentina offers services in theSouthern Region and is complementary to Telecom Argentina’s obligationspursuant to its preexisting licenses.

 

*ArgentineInterconnection Regulation.* Compared to the prior interconnectionregulation (Decree 266/98), this regulation provides for a reduction ofapproximately 50% in the reference interconnection prices in effect at thetime. The regulation also increases the number of infrastructure elements andservices that the dominant operator is required to provide, includinginterconnection at the local exchange level, billing services and unbundling oflocal loops. This regulation also introduces interconnection for numbertranslation services (NTS) such as Internet, audiotext, collect calling and theimplementation of number portability, all of which shall be subject to futureregulations.

 

On January 22,2009, the SC issued Resolution No. 8/09 through which it created a WorkingCommission composed by members of the SC and the CNC and gave them a term of120 days to prepare a draft of the Number Portability Regulation.

 

*RegulationGoverning the Administration, Management and Control of the RadioelectronicSpectrum.* This regulation establishes the principles andrequirements governing the administration, management and control of theradioelectronic spectrum. According to the regulation, authorizations orpermissions will be granted subject to SC’s right to substitute, modify orcancel them without any grantee right to indemnification. New grants ofauthorizations will have a minimum duration of 5 years. The authorizations orpermissions for use of frequencies may not be transferred, leased or assigned,in whole or in part, without prior authorization by the SC.

 

*UniversalService (“SU”) Regulation.* The Universal Service regulationrequires entities that receive revenues from telecommunications services tocontribute 1% of these revenues (net of taxes) to the Universal ServiceFiduciary Fund (“the SU Fund”). The regulation adopted a “pay or play”mechanism for compliance with the mandatory contribution to the SU fund. Theregulation establishes a formula for calculating the subsidy for the provisionof SU which takes into account the cost of providing this service and anyforegone revenues. Additionally, the regulation creates a committee responsiblefor the administration of the SU Fund and the development of specific SUprograms. The Regulatory Authority has not instituted this committee nor has itimplemented the SU Fund pursuant to this regulation.

 

On June 8,2007, the SC issued Resolution No. 80/07 which stipulated that until theSU Fund is effectively implemented, telecommunication service providers, suchas Telecom Argentina and Personal, are required to deposit any contributionsaccrued since the issuance of such Resolution into a special individual accountheld in their name at Banco Nación. CNC Resolution No. 2,713/07, issued inAugust 2007, established how these contributions are to be calculated.

 

*NewUniversal Service Regulation*

 

DecreeNo. 558/08, published on April 4, 2008, replaced the SU Fund regimecreated by Decree No. 764/00, and approved a new Universal Serviceregime.  Decree No. 558/08established that the SC would assess the value of service providers’ direct programcontributions in compliance with obligations promulgated by Decree No. 764/00.  It would also determine the level of fundingrequired in the SU Fund for programs pending implementation.  In the same manner, in order to guarantee thecontinuity of certain projects, the SC was given the choice to consider as SUcontributions certain other undertakings made by telecommunication servicesproviders and compensate providers’ for these undertakings.

 

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Indefining “Universal Service,” the new regulation established two categories: a)areas with uncovered or unsatisfied needs; and b) customer groups withunsatisfied needs. It also determined that the SC would have exclusiveresponsibility for the issuance of general and specific resolutions regardingthe new regulation, as well as for its interpretation and application.  The regulation establishes that the SC willreview SU programs which were established under the previous regulation,guaranteeing the continuity of SU programs already being administered andimplementing programs that had been under review.

 

TheDecree requires Telecom Argentina and Telefónica to extend the coverage oftheir fixed line networks, within their respective original region of activity,within 60 months from the effective date of the Decree’s publication. The SCwill determine on a case by case basis if the providers will be compensatedwith funds from the SU Fund.

 

Thelevel of financing of universal service ongoing programs established under theprevious regulation will be determined by the SC, whereas telecommunicationsproviders appointed to participate in future SU programs will be selected bycompetitive bidding.

 

TheDecree requires telecommunications service providers to contribute 1% of theirrevenues (from telecommunications services, net of taxes) to the SU Fund andkeeps the “pay or play” mechanism for compliance with the mandatory monthlycontribution to the SU Fund or, to claim the correspondent receivable, as thecase may be.

 

DecreeNo. 558/08 also mandates the creation of an SU Fund and orders that itmust be established within 180 days from the date of publication. Providers oftelecommunications services shall act in their capacity as trustors for thisfund, and shall rely on the assistance of a Technical Committee made up ofseven members (two members shall be appointed by the SC, one member shall beappointed by the CNC, three members shall be appointed by the telecommunicationservices providers — one each shall be appointed by Telecom Argentina andTelefónica and one by the rest of the providers —another member will beappointed by independent local operators). This Technical Committee will beinformed by the SC of the programs that will be financed and will beresponsible for managing and controlling the SU Fund, carrying outtechnical-economic evaluations of existing projects and supervising the processof competitive bidding and adjudication of new SU programs, with prior approvalby the SC.

 

TheDecree also requires telecommunications service providers to create, subject toSC approval, a procedure to select the fiduciary institution and to provide aproposed fiduciary agreement, within 60 days from its effective date ofpublication. As of the date of issuance of this Annual Report, the TechnicalCommittee had been created and had begun to analyze the scope of its functionsand the procedures associated with them. Additionally, telecommunicationsservice providers had already selected the fiduciary institution and had sentthe proposed fiduciary agreement to the SC. The SC approved the proposed agreement in January 2009 through SCResolution No. 7/09.  As of the dateof this Annual Report, effective creation of the SU Fund is still pendingresolution of certain administrative matters.

 

On December 9,2008, the SC issued Resolution No. 405/08 which requires telecommunicationservice providers to deposit 1% of their revenues into special accounts, asdefined in Decree No. 558/08, without passing on any costs incurred forthe provision of their services.

 

On January 12,2009, Telecom Argentina and Telecom Personal filed claims before the SCobjecting to the provisions of SC Resolution No. 405/08.  Both companies maintained that the resolutionwas illegal, arguing that it contradicts Decree No. 558/08 because itviolates both licensees’ rights to factor their compensation for the provisionof SU programs in the calculation of their investment contribution, inaccordance with the “pay or play” principle prescribed in Decree No. 558/08.  The management of Telecom Group considersthat the Telecom Group has meritorious legal arguments for the claims filedagainst Resolution No. 405/08.

 

At thedate of issuance of this Annual Report, the SU programs are still pendingapproval by the SC.

 

On April 4,2009, by means of SC Resolution No. 88/09, the SC created a new programdenominated “Telephony and Internet for towns without provision of basicTelephone services” that will be subsidized with funds from the SU Fund. Thenew program seeks to provide local telephony, domestic long distance,international long distance and Internet in towns that currently do not providebasic telephone services. SC Resolution No. 88/09

 

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specifies the methodology that licensees will have tofollow for proposals to render these services in several of the 1,491 towns and1,496 schools identified in the Resolution’s Annex. The proposed projectsapproved by SC will be sent to the Technical Committee of the SU Fund so thatavailability of funds can be evaluated and they can be included in a biddingprocess provided for in Decree No. 558/08.

 

*InTelecom Argentina*

 

By theend of 2002, the SC formed a working group responsible for analyzing the methodto be applied for measuring the net costs of SU performance —particularly, theapplication of the Hybrid Cost Proxy Model (the “HCPM Model”), based on theincremental cost of a theoretical network. The working group was also tasked with defining “non-monetary benefits”and determining the methodology for its calculation, in order to assess thecosts that would be offset due to performance of SU obligations. The workinggroup decided that, given the complexity of this methodology, efforts should bemade to continue the initial programs independently from application of theHCPM Model, and that there was a need to carry out a comprehensive review ofthe present general regulations relating to SU to ensure that these regulationswere operative in the near term considering the existing social needs.

 

Severalyears after the market’s liberalization and the effectiveness of the first SUregulations, these regulations have yet to be implemented. Therefore, serviceproviders affected by these regulations have not received set-offs forproviding services as required by the SU regime.

 

Incompliance with SC Resolution No. 80/07 and CNC Resolution No. 2,713/07, Telecom Argentina has estimated a receivable of P$401 million for theperiod July 2007 - December 2008 and filed its calculations forreview by the regulatory authority. This receivable has not yet been recordedsince it is subject to the approval of the SU programs, the review of the SCand the availability of funds in the SU Trust.

 

*InTelecom Personal*

 

Since January 2001,Telecom Personal has been recording a provision related to its obligation tomake contributions to the SU Fund. As of December 31, 2008, this provisionamounted to P$121 million. In addition, in compliance with SC Resolution No. 80/07and CNC Resolution No. 2,713/07, Telecom Personal has assessed an accountpayable of P$39 million for the period of July 2007 - December 2008.As a result, as of December 31, 2008, Telecom Personal had deposited thecorresponding contributions on their respective maturity date (amounting toP$36 million) into a special individual account held under their name at BancoNación; these contributions were recorded as a receivable as of December 31,2008.

 

As of January 2001,Personal, as well as the other wireless providers, had charged SU fund amountsto customers.  SC Resolution No. 99/05required entities that derived revenues from telecommunications services tocontribute 1% of these revenues to the SU fund, and prohibited billing tocustomers any SU amounts.  As a result,the CNC, through CNC Note No. 726/05, requested that Telecom Personaldiscontinue billing SU amounts to customers and reimburse all collected SUamounts plus interest (applying the same rate used for overdue invoices fromcustomers).

 

Althoughthe SC resolutions were appealed, management decided to reimburse the SUamounts which had been billed to post-paid customers from January 1, 2001through June 28, 2005, the date on which Telecom Personal ceased billingSU amounts.

 

AlthoughTelecom Personal reimbursed the SU amounts, it will not surrender its rights toconsider the resolutions illegitimate and without merit.

 

Duringthe first quarter of 2006, Telecom Personal fully reimbursed all previouslybilled SU amounts plus interest to its active post-paid customers (amounting toP$15 million, calculated using the Banco Nación Argentina interest ratecollected by banks).  In addition, as of May 2006,Telecom Personal had reimbursed the SU amounts billed to its former customersand former post-paid customers that have changed into prepaid customers(amounting to P$4 million).  An amount ofP$6 million still remains pending and is available for collecting.

 

In December 2006,the CNC issued a preliminary report regarding verification of Telecom Personal’sSU reimbursement.  The report indicatedthat Telecom Personal completed the requirement of reimbursement of the SU

 

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amounts including interest. However, the report statedthat the interest rate applied differed from the rate required by the CNC.Finally, on August 7, 2008, the CNC ordered Telecom Personal to adjust thereimbursement applying the same rate used for overdue invoices from customers(i.e. one and a half of the Banco Nación interest rate collected by banks).

 

In September 2008,Telecom Personal has rejected this claim, explaining its grounds forjustification of the applied interest rate. However, Telecom Personal’smanagement has considered the reimbursement of the interests claimed by theCNC. As a result, at December 31, 2008, Telecom Personal has recorded aprovision of P$9 million in the line item “Financial results, net.” TelecomPersonal estimates the reimbursement would begin during July 2009.

 

*Telecom Argentina’s Request for Reconsideration**of Decree No. 764/00*

 

ReconsiderationRequest. During year 2000, Telecom Argentina filed an administrative appeal forrevocation of certain provisions of the regulations attached to Decree No. 764/00.The administrative appeal argues that:

 

·                  thecontested regulations contain inequities that violate the provisions adopted inconnection with the privatization of the Basic telephone service;

 

·                  broadcastingcompanies may render telecommunications services through one entity whileTelecom is unable to do so; and

 

·                  thereduction of interconnection rates does not compensate for the access deficitwhich itself is not being recognized or compensated pursuant to UniversalService Regulations.

 

As ofthe date of this Annual Report, the appeal is still pending.

 

***Rates***

 

*TransferAgreement.* Pursuant to the original terms of the TransferAgreement, Telecom Argentina was permitted to adjust the rates it charged fordomestic telephone calls in accordance with the monthly variation of theArgentine consumer price index, or, in certain circumstances, a weightedaverage of the Argentine consumer price index and the devaluation of theArgentine currency against the dollar. However, the Convertibility Law, whichtook effect on April 1, 1991, prohibited peso-based price adjustmentmechanisms, thereby preventing the operation of this indexing mechanism.

 

*RateAgreement.* On November 28, 1991, Telecom Argentina andTelefónica signed an agreement (known as the November Agreement) with theArgentine Government providing for rates to be dollar-based, adjustedsemi-annually according to the U.S. consumer price index, or the “US CPI.” The November Agreementwas ratified by Decree No. 2585/91 and became effective on December 18,1991. On February 28, 1992 the Argentine Government and Telecom Argentinaentered into a supplemental agreement, known as the February Agreement,which was ratified by Decree No. 506/92 (the November Agreement, assupplemented by the February Agreement, is referred to herein as the “RateAgreement.” These adjustments were not applied since 2000 according to aresolution of the SC. Under the Convertibility law that was effective until January 2002,the applicable exchange rate was P$1.00 to US$1.00.

 

*PublicEmergency Law.* As a consequence of the severe and ongoingdeterioration of Argentina’s economic situation, effective January 6,2002, the Argentine Government introduced measures that have had and maycontinue to have a significant impact on the operations of Telecom Argentina,particularly on rates. On January 6, 2002, the Argentine Governmentenacted the Public Emergency Law and applicable regulations including Decree No. 293/02,putting an end to ten years of dollar-peso parity under the Convertibility Law.The Public Emergency Law also:

 

·                  converted to and fixed as pesos (at a rate ofP$1.00=US$1.00) all tariffs for measured service, public telephone service,long-distance, some supplementary services and monthly basic and installationcharges;

 

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·                  eliminated contract clauses providing foradjustments to the value of payments with reference to the United States dollaror other foreign currencies as well as any indexation clauses (based on priceindexes of other countries) or similar mechanism; and

 

·                  established that certain agreements signedbetween the Argentine Government and privatized companies (such as TelecomArgentina) will be renegotiated, including tariffs that Telecom Argentina maycharge in the future.

 

TheArgentine Government is entitled to renegotiate these agreements based on thefollowing criteria:

 

·                  The overall impact of tariffs for publicservices on the economy and income levels;

 

·                  Service quality and investment plans, ascontractually agreed;

 

·                  The customers’ interests and access to theservices;

 

·                  The security of the systems; and

 

·                  The profitability of the service providers.

 

DecreeNo. 293/02, dated February 12, 2002, entrusted the Ministry ofEconomy with the renegotiation of the agreements. Initially, the contractualrenegotiation proposals were to be submitted to the Argentine Government within120 days after the effective date of the Decree, although this term was furtherextended for an additional 180 days. Telecom Argentina filed all information asrequired by the Argentine Government, which included information on the impactcaused by the economic crisis on Telecom Argentina’s financial position and itsrevenues, the pre-existing mechanisms for tariff adjustments, operating costs,indebtedness, payment commitments with the Argentine Government and future andon-going investment commitments.

 

Furthermore,in July 2003, Decree No. 311/03 created the Unidad de Renegociación yAnálisis de Contratos de Servicios Públicos (“UNIREN”), (Division for theRenegotiation and Analysis of Contracts of Public Utilities Services), a “specialdivision” within the Ministry of Economy and the Ministry of Federal Planning,Public Investments and Services, pursuant to which the contractualrelationships between the Argentine Government and the service providers wereto be revised and renegotiated. In October 2003, the Argentine Governmentenacted Law No. 25,790 pursuant to which the original term to renegotiatethe contracts was extended through December 31, 2004. Since that date, theArgentine Government enacted subsequent laws pursuant to which this term wasextended through December 31, 2009.

 

*Letter ofUnderstanding 2004.* As part of our negotiations under Decree No. 293/02on the tariff structure, on May 20, 2004, Telecom Argentina and Telefónicasigned the Letter of Understanding 2004 with the Argentine Government pursuantto which it committed not to modify the current tariff structure through December 31,2004 and to continue with the tariff renegotiation process, which TelecomArgentina expected to have concluded before December 31, 2004. TelecomArgentina also committed to offer phone services to beneficiaries ofgovernmental welfare programs and to extend internet services in the interiorof the country at reduced prices. This agreement was implemented by several SCResolutions (Resolutions No 261/04, 272/04 and 73/05).

 

Eventhough Telecom Argentina fulfilled its commitments under the LOU, the ArgentineGovernment did not make a specific offer related to the renegotiation of thetariffs at the date set in the LOU.

 

*Letter ofUnderstanding 2006.* On March 6, 2006, Telecom Argentinasigned the Letter of Understanding 2006 with the UNIREN on behalf of theArgentine Government. Upon the fulfillment of the procedures set forth in the rules andregulations presently in effect, the Letter of Understanding 2006 will providethe framework for the signing of the Acta Acuerdo de Renegociación del Contratode Transferencia de Acciones or Minutes of Agreement of the Renegotiation ofthe Transfer Agreement (the “Minutes of Agreement of the Renegotiation”)approved by Decree No. 2,332/90, as stated in Section 9 of the PublicEmergency Law.

 

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The main terms andconditions of the Letter of Understanding 2006 include:

 

·                  The technical supervising offices (CNC andUNIREN) have determined that Telecom Argentina satisfactorily complied withmost of the requirements contemplated in the Transfer Agreement and by theregulatory framework; and those requirements not fulfilled have been dealt withthrough sanctions. At the time the Letter of Understanding was executed, somematters relating to Telecom Argentina’s usual and regular activities as aLicensee were pending, and were expected to be determined by June 30,2006. Despite such expectation, the regulatory authority continues to analyzesuch open issues, the outcome of which will be disclosed when the analysis iscompleted;

 

·                  Telecom Argentina’s commitment to invest inthe technological development and updating of its network;

 

·                  Telecom Argentina’s commitment to the achievementof its long-term service quality goals;

 

·                  The signing parties’ commitment to complywith and maintain the terms set forth in the Transfer Agreement, and in theregulatory framework in effect;

 

·                  The Argentine Government’s commitment tocreate an appropriate and standardized regulatory framework fortelecommunications services and to give Telecom Argentina fair and equivalenttreatment to that given to other telecommunications companies that shall takepart in the process;

 

·                  Telecom Argentina’s commitment and thecommitment of its indirect stockholders Telecom Italia and W de Argentina—Inversiones,to suspend for a period of 210 working days any and all claims, appeals andpetitions already filed or in the process of being filed, in administrative, arbitralor judicial offices, in Argentina or in any other country, that are founded inor related to any act or measure taken after the issuance of the PublicEmergency Law with respect to the Transfer Agreement and to the License grantedto Telecom Argentina by Decree No. 2,347/90, after 30 days from the end ofthe public hearing convened to deal with the Letter of Understanding 2006 haveelapsed, and to discontinue said claims, appeals and petitions after theMinutes of Agreement of the Renegotiation have been ratified (As of the date ofthis Annual Report, both Telecom Argentina and its indirect stockholdersTelecom Italia and W de Argentina—Inversiones have honored this commitment).

 

·                  An adjustment shall be made to increase thetermination charge of international incoming calls to a local area to beequivalent to international values (at present such charges are stronglydepreciated); and

 

·                  Off-peak telephone hours corresponding to reducedtariffs shall be unified with regards to local calls, long-distance domesticand international calls.

 

On May 18,2006, the Letter of Understanding 2006 was subject to a public hearingprocedure, with the purpose of encouraging the participation of the users andthe community in general, taking into consideration that the Letter’s terms andconditions will provide the framework for the signing of the Minutes ofAgreement of the Renegotiation. These Minutes of Agreement of the Renegotiationshall be in effect once all the requirements stipulated in the regulatoryframework are complied with, which among other things, requires that a TelecomArgentina Stockholders’ Meeting be held to approve said Minutes. Both TelecomArgentina and its indirect stockholders Telecom Italia S.p.A. and W deArgentina - Inversiones S.L. have timely fulfilled the Agreement’s commitments.

 

As ofthe date of this Annual Report, Telecom Argentina continues to await completionof the administrative steps required for the National Executive to submit tothe National Congress a proposed Memorandum of Agreement for Renegotiation.Although Telecom’s Management believes that the contract renegotiation processwill be satisfactorily completed, to date there is no certainty regarding eitherthe outcome or the timing of the resolution of the negotiations.

 

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***RateRegulations***

 

*RateRebalancing.*At the time of ENTel’s privatization, the needfor a future amendment of rates to rebalance the pricing of domestic andinternational charges was foreseen. Subsequent agreements established the rightof licensees to a Rate Rebalancing and set forth some mechanisms to implement anew tariff structure.

 

DecreeNo. 92/97 provided for a significant reduction in domestic andinternational long-distance rates, an increase in basic telephony charges, theelimination of Free Pulses and an increase in urban rates. The Rate Rebalancingwas undertaken as part of the Argentine Government’s plan to create acompetitive environment in the Argentine telecommunications industry.  One of the main principles of the RateRebalancing was to have a neutral effect on the licensee’s revenues.

 

Thenew rate schedule was intended to reduce cross-subsidies (particularly thoseexisting between urban and long-distance services) to create a competitiveenvironment beginning in the year 2000. Decree No. 2,585/91 establishedthat the Rate Rebalancing should have a neutral effect on the licensees’revenues. In developing the tariff structure implemented by Decree No. 92/97,the Argentine Government relied on studies which demonstrated that because ofthe elasticity of demand for telephone service, an increase in demand forlower-priced services would compensate for the rate reductions. Decree No. 92/97established corrective mechanisms to facilitate neutral results on revenues.The *Banco Interamericano de Reconstrucción y Fomento*,or InterAmerican Bank for Reconstruction and Development, was responsible formaking measurements on a semi-annual basis, over a two-year period, todetermine the effects of the Rate Rebalancing. Decree No. 92/97 provides for a mechanism to offset changes inrevenue resulting from the Rate Rebalancing at the time of applying the PriceCaps.

 

Thevariation in revenues resulting from the Rate Rebalancing for the two-yearperiod beginning February 1997 was determined to amount to an increase ofP$9.5 million in accordance with SC Resolution No. 4,269/99. In December 2007,the regulatory authority notified the Company of its intention to offset thisamount with the Resolution No. 41/07 receivables. As a result, duringfiscal year 2007, Telecom Argentina recorded a reserve on the CNC finalresults, which was shown as a deduction from the Resolution No. 41/07receivables. In April 2009, the CNC notified the offsetting of the P$9.5million Rate Rebalancing amount with the Resolution No. 41/07 receivables(See “—Tax Stability: Social Security Contribution Variations”), thus ratifyingthe registration made by Telecom Argentina.

 

*HistoricalRates.* The following table sets forth certain of our maximummonth-end rates for various components of local service and domesticlong-distance service which have been in effect since 1999:

 
| ** **                    | ** ** | **Maximum********rate  (1)** | ** ** |
|-------------------------------|------------|------------------------------|------------|
| **Residential:**              |       |                         |       |   |   |
| Installation charge per line  |       | P$                           |       | 150 |   |
| Monthly Basic Charge per line |       | U.S. Dollars (2)             |       | 13.23 |   |
| **Commercial:**               |       |                         |       |   |   |
| Installation charge per line  |       | U.S. Dollars (2)             |       | 150 |   |
| Monthly Basic Charge per line |       | U.S. Dollars (2)             |       | 27.30 |   |
| **Prices:**                   |       |                         |       |   |   |
| Price per pulse (nominal)     |       | U.S. Dollars (2)             |       | 0.0469 |   |

 

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(1)          Figuresshown do not include value added tax charged to customers.

 

(2)          Inaccordance with Public Emergency Law these rates were pesified at the exchangerate US$1.00 to P$1.00.

 

TheLetter of Understanding 2006 described above is intended to serve as afoundation for a forthcoming negotiation agreement and contemplates theincrease in rates for incoming international calls and the extension ofpeak-rate calling periods. The new rate agreement contemplated by the Letter ofUnderstanding 2006 has not yet been completed.

 

*PriceCap.* The List of Conditions required that rates be reducedannually until the Regulatory Bodies determine that there is “effectivecompetition” in the markets we serve. The Price Cap was a regulation mechanismapplied in order to calculate changes in Telecom Argentina tariffs, based onchanges in the U.S. Consumer Price Index (“U.S. C.P.I.”) and an efficiency factor.A 2% (measured in real dollar terms) reduction in the prior year’s rates was

 

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required for each of the third through the seventhyear following the Transfer Date (through November 7, 1997). In addition,following the extension of the exclusivity period, rates were required to be 4%lower (measured in real dollar terms) than the prior year’s rates. This requirementwas maintained pursuant to the Rate Agreement, whereby Telecom Argentina waspermitted to effect aggregate rate reductions by lowering rates for some or allcategories of service, provided that net reductions meet the applicabletargets. The application of annual reductions to the general level of ratesestablished in the List of Conditions (price cap) has been implemented mainlyby reducing the long-distance rates and (in Price Cap 1998) discounts tocertain public entities, including the fire departments and public libraries.The CNC notified Telecom Argentina of the completion of the Price Cap 1998audit which did not show a balance to be applied. In September 2007, theCNC finalized the 1999 Price Cap audit resulting in an amount payable by TelecomArgentina of P$10.2 million, the calculation of which is currently beingreviewed by the management of Telecom Argentina. Telecom Argentina intends tooffset this balance with the credit resulting from SC Resolution No. 41/07.See “—Tax Stability: Social Security Contribution Variations.”

 

On December 15,1999, the Argentine Government, Telecom Argentina and Telefónica agreed toimplement certain modifications to the tariff structure in order to facilitateArgentine Government actions to improve the level of competitiveness of theArgentine economy.

 

Amongother issues, the agreement contemplated:

 

·      a 19.5% reduction in the monthly basiccharges for commercial and governmental customers;

 

·      a 5.5% reduction in revenues fromresidential customers from local Basic telephone service (these reductions weremade available to customers that requested the rate reduction); and

 

·      the continuance of the 0610 Internetaccess dial-up charge to residential customers.

 

Thesetariff modifications were taken into account in the rate reductions when the “pricecap” reduction of November 2000 was applied (Price Cap 2000). The ratemodifications came into effect as of March 1, 2000. The reductions toresidential customers were applied by means of different pricing plans.

 

Theimpact of the adjustments to these items through November 2000 was to beapplied on a pro rata basis to the price cap reductions for the years 2000,2001 and 2002, carried forward at an interest rate of 12%. Additionally, theimpact of the adjustments described above for the period November 2000 to October 2001was to be applied to the price cap reduction of November 2000.

 

On April 6,2000, the Argentine Government, Telefonica and Telecom Argentina signed anagreement (“Price Cap 2000”) that set the price cap efficiency factor at 6.75%(6% set by the SC and 0.75% set by Telecom Argentina and Telefonica) for theperiod of November 2000 to November 2001.

 

The2000 Price cap audit results are still pending. Should the outcome is a payableby Telecom Argentina it can be offset with the Resolution No. 41/07receivables.

 

In April 2001,the Argentine Government, Telefonica and Telecom Argentina signed an agreement(“2001 Price Cap”) that set the efficiency factor for reduction of tariffs at5.6% for the period from November 2001 to October 2002.

 

However,in October 2001 a preliminary injunction against Telecom Argentinadisallowed Telecom Argentina to apply tariff increases by reference to the U.S.C.P.I. Telecom Argentina appealed this injunction arguing that if one part ofthe formula cannot be applied, the Price Cap system should be nullified.Finally, Public Emergency Law No. 25,561 explicitly prohibited tariffadjustments. As of the date of this Annual Report, the pesification and thefreeze of the regulated tariffs are still in force, therefore the price capregime is suspended and it is unknown if and when it will come back into effector be replaced by other tariff regulation procedure. See “Item 8—FinancialInformation—Legal Proceedings—Civil, tax, commercial, labor and regulatoryproceedings—Consumer Trade Union Proceeding.”

 

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*InstallationCharges.* Under the Rate Agreement, Telecom Argentina wasrequired to gradually reduce installation charges so as to achieve pricinglevels equal to those for internationally mature networks (estimated in theRate Agreement to be US$250) and to eliminate distinctions between residentialand commercial users. Decree No. 92/97 established that beginning in November 1997installation charges may not exceed the amount charged in mature internationalmarkets. In accordance with this decree, the current maximum permitted chargeis US$150 (pursuant to the Public Emergency Law, this charge was pesified atthe exchange rate of US$1.00=P$1.00). Telecom Argentina has been applyingseveral promotions to installation charges. Average levels of promotionalinstallation charges in 2008 were P$68.

 

*MonthlyBasic Charges.* Until the effective date of Decree No. 92/97,customers were entitled to a certain number of Free Pulses per line dependingon the category of each customer and the number of lines in the area. As aresult of the application of Decree No. 92/97 and in order to offsettariff reductions for domestic and international long-distance services, FreePulses were eliminated for all categories of customers, monthly basic chargeswere equalized throughout the country. Decree No. 92/97, however, provided for a special reduced tariffthat is available to certain low consumption residential and retired customers.

 

*Long-DistanceTariffs.* Decree No. 92/97 reduced the average weighteddomestic long-distance tariff by approximately 33%. Under this revised tariffschedule, interurban tariffs were significantly reduced, with maximumlong-distance tariffs reduced by 56%. Calls within Provincial Code 1 (up to 30Km) made within provincial cities are now billed at an urban tariff.

 

*Letter ofUnderstanding Relating to Basic Services.* Pursuant to theLetter of Understanding 2006, described under “—Letter of Understanding 2006,”the Government has agreed that Telecom Argentina can increase the terminationcharges applied to incoming international calls and reduce the time bands foroff-peak local tariffs. As of the date of this Annual Report, Telecom Argentinais expecting the completion of certain administrative steps required for theNational Executive to submit to the National Congress a proposed Memorandum ofAgreement for Renegotiation.

 

*Tax ondeposits to and withdrawals from bank accounts (“IDC”).* On February 6,2003, the Ministry of Economy, through Resolution No. 72/03, defined themechanism to allow, going forward, tariff increases on Basic telephone servicesreflecting the impact of the IDC. The amount of tax charged must be shownseparately in customers’ bills. Telecom Argentina has determined the existenceof a remaining unrecovered amount of approximately P$23 million that arosebefore the issuance of Resolution No. 72/03. Telecom Argentina planned toclaim such amount within the tariff renegotiation process (See “—Rates—Letterof Understanding 2006.”). In April 2007, Telecom Argentina provided theCNC with supporting documentation on this amount for its audit. TelecomArgentina had access to documentation of the CNC’s audits that corroborates theamounts claimed by Telecom Argentina and the application of a similaroffsetting mechanism pursuant to Resolution N° 41/07. Therefore, during fiscalyear 2007, Telecom Argentina recorded as “Other receivables” a total of P$23million.

 

*TaxStability: Social Security Contribution Variations.*On March 23,2007, the SC issued Resolution No. 41/07 relating to the impact ofvariations in Social Security contributions occurring over the past severalyears and the planned use of the savings and increases that have resulted.

 

Pursuantto Resolution No. 41/07, Telecom Argentina may offset the impact of costsborne as a result of increases in Social Security contribution rates,implemented in accordance with the applicable regulations, with the savingsproduced by the reduction of the level of Social Security contributionsinitially earmarked for the argentina@internet.todos Program.

 

Theimplementation by Telecom Argentina of Resolution No. 41/07 was subject toaudits by the CNC. During the third quarter of 2007, the CNC performed itsaudits. Telecom Argentina had access to documentation of the CNC ‘s audits,which resulted in no significant differences from the net amounts it haddetermined.

 

Consequently,Telecom Argentina recorded a receivable from increases in social securitycontributions and cancelled payables from reduction in social securitycontribution rates and other fines due by the Company. At December 31,2008, Telecom Argentina has a net receivable of P$81 million which, in additionwith the receivable of P$23 million corresponding to the tax on deposits to andwithdrawals from bank accounts (“IDC”), is included in the line item “Otherreceivables” (P$11 million as current receivables and P$93 million asnon-current receivables).

 

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Sincethe resolution allows Telecom Argentina to offset the receivables with existingand/or future regulatory duties and its intention is to exercise its offsettingrights, the receivable was recorded net of reserves. At December 31, 2008,the reserves corresponding to these regulatory duties amounted to P$86 million.

 

Since December 2008,Telecom Argentina has begun the billing to the customers of the increases inthe rates of its social security contributions accrued from October 2008,applying the same mechanism used to bill the IDC.

 

***Other Regulatory Regulations***

 

*Regulationfor the Call by Call Selection of the Providers of Long-Distance Services.*On December 28, 2001, the former Ministry of Infrastructure and Housingissued General Resolution No. 613/01 which approved a system that allowscallers to select their preferred long-distance provider for each call. Thiscall by call selection system is referred to as “SPM.”

 

Subsequently,as a result of the claims submitted by several carriers objecting to GeneralResolution No. 613/01, the Ministry of Economy issued General Resolution No. 75/03,which introduced several changes to the regulations providing for SPM. The mainchanges relate to the following: long-distance carriers’ freedom to provideSPM, changes in blockage modality due to delinquency, changes in the serviceconnection modality and greater flexibility of obligations connected withservice promotion and advertising. General Resolution No. 75/03 alsoprovides that origin providers, both fixed and mobile, must have theirequipment and networks available to provide the SPM service within 120 days of February 6,2003. Our equipment and networks have been able to provide this service since2002. As of the date of this Annual Report, this long-distance service modalityis not implemented.

 

*BuyArgentine Act.* In December 2001, the ArgentineGovernment passed Public Law No. 25,551 (the “*CompreTrabajo Argentino*” or Buy Argentine Act), and in August 2002,Decree No. 1,600/02 approved and brought such Act into effect.

 

TheAct requires Telecom Argentina to give preference to national goods andservices, as defined in Public Laws No. 25,551 and No. 18,875, in anyprocurement related to the rendering of public telephone services. Preferencemust be given to national goods and services so long as the price of such goodsis equal to or lesser than the price of a foreign good (including customsduties, taxes and other expenses that are linked to the nationality of goods)increased by 7% (when the Argentine offeror is a small or medium size company)or 5% (when the Argentine offeror is any other company).

 

TheBuy Argentine Act also mandates that Telecom Argentina publish any bid forservices in the Official Bulletin in order to provide any and all prospectiveofferors with the information necessary for them to participate. This mandatorypublication requires considerable lead-time prior to the issuance of thepurchase order and has had the result of extending the period needed tocomplete certain purchases. Non-compliance with the Act is subject to criminalsanctions.

 

PublicLaw No. 18,875 establishes the obligation to exclusively contractservices, as defined in such law, with local companies and professionals. Anyexception must receive the prior approval of the relevant Ministry.

 

In August 2004,CNC Resolution No. 2,350/04 enacted the “Procedure for the fulfillment ofthe Buy Argentine Act,” which requires Telecom Argentina to present half-yearaffidavits addressing the fulfillment of these rules. Non-compliance with thisobligation is subject to administrative sanctions.

 

Thisregulation, thus, reduces the operating flexibility of Telecom Argentina due tothe time required to request bids for services and/or to obtain an approval ofthe relevant authority when necessary, and the higher administrative expensesderived from the obligation to present half-year affidavits.

 

*Regulationof Prepaid Calling Card.* In December 2006, the SCapproved, through Resolution No. 242/06, the Regulation of Prepaid CallingCards for Telecommunication Services. This regulation, designed to ensuremarket transparency and avoid the existence of irregularly issued cards, setsforth certain requirements that said cards must meet and creates aTelecommunications Prepaid Calling Cards Registry that reports to the CNC. Itmandated that 180 days after the regulation becomes effective no cards may beissued unless they are registered with said Registry.

 

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CNCResolution No. 1/07 approved the operation of the TelecommunicationsPrepaid Calling Cards Registry and established that said Registry will reportto the Engineering Department of the CNC. In July 2007, by means ofResolution No. 2,275/07 all prepaid calling cards issued by TelecomArgentina and Telecom Personal were registered.

 

*Publictelephony in penal institutions.* In June 2006, Decree No690/06 was issued, granting the SC with authority to adopt regulationsapplicable to public telephony services rendered in penal institutions. In August 2007,the SC issued Resolution No. 155/07, where it approves the “Regulation forCommunications that are initiated in Penal Institutions,” establishingtechnical requirements for the system and the telephone lines installed inpenal institutions, so that all communications carried out are registered.

 

SuchRegulation shall be in effect in the term of one year, which may be extended toa similar period, counted sixty days from the date in which the technicaldefinitions that the CNC must issue are actually available.

 

At thedate of issuance of this Annual Report, Telecom Argentina was evaluatingfeasible technical alternatives to implement in order to comply with this newrule.

 

*Renderingof fixed telephony through mobile telephony infrastructure.*In August 2007, by means of SC Resolution No. 151/07, fixed telephonywas granted access to particular frequency bands, with the purpose of enablingBasic telephone services in rural and suburban areas to be rendered through thewireless infrastructure used for the provision of mobile telephony service.Telecom Argentina and Telefónica will provide such service within theirrespective fixed telephony service original regions.

 

TelecomArgentina has installed fixed lines based on this technology in order tosatisfy service demand in rural and suburban areas.

 

*CallingParty Pays—CPP.* As of April 15, 1997, pursuant to DecreeNo. 92/97 and SC General Resolution Nos. 263/97 and 344/97, wirelesstelephone services apply the “calling party pays,” or “CPP,” system, wherebythe party placing a call from a fixed-line to a wireless phone pays for the airtime charges for the call. As an exception to this rule, traffic originatingfrom public telephones does not pay CPP, and is instead charged according tothe “Mobile Party Pays” or MPP system, whereby the cellular party pays for thecall received.

 

In March 2002,Telecom Personal started entering into agreements with the telephone operatorsto charge CPP for calls made by calling cards. Mobile operators have alsoagreed to pay for traffic terminated in each others’ networks at prices agreedamongst them.

 

Inaccordance with SC General Resolution No. 124/02, since January 2003,wireless operators can charge the CPP for international calls whereby overseascalls that terminate in wireless telephones in Argentina pay for CPP charges.In order to identify these calls, customers dialing from outside must add aprefix “54 + 9 + area code” to the wireless number without the “15.”

 

Theprice per minute for the CPP (for fixed line to mobile calls) is regulated bythe SC based on average traffic volume and costs, as reported by the wirelessoperators under Resolution SC No. 623/02 which approved the calculationmechanism for the reference value of the TLRD costs for CPP modality.Resolution SC No. 48/03 fixed the values for the TLRD at P$0.335 perminute for peak-hours and P$0.22 per minute for off-peak hours, but thesevalues had to be revised by the SC a month after their approval, with a secondrevision during the subsequent six months that was to be in turn been followedby quarterly revisions. However, none of these revisions have yet beencompleted by the SC.

 

TheCPP price per minute for international calls has been agreed upon by thewireless operators and currently stands at US$0.18.

 

Law No. 25,891.  Law No. 25,891 was adopted on April 2,2004, but material regulations under this law are still pending. It is intendedto regulate the commercial distribution of wireless services and includesmandated registration of personal data for all customers, creating a PublicRegistry in the SC named “*Registro Público Nacionalde Clientes y Usuarios de Comunicaciones Móviles.*”

 

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*RegulationsApplicable to PCS Services*

 

*PCS.*Telecom Personal has licenses for PCS in all areas in Argentina.

 

*AMBA.*In June 1999, Telecom Personal and Unifón were jointly awarded a licenseof 40 MHZ in the PCS Band for the region including the AMBA. Miniphone andMovicom each exercised the right to acquire a license of 20 MHZ in the PCSBand. Telecom Personal and Unifón have divided the 40 MHZ license awarded tothe two companies and the additional 20 MHZ license granted to Miniphone.

 

*InteriorRegions.* Telecom Personal holds licenses of 40 MHZ in the PCSBand in the Southern Region. Telecom Personal also holds a license of 20 MHZ inthe PCS Band in the Northern Region.

 

In August 2006,the CNC issued Res No. 2,528/06 declaring that Telecom Personal hadfulfilled its obligations under the *Pliego de Bases yCondiciones* for the acquisition of the licenses for the provision ofPCS. In addition, the SC issued Note No. 1040/06 which enabled TelecomPersonal to recover the promissory notes used to guarantee the granted PCSlicenses and therefore, all such notes have been recovered as of the date ofthis Annual Report.

 

TelecomPersonal also has licenses for Data Transmission and Value Added Services(granted by Res. SC No. 18/96, Date: 04-25-1996 and confirmed by Res. SC No. 55/96),and for National and International Long Distance Telephony Service (Registeredby Res SC No. 502/01, Date: 11-30-2001).

 

Inconnection with Telefónica Móviles’ acquisition and combination of operationsof Unifón and Movicom, in 2004 the SC authorized a change in shareholder controlof stakes held in Compañía de Radiocomunicaciones Móviles S.A. and in Compañíade Teléfonos del Plata in Telefónica Móviles’ favor. This authorization wasconditioned upon the return, without charge, of frequency bands exceeding anaggregate 50 MHZ in accordance with then current laws and pursuant to a plan tobe subsequently issued.

 

In2005, the SC issued its plan relating to the return of the frequency bands inquestion, however, the plan did not stipulate how the returned bands would bereallocated or assigned to other operators.

 

Sincethen, Telecom Personal has presented successive requests to the SCdemonstrating its interest in participating in the frequency band reassignmentprocess when this occurs, but as of the date of this Annual Report, the SC hasnot yet responded.

 

**CAPITAL EXPENDITURES**

** **

Capitalexpenditures (investment in fixed assets and intangible assets excludingmaterials (net of amounts transferred to fixed assets) and asset retirementobligations) amounted to P$1,597 million in the year ended December 31,2008, P$1,302 million in the year ended December 31, 2007 and P$1,055million in the year ended December 31, 2006.

 

Thefollowing table sets forth our actual consolidated capital expenditures for theyears ended December 31, 2008, 2007 and 2006.

 
| ** **                                                        | ** ** | **Year ended  December 31,** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                        | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                        | ** ** | **(P$ millions)(1)**         | ** ** |
| Land and buildings                                                |       | 104                               |       | 68 |   | 42 |   |
| Switching and transmission                                        |       | 391                               |       | 416 |   | 382 |   |
| Access and outside plant                                          |       | 478                               |       | 277 |   | 285 |   |
| Computer equipment                                                |       | 456                               |       | 397 |   | 207 |   |
| Rights of use, exclusivity agreements and licenses                |       | 41                                |       | 27 |   | 52 |   |
| Other                                                             |       | 127                               |       | 117 |   | 87 |   |
| **Subtotal capital  expenditures(2)(3)**                          | ** ** | **1,597**                         | ** ** | **1,302** | ** ** | **1,055** | ** ** |
| Materials                                                         |       | 90                                |       | 139 |   | 170 |   |
| Asset retirement obligations                                      |       | 10                                |       | 2 |   | 3 |   |
| **Total fixed assets and  intangible assets capital expenditure** | ** ** | **1,697**                         | ** ** | **1,443** | ** ** | **1,228** | ** ** |

 

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(1)          Theallocation of work in progress among items is estimated.

 

(2)          Includescapitalized interest on fixed assets of P$20 million, P$23 million and P$14million as of December 31, 2008, 2007 and 2006, respectively.

 

(3)       Includes materials consumption amounting to P$331 million, P$381 millionand P$334 million as of December 31, 2008, 2007 and 2006, respectively.

 

Inaddition, the following table shows capital expenditures, for the years ended December 31,2008, 2007 and 2006 by reportable segment:

 
| ** **                                                        | ** ** | **Year ended  December 31,** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                        | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                        | ** ** | **(P$ millions)**            | ** ** |
| **Voice, Data and Internet**                                      |       |                              |       |   |   |   |   |
|                                                              |       |                              |       |   |   |   |   |
| Land and buildings                                                |       | 38                                |       | 20 |   | 16 |   |
| Switching and transmission                                        |       | 235                               |       | 267 |   | 170 |   |
| Access and outside plant                                          |       | 208                               |       | 131 |   | 106 |   |
| Computer equipment                                                |       | 216                               |       | 162 |   | 112 |   |
| Rights of use, exclusivity agreements and licenses                |       | 40                                |       | 27 |   | 52 |   |
| Other                                                             |       | 97                                |       | 82 |   | 37 |   |
| **Subtotal**                                                      | ** ** | **834**                           | ** ** | **689** | ** ** | **493** | ** ** |
| Materials                                                         |       | 90                                |       | 110 |   | 99 |   |
| Asset retirement obligations                                      |       | 2                                 |       | — |   | 1 |   |
| **Voice, Data and Internet**                                      | ** ** | **926**                           | ** ** | **799** | ** ** | **593** | ** ** |
|                                                              |       |                              |       |   |   |   |   |
| **Wireless**                                                      |       |                              |       |   |   |   |   |
|                                                              |       |                              |       |   |   |   |   |
| Land and buildings                                                |       | 66                                |       | 48 |   | 26 |   |
| Switching and transmission                                        |       | 156                               |       | 149 |   | 212 |   |
| Access and outside plant                                          |       | 270                               |       | 146 |   | 179 |   |
| Computer equipment                                                |       | 240                               |       | 235 |   | 95 |   |
| Licenses                                                          |       | 1                                 |       | — |   | — |   |
| Other                                                             |       | 30                                |       | 35 |   | 50 |   |
| **Subtotal**                                                      | ** ** | **763**                           | ** ** | **613** | ** ** | **562** | ** ** |
| Materials                                                         |       | —                            |       | 29 |   | 71 |   |
| Asset retirement obligations                                      |       | 8                                 |       | 2 |   | 2 |   |
| **Wireless**                                                      | ** ** | **771**                           | ** ** | **644** | ** ** | **635** | ** ** |
|                                                              |       |                              |       |   |   |   |   |
| **Total fixed assets and  intangible assets capital expenditure** | ** ** | **1,697**                         | ** ** | **1,443** | ** ** | **1,228** | ** ** |

 

During2008, capital expenditures in the Voice, Data and Internet reportable segmentwere targeted mainly at the enhancement of broadband services, the deploymentof NGN and the provision of infrastructure to mobile operators.

 

Withrespect to the Wireless reportable segment, capital expenditures have beendeployed to expand the 2G network and extend the 3G network coverage to manycities in the interior of Argentina.

 

As aresult of the expected evolution in our services, we expect that we will needto increase our capital and marketing expenditures in order to maintain thequality of our services and our competitive position. Our capital expenditureplan is set annually and is based on regulatory, commercial, technical andeconomic factors such as rates, demand and availability of equipment andbuildings, taking into consideration contractual limits on capital expenditurespursuant to Telecom Argentina’s Series A notes and Series B notes.Costs are estimates and remain subject to the finalization of services andother contracts relating to these expenditures.

 

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Weestimate that our capital expenditures will be approximately P$1.6 - P$1.7billion for 2009. See “Item 5—Operating and Financial Review andProspects—Liquidity and Capital Resources—Capital Expenditures.”

 

TheCompany continues to make significant investments designed to take advantage ofgrowth opportunities in our businesses. In the Voice, Data and Internetreportable segment, we invest to sustain the growth in broadband services, tocontinue developing the NGN, to supply mobile operators with the necessaryinfrastructure and to continue updating commercial and support systems. In theWireless reportable segment, we are in the process of expanding the networkinfrastructure and extending the 3G technology coverage and bandwidth formobile data transmission.

 

Weexpect to finance these expenditures through operating cash flows and financingprovided by our vendors.

** **

**PROPERTY,PLANT AND EQUIPMENT**

** **

As detailed below,our principal physical properties consist of transmission equipment, accessfacilities, outside plant (external wiring) and switching equipment. Theseproperties are, at present, mainly located throughout the Northern Region. Webelieve that these assets are, and for the foreseeable future will be, adequateand suitable for their respective uses.

 
| ** **                                                                               | ** ** | **As of December 31,  2008** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                               | ** ** | **Voice, Data  and Internet**     | ** ** | **Wireless** | ** ** | **Total** | ** ** |
| ** **                                                                               | ** ** | **(P$ millions)(*)**         | ** ** |
| Land and buildings                                                                       |       | 862                               |       | 132 |   | 994 |   |
| Switching and transmission                                                               |       | 1,057                             |       | 759 |   | 1,816 |   |
| Access and outside plant                                                                 |       | 1,459                             |       | 556 |   | 2,015 |   |
| Computer equipment                                                                       |       | 478                               |       | 550 |   | 1,028 |   |
| Other                                                                                    |       | 78                                |       | 52 |   | 130 |   |
| **Fixed assets, net carrying  value without materials and asset retirement obligations** | ** ** | **3,934**                         | ** ** | **2,049** | ** ** | **5,983** | ** ** |
| Asset retirement obligations                                                             |       | 2                                 |       | 10 |   | 12 |   |
| Materials                                                                                |       | 103                               |       | 90 |   | 193 |   |
| **Total fixed assets, net  carrying value**                                              | ** ** | **4,039**                         | ** ** | **2,149** | ** ** | **6,188** | ** ** |

 

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(*)         Theallocation of work in progress among items is estimated.

 

Allthe above-mentioned assets were used to provide service to our clients asdescribed below.

 
| ** **                | ** ** | **2008**        | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------|------------|-----------------|------------|----------|------------|----------|------------|
| ** **                | ** ** | **(thousands)** | ** ** |
| Fixed telephony customers |       | 3,937           |       | 3,849    |       | 3,750    |       |
| Internet (*)              |       | 1,122           |       | 866      |       | 545      |       |
| Wireless subscribers      |       | 14,375          |       | 12,285   |       | 9,589    |       |

 

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(*)         In 2008 and2007, includes 15,000 and 7,000 customers in Paraguay, respectively.

 

As of December 31,2008, we have entered into purchase commitments totaling P$876 millionprimarily for switching equipment, external wiring, infrastructure works,inventory and other services. In general, the contracts were financed, directlyor indirectly, by domestic and foreign vendors.

 

Ourcurrent major suppliers of equipment are Ericsson Group, Nokia Siemens NetworkGroup, Huawei Tech Investment Co. Ltd., Italtel Argentina S.A. and IBMArgentina S.A.

 

**ITEM4A.**  UNRESOLVED STAFF COMMENTS

 

None.

 

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**ITEM5.**     OPERATING AND FINANCIALREVIEW AND PROSPECTS

** **

Youshould read the following discussion in conjunction with our ConsolidatedFinancial Statements, including the notes to those financial statements, whichappear elsewhere in this Annual Report. Our Consolidated Financial Statementshave been prepared in accordance with Argentine GAAP, which differs in certainsignificant aspects from US GAAP. For a discussion of the principal differencesbetween Argentine GAAP and US GAAP as they relate to us and a reconciliation ofnet income and shareholders’ equity to US GAAP, see “Differences betweenArgentine GAAP and US GAAP” in Note 15 to the Consolidated FinancialStatements.

 

Thefollowing discussion and analysis is presented by the management of our companyand provides a view of our financial condition, operating performance andprospects from management’s perspective. The strategies and expectationsreferred to in this discussion are considered forward-looking statements andmay be strongly influenced or changed by shifts in market conditions, newinitiatives we implement and other factors. Since much of this discussion isforward-looking, you are urged to review carefully the factors referencedelsewhere in this Annual Report that may have a significant influence on theoutcome of such forward-looking statements. We cannot provide assurance thatthe strategies and expectations referred to in this discussion will come tofruition. Forward-looking statements are based on current plans, estimates andprojections, and therefore, you should not place too much reliance on them.Forward-looking statements speak only as of the date they are made, and weundertake no obligation to update any forward-looking statements in light ofnew information or future events. Forward-looking statements involve inherentrisks and uncertainties, most of which are difficult to predict and aregenerally beyond our control. We caution you that a number of important factorscould cause actual results or outcomes to differ materially from thoseexpressed in, or implied by, the forward-looking statements. Please refer to “Forward-LookingStatements” and “Item 3—Key Information—Risk Factors” for descriptions of someof the factors relevant to this discussion and other forward-looking statementsin this Annual Report.

 

**Management Overview**

** **

TheTelecom Group ended the 2008 fiscal year with a solid financial situation aswell as a strong market position.  TheTelecom Group has continued to expand its customer base, reaching4.3 million fixed lines, 1.1 million broadband and Internetconnections, and 14.4 million cellular subscribers. In every businesssegment, the market share of the Telecom Group has increased or remained stable.  Due to this fact, the Company is consideredto be one of the leading companies in the Argentine telecommunications sector.The Company has attained this position without neglecting its commitment togenerate economic value for its shareholders. Improvement in terms ofprofitability continues. In addition, the strong cash flow generation hasallowed us to increase our capital expenditures, to acquire a new company —Cubecorp, a Data center services provider — and, at the same time, tosubstantially reduce our net financial debt.

 

Continuingthe trend of prior years, net sales in 2008 grew by 16.9% compared to 2007,reaching P$10,608 million. Operating income before depreciation andamortization in 2008 increased by P$278 million from 2007, reaching P$3,330million, equivalent to 31.4% of net sales. Operating income increased P$405million in 2008 compared to 2007, reaching P$2,041 million, equivalent to 19.2%of net sales.

 

Ourresults of operations continue to be affected by the Pesification and freeze ofregulated tariffs and by the fluctuation of the exchange rate of the pesoagainst the U.S. Dollar and the euro. For a discussion of these and otherfactors that may affect our results of operations, please see “FactorsAffecting Results of Operations” and “Trend Information” below.

 

For adetailed analysis of our results of operations for fiscal year 2008, see “Yearsended December 31, 2008, 2007 and 2006” below.

 

*Economic and Political Developments in Argentina*

* *

Beginningin the second half of 2001 through the first half of 2002, Argentinaexperienced a deep recession and an economic and political crisis. The rapidand radical nature of changes in the Argentine social, political, economic andlegal environment created a very unstable macroeconomic environment. In January 2002,the Argentine Government abandoned the Convertibility regime which had fixedthe peso/U.S. dollar exchange rate at 1:1 and adopted emergency economicmeasures which, among other things, converted and froze our tariffs into pesosat a

 

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1:1 peso/U.S. dollar ratio (referred to herein as “Pesification”).Capital outflows increased in the first half of 2002, leading to a massivedevaluation of the peso and an upsurge in inflation. By the end of 2002, thepeso had devalued by 237% (having devalued 280% as of June 30, 2002) whilethe wholesale price index increased 118% and the consumer price index increased41%.

 

TheArgentine economy has steadily improved since 2003. Gross domestic productincreased 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006, 8.7% in 2007and 6.8% in 2008. The increase in the consumer price index was 3.7% in 2003,6.1% in 2004, 12.3% in 2005, 9.8% in 2006, 8.5% in 2007 and 7.2 % in 2008,while the wholesale price index increased 2.0% in 2003, 7.9% in 2004, 10.7% in2005, 7.1% in 2006, 14.6% in 2007 and 8.8% in 2008 as reported by the INDEC,though, since 2007, the public credibility of the INDEC as a reference forreporting Argentine economic statistics has been challenged.  For further detail regarding Argentineeconomic conditions see “Item 3—Key Information—Risk Factors—Risks relating toArgentina—Substantial inflation may have an adverse effect on the economy andwould negatively impact Telecom Argentina’s margins.”

 

Thepeso remained stable against the U.S. dollar during the period 2003-2007, withUS$1.00 trading for P$2.93 on December 31, 2003, P$2.979 on December 31,2004, P$3.032 on December 31, 2005, P$3.062 on December 31, 2006 andP$3.149 on December 31, 2007.

 

Theevolution of Argentina’s economic activity during 2008 continued exhibiting anoverall positive trend of growth for the sixth year in a row. Nonetheless,during the second half of 2008, Argentina’s economic activity was affected bythe international crisis.  Overall, asreported by the INDEC, Argentina’s gross domestic product increased by 6.8%during 2008 as compared with the prior year, the Argentine consumer price indexincreased 7.2% over year 2008 (as compared to 8.5% in 2007), and the wholesaleprice index increased 8.8%.

 

Theexchange rate remained relatively stable during the first part of 2008, with anactive policy by the Central Bank of the Argentine Republic (BCRA). From September onwards,the peso began to devalue vis-à-vis the dollar, though to a lesser extent ascompared with the trend of the currencies of the other Latin Americancountries. The peso/dollar exchange rate was P$3.453 per US$1.00 at December 31,2008 as compared of P$3.149 per US$1.00 at December 31, 2007.Additionally, the country risk soared due to a strong international aversion torisk and the effects of the nationalization of the AFJP.

 

Towardsthe end of 2008, the economic activity in Argentina suffered a decelerationthat is expected to worsen in 2009. As a result, the investment growth andconsumption rates are expected to drop, while a fall in the prices of primaryproducts may endanger the tax surplus. Nonetheless, this deceleration isexpected to cause a reduction of inflationary pressures on the economy.  Governmental implementation of monetary, taxand incentive policies to regulate production and employment will be of utmostimportance to overcome the economic deceleration.

 

Insum, despite internal and external economic impact experienced in 2008,Argentina’s economy has improved over the past year, primarily due to increasesin prices of principal products produced and the maintenance of a tax surplus.However, because the substantial majority of our property and operations arelocated in Argentina, macroeconomic and political conditions in Argentina willcontinue to affect us. The Argentine Government has exercised and continues toexercise significant influence over many aspects of the Argentine economy.Accordingly, Argentine governmental actions concerning the economy couldsignificantly affect private sector entities in general and our operations inparticular, as well as affect market conditions, prices and returns onArgentine securities, including ours. While the key components of our businesswere strong in 2008, and our operating results have increased as a result ofgrowth in our wireless and Internet business, our operating results andfinancial condition remain vulnerable to fluctuations in the Argentine economy.

 

**Critical AccountingPolicies**

** **

OurConsolidated Financial Statements, prepared in accordance with Argentine GAAPand the reconciliation of our Consolidated Financial Statements from ArgentineGAAP to US GAAP, are dependent upon and sensitive to accounting methods,assumptions and estimates that we use as a basis for the preparation of ourConsolidated Financial Statements and reconciliation. We have identified thefollowing critical accounting estimates and related assumptions anduncertainties inherent in our accounting policies, which we believe areessential to an understanding of the underlying financial reporting risks andthe effect that these accounting estimates, assumptions and uncertainties haveon our Consolidated Financial Statements.

 

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Ouraccounting polices are fully described in the Notes to our ConsolidatedFinancial Statements. We believe that the following are some of the morecritical judgment areas in the application of policies that currently affectour financial condition and results of operations.

 

***Useof estimates***

 

ArgentineGAAP requires management to make estimates that may significantly affect thereported amounts of assets and liabilities and any accompanying financialinformation.

 

Managementconsiders financial projections in the preparation of the financial statementsas further described below.

 

Thesefinancial projections anticipate scenarios deemed both likely and conservativebased upon macroeconomic, financial and industry-specific assumptions. However,actual results may differ significantly from such estimates.

 

Themost significant areas that have involved the use of financial projections arethe following:

 

a)     recoverability assessment of long-livedassets and intangible assets;

 

b)    recoverability assessment of deferred taxassets and the tax credit related to minimum presumed income;

 

c)     cash flow estimates resulting from TelecomArgentina’s successful completion of its debt restructuring in 2005, in lightof prepayment and excess cash requirements; and

 

d)    the effect of c) on the valuation anddisclosure of the restructured financial indebtedness of Telecom Argentina atits present value.

 

Variationsin the assumptions regarding exchange rates, rates of inflation, level ofeconomic activity and consumption, creditworthiness of our actual and potentialcustomers, aggressiveness of our actual or potential competitors andtechnological, legal or regulatory changes could also result in significantdifferences from financial projections used by the Company for valuation anddisclosure of items described above under Argentine GAAP and US GAAP.

 

***IncomeTaxes—Deferred income tax and tax on minimum presumed income***

 

*Income tax*

* *

We arerequired to estimate our income taxes in each of the companies of TelecomGroup. This process involves the jurisdiction-by-jurisdiction estimation ofactual current tax exposure and the assessment of temporary differencesresulting from the different treatment of certain items, such as certainaccruals and amortization, for tax and financial reporting purposes. Thesedifferences result in deferred-tax assets and liabilities, which are includedin our stand-alone and consolidated balance sheets. We must assess in thecourse of our tax planning procedures, the fiscal year of the reversal of ourdeferred-tax assets and liabilities, and if there will be future taxableprofits in those periods taking into account its expiration date. Significantmanagement judgment is required in determining our provisions for income taxes,deferred-tax assets and liabilities. The analysis is based on estimates oftaxable income in the jurisdictions in which we operate and the periods overwhich the deferred tax assets and liabilities will be recoverable. If actualresults differ from these estimates, or we adjust those estimates in futureperiods, our financial position and results of operations may be affectedmaterially.

 

Ourincome tax rate is currently 35% of taxable net income for the companieslocated in Argentina and 10% for Núcleo. The measurement of current anddeferred tax liabilities and assets is based on provisions of the enacted taxlaw and the effects of future changes in tax laws or rates are not anticipated.

 

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*Tax on minimum presumed income*

* *

We aresubject to a tax on minimum presumed income for the companies located inArgentina. Management considered that the tax credit related to minimumpresumed income of Telecom Argentina will be realized based on currentprojections and legal expiration term (10 years). Such credit is classified asa non-current receivable in the consolidated balance sheets.

 

***Accountingfor and Recoverability of Long-Lived Assets***

*** ***

Ouraccounting for long-lived assets and intangible assets involves the use ofestimates for determining the fair value at the acquisition date and the usefullives of the assets over which the costs of acquiring are depreciated.

 

*Initial Valuation and Depreciation*

* *

Werecord purchased property, plant and equipment, and purchased intangible assets(other than goodwill) at acquisition or construction cost (adjusted forinflation as necessary — see Note 3.c. to the Consolidated FinancialStatements). Fixed assets received from “ENTel” have been valued at theirtransfer price. Subsequent additions have been valued at cost. Constructioncosts include directly allocable costs, an appropriate allocation of materialand interest accrued during the construction period. However, general andadministration expenses are not capitalized. Property, plant and equipment andintangible assets, except for indefinite useful life intangibles, aredepreciated or amortized on a straight-line basis over their estimated usefullives. The determination of the estimated useful lives involves significantjudgment. The Company periodically reviews the estimated useful lives of itsproperty, plant and equipment and purchased intangible assets.

 

*Recoverability*

* *

Underboth Argentine GAAP and US GAAP, we review long-lived assets, includingproperty, plant and equipment, and amortizing intangible assets, for impairmentwhenever events or changes in circumstances indicate that the carrying value ofan asset may not be recoverable.

 

UnderArgentine GAAP, the carrying value of a long-lived asset is considered impairedby the Company when the expected discounted cash flows from such asset are lessthan its carrying value. In such event, a loss would be recognized based on theamount by which the carrying value exceeds the fair market value of thelong-lived asset. Fair market value is determined primarily by using theanticipated cash flows discounted at a rate commensurate with the riskinvolved. Once an impairment loss is identified and recognized under ArgentineGAAP, future reversal of impairment loss is permitted only if the originalconditions which generated such impairment disappear or are no longer inexistence.

 

UnderU.S. GAAP, recoverability of assets that are held and used is measured bycomparing the sum of the future undiscounted cash flows to their carryingvalue. If the carrying value of the assets exceeds the sum of the futureundiscounted cash flows, impairment is considered to exist. If an impairment isconsidered to exist on the basis of undiscounted cash flows, the impairmentcharge is measured using an estimation of the assets’ fair value, typicallyusing a discounted cash flow method. Once an impairment loss is identified andrecognized subsequent write-ups are prohibited because an impairment lossestablishes a new cost for written down long-live assets.

 

Theidentification of impairment indicators, the estimation of future cash flowsand the determination of fair values for assets (or groups of assets) requiresmanagement to make significant judgments concerning the validation ofimpairment indicators, expected cash flows and applicable discount rates.

 

TheCompany has made certain assumptions in the determination of its estimated cashflows to evaluate a potential impairment of its long-lived assets in relationto each operating segment. Based on the foregoing, the Company considered animpairment charge not to be necessary for its long-lived assets in eachoperating segment.

 

However,changes in our current expectations and operating assumptions, includingchanges in our business strategy, technology, competition and/or changes inmarket conditions, as well as changes in expected applicable discount rate andfuture undiscounted cash flows estimates due to, among other things, thecompetition and the outcome of the tariff negotiations with the ArgentineGovernment, could significantly impact these judgments and could require futureadjustments to the recorded assets.

 

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*Intangible assets with indefinite useful life—PCSlicense*

* *

UnderArgentine GAAP and US GAAP, the Company determined that its PCS license met thedefinition of indefinite-lived intangible assets for the periods presented.Therefore, the Company ceased amortizing its license cost, and tested itannually for impairment. Under Argentine GAAP and US GAAP, an impairment lossis recognized to the extent that the carrying amount exceeds the asset’s fairvalue arising from discounted future expected cash flows. These evaluationsdetermined that the carrying amount of the PCS license did not exceed the fairvalue of the assets. As a result, no impairment has been recognized for US GAAPand Argentine GAAP purposes.

 

Therecoverability of an indefinite lived intangible asset such as the PCS licenserequires our management to make assumptions about the future cash flowsexpected to be derived from such asset. Our judgments regarding future cashflows may change due to future market conditions, business strategy, technologyevolution and other factors. These changes, if any, may require materialadjustments to the book value of the PCS license.

 

***Contingencies***

*** ***

We aresubject to proceedings, lawsuits and other claims related to labor, civil, tax,regulatory and other matters. In order to determine the proper level ofreserves relating to these contingencies, we assess the likelihood of anyadverse judgments or outcomes related to these matters as well as the range ofprobable losses that may result from the potential outcomes. We consult withinternal and external legal counsels on these matters. A determination of theamount of reserves required, if any, for these contingencies is made aftercareful analysis of each individual issue. Our determination of the requiredreserves may change in the future due to new developments in each matter,changes in jurisprudential precedents and Tribunal decision or changes in ourmethod of resolving such matters, such as a change in settlement strategy.

 

***Allowancefor Doubtful Accounts***

*** ***

Wemaintain an allowance for doubtful accounts to account for estimated lossesresulting from the inability of our customers to make required payments. Webase our estimates on the aging of our accounts receivable balances and ourhistorical write-off experience, customer credit worthiness and changes in ourcustomer payment terms when evaluating the adequacy of our allowance fordoubtful accounts. If the financial condition of our customers were todeteriorate, our actual write-offs might be higher than we expect.

 

***AssetRetirement Obligations***

*** ***

We aresubject to asset retirement obligations (“ARO”) associated with our cell andswitch site operating leases. We have the right to renew the initial term ofmost of these leases. Under Argentine GAAP, there are no specific standards forthe recognition of asset retirement obligations. Therefore, we record aliability for an ARO with respect to the leases following the guidance providedby SFAS 143. When the liability is initially recorded, we capitalize a cost byincreasing the carrying amount of the related long-lived asset. The capitalizedcost is depreciated over the estimated useful life of the related asset.Subsequent to the initial measurement, we should recognize changes in the AROthat result from (1) the passage of time and (2) revisions made toeither the timing or amount of estimated cash flows. Changes resulting fromrevisions in the timing or amount of estimated cash flows are recognized asincreases or decreases in the carrying amount of the ARO and the associatedcapitalized retirement cost. Increases in the ARO as a result of upwardrevisions in undiscounted cash flow estimates are considered new obligationsand initially measured using current credit-adjusted risk-free interest rates.Any decreases in the ARO as a result of downward revisions in cash flowestimates are treated as modifications of an existing ARO, and are measured atthe historical interest rate used to measure the initial ARO.

 

As of December 31,2008, our asset retirement obligations included in other non currentliabilities amounted to P$37 million and the related net carrying value of thecapitalized cost included in fixed asset amounted to P$12 million.

 

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***DebtRestructuring Results***

*** ***

On August 31,2005, Telecom Argentina completed a restructuring of its financial indebtednesson a stand-alone basis pursuant to an APE proceeding, by issuing debtinstruments with new payment terms and by paying cash consideration and makingpartial cash interest payments.

 

ArgentineGAAP requires that an exchange of debt instruments with substantially differentterms be considered a debt extinguishment and that the old debt instrument bederecognized. Argentine GAAP clarifies that from a debtor’s perspective, anexchange of debt instruments between, or a modification of a debt instrumentby, a debtor and a creditor shall be deemed to have been accomplished with debtinstruments that are substantially different if the present value of the cashflows under the terms of the new debt instrument is at least 10 percentdifferent from the present value of the remaining cash flows under the terms ofthe original instrument. The new debt instrument should be initially recordedat fair value and that amount should be used to determine the debt extinguishmentgain or loss to be recognized. Fair value should be determined by the presentvalue of the future cash flows to be paid under the terms of the new debtinstrument discounted at an estimated prevailing market interest rate. Thiscriterion was used by Telecom Argentina to account for its respective debtrestructuring in August 2005. The new restructured debt is subsequentlyaccreted to their respective face value using the interest method and,consequently, a loss on accretion is recorded in the statement of income.

 

Theestimate of present value of the debt requires management to periodically makecertain assumptions in the determination of its expectations regarding futurecash flows to be paid, mainly due to mandatory prepayment features provided inthe terms of our restructured debt contracts. Changes in our currentexpectations about future cash flows of Telecom Argentina could impact ourfuture financial debt prepayment and present value of debts under ArgentineGAAP.

 

As of December 31,2008, the total consolidated debt recorded on the consolidated balance sheetwas P$2,043 million, net of the effect on discounting of Telecom Argentina’sdebt of P$9 million.

 

***Fairvalue of Notes of Telecom Argentina under US GAAP***

*** ***

TelecomArgentina’s notes were valued under Argentine GAAP as described in “DebtRestructuring Results” above. Under US GAAP, on January 1, 2008 TelecomArgentina adopted the provisions of SFAS No.159, “The fair value option forfinancial assets and financial liabilities — Including an amendment of FASBStatement No. 115” (“SFAS No.159”). Fair value measurements require theuse of different valuation techniques which are also based on observableinputs. The fair value of Telecom Argentina’s notes as of December 31,2008 was based on the purchase price of notes bought by the Telecom Argentinain the last quarter of 2008 or, if the purchase price was not available, on theaverage quoted market prices provided by financial agencies. Telecom Argentina’sdetermination of fair value may change in the future due to the changes in theinputs available and its related valuation techniques used to estimate fairvalue.

 

**New Accounting Standardsunder Argentine GAAP**

** **

In March 2009,the FACPCE issued RT 26, “Adoption of the International Financial Reporting Standardsfrom the International Accounting Standards Board,” which will be fullyeffective for fiscal years beginning on or after January 1, 2011.  RT 26 also establishes certain disclosurerequirements applicable to annual financial statements beginning on or after January 1,2009. As of the date of this Annual Report, RT 26 has not been adopted by theCNV. The Company is currently analyzing the impact that the adoption of RT 26will have on the Company’s financial position and results of operations.

 

**Years ended December 31,2008, 2007 and 2006**

** **

Forpurposes of these sections the fiscal years ended December 31, 2008, 2007and 2006 are called “year 2008,” “year 2007” and “year 2006,” respectively.

 

Ourresults of operations are prepared in accordance with Argentine GAAP, whichdiffers in certain aspects from US GAAP. See Note 15 to our ConsolidatedFinancial Statements.

 

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TheTelecom Group provides customers with a wide range of telecommunicationservices. To fulfill its purpose, it conducts different activities that aredistributed among the companies in the Group. Each company represents anoperating segment which has been aggregated into two reportable segmentsaccording to the nature of the products and services provided. These reportablesegments and their operating segments are:

 
| **Reportable Segment**   | ** ** | **Company of the Telecom Group/  Operating Segment**                                                                 |
|--------------------------|------------|----------------------------------------------------------------------------------------------------------------------|
| Voice, Data and Internet |       | Telecom Argentina S.A. 

Telecom Argentina  USA, Inc. 

Cubecorp Argentina S.A.  (i) 

Micro Sistemas S.A. (ii) |
| Wireless                 |       | Telecom Personal S.A. 

Núcleo S.A.                                                                             |

 

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(i)             Cubecorp’s activities are being carried out byTelecom Argentina since January 1, 2009 due to a merger process betweenboth companies. The merger was approved by Cubecorp’s shareholders’ meeting on March 19,2009 and it is still pending approval by Telecom Argentina’s shareholders’meeting, which was provisionally suspended. See “Item 8—FinancialInformation—Legal Proceedings—Legal Proceedings Relating to Share Ownership.”

(ii)          Dormant entity at December 31, 2008.

 

Themain products and services in each reportable segment are:

 

·                  Voice, Data and Internet: local area,national long-distance and international communications, supplementary services(including call waiting, itemized invoicing and voicemail), interconnectionwith other operators, data transmission (including private networks,point-to-point traffic, radio and TV signal transmission), outsourcing of ITsolutions and Internet services (dial-up and high-speed broadband).

 

·                  Wireless: local area, national long-distanceand international communications, data transmission, sale of handsets, andValue Added Services, such as call waiting, voicemail, short message systems,multimedia and Internet access.

 

The followingtable shows our net sales as a percentage of total consolidated net saleswithin our reportable segments for the year ended December 31, 2008:

 
| **Reportable  Segment**  | ** ** | **Net Sales  (millions P$)** | ** ** | **Percent of  Consolidated Net Sales** | ** ** |
|--------------------------|------------|------------------------------|------------|----------------------------------------|------------|
|                     |       |                         |       |                                   |       |
| Voice, Data and Internet |       | 3,653                        |       | 34.4                                   |       |
| Wireless                 |       | 6,955                        |       | 65.6                                   |       |
| **TOTAL**                | ** ** | **10,608**                   | ** ** | **100.0**                              | ** ** |

 

Additionalinformation regarding reportable segments is disclosed in Note 13 to ourConsolidated Financial Statements.

*** ***

***FactorsAffecting Results of Operations***

*** ***

Describedbelow are certain factors that may be helpful in understanding our operatingresults. These factors are based on the information currently available to ourmanagement and may not represent all of the factors that are relevant to anunderstanding of our current or future results of operations. Additionalinformation regarding trends expected to influence our results of operations in2009 are analyzed below under “—Trend Information.”

 

*Impact ofPolitical and Economic Environment in Argentina*. Levels ofeconomic activity affect the volume of local and long-distance traffic, thedemand for new fixed lines, ADSL and for cellular services and the levels ofuncollectible accounts and disconnections. Demand for our services and theamount of revenues we collect is also affected by inflation, exchange ratevariations and the rate of unemployment, among others.

 

*RateRegulation*. Revenue from our Voice, Data and Internetreportable segment will depend principally on the number of lines in service,the minutes of use or “traffic” for local and long-distance services and therates charged for services. The rates that Telecom Argentina charges in itsfixed telephony service (including both monthly basic 

 

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charges and measured service charges), installation chargesin the fixed telephony business, public telephone charges and charges forInternet dial-up traffic are subject to regulation. These rates were pesifiedand rate increases were frozen by the Argentine Government in 2002. TelecomArgentina has been in discussions with regulators with respect to rateadjustments and on March 6, 2006, Telecom Argentina signed the Letter ofUnderstanding 2006 with the Argentine Government whereby we agreed to complywith the current regulatory framework in exchange for the ability to raisecertain of our regulated rates. In particular, the Government has agreed thatTelecom Argentina can increase the termination charges applied to incominginternational calls and reduce the time bands for off-peak local tariffs. Theagreement is still subject to the implementation of certain administrativesteps and the pending approval by the legislative branch. Although the Company’smanagement expects that the contract renegotiation process will besatisfactorily completed, to date there is no certainty regarding either theoutcome of the negotiations or the timing of such outcome.

 

*Competition*.The Argentine telecommunications market has become increasingly competitive. Inour Voice, Data and Internet reportable segment, competition is mainly focusedin long-distance and Internet service as well as in government and corporateaccounts.  For the past several years,the Argentine wireless market has been characterized by rapid growth andincreasingly competitive conditions. We expect that the Wireless reportablesegment will continue to be affected by competitive pricing pressure, at leastin the short to medium term, and by the pressure exerted by relevantinternational operators.

 

*TechnologyDevelopments*. Improvements in technology influence demand forservices. For example, demand for fixed line telecommunications services hasbeen affected by continued significant growth in the Wireless reportablesegment. Growth in the Voice, Data and Internet reportable segment at presentis being driven by expansion of ADSL. The increase in broadband adoption hasalso proven a critical factor in facilitating the offering of Value AddedServices to customers and the bundling of services. In the Wireless reportablesegment, we have seen an increase in the number of subscribers due to theimplementation of GSM technology and related services supported by GSMtechnology. Continued investment in GSM infrastructure is expected to fueldemand for cellular services because it supports a wide variety of enhanced servicessuch as SMS, data transmission and 3G services.

 

*CapitalExpenditures*. The Company continues to make significantinvestments designed to take advantage of growth opportunities in ourbusinesses. In the Voice, Data and Internet reportable segment, we invest tosustain the growth in broadband services, to continue developing the NGN, tosupply mobile operators with the necessary infrastructure and to continue withthe updating of commercial and support systems. In the Wireless reportablesegment, we are in the process of expanding the network infrastructure andextending the 3G technology coverage and bandwidth for mobile datatransmission.

 

*WirelessSubscriber Acquisition Costs and Promotional Activities*. OurWireless reportable segment has reached a significant level of subscriberacquisition costs as a result of the increase of the customer base and intensecompetition. The Voice, Data and Internet reportable segment also has increasedits promotional activities, particularly with respect to ADSL services, whereour competitors have intensified their marketing campaigns.

 

*CurrencyEffects*. The majority of our revenues are received in pesoswhereas the majority of our financial indebtedness is substantially denominatedin foreign currencies. Additionally, a significant portion of the materials andsupplies related to the construction and maintenance of our networks areincurred in foreign currencies. Consequently, the Pesification of our regulatedrates and subsequent fluctuations in the exchange rates between the peso andthe U.S. dollar and other currencies will continue to affect the amount of ourrevenues in comparison to our debt service obligations and other costs incurredin foreign currencies.

 

***(A)  Consolidated Results of Operations***

*** ***

In theyear ended December 31, 2008, we reported net income of P$961 million,compared to net income of P$884 million for the year ended December 31,2007.

 

Wereported consolidated net sales of P$10,608 million in year 2008 compared toP$9,074 million in year 2007. The increase of P$1,534 million can be largelyattributed to the growth in the Wireless reportable segment and in the ADSLservices.

 

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In2008, operating costs (including depreciation and amortization) totaled P$8,567million representing an increase of P$1,129 million, or 15.2%, due to highersalaries and social security, taxes, maintenance, material and supplies, TLRDand Roaming costs, fees for services, advertising costs, and costs of wirelesshandsets, among other reasons. The higher costs are associated with theincrease in sales, the effects of inflation on the cost structure and, inparticular, with the growing competition in the wireless and broadband servicesmarkets in Argentina.

 

Althoughthe economic situation in Argentina continued showing positive growth trends,our fixed telephone service is still affected by the Pesification of the ratesin early 2002; as a result, the increase in the structure of disbursement costsfor the Voice, Data and Internet reportable segment (which was 23.8%) is higherthan the increase in net sales (which was 10.6%). Consequently, our operationscontinue to be influenced by the Pesification and freezing of regulated tariffsand macroeconomic factors (particularly exchange rates and inflation).

** **

**(A.1)  Year2008 Compared to Year 2007**

 
| ** **                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** | ** **             | ** ** | ** **       | ** ** | **Change by segment** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|------------------------|------------|------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **Year Ended December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Voice, Data**  | ** ** | ** **            | ** ** |
| ** **                                                         | ** ** | **2008**                         | ** ** | **2007**   | ** ** | **Total Change**       | ** ** | **and Internet** | ** ** | **Wireless**          | ** ** |
| ** **                                                         | ** ** | **(P$ millions)**           | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Net sales                                                          |       | 10,608                           |       | 9,074      |       | 16.9                   |       | 1,534            |       | 351                   |       | 1,183 |   |
| Cost of services, general and administrative and  selling expenses |       | (8,567                           | )          | (7,438     | )          | 15.2                   |       | (1,129           | )          | (497                  | )          | (632 | ) |
| **Operating income**                                               | ** ** | **2,041**                        | ** ** | **1,636**  | ** ** | **24.8**               | ** ** | **405**          | ** ** | **(146**              | **)**      | **551** | ** ** |
| Financial results, net                                             |       | (265                             | )          | (441       | )          | (39.9                  | )          | 176              |       | 96                    |       | 80 |   |
| Other, net (1)                                                     |       | (280                             | )          | (121       | )          | 131.4                  |       | (159             | )          | (151                  | )          | (8 | ) |
| Income tax                                                         |       | (535                             | )          | (292       | )          | 83.2                   |       | (243             | )          | (83                   | )          | (160 | ) |
| **Net income from continuing  operations**                         | ** ** | **961**                          | ** ** | **782**    | ** ** | **22.9**               | ** ** | **179**          | ** ** | **(284**              | **)**      | **463** | ** ** |
| **Income from discontinued  operations**                           | ** ** | **—**                       | ** ** | **102**    | ** ** | **(100.0**             | **)**      | **(102**         | **)**      | **(102**              | **)**      | **—** | ** ** |
| **Net income**                                                     | ** ** | **961**                          | ** ** | **884**    | ** ** | **8.7**                | ** ** | **77**           | ** ** | **(386**              | **)**      | **463** | ** ** |

 

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**(1)**                                  Other,net includes Other expenses, net and Minority interest.

** **

**Net Sales**

** **

As inprevious years, the primary factors affecting our net sales are rates, thevolume of use of services in fixed line services and the growth in wirelesstelecommunication and Internet services.

 

Duringyear 2008, net sales increased approximately 16.9% to P$10,608 million fromP$9,074 million in 2007. The increase is largely attributable to the increaseof P$1,183 million in revenues generated by the Wireless reportable segment(reaching 65.6% of the Company’s consolidated net sales). It should be notedthat both reportable segments showed revenue increases, but at different growthrates.

 

Netsales in Voice, Data and Internet reportable segment increased by 10.6%compared to 2007. Internet sales, including internet equipment, led growth inthis segment with a 39.2% increase (P$207 million) mainly as a result of the33.1% increase in our ADSL customer base. Data sales, including data equipment,grew by 25.4%, largely attributed to a higher number of leased circuits,dedicated traffic and a substantial growth in a private network service withadditional new features. Finally, Voice sales grew by 3.8% due to an increasein the customer base, generating a higher number of monthly basic charges andcharges for supplementary services, partially offset by a slight reduction intraffic volume. Regulated voice services are still affected by the Pesificationof rates to pesos as discussed in “Item 4—Information on the Company—TheBusiness—Voice, Data and Internet—Rates” in more detail.

 

Netsales for the Wireless reportable segment grew by 20.5% compared to 2007. Thenet increase was mainly due to growth in Argentina by 23.0% partially offset bya decrease in Paraguay of 9.9%. As a result of the strong 

 

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growth of the customer base in Argentina, in generalterms, all line items comprising net sales for the reportable segment havegrown considerably. Particularly, revenues from Value Added Services, roamingservices and TLRD, and post-paid services, including fixed-charge and excessminutes, all increased.

 

In2008, service revenues in the Wireless reportable segment amounted to P$6,235million, representing 20.3% growth from 2007. Year 2008 service revenue growthwas 23.1% in Argentina while in Paraguay it represented a decrease of 10.3%.

 

The chart below shows net sales for years 2008 and2007 and their breakdown between reportable segments:

 

 

For afurther breakdown of our consolidated net sales, see “—Results of Operations byReportable Segment” below.

 

**Cost of Services, Generaland Administrative and Selling Expenses**

** **

Totalcost of services, general and administrative and selling expenses increased15.2% to P$8,567 million in 2008 from P$7,438 million in 2007. The increase wasmainly due to the increase in disbursement costs in the two reportable segmentsas a result of a rise in direct cost of sales, the effect of inflation in theoverall cost structure and heavy competition in the wireless and broadbandbusinesses in Argentina. Depreciation and amortization expenses were reduced byP$127 million, mainly attributable to the Wireless reportable segment.

 
| ** **                                                                      | ** ** | ** **                       | ** ** | ** ** | ** ** | ** **             | ** ** | ** **       | ** ** | **Change by segment** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|------------------------|------------|------------------|------------|-----------------------|------------|
| ** **                                                                      | ** ** | **Year Ended December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Voice, Data**  | ** ** | ** **            | ** ** |
| ** **                                                                      | ** ** | **2008**                         | ** ** | **2007**   | ** ** | **Total Change**       | ** ** | **and Internet** | ** ** | **Wireless**          | ** ** |
| ** **                                                                      | ** ** | **(P$ millions)**           | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Salaries and social security                                                    |       | 1,217                            |       | 960        |       | 26.8                   |       | 257              |       | 187                   |       | 70 |   |
| Taxes                                                                           |       | 825                              |       | 660        |       | 25.0                   |       | 165              |       | 27                    |       | 138 |   |
| Maintenance, materials and supplies                                             |       | 541                              |       | 447        |       | 21.0                   |       | 94               |       | 66                    |       | 28 |   |
| Bad debt expense                                                                |       | 67                               |       | 71         |       | (5.6                   | )          | (4               | )          | (2                    | )          | (2 | ) |
| Interconnection costs                                                           |       | 156                              |       | 151        |       | 3.3                    |       | 5                |       | 5                     |       | — |   |
| Costs of international outbound calls                                           |       | 145                              |       | 138        |       | 5.1                    |       | 7                |       | 7                     |       | — |   |
| Fees for services                                                               |       | 389                              |       | 300        |       | 29.7                   |       | 89               |       | 41                    |       | 48 |   |
| Advertising                                                                     |       | 388                              |       | 306        |       | 26.8                   |       | 82               |       | 48                    |       | 34 |   |
| Cost of wireless handsets and Voice, Data, and  Internet equipment              |       | 1,026                            |       | 893        |       | 14.9                   |       | 133              |       | 20                    |       | 113 |   |
| Agent’s commissions and commissions for the distribution of prepaid  cards |       | 769                              |       | 704        |       | 9.2                    |       | 65               |       | 14                    |       | 51 |   |
| Other commissions                                                               |       | 159                              |       | 130        |       | 22.3                   |       | 29               |       | 5                     |       | 24 |   |
| TLRD and Roaming                                                                |       | 941                              |       | 760        |       | 23.8                   |       | 181              |       | —                |       | 181 |   |
| Other operating expenses                                                        |       | 655                              |       | 502        |       | 30.5                   |       | 153              |       | 85                    |       | 68 |   |
| Depreciation of fixed assets and amortization of  intangible assets             |       | 1,289                            |       | 1,416      |       | (9.0                   | )          | (127             | )          | (6                    | )          | (121 | ) |
| **Total Cost of Services, General  and Administrative and Selling Expenses**    | ** ** | **8,567**                        | ** ** | **7,438**  | ** ** | **15.2**               | ** ** | **1,129**        | ** ** | **497**               | ** ** | **632** | ** ** |

 

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Themain operating costs and the changes in costs between years 2008 and 2007 areillustrated below:

 

 

----

(1)          Includes bad debt expense, other commissionsand other operating expenses.

 

*Salaries and SocialSecurity*

* *

Duringyear 2008, salaries and social security charges were approximately P$1,217million, representing a 26.8% increase from 2007. This was primarily due to theincrease in salary levels, mainly for unionized personnel reflecting anadjustment in collective bargaining agreements. For year 2008, salaries andsocial security payments were approximately 11.5% of net sales, compared to10.6% of net sales in year 2007.

 

*Taxes*

* *

Expensesrelated to taxes increased 25.0% to P$825 million in year 2008 from P$660million in year 2007, mainly due to the impact of taxes that are calculated onthe basis of revenues, reflecting an increase in total net sales during theyear.

 

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*Maintenance,Materials and Supplies*

* *

Expenses relatedto maintenance, materials and supplies increased 21.0% to P$541 million in year2008 from P$447 million in year 2007. This increase was due to highermaintenance costs across segments, particularly in the Voice, Data and Internetreportable segment. The main reason for the change was an increased need forsupplies as a result of the larger number of installed basic telephony and ADSLlines and an increase in the prices of certain supplies due to the effects ofinflation.

 

*Feesfor Services*

* *

Our fees forvarious services, including technical, commercial, legal, security, andauditing services, totaled P$389 million for year 2008 and P$300 million foryear 2007. This increase was due mainly to the renegotiation of most of thecontracts because of the effects of inflation and to higher service costs inboth segments, especially costs related to Call Centers and software andhardware fees.

 

*Advertising*

* *

Costsrelated to advertising increased by P$82 million, or 26.8%, to P$388 million inyear 2008, mainly due to higher media advertising expenses for wireless andInternet services as a result of efforts to retain and expand both customerbases, as well as the sponsorship of the 2008 Beijing Olympic Games.

 

*Cost of wireless handsetsand Voice, Data, and Internet equipment*

* *

Duringyear 2008, the cost of wireless handsets and Voice, Data and Internet equipmentincreased to P$1,026 million from P$893 million in year 2007. The increase incosts incurred in the Wireless reportable segment was primarily attributable toan increase in the cost of handsets resulting from the expansion of thesubscriber base. In addition, as a consequence of technological advances andnew service offerings, more customers upgraded their mobile phone sets. Thateffect was partially offset by a decrease in subsidies offered to agents andother third party distributors.

 

*Agent’s Commissions andCommissions for the Distribution of Prepaid Cards*

* *

Salescommissions increased by P$65 million to P$769 million in year 2008 from P$704million in year 2007. The steady increase over the past few years in agent’scommissions and commissions for the distribution of prepaid cards is mainly dueto Telecom Personal’s efforts to expand its high-value subscriber base and tothe increase in the prepaid subscriber base, respectively.

 

*TLRD and Roaming*

* *

Duringyear 2008, costs of TLRD and roaming increased 23.8% to P$941 million fromP$760 million in year 2007. The change was due to an increase in wirelesstraffic among wireless operators as a consequence of a strong growth in thetotal customer base and to an increase in the volume of total traffic.

 

*Other Operating Expenses*

* *

Otheroperating expenses, which include lease of circuits, transportation andfreight, rental and energy expenses, among others, increased 30.5% to P$655million in year 2008 from P$502 million in year 2007 in both reportablesegments as a result of increased revenues and an increase in the customer baseand the effects of inflation.

 

*Depreciation of FixedAssets and Amortization of Intangible Assets*

* *

Depreciationof fixed assets and amortization of intangible assets decreased by P$127million, or 9.0%, to P$1,289 million during 2008 mainly as a consequence of theend of the amortization period for certain assets (among others, TDMA networkequipment as a result of the migration to GSM technology) in the Wirelessreportable segment. Depreciation expense was equal to approximately 12.2% ofnet sales for year 2008 and 15.6% of net sales for year 2007.

 

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**Operating Income**

** **

Duringthe year ended December 31, 2008, consolidated operating income wasP$2,041 million, with an increase of P$405 million, or 24.8%, compared to 2007.Operating income represented 19.2% of net sales in 2008.

 

Theincrease, net, in operating income in 2008 was due to strong growth in theWireless reportable segment resulting from higher net sales, partially offsetby an increase in salaries and social security costs, fees for services, costfor subscriber acquisition, costs of roaming and TLRD and tax expenses.Although sales increased in Voice, Data and Internet reportable segment, theywere completely offset by an increase in salaries and social security costs,fees for services, maintenance, materials and supplies and advertisingexpenses, among others.

 

**Financial Results, Net**

** **

Netfinancial results amounted to a loss of P$265 million for 2008, reflecting areduction in loss of 39.9% as compared to prior year 2007. Financial results,net represent 2.5% of consolidated sales in year 2008, as compared to 4.9% inyear 2007.

 

As aresult of a P$1,090 million reduction in net financial debt, or 54.7% comparedto the net financial debt at the end of the previous year, interest on netfinancial debt decreased by P$125 million.

 

In2008, the devaluation of the peso against the US dollar was 9.6% and 3.4%against the euro. This caused a net foreign currency exchange loss of P$158million, which included the effect of derivative financial instruments enteredinto to hedge foreign exchange exposure. These instruments generated a P$29million loss in the year 2008 and a P$141 million gain in 2007.

 

**Other, Net**

** **

*Other expenses, net*

* *

Otherexpenses, net mainly include severance payments and provisions for lawsuits andother contingencies.

 

Otherexpenses, net, increased P$170 million or 173.5% from year 2007, reaching P$268million in 2008.  The change was mainlyattributable to the fact that other expenses, net in 2007 included a gain ofP$69 million related to the impact of SC Resolution N° 41/07 and a tax gain ondeposits and withdrawals from bank accounts of P$23 million recognized in 2007as a result of the regulatory resolution N°. 72/03 implemented by the Ministryof Economy (see Note 2.g and 2.i to the Consolidated Financial Statements).

 

Severancecosts amounted to P$144 million in 2008 as compared to P$84 million in 2007,mainly due to a 114% increase in the number of employees retired or dismissed,partially offset by a 30% decrease in the average retirement and severance costper employee.

 

Provisionfor contingencies charges have decreased at Telecom Argentina due to lowercosts in connection with labor and fiscal complaints. Telecom Personal,conversely, has experienced a slight increase in those charges.

 

**Income Tax**

** **

Theincome tax charge includes three effects: (i) the current tax for the yearpayable according to fiscal legislation applicable to each company in theTelecom Group; (ii) the effect of applying the deferred tax method ontemporary differences arising out of the asset and liability valuationaccording to fiscal vs. accounting criteria; and (iii) the analysis ofrecoverability of deferred tax assets.

 

(i)    As regards the current taxexpenses of Telecom Argentina, in 2007, the Company was not required to paytaxes as a result of the determination of an accumulated loss carryforward. In2008, enough tax profit was generated to offset the entire accumulated losscarryforward and therefore a tax liability was determined, which will be offsetagainst a tax credit for minimum presumed income and other withholdings. Withregards to Telecom Personal, in 2007, enough tax profit was generated to offsetthe entire accumulated loss carryforward; therefore, a tax liability wasdetermined. This tax liability was offset by a tax credit for minimum presumedincome and other withholdings. In fiscal year 2008, tax profits generated gaverise to tax liabilities. This tax liability will be offset against a tax creditfor minimum presumed income and other withholdings. In the years under review,Núcleo reported a tax profit and the charge was increased by the overchargestemming from the payment of dividends to shareholders.

 

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(ii)  As regards the deferred tax, in 2008income was mainly generated at Telecom Argentina as a result of the reductionin the deferred tax liability on fixed assets and its adjustment for inflationand increased credit on the deduction of bad debts and lawsuits and othercontingencies (P$119 million).  Thisincome was partly offset by the use of net tax loss carryforward for P$34million.  In 2007, expenses related todeferred tax mainly arose from the reduction of the tax loss carryforwards ofTelecom Argentina (P$364 million) and Telecom Personal (P$163 million), partlyoffset by the income generated by variations in the temporary differences(P$205 million in Telecom Argentina and P$76 million in Telecom Personal),including, among others, a reduction of the deferred tax liability on fixedassets and its adjustment for inflation, and the higher credit for thededuction of bad debts and lawsuits and other contingencies.

 

(iii)  With respect to the recoverability ofdeferred tax loss carryforwards, the Telecom Group recognized, as of December 31,2007, a P$130 million receivable for tax loss carryforwards, of which P$95million expired in fiscal year 2007. For that reason, as of December 31,2007, the related allowance amounted to P$95 million. As of December 31,2008, Cubecorp’s tax loss carryforwards, amounting P$1 million, were consideredto be non-recoverable; therefore, the Company has recorded an allowance forsuch credits.

 

**Net Income fromContinuing Operations**

** **

Foryear 2008, we recorded net income of approximately P$961 million. The Voice,Data and Internet reportable segment accounted for a loss of P$309 millionwhile the Wireless reportable segment contributed a P$1,270 million gain to ourconsolidated net income in 2008.

 

**Income from DiscontinuedOperations**

** **

In April 2007,Telecom Argentina sold its 99.99% shareholding in Publicom (the directorypublishing company) to Yell Publicidad S.A. According to Argentine GAAP, netincome from the operations of Publicom and from the sale of Publicom has beenaccounted for under “discontinued operations,” which was included in a specificcaption “Results from discontinued operations” in the consolidated statement ofincome for the year ended December 2007. The net income from discontinuedoperations for year 2007 amounted to P$102 million, of which P$101 millioncorresponded to the sale of Publicom, and P$1 million to Publicom’s net incomeprior to the date of sale.

 

**Net Income**

** **

Foryear 2008, we recorded a net income of P$961 million. Since there are no resultsfrom discontinued operations for year 2008, see “Net Income from continuingoperations” for an explanation of net income for year 2008.

** **

**(A.2)  Year2007 Compared to Year 2006**

 
| ** **                                                        | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **             | ** ** | ** **       | ** ** | **Change by segment** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------|------------|------------|------------|------------------------|------------|------------------|------------|-----------------------|------------|
| ** **                                                        | ** ** | **Year Ended December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Voice, Data**  | ** ** | ** **            | ** ** |
| ** **                                                        | ** ** | **2007**                    | ** ** | **2006**   | ** ** | **Total Change**       | ** ** | **and Internet** | ** ** | **Wireless**          | ** ** |
| ** **                                                        | ** ** | **(P$ millions)**      | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Net sales                                                         |       | 9,074                       |       | 7,372      |       | 23.1                   |       | 1,702            |       | 249                   |       | 1,453 |   |
| Cost of services, general and administrative and selling expenses |       | (7,438                      | )          | (6,478     | )          | 14.8                   |       | (960             | )          | (218                  | )          | (742 | ) |
| **Operating income**                                              | ** ** | **1,636**                   | ** ** | **894**    | ** ** | **83.0**               | ** ** | **742**          | ** ** | **31**                | ** ** | **711** | ** ** |
| Financial result, net                                             |       | (441                        | )          | (484       | )          | (8.9                   | )          | 43               |       | 113                   |       | (70 | ) |
| Other, net (1)                                                    |       | (121                        | )          | (201       | )          | (39.8                  | )          | 80               |       | 77                    |       | 3 |   |
| Income tax (expense) benefit, net                                 |       | (292                        | )          | 22         |       | N/A                    |       | (314             | )          | (93                   | )          | (221 | ) |
| **Net income from continuing  operations**                        | ** ** | **782**                     | ** ** | **231**    | ** ** | **238.5**              | ** ** | **551**          | ** ** | **128**               | ** ** | **423** | ** ** |
| **Income from discontinued  operations**                          | ** ** | **102**                     | ** ** | **13**     | ** ** | **684.6**              | ** ** | **89**           | ** ** | **89**                | ** ** | **—** | ** ** |
| **Net income**                                                    | ** ** | **884**                     | ** ** | **244**    | ** ** | **262.3**              | ** ** | **640**          | ** ** | **217**               | ** ** | **423** | ** ** |

 

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----

(1)          Other,net includes gain (loss) on equity investees, other expenses, net and minorityinterest.

 

**Net Sales**

** **

Theprincipal factors which affect our net sales are rates, the volume of use ofservices in fixed line services and the growth in wireless telecommunicationand Internet services.

 

Duringyear 2007, net sales increased approximately 23.1% to P$9,074 million fromP$7,372 million in 2006. The increase is largely attributable to the increaseof P$1,453 million in revenues generated by the Wireless reportable segment.

 

In theVoice, Data and Internet reportable segment, voice sales grew by 5.4% due tothe increase in the customer base, which was partially offset by a slightreduction in traffic volume. Data sales grew by 12.4% due to the increase inthe customer base and expanded corporate offerings. Internet sales led growthin this segment with a 22.4% increase as a result of the 71.3% increase in ourADSL customer base.

 

Wirelessrevenues increased 33.6% compared to 2006. In Argentina, revenues, net ofintercompany sales, grew by 34.7% as a result of a 26.6% increase in thecustomer base. In Paraguay, net sales grew by 22.0%, which can be largelyattributed to a 39.7% increase in the customer base.

 

In2007, service revenues in the Wireless reportable segment amounted to P$5,182million, representing 37.3% growth from 2006. Year 2007 service revenue growthwas 38.7% in Argentina and 22.8% in Paraguay.

 

As inthe previous year, net sales of the Wireless reportable segment representedmore than 50% of the Company’s consolidated net sales (reaching 63.6%) in 2007.

 

The chart belowshows net sales for years 2007 and 2006 and their breakdown between reportablesegments:

 

 

For afurther breakdown of our consolidated net sales, see “—Results of Operations byReportable Segment” below.

 

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**Cost of Services, Generaland Administrative and Selling Expenses**

** **

Totalcost of services, general and administrative and selling expenses increased14.8% to P$7,438 million in 2007 from P$6,478 million in 2006. The change wasmainly due to the increase in****disbursement****costs in the two reportable segments as a result of theincrease in direct cost of sales, the effect of inflation in the overall coststructure and heavy competition in the wireless and broadband businesses inArgentina. Depreciation and amortization expenses increased by P$25 million,mainly attributable to the Wireless reportable segment.

 
| ** **                                                                      | ** ** | ** **                  | ** ** | ** ** | ** ** | ** **             | ** ** | ** **       | ** ** | **Change by segment** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------|------------|------------|------------|------------------------|------------|------------------|------------|-----------------------|------------|
| ** **                                                                      | ** ** | **Year Ended December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Voice, Data**  | ** ** | ** **            | ** ** |
| ** **                                                                      | ** ** | **2007**                    | ** ** | **2006**   | ** ** | **Total Change**       | ** ** | **and Internet** | ** ** | **Wireless**          | ** ** |
| ** **                                                                      | ** ** | **(P$ millions)**      | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Salaries and social security                                                    |       | 960                         |       | 829        |       | 15.8                   |       | 131              |       | 81                    |       | 50 |   |
| Taxes                                                                           |       | 660                         |       | 539        |       | 22.4                   |       | 121              |       | 21                    |       | 100 |   |
| Maintenance, materials and supplies                                             |       | 447                         |       | 317        |       | 41.0                   |       | 130              |       | 80                    |       | 50 |   |
| Bad debt expense                                                                |       | 71                          |       | 63         |       | 12.7                   |       | 8                |       | (4                    | )          | 12 |   |
| Interconnection costs                                                           |       | 151                         |       | 159        |       | (5.0                   | )          | (8               | )          | (8                    | )          | — |   |
| Costs of international outbound calls                                           |       | 138                         |       | 111        |       | 24.3                   |       | 27               |       | 27                    |       | — |   |
| Fees for services                                                               |       | 300                         |       | 259        |       | 15.8                   |       | 41               |       | 33                    |       | 8 |   |
| Advertising                                                                     |       | 306                         |       | 225        |       | 36.0                   |       | 81               |       | 19                    |       | 62 |   |
| Cost of wireless handsets and Voice, Data and  Internet equipment               |       | 893                         |       | 999        |       | (10.6                  | )          | (106             | )          | (8                    | )          | (98 | ) |
| Agent’s commissions and commissions for the  distribution of prepaid cards |       | 704                         |       | 548        |       | 28.5                   |       | 156              |       | 8                     |       | 148 |   |
| Other commissions                                                               |       | 130                         |       | 113        |       | 15.0                   |       | 17               |       | 4                     |       | 13 |   |
| TLRD and Roaming                                                                |       | 760                         |       | 582        |       | 30.6                   |       | 178              |       | —                |       | 178 |   |
| Others                                                                          |       | 502                         |       | 343        |       | 46.4                   |       | 159              |       | 72                    |       | 87 |   |
| Depreciation of fixed assets and amortization of  intangible assets             |       | 1,416                       |       | 1,391      |       | 1.8                    |       | 25               |       | (107                  | )          | 132 |   |
| **Total Cost of Services, General  and Administrative and Selling Expenses**    | ** ** | **7,438**                   | ** ** | **6,478**  | ** ** | **14.8**               | ** ** | **960**          | ** ** | **218**               | ** ** | **742** | ** ** |

 

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The main operatingcosts and the changes in costs between years 2007 and 2006 are illustratedbelow:

 

 

----

(1)          Includes bad debt expense, other commissions and other operatingexpenses.

 

*Salaries and Social Security*

* *

Duringyear 2007, salaries and social security charges were approximately P$960million, representing a 15.8% increase from 2006. This was primarily due to theincrease in salary levels. Additionally, labor costs rose as a consequence ofthe increase in the number of full time employees in the Wireless reportablesegment. As of December 31, 2007, we had 15,392 employees compared to15,138 employees as of December 31, 2006.

 

Foryear 2007, salaries and social security payments were approximately 10.6% ofnet sales. For year 2006, salaries and social security payments wereapproximately 11.2% of net sales.

 

*Taxes*

* *

Expensesrelated to taxes increased 22.4% to P$660 million in year 2007 from P$539million in year 2006, mainly due to the impact of taxes that are calculated onthe basis of revenues, reflecting an increase in total net sales during theyear.

 

*Maintenance, Materials and Supplies*

* *

Expensesrelated to maintenance, materials and supplies increased 41.0% to P$447 millionin year 2007 from P$317 million in year 2006. This increase was due to highermaintenance costs across segments, particularly in the Voice, Data and Internetreportable segment.

* *

*Bad Debt Expense*

* *

Duringyear 2007, bad debt expense increased to P$71 million from P$63 million in year2006. The allowance for doubtful accounts represented 0.8% of net sales for2007, as compared to 0.9% of net sales in 2006. The net increase was due mainlyto growth in the wireless customer base partially offset by improved recoveryof past due accounts in the Voice, Data and Internet reportable segment.

 

*Fees for Services*

* *

Ourfees for various services, including legal, security, and auditing services,totaled P$300 million for year 2007 and P$259 million for year 2006. Thisincrease was due mainly to higher service costs in the Voice, Data and Internetreportable segment. In 2007, fees for services included P$26 million paid tothe Operator as compensation 

 

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for the services of highly qualified personnel andtechnical assistance provided to us in accordance with an agreement enteredinto between Telecom and Telecom Italia Group at the beginning of 2005 which isannually renewable. Such amounts were charged based on hours of service atinternational market rates for such services.

 

*Advertising*

* *

Costsrelated to advertising increased by P$81 million, or 36.0%, to P$306 million,mainly due to higher media advertising expenses for wireless and Internetservices as a result of efforts to retain and expand both customer bases.

 

*Cost of wireless handsets and Voice, Data and Internetequipment*

* *

Duringyear 2007, the cost of wireless handsets and Voice, Data and Internet equipmentdecreased to P$893 million from P$999 million in year 2006, mainly attributableto decreased handset sales in the Wireless reportable segment. The decrease wasmainly due to lower subsidies offered to customers, agents and other thirdparty distributors.

 

*Agent’s Commissions and Commissions for theDistribution of Prepaid Cards*

* *

Salescommissions increased by P$156 million to P$704 million in year 2007 from P$548million in year 2006. The increase in agent’s commissions and commissions forthe distribution of prepaid cards is mainly due to Telecom Personal’s effortsto expand its high-value subscriber base and to the increase in the prepaidsubscriber base, respectively.

 

*TLRD and Roaming*

* *

TLRDand roaming services revenue increased by P$178 million, or 30.6%, to P$760million in year 2007. The change was mainly due to the growth in the wirelesssubscriber base and higher wireless traffic.

 

*Other Operating Expenses*

* *

Otheroperating expenses increased 46.4% to P$502 million in year 2007 from P$343million in year 2006 for both reportable segments. The change was mainlyattributable to increased revenues and to the increase in the customer base.For an analysis of the increase in other operating expenses in the Voice, Dataand Internet and Wireless reportable segments, see “—Results of Operations byReportable Segment” below.

 

*Depreciation of Fixed Assets and Amortization ofIntangible Assets*

* *

Depreciationof fixed assets and amortization of intangible assets increased by P$25million, or 1.8%, to P$1,416 million during 2007 mainly as a consequence ofincreased capital expenditures in the Wireless reportable segment, partiallyoffset by the end of the amortization period for certain assets in the Voice,Data and Internet reportable segment. Additionally, during 2007, the Companyperformed an integral review of the useful lives of its fixed assets. As aresult, since September 30, 2007, Telecom Argentina and Telecom Personalhave changed the useful life of certain fixed assets resulting in a P$14million decrease in depreciation expense for year 2007. Depreciation expensewas equal to approximately 15.6% of net sales for year 2007 and 18.9% of netsales for year 2006.

 

**Operating Income**

** **

Duringthe year ended December 31, 2007, consolidated operating income wasP$1,636 million, with an increase of P$742 million, or 83.0%, compared to 2006.Operating income represented 18.0% of net sales in 2007. Improvement inoperating income in terms of sales margin was seen across both reportablesegments but at different rates of increase. Voice, Data and Internet grew from10.7% of net segment sales in 2006 to 10.8% of net segment sales in 2007 due tothe systematic decline of fixed asset depreciation while the Wirelessreportable segment grew from 13.1% of net segment sales in 2006 to 22.1% of netsegment sales in 2007.

 

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Theincrease in operating income in 2007 was mainly due to strong growth in theWireless reportable segment resulting from higher net sales, partially offsetby an increase in salaries and social security costs, maintenance, materialsand supplies, cost for subscriber acquisition, costs of roaming and TLRD,advertising, and tax expenses.

 

**Financial Results, Net**

** **

Netfinancial and holding resulted in a loss of P$441 million for 2007, reflectinga 8.9% loss decrease over the loss of P$484 million for 2006.

 

As aresult of a P$1,359 million reduction in net financial debt, or 40.5% comparedto the net financial debt at the end of 2006, interest on net financial debtdecreased by P$129 million. This financial cost represents 3.5% of consolidatedsales in year 2007, as compared to 6.1% in year 2006.

 

In2007, the devaluation of the peso against the US dollar was 2.8% and 14.7%against the euro. This caused a net foreign currency exchange loss of P$267million, which was partially offset by gains on derivative financialinstruments entered into to hedge foreign exchange exposure. These instrumentsgenerated a P$141 million gain in the year 2007 and a P$114 million gain in2006.

 

**Other, Net**

** **

*Gain (Loss) on Equity Investees*

* *

Nogain or loss was reported during 2007. In 2006, a P$5 million gain wasreported, mainly due to the realization of P$6 million exchange differencesgenerated by the P$10 million capital reimbursement made by Núcleo to itsshareholders.

 

*Other expenses, net*

* *

Otherexpenses, net included severance payments, provisions for lawsuits and othercontingencies and income from sales of fixed assets.

 

Otherexpenses, net, decreased P$86 million or 46.7% from year 2006, amounting toP$98 million in 2007 mainly due to a gain related to the impact of SCResolution N° 41/07 of P$69 million and a tax gain on deposits and withdrawalsfrom bank accounts of P$23 million (see Note 2.g and 2.i to the ConsolidatedFinancial Statements).

 

Duringyears 2007 and 2006, approximately P$84 million and P$48 million of otherexpenses, net, respectively, were recorded related to accrued severancepayments and costs of termination benefits for employees who were dismissedduring the period or voluntarily retired pursuant to our employee reductionprogram. Although fewer employees were dismissed or voluntarily retired during2007, the amount of severance payments and termination benefits costs increasedduring 2007 mainly due to the fact that the average severance payment peremployee increased by approximately 92%.

** **

**Income Tax (Expense)Benefit, Net**

** **

Theincome tax charge included three effects: (i) the current tax for the yearpayable according to fiscal legislation applicable to each company in theTelecom Group; (ii) the effect of applying the deferred tax method ontemporary differences arising out of the asset and liability valuationaccording to fiscal versus accounting criteria; and (iii) the analysis ofrecoverability of deferred tax assets, particularly, the tax loss carryforwardsaccumulated by Telecom Argentina.

 

Deferredincome taxes resulted from temporary differences in the recognition of expensesfor tax and financial reporting purposes and were accounted for in accordancewith Argentine GAAP, which is consistent with SFAS No. 109. Argentine GAAPrequires the asset and liability method of computing deferred income taxes.

 

Asregards the current tax expenses of Telecom Argentina in the 2007 and 2006fiscal years, Telecom Argentina was not required to pay taxes in 2007 as aresult of an accumulated tax loss carryforward. As regards Personal, itgenerated enough profit in 2007 to offset the entire tax loss carryforwardsaccumulated at the beginning of the year, resulting in a tax liability whichwas offset against a tax credit for minimum presumed income and other 

 

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withholdings. Núcleo reported, in the years underreview, a taxable profit. The tax expense of Núcleo in 2007 increased by theovercharge related to the payment of dividends to shareholders. As perParaguayan tax law, an additional income tax rate of 5% is imposed on dividendsthat are paid.

 

Asregards the deferred tax, the expenses mainly arose from the reduction of thetax loss carryforwards of Telecom Argentina (P$364 million) and TelecomPersonal (P$163 million), partially offset by income generated by variations inthe temporary differences (P$205 million in Telecom Argentina and P$76 millionin Telecom Personal), including, among others, a reduction of the deferred taxliability on fixed assets and its adjustment for inflation, and the higherallowance for doubtful accounts and provisions for lawsuits and othercontingencies.

 

Withrespect to the recoverability of tax loss carryforwards, the Companyrecognized, as of December 31, 2007, P$130 million worth of tax credit dueto tax loss carryforwards, of which P$95 million expired in fiscal year 2007.For that reason, as of December 31, 2007, the related allowance amountedto P$95 million, representing a P$100 million reduction from the end of theprevious year, compared to an P$81 million reduction in 2006. Additionally,Personal set up an P$11 million allowance during 2007 related to certaindeferred tax assets of doubtful collectability.

 

**Income from discontinuedoperations**

** **

In April 2007,Telecom sold its equity interest in Publicom (representing 99.99% of thecapital stock and voting shares of the directory publishing subsidiary) to YellPublicidad S.A. Under Argentine GAAP, the transaction was accounted for under “discontinuedoperations.” As a result, the Company has consolidated Publicom as of December 31,2007 and 2006, identifying the results of discontinued operations in a separateline item in its consolidated statement of income. As of December 31,2007, P$102 million were accounted for as net income from discontinuedoperations, of which P$101 million corresponded to the sale of Publicom, andP$1 million to Publicom’s net income prior to the date of sale.

 

**Net Income**

** **

Foryear 2007, we recorded net income of approximately P$884 million. The Voice,Data and Internet reportable segment accounted for a gain of P$77 million whilethe Wireless reportable segment contributed a P$807 million gain to ourconsolidated net income in 2007.

 

***(B)  Results of Operations byReportable Segment***

*** ***

***(B.1)  Voice, Data and Internet ReportableSegment***

*** ***

Resultsof operations for our Voice, Data and Internet reportable segment for years2008, 2007 and 2006 are comprised as follows:

 
| ** **                                                         | ** ** | **Year Ended  December 31,** | ** ** | **% of Change**         | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|
| ** **                                                         | ** ** | **2008**                          | ** ** | **2007**                | ** ** | **2006** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                                                         | ** ** | **(P$ millions)**            | ** ** | **Increase/(Decrease)** | ** ** |
| Continuing operations                                              |       |                              |       |                    |       |   |   |   |   |   |   |
| Net sales                                                          |       | 3,653                             |       | 3,302                   |       | 3,053 |   | 10.6 |   | 8.2 |   |
| Cost of services, general and administrative and  selling expenses |       | (3,441                            | )          | (2,944                  | )          | (2,726 | ) | 16.9 |   | 8.0 |   |
| **Operating income**                                               | ** ** | **212**                           | ** ** | **358**                 | ** ** | **327** | ** ** | **(40.8** | **)** | **9.5** | ** ** |
| Financial result, net                                              |       | (166                              | )          | (262                    | )          | (375 | ) | (36.6 | ) | (30.1 | ) |
| Other, net (1)                                                     |       | (212                              | )          | (61                     | )          | (138 | ) | 247.5 |   | (55.8 | ) |
| Income tax (expense) benefit, net                                  |       | (143                              | )          | (60                     | )          | 33 |   | 138.3 |   | N/A |   |
| **Net loss from continuing  operations**                           | ** ** | **(309**                          | **)**      | **(25**                 | **)**      | **(153** | **)** | **1,136.0** | ** ** | **(83.7** | **)** |
| ** **                                                         | ** ** | ** **                        | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Discontinued operations                                            |       |                              |       |                    |       |   |   |   |   |   |   |
| Income from discontinued operations                                |       | —                            |       | 102                     |       | 13 |   | (100.0 | ) | 684.6 |   |
| **Net income (loss)**                                              | ** ** | **(309**                          | **)**      | **77**                  | ** ** | **(140** | **)** | **N/A** | ** ** | **N/A** | ** ** |

 

----

(1)   Other, net includes gain (loss) on equityinvestees and other expenses, net.

 

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***NetSales***

 

Duringyear 2008, net sales from our Voice, Data and Internet reportable segmentincreased 10.6% to P$3,653 million from P$3,302 million in year 2007. Duringyear 2007, net sales from our Voice, Data and Internet reportable segmentincreased 8.2% to P$3,302 million from P$3,053 million in year 2006. Theincrease in each year was due to several factors, including an increase in thecustomer base, which in turn generated greater basic and supplementary monthlycharges. Particularly, in 2008, the base of ADSL subscribers grew 33.1% ascompared to 2007, representing an increase in ADSL Internet revenues of P$214million, offset by a reduction of P$7 million in Dial-Up 0610 Internet trafficin 2008 as compared to 2007. Other factors in the growth in net sales in 2008were the increase in our revenues from data transmission services, the increasein our provision of interconnection services as a consequence of the generalexpansion of the wireless business and the increase in the customer base,generating a higher number of monthly basic charges and charges forsupplementary services.

 

Revenuesfrom our Voice, Data and Internet reportable segment for years 2008, 2007 and2006 are comprised as follows:

 
| ** **                          | ** ** | **Year  Ended December 31,** | ** ** | **% of  Change**        | ** ** |
|-------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **2008**                          | ** ** | **2007**                | ** ** | **2006** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                          | ** ** | **(P$ millions)**            | ** ** | **Increase/(Decrease)** | ** ** |
| Measured service charges            |       | 968                               |       | 960                     |       | 941 |   | 0.8 |   | 2.0 |   |
| Monthly basic charges               |       | 799                               |       | 746                     |       | 716 |   | 7.1 |   | 4.2 |   |
| Internet revenues                   |       | 731                               |       | 524                     |       | 428 |   | 39.5 |   | 22.4 |   |
| Interconnection revenues            |       | 400                               |       | 373                     |       | 318 |   | 7.2 |   | 17.3 |   |
| International long-distance service |       | 269                               |       | 270                     |       | 242 |   | (0.4 | ) | 11.6 |   |
| Public telephone service            |       | 86                                |       | 117                     |       | 131 |   | (26.5 | ) | (10.7 | ) |
| Data transmission                   |       | 205                               |       | 172                     |       | 153 |   | 19.2 |   | 12.4 |   |
| Installation charges                |       | 19                                |       | 18                      |       | 23 |   | 5.6 |   | (21.7 | ) |
| Equipment sales (1)                 |       | 41                                |       | 18                      |       | 7 |   | 127.8 |   | 157.1 |   |
| Other national telephone services   |       | 135                               |       | 104                     |       | 94 |   | 29.8 |   | 10.6 |   |
| **Total Voice, Data and Internet**  | ** ** | **3,653**                         | ** ** | **3,302**               | ** ** | **3,053** | ** ** | **10.6** | ** ** | **8.2** | ** ** |

 

----

(1)   As of December 31, 2008, this item iscomposed of P$25 million of voice equipment, P$12 million of data equipment andP$4 million of Internet equipment. As of December 31, 2007, this item wascomposed of P$13 million of voice equipment, P$4 million of Internet equipmentand P$1 million of data equipment.

 

The chart below shows net sales for the years 2008,2007 and 2006 and their breakdown by service type:

 

 

----

(1)          Includes installation charges, equipment sales and other nationaltelephone services.

 

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*Measured Service Charges and Monthly Basic Charges*

* *

Measuredservice charges are based on the number and duration of calls. Measured servicerevenues depend on the number of lines in service, the volume of usage, thenumber of new lines installed and applicable rates. Most of our customers arebilled monthly. Monthly basic charges differ for residential, professional andcommercial customers.

 

Revenuesfrom measured service and monthly basic charges also include charges forsupplementary services (which include call-waiting, call-forwarding, three-waycalling, caller ID, direct inwards dialing, toll-free service and voicemail,among others).

 

Revenuesfrom measured service and monthly basic charges represented 48.4% of our totalsegment net sales for year 2008, compared to 51.7% of our total segment netsales for year 2007. Revenues from traffic and monthly basic charges increased3.6% to P$1,767 million in year 2008 from P$1,706 million in year 2007.Measured service charges increased 0.8% to P$968 million in year 2008 fromP$960 million in year 2007. Monthly basic charges increased 7.1% to P$799million in year 2008 when compared with year 2007, mainly due to the increasein customer lines. Lines in service as of December 31, 2008 increased toapproximately 4,299,000 compared to approximately 4,208,000 as of December 31,2007 due to continuing recovery in demand. However, fixed telephony tariffsremained unchanged since 2002 as a result of the Pesification and freeze ontariffs imposed by the Argentine Government.

 

*Revenues from measured service and monthly basic chargesrepresented 51.7% of our total segment net sales for year 2007, compared to54.3% of our total segment net sales for year 2006. Revenues from traffic andmonthly basic charges increased 3.0% to P$1,706 million in year 2007 fromP$1,657 million in year 2006. Measured service charges increased 2.0% to P$960million in year 2007 from P$941 million in year 2006. Monthly basic chargesincreased 4.2% to P$746 million in year 2007 when compared with year 2006,mainly due to the increase in customer lines. Lines in service as of December 31,2007 increased to approximately 4,208,000 compared to approximately 4,095,000as of December 31, 2006 due to the recovery in demand.*

* *

*Internet Revenues*

* *

Revenuesfrom Internet subscription fees and Internet-related Value Added Servicesincreased 39.5% to P$731 million in year 2008 compared to P$524 million in2007, and increased 22.4% in year 2007 compared to P$428 million in 2006,mainly due to an increase in the number of ADSL subscribers in each year.

 

As of December 31,2008, the number of ADSL subscribers reached approximately 1,042,000, comparedto 783,000 as of December 31, 2007, increasing by 33.1%. During 2007, ADSLsubscribers increased 71.3% from 457,000 as of December 31, 2006. Internetdial-up customers totaled approximately 65,000 as of December 31, 2008compared to 76,000 as of December 31, 2007, decreasing by 14.5%. As of December 31,2008 and 2007, dial-up minutes represented 9.0% and 13.3%, respectively, oftotal traffic measured in minutes transported over the fixed-line network.Dial-up minutes have fallen in the last years due to the steady migration ofcustomers to ADSL services.

 

*Interconnection Revenues*

* *

Duringyear 2008, revenues from interconnection services, which primarily includeaccess, termination and long-distance transport of calls, increased 7.2% to P$400million from P$373 million in 2007. During year 2007, revenues frominterconnection services increased 17.3% to P$373 million from P$318 million in2006. The increase in each year was mainly due to the increase in wirelesstraffic transported and terminated on Telecom’s fixed line network.

 

*International Long-Distance Service*

* *

Revenuesfrom international long-distance service reflect payments made under bilateralagreements between the Company and foreign telecommunications carriers coveringinbound international long-distance calls and earnings from outbound phonecalls made by customers.

 

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Duringyear 2008, international long-distance service revenues decreased 0.4% to P$269million from P$270 million in year 2007. The slight decrease was mainly due toa decrease in prices partially offset by higher incoming and outgoing traffic.During year 2007, international long-distance service revenues increased 11.6%to P$270 million from P$242 million in year 2006. The increase was mainly dueto higher incoming and outgoing traffic partially offset by a decrease inprices.

 

*Public Telephone Service*

* *

Revenuesfrom public telephone service decreased by 26.5% to P$86 million in year 2008from P$117 million in year 2007. Revenues from public telephone servicedecreased by 10.7% to P$117 million in year 2007 from P$131 million in year2006. The decrease in each year was mainly due to reduced traffic on publictelephones and decreased use of telecommunication centers as a result ofexpanded cellular usage.

 

*Data Transmission*

* *

Revenuesfrom data transmission services increased 19.2% to P$205 million in year 2008from P$172 million in year 2007. The change was mainly due to an increase invarious data transmission services, including an increase in private virtualnetwork services, leases of circuits, volumes of traffic for dedicated lines,and growth in data center services as a result of the acquisition of Cubecorp.The majority of our revenues from data transmission services are denominated inUS dollars and, consequently, in 2008, were affected by the fluctuations in theexchange rate between the peso and the US dollar resulting in an increase indata transmission revenues. During year 2007, revenues from data transmissionservices increased 12.4% to P$172 million from P$153 million in year 2006. Theincrease was mainly due to an increase in the demand for data transmission services,especially due to the fulfillment of a significant connection-provisioncontract with the government of the province of Buenos Aires, which aimed toprovide a network that integrates all of the province’s municipalities.

 

*Installation Charges*

* *

Duringyear 2008, installation charges from new customers increased by 5.6% to P$19million from P$18 million in year 2007 due to an increase in the amount of newconnected lines during the period 2008 to 2007, as compared to the period 2007to 2006.  During year 2007, installationcharges from new customers decreased by 21.7% to P$18 million from P$23 millionin year 2006 due to a decrease in the amount of new connected lines during theperiod 2007 to 2006 as compared to period 2006 to 2005.

* *

*Equipment Sales*

* *

Revenuesfrom equipment sales increased 127.8%****to P$41million in year 2008 from P$18 million in year 2007.  During year 2007, revenues from equipmentincreased by 157.1%,****to P$18million in year 2007 from P$7 million in year 2006. The increase in 2008 was mainlydue to higher sales of new “Aladino” telephone sets, which allow SMS servicesor video calls on fixed lines depending on the model, higher sales of modems asa result of the expansion of our Internet services, and higher sales of dataequipment.

 

*Other National Telephone Services*

* *

Revenuesfrom other national telephone services are derived mainly from dedicated lines,access charges and miscellaneous customer charges. During year 2008, revenuesfrom other national telephone services increased 29.8% to P$135 million fromP$104 million in year 2007. During year 2007, revenues from other nationaltelephone services increased 10.6% to P$104 million from P$94 million in year2006. The increase in each year was mainly due to higher revenues related tobilling and collection services charged to other operators.

 

***Costof Services, General and Administrative and Selling Expenses***

*** ***

Duringyear 2008, total cost of services, general and administrative expenses for theVoice, Data and Internet reportable segment increased 16.9% to P$3,441 millioncompared to P$2,944 million in year 2007. During year 2007, total cost ofservices, general and administrative expenses for the Voice, Data and Internetreportable segment increased 8.0% to P$2,944 million compared to P$2,726million in year 2006. The increase in each year was mainly due to increases insalaries and social security charges, taxes, maintenance, materials andsupplies costs, fees for services and advertising.

 

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Detailedbelow are the major components of our cost of services, general andadministrative and selling expenses for the years ended December 31, 2008,2007 and 2006 related to our Voice, Data and Internet reportable segment:

 
| ** **                                                               | ** ** | **Year Ended  December 31,** | ** ** | **% of Change**         | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|
| ** **                                                               | ** ** | **2008**                          | ** ** | **2007**                | ** ** | **2006** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                                                               | ** ** | **(P$ millions)**            | ** ** | **Increase/(Decrease)** | ** ** |
| Salaries and social security                                             |       | 931                               |       | 744                     |       | 663 |   | 25.1 |   | 12.2 |   |
| Taxes                                                                    |       | 223                               |       | 196                     |       | 175 |   | 13.8 |   | 12.0 |   |
| Maintenance, materials and supplies                                      |       | 373                               |       | 307                     |       | 227 |   | 21.5 |   | 35.2 |   |
| Bad debt expense                                                         |       | 10                                |       | 12                      |       | 16 |   | (16.7 | ) | (25.0 | ) |
| Interconnection costs                                                    |       | 156                               |       | 151                     |       | 159 |   | 3.3 |   | (5.0 | ) |
| Costs of international outbound calls                                    |       | 145                               |       | 138                     |       | 111 |   | 5.1 |   | 24.3 |   |
| Fees for services                                                        |       | 181                               |       | 140                     |       | 107 |   | 29.3 |   | 30.8 |   |
| Advertising                                                              |       | 137                               |       | 89                      |       | 70 |   | 53.9 |   | 27.1 |   |
| Commissions for the distribution of prepaid cards  and Other commissions |       | 94                                |       | 75                      |       | 63 |   | 25.3 |   | 19.0 |   |
| Cost of sales of equipment                                               |       | 38                                |       | 18                      |       | 26 |   | 111.1 |   | (30.8 | ) |
| Others                                                                   |       | 331                               |       | 246                     |       | 174 |   | 34.6 |   | 41.4 |   |
| **Subtotal before depreciation  and amortization**                       | ** ** | **2,619**                         | ** ** | **2,116**               | ** ** | **1,791** | ** ** | **23.8** | ** ** | **18.1** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets      |       | 822                               |       | 828                     |       | 935 |   | (0.7 | ) | (11.4 | ) |
| **Total Voice, Data and Internet**                                       | ** ** | **3,441**                         | ** ** | **2,944**               | ** ** | **2,726** | ** ** | **16.9** | ** ** | **8.0** | ** ** |

 

The main operating costs andthe changes in costs between years 2008, 2007 and 2006 are illustrated below:

 

 

----

*(1)*   Includes bad debt expense,commissions for the distribution of prepaid cards and other commissions, costof sales of equipment and other operating expenses.

* *

*Salaries and SocialSecurity*

* *

Duringyear 2008, salaries and social security charges were approximately P$931million, representing a 25.1% increase from 2007. During year 2007, salariesand social security charges were approximately P$744 million, representing a12.2% increase from 2006. These increases were primarily due to salaryincreases, particularly for unionized personnel of Telecom Argentina(approximately 73% of its personnel) reflecting an adjustment in collectivebargaining agreements, partially offset by a decrease in the number ofemployees in this reportable segment.

 

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Foryear 2008, salaries and social security payments were approximately 25.5% ofsegment net sales. For year 2007, salaries and social security payments wereapproximately 22.5% of segment net sales.

 

*Taxes*

* *

Expensesrelated to taxes increased 13.8% to P$223 million in year 2008 from P$196million in year 2007, and increased 12.0% to P$196 million in year 2007 fromP$175 million in year 2006, mainly due to higher turnover taxes and other taxeson sales as a consequence of the increase in revenues.

 

*Maintenance, Materials and Supplies*

* *

Maintenance,materials and supplies expense increased 21.5% to P$373 million in year 2008from P$307 million in year 2007. During 2007, maintenance, materials andsupplies expenses increased 35.2% to P$307 million in year 2007 from P$227million in year 2006. The increase in each year was primarily due to highermaintenance costs for network equipment, buildings and utility vehicles and theincrease in the prices of certain supplies due to the effects of inflation.

* *

*Costs of International outbound calls*

* *

Duringyear 2008, we recorded P$145 million in costs of international outbound callscompared with P$138 million recorded in year 2007 and P$111 million recorded inyear 2006. The increase in each year was mainly due to the increase in internationalcall traffic originating in our network and requiring fees for transport acrossinternational lines.

 

*Fees for Services*

* *

Feesfor various services, including technical, commercial, legal, security andauditing services totaled approximately P$181 million for year 2008, P$140million for year 2007 and P$107 million for year 2006. This increase was duemainly to the renegotiation of most of the contracts because of the effects ofinflation and higher service costs in both segments, especially those relatedto the Call Centers and the software and hardware fees.

 

*Advertising*

* *

Duringyear 2008, we recorded P$137 million in costs of advertising compared with P$89million recorded in year 2007. During year 2006, we recorded P$70 million inadvertising costs. The increase in each year was mainly due to increasedadvertising campaigns as a result of competition in the Internet servicesmarket. Particularly, in year 2008, the Company incurred advertising costs inconnection with its sponsorship of the 2008 Beijing Games.

 

*Commissions for the Distribution of Prepaid Cards andOther Commissions*

* *

Duringyear 2008, we recorded P$94 million in costs relating to commissions for thedistribution of prepaid cards and other commissions, compared with P$75 millionin year 2007. This increase was mainly due to an increase in the volume ofcommissions partially offset by less traffic on public telephones and throughtelecommunication centers. During year 2006, we recorded P$63 million in costsrelating to commissions for the distribution of prepaid cards and othercommissions.

 

*Cost of Sales of Equipment*

* *

Duringyears 2008, 2007 and 2006, we recorded P$38 million, P$18 million and P$26million in cost of sales of equipment mainly related to sales of “Aladino”telephone sets, Internet modems and data equipment.

 

*Other Operating Expenses*

* *

Otheroperating expenses include accrued expenses such as transportation costs,insurance, energy and rentals. During year 2008, our other operating expensesamounted to P$331 million compared to P$246 million in 2007 and P$174 millionin 2006. The increase in each year is related to increased revenues and higherprices due to the effects of inflation.

 

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*Depreciation of Fixed Assets and Amortization ofIntangible Assets*

* *

Depreciationexpense were P$822 million in year 2008, P$828 million in year 2007 and P$935million in year 2006. Depreciation expenses as a percentage of net sales of thesegment were approximately 22.5% in 2008, 25.1% in 2007 and 30.6% in 2006,respectively. The decreases were primarily attributable to the end of theamortization period for certain assets.

 

During2007, the Company performed an integral review of the useful lives of its fixedassets. As a result, since September 30, 2007, Telecom Argentina haschanged the useful life of certain fixed assets, resulting in a P$9 milliondecrease in depreciation expense for year 2007 in the Voice, Data and InternetReportable Segment.

 

***OperatingIncome***

*** ***

In2008, the operating income from our Voice, Data and Internet reportable segmentdecreased 40.8% to P$212 million from P$358 million in 2007. The decrease wasmainly due to the fact that the annual increase in operating costs, excludingdepreciation and amortization, exceeded the annual increase in sales in thesegment. Depreciation in year 2008 was at a similar level of year 2007, with aslight 1% decrease. In 2007, the operating income from our Voice, Data andInternet reportable segment increased 9.5% to P$358 million from P$327 millionin 2006. The increase in year 2007 was mainly due to decreases in depreciationcharges partially offset by the increase in operating expenses.

 

The followingtable shows our operating income from the Voice, Data and Internet reportablesegment in years 2008, 2007 and 2006 and its percentage of net sales in eachyear.

 
| ** **                                             | ** ** | **Year Ended  December 31,** | ** ** | ** **                | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------|------------|---------------------------|------------|------------|------------|
| ** **                                             | ** ** | **2008**                          | ** ** | **2007**                  | ** ** | **2006**   | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                                             | ** ** | **(P$ million / %)**         | ** ** | **Increase / (Decrease)** | ** ** |
| Operating income before depreciation and  amortization |       | 1,034                             |       | 1,186                     |       | 1,262      |       | (12.8 | )% | (6.0 | )% |
| *As % of net sales*                                    |       | 28.3                              | %          | 35.9                      | %          | 41.3       | %          | *(7.6* | *)%* | *(5.4* | *)%* |
| Depreciation and amortization                          |       | (822                              | )          | (828                      | )          | (935       | )          | (0.7 | )% | (11.4 | )% |
| *As % of net sales*                                    |       | (22.5                             | )%         | (25.1                     | )%         | (30.6      | )%         | *2.6* | *%* | *5.5* | *%* |
| **Operating income**                                   | ** ** | **212**                           | ** ** | **358**                   | ** ** | **327**    | ** ** | **(40.8** | **)%** | **9.5** | **%** |
| *As % of net sales*                                    |       | 5.8                               | %          | 10.8                      | %          | 10.7       | %          | *(5.0* | *)%* | *0.1* | *%* |

 

Our operatingincome before depreciation and amortization from the Voice, Data and Internetreportable segment was P$1,034 million, P$1,186 million and P$1,262 million,representing 28.3% of net sales in 2008, 35.9% of net sales in 2007 and 41.3%of net sales in 2006, respectively. These decreases in the operating marginfrom 2006 to 2008 correspond mainly to an increase in operating expenses suchas salaries and social security charges, taxes, maintenance, materials andsupplies costs, costs of international outbound calls, fees for services, andadvertising which, cumulatively, were larger than the increase in net sales ofeach year.

 

***FinancialResults, Net***

*** ***

Duringyear 2008, we recorded a net financial loss of approximately P$166 millioncompared to a net financial loss of approximately P$262 million in year 2007,reflecting a reduction in loss of 36.6% as compared to the previous year. Thedifference was mainly due to lower net financial interest of P$86 million inyear 2008 as a result of a significant reduction in net financial debt comparedto year 2007. In 2008, the devaluation of the peso against the US dollar was9.6% and 3.4% against the euro. This caused a net foreign currency exchangeloss of P$107 million (including the effect of derivative financial instrumentsentered into to hedge foreign exchange exposure), which represents an increaseof P$12 million compared to the net foreign currency exchange loss of P$95million of year 2007.

 

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Duringyear 2007, we recorded a net financial loss of approximately P$262 millioncompared to a net financial loss of approximately P$375 million in year 2006.The difference was mainly due to lower net financial interest of P$113 millionin year 2007 compared to year 2006.

 

***Other,Net***

*** ***

*Gain (Loss) on Equity Investees*

* *

Nogain or loss on equity investees was reported during 2008 and 2007. During year2006, a loss of P$1 million was recorded due to a decline in value of ourinvestment in “2003 Telecommunication Fund” (See Note 11.b to the ConsolidatedFinancial Statements).

 

*Other Expenses, Net*

* *

Otherexpenses, net include severance payments and provisions for lawsuits and othercontingencies.

 

Foryear 2008, other expenses, net increased by P$151 million to P$212 millioncompared to year 2007. Other expenses, net in year 2008 mainly consist ofhigher provisions for lawsuits and other contingencies and severance paymentsand termination benefits, as a result of an increase in the number of employeesretired or dismissed, partially offset by a decrease in the average retirementand severance cost per employee. For year 2007, other expenses, net decreasedby P$76 million, or 55.5%, to P$61 million compared to year 2006. Otherexpenses, net in year 2007 mainly consists of gain related to the impact of SCResolution No. 41/07 of P$69 million and tax benefit on deposits andwithdrawals from bank accounts of P$23 million (see Notes 2.g and 2.i to theConsolidated Financial Statements) and higher gain on sale of fixed assets andother assets, partially offset by higher provisions for lawsuits and othercontingencies and severance payments and termination benefits.

 

***IncomeTax (Expense) Benefit, Net***

*** ***

Incometax (expense) benefit, net includes three effects: (i) the current tax forthe year payable according to fiscal legislation applicable to TelecomArgentina and Telecom Argentina USA; (ii) the effect of applying thedeferred tax method on temporary differences arising out of the asset andliability valuation according to fiscal vs. accounting criteria; and (iii) theanalysis of recoverability of deferred tax assets, particularly, tax losscarryforwards accumulated by Telecom Argentina.

 

Duringyear 2008, our Voice, Data and Internet reportable segment recorded an incometax expense of P$143 million compared to P$60 million in year 2007. The incometax expense in year 2008 is mainly attributable to the provision for currentincome tax (amounting to P$238 million), partially offset by income generatedby a deferred tax on the temporary differences arising out of the asset andliability valuations according to fiscal vs. accounting criteria (amounting toP$93 million) and a P$2 million reduction in the allowance for net deferred taxassets.

 

Duringyear 2007, we recorded an income tax expense of P$60 million in this segmentcompared to an income tax benefit of P$33 million in year 2006. The income taxexpense in year 2007 is mainly attributable to the reduction of the tax losscarryforwards of Telecom Argentina (which were reduced by P$364 million), whichwas partially offset by the income generated by the rest of temporarydifferences (amounting to P$205 million) including, among others, a reductionof the deferred tax liability on fixed assets and its adjustment for inflation,and the higher allowance for doubtful accounts and provisions for lawsuits andother contingencies. As of December 31, 2007, a valuation allowance ofP$95 million was recorded in Telecom Argentina, representing a reduction ofP$100 million in its valuation allowance compared to year 2006.

 

Duringyear 2006, we recorded income tax benefit of P$33 million due to a reversal ofa portion of the valuation allowance of our deferred income tax asset partiallyoffset by the income tax expense due to taxable net income in 2006.

 

***NetLoss from continuing operations***

*** ***

Foryear 2008, the Voice, Data and Internet reportable segment recorded a net lossof approximately P$309 million in comparison with a net loss of approximatelyP$25 million in year 2007. The higher net loss in year 2008 is mainly due tolower operating income, higher other expenses, net and higher income taxexpense partially offset by lower financial loss, net as discussed above.

 

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Foryear 2007, the Voice, Data and Internet reportable segment recorded a net lossof approximately P$25 million in comparison with a net loss of approximatelyP$153 million in year 2006. The lower net loss in year 2007 is mainly due tohigher operating income, lower financial loss, net and lower other expenses,net, partially offset by higher income tax expense, as discussed above.

 

Foryear 2006, the Voice, Data and Internet reportable segment recorded net loss ofapproximately P$153 million, mainly due to the financial loss, net as aconsequence of the fluctuation of the Peso-to-Dollar exchange rate during year2006 and the net financial interest.

 

***Incomefrom Discontinued Operations***

*** ***

In April 2007,Telecom Argentina sold its 99.99% shareholding in Publicom (the directorypublishing company) to Yell Publicidad S.A. According to Argentine GAAP, netincome from the operations of Publicom and from the sale of Publicom has beenaccounted for under “discontinued operations,” which was included in a specificcaption “Results from discontinued operations” in the consolidated statementsof income for the years ended December 2008, 2007 and 2006. The net incomefrom discontinued operations for year 2007 amounted to P$102 million, of whichP$101 million corresponded to the sale of Publicom, and P$1 million to Publicom’snet income prior to the date of sale. Comparatively, during the year 2006, thenet income from the discontinued operations amounted to P$13 million, relatedto net income from the operations of Publicom.

 

***NetIncome (Loss)***

*** ***

Foryear 2008, the Voice, Data and Internet reportable segment recorded a net lossof approximately P$309 million. Since there are no results from discontinuedoperations for year 2008, see “Net Loss from continuing operations” for anexplanation of net losses for 2008.

 

Foryear 2007, the Voice, Data and Internet reportable segment recorded a netincome of approximately P$77 million mainly due to the net income of P$102 millionreflecting discontinued operations of Publicom which was partially offset byP$25 million loss from continuing operations.

 

Foryear 2006, the Voice, Data and Internet reportable segment recorded a net lossof approximately P$140 million, mainly due to the financial loss, net as aconsequence of the fluctuation of the peso-to-dollar exchange rate during year2006 and the net financial interest.

 

**(B.2)  Wireless Reportable Segment**

 

Results ofoperations from our Wireless reportable segment for years 2008, 2007 and 2006are comprised as follows:

 
| ** **                                                         | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                         | ** ** | **2008**                         | ** ** | **2007**                | ** ** | **2006** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                                                         | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| Net sales                                                          |       | 6,955                            |       | 5,772                   |       | 4,319 |   | 20.5 |   | 33.6 |   |
| Cost of services, general and administrative and  selling expenses |       | (5,126                           | )          | (4,494                  | )          | (3,752 | ) | 14.1 |   | 19.8 |   |
| **Operating income**                                               | ** ** | **1,829**                        | ** ** | **1,278**               | ** ** | **567** | ** ** | **43.1** | ** ** | **125.4** | ** ** |
| Financial results, net                                             |       | (99                              | )          | (179                    | )          | (109 | ) | (44.7 | ) | 64.2 |   |
| Other, net (1)                                                     |       | (68                              | )          | (60                     | )          | (63 | ) | 13.3 |   | (4.8 | ) |
| Income tax                                                         |       | (392                             | )          | (232                    | )          | (11 | ) | 69.0 |   | 2,009.1 |   |
| **Net income**                                                     | ** ** | **1,270**                        | ** ** | **807**                 | ** ** | **384** | ** ** | **57.4** | ** ** | **110.2** | ** ** |

 

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(1)          Other,net includes gain on equity investees, other expenses, net and minorityinterest.

 

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***NetSales***

*** ***

Weprovide wireless telephone service throughout Argentina and Paraguay throughTelecom Personal and Núcleo, respectively, via cellular and PCS networks. Netsales from Argentina and Paraguay were approximately 94.4% and 5.6%,respectively, of total segment net sales in 2008, 92.5% and 7.5%, respectively,in 2007 and 91.8% and 8.2%, respectively, in 2006.

 
| ** **                                                | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                | ** ** | **2008**                         | ** ** | **2007**                | ** ** | **2006** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                                                | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| **Argentina**                                             |       |                             |       |                    |       |   |   |   |   |   |   |
| Service revenues (1)                                      |       | 5,853                            |       | 4,756                   |       | 3,428 |   | 23.1 |   | 38.7 |   |
| Handset sales                                             |       | 712                              |       | 583                     |       | 536 |   | 22.1 |   | 8.8 |   |
| **Total net sales in Argentina**                          | ** ** | **6,565**                        | ** ** | **5,339**               | ** ** | **3,964** | ** ** | **23.0** | ** ** | **34.7** | ** ** |
| Average number of subscribers during the year (thousands) |       | 11,513                           |       | 9,718                   |       | 7,046 |   | 18.5 |   | 37.9 |   |
| **Paraguay**                                              |       |                             |       |                    |       |   |   |   |   |   |   |
| Service revenues                                          |       | 382                              |       | 426                     |       | 347 |   | (10.3 | ) | 22.8 |   |
| Handset sales                                             |       | 8                                |       | 7                       |       | 8 |   | 14.3 |   | (12.5 | ) |
| **Total net sales in Paraguay**                           | ** ** | **390**                          | ** ** | **433**                 | ** ** | **355** | ** ** | **(9.9** | **)** | **22.0** | ** ** |

 

----

(1) Certain components of servicerevenues are not included in the ARPU calculation.

 

Animportant operational measure used in the Wireless reportable segment is ARPU,which we calculate by dividing adjusted total service revenue (excludingoutcollect wholesale roaming, cell site rental and activation fee revenue andincluding intercompany wireless sales) by the average number of subscribersduring the period. ARPU is not a measure calculated in accordance withArgentine GAAP and our measure of ARPU may not be calculated in the same manneras similarly titled measures used by other companies. In particular, certaincomponents of service revenues are excluded from Telecom Personal’s ARPUcalculations presented in this Annual Report. Management believes that thismeasure is helpful in assessing the development of the subscriber base in theWireless reportable segment. The following table shows the reconciliation oftotal service revenues in Argentina to such revenues included in the ARPUcalculations:

 
| ** **                                                                | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                | ** ** | **(P$ millions)**           | ** ** |
| **Total service revenues in Argentina**                                   | ** ** | **5,853**                        | ** ** | **4,756** | ** ** | **3,428** | ** ** |
| Components of service revenues not included in the  ARPU calculation:     |       |                             |       |   |   |   |   |
| Outcollect wholesale roaming                                              |       | (229                             | )          | (207 | ) | (150 | ) |
| Cell sites rental                                                         |       | (8                               | )          | (7 | ) | (6 | ) |
| Activation fees                                                           |       | (35                              | )          | (32 | ) | (33 | ) |
| Intercompany wireless sales                                               |       | 25                               |       | 13 |   | 11 |   |
| **Total service revenues in  Argentina included in the ARPU calculation** | ** ** | **5,606**                        | ** ** | **4,523** | ** ** | **3,250** | ** ** |

 

***NetSales in Argentina***

*** ***

Duringyear 2008, Telecom Personal’s net sales in Argentina increased 23.0% to P$6,565million from P$5,339 million in year 2007, mainly due to increases in thenumber of subscribers. ARPU in Argentina during 2008 was approximately P$41 percustomer per month and was approximately P$39 per customer per month in 2007and 2006.

 

The totalnumber of Telecom Personal’s subscribers in Argentina was approximately12,564,000 as of December 31, 2008, representing an increase ofapproximately 1,898,000, or 17.8%, as compared to 2007. This increase wasfueled by increased penetration of cellular services in Argentina. As of December 31,2008, the subscriber base in Argentina amounted to approximately 8,303,000prepaid subscribers, or 66.1% of the total subscriber base, approximately1,454,000 post-paid subscribers, or 11.6% of the total subscriber base andapproximately 2,807,000 “cuentas claras” plan subscribers, or 22.3% of thetotal subscriber base. Total wireless traffic increased 16.8% during year 2008as compared to year 2007.

 

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Duringyear 2007, Telecom Personal’s net sales in Argentina increased 34.7% to P$5,339million from P$3,964 million in year 2006, mainly due to the increase in thesubscribers base.

 

Thetotal number of Telecom Personal’s cellular subscribers in Argentina wasapproximately 10,666,000 as of December 31, 2007, which represents anincrease of approximately 2,241,000, or 26.6%, as compared to 2006. As of December 31,2007, the subscriber base in Argentina amounted to approximately 7,062,000prepaid subscribers, or 66.2% of the total subscriber base, approximately1,134,000 post-paid subscribers, or 10.6% of the total subscriber base andapproximately 2,470,000 “cuentas claras” plan subscribers, or 23.2% of thetotal subscriber base. Total wireless traffic increased 30.7% during year 2007as compared to year 2006.

 

***NetSales in Paraguay***

 

Núcleo,which provides wireless telephone services in Paraguay, generated P$390 millionin net sales during year 2008, a 9.9% decrease from the P$433 million in year2007. The decrease in revenue was mainly due to lower traffic volumes and theeffect of the international crisis which affected the exchange rates,especially in the last semester of 2008 (since they are converted fromguaraníes to argentine pesos). Núcleo had approximately 1,826,000 subscribersas of December 31, 2008 (1,811,000 are wireless subscribers and 15,000 areInternet subscribers), which represents an increase of approximately 200,000customers, or 12.3%, as compared to the level at December 31, 2007. As of December 31,2008, Núcleo had approximately 1,647,000 prepaid subscribers, representing90.9% of Núcleo’s total wireless subscriber base. The number of GSM subscriberswas approximately 1,705,000 customers, or 94.1% of Núcleo’s total wirelesssubscriber base.

 

In2007, Núcleo’s net sales were P$433 million, representing a 22.0% increase fromthe P$355 million generated in year 2006. The growth in revenue was mainly dueto sales of the prepaid services. Núcleo had approximately 1,626,000subscribers as of December 31, 2007 (1,619,000 were wireless subscribersand 7,000 were Internet subscribers), which represents an increase ofapproximately 462,000 customers, or 39.7%, as compared to the level at December 31,2006. As of December 31, 2007 Núcleo had approximately 1,456,000 prepaidsubscribers, representing 89.9% of the total wireless subscriber base. Thenumber of GSM subscribers was approximately 1,414,000 customers, or 87.3% ofNúcleo’s total wireless subscriber base.

 

***General***

*** ***

Duringyear 2008, total net sales from our Wireless reportable segment, consisting ofservice revenues and handset sales, increased 20.5% to P$6,955million from P$5,772 million in year 2007. During year 2007, total net salesincreased 33.6% to P$5,772 million from P$4,319 million in year 2006.

 

Revenuesfrom our Wireless reportable segment for years 2008, 2007 and 2006 arecomprised as follows:

 
| ** **                                      | ** ** | **Year Ended December 31,** | ** ** | **% of Change** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|-----------------|------------|
| ** **                                      | ** ** | **2008**                         | ** ** | **2007**        | ** ** | **2006** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                                      | ** ** | **(P$ millions)**           | ** ** | **Increase**    | ** ** |
| Prepaid services                                |       | 1,176                            |       | 1,045           |       | 742 |   | 12.5 |   | 40.8 |   |
| Monthly basic charges and airtime usage charges |       | 1,455                            |       | 1,244           |       | 906 |   | 17.0 |   | 37.3 |   |
| Calling Party Pays                              |       | 582                              |       | 599             |       | 525 |   | (2.8 | ) | 14.1 |   |
| TLRD and Roaming services                       |       | 1,142                            |       | 915             |       | 650 |   | 24.8 |   | 40.8 |   |
| Value added services                            |       | 1,742                            |       | 1,269           |       | 816 |   | 37.3 |   | 55.5 |   |
| Other service sales                             |       | 138                              |       | 110             |       | 136 |   | 25.5 |   | (19.1 | ) |
| **Subtotal Service Revenues**                   | ** ** | **6,235**                        | ** ** | **5,182**       | ** ** | **3,775** | ** ** | **20.3** | ** ** | **37.3** | ** ** |
| Handset sales                                   |       | 720                              |       | 590             |       | 544 |   | 22.0 |   | 8.5 |   |
| **Total Wireless**                              | ** ** | **6,955**                        | ** ** | **5,772**       | ** ** | **4,319** | ** ** | **20.5** | ** ** | **33.6** | ** ** |

 

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***ServiceRevenues***

*** ***

Servicerevenues in the Wireless reportable segment consist of recurring monthly basiccharges, airtime usage charges, prepaid services, roaming charges billed to ourcustomers for their use of our and other carriers’ networks, roaming chargesbilled to other wireless service providers whose customers use our network,TLRD and CPP charges, additional charges for Value Added Services and for othermiscellaneous cellular and PCS services.

 

As a result of the strong growth of the customer base,generally all types of service revenues have grown considerably during theyears presented. Revenues from post-paid services (including a monthly basiccharges and air time usage charges), prepaid services and Value Added Servicesgrew by 22.9% in year 2008compared to year 2007 (an increase of 26.0% in Argentina, partially offset by adecrease of 9.8% in Paraguay).

 

Servicerevenues were approximately 89.6%of total reportable segment net sales in 2008, 89.8% in 2007 and 87.4% in 2006,respectively.

 

*Prepaid Services*

* *

Prepaidservices sales increased 12.5%to P$1,176 million in year 2008from P$1,045 million in year 2007. The variation was primarily due to anincrease in the number of subscribers to approximately 9,950,000 as of December 31, 2008, an increase ofapproximately 1,432,000customers, or 16.8%, as comparedto December 31, 2007.

 

Duringyear 2007, prepaid service sales increased 40.8% from P$742 million in year2006, mainly as a result of an increase in the number of subscribers whichreached approximately 8,518,000 as of December 31, 2007, an increase ofapproximately 1,961,000 customers, or 29.9%, as compared to December 31,2006.

 

*Monthly Basic Charges and Airtime Usage Charges*

* *

Duringyear 2008, monthly basic charges and airtime usage charges increased 17.0% to P$1,455 million from P$1,244million in year 2007. Monthly basic charges and airtime usage chargesincreased 37.3% in year 2007 from P$906 million in year 2006. The increase ineach year was mainly due to an increase in subscriber base and an increase inthe volume of total traffic.

 

*CallingParty Pays*

* *

Salesfor Calling Party Pays service decreased 2.8% to P$582 million in year 2008from P$599 million in year 2007, and increased 14.1% in year 2007 from P$525million in year 2006. The major decrease occurred in Paraguay, as a result oflower traffic volumes and the effects of foreign currency translation fromguaraníes to Argentine pesos.  Thisdecrease was partially offset by a slight increase in total traffic volume inArgentina.

 

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*TLRD and Roaming Services*

* *

Duringyear 2008, TLRD and roaming services revenue was P$1,142 million, representinga 24.8% increase from P$915 million in year 2007. The change was due to astrong growth in the total customer base and to an increase in the volume oftotal traffic. TLRD and roaming services revenue increased 40.8% in year 2007from P$650 million in year 2006.

 

*Value Added Services*

* *

Valueadded services which include Short Message Service (SMS), Multimedia MessagingSystem (MMS), General Packet Radio Service (GPRS), among others, increased37.3% to P$1,742 million in year 2008 from P$1,269 million in year 2007, andincreased 55.5% in year 2007 from P$816 million in year 2006. The increase ineach year was largely due to Telecom Personal’s efforts to create Value AddedServices that featured technological innovation.

 

*Other Service Sales*

* *

Duringyear 2008, other service sales, was P$138 million representing an increase of25.5% from P$110 million in year 2007. During year 2007, other service salesdecreased 19.1% from P$136 million in year 2006.

 

*Handset sales*

* *

Handsetsales consist principally of revenues from the sale of wireless handsets to newand existing customers and to agents and other third-party distributors. Therevenues associated with the sale of wireless handsets, and related expensesare recognized when the products are delivered and accepted by the customers,agents and other third party distributors. In an effort to attract newcustomers and to maintain existing customers (by upgrading their handsets),Telecom Personal, like its competitors, may offer handsets to customers, agentsand other third party distributors below cost.

 

Thissubsidy decreased along all the years presented. It was approximately P$268million or 27.1% of total cost of handsets in 2008, P$285 million or 32.6% oftotal cost of handsets in 2007 and P$429 million or 44.1% of total cost ofhandsets in 2006, respectively.

 

Duringyear 2008, handset sales increased to P$720 million from P$590 million in year2007, while during year 2007, handset sales increased to P$590 million fromP$544 million in year 2006. The increase in each year was mainly due to theexpansion of the subscriber base. Also, as a consequence of technologicaladvances and the offer of state-of-the-art services, more customers renewedtheir mobile handsets.

 

***Cost of Services,General and Administrative and Selling Expenses***

*** ***

Total costs ofservices, general and administrative and selling expenses in our Wirelessreportable segment increased 14.1%to P$5,126 million in year 2008from P$4,494 million in year 2007. During year 2007, these costs increased19.8% from P$3,752 million in year 2006. In each year, costs for subscriberacquisition, roaming and TLRD, maintenance, materials and supplies, salariesand social security costs and tax expenses were the main items that contributedto year over year increases in Argentina and Paraguay.

 

Detailedbelow are the major components of the cost of services, general andadministrative and selling expenses for the years ended December 31, 2008,2007 and 2006 in the Wireless reportable segment:

 
| ** **                          | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|-------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **2008**                         | ** ** | **2007**                | ** ** | **2006** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                          | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| Salaries and social security        |       | 286                              |       | 216                     |       | 166 |   | 32.4 |   | 30.1 |   |
| Taxes                               |       | 602                              |       | 464                     |       | 364 |   | 29.7 |   | 27.5 |   |
| Maintenance, materials and supplies |       | 168                              |       | 140                     |       | 90 |   | 20.0 |   | 55.6 |   |
| Bad debt expense                    |       | 57                               |       | 59                      |       | 47 |   | (3.4 | ) | 25.5 |   |
| Fees for services                   |       | 208                              |       | 160                     |       | 152 |   | 30.0 |   | 5.3 |   |

 

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| ** **                                                                                    | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                                                    | ** ** | **2008**                         | ** ** | **2007**                | ** ** | **2006** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                                                                                    | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| Advertising                                                                                   |       | 251                              |       | 217                     |       | 155 |   | 15.7 |   | 40.0 |   |
| Cost of wireless handsets                                                                     |       | 988                              |       | 875                     |       | 973 |   | 12.9 |   | (10.1 | ) |
| Agent’s commissions and distribution of prepaid  cards commissions                       |       | 726                              |       | 675                     |       | 527 |   | 7.6 |   | 28.1 |   |
| Other commissions                                                                             |       | 108                              |       | 84                      |       | 71 |   | 28.6 |   | 18.3 |   |
| TLRD and roaming                                                                              |       | 941                              |       | 760                     |       | 582 |   | 23.8 |   | 30.6 |   |
| Other operating expenses                                                                      |       | 324                              |       | 256                     |       | 169 |   | 26.6 |   | 51.5 |   |
| **Subtotal costs before  depreciation of fixed assets and amortization of intangible assets** | ** ** | **4,659**                        | ** ** | **3,906**               | ** ** | **3,296** | ** ** | **19.3** | ** ** | **18.5** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets                           |       | 467                              |       | 588                     |       | 456 |   | (20.6 | ) | 28.9 |   |
| **Total wireless**                                                                            | ** ** | **5,126**                        | ** ** | **4,494**               | ** ** | **3,752** | ** ** | **14.1** | ** ** | **19.8** | ** ** |
|                                                                                          |       |                             |       |                    |       |   |   |   |   |   |   |
| **Argentina**                                                                                 | ** ** | ** **                       | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Costs before depreciation of fixed assets and  amortization of intangible assets              |       | 4,404                            |       | 3,647                   |       | 3,091 |   | 20.8 |   | 18.0 |   |
| Depreciation of fixed assets and amortization of  intangible assets                           |       | 375                              |       | 510                     |       | 383 |   | (26.5 | ) | 33.2 |   |
| **Total costs in Argentina**                                                                  | ** ** | **4,779**                        | ** ** | **4,157**               | ** ** | **3,474** | ** ** | **15.0** | ** ** | **19.7** | ** ** |
| ** **                                                                                    | ** ** | ** **                       | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Paraguay**                                                                                  |       |                             |       |                    |       |   |   |   |   |   |   |
| Costs before depreciation of fixed assets and  amortization of intangible assets              |       | 255                              |       | 259                     |       | 205 |   | (1.5 | ) | 26.3 |   |
| Depreciation of fixed assets and amortization of  intangible assets                           |       | 92                               |       | 78                      |       | 73 |   | 17.9 |   | 6.8 |   |
| **Total costs in Paraguay**                                                                   | ** ** | **347**                          | ** ** | **337**                 | ** ** | **278** | ** ** | **3.0** | ** ** | **21.2** | ** ** |

 

 

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(1) Includes maintenance, materials and supplies, bad debt expense,other commissions and other operating expenses.

 

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*Salaries and Social Security*

* *

Duringyear 2008, salaries and social security charges increased 32.4% to P$286 million from P$216 million in year 2007. During year 2007,salaries and social security charges increased 30.1% from P$166 million in year2006. The increase in each year was mainly due to the salary increasesimplemented. Similarly, labor costs increased as a result of the increase inthe number of full time employees. The Wireless reportable segment had 4,109 employees as of December 31,2008, 3,919 as of December 31,2007, and 3,636 as of December 31,2006, respectively.

 

Salariesand social security were approximately 4.1%of total segment net sales in 2008, 3.7% of total segment net sales in 2007 and3.8% of total segment net sales in 2006, respectively.

 

*Taxes*

* *

Duringyear 2008, taxes increased 29.7% to P$602 million from P$464 million in year2007. During year 2007, taxes increased 27.5% from P$364 million in year 2006.The increase in each year was attributable to the increase in total segment netsales.

 

Tax-relatedexpenses were approximately 8.7% of total segment net sales for 2008, 8.0% for2007 and 8.4% for 2006, respectively.

 

*Maintenance, Materials and Supplies*

* *

Duringyear 2008, maintenance, materials and supplies expenses increased 20.0% toP$168 million from P$140 million in year 2007. During year 2007, such costsincreased 55.6% to P$140 million from P$90 million in year 2006. The increasein each year was mainly due to an increase in maintenance tasks of radio basesystems related to the development of the GSM network and during the last year,the costs of the maintenance of BlackBerry’s equipments increased as compare toyear 2007. The increase was also due to higher price of certain suppliesgenerated by the effects of the inflation.

 

Costsrelated to maintenance, materials and supplies were approximately 2.4% of totalsegment net sales for 2008, 2.4% for 2007 and 2.1% for 2006, respectively.

* *

*Fees for Services*

* *

Duringyear 2008, fees for various services such as legal, security and auditing feesand other services were P$208 million, representing an increase of 30.0% fromP$160 million in year 2007. During year 2007, fees for services increased 5.3%from P$152 million in year 2006. The increase in year 2008 was a result of anincrease in the rates for the principal services received for the effects ofinflation and higher service costs related to call centers and the software andhardware fees.

 

Feesfor services were approximately 3.0% of total segment net sales for 2008, 2.8%for 2007 and 3.5% for 2006, respectively.

 

*Advertising*

* *

Duringyear 2008, advertising expenses including media, promotional and institutionalcampaigns, increased by P$251 million representing an increase of 15.7% from P$217million in year 2007. This variation was mainly due to higher media advertisingexpenses as a result of efforts to retain and expand the wireless customerbase. During year 2007, advertising expenses increased 40.0% from P$155 millionin year 2006. The increase was a result of Telecom Personal’s efforts to expandits customer base.

 

Advertisingexpenses accounted for approximately 3.6% of total segment net sales for 2008,3.8% for 2007 and 3.6% for 2006, respectively.

 

*Cost of Wireless Handsets*

* *

Duringyear 2008, the cost of handsets sold increased to P$988 million from P$875million in year 2007. The increase was mainly due to an expansion of thesubscriber base and increased customer upgrade of mobile phone

 

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sets as a result of technological advances and newservice offerings. That effect was partially offset by lower subsidies offeredto agents and other third party distributors. During year 2007, the cost ofhandset sales decreased 10.1% from P$973 million in year 2006. The decrease wasmainly due to lower subsidies offered to customers, agents and other thirdparty distributors.

 

Costsof handsets sold accounted for approximately 14.2% of total segment net salesfor 2008, 15.2% for 2007 and 22.5% for 2006, respectively.

 

*Agent’s Commissions and Commissions for theDistribution of Prepaid Cards*

* *

Duringyear 2008, agent’s commissions and commissions for the distribution of prepaidcards increased to P$726 millionfrom P$675 million in year 2007, representing an increase of 7.6%. During year 2007, agent’scommissions and commissions for the distribution of prepaid cards increased28.1% from P$527 million in year 2006. The increase in agent’s commissions andcommissions for the distribution of prepaid cards in each year was mainly dueto Telecom Personal’s efforts to expand its high-value subscriber base and tothe increase in the prepaid subscriber base, respectively.

 

Agent’scommissions and commissions for the distribution of prepaid cards accounted forapproximately 10.4% of totalsegment net sales for 2008, 11.7% for 2007 and 12.2% for 2006, respectively.

 

*Other Commissions*

* *

Duringyear 2008, other commissions, such as the commission paid for the invoice andcollection process, increased 28.6%to P$108 million from P$84million in year 2007. During year 2007, other commissions increased 18.3% fromP$71 million in year 2006. The increases were mainly due to the increase in thesubscriber base.

 

Othercommissions accounted for approximately 1.6%of total segment net sales for 2008, 1.5% for 2007 and 1.6% for 2006,respectively.

* *

*TLRD and roaming*

* *

Duringyear 2008, costs of TLRD and roaming increased 23.8% to P$941million from P$760 million in year 2007. During year 2007, costs of TLRD androaming increased 30.6% from P$582 million in year 2006. The increases were dueto an increase in wireless traffic among wireless operators as a consequence ofa strong growth in the total customer base and to an increase in the volume oftotal traffic.

 

Costsof TLRD and roaming accounted for approximately 13.5% of total segment net sales for 2008, 13.2% for 2007 and13.5% for 2006, respectively.

 

*Other Operating Expenses*

* *

Otheroperating expenses increased 26.6%to approximately P$324 millionin year 2008 from P$256 million in year 2007. During year 2007, other operatingexpenses increased 51.5% from P$169 million in year 2006. The increases weremainly due to increased costs related to growth in the following categories ofexpenses and due to higher costs because of the effects of inflation:

 

·      Value Added Services provided by thirdparties to Telecom Personal’s clients increased 56.9% to approximately P$91 million in year 2008 from P$58 million in year 2007. During year 2007,costs of Value Added Services increased 56.8% from P$37 million;

 

·      Use of public network increased 22.6% to approximately P$38 million in year 2008 from P$31 million inyear 2007. During year 2007, use of public network increased 63.2% from P$19million in year 2006. The increases were mainly due to an increase in total volumeof traffic;

 

·      Transportation and freight, including thedistribution of wireless handsets and prepaid cards, increased 15.6% to approximately P$74 million in year 2008 from P$64 million inyear 2007. During year 2007, such costs increased 93.9% from P$33 million in year2006. The increases were mainly due to the higher costs related to thedistribution of inventories and to the increase in traveling expenses.

 

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·      Cell sites rental in Argentina increased 28.6% to approximately P$36 million in year 2008 from P$28 million inyear 2007. During year 2007, cell sites rental increased 21.7% from P$23million in year 2006. The increases were mainly due to the deployment of theGSM network; and

 

·      Rental expense in Argentina increased 40.0% to approximately P$35 million in year 2008 from P$25 million inyear 2007. During year 2007, rental expense increased 56.3% from P$16 millionin year 2006. The increases were mainly due to new commercial offices opened inorder to improve customer care and expand the customer base.

 

Otheroperating expenses accounted for approximately 4.7% of total segment net sales for 2008, 4.4% for 2007 and 3.9%for 2006, respectively.

 

*Depreciation of Fixed Assets and Amortization ofIntangible Assets*

* *

During year 2008depreciation of fixed assets and amortization of intangible assets decreased20.6% to P$467 million from P$588 million in year 2007. The decrease was mainlyas a consequence of the end of amortization period for certain assets (amongothers, TDMA network equipment as a result of the migration to GSM technology).Additionally, during 2007, Telecom Personal changed the useful life of certainfixed assets resulting in a P$5 million decrease in depreciation expense ascompared to year 2006.

 

Depreciation offixed assets and amortization of intangible assets expenses accounted forapproximately 6.7% of total segment net sales in 2008, 10.2% in 2007 and 10.6%in 2006, respectively.

 

***OperatingIncome***

*** ***

Inyear 2008, our operating income from the Wireless reportable segment wasP$1,829 million, representing an increase of 43.1% from P$1,278 million in year2007. The increase was mainly due to growth in service revenues partiallyoffset by increases in costs, such as salaries and social security, taxes,advertising, maintenance, materials and supplies costs, fees for services,costs for subscriber acquisition, other operating expenses, and increases inthe cost of providing roaming and TLRD services.

 

Thefollowing table shows our operating income from the Wireless reportable segmentin years 2008 and 2007, the percentage of net sales in each year and changesbetween years and by geographic area.

 
| ** **                                                                                                        | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Change by geographic area** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                                                                                                        | ** ** | **2008**                          | ** ** | **2007**   | ** ** | **Total Change**       | ** ** | **Argentina**                 | ** ** | **Paraguay** | ** ** |
| ** **                                                                                                        | ** ** | **(P$ millions / %)**        | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Operating income before SAC and depreciation of  fixed assets and amortization of intangible assets (non-GAAP)(1) |       | 3,308                             |       | 2,825      |       | 17.1                   |       | 483                           |       | 533 |   | (50 | ) |
| *As % of net sales*                                                                                               |       | 47.6                              | *%*        | *48.9*     | *%*        | * *               | * *   | *(1.3*                        | *)%*       | * * | * * | * * | * * |
| SAC (non-GAAP)(2)                                                                                                 |       | (1,012                            | )          | (959       | )          | 5.5                    |       | (53                           | )          | (64 | ) | 11 |   |
| *As % of net sales*                                                                                               | * *   | *(14.6*                           | *)%*       | *(16.6*    | *)%*       | * *               | * *   | *2.0*                         | *%*        | * * | * * | * * | * * |
| **Operating income before  depreciation of fixed assets and amortization of intangible assets**                   | ** ** | **2,296**                         | ** ** | **1,866**  | ** ** | **23.0**               | ** ** | **430**                       | ** ** | **469** | ** ** | **(39** | **)** |
| *As % of net sales*                                                                                               | * *   | *33.0*                            | *%*        | *32.3*     | *%*        | * *               | * *   | *0.7*                         | *%*        | * * | * * | * * | * * |
| Depreciation of fixed assets and amortization of  intangible assets                                               |       | (467                              | )          | (588       | )          | (20.6                  | )          | 121                           |       | 135 |   | (14 | ) |
| *As % of net sales*                                                                                               | * *   | *(6.7*                            | *)%*       | *(10.2*    | *)%*       | * *               | * *   | *3.5*                         | *%*        | * * | * * | * * | * * |
| **Operating income**                                                                                              | ** ** | **1,829**                         | ** ** | **1,278**  | ** ** | **43.1**               | ** ** | **551**                       | ** ** | **604** | ** ** | **(53** | **)** |
| *As % of net sales*                                                                                               | * *   | *26.3*                            | *%*        | *22.1*     | *%*        | * *               | * *   | *4.2*                         | *%*        | * * | * * | * * | * * |

 

----

(1)   Operating income before SAC and depreciationof fixed assets and amortization of intangible assets is not a measurecalculated in accordance with Argentine GAAP or US GAAP and, therefore, shouldnot be considered as an alternative to operating income or any other measure ofperformance under Argentine GAAP or US

 

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GAAP. This measure may not becalculated in the same manner as similarly titled measures used by othercompanies. In addition to the GAAP measure operating income, management usesthis non-GAAP measure to assess operating results. Operating income before SACand depreciation and amortization provides information about the operationalperformance excluding the effect of significant “one time” commercial costs(Subscriber Acquisition Costs, or “SAC”) and the effect of non-cashdepreciation and amortization charges (i.e. amortization and depreciation offixed and intangible assets). Management believes that this measure isespecially relevant in assessing segment performance during periods ofsignificant subscriber growth as is currently the case in Argentina, and assuch provides investors with meaningful information concerning development ofthe wireless business. See Note 13 to our Consolidated Financial Statements formore information regarding segment performance. This measure is reconciled tothe GAAP measure operating income by adding back depreciation and amortizationcharges and wireless SAC charges, each as shown in the table above.

 

(2)          Thecomponents of wireless SAC that arise from the accounting records are asfollows:

 
| ** **                      | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Change by geographic area** | ** ** |
|---------------------------------|------------|-----------------------------------|------------|------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | **2008**                          | ** ** | **2007**   | ** ** | **Total Change**       | ** ** | **Argentina**                 | ** ** | **Paraguay** | ** ** |
| ** **                      | ** ** | **(P$ millions)**            | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Handset net sales               |       | 720                               |       | 590        |       | 22.0                   |       | 130                           |       | 129 |   | 1 |   |
| Cost of handsets                |       | (988                              | )          | (875       | )          | 12.9                   |       | (113                          | )          | (111 | ) | (2 | ) |
| **Gross loss on handset sales** | ** ** | **(268**                          | **)**      | **(285**   | **)**      | **(6.0**               | **)**      | **17**                        | ** ** | **18** | ** ** | **(1** | **)** |
| Advertising                     |       | (251                              | )          | (217       | )          | 15.7                   |       | (34                           | )          | (29 | ) | (5 | ) |
| Agent’s commissions        |       | (493                              | )          | (457       | )          | 7.9                    |       | (36                           | )          | (53 | ) | 17 |   |
| **Total SAC**                   | ** ** | **(1,012**                        | **)**      | **(959**   | **)**      | **5.5**                | ** ** | **(53**                       | **)**      | **(64** | **)** | **11** | ** ** |

 

Inyear 2008, our operating income before SAC and depreciation of fixed assets andamortization of intangible assets from the Wireless reportable segment wasP$3,308 million representing an increase of 17.1% from P$2,825 million in year2007. It represents 47.6% of total segment net sales in year 2008, and 48.9% oftotal segment net sales in year 2007. The increase was mainly due to a 20.3%increase in service revenues, partially offset by a higher level of operatingcosts, including a 32.4% increase in salaries and social security costs, a20.0% increase in maintenance, materials and supplies, a 29.7% increase intaxes, a 23.8% increase in cost of TLRD and roaming, a 30.0% increase in feesfor services and a 26.6% increase in other operating expenses.

 

Inyear 2007, our operating income from the Wireless reportable segment wasP$1,278 million, representing an increase of 125.4% from P$567 million in year2006. The increase was mainly due to growth in service revenues partiallyoffset by increases in advertising, maintenance, materials and supplies costs, otheroperating expenses, transportation and freight, commissions for thedistribution of prepaid cards and wireless handsets, and increases in the costof providing roaming and TLRD services.

 

Thefollowing table shows our operating income from the Wireless reportable segmentin years 2007 and 2006, the percentage of net sales in each year and changesbetween years and by geographic area.

 
| ** **                                                                                                         | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Change by geographic area** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                                                                                                         | ** ** | **2007**                          | ** ** | **2006**   | ** ** | **Total Change**       | ** ** | **Argentina**                 | ** ** | **Paraguay** | ** ** |
| ** **                                                                                                         | ** ** | **(P$ millions / %)**        | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Operating income before SAC and depreciation of  fixed assets and amortization of intangible assets (non-GAAP) (1) |       | 2,825                             |       | 1,959      |       | 44.2                   |       | 866                           |       | 828 |   | 38 |   |
| *As % of net sales*                                                                                                | * *   | *48.9*                            | *%*        | *45.4*     | *%*        | * *               | * *   | *3.5*                         | *%*        | * * | * * | * * | * * |
| SAC (non-GAAP) (2)                                                                                                 |       | (959                              | )          | (936       | )          | 2.5                    |       | (23                           | )          | (9 | ) | (14 | ) |
| *As % of net sales*                                                                                                | * *   | *(16.6*                           | *)%*       | *(21.7*    | *)%*       | * *               | * *   | *5.1*                         | *%*        | * * | * * | * * | * * |
| **Operating income before  depreciation of fixed assets and amortization of intangible assets**                    | ** ** | **1,866**                         | ** ** | **1,023**  | ** ** | **82.4**               | ** ** | **843**                       | ** ** | **819** | ** ** | **24** | ** ** |
| *As % of net sales*                                                                                                | * *   | *32.3*                            | *%*        | *23.7*     | *%*        | * *               | * *   | *8.6*                         | *%*        | * * | * * | * * | * * |

 
| ** **                                                          | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Change by geographic area** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------|------------|------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                                                          | ** ** | **2007**                          | ** ** | **2006**   | ** ** | **Total Change**       | ** ** | **Argentina**                 | ** ** | **Paraguay** | ** ** |
| ** **                                                          | ** ** | **(P$ millions / %)**        | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets |       | (588                              | )          | (456       | )          | 28.9                   |       | (132                          | )          | (127 | ) | (5 | ) |
| *As % of net sales*                                                 | * *   | *(10.2*                           | *)%*       | *(10.6*    | *)%*       | * *               | * *   | *0.4*                         | *%*        | * * | * * | * * | * * |
| **Operating income**                                                | ** ** | **1,278**                         | ** ** | **567**    | ** ** | **125.4**              | ** ** | **711**                       | ** ** | **692** | ** ** | **19** | ** ** |
| *As % of net sales*                                                 | * *   | *22.1*                            | *%*        | *13.1*     | *%*        | * *               | * *   | *9.0*                         | *%*        | * * | * * | * * | * * |

 

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----

(1)   Operating income before SAC and depreciationof fixed assets and amortization of intangible assets is not a measurecalculated in accordance with Argentine GAAP or US GAAP. See note 1 to thepreceding table for a discussion of this measure. This measure is reconciled tothe GAAP measure operating income by adding back depreciation and amortizationcharges and wireless SAC, each as shown in the table above.

 

(2)   The components of wireless SAC that arise fromthe accounting records are as follows:

 
| ** **                      | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | ** **             | ** ** | **Change by geographic area** | ** ** |
|---------------------------------|------------|-----------------------------------|------------|------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | **2007**                          | ** ** | **2006**   | ** ** | **Total Change**       | ** ** | **Argentina**                 | ** ** | **Paraguay** | ** ** |
| ** **                      | ** ** | **(P$ millions)**            | ** ** | **%**      | ** ** | **(P$ millions)** | ** ** |
| Handset net sales               |       | 590                               |       | 544        |       | 8.5                    |       | 46                            |       | 47 |   | (1 | ) |
| Cost of handsets                |       | (875                              | )          | (973       | )          | (10.1                  | )          | 98                            |       | 96 |   | 2 |   |
| **Gross loss on handset sales** | ** ** | **(285**                          | **)**      | **(429**   | **)**      | **(33.6**              | **)**      | **144**                       | ** ** | **143** | ** ** | **1** | ** ** |
| Advertising                     |       | (217                              | )          | (155       | )          | 40.0                   |       | (62                           | )          | (58 | ) | (4 | ) |
| Agent’s commissions        |       | (457                              | )          | (352       | )          | 29.8                   |       | (105                          | )          | (94 | ) | (11 | ) |
| **Total SAC**                   | ** ** | **(959**                          | **)**      | **(936**   | **)**      | **2.5**                | ** ** | **(23**                       | **)**      | **(9** | **)** | **(14** | **)** |

 

Inyear 2007, our operating income before SAC and depreciation of fixed assets andamortization of intangible assets from the Wireless reportable segment wasP$2,825 million representing an increase of 44.2% from P$1,959 million in year2006. It represents 48.9% and 45.4% of total segment net sales in year 2007 and2006, respectively. The increase was mainly due to a 37.3% increase in servicerevenues, partially offset by a higher level of operating costs including a40.0% increase in advertising, a 55.6% increase in maintenance, materials andsupplies, a 30.1% increase in salaries and social security costs, a 27.5%increase in taxes and a 30.6% increase in cost of TLRD and roaming.

 

***FinancialResults, Net***

 

Duringyear 2008, the Wireless reportable segment recorded a net financial loss ofP$99 million compared to a net financial loss of P$179 million in year 2007.The decrease in net financial loss can be mainly attributed to P$61 million inlower holding losses on inventories and a P$30 million reduction in interest expenses,partially offset by a P$20 million higher losses in net currency exchangedifferences.

 

Duringyear 2007, the Wireless reportable segment recorded a net financial loss ofP$179 million compared to a net financial loss of P$109 million in year 2006.  The difference can be mainly attributed toP$54 million in higher holding losses on inventories, P$39 million in netcurrency exchange differences, partially offset by P$16 million related tointerest expense, among other reductions in expenses.

 

***Other,Net***

*** ***

Other,net includes gain on equity investees, minority interest and other expenses,net.

 

*OtherExpenses, Net*

 

Otherexpenses, net include severance payments for termination benefits, provisionsfor lawsuits and other contingencies and income from sales of fixed assets.During year 2008, other expenses, net increased by 51.4% to P$56 million fromP$37 million in year 2007. The increase was mainly due to higher provisions forlawsuits and other contingencies in the amount of P$17 million and increases inthe allowance for obsolescence of materials, and other assets totaling P$7million.

 

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Duringyear 2007, other expenses, net decreased by 21.3% to P$37 million from P$47million in year 2006. The decrease was mainly due to lower provisions forlawsuits and other contingencies in the amount of P$6 million and decreases inyear 2007 in the allowance for obsolescence of materials, doubtful accounts,and other assets totaling P$18 million, partially offset by a P$12 millionhigher allowance for severance payments and termination benefits.

 

***IncomeTax***

*** ***

Incometax includes three elements: (i) the current tax for the year payableaccording to fiscal legislation applicable to Telecom Personal and Núcleo; (ii) theeffect of applying the deferred tax method on temporary differences arising outof the asset and liability valuation according to fiscal vs. accountingcriteria; and (iii) the analysis of recoverability of deferred tax assets.

 

In2007, Telecom Personal generated enough profit to offset the entire tax losscarryforwards accumulated at the beginning of the year, resulting in a taxliability which was offset against a tax credit for minimum presumed income andother withholdings. In fiscal year 2008, tax profits generated gave rise to taxliabilities. This tax liability will be offset against a tax credit for minimumpresumed income and other withholdings. In the years under review, Núcleoreported a tax profit and the charge was increased by the overcharge originatedfrom the payment of dividends to shareholders. The total current tax expense inthe Wireless reportable segment amounted to P$397 million in 2008 compared toP$133 million in 2007.

 

Asregards the deferred tax, in 2008 a benefit was generated as a result of thereduction of the deferred tax liability on fixed assets and its adjustment forinflation, and the higher credit on the deduction of bad debts and lawsuits andother contingencies. The total deferred tax benefit in the Wireless reportablesegment was P$5 million compared to P$88 million expense in 2007.

 

Additionally,Telecom Personal established a P$11 million valuation allowance during 2007 forcertain deferred tax assets.

 

Duringyear 2007, the Wireless reportable segment recorded income tax expense of P$133million and a deferred income tax expense of P$88 million. During year 2006,the Wireless reportable segment recorded income tax expense of P$8 million anda deferred income tax of P$3 million.

 

***NetIncome***

*** ***

Duringyear 2008, our Wireless reportable segment reported net income of P$1,270million as compared to P$807 million during year 2007. During year 2007, netincome increased to P$807 million from P$384 million in year 2006. The increasein net income in each year was mainly due to higher operating income in theyear offset by higher financial loss and income tax expense, as explainedabove.

 

**Foreign Currency Fluctuations**

 

*Exchange Rate Exposure*

* *

We estimate, based on the composition of our balancesheet as of December 31, 2008, that each P$0.10 variation in the exchangerate against the U.S. dollar and proportional variations for the euro, yen andguaraníes against the Argentine peso, plus or minus, would result in avariation of approximately P$48 million of our consolidated financialindebtedness and approximately P$24 million of our consolidated financialinvestment. These analyses are based on the assumption that this fluctuation ofthe Argentine peso occurred at the same time against all other currencies. See “Item11—Quantitative and Qualitative Disclosures About Market Risk.”

 

**USGAAP Reconciliation**

 

Theaccounting principles applied in Argentina vary in certain significant respectsfrom accounting principles applied in the United States. Application of US GAAPwould have affected the determination of amounts shown as net income for theyears ended December 31, 2008, 2007 and 2006 and the amount of totalshareholders’ equity as of December 31, 2008, 2007 and 2006. For moredetails see Note 15 to the Consolidated Financial Statements.

 

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As ofand for the year ended December 31, 2008, the principal differences betweenArgentine GAAP and US GAAP are the following:

 

·                  the accounting for capitalization of foreigncurrency exchange differences;

 

·                  fairvalue option for Notes of Telecom Argentina;

 

·                  other adjustments such as inventories,present-value accounting and fixed assets held for sale; and

 

·                  the tax effects on US GAAP adjustmentsdescribed above.

 

Inaddition, certain other disclosures required under US GAAP have been includedin the US GAAP reconciliation. See Note 15 to our Consolidated FinancialStatements.

 

Netincome under Argentine GAAP for the years ended December 31, 2008 and 2007 wasP$961 million and P$884 million, respectively, as compared to a net income ofP$1,109 million and P$1,148 million, respectively, under US GAAP. Shareholders’equity under Argentine GAAP as of December 31, 2008 was P$4,020 million, ascompared to a shareholders’ equity of P$4,133 million under US GAAP.

 

Additionally,net income under Argentine GAAP for the years ended December 31, 2007 and 2006was P$884 million and P$244 million, respectively, as compared to a net incomeof P$1,148 million and P$572 million, respectively, under US GAAP. Shareholders’equity under Argentine GAAP as of December 31, 2007 was P$3,030 million ascompared to a shareholder’s equity of P$2,538 million under US GAAP.

 

**RecentlyIssued US GAAP Accounting Pronouncements**

 

In September2006, the FASB issued SFAS No.157, “Fair Value Measurements” (“SFAS No.157”).The changes to current practice resulting from the application of SFAS No.157relate to the definition of fair value, the methods used to estimate fairvalue, and the requirement for expanded disclosures about estimates of fairvalue. The definition of fair value retains the exchange price notion inearlier definitions of fair value. SFAS No.157 clarifies that the exchangeprice is the price in an orderly transaction between market participants tosell the asset or transfer the liability in the market in which the reportingentity would transact for the asset or liability. SFAS No.157 was effective forthe Company on January 1, 2008, except for one-year delay of effective date forcertain nonfinancial assets and nonfinancial liabilities. The partial adoptionof SFAS No.157 did not have any impact on the Company’s current financialposition or results of operations.

 

In December2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements — an amendment of ARB No.51” (“SFAS No.160”). ThisStatement amends ARB 51 to establish accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. SFAS No.160 requires: a) noncontrolling interest to be presented inthe consolidated statement of financial position within equity; and b)consolidated net income attributable to the noncontrolling interest to bepresented on the face of the consolidated statement of income. In addition, theStatement requires expanded disclosures in the consolidated financialstatements that clearly identify and distinguish between the interests of theparent company’s shareholders and the interests of the noncontrolling shareholdersof a subsidiary. SFAS No.160 is effective for financial statements issued forfiscal years beginning on or after December 15, 2008. As a result of theadoption of SFAS No.160, since January 1, 2009, a reconciling item fornoncontrolling interest is included in total equity and net income under USGAAP.

 

In April2009, the FASB issued FASB Staff Position (FSP) SFAS No.157-4, “Determiningfair value when the volume and level of activity for the asset or liabilityhave significantly decreased and identifying transactions that are not orderly.”This FSP provides additional guidance for estimating fair value in accordancewith SFAS No.157, when the volume and level of activity for assets orliabilities have significantly decreased. This FSP also includes guidance onidentifying circumstances that indicate a transaction is not orderly. FSP SFAS No.157-4 is effective for interim and annual reporting periods ending after June 15,2009. The Company is currently analyzing the impact that the adoption of FSPSFAS No.157-4 will have on the Company’s financial position and results ofoperations.

 

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In April2009, the FASB issued FSP SFAS No. 115-2 and No. 124-2, “Recognition andpresentation of other-than-temporary impairments” (“FSP SFAS No. 115-2 and No. 124-2”).This FSP amends the other-than-temporary impairment guidance in US GAAP fordebt securities to make the guidance more operational and to improve thepresentation and disclosure of other-than-temporary impairments on debt andequity securities in the financial statements. This FSP does not amend existingrecognition and measurement guidance related to other-than-temporaryimpairments of equity securities in the financial statements. FSP SFAS No. 115-2and No. 124-2 is effective for interim and annual reporting periods endingafter June 15, 2009. The Company is currently analyzing the impact that theadoption of FSP SFAS No. 115-2 and No. 124-2 will have on the Company’sfinancial position and results of operations.

 

In April2009, the FASB issued FSP SFAS No. 107-1 and APB No. 28-1, “Interim Disclosuresabout Fair Value of Financial Instruments” (“FSP SFAS No. 107-1 and APB No. 28-1”).This FSP amends SFAS No. 107 “Disclosures about fair value of financialinstruments,” requiring disclosures about fair value of financial instrumentsfor interim reporting periods of public companies as well as in annual financialstatements. The FSP also amends APB Opinion No. 28 “Interim FinancialReporting,” requiring those disclosures in summarized financial information atinterim reporting periods. FSP SFAS No. 107-1 and APB No. 28-1 is effective forinterim reporting periods ending after June 15, 2009. The Company is currentlyanalyzing the impact that the adoption of SFAS No. 107-1 and APB No. 28-1 willhave on the Company’s financial position and results of operations.

 

In May2009, the FASB issued SFAS No.165 “Subsequent Events” (“SFAS No.165”). Theobjective of the SFAS No. 165 is to establish principles and requirements forsubsequent events. This statement shall be applied to the accounting for anddisclosure of subsequent events not addressed in other applicable generallyaccepted accounting principles under US GAAP. SFAS No.165 is effective forinterim or annual financial periods ending after June 15, 2009. The Company iscurrently analyzing the impact that the adoption of SFAS No.165 will have onthe Company’s financial position, results of operations or disclosure.

 

In June2009, the FASB issued SFAS No.166 “Accounting for Transfers of Financial Assets- an amendment of FASB Statement No.140” (“SFAS No.166”). The objective of thisStatement is to improve the relevance, representational faithfulness, andcomparability of the information that a reporting entity provides in itsfinancial statements about a transfer of financial assets; the effects of atransfer on its financial position, financial performance and cash flows; and atransferor’s continuing involvement, if any, in transferred financial assets.SFAS No.166 shall be effective as of the beginning of each reporting entity’sfirst annual reporting period that begins after November 15, 2009, for interimperiods within that first annual reporting period, and for interim and annualreporting periods thereafter. The Company is currently analyzing the impactthat the adoption of SFAS No.166 will have on the Company’s financial positionand results of operations.

 

In June2009, the FASB issued SFAS No.167 “Amendments to FASB Interpretation No. 46(R)”(“SFAS No.167”). The objective of this Statement is to amend certainrequirements of FASB Interpretation No. 46, to improve financial reporting byenterprises involved with variable interest entities, and to provide morerelevant and reliable information to users of financial statements. SFAS No.167shall be effective as of the beginning of each reporting entity’s first annualreporting period that begins after November 15, 2009, for interim periodswithin that first annual reporting period, and for interim and annual reportingperiods thereafter. The Company is currently analyzing the impact that theadoption of SFAS No.167 will have on the Company’s financial position and resultsof operations.

 

**Liquidityand Capital Resources**

 

***Sources and Uses of Funds***

*** ***

Historically,our sources of liquidity have been cash flow from operations and short andlong-term borrowings. However, our limited financing alternatives werecurtailed after December 2001 when the Argentine Government defaulted on mostof its financial obligations. In addition to Argentina’s debt crisis, beginningin late 2001, our ability to access the capital and bank loan markets waseffectively eliminated as a result of the economic recession and politicalinstability in Argentina and the Argentine Government’s imposition of transferrestrictions on payments of foreign financial obligations.

 

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As aconsequence of the abrupt devaluation and volatility of the peso, lower netcash flows generated during the economic crisis in Argentina and the uncertaintimetable for resolving discussions with the Argentine Government concerningadjustment of regulated rates, in the second quarter of 2002 we announced thesuspension of payments on our outstanding financial indebtedness and commenceda debt restructuring process.

 

Asdiscussed below under “—Debt Obligations and Debt Service Requirements,”Telecom Argentina completed its debt restructuring on August 31, 2005, and itssubsidiaries, Telecom Personal and Núcleo completed debt restructurings in November2004. Subsequently, Telecom Personal and Núcleo refinanced their financialindebtedness in December 2005 and March 2006, respectively, in order to securemore favorable terms.  Since completingits debt restructuring, the Company has significantly reduced its consolidatedfinancial indebtedness by applying cash generated from operations to makemandatory and voluntary principal prepayments on its outstanding indebtedness.

 

Theterms of the notes issued by Telecom Argentina pursuant to its APE and theterms of Telecom Personal’s outstanding indebtedness contain restrictivecovenants that, among other things, limit the ability of Telecom Argentina andits subsidiaries to incur additional indebtedness.  Additionally, the terms of the notes issuedby Telecom Argentina pursuant to the APE include restrictions on TelecomArgentina’s ability to make loans to or investments in Telecom Personal. Eachof Telecom Argentina, Telecom Personal and Núcleo expects to satisfy its debtservice commitments and other liquidity needs using cash flow from itsstand-alone operations.  A substantialportion of Telecom Argentina’s obligations has been prepaid.

 

Weexpect that the principal source of Telecom Argentina’s liquidity in the nearterm will be cash flows from Telecom Argentina’s operations (excluding theoperations of Telecom Personal and its subsidiaries) and the dividends thatTelecom Personal could pay in such term. For information on the dividend paidby Telecom Personal during 2009, see “Item 4—Information on theCompany—Introduction—Recent Developments.” Telecom Argentina’s principal usesof operating cash flows are expected to be debt service requirements on thenotes, including scheduled debt service and prepayments and capitalexpenditures, to the extent permitted by the terms of the notes. See “Item 11—Quantitativeand Qualitative Disclosures about Market Risk” for more detailed information onexpected prepayments.

 

Weexpect that the principal source of Telecom Personal’s liquidity in the nearterm will be cash flows from Telecom Personal’s operations and the dividendsthat Núcleo could pay in such term. For information on the dividend paid byNúcleo in April 2009, see “Item 4—Information on theCompany—Introduction—Recent Developments.” Telecom Personal’s principal uses ofoperating cash flows are expected to be debt service requirements, capitalexpenditures and dividend payments to Telecom Argentina.

 

As of December31, 2008, we had approximately P$902 million in cash and cash equivalents. Asof December 31, 2007 and 2006, cash and cash equivalents amounted to P$458million and P$661 million, respectively.

 

Duringyear 2008, our consolidated net cash flow from operating activities wasapproximately P$3,319 million, our consolidated net cash flow used in investingactivities was approximately P$1,317 million and our consolidated net cash flowused in financial activities was approximately P$1,558 million. During year2007, our consolidated net cash flow from operating activities wasapproximately P$2,946 million, our consolidated net cash flow used in investingactivities was approximately P$1,573 million and our consolidated cash flowused in financial activities was approximately P$1,576 million. During year2006, our consolidated net cash flow from operating activities wasapproximately P$2,360 million, our consolidated net cash flow used in investingactivities was approximately P$804 million and our consolidated cash flow usedin financial activities was approximately P$1,495 million.

 

*Voice,Data and Internet reportable segment.* As of December 31,2008, the Voice, Data and Internet reportable segment had approximately P$45million in cash and cash equivalents.

 

Duringyear 2008, the Voice, Data and Internet reportable segment’s net cash flow fromoperating activities was approximately P$1,781 million, its net cash flow usedin investing activities was approximately P$577 million and P$1,306 million netcash flow was used in financial activities. During year 2007, the Voice, Dataand Internet reportable segment’s net cash flow from operating activities was approximatelyP$1,738 million, its net cash flow used in investing activities wasapproximately P$929 million and P$1,071 million of net cash flow was used in 

 

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financial activities. During year 2006, the Voice,Data and Internet reportable segment’s net cash flow from operating activitieswas approximately P$1,606 million, its net cash flow used in investing activitieswas approximately P$373 million and P$1,267 million of net cash flow was usedin financial activities.

 

Theoperating activities of the Voice, Data and Internet reportable segmentgenerated approximately P$43 million more in net cash flow for 2008 compared to2007 mainly due to higher collection of receivables resulting from increasednet sales. Net cash flow used in investing activities decreased from P$929million in 2007 to P$577 million in 2008 primarily due to a reduction ininvestments not considered as cash and cash equivalents partially offset by anincrease in acquisitions of fixed assets and intangible assets and theacquisition of Cubecorp.  During 2008,net cash flow used in financing activities increased by P$235 million ascompared to 2007 due to the higher payment of debt partially offset by lowerpayment of interest expenses.

 

*Wirelessreportable segment.* As of December 31, 2008, the Wirelessreportable segment had approximately P$857 million in cash and cashequivalents.

 

Duringyear 2008, the Wireless reportable segment’s net cash flow from operatingactivities was approximately P$1,538 million, net cash flow used in investingactivities was approximately P$740 million and net cash flow used in financingactivities was P$252 million. During year 2007, the Wireless reportable segment’snet cash flow from operating activities was approximately P$1,208 million, netcash flow used in investing activities was approximately P$644 million and netcash flow used in financing was P$505 million. During year 2006, the Wirelessreportable segment’s net cash flow from operating activities was approximatelyP$754 million, its net cash flow used in investing activities was approximatelyP$431 million and its net cash flow used in financing activities wasapproximately P$228 million.

 

Duringyear 2008, net cash inflow from operating activities increased by P$330 millionfrom year 2007. The increase was mainly due to the higher cash collections ofreceivables resulting from increased net sales. Net cash flow used in investingactivities increased by P$96 million from year 2007. The increase was mainlydue to higher payments for the acquisition of fixed assets and intangibleassets in 2008 compared to 2007. During 2008, net cash flow used in financingactivities decreased by P$253 million as compared to 2007 due to TelecomPersonal’s lower debt payment.

 

***DebtObligations and Debt Service Requirements***

*** ***

*Telecom Argentina*

* *

*Series Aand B Notes Issued Pursuant to the APE.*In 2005, TelecomArgentina completed the restructuring of its outstanding financial indebtednesson a stand-alone basis by issuing debt with new payment terms and by payingcash consideration and making cash interest payments.  In connection with its restructuring, TelecomArgentina issued Series A notes denominated in pesos, dollars, euro and yenhaving an original aggregate principal amount equivalent to P$2,576 million(US$885 million), and issued US$999 million of Series B Notes.

 

The SeriesA notes mature in 2014 and bear interest at an initial interest rate of 5.53%for notes denominated in U.S. dollars (4.83% for euro-denominated, 1.93% foryen-denominated and 3.23% for peso-denominated Series A notes) from theIssuance Date through October 15, 2008 and at 8% for notes denominated in U.S.dollars (6.89% for euro-denominated, 3.69% for yen-denominated and 3.42% forpeso-denominated Series A notes) from October 16, 2008 through October 15,2014. The Series A notes amortize semi-annually in April and October of eachyear (unless otherwise prepaid), with total scheduled principal maturities of3.2% in 2004, 5.6% in 2005, 4.8% in 2006, 1.6% in 2007, 0.8% in 2008, 14.28% ineach year from 2009 to 2013 and 12.6% in 2014.

 

Aftergiving effect to the prepayments of principal as of the date of this AnnualReport, Telecom Argentina has cancelled all scheduled amortizations of the SeriesA notes payable through October 2011 and 48.75% of the scheduled principalamortization payments of the Series A notes due in April 2012 and has prepaidall of the Series B notes.  As of thedate of this Annual Report, 37.679% of the original principal amount of Series Anotes remain outstanding.

 

As of December31, 2008, Telecom Argentina had approximately P$1,272 million (equivalent toUS$368 million) of indebtedness on a stand-alone basis (excluding effect ondiscounting of debt).

 

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*Mandatoryand Optional Prepayments on the Notes.*The notes may beprepaid by Telecom Argentina at any time by means of Note Payments (which areapplied to prepay remaining installments of the notes in direct order ofmaturity); Optional Redemptions (which are applied pro rata) or marketpurchases (only below par value). Telecom Argentina provides no assurance regarding the amount, timing ormechanism for any prepayment or redemption of the notes.

 

Thenotes include a mandatory prepayment provision pursuant to which if TelecomArgentina generates “excess cash” (as defined in the notes), then TelecomArgentina will be required to use such excess cash for specified purposes,including certain mandatory prepayments of the notes. Excess cash shall bemeasured semi-annually based on the Consolidated Financial Statements of theCompany (excluding Telecom Personal and its subsidiaries) as of June 30 and December31 of each year, and any excess cash must be applied no later than the due dateof the scheduled amortizations payments immediately subsequent to each June 30or December 31, respectively.

 

In2008, Telecom Argentina made mandatory and voluntary principal prepaymentsamounting to P$822 million and P$253 million on April 15, 2008 and October 15,2008, respectively. Such payments were applied as Note payments which prepaidthe scheduled principal amortization payments on the notes through October 2011.

 

Theexcess cash determined for the period ended as of December 31, 2008 was equalto P$109 million, which was paid on April 15, 2009. Such payment was applied asnote payment which prepaid the 48.75% of the principal amortization scheduledto be paid on April 15, 2012. Consequently, the percentage of the originalprincipal amount of the notes remaining outstanding as of the date of thisAnnual Report is 37.679% for the Series A notes while Series B notes have beencompletely cancelled.

 

Inaddition, in 2008 and in April 2009, Telecom Argentina purchased 79 millioneuro and 18.5 million euro of aggregate principal amount of Series A notes inmarket purchase transactions, respectively. These were subsequently cancelled according to the terms and conditionsof the respective Indenture.

 

*CertainCovenants under the Notes.*The Indenture governing the notescontains certain covenants relating to, among other things, limitations on theability of Telecom Argentina and, in certain cases, its restricted subsidiaries(including Telecom Personal), to:

 

·                  create or permit liens on property or assetsunless the notes are equally and ratably secured;

 

·                  incur indebtedness, except for certainpermitted indebtedness (see “—Liquidity” below for more detail);

 

·                  sell assets;

 

·                  enter into sale and leaseback transactions;

 

·                  engage in transactions with shareholders andaffiliates;

 

·                  make capital expenditures in excess ofspecified permitted capital expenditure amounts (not applicable for TelecomPersonal or Núcleo);

 

·                  make restricted payments (including loans andinvestments);

 

·                  impose payment restrictions affectingrestricted subsidiaries;

 

·                  issue equity interests of Telecom Personalresulting in loss of control of Telecom Personal;

 

·                  engage in other lines of business; or

 

·                  engage in certain mergers.

 

The covenants,among other things, limit Telecom Argentina’s ability to transfer cash and/orother assets to Telecom Personal and its subsidiaries. The notes also providethat if Telecom Argentina makes any Distribution Payment (a term which includesany dividend), then the minimum excess cash payment for the relevant periodmust be at least two and a half times such Distribution Payment.

 

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Thenotes also contain a cross-acceleration provision which will make either theoccurrence of any acceleration, or the existence of a payment default, withrespect to an aggregate principal amount of the equivalent of US$20 million ofdebt of either Telecom Argentina or its restricted subsidiaries.

 

Thenotes are redeemable at the option of the holders upon the occurrence ofcertain change of control events.

 

In February2006, Telecom Argentina called for a bondholders meeting in order to modifycertain conditions of the Series A and Series B notes. The amendmentseliminated the restriction on Telecom Personal’s ability to make capitalexpenditures and eliminated the obligation of Telecom Argentina to reinvest inTelecom Personal any dividends distributed to it by Telecom Personal. At thebondholders meeting which was held in March 2006 the bondholders approved theamendments, which went into effect on March 27, 2006.

 

*Exemptionfrom Withholding Tax*

 

UnderArgentine law, noteholders are entitled to the benefits of the exemption fromwithholding tax on interest payments provided they comply with the requirementsestablished by the Argentine Negotiable Obligations Law. In addition, the termsand conditions of Telecom Argentina’s listed notes call for payments to be madewithout withholding or tax reductions or any other current or future governmentcharge. Although Telecom Argentina has fully complied with the applicableregulation, we cannot assure you that notes will be entitled in the future tothe benefits of the exemption from withholding tax provided in the ArgentineNegotiable Obligations Law. In the event our notes do not qualify for theexemption, we could be obliged to pay Argentine taxes on the listed notes andsuch obligation, if imposed, would generate additional unanticipated paymentswhich could adversely affect our ability to satisfy our obligations under thenotes and/or invest in our business.

 

*Swaps*

* *

DuringAugust and September 2005, following Telecom Argentina’s successful completionof its debt restructuring process, the Company entered into two foreignexchange currency swap contracts to hedge its exposure to the euro and Japaneseyen-denominated Series A notes fluctuating with respect to the U.S. dollar. Thehedge contracts did not include any requirement to post collateral. These swapagreements expired in October 2008, generating a net inflow of funds ofapproximately P$170 million during year 2008. See Note 4.t) to our Consolidated Financial Statements for a more detaileddiscussion of our swap agreements.

 

Consideringthat the Company’s cash flow generation is in Argentine pesos and the terms ofthe swap did not perfectly match the terms of the Euro and Japaneseyen-denominated obligations, these hedges were regarded as ineffective.Therefore, the changes in the fair value of these hedges were recognized in thefinancial results as “Gain (loss) on derivatives.”

 

*Non-DeliverableForward (“NDF”) Contracts to Purchase US Dollars at Fixed Rates*

 

Duringthe last quarter of 2008, Telecom Argentina entered into several contracts topurchase a total amount of US$ 108.5 million for a fixed forward average priceof 3.49 P$/US dollar maturing April 2009 in order to hedge its exposure toforeign currency fluctuations with respect to its Notes denominated in foreigncurrencies.

 

In January2009, Telecom Argentina entered into two derivative contracts (a Euro “ZeroCost Collar” and a yen NDF, both maturing in April 2009) to supplement thecontracts mentioned above and to hedge its exposure to foreign currencyfluctuations with respect to the Euro and Japanese yen-denominated Notes. Theterms of the contracts are related to: i) the purchase of a “Call Option” foran amount of € 80.3 million and the sell of a “Put Option” for an equal amount,with a strike price of 1.36 US$/€ and 1.2795 US$/€, respectively; and ii) thepurchase of a total amount of Japanese yen 5,120 million for a fixed forwardprice of 88.88 Yen/US$. These contracts have expired without the abovementionedoptions being exercised.

 

During2009, Telecom Argentina and Telecom Personal entered into several NDF contractsunder Argentine legislation to purchase US Dollars at fixed rate in order tohedge its exposure to foreign currency fluctuations with respect to its Notesdenominated in foreign currency.  Thesecontracts mature in October 2009 and December 2009, respectively.

 

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Consideringthat Telecom Argentina and Telecom Personal generate cash flows primarily inArgentine pesos and the terms of the NDF do not perfectly match the terms ofthe foreign currency denominated obligations (due to the existence of theprepaid terms in the case of Telecom Argentina), these hedges were regarded asineffective.

 

*Subsidiary Indebtedness*

* *

*TelecomPersonal.*Telecom Argentina’s 99.99% owned subsidiary,Telecom Personal, originally restructured its outstanding financialindebtedness, including inter-company obligations, in November 2004, pursuantto an out-of-court restructuring agreement approved by 100% of the affectedcreditors. On December 22, 2005, Telecom Personal concluded the refinancing ofall of its debt instruments issued pursuant to its November 2004 financialrestructuring. The main objective of the refinancing was to improve its debtprofile by modifying its interest rates and eliminating certain restrictivecovenants. In particular, Telecom Personal’s new indebtedness does not containmandatory prepayment obligations relating to generation of “excess cash” anddoes not restrict Telecom Personal’s ability to make capital expenditures.

 

During2008 Telecom Personal paid the last two installments of its Series 2 notes. Asof December 31, 2008, Telecom Personal’s stand-alone financial indebtednesscomprised approximately US$200 million aggregate principal amount of Series 3Medium Term Notes due in 2010. The Series 3 notes are issued in dollars, bearinterest at 9.25% and pay interest semi-annually. In 2008 and in the firstquarter of 2009, Telecom Personal purchased, respectively, US$40 million andUS$9 million aggregate principal amount of Series 3 notes in market purchasetransactions, which were subsequently cancelled according to the terms andconditions of the respective Indenture.

 

TelecomPersonal’s notes contain certain covenants that, among other things, limitTelecom Personal’s ability and the ability of its restricted subsidiaries(including Núcleo) to incur indebtedness (except for certain permittedindebtedness), to dispose of assets, to create or permit liens on property orassets unless the notes are equally and ratably secured, to enter into sale andleaseback transactions, to engage in transactions with shareholders and affiliatesand to engage in other lines of business.

 

Thenotes are redeemable at the option of the holders upon the occurrence ofcertain change of control events.  See “—Liquidity”below for a discussion of Telecom Personal’s limitations on incurrence ofindebtedness.

 

*Núcleo.*Asof December 31, 2008, Núcleo’s outstanding debt amounted to US$26 million.  Additional information is given in Note 8.3.bto our Consolidated Financial Statements.

 

***Liquidity***

*** ***

Asdiscussed above, the terms of the debt instruments that Telecom Personal,Núcleo and Telecom Argentina have entered into will restrict each company’sability to transmit funds to other companies in the Telecom Group, includinginter-company loans. Accordingly, the liquidity position for each of TelecomArgentina, Telecom Personal and Núcleo will be significantly dependent on eachindividual company’s operating performance and debt service commitments.

 

Thenotes issued pursuant to the APE limit Telecom Argentina’s ability and theability of Telecom Argentina’s restricted subsidiaries (including TelecomPersonal) to incur indebtedness, except for certain permitted indebtedness,unless the ratio of Telecom Argentina’s outstanding indebtedness to EBITDA (asdefined in the Indenture governing the notes), or “leverage ratio,” is 2.75 to1 (or upon the occurrence of certain events, 2.25 to 1) or less. As of the dateof this Annual Report, Telecom Argentina satisfies this ratio.

 

TelecomPersonal’s notes limit its ability to incur indebtedness, except for certainpermitted indebtedness, unless it meets a ratio of outstanding indebtedness toconsolidated EBITDA (as defined in the notes), or “indebtedness ratio” of 3.25to 1 or less, if such indebtedness is incurred prior to December 31, 2006 or3.00 to 1 or less, if such indebtedness is incurred thereafter. As of December 31,2008, Telecom Personal was qualified to incur additional indebtedness underthese ratios.

 

Inaddition, the terms and conditions of Nortel’s Class A and Class B PreferredShares contain covenants which require Nortel to restrict Telecom Argentina’sability to borrow if the ratio of Telecom Argentina’s total liabilities (ascalculated pursuant to Section 9 of the terms and conditions of Nortel’s Class Aand Class B Preferred Shares) to 

 

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shareholders’ equity is 1.75 or higher. If Nortel doesnot satisfy these covenants, Nortel’s Class A and Class B Preferred Shares willacquire certain voting rights which will enable Nortel’s preferred shareholdersto elect one director and one alternate director of Nortel.  Telecom Argentina’s ratio of totalliabilities to shareholder’s equity had exceeded this amount since March 2002,giving Nortel preferred shareholders such voting rights. After the approval ofTelecom Argentina’s unconsolidated financial statements as of December 31,2006, the total liabilities to shareholders’ equity ratio reflected on thesefinancial statements no longer exceeded 1.75 to 1.  Accordingly, the above-mentioned votingrights held by Nortel’s Class B preferred shareholders ceased.

 

Weexpect that our cash flow from operations will be sufficient to enable TelecomArgentina and its subsidiaries to satisfy their respective debt servicecommitments and other cash requirements in the near to medium term. As of thedate of this Annual Report, Telecom Argentina has prepaid all scheduledamortizations of the Series A notes payable through October 2011 and 48.75% ofthe scheduled principal amortization payments due in April 2012 and all thescheduled amortizations of the Series B Notes. Accordingly, its debt serviceobligations in the near to medium term relate principally to interest paymentobligations.

 

We alsoexpect that Telecom Personal’s cash flow from operations will be sufficient toenable Telecom Personal to satisfy its ongoing debt service commitments andother cash requirements in the near to medium term.  However, Telecom Personal may use short-term fundingto cover occasional negative operational cash flows.

 

Ourability to generate sufficient cash from our operations to satisfy our debtservice obligations and capital expenditure needs may be affected bymacroeconomic factors influencing our business, including, without limitation:the exchange rate of Argentine pesos to U.S. dollars; rates of inflation; theachievement of ultimate tariff adjustments for basic charges, measured servicecharges and other rates for our services relative to inflation and growth inArgentine real gross domestic product. These factors are not within ourcontrol. The statements expressed in the preceding paragraphs constituteforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995 and involve risks and uncertainties, includingthose describe in this Annual Report in “Item 3—Key Information—Risk Factors.”Actual results may differ materially from our expectations described above as aresult of various factors.

 

As of December31, 2008, and for the first time since fiscal year 2002, the Company reportedpositive retained earnings amounting to P$253 million. Before the Company maypay any dividend it must first rebuild the legal reserve which was absorbed on April27, 2006 (P$277 million). Consequently, Telecom Argentina does not expect topay dividends in 2009.

 

As of December31, 2008, Telecom Argentina and its consolidated subsidiaries had approximatelyP$902 million in cash and cash equivalents. Of this amount, approximately P$348million of cash and cash equivalents are held by Telecom Argentina on astand-alone basis. Telecom Group has approximately P$24 million of restrictedcash in connection with legal proceedings. Such restricted cash has beenclassified in “Other Receivables” on our balance sheet.

 

***CapitalExpenditures***

*** ***

Weestimate that our capital expenditures for the 2009 fiscal year will beapproximately P$1.6 - P$1.7 billion. Of this amount, we expect that TelecomArgentina will invest primarily to sustain the growth in broadband services, tocontinue developing the NGN, to supply mobile operators with the necessaryinfrastructure and to continue with the updating of commercial and supportsystems. Regarding Personal, the expansion of its network infrastructure willcontinue, and special effort will be made to extend 3G technology coverage andbandwidth for mobile data transmission. See “Item 3—Key Information—RiskFactors—We operate in a competitive environment which may result in a reductionof our market share in the future.” We expect that, so long as the notes limitthe amount of Telecom Argentina’s capital expenditures, Telecom Argentina willinvest close to the maximum amount permitted under the terms of the notes. Weexpect to finance our capital expenditures through cash generated throughoperations; therefore, our ability to fund these expenditures is dependent on,among other factors, our ability to generate sufficient funds internally.Telecom Argentina’s ability to generate sufficient funds for capital expendituresis also dependent on its ability to increase its regulated rates, since thecost of imported materials has increased in peso terms (as a result of thedecline in the peso/US dollar exchange rate).

 

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**RelatedParty Transactions**

 

Duringyear 2008, we have entered into certain transactions with our indirectshareholders Telecom Italia and W de Argentina—Inversiones or their affiliatesin the ordinary course of business. For a description of these transactions see“Item 7—Major Shareholders and Related Party Transactions.”

 

**Taxes**

 

*Turnover Tax*

* *

Under Argentinetax law, Telecom is subject to a tax levied on gross revenues. Rates differdepending on the jurisdiction where revenues are earned for tax purposes. Ratesranged from 2% to 6.5% for the years ended December 31, 2008, 2007 and 2006.

 

*Income Tax*

* *

Ourincome tax rate is currently 35% of taxable net income for the companieslocated in Argentina and 10% for Núcleo. The amount of income subject to tax iscalculated according to tax regulations which contain a different methodologyfor calculating net taxable income than the methodology used for thepreparation of our Consolidated Financial Statements under Argentine GAAP. Thedifferences between the methodology of computing income under the taxregulations and under Argentine GAAP make it difficult to determine the taxablenet income from our income statements. For instance, some deductions fromincome normally accepted for accounting purposes are non deductible andaccordingly, must be added back to income for tax purposes. Moreover, the taxregulations do not currently provide for the restatement of figures to reflectinflation as is required in certain periods by Argentine GAAP.

 

Anydividends paid which exceed the difference between Argentine GAAP net incomeand taxable net income (computed as provided in the tax regulations) aresubject to income tax at a rate of 35%. This withholding income tax is known asthe “equalization tax.” See “Item 10—Additional Information—Taxation—ArgentineTaxes—Taxation of Dividends.”

 

Tax oncash dividends received from a foreign subsidiary is calculated according tothe statutory income tax rate. As per Paraguayan tax law, an additional incometax rate of 5% is imposed on dividends that are paid. Additionally, whendividends are being paid to foreign shareholders, there is an additional incometax rate of 15%, which is deducted from the amounts which are paid to suchshareholders. As per Argentine tax law, income tax paid abroad is recognized astax credit.

 

Netlosses can generally be carried forward and applied against future taxableincome for 5 years.

 

*Costs Associated withIncome Taxes Paid by Foreign Lenders*

* *

Pursuantto the terms and conditions of our outstanding loans, we are required toreimburse our foreign lenders for Argentine income taxes payable by the lenderswith respect to the interest on the loans by increasing or “grossing up” theamount of interest paid to these lenders such that, after payment of theArgentine taxes, the lenders have received the contractual interest rate.Withholding rates on interest payments to foreign beneficiaries are currently15.05% (17.7163% with gross up) if the lenders are banks or financial entitieslocated in jurisdictions that are neither tax-free nor subject to taxationaccording to Argentine income tax rulings or have entered into treaties withArgentina providing for exchange of information upon request by the respectiveauthority. Furthermore, unless their internal rulings provide otherwise,requests for banking, stock exchange or other secret information cannot bechallenged. In order to be eligible for the 15.05% withholding rate, the financialentity must be under the supervision of a respective central bank or equivalentauthority. If the Lender did not meet the aforementioned requirements, thewithholding rate would be 35% (53.8462% with gross up).  Interest payments on notes (*obligaciones negociables*) that meet therequirements of Section 36 of the Negotiable Obligations Law and were held byforeign beneficiaries remain income tax exempt.

 

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*Thin Capitalization Rules*

* *

ArgentineLaw No. 25,784, which was published in the Official Bulletin in October 2003,modified the limitation on the deduction of interest expense by stating thatthe limit will only be applied to interest expense on debt owed to non-residententities that control the borrowing entity (except for interest expense subjectto the 35% withholding tax) in proportion to the amount of debt that exceeds bytwo times the company’s equity, and the excess of interest over this ratio willbe treated as dividend payments. During fiscal years 2006, 2007 and 2008,Telecom’s deduction of interest expenses was not limited because Telecom wasable to satisfy the conditions required for such deduction.

 

*Tax on Minimum PresumedIncome*

* *

Ourcompanies located in Argentina are required to pay an amount equal to thegreater of the income tax or the tax on minimum presumed income. The tax onminimum presumed income is computed based on 1% of the value of our assets. Thevalue of our assets is determined in accordance with the criteria establishedunder the tax laws. The amount of any income tax paid during the year may beapplied against the tax on minimum presumed income that would be payable insuch year. The amount of tax on minimum presumed income in excess of the incometax for such year may be carried forward for a period of up to ten years. Thisexcess may be treated as a credit that may be applied against the income taxpayable in a future year to the extent the tax on minimum presumed income forthe year does not exceed income tax payable for such future year. Shares andother equity participations in companies subject to the tax on minimum presumedincome are exempt from the tax on minimum presumed income. We paid minimumpresumed income tax for years 2006 and 2007 for Telecom Argentina and for year2006 for Telecom Personal.

 

*Value Added Tax (VAT)*

* *

VATdoes not have a direct impact on our results of operations. VAT paid by us toour suppliers is applied as a credit toward the amount of VAT charged byTelecom to its customers and the net amount is passed through to the ArgentineGovernment. VAT rates are 21%, 27% and 10.5%, depending on the type of thetransaction and tax status of the customer.

 

The importof services (including financial services) by Argentine VAT taxpayersregistered for VAT purposes, or *responsables inscriptos*,is subject to VAT. In the case of loans, if the lender is a bank or a financialentity located in a country whose central bank has adopted the BankingSupervision Standards of the Basle Committee, the rate is 10.5%. If the foreignlender is one other than those mentioned above, the rate is 21%.

 

Theburden of paying VAT is borne by the Argentine taxpayer.

 

*Tax on Deposits to andWithdrawals from Bank Accounts*

* *

Thetax on deposits to and withdrawals from bank accounts under Law No. 21,526applies to certain deposits to and withdrawals from bank accounts opened inArgentine financial entities and to other transactions that, due to theirspecial nature and characteristics, are similar or could be used in lieu of adeposit to or withdrawal from a bank account. Therefore, any deposit to orwithdrawal from a bank account opened in an entity regulated by Law No. 21,526,or any transaction deemed to be used in lieu of a deposit to or withdrawal froma bank account, is subject to the tax on deposits and withdrawals unless aparticular exemption is applicable. The tax rate in effect since August 1, 2001has been 0.6% of the transaction volume.

 

Duringyears 2008, 2007 and 2006, we charged to our income statement P$88 million,P$73 million and P$58 million, respectively, of this tax*.*

 

On February6, 2003, the Ministry of Economy, through General Resolution No. 72/03,authorized us to increase the Basic telephone services tariffs by the amount ofthe tax on deposits to and withdrawals from bank accounts as provided for inGeneral Resolution No. 72/03. The amount of the tax charged must be shown indetail on the customers’ bills. The amounts charged before General Resolution No.72/03 were approximately P$23 million. This amount was subsequentlycorroborated by CNC audits, resulting in a receivable for the Company for P$ 23million which was recorded under “Other receivables” during year 2007. Thatreceivable can be offset with existing and/or future regulatory duties. See “Item4—Information on the Company—Regulatory Framework—Rate Regulation—Tax ondeposit to and withdrawals from bank accounts (“IDC”).”

 

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DecreeNo. 534/2004 provides that owners of bank accounts subject to the general taxrate of 0.6% may take into account as a tax credit 34% of the tax originated incredits on such bank accounts. This amount may be computed as a credit for theIncome Tax and Tax on Minimum Presumed Income. The amount computed as a creditis not deductible for income tax purposes.

 

*Tax on Personal Property*

* *

ArgentineLaw No. 25,585, as amended by Law No. 26,317, imposes a tax on shares of stockcorporations, such as Telecom Argentina’s ADSs and the Class A, B and C Shares.See “Item 10—Additional information—Taxation—Argentine Taxes—Tax on PersonalProperty.”

 

Thetax rate applied is 0.50%. This tax is computed based on the value of theshareholders’ equity as stated on the most recent annual balance sheet ofTelecom Argentina. Although Telecom Argentina is required to pay this tax onbehalf of the holders of its ADSs, Class A, B and C Shares, it has the right toobtain reimbursement of the amounts paid from its shareholders, even if thisrequires holding and/or foreclosing the property on which the tax is due. As aresult, until shareholders reimburse Telecom Argentina for the amounts paid ontheir behalf, the payment of this tax constitutes a receivable for TelecomArgentina.

 

TelecomArgentina has, from time to time, requested that its shareholders reimburse theamounts of tax on personal property paid on their behalf and has receivedpartial reimbursement of such taxes. The amount paid by Telecom Argentina andpending collection from its shareholders as of December 31, 2008, wasapproximately P$17 million and an allowance was recorded for such amount.

 

*Other Taxes and Levies*

* *

We aresubject to a levy of 0.5% of our monthly revenues from telecommunicationsservices. The proceeds of this levy are used to finance the activities of theRegulatory Bodies. The amount of this levy is included in our consolidatedincome statement within “other operating and maintenance expenses.”

 

Law No.25,239 imposes a tax on Telecom Personal of 4% (tax on wireless and satelliteservices) of amounts invoiced excluding VAT but including the excise tax, whichresults in an effective tax rate of up to 4.167%.

 

Sincethe beginning of year 2001, telecommunication services companies have beenrequired to pay a Universal Service tax to fund Universal Service requirements.The Universal Service tax is calculated as a percentage of the total revenuesreceived from the rendering of telecommunication services, net of taxes andlevies applied on such revenues, excluding the Universal Service tax. The rateis 1% of total billed revenues.

 

See “Item4—Information on the Company—Regulatory Framework—Decree No. 764/00.”

 

**Researchand Development, Patents and Licenses, etc.**

 

None.

 

**Trend Information**

 

As aresult of the international financial crisis that unfolded in the second halfof 2008 and deepened during the beginning of 2009, global economic conditionsremain subject to uncertainty.  In thisenvironment, it is particularly difficult to predict consumer demand and otherrelated matters and therefore, it is probable that our actual results coulddiffer materially from current expectations. The information set forth belowincludes statements that are “forward-looking statements” subject to risks anduncertainties. See “Forward-Looking Statements.” Actual results may differmaterially from our expectations and assumptions as a result of variousfactors, including the factors discussed under “Item 3—Key Information—RiskFactors.”

 

Ourobjective for 2009 is to reinforce the results achieved in 2008, following thestrategy of increasing our customer base as well as our revenues in everybusiness segment.

 

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Growthin fixed line telephony is estimated to continue in line with the recent years’trend as the market has already reached maturity. The expansion of the broadbandbusiness is expected to be the main driver for growth in the Voice, Data andInternet business, given that the Arnet brand has been positioned to capturemarket opportunities in both the individual customer segment and the corporatesegment, including small, medium and large accounts.  We believe that the combined offer of fixed,mobile and data services, together with the increased strength of our datacenter capabilities resulting from the acquisition of Cubecorp, will allow theTelecom Group to be in a more competitive position and to be selected bycustomers as a strategic supplier of telecommunications and related services.

 

In theVoice, Data and Internet business, pending regulatory issues require resolutionin order to improve our profitability and allow us to continue investing intechnological innovations necessary for the development of thetelecommunications infrastructure in Argentina. The commitments included in the Letter of Understanding signed with theArgentine Government in March 6, 2006 and necessary tariff modifications forregulated services are still pending. Telecom Argentina will continue paying special attention to its costs,which increased during fiscal year 2008 due to the effects of inflation, andresulted in a deterioration of profitability margins.

 

Anotherpending issue in the agenda of the Regulatory Authority is the implementationof the Universal Service Fund, which is designed to compensate incumbentoperators for loss-incurring services rendered since 2001.  The implementation of the Universal ServiceFund is expected to allow access to basic services of low income segments andto areas not yet covered by telecommunications services.

 

In2009, we expect that the wireless business will continue to expand itssubscriber base, albeit at a more moderate pace as compared to that of recentyears. Nonetheless, the Company’s positioning of the wireless business inArgentina favors its expectation of growth in market share, both in terms ofcustomers and revenues.  We plan to continueour strategy of acquiring high value customers and stimulating consumptionthrough the launch of new services and products, in order to retain existingcustomer loyalty and strengthen the Telecom Personal brand among providers inthe Argentine cellular industry. One of the most important drivers of growthwill continue to be the expansion of value added services (which representedapproximately 30% of Telecom Personal’s Services Sales in 2008). It is alsoexpected that the offer of mobile Internet, launched under the umbrella ofTelecom Group brand Arnet, will strengthen the growth of these services andwill be supported by the deployment of third generation network that will allowhigher speeds in data transmission and an increase in the number of locationswhere the service is available.

 

Inorder to provide our customers with newer and better services, during the nextfiscal year the Telecom Group will continue with its investment plans. Weestimate that these investment plans will require expenditures in an amountequivalent to 14% of consolidated net sales. Telecom Argentina will invest to sustain the growth in broadbandservices, to continue developing the NGN, to supply mobile operators with thenecessary infrastructure and to continue updating commercial and supportsystems. The expansion of Telecom Personal’s network infrastructure willcontinue, and a special effort will be made to extend 3G technology coverageand bandwidth for mobile data transmission.

 

Theinternational financial crisis that unfolded in the second half of 2008 anddeepened at the beginning of 2009 represents a significant challenge to theTelecom Group and the rest of the companies in Argentina.  Our main question is to determine to whatextent this global phenomenon will affect the Argentine economy, and inparticular the financial condition of our customers.

 

Givenour experience with consumer patterns shown in recent economic crises, we toexpect that this downturn will not have a substantial impact on the TelecomGroup. We also believe that the risk of uncollectible receivables is limited bythe diversification in our portfolio of customers and the effect of revenuesgenerated by pre-paid customers in the wireless segment.

 

TheTelecom Group is in a strong financial position since we believe that there areno financial commitments during the next fiscal year which cannot be satisfiedwith cash flow generated by internal operations. The financial indicators haveimproved during fiscal year 2008 and it is estimated that they will continue toimprove during the following fiscal year.

 

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**ContractualObligations**

** **

Ourconsolidated contractual obligations and purchase commitments as of December 31,2008 were as follows:

 
| ** **                      | ** ** | **Less than****1****year**           | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than********5 years** | ** ** | **Total** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|---------------|------------|---------------|------------|------------------------------|------------|-----------|------------|
| ** **                      | ** ** | **(in millions of Argentine pesos)** | ** ** |
| Debt obligations (1)(2)         |       | 1,472                                |       | 754           |       | —        |       | —                       |       | 2,226     |       |
| Capital lease obligations       |       | 9                                    |       | —        |       | —        |       | —                       |       | 9         |       |
| Operating lease obligations     |       | 100                                  |       | 107           |       | 9             |       | —                       |       | 216       |       |
| Purchase obligations            |       | 757                                  |       | 35            |       | 12            |       | 72                           |       | 876       |       |
| Other long-term liabilities (3) |       | 47                                   |       | 88            |       | 43            |       | 89                           |       | 267       |       |
| **Total**                       | ** ** | **2,385**                            | ** ** | **984**       | ** ** | **64**        | ** ** | **161**                      | ** ** | **3,594** | ** ** |

 

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(1)          The schedule of debt obligations (including P$181 million of futureinterest) set forth above is based on the expected amortization schedule of therelevant debt instruments as of December 31, 2008 and takes into account themandatory and optional prepayment provisions. In April 2009, Telecom Argentinamade principal prepayment on the Notes corresponding to the “excess cash”determined for the period ended December 31, 2008. After giving effect to thisprepayment, the Company has cancelled all scheduled amortizations of the SeriesA notes payable through October 2011 and 48.75% of scheduled principalamortization payments due April 2012.

 

(2)          Does not include effect of discounting.

 

(3)          Includes special termination benefits, retirement benefits, assetretirement obligations, court fees and other long-term payables.

 

**Off-Balance SheetArrangements**

** **

None.

 

**Safe Harbor**

** **

Seethe discussion at the beginning of this Item 5 and “Forward-Looking Statements”in the introduction of this Annual report, for forward-looking statement safeharbor provisions.

 

**ITEM 6.**  DIRECTORS, SENIOR MANAGEMENT ANDEMPLOYEES

** **

**The Board ofDirectors**

** **

Managementof the business of the Telecom Group is vested in the Board of Directors.Telecom Argentina’s bylaws provide for a Board of Directors consisting of nofewer than three and no more than nine directors and up to the same or a lowernumber of alternate directors. Telecom Argentina currently has six directorsand six alternate directors. Three of the directors and two of the alternatedirectors qualify as independent directors under SEC regulations. Two of thedirectors and one of the alternate directors also qualify as independentdirectors under CNV rules. According to Telecom Argentina’s bylaws the Board ofDirectors has all of the required authority to administer the corporation,including those for which the law requires special powers. The Board operateswith a quorum of the absolute majority of its members and resolves issues bysimple majority of votes present. Since the statutory reform approved by theshareholders’ meeting of February 18, 2004, the Chairman has a double vote inthe case of a tie. Under CNV regulation, in order to be independent, a directormust neither be employed by, nor affiliated with, Telecom Argentina, Nortel,Sofora, the Telecom Italia Group or the W de Argentina—Inversiones. Directorsand alternate directors are normally elected at annual ordinary generalmeetings of the shareholders and serve renewable one-fiscal-year terms.

 

Becausea majority of shares are owned by Nortel, Nortel as a practical matter may havethe ability to elect the majority of directors and alternate directors. In theabsence of a director, the corresponding alternate director may attend and voteat meetings of the Board of Directors.

 

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SinceTelecom Argentina’s annual shareholders’ meeting called for April 28, 2009 hasbeen provisionally suspended and directors and alternate directors areappointed at the annual shareholders’ meeting, there have been no changes tothe directors or alternate directors of Telecom Argentina. Therefore, directorsand alternate directors appointed at the annual shareholders’ meeting held on April29, 2008 remain in their positions as of the date of this Annual Report.  Regarding legal and administrativeproceedings that affect shareholders’ meetings, meetings of the Board ofDirectors of Telecom Argentina, as well as other corporate governance matters, see“Item 8—Financial Information—Legal Proceedings—Legal Proceedings Related toShare Ownership—The Argentine Antitrust Commission’s Resolutions No. 04/09,43/09, 44/09, 62/09 and 64/09.”

 

Thefollowing table lists the directors and alternate directors of TelecomArgentina as of December 31, 2008.

 
| **Name**                     | ** ** | **Position**                             | ** ** | **Date  Director became a  Member of the Board** |
|------------------------------|------------|------------------------------------------|------------|--------------------------------------------------|
| Enrique  Garrido             |       | Chairman  of the Board of Directors      |       | April 27, 2007                                   |
| Gerardo  Werthein            |       | Vice  Chairman of the Board of Directors |       | December 19, 2003                                |
| Jorge  Luis Pérez Alati |       | Director                                 |       | August 5, 2008*                                  |
| Domingo  Jorge Messuti       |       | Director                                 |       | April 29, 2008                                   |
| Esteban  Gabriel Macek       |       | Director                                 |       | April 27, 2007                                   |
| Jorge  Alberto Firpo         |       | Director                                 |       | August 10, 2005                                  |
| Eduardo  Federico Bauer      |       | Alternate  Director                      |       | April 27, 2007                                   |
| Adrián  Werthein        |       | Alternate  Director                      |       | December 19, 2003                                |
| Gustavo  Enrique Garrido     |       | Alternate  Director                      |       | April 27, 2007                                   |
| Francesco  Armato            |       | Alternate  Director                      |       | August 5, 2008**                                 |
| Esteban  Pedro Villar        |       | Alternate  Director                      |       | April 29, 2008                                   |
| Luis  Miguel Incera          |       | Alternate  Director                      |       | April 29, 2008                                   |

 

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*                 Appointedas an alternate director at the annual shareholders’ meeting held April 29,2008. He became a director on August 5, 2008, replacing Mr. Franco Bertone, whoresigned due to his appointment as General Director of Operations.

 

**          Appointedby the****Supervisory Committee pursuant to Article258, 2nd paragraph of the Law of CommercialAssociations.

 

*EnriqueGarrido* is a lawyer. He served as a director of TelecomArgentina during fiscal year 2007 and was elected Chairman of the Board ofDirectors of Telecom Argentina on April 29, 2008.  He is a member of the Supervisory Committeeof Aeropuertos Argentina 2000 S.A. and La Estrella S.A. Compañía de Seguros deRetiro and an alternate director of Huishang S.A. and Kubic S.A. He is thefather of Gustavo Enrique Garrido. He was born on June 7, 1937.

 

*GerardoWerthein* is a veterinarian. He is also a director of Soforaand Telecom Personal. He is Chairman of Holding W-S de Inversiones S.A., Cajade Seguros S.A., La Caja de Seguros de Retiro S.A., Instituto del Seguro deMisiones S.A., Le Mer S.A. and Haras El Capricho S.A. He is Vice Chairman of LaCaja Aseguradora de Riesgos de Trabajo ART S.A., W de Inversiones S.A and LaEstrella S.A. Compañia de Seguros de Retiro. He is a director of TradiciónSeguros S.A., Gregorio, Numo y Noel Werthein S.A., Los W S.A. and Caja deAhorro y Seguro S.A. He is a distant cousin of Adrián Werthein. He was born on December3, 1955.

 

*Jorge Luis Pérez Alati* is a lawyer. He isChairman of the Board of Directors of Telecom Personal, In Store MediaArgentina S.A., Inversiones Alumine S.A., Inversiones Los Alpes S.A.,Inversiones Meliquina S.A., ISDIN Argentina S.A., La Papelera del Plata S.A.,Nogal Central S.A. and Solcan S.A. He is Vice Chairman of Puig Argentina S.A.,Lan Argentina S.A., Inversora Cordillera S.A. and Farma System S.A. He is adirector of Telecom Argentina, Sofora, Aluflex S.A., CMPC Inversiones deArgentina S.A., Corandes S.A., Cork Supply Argentina S.A., Fabi BolsasIndustriales S.A., Honda Motor de Argentina S.A., Inversiones Los Andes S.A.,Ivax Argentina S.A., Motorola Argentina S.A., Naschel S.A. and LDC ArgentinaS.A. He is a member of the supervisory committee of Banco Santander Río S.A.,BRS Investment S.A., Distrilec Inversora S.A., Edesur S.A., InternacionalCompañía de Seguros de Vida S.A., Linvest S.A., Lyon Consulting S.A., PortalUniversia Argentina S.A., Perevent Empresa de Servicios Eventuales S.A.,Prestamos de Consumo S.A., Santander Río Seguros S.A., Santander Río TrustS.A., Santander Merchant S.A. and Santander Sociedad de Bolsa S.A., and analternate director of Nortel. He was born on September 14, 1954.

 

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*DomingoJorge Messuti* holds a PhD in Economics and an MBA fromColumbia University, New York, USA. He was appointed director of TelecomArgentina on April 29, 2008. He is a director of Fiplasto S.A. until the nextannual shareholders meeting. He was born on May 17, 1938.

 

*EstebanGabriel Macek* is a public accountant. He is Chairman ofFiduciaria Internacional Argentina. He is director of Inmobiliaria Madero S.A.He is also an alternate member of the Supervisory Committees of Visa ArgentinaS.A. and Prisma S.A. He was born on November 8, 1960.

 

*JorgeAlberto Firpo* is an electrical engineer and a graduate of theUniversidad Tecnológica Nacional. He is Chairman of Núcleo, Telecom ArgentinaUSA, Inc., Cubecorp, and Micro Sistemas S.A. and a director of Sofora andTelecom Personal. He is also an alternate director of Nortel. Previously, hewas head of purchases and logistics at Telecom Italia America Latina, S.A. Hewas born on April 17, 1954.

 

*EduardoFederico Bauer*is a lawyer. He is Vice Chairman of the Boardof Directors of Micro Sistemas S.A. He is a director of Sofora, Nortel andCubecorp and an alternate director of Telecom Personal and Núcleo. He is alsoan alternate director of Caja de Seguros S.A., La Caja Aseguradora de Riesgosdel Trabajo ART S.A., Instituto del Seguro de Misiones S.A., La Caja de Segurosde Retiro S.A., La Estrella S.A. Cía de Seguros de Retiro, Tradición SegurosS.A., Ritenere S.A. and Pluria Productores de Seguros S.A. He was born on January14, 1950.

 

*AdrianWerthein* is a public accountant. He is Vice Chairman ofSofora and Telecom Personal. He is Chairman of Caja de Ahorro y Seguro S.A.,Haras El Roblecito S.A. and W de Inversiones S.A. He is also Vice Chairman ofCaja de Seguros S.A., Gregorio, Numo y Noel Werthein S.A., Inversitas S.A., LasManadas Agropecuaria S.A. and Los W S.A. He is a director of La Caja de Segurosde Retiro S.A., Instituto del Seguro de Misiones S.A., Tradición Seguros S.A.and La Estrella S.A. Cía de Seguros de Retiro. He is a distant cousin ofGerardo Werthein. He was born on January 18, 1952.

 

*GustavoEnrique Garrido* is a lawyer. He is Chairman of Agsa ArgentinaS.A., Integratíon Consultoría Empresarial S.A., Salix S.A. and Yahoo S.R.L. andVice Chairman of Bariloche Cinco S.A., Bariloche Uno S.A. and Circuito ChicoDesarrollos S.A.  He is also a directorof Forestal Norteña S.A., Huishang S.A., Jardin de Pilar S.A., Compañía deTalentos S.A., Action Line Córdoba S.A. and the Greenleaf Group and a member ofthe Supervisory Committee of Celulosa Argentina S.A. and Jardines de RooseveltS.A. He is a visiting professor of entrepreneurship at Universidad de SanAndrés. He is the son of Enrique Garrido. He was born on October 27, 1967.

 

*FrancescoArmato* is an executive. He has served as Chairman and CEO of Lan Ltd Latin American NautilusGroup since 2006.  He has been ExecutiveVice President of TI Sparkle Central & South America since 2002, havingcarried out various roles in this company since 1990.  He has been appointed as a Director inseveral subsidiaries of the Telecom Italia Group.  He was born on August 25, 1957.

 

*EstebanPedro Villar* is a public accountant and he holds a PhD inEconomics and an MBA from Columbia University, New York, USA. He is a member ofthe Supervisory Committee of Carboclor S.A., Petrolera del Conosur S.A.,Petrouruguay S.A., Ferrosur Roca S.A., Holdtotal S.A., Reycomb S.A., CofesurS.A., Betel S.A., Escofer S.A., Compañía Argentina de Cemento Portland S.A.,and Compañía de Servicios de la Construcción S.A. Mr. Villar is an alternatemember of the supervisory committee of Francés Administradora de InversionesS.A., Loma Negra Sociedad Industrial Argentina S.A. and Consultatio AssetManagement S.A. He was born on July 3, 1938.

 

*LuisMiguel Incera* is a lawyer. He is a member of the AdvisoryCommittee of Alpargatas S.A.I.C. and a member of the Supervisory Committee ofAlpargatas Textil S.A., Alpargatas Calzados S.A., Alpargatas Textil ExportadoraS.A., Calzado Catamarca S.A., Textil Catamarca S.A., Confecciones TextilesS.A., Alpaline S.A., and Fiduciaria del Sur S.A. He is a director and Chairmanof the Board of Directors of Viñas Don Martín S.A. and an alternate director ofTelecom Personal, Telecom Argentina, Cubecorp, and Sofora. He was born on March16, 1957.

 

See “Item7—Major Shareholders and Related Party Transactions—Shareholders’ Agreements”for a description of certain agreements relating to the appointment of membersof the Board of Directors.

 

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**Senior Management**

** **

TheTelecom Group’s senior management members as of December 31, 2008 were asfollows:

 
| **Name**                                       | ** ** | **Position****(1)**                                              | ** ** | **Date of  Designation** |
|------------------------------------------------|------------|------------------------------------------------------------------|------------|--------------------------|
| Franco  Bertone                                |       | General  Director of Operations (2)                              |       | August 2008              |
| Guillermo  Gully (3)                           |       | General  Director of Corporate Matters (2)                       |       | July 2007                |
| Edmundo  Silvio Poggio                         |       | Director  of Regulatory Affairs                                  |       | May 2007                 |
| Federico  Rossi                                |       | Director  of Wireless Telephony                                  |       | April 2008               |
| Marcelo  Eugenio Villegas (4)                  |       | Director  of Human Capital                                       |       | August 2008              |
| Valerio  Cavallo                               |       | Chief  Financial Officer                                         |       | November 2002            |
| José  María Peña Fernández |       | Director  of Procurement                                         |       | October 2003             |
| María  Delia Carrera Sala                 |       | Director  of General Secretary                                   |       | November 2002            |
| Carlos  Augusto Zubiaur                        |       | Director  of Legal Affairs                                       |       | June 2005                |
| Ricardo  Luttini                               |       | Director  of Internal Audit                                      |       | April 2007               |
| Alberto  Marcelo De Carli                      |       | Director  of Fixed Telephony — Large Accounts and Wholesale |       | March 2003               |
| Mario  Fernando Capalbo                        |       | Director  of Network                                             |       | March 2006               |
| Simone  Battiferri                             |       | Director  of Fixed Telephony — Residential and SMEs         |       | April 2007               |
| Mariano  Cornejo                               |       | Director  of Communications and Media                            |       | June 2007                |
| Guillermo  Pedro Desimoni                      |       | Director  of Information Services                                |       | August 2007              |
| María  Paola Levati                       |       | Director  of Real Estate                                         |       | August 2008              |

 

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(1)          The designation of Director does not imply that the officers mentionedabove are members of the Board of Directors of Telecom Argentina, which iscomposed of the persons stated in the “—Directors, Senior Management andEmployees — The Board of Directors” above.

 

(2)          In March 2009, Telecom Argentina’s Board of Directors resolved to unifythe position of General Director of Corporate Matters and the position ofGeneral Director of Operations into a single Chief Executive Officer positionfilled by Mr. Franco Bertone. This decision is affected by Resolution N° 64/09of the Argentine Antitrust Commission ordering, among other matters, revocationof the abovementioned unification. However, on June 11, 2009, the Second Courtof Appeals in Federal Civil and Commercial Matters notified the company of theresolution through which it ordered Telecom Argentina “to abstain fromconsidering - at the meeting of the Board of Directors to be held on June 12,2009 - the item on the agenda Consideration of Resolution No. 64/09 of theArgentine Antitrust Commission and measures which may have to be adopted.” See “Item8— Financial Information—Legal Proceedings—Legal Proceedings Related to ShareOwnership— The Argentine Antitrust Commission’s Resolutions N° 04/09, 43/09,44/09, 62/09 and 64/09.”

 

(3)          Mr. Guillermo Gully held this position through December 2008.

 

(4)          Marcelo E. Villegas began working for the Company in May 2008 as HumanResources Policies and Human Resources Services Director. On August, 2008 bothpositions merged into one, Director of Human Capital.

 

*FrancoBertone*is an electronic engineer.  He has been Director of Operations of TelecomItalia in Argentina, Director of Shareholder Relations of Telecom Italia LatinAmerica, CEO and Chairman of the Board of Directors of Entel (Bolivia) and ViceChairman of Telecom Argentina. He has also served as Chairman of NortelInversora, Deputy Chairman of Entel (Chile) and non-executive director ofDigitel (Venezuela), Tim Perú and Tim Participações. He is an alternatedirector of Cubecorp. He was born on April 9, 1952.

 

*GuillermoGully* is an engineer. He began working for Telecom in 2003.Previously, he was Director of Human Resources of Telecom Italia AmericaLatina, S.A. He was born on October 27, 1944.

 

*EdmundoSilvio Poggio* is an engineer. He joined Telecom Argentina in1990 as a member of the Advisory Committee that handled the company take-over.Since 1991 he has been responsible for different areas as Marketing Manager,Director of Wholesale Services Strategy and General Manager of the WirelineBusiness Unit. In 2007 he was appointed Director of Regulatory Affairs. Priorto joining Telecom Argentina, Mr. Poggio worked at the SADE 

 

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Group, where he led different telecommunicationsprojects until 1986, when he was appointed as General Manager of Micro SistemasS.A. Mr. Poggio began his career in 1972 after graduating as atelecommunications engineer at the University of La Plata, Argentina. Between1972 and 1976 he performed several activities as a scientific researcher inhardware and software design. He was born on February 6, 1949.

 

**Federico Rossi** is an accountant specialized in administrationand finance. He has held several administrative and finance positions at STET,****including Director of Financial Services. In 1995 he becameVice Chairman of Finance at TIM in Italy. During his time at TIM, he assumedresponsibility for the area of International Finance and served as a member ofthe Board of Directors of various companies. He was also involved in thecreation and launch of the Comprehensive Pension Fund for the telecommunicationssector in Italy. In 2002 he became Executive Director of DIGITEL TIM inVenezuela and in August of that same year he was named Chairman and CEO. He left DIGITEL TIM at the end of2006 and became a consultant focused on the telecommunications sector. Since April2008, he has been General Director of Telecom Personal. He is a director ofNúcleo. He was born in Canaro, Rovigo province, Italy, on March 24, 1956.

 

*MarceloEugenio Villegas* is a lawyer. He joined Telecom Argentina in May2008, as the Director of Human Resources. He graduated from UniversidadNacional de Buenos Aires. Previously he worked in the department of humanresources of: within Wal-Mart Stores (International Division) for Wal-MartArgentina; within the Cencosud group (Jumbo Retail Division) for the brandsJumbo, Disco and Vea; Hewitt & Aso, as head of talent management andorganizational change; within the Perez Companc group, for Sade S.A and theDivision of Exploration and Production of Gas and Oil in Latin America; withinthe Suez Group, for Aguas Provinciales de Santa Fe, Aguas Argentinas, LatinAmerica Region and Ondeo de Puerto Rico Inc. He was born on March 13, 1963.

 

*ValerioCavallo* is an economist. He began working for Telecom in May 2001.He was previously Director of Budget and Reporting at Telecom Italia Group. Heis a Director of Núcleo, Cubecorp, and Micro Sistemas S.A. He was born on April21, 1960.

 

*JoséMaría Peña Fernández* is an engineer. He began working forTelecom on October 15, 2003. He was previously General Manager of Tel3 S.A. Hewas born on October 18, 1951.

 

*MaríaDelia Carrera Sala* is a lawyer. She began working for Telecomin 1992. Previously, she was the Manager of Legal Affairs of Compañía Argentinade Teléfonos S.A. She was born on August 27, 1948.

 

*CarlosAugusto Zubiaur* is a lawyer. He joined Telecom in June 2005and is currently the Director of Legal Affairs. Prior to that time, he was apartner at Estudio O’Farrell and Chief of Staff at Telefónica. He was born on December26, 1964.

 

*RicardoLuttini* is an accountant. He joined Telecom in June 2005. Hehad previously served as Manager of Business Controls and Auditing for La Cajade Ahorro y Seguro S.A., General Manager of Banco Caja de Ahorro S.A., andGeneral Accountant and Audit Manager at Banco Mercantil Argentino. He was bornon September 27, 1961.

 

*AlbertoMarcelo de Carli* is a business administrator. He beganworking for Telecom in November 1993. He worked as general Director of TelecomPersonal from 1994 to March 2003. Formerly, he worked at IBM Argentina. He is adirector of Cubecorp. He was born on April 26, 1957.

 

*MarioFernando Capalbo* is a mechanical engineer. He was formerlyGeneral Manager of Pirelli Cables y Sistemas in São Paulo, Brazil. He was bornon May 7, 1952.

 

*SimoneBattiferri* is an electrical engineer and graduated from theUniversity of Rome “La Sapienza.” He first joined Telecom Argentina in 2006 asthe Marketing Vice Chairman and then, following the Telecom Groupreorganization in 2007, became Director of Fixed Telephony - Residential andSMEs. Before joining Telecom Argentina he worked at Telecom Italia since 2001,where he served as the Marketing Vice Chairman (Datacom eBusiness SolutionsUnit), Telecom Italia Web Services Marketing Director and Business OpportunityEvaluations Director (International Operations). Before joining Telecom Italiahe worked for Etnoteam for approximately six years. At the time of leavingEtnoteam, he was serving as Vice Chairman for Telecom and Media Market and forStrategy. He was born in Rome on September 20, 1967.

 

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*MarianoCornejo* holds a degree in advertising. He joined Telecom in June2007. Previously he served for twelve years as General Manager in Marketing atLa Caja de Ahorro y Seguro S.A. He was also Director of Brands for the WertheinGroup for the same period. He was born on December 20, 1963.

 

*GuillermoPedro Desimoni* holds a bachelor’s degree in systemsengineering, a master’s degree in management (MBA- IAE) and has completedpostgraduate studies in finance (UDESA). He joined Telecom in February 2005. Hewas formerly a Manager of Operations and Administration at Banco Galicia, andprior to that, a Vice Chairman at COELSA. He previously worked at Argencard,where he held the office of Manager of Technology and Systems and at Posnet,where he was General Manager. He also served as Senior Manager in Consulting atAccenture. He was born on August 20, 1960.

 

*MaríaPaola Levati* is an accountant.  She joined Telecom Argentina in August 2008,as Director of Real Estate. She completed all her studies at the UniversidadNacional de Buenos Aires.  Prior to heremployment at Telecom Argentina and since 2000, Ms. Levati worked at La Caja deAhorro y Seguro S.A. where she held several positions, the most recent of whichwas as Manager of Administration.  Priorto 2000, she worked at several financial entities such as JP Morgan, Bank ofAmerica and Continental Illinois National Bank with responsibilities in variousareas of finance. She started her career at Price Waterhouse and Co. She wasborn in Buenos Aires on August 15, 1962.

 

**SupervisoryCommittee**

** **

Argentinelaw requires any corporation with share capital in excess of P$10,000,000 orwhich provides a public service or which is listed on any stock exchange or iscontrolled by a corporation that fulfills any of the aforementionedrequirements, to have a Supervisory Committee. The Supervisory Committee isresponsible for overseeing Telecom Argentina’s compliance with its bylaws andArgentine law and, without prejudice to the role of external auditors, isrequired to present to the shareholders at the annual ordinary general meetinga report on the accuracy of the financial information presented to theshareholders by the Board of Directors. The members of the SupervisoryCommittee are also authorized:

 

·                  tocall ordinary or extraordinary shareholders’ meetings;

 

·                  toplace items on the agenda for meetings of shareholders;

 

·                  toattend meetings of shareholders; and

 

·                  generallyto monitor the affairs of Telecom Argentina.

 

TelecomArgentina’s bylaws provide that the Supervisory Committee is to be formed bythree or five members and three or five alternate members, elected by themajority vote of all shareholders. Members of the Supervisory Committee areelected to serve one fiscal year terms and may be re-elected.

 

As of December31, 2008, the members and alternate members of the Supervisory Committee, aselected at the annual shareholders meeting dated April 29, 2008, were:

 
| **Name**                       | ** ** | **Position**                                  | ** ** | **Profession** |
|--------------------------------|------------|-----------------------------------------------|------------|----------------|
| Diego  Serrano Redonnet        |       | Chairman of the Supervisory Committee         |       | Lawyer         |
| Gerardo  Prieto                |       | Member of the Supervisory Committee           |       | Accountant     |
| Jacqueline  Berzón        |       | Member of the Supervisory Committee           |       | Lawyer         |
| Guillermo  Eduardo Quiñoa |       | Alternate Member of the Supervisory Committee |       | Lawyer         |
| Guillermo  Feldberg            |       | Alternate Member of the Supervisory Committee |       | Accountant     |

 

*DiegoSerrano Redonnet* isa lawyer.**He is a memberof the Supervisory Committee of Telecom Personal, Sofora, Nortel, BancoSantander Río S.A., BJ Services S.R.L., BRS Investment S.A., America LatinaTecnologia S.A., Santander Río Servicios S.A., Perevent Empresa de ServiciosEventuales S.A., Prestamos de Consumo S.A., Santander Río Trust S.A., SantanderSociedad de Bolsa S.A., Gas Argentino S.A. and Metrogas S.A. He is an alternatemember of the Supervisory Committee of Cubecorp. He holds a law degree from theArgentine Catholic University and an LL.M. from Harvard Law School. He was bornon September 18, 1966.

 

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*GerardoPrieto* is an accountant. He has been a member of theSupervisory Committee since 2004. He is also a member of the SupervisoryCommittees of Sofora, Nortel, Telecom Personal, Cubecorp and Micro SistemasS.A. He is Chairman of Campofin S.A., Polifin S.A., Pluria Productores deSeguros S.A., Cabaña Doble G del Litoral S.A. and Tradición Seguros S.A.  He is a director of Standard Bank ArgentinaS.A., Caja de Seguros S.A., Instituto del Seguros de Misiones S.A., RitenereS.A. and Activos Turísticos S.A. He is also an alternate director of La CajaAseguradora de Riesgos del Trabajo ART S.A., La Caja de Seguros de Retiro S.A.,Caja de Ahorro y Seguro S.A. and La Estrella S.A. Compañía de Seguros deRetiro. Dr. Prieto is a public accountant and is not included in therequirements of RT No. 15 regarding accountant non-independence, nor is hecomprised in the cases enumerated in the third paragraph of Article 4 ofChapter XXI of the *Normas de la ComisiónNacional de Valores*. He was born on March 3, 1951.

 

*JacquelineBerzón*is a lawyer. She has been an alternate member of theSupervisory Committee of Telecom Argentina since April 2005. She wasappointed as member of the Supervisory Committee on May 8, 2008. She isalso a member of the Supervisory Committee of Micro Sistemas S.A. and analternate member of the Supervisory Committee of Telecom Personal, Sofora,Cubecorp, Bariloche Seis S.R.L. and Chairwoman of Hungry Man Argentina S.R.L.She was born on October 9, 1975.

 

*GuillermoEduardo Quiñoa* is a lawyer. He is a director of Pilar delEste S.A. and Inversiones Los Alpes S.A. He is also a member of the SupervisoryCommittee of Cubecorp, AGCO Argentina S.A., CMPC Inversiones de Argentina S.A.,CMR Falabella S.A., Forestal Bosques Del Plata S.A. and La Papelera Del PlataS.A., and an alternate member of the Supervisory Committee of Telecom Personal,Nortel, Sofora and Forestal Bosques del Plata. He was born on October 28,1966.

 

*GuillermoFeldberg* has been a alternate member of the SupervisoryCommittee since 2004. He is also an alternate member of the SupervisoryCommittee of Telecom Personal, Micro Sistemas S.A., Cubecorp, Nortel andSofora. He is Chairman of Agropecuaria La Victoria S.A., Seed Capital EducaciónS.A., Dav Satelital S.A., Caroline Establecimientos Agropecuarios S.A., SeedCapital Comunicaciones S.A., Ineba S.A., Izzalini Trade S.A. and GWF. S.A. Heis Vice Chairman of Doble “G” del Litoral S.A. Dr. Feldberg is a public accountant and is not included in therequirements of RT No. 15 with respect to accountant non-independence, noris he comprised in the casesenumerated in the third paragraph of Article 4 of Chapter XXI of the *Normas de la Comisión Nacional de Valores*. He was born on February 20,1951.

 

SinceTelecom Argentina’s annual shareholders’ meeting has been provisionallysuspended and the members of the Supervisory Committee are appointed at theannual shareholders’ meeting, there have been no changes to the members of theSupervisory Committee of Telecom Argentina as of the date of this AnnualReport. See “Item 8— Financial Information—Legal Proceedings—Legal ProceedingsRelated to Share Ownership— The Argentine Antitrust Commissions Resolutions N°04/09, 43/09, 44/09, 62/09 and 64/09.” Therefore, members of the SupervisoryCommittee appointed at the annual shareholders’ meeting held on April 29,2008 continue to hold their positions as of the date of this Annual Report.

 

**Compensation**

 

Thecompensation for the members for the Board of Directors and the SupervisoryCommittee is established for each fiscal year at the annual meeting ofshareholders.

 

Theaggregate compensation paid to the members of Telecom Argentina’s Board ofDirectors, the members of Telecom Argentina’s Supervisory Committee and theexecutive officers described under “Senior Management” above, was approximatelyP$28.4 million during the year ended December 31, 2008. During the yearended December 31, 2008, Telecom Argentina was not required to set asideor accrue any amounts to provide pension, retirement or similar benefits.

 

Themembers of the Board of Directors of Telecom Argentina received, as advancedpayment for services rendered as directors during the year ended December 31, 2008,a total of P$3 million. The members of the Supervisory Committee of TelecomArgentina during the year ended December 31, 2008 received as advancedpayment a total of P$0.4 million. Payments to the Board of Directors and theSupervisory Committee of Telecom Argentina had to be approved at the annualshareholders’ meeting.  Since TelecomArgentina’s annual shareholders’

 

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meeting has been provisionally suspended by aprecautionary measure, the approval for payments is pending as of the date ofthis Annual Report. Compensation for the executive officers described under “SeniorManagement” above, amounted to approximately P$25 million during the year endedDecember 31, 2008 (including fixed and variable compensation, retentionplan benefits, payments owed to the Operator for services provided by highlyqualified personnel and, in some cases, severance payments and non-competeagreements).

 

Accruedcompensation for fiscal year 2008 for the members of the Board of Directors andSupervisory Committee was P$3.5 million and P$0.6 million, respectively.

 

Thecontracts of certain members of the Company’s management contain indemnificationprovisions in case of termination for any cause.  This indemnification is in addition to thatprovided for by Argentinean labor laws. The terms of this additional indemnification are in accordance withcustomary indemnification contractual provisions for comparable executivepositions in the Argentinean labor market.

 

TheCompany’s managers (including Senior Management) receive fixed and variablecompensation. A manager’s fixed compensation reflects the level ofresponsibility required for his or her position and the market rate for similarpositions. Variable compensation is tied to annual performance goals. Certainmanagers are beneficiaries of retention plan benefits.

 

Duringfiscal year 2008, Telecom implemented a “Long Term Incentive” plan for membersof Senior Management and certain higher-ranking members of management.  The plan was implemented for the purpose ofcreating mid/long-term value related to the Company’s success and as an elementfor retaining its key employees. This program covers a three-year performanceterm. The Long Term Incentive plan contemplates cash payments to participants;however, no payments were made for fiscal year 2008.

 

Telecomhas no stock option plans for its personnel, nor for its members of the Boardof Directors or the Supervisory Committee.

 

**Board Practices**

 

UnderArgentine law, directors have the obligation to perform their duties withloyalty and the diligence of a prudent business person. Directors are jointlyand severally liable to Telecom Argentina, our shareholders and third partiesfor the improper performance of their duties, for violations of law, our bylawsor regulations and for any damage caused by fraud, abuse of authority or grossnegligence. Under Argentine law, specific duties may be assigned to a directorby the bylaws or regulations or by resolution of the shareholders’ meeting. Inthese cases, a director’s liability will be determined with reference to theperformance of these duties, provided that certain recording requirements aremet. Under Argentine law, directors are prohibited from engaging in activitiesin competition with Telecom Argentina without express authorization of ashareholders’ meeting. Certain transactions between directors and TelecomArgentina are subject to ratification procedures established by Argentine law.

 

TheSupervisory Committee is responsible for overseeing our compliance with ourbylaws and Argentine law and, without prejudice to the role of externalauditors, is required to present to the shareholders at the annual ordinarygeneral meeting a report on the accuracy of the financial information presentedto the shareholders by the Board of Directors. See “—Supervisory Committee” forfurther information regarding the Supervisory Committee.

 

On May 22,2001 the Argentine Government issued Decree No. 677/01, entitled “Regulationof Transparency of the Public Offering,” or the “Transparency Decree.” Theintention of this decree was to move towards the creation of an adequate legalframework that may strengthen the level of protection of investors in themarket. Main objectives of the Transparency Decree were to promote thedevelopment, liquidity, stability, solvency and transparency of the market,generating procedures to guarantee the efficient reallocation from savings toinvestments and good practices in the administration of corporations.

 

TheTransparency Decree has vested in members of the Board of Directors:

 

·                  the duty to disclose certain events, such asany fact or situation which is capable of affecting the value of the securitiesor the course of negotiation;

 

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·                  the duty of loyalty and diligence;

 

·                  the duty of confidentiality; and

 

·                  the duty to consider the general interests ofall shareholders over the interest of the controlling shareholder.

 

Adirector will not be liable if, notwithstanding his presence at a meeting atwhich a resolution was adopted or his knowledge of the resolution, a writtenrecord exists of his opposition thereto and he reports his opposition to theSupervisory Committee before any complaint against him is brought before theBoard of Directors, the Supervisory Committee, the shareholders’ meeting, thecompetent governmental agency or the courts. Any liability of a directorvis-à-vis Telecom Argentina terminates upon approval of the directors’performance by the shareholders’ meeting, provided that shareholdersrepresenting at least 5% of our capital stock do not object and providedfurther that this liability does not result from a violation of the law or thebylaws or regulations.

 

Additionally,the Transparency Decree provides that those who infringe the provisions setforth therein shall be subject, in addition to civil and criminal liability (asapplicable), to certain sanctions including warnings, fines, disqualification,suspension or prohibition from acting under the public offering regime.

 

TelecomArgentina maintains an officers’ and directors’ insurance policy coveringclaims brought against the officers and/or directors relating to theperformance of their duties.  At present, the total amount covered by thisinsurance is US$50,000,000.

 

In May 2004,the Board of Telecom Argentina resolved to create the “Consejo de Dirección,”or Steering Committee, which served as an internal body of the Board ofDirectors and was comprised of four members of the Board of Directors. Theregulations of the Steering Committee provided for, among other functions:

 

·                  involvement in the approval of certainsignificant operations;

 

·                  evaluate and recommend the approval of theannual budget, annual strategic plan, long-term strategic plan, and the annualinvestment plan to the Board of Directors, and to oversee the implementation ofthese plans;

 

·                  define guidelines for realizing financialoperations;

 

·                  supervise the management of subsidiaries;

 

·                  involvement in all investment initiatives;

 

·                  propose to the Board of Directors the generalremuneration policy;

 

·                  establish remuneration, incentives and otherbenefits for senior management and evaluate their performance; and

 

·                  ensure that existing plans are adequate forindividualization and development of highly qualified personnel and to fixguidelines for compensating, motivating and retaining highly qualifiedpersonnel.

 

In March 2009,the Board of Telecom Argentina resolved to dissolve the Management Council. Asof the date of this Annual Report this decision is affected by Resolution N°64/09 of the Argentine Antitrust Commission ordering, among other matters, theimmediate reestablishment of the Steering Committee that had been previouslydissolved.  On June 11, 2009,Telecom Argentina has been notified of a Resolution of the Second Court ofAppeals in Federal, Civil and Commercial Matters by which Telecom Argentina isordered to abstain from considering, at the Meeting of the Board of Directorsto be held on June 12, 2009 the item on the agenda “Consideration ofResolution No. 64/09 of the Argentine Antitrust Commission and measureswhich may have to be adopted.”  See “Item8—Financial Information—Legal Proceedings—Legal Proceedings Related to ShareOwnership— The Argentine Antitrust Commission’s Resolutions N° 04/09, 43/09,44/09, 62/09 and 64/09.”

 

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*Audit*Committee

* *

TheTransparency Decree also provides that companies making a public offering oftheir shares shall appoint an audit committee, or the “Audit Committee,” to beformed by three or more members of the Board of Directors. The majority of themembers of the Audit Committee must be independent. In order to qualify asindependent, the director must be independent with respect to the company, anycontrolling shareholders or any shareholders that are significant participantsin the company and cannot carry out executive duties for the company. A memberof the Board of Directors cannot qualify as an independent director if he orshe is a relative of a person who would not qualified as an independentdirector if such relative were appointed as a member of the Board of Directors.

 

Amongthe duties of the Audit Committee shall be:

 

·                  providing the market with complete informationon transactions with which there might be a conflict of interest with themembers of the corporate bodies or controlling shareholders;

 

·                  giving an opinion on the fulfillment of legalrequirements and reasonableness of the conditions for the issuance of shares orsecurities convertible into shares, in the case of capital increases wherepreemptive rights have been excluded or limited;

 

·                  giving an opinion regarding transactions withrelated parties in certain cases;

 

·                  supervising internal control systems andverifying norms of conduct; and

 

·                  reviewing the plans of external auditors andevaluating their performance and their independence, among others.

 

Pursuantto General Resolution No. 400/02 of the CNV, published in the OfficialBulletin on April 5, 2002, the provisions of the Transparency Decreerelating to the Audit Committee shall be applicable for the financial yearsbeginning on or after January 1, 2004.

 

At theBoard of Directors meeting held on April 29, 2004, the Board of Directorsresolved the final composition of the Audit Committee, and the Audit Committeecame into effect.

 

Accordingto the “Normativa de Implementación del Comité de Auditoria,” (a set ofguidelines for the Audit Committee filed with the CNV) in case of resignation,dismissal, death or lack of capacity of any of the members of the AuditCommittee, the Board of Directors shall immediately appoint a replacement, whoshall remain in such position until the following annual shareholders meeting.

 

At itsmeeting of April 29, 2008, the Board of Directors re-elected Mr. EnriqueGarrido and Mr. Esteban Gabriel Macek and elected Mr. Domingo JorgeMessuti as members of the Audit Committee for fiscal year 2008. The Boardfurthermore determined that Mr. Messuti qualified as an audit committeefinancial expert under SEC guidelines. Under SEC and New York Stock Exchangeregulations the three members of the Committee qualified as independentdirectors.  Under CNV regulations, twomembers of the Audit Committee (Mr. Messuti and Mr. Macek) qualifiedas independent directors.

 

SinceTelecom Argentina’s annual shareholders’ meeting has been provisionallysuspended by a precautionary measure and directors and alternate directors areappointed at the annual shareholders’ meeting, there have been no changes tothe members of the Audit Committee of Telecom Argentina as of the date of thisAnnual Report.  See “Item 8— Financial Information—Legal Proceedings—LegalProceedings Related to Share Ownership—The Argentine Antitrust Commission’sResolutions No. 04/09, 43/09, 44/09, 62/09 and 64/09.”  Therefore, members of the Audit Committeeappointed at the annual shareholders’ meeting held on April 29, 2008continue to hold their positions as of the date of this Annual Report.

 

Pursuantto the Argentine Government’s Decree No. 677/01, the Audit Committee mayseek the advice of lawyers and other outside professionals at Telecom Argentina’sexpense, so long as the shareholders have approved expenditures for theservices of such professionals. The shareholders set a budget of P$600,000 forfiscal year 2006, P$700,000 for fiscal year 2007, P$1,000,000 for fiscal year2008. The budget for fiscal year 2009 is P$750,000,

 

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which as of the date of this Annual Report is pendingapproval by the Annual Shareholders’ meeting since it was provisionallysuspended by a precautionary measure. See “Item 8 — Legal Proceedings— LegalProceedings Related to Share Ownership.”

 

*Disclosure Committee*

* *

TelecomArgentina has also established a Disclosure Committee, which is responsible formonitoring the gathering, processing and submission to the CEO (as of December 31,2008 to the General Director of Corporate Matters and the General Director ofOperations) and CFO of consolidated financial and non-financial informationthat is required to be included in disclosure reports in order to ensure timelyand accurate disclosure of material information. The duties of the DisclosureCommittee include the following:

 

·                  assisting the CEO (as of December 31,2008, the General Director of Corporate Matters and the General Director ofOperations) and CFO in evaluating the effectiveness of Telecom Argentina’sdisclosure controls and procedures prior to the filing of Annual Reports bothin Argentina and the US;

 

·                  suggesting any improvements in disclosureprocedures as a result of this evaluation;

 

·                  verifying that Telecom Argentina’s processesfor information collection, processing and control are in compliance with itsdisclosure procedures such that the accuracy of its disclosures can beverified; and

 

·                  providing assistance in determining whatinformation may be considered material to Telecom Argentina.

 

Thereis no family relationship between any director, alternate director, member ofthe Supervisory Committee or executive officer and any other director,alternate director, member of the Supervisory Committee or executive officerexcept for Gerardo Werthein and Adrián Werthein, who are distant cousins andEnrique Garrido and Gustavo Enrique Garrido, who are father and son,respectively.

 

**Employees and LaborRelations**

 

As of December 31,2008, our total number of employees was 15,361, of which approximately 66%belonged to unions. All management and senior positions are held by non-unionemployees.

 

TelecomArgentina and Telecom Personal have approximately 8,215 and 1,873 unionizedemployees, respectively. The union which has filed the largest number of claimsis the Federation of Telephone Workers and Employees of Argentina (“FOETRA”) inBuenos Aires, which currently includes the Argentine TelecommunicationsFederation (“FATEL”), representing approximately 4,603 Telecom Argentinaemployees.  In 2008 FATEL was officiallyrecognized as the union representative of its members, although this decisionis currently under appeal.  TelecomPersonal has approximately 1,873 employees affiliated with the ArgentineFederation of Commercial and Service Employees. The Argentine Federation of Telephone Workers and Employees (“FOEESITRA”)represents approximately 2,246 employees. Two remaining unions, the Technical and Supervisory Telephone PersonnelFederation (“FOPSTTA”) and the Telecommunications Union (“UPJET”), representapproximately 1,366 middle management employees.

 

See “Item8—Financial Information—Legal Proceedings—Civil, tax, commercial, labor and regulatory proceedings” for moredetail on claims relating to salary levels and labor conditions filed againstTelecom Argentina and Telecom Personal.

 

*Employees by Reportable Segment*

* *

Thetable below shows the number of our employees as of December 31, 2008,2007 and 2006 by reportable segment:

 
| ** **               | ** ** | **December 31,  2008(1)** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------|------------|--------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Voice, Data and Internet |       | 11,252                         |       | 11,473                      |       | 11,502                      |       |
| Wireless                 |       | 4,109                          |       | 3,919                       |       | 3,636                       |       |
| Total                    |       | 15,361                         |       | 15,392                      |       | 15,138                      |       |

 

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(1)             As of December 31, 2008, figure relatingto the Voice, Data, and Internet reportable segment, includes 46 employees ofCubecorp S.A., company acquired in July 2008.

 

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**Share Ownership**

 

*Share Ownership by directors, executive officers, andSupervisory Committee members*

* *

EnriqueGarrido and Gustavo Enrique Garrido each holds 231 Class B Shares ofTelecom Argentina. No other member of the Board of Directors holds obligationsor capital stock of Telecom Argentina.

 

MaríaDelia Carrera Sala holds 231 Class B Shares of Telecom Argentina. No othersenior executive officer of Telecom Argentina holds obligations or capitalstock of Telecom Argentina.

 

Nodirector, no executive officer or member of the Supervisory Committee ofTelecom Argentina holds more than 1% of their respective class of shares.

 

*Share Ownership Plan*

* *

At thetime of the privatization of ENTel in 1990, the Argentine Government created aShare Ownership Plan, or SOP, for the employees of ENTel and CAT acquired byTelecom Argentina, Telintar, and Startel. Pursuant to the Privatization Regulations, 10% of Telecom Argentina’sthen-outstanding shares, consisting of 98,438,098 Class C Shares, wastransferred by the Argentine Government to Telecom Argentina, Telintar, andStartel employees previously employed by ENTel and CAT.  This transfer was made through a generaltransfer agreement signed on December 29, 1992, the General TransferAgreement. Our Class C Shares consist exclusively of shares originallysold in connection with the SOP. According to applicable law, to be eligible to continue to participatein the SOP, the employees had to remain employed by Telecom Argentina,Telintar, and Startel. Employees who terminated their employment with TelecomArgentina, Telintar, and Startel before the deferred purchase price was fullypaid were required to sell their Class C Shares to another employee underthe SOP or, if no other employee was available to purchase these shares, to aguaranty and repurchase fund, or the Guaranty and Repurchase Fund, at a pricecalculated according to a formula provided in the General Transfer Agreement.

 

On December 9,1999, Decree No. 1623/99 was issued, authorizing the accelerated repaymentof the outstanding balance of the deferred purchase price for all Class CShares, and lifting the transfer restrictions on the Class C Shares uponthe satisfaction of certain conditions precedent. However, the shares held inthe Guaranty and Repurchase Fund are still subject to transfer restrictionsuntil an injunction prohibiting trading or selling of these shares is lifted.The decree provides that once the injunction is lifted, the sale of an amountof shares in the Guaranty and Repurchase Fund, will take place in order tocancel the debt owed to the former employees for the acquisition of sharestransferred to the Guaranty and Repurchase Fund. The remaining shares held inthe Guaranty and Repurchase Fund will then be distributed in accordance withthe decision of the majority of the employees taken in a special meeting of theSOP.

 

Inaccordance with Decree No. 1623/99, at the extraordinary and special Class Cshareholders’ meeting held on March 14, 2000, Telecom Argentina’sshareholders approved the conversion of up to 52,505,360 Class C Sharesinto Class B Shares in one or more tranches from time to time, asdetermined by the trustee of the SOP, Banco de la Ciudad de Buenos Aires, basedon the availability of Class C Shares that were not affected by judicialrestrictions on conversion.

 

Afirst tranche of 50,978,833 Class C Shares was converted into Class BShares for public resale.  Thistransaction was authorized in Argentina by the CNV and was registered in theUnited States with the SEC on May 3, 2000. The rest of the Class CShares authorized for conversion were converted into Class B Shares infour more tranches ending in 2005.

 

Asrequested by the Executive Committee of the SOP, the ordinary, extraordinaryand special Class C shareholders’ meetings held on April 27, 2006approved the delegation of authority to Telecom Argentina’s Board of Directorsfor the conversion of up to 41,339,464 ordinary Class C Shares into anequal quantity of Class B Shares, in one or more conversions based on thedetermination in each case of the Banco de la Ciudad de Buenos Aires (thefiduciary agent of the SOP) of the number of Class C Shares that areeligible for conversion. Of this amount only 4,496,971 Class C Shares havebeen converted into Class B.

 

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As ofthe date of this Annual Report, 41,418,562 Class C Shares are held by theSOP Guaranty and Repurchase Fund and are currently subject to a judicialinjunction that limits conversion, while 17,205 Class C Shares are held byindividual holders.

 

Futureconversions of Class C Shares may affect the trading price of TelecomArgentina’s shares if a large number of converted shares are sold in the publicmarkets within a short time period. Our management expects that the conversionprocess will be managed to avoid disruption in the orderly trading of TelecomArgentina shares.  The ExecutiveCommittee of SOP has committed to carry out the sale of the converted sharesaccording to market best practices and taking into account the interests of allshareholders. However, the impact of the sale of the converted shares ofTelecom Argentina cannot be predicted.

 

**ITEM 7.          MAJORSHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

 

**MajorShareholders**

 

Ourprincipal shareholder is Nortel. As of December 31, 2008 Nortel owned allof Telecom Argentina’s Class A Ordinary Shares (51% of Telecom Argentina’stotal capital stock) and approximately 8.35% of the Class B OrdinaryShares (3.74% of Telecom Argentina’s total capital stock) which, in theaggregate, represented approximately 54.74% of the total capital stock. TelecomArgentina is directly controlled by Nortel by virtue of Nortel’s ownership of amajority of Telecom Argentina’s capital stock; however, Nortel’s controllinginterest is subject to certain agreements among Sofora’s shareholders.

 

Nortelwas incorporated in Buenos Aires, Argentina on October 19, 1990 andregistered with the Buenos Aires Public Registry of Commerce on October 31,1990 under No. 8025, book 108, Volume “A” of Corporations. Nortel is aholding company that was formed in 1990 by a consortium including the TelecomItalia Group and FCR in connection with the privatization of ENTel andformation of Telecom Argentina.

 

In theevent of certain payment defaults or breaches of covenants, holders of Nortel’spreferred stock collectively have the right to elect one director of Nortel andobtain voting rights.

 

Nortel’soffices are located at Alicia Moreau de Justo 50, 11th floor, Buenos Aires,Argentina.

 

**Shareholdersof Nortel**

 

Nortel’s ordinaryshares (67.79% of the capital stock) are owned by Sofora. Sofora’ s shares areregistered as owned by the Telecom Italia Group (50%) and W de Argentina —Inversiones S.L. (50%).

 

W deArgentina - Inversiones S.L., Telecom Italia S.p.A. and Telecom ItaliaInternational N.V. have signed a Shareholders’ Agreement for the jointmanagement of Sofora, Nortel, Telecom and its subsidiaries, including TelecomPersonal.

 

TheTelecom Italia Group is the operator of Telecom Argentina. A description of theTelecom Italia Group is provided under “Item 4—Information on the Company—TheBusiness—Description of the Operator.”

 

W deArgentina—Inversiones, a company of the Werthein Group, is a company owned byDaniel Werthein, Adrián Werthein, Gerardo Werthein and Darío Werthein. TheWerthein Group’s main lines of business include farming operations, insuranceand financial activities and real estate activities, as described below:

 

·                  FarmingOperations. Gregorio, Numo y Noel Werthein S.A.A.G.C.e I. (GNNW) is the name ofthe company that handles the businesses of the Werthein Group, mainly relatedto agribusiness activities and food products. The company owns more than217,500 acres in the primary farming areas of Argentina, harvesting more than35,700 tons of different crops and with more than 44,740 heads of cattlededicated to meat production. It is also involved in the manufacturing ofprocessed fruits as well as teas and other infusions. Most of its products areaimed to the international markets with important exports to the United Statesand Europe.

 

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·                  InsuranceActivities. The Werthein Group controls Los W S.A., which has an interest inCaja de Ahorro y Seguro S.A., or CAYSSA, a leading insurance company inArgentina. CAYSSA controls, directly or indirectly, several subsidiaries thatoffer general, personal, life, accident, work risk insurance products andretirement insurance and life insurance products that complement retirementinsurance. CAYSSA also has shareholdings in companies that provide marketingservices and travelers assistance services.

 

·                  FinancialActivities: The Werthein Group controls Holding W-S de Inversiones S.A., whichhas a minority interest in Standard Bank Argentina S.A. (an argentinecommercial bank), Standard Investments S.A. (a mutual fund management company)and Inversora Diagonal S.A. (which provides cash and collection managementservices).

 

·                  RealEstate Activities. The Werthein Group conducts real estate, construction,consulting, public works and other real-estate related activities through itsinterests in other companies.

 

**Call option****acquired by W de Argentina —Inversiones S.L.**

 

In September 2003, W de Argentina — InversionesS.L., acquired a call option on the 2% interest in Sofora that was previouslyowned by France Câbles et Radio and Atlas Services Belgium. Telecom Argentinahas been informed by W de Argentina — Inversiones S.L. that it exercised its 2%option on February 1, 2008.

 

On April 14, 2009, the SC responded to aproperly-formulated inquiry by Sofora in connection with the above-mentionedacquisition by stating that, “the regulatory framework of telecommunicationsdoes not pose an obstacle to the registration of the transfer of theinquired-about shares.”  On April 17,2009, Sofora registered the above-mentioned transfer of shares.

 

**Call options in favor ofTelecom Italia International N.V.**

 

In September 2003,Telecom Italia International N.V. acquired, for an aggregate purchase price ofUS$60 million, two call options on W de Argentina — Inversiones S.L.’ entireinterest in Sofora (jointly, “the Telecom Italia International N.V. Options”).The Telecom Italia International N.V. Options are: a call option for thepurchase of 48% of Sofora’s share capital, which can be exercised since December 31,2008, and a call option on 2% of Sofora’s share capital, which can be exercisedbetween December 31, 2008 and December 31, 2013.

 

The exercise of the Telecom Italia International N.V. Options is subjectto the prior approval of the SC (according to SC Note No. 1,004/08, dated June 26,2008).

 

On December 29, 2008, the Argentine Antitrust Commission issuedResolution No. 123/08 resolving that until the Commission issues itsdecision in the matter of Telecom Italia International N.V. Options, asprovided by Law No. 25,156, the Telecom Italia Group companies*“must refrain from exercising, assigning, transferring or taking anyother action with respect to, those purchase options.*” The TelecomItalia Group filed an appeal against Resolution No. 123/08. On January 28,2009, the Argentine Antitrust Commission, by means of Resolution No. 6/09,rejected the appeal on the grounds that the parties would keep their rights,because Resolution No. 123/08 only*“implies a suspension ofthe terms provided in the options purchase contract until the RegulatoryAuthority mentioned in Law No. 25.156”*resolves on theTransaction, as mentioned in *“Changes in indirectholdings in Telecom Italia”*below. Given the appeal’s rejection,Telecom Italia Group filed a complaint with the Civil and Commercial FederalCourt of Appeals, requesting its review. A decision regarding said complaint is currently pending.

 

On March 26, 2009, the First Federal Court of Appeals forAdministrative Litigious Matters issued a precautionary measure declaring thesuspension of the exercise of Telecom Italia International N.V.’s rights setforth in the purchase option contract, upon request of Grupo Dracma S.A., aspresided by Mr. Adrián Werthein, and the W de Argentina- Inversiones S.L.This suspension will be effective until the SC renders a final decisionregarding the validity of the possible legal effects of the Transaction inArgentina described under “Changes in indirect holdings in Telecom Italia”below, or, alternatively, when a final decision is rendered regarding theunderlying matter for which the precautionary measure was issued, whicheveroccurs first.

 

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Telecom Argentina has been informed that Wde Argentina — Inversiones S.L. filed a complaint against Telecom ItaliaInternational N.V., before the National Commercial Court of First Instance N°8, Secretariat N° 15 of the City of Buenos Aires, with the purpose of obtaininga decree of nullity on the Telecom Italia International N.V. Options. Duringsaid proceedings, the intervening judge ordered entry of the complaint inSofora’s registry of shareholders, pursuant to the terms of section 229 of theNational Civil and Commercial Code of Procedure. As of the date of this AnnualReport, resolution of the complaint is still pending.

 

**Changes in indirectholdings in Telecom Italia**

 

In April 2007, Pirelli & C. S.p.A., Sintonia S.p.A. andSintonia S.A. issued a joint statement regarding their agreement to transfertheir respective shareholdings in Olimpia S.p.A. (which, as of that date, held18% of Telecom Italia S.p.A.’s capital stock), to a joint company named TelcoS.p.A. made up of Assicurazioni Generali S.p.A., Intesa San Paolo S.p.A.,Mediobanca S.p.A., Sintonia S.A. and Telefónica, S.A. (of Spain) (the “Transaction”).Telco S.p.A. currently owns approximately 24.5% of Telecom Italia S.p.A.’svoting shares. The Transaction was effective on October 25, 2007.

 

Because Telefónica de Argentina S.A., a subsidiary of Telefónica, S.A.(of Spain), is Telecom Argentina’s main competitor, before the Transactionclosed, Telecom Argentina’s directors and Supervisory Committee membersanalyzed the possible implications that the Transaction could have for TelecomArgentina, especially under the Antitrust Act (“Ley de Defensa de laCompetencia”), resulting in the existence of divided opinions within the Boardof Directors based on reports prepared by experts.

 

Consequently, Telecom Argentina and its directors and alternatedirectors filed notes with the Regulatory Authorities, expressing theirpersonal opinions regarding the Transaction. These notes are available at theCNV website (www.cnv.gov.ar).

 

On October 25, 2007, Telefónica, S.A. (of Spain) publicly announcedthe Transaction through the following statement: “Telefónica, S.A.,Assicurazioni Generali S.p.A, Intesa San Paolo S.p.A, Mediobanca S.p.A andSintonia S.A. (Benetton) have bought today, October 25, 2007, OlimpiaS.p.A.’s entire stock through the Italian company Telco S.p.A., which holdsapproximately 23.6% of Telecom Italia S.p.A.’s voting shares.” As a consequenceof additional share acquisitions in March 2008, Telco S.p.A. currentlyowns approximately 24.5% of Telecom Italia S.p.A.’s voting shares.

 

After the Transaction, Pirelli & C. S.p.A., its controlledsubsidiaries and its related parties ceased to be related parties of TelecomArgentina and its subsidiaries.

 

The Argentine Antitrust Commission opened an administrative proceedingrecorded as “Telefónica de España, Olimpia y Otros s/Diligencia Preliminar (DP No. 29),”to determine whether the Transaction “could have an adverse effect oncompetition in Argentina’s telecommunications market in light of the existingregulatory framework.” In connection with this administrative proceeding, on October 16,2007, the Argentine Antitrust Commission approved implementation of a “mechanismof verification, control and monitoring” over Telecom Argentina for an initialperiod of two months, later extended to February 19, 2008, and appointedtwo Supervisors-Observers, one of them acting on behalf of the ArgentineAntitrust Commission and the other on behalf of the CNC.  The Argentine Antitrust Commission requestedthat the Supervisors-Observers “act on behalf of public interests in themarket, competition and users and consumers.” In performing their duties, theSupervisors-Observers requested information and documentation from TelecomArgentina, attended meetings of the decision-making boards (the Board ofDirectors and the Steering Committee), and interviewed the members of the Boardof Directors, members of the Supervisory Committee and members of theManagement of Telecom Argentina on several occasions.

 

On November 8, 2007, Telecom Argentina’s Board of Directorsresolved to take the following actions:

 

·                  Submit a noteto the Argentine Antitrust Commission in connection with the above-mentionedadministrative proceeding declaring that Telecom Argentina had not taken anypart whatsoever in the Transaction. Additionally, and specifically since 46% ofTelecom Argentina’s capital stock is listed on the BCBA and the NYSE, the Boardresolved to request that any measure taken by the Regulatory Authorities withrespect to the Transaction should not affect Telecom Argentina, as it was not aparty to it.

 

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·                  Notes to thiseffect were submitted to the SC and the CNC to the same effect. Copies of thesenotes were submitted the Argentine Antitrust Commission.

 

·                  Telefónica,S.A. (of Spain) and Telefónica de Argentina S.A. were notified by TelecomArgentina’s Board of Directors to the effect that, if as a result of theTransaction, Telecom Argentina were to suffer any damage or loss of any nature,it reserved the right to bring any and all legal actions that are deemedappropriate to obtain full and complete compensation for its losses.

 

Allthe above-mentioned notes were submitted on November 20, 2007.

 

On December 7,2007 Telefónica, S.A. (of Spain) responded by stating that “to the extent ithas no participation whatsoever in Telecom Argentina’s Management, it couldhardly cause Telecom Argentina any damage, either directly or indirectly” as ithad previously declared before the relevant authorities.

 

On July 24,2008, Sofora forwarded to Telecom Argentina a note and a copy of a letter sentby the Chairman of Telecom Italia S.p.A., stating that the two directors —outof a total of fifteen directors—then appointed to Telecom Italia’s Boardpursuant to the proposal of Telefónica, S.A. (of Spain) through Telco S.p.A.(namely, Mr. César Alierta Izuel and Mr. Julio Linares López) hadformally confirmed that they committed themselves to abstaining from takingpart or voting in those meetings of the Board where proposals or mattersrelated to the activities of Telecom Italia and its controlled companies in thetelecommunications market in Argentina, as well as in the same market inBrazil, are to be considered. In addition, with respect to the participation ofMr. Julio Linares López in the Management Committee of Telecom ItaliaS.p.A., he also formally confirmed that he commits himself to abstain fromtaking part or voting in those meetings of the Management Committee relating tothe abovementioned proposals or matters.

 

In hisletter, the Chairman of Telecom Italia S.p.A. explained that “the commitmentswere officially expressed and recorded at the meeting held by the Board ofDirectors of Telecom Italia S.p.A. on April 15, 2008. In view of this,Directors (Consiglieri) Mr. César Alierta Izuel and Mr. Julio LinaresLópez shall abstain from taking part and/or voting in the meetings held by theBoard of Directors of Telecom Italia, when the abovementioned matters are to beconsidered, and will not have access to the information relative to the TelecomGroup and the rest of the activities of Telecom Italia S.p.A in Argentina.”According to the information provided, these prohibitions provide furtherassurance as to the complete operational and management separation that existsbetween the Telefónica Group and the Telecom Italia Group in Argentina.

 

Ourprincipal shareholders are party to a number of legal proceedings relating tothis Transaction which may affect our Board of Directors and matters ofcorporate governance.  See “Item 8— FinancialInformation—Legal Proceedings—Legal Proceedings Relating to Share Ownership.”

 

*Ownership of Telecom Argentina Common Stock*

* *

Thefollowing table sets forth, as of May 31, 2009, based upon informationavailable to us, each beneficial owner of 5% or more of each class of TelecomArgentina’s shares. However, current holdings may be different.

 
| ** **                                      | ** ** | **Number of  Shares Owned** | ** ** | **Percent of  Class** | ** ** | **Percent of Total  Voting Power (1)** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-----------------------|------------|----------------------------------------|------------|
| **Class A Ordinary Shares:**               |       |                        |       |                  |       |                                   |       |
| Nortel                                          |       | 502,034,299                 |       | 100.0                 | %          | 51.0                                   | %          |
| **Class B Ordinary Shares:**               |       |                        |       |                  |       |                                   |       |
| ANSES (2)                                       |       | 225,719,608                 |       | 51.2                  | %          | 5.0                                    | %          |
| Nortel                                          |       | 36,832,408                  |       | 8.4                   | %          | 3.7                                    | %          |
| Brandes Investment Partners, LLC(3)             |       | 36,000,000                  |       | 8.2                   | %          | 3.7                                    | %          |
| **Class C Ordinary Shares:**               |       |                        |       |                  |       |                                   |       |
| Fideicomiso Banco de  la Ciudad de Buenos Aires |       | 41,418,562                  |       | 99.9                  | %          | 4.2                                    | %          |

 

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(1)          Representspercentage of total of all our ordinary shares, regardless of class.

 

(2)          Includes 8,173,364 American Depositary Sharesrepresenting 40,866,820 Ordinary Class B Shares. In November 2008,Argentina nationalized its private pension and retirement system through Law No. 26,425,which had been previously administered by AFJP, and appointed ANSES as itsadministrator. As a result, the shares held by AFJP at the time ofnationalization were transferred to ANSES. Although the shares owned by ANSES represent 22.9% of Telecom Argentina’stotal capital stock, it should be noted, for the record, that pursuant to Article 76(f) ofLaw No. 24,241 ratified by Article 8 of Law No. 26,425, a limitof voting rights to 5% of Telecom Argentina’s shares applies to shares held byANSES.

 

(3)          Includes7,200,000 American Depositary Shares representing 36,000,000 Ordinary Class BShares.

 

As of May 31,2009, there were approximately 33.7 million American Depositary Sharesoutstanding (representing 168.6 million Class B Shares, or 38.2% of total Class BShares outstanding). Moreover, as of that date, there were approximately 100registered holders of Class B Shares represented by American DepositaryShares in the United States and approximately 22,000 depositaries of Class BShares in Argentina. Because some Class B Shares are held byrepresentatives, the number and domicile of registered shareholders may notexactly reflect the number and domicile of beneficial shareholders.

 

Allshares have equal voting rights.

 

TheTelecom Group is not aware of any arrangements that would result in a change ofcontrol of Telecom Group except for the option that Telecom Italia has for theacquisition of W de Argentina—Inversiones’ Shares (see “—Call options in favorof Telecom Italia International N.V.” above).

 

**Shareholders’ Agreements**

 

In December 2003,we were informed that a shareholders’ agreement came into effect between W deArgentina—Inversiones and Telecom Italia and Telecom Italia International,N.V., members of the Telecom Italia Group in order to regulate theirrelationship as shareholders of Sofora.

 

Inrelation to Sofora, we were informed that W de Argentina—Inversiones will havethe right to appoint three of six directors of Sofora’s Board, while theTelecom Italia Group will appoint the remaining three directors. Decisions willbe made by a majority of the members present at each meeting of Sofora’s Board.

 

Withrespect to Nortel, we were informed that both W de Argentina—Inversiones andTelecom Italia Group will have the right to appoint two directors each out ofthe six directors on Nortel’s Board. W de Argentina—Inversiones and the TelecomItalia Group will jointly appoint a fifth independent director. For fiscal2006, the sixth director was appointed jointly by the holders of Nortel’s Class Aand Class B Preferred Shares. This joint right existed due to the right ofClass A Preferred Shareholders to vote as a result of Nortel’s non-paymentof dividends and the right of Class B Preferred Shareholders to vote as aresult of the ratio of Telecom Argentina’s total liabilities (as calculatedpursuant to Section 9 of the terms and conditions of Nortel’s Class Aand Class B Preferred Shares) to equity exceeding 1.75:1.  From December 31, 2006 such ratio nolonger exceeded 1.75:1 and as a result, the above-mentioned voting rights heldby Nortel’s Class B Preferred Shareholders ceased.  Nortel’s Board of Directors will make itsdecisions by majority vote from the members present at each meeting of Nortel’sBoard. In the case of a tie vote the Chairman shall break the tie.

 

Wehave been informed that the shareholders agreement regarding the Boards ofDirectors of Telecom Argentina and its subsidiaries provides that TelecomItalia Group shall nominate three directors and W de Argentina—Inversionesshall nominate two directors and their respective alternate directors.

 

Inaddition, we were informed that this shareholders’ agreement contemplates thatmeetings will occur between the Telecom Italia Group and W de Argentina—Inversionesin advance of shareholders meetings and Board meetings at which matters (1) willbe submitted for a vote at a meeting of shareholders or (2) relate to theholders of Nortel’s Preferred Shares. The purpose of these prior meetings willbe to define the manner in which the respective representatives of the TelecomItalia Group and W de Argentina—Inversiones will vote at these meetings. Tworepresentatives of the Telecom Italia Group and one representative of W deArgentina—Inversiones will attend these

 

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prior meetings, at which decisions will be made bymajority vote of those members present, except for certain matters for which Wde Argentina—Inversiones will have the right to veto. These matters include:

 

·                  theapproval of any amendments to the bylaws;

 

·                  dividendpolicy;

 

·                  anyincrease or reduction of capital, except for increases or reductions in capitalin connection with any possible debt restructuring;

 

·                  anychange in the location of headquarters;

 

·                  anyacquisition of subsidiaries and/or to establish new subsidiaries;

 

·                  thesale, transfer, granting, assignment or any other disposition of all orsubstantially all the assets or of any of its subsidiaries;

 

·                  decisionsto establish new joint ventures;

 

·                  creatingany lien, charge, encumbrance, pledge or mortgage of its assets, that exceedsin the aggregate US$20 million;

 

·                  anychange of external auditors, which must be chosen among auditors ofinternational reputation;

 

·                  anytransaction between related parties that is not carried out at arms-length, andthat exceeds the amount of US$5 million, with certain exceptions;

 

·                  anyextraordinary transaction involving Telecom that exceeds the amount of US$30million, except for any transaction in connection with the restructuring ofTelecom’s debt; and

 

·                  theapproval of Telecom’s financial statements.

 

Withrespect to the approval of Telecom Argentina’s financial budget, we wereinformed that the shareholders’ agreement provides for the formation of anadvisory committee that will define the manner in which the vote will beexercised by the respective representatives in shareholders’ meetings andmeetings of the Board of Directors.  Thiscommittee is comprised of two representatives of the Telecom Italia Group andtwo representatives of W de Argentina—Inversiones.  The committee shall resolve matters with amajority vote of its members.

 

Regardinglegal and administrative proceedings that affect shareholders’ meetings,meetings of the Board of Directors of Telecom Argentina, as well as othercorporate governance matters, see “Item 8—Financial Information—LegalProceedings—Legal Proceedings Related to Share Ownership—The ArgentineAntitrust Commission’s Resolutions No. 04/09, 43/09, 44/09, 62/09 and 64/09.”

 

**Related PartyTransactions**

 

Wehave been involved in a number of transactions with our related parties sincethe Transfer Date.

 

Section 73of Law No. 17,811, as amended by the Transparency Decree, provides thatbefore a publicly listed company may enter into an act or contract involving a “relevantamount” with a related party or parties, the publicly traded company mustobtain approval from its Board of Directors and obtain a valuation report fromits audit committee or two independent valuation firms that demonstrates thatthe terms of the transaction are consistent with those that could be obtainedat an arm’s-length basis. For the period that Telecom Argentina’s AuditCommittee was not yet operational, the valuation report from two independentfirms was optional. If the Audit Committee or two independent valuation firmsdo not find that the terms of the contract are consistent with those that couldbe obtained on an arm’s-length basis, approval must be obtained from theshareholders. For the purpose of section 73 of the Transparency Decree asamended by Decree No. 1,020/03, “relevant amount” means an amount whichexceeds 1% of the issuers’ shareholders’ equity as contained in the latestapproved financial statements, provided this amount exceeds P$300,000.

 

Underthe terms of the financial debt of Telecom Argentina and Telecom Personal,transactions with any holder of 10% or more of its Shares and/or with anyaffiliate (any person that, directly or indirectly, controls or is controlledby or under common control with the company) must be made with terms no lessfavorable than those than would be obtained in a similar transaction betweenindependent parties. Telecom Argentina and Telecom Personal have adoptedmeasures to adequately ensure compliance with this requirement.

 

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Transactionswith related parties of Sofora (including Telecom Italia and W de Argentina—Inversionesand/or their respective affiliates) resulted in expenses or purchases for us ofapproximately P$243 million for the year ended December 31, 2008. Of thatamount, P$229 million was incurred with Telecom Italia and its affiliates fortelecommunications services received by Telecom, international capacity hiring,purchases of equipment and materials and other services provided to Telecom,and P$14 million incurred with W de Argentina—Inversiones’ affiliates forinsurance costs. See Note 7 to our Consolidated Financial Statements for moredetail.

 

Amongthe above-mentioned expenses incurred through transactions with related partiesof Sofora were payments of P$4 million in fiscal year 2008 made to Etec S.A.for international outbound calls. Etec S.A., the monopoly provider of fixedline and wireless telecommunications services in Cuba, is an affiliate of theTelecom Italia Group. The Telecom Italia Group holds, through Telecom ItaliaInternational, N.V., a 27% interest in Etec S.A. The other shareholders in thecompany include the Cuban government which controls 51% of the company and fourother Cuban shareholders. In addition to its shareholding in Etec S.A., TelecomItalia International is a party to a shareholders’ agreement pursuant to whichit has the right to designate certain senior executive officers and a majorityof the board of directors of Etec S.A. on alternate years, and has also agreedto provide certain technical assistance to Etec S.A. We do not believe that ouraffiliation with Etec S.A. is material to our results of operations orfinancial condition.

 

Transactionswith related parties of Sofora resulted in income to us of approximately P$34million for the year ended December 31, 2008, corresponding to paymentsfrom Telecom Italia and its affiliates of P$29 million and from W de Argentina—Inversionesof P$5 million for telecommunications services provided by Telecom. See Note 7to our Consolidated Financial Statements for more detail.

 

Thefollowing technical services agreements entered into by Telecom Argentina andTelecom Personal with Telecom Italia have been effective during the period 2006to 2008:

 

TelecomArgentina entered into technical services agreements with Telecom Italia in2006 and 2007.  The technical serviceagreement signed in 2007 was effective until February 2008.  These agreements were submitted for priorapproval pursuant to the process established by Decree No. 677/01 forrelevant contracts with related parties. The agreements were submitted to anindependent firm for evaluation and found to be “reasonable” and “in accordancewith market practice in all material respects.” These technical servicesagreements also were submitted and approved by Telecom Argentina’s AuditCommittee and its Board of Directors. Under these agreements, Telecom Argentina incurred P$3 million for theyear ended December 31, 2008, P$12 million for the year ended December 31,2007 and P$9 million for the year ended December 31, 2006.

 

TelecomPersonal entered into technical services agreements with Telecom Italia in 2006and 2007. The technical service agreement signed in 2007 was effective until August 2008.Because the amount of the 2006 technical service agreement exceeded 1% of itsshareholders’ equity, covenants assumed by Telecom Personal in its debtrestructuring process and the terms of its debt agreements required evaluationby an independent firm.  The independentfirm concluded that the agreement was “reasonable” and “in accordance withmarket practice in all material respects” and it was subsequently approved byTelecom Personal’s Board of Directors. The technical service agreement in 2007was approved by the Board of Directors and did not require separate independentfirm approval. Under these agreements, Telecom Personal incurred costs of P$5 millionfor the year ended December 31, 2008, P$10 million for the year ended December 31,2007 and P$3 million for the year ended December 31, 2006.

 

At thebeginning of year 2009, Telecom Argentina and Telecom Personal entered into newtechnical services agreements with Telecom Italia for the term of oneyear.  Under these agreements, TelecomArgentina and Telecom Personal would incur costs of €2.5 million and €1.8 million,respectively, for the duration of the contract.

 

As of December 31,2008, we had no loans outstanding to executive officers of Telecom Argentina.

 

**Interests of Experts andCounsel**

 

Notapplicable.

 

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**ITEM 8.          FINANCIAL INFORMATION**

 

**Consolidated Statementsand Other Financial Information.**

 

SeeItem 18 for the Company’s Financial Statements. For a description of eventsthat have occurred since the date of the Company’s Financial Statements, see “Item4—Information on the Company—Introduction—Recent Developments.”

 

**Legal Proceedings**

 

***Legal Proceedings Relating to ShareOwnership***

 

In2007, certain parties holding an indirect interest in Telecom Italia S.p.A, oneof our principal indirect shareholders, entered into a transaction whichresulted in a change in the indirect ownership in Telecom Italia.  See “Item 7—Major Shareholders and RelatedParty Transactions —Changes in indirect holdings in Telecom Italia.” Followingannouncement of the transaction, various legal and administrative proceedingshave been initiated in Argentina, including challenges brought by W de Argentina- Inversiones S.L. and Messrs. Adrián, Gerardo, Daniel and Darío Wertheinwith respect to certain corporate governance matters; proceedings by theArgentine Antitrust Commission; challenges by Mr. Gerardo Werthein tocertain Board and Shareholders’ meetings resolutions, and claims brought by twoemployees claiming that the Transaction may affect labor conditions.

 

*Complaint requesting declaratory judgment brought by W deArgentina-Inversiones S.L. and Messrs. Werthein*

 

W de Argentina -Inversiones S.L. and Messrs. Adrián, Gerardo, Daniel and Darío Wertheinfiled a request for a precautionary measure declaring that the Telecom ItaliaGroup and directors appointed to companies in the Telecom Group at TelecomItalia Group’s request have a conflict of interest with companies in theTelecom Group.  The Court rejected therequests for precautionary measures in their entirety noting that “the grantingof said legal remedy would imply in certain cases — prohibition of voting inshareholders’ meetings, preventing Board members from performing the regularduties of their office — a substantial modification in corporate governance,altering the present system of majorities and minorities; and similarly, saidremedies could alter the decision making bodies, since the co-plaintiffs could,through said remedies, change the minority they have at present and, as aconsequence, their opinions would prevail in the decisions to be adopted, notonly altering legal rights, butalso altering the economic interests under the respective agreements that theparties had entered into freely (cciv. 1197), since no claims were broughtalleging flaws or defects in those contracts. Furthermore, if the Court directly ordered the requested remedies, saidorder could in fact imply the setting of a new majority with effective controlthat not even Telecom Italia S.p.A. had at present, providing the co-plaintiffswith a benefit that would exceed the plaintiffs’ interests; furthermore, theplaintiffs did not explain how this possible consequence could be avoided, evenwhen they seemed to have been aware of said possible consequence from themoment that they requested the appointment of an Observer to inform “about theactions of said directors authorized to act.” The plaintiffs did not appeal thisresolution.

 

Notwithstandingthe rejection of the above-mentioned precautionary measure, on February 11,2008, the Court notified Telecom Argentina, Personal, Nortel and Sofora aprecautionary measure by which it had appointed an Observer in charge of reportingrelevant information to the Court so that it could evaluate whether Telefónica,S.A. (of Spain)’s participation in Telco S.p.A., would create a real risk ofpossible conflicts of interest in the decision-making of the Telecom Groupcompanies, Nortel and Sofora. Telecom Argentina and the other companiesaffected by the precautionary measure appealed its adoption; however the Courtrejected the appeal.

 

TheObserver presented its reports on May 14, 2008, informing the Court, amongother things, that he had not found any signs of Telefónica, S.A. (of Spain)’sinfluence in Telecom’s corporate businesses. On June 3, 2008, Telecom Argentina filed its comments regardingsaid report.

 

TheObserver’s original two-month period was extended by the Court and ended on September 19,2008. The plaintiff asked the Court to extend the performance of the Observerfor a new period, but the Court denied this request, considering that it wasunnecessary because the documentation to be analyzed by the expert had already beensubmitted. The plaintiff appealed said resolution but then voluntarilydismissed said appeal reserving the right to request the extension of theObserver’s period at a later time.

 

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In September 2008,the Observer delivered the final report (relating to the extended term ofappointment) to the Court and Telecom Argentina filed its comments on thereport.

 

On August 13,2008, Telecom Argentina was notified about the complaint recorded “Werthein,Gerardo y Otros c/ Telecom Italia S.p.A y Otros s/ ordinario,” in connection towhich the above-mentioned Observer was appointed.  This complaint consists of a request for adeclaratory judgment stating that, as long as Telefónica, S.A. (of Spain)continues to hold the same amount of stock in Telecom Italia Group:  a) Telecom Italia S.p.A. and its subsidiaryTelecom Italia International N.V. have a conflict of interest with Sofora,Nortel, Telecom Argentina and Personal (jointly “the Telecom Argentina GroupCompanies”) as a result of which the plaintiffs requested the Court to holdthat said shareholders shall not be allowed to take part, discuss matters andvote in shareholders’ meetings held by the Telecom Argentina Group Companies;and b) directors appointed in abovementioned companies at Telecom Italia S.p.A.’srequest have a conflict of interest with the Telecom Argentina Group Companies,as a result of which the plaintiffs requested the Court to hold that saiddirectors shall not be allowed to discuss matters and vote in the meetings heldby the Board.  Telecom Argentina and thedefendant directors answered in due time and proper form requesting that saidaction be rejected in accordance with the factual and legal grounds stated inits answer to the complaint.

 

At thedate of issuance of this Annual Report, the decision of the Court on theunderlying question of law is still pending.

 

*The Argentine Antitrust Commission’s Resolutions No. 04/09,43/09, 44/09, 62/09 and 64/09*

 

On January 9,2009, the Argentine Antitrust Commission issued Resolution No. 04/09, inwhich it ruled that the companies involved in the Transaction were required tonotify the Argentine Antitrust Commission of the Transaction, as provided bythe Antitrust Act, and, until a decision on the merits is reached regarding theTransaction, its effects on the Argentine market and on the buyers’ rightswould be suspended.  In particular,Resolution No. 04/09 stated that:

 

·                  The companies that were parties to the Transaction must notify theArgentine Antitrust Commission of the Transaction for its examination.  The Resolution clarified that it does notmodify the provisions set forth by Argentine Antitrust Commission Resolution123/08 (see —Call Options in favor of Telecom Italia International N.V. above).On January 12, 2009, the Argentine Antitrust Commission publicly statedthat the companies that were parties to the Transaction had complied with thisrequirement.

 

·                  Until the Commission issues a resolution with respect to theTransaction, “Telefónica, S.A. (of Spain), Assicurazioni Generali S.p.A.,Intesa Sanpaolo S.p.A., Sintonia S.A. and Mediobanca S.p.A. shall abstain fromexercising — directly or indirectly — their voting rights as direct or indirectshareholders of Telecom Italia S.p.A., Telco S.p.A., Olimpia S.p.A., TelecomItalia International N.V., Sofora Telecomunicaciones S.A., Nortel InversoraS.A., and Telecom Argentina S.A., and its controlled companies including thosearising from shareholders’ agreements pursuant to the provisions of section 8of Law No. 25,156.”

 

·                  The Directorsand members of the Supervisory Committee of Sofora, Nortel, Telecom Argentina,Telecom Personal, and their respective subsidiaries located in the Republic ofArgentina, as appointed by the request of the Telecom Italia Group, mustabstain from taking any action which may go against the provisions ofResolution No. 04/09.

 

On March 30,2009, the Argentine Antitrust Commission issued Resolution No. 43/09,designating two Observers until April 30, 2009 charged with verifying thatdirectors and members of the Supervisory Committee appointed by the request ofTelecom Italia S.p.A. or Telecom Italia International N.V. to Sofora, Nortel,Telecom Argentina, Telecom Personal and their subsidiaries located in Argentinacomply with terms of Resolution No. 04/09. Through Resolution No. 62/09, notified to Telecom Argentina on May 7,2009, the Argentine Antitrust Commission ordered that these same Observerscarry out identical functions as those established in Resolution No. 43/09for a period of 30 business days from the notification of such resolution.

 

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Additionally,on April 3, 2009, the Argentine Antitrust Commission issued Resolution No. 44/09,resolving the following:

 

·                  Telecom Italia S.p.A. and Telecom ItaliaInternational N.V., their attorneys-in-fact, officers and directors, and theattorneys-in-fact, officers and directors of their direct and indirect shareholdersand the directors and members of the Supervisory Committee appointed at therequest of Telecom Italia S.p.A. or Telecom Italia Internacional N.V. atSofora, Nortel, Telecom Argentina, Personal, Microsistemas and Cubecorp shouldhave refrained and shall refrain from taking any actions which involved or mayinvolve in the future, directly or indirectly, the exercise of the votingrights, exclusively, or from deciding or giving instructions for the exerciseof voting rights,

 

·                  Sofora, Nortel, Telecom Argentina, Personal, Microsistemas and Cubecorpmust revoke and retract alldecisions passed by the Board of Directors, Committees, Supervisory Committees,Attorneys-in-fact or Managers, or those holding similar positions, which impliedthe exercise of voting rights since January 9, 2009, the date on which theArgentine Antitrust Commission passed Resolution No. 4/09, and

 

·                  theObservers, appointed under Resolution No. 43/09 were ordered to appear atthe mentioned companies to verify compliance with Resolution N° 44/09.

 

Resolutions43/09 and 44/09 were appealed by the interested parties before the ArgentineAntitrust Commission, but that Commission rejected these appeals.  Therefore, Telecom Argentina, among others,filed a complaint (“*recurso de queja*”)with the National Court of Appeals of Federal Civil and Commercial Mattersseeking to overturn this rejection.  Thiscomplaint is currently under review.

 

Inaddition, Telecom Italia S.p.A. and Telecom Italia International N.V. haverequested a precautionary measure for the suspension of Resolution No. 44/09until a decision is reached in connection with their motion to reconsiderrejection of an appeal against such resolution. On April 24, 2009, theSecond National Court of Appeals in Federal Civil and Commercial Mattersdecided that “it is reasonable to temporarily suspend any discussion of mattersrelating to the Shareholder Meetings of the Telecom Group at Sofora and Nortel’sBoard of Directors meetings, and to temporarily suspend Telecom Argentina andNortel’s Ordinary and Extraordinary Shareholder Meetings until the Courtrenders a decision regarding the precautionary measure herein requested.”

 

On May 26,2009, the Argentine Antitrust Commission issued Resolution 64/09 resolving toorder the Board of Directors of Telecom Argentina S.A. the immediatereestablishment of the Steering Committee that had been previously dissolvedand to order Telecom Argentina S.A. to revoke the previous unification of theroles of the General Directors (of Corporate Matters and of Operations) intothe position of Chief Executive Officer and its designation, thereby restoringthe roles prior to this unification as well as restoring modifications to theAuthorization Regime.  Resolution 64/09also ordered the revocation of all the decisions adopted which implied theexercise of voting rights since the issuance of Resolution 4/09 on January 9,2009. In this regard, Telecom Argentina called a Meeting of its Board ofDirectors, to be held on June 12, 2009, which included an item in theagenda regarding Consideration of Resolution No. 64/09 of the ArgentineAntitrust Commission and measures which may have to be adopted.  On June 11, 2009, Telecom Argentina wasnotified of a Resolution of the Second Court of Appeals in Federal, Civil, andCommercial Matters by which Telecom Argentina was ordered to “*abstain from considering, in the Meeting of the Board of Directors tobe held on June 12, 2009, item 4) of the agenda “Consideration of Resolution No. 64/09of the Argentine Antitrust Commission and measures which may have to beadopted.”*

 

As ofthe date of this Annual Report, we cannot predict if additional measures willbe taken by the Argentine Antitrust Commission, or relevant authorities orcourts, and whether, if taken, they could affect Telecom Argentina’soperations.

 

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*Vote of non-approval of Mr. Gerardo Werthein’s performanceas Regular Director and Mr. Werthein’s challenge to Board of Directors’decisions*

 

At the AnnualShareholders’ Meeting held on April 29, 2008, after the approval of the2007 financial statements, Telecom Argentina’s shareholders decided, upon a majorityvote, not to approve Mr. Gerardo Werthein’s performance as RegularDirector during fiscal year 2007.  Mr. Wertheinbrought a claim before the courts requesting the annulment of thisdecision.  On September 5, 2008,Telecom Argentina was notified of this claim and answered the complaint in duetime and proper form, requesting that it be completely rejected. The decisionof the court is still pending.

 

On October 16,2008, Telecom Argentina was notified of claim brought against it entitled “Werthein,Gerardo c/Telecom Argentina S.A. s/Nulidad de Resoluciones de Directorio.”  At the pre-trial conference regarding theclaim, it was determined that the purpose of the plaintiff’s claim was tochallenge certain decisions adopted in Telecom Argentina’s Board meetings heldon August 5 and September 10, 2008. The pre-trial conference was concluded with no agreement reached betweenthe parties. Telecom Argentina answered the complaint in due time and properform, requesting that it be completely rejected. The decision of the court isstill pending.

 

*Employee objections to the Transaction and resultingprecautionary measures dictated by Argentine Labor Courts*

 

In December 2008,Telecom was notified of two precautionary measures imposed by two Labor Courtsof the Province of Buenos Aires (Lanus and San Isidro cities) at the request oftwo employees of Telecom, who attempted to reject the modifications in theequity holdings of indirect shareholders resulting from the Transaction, on theground, that, in the opinion of these employees, the ownership changes mayaffect the labor conditions of Telecom Argentina’s employees. The precautionarymeasures require the Company to refrain from making changes that would resultin alteration of the Company’s legal ownership structure on the date that theCompany was notified of these precautionary measures, and making changes thatcould produce a monopoly in the telecommunications market. The Company was alsorequired to refrain from making modifications to employment terms that couldimply impairment of labor conditions.

 

On February 2,2009, the Labor Court of the city of Lanus declared itself incompetent, thusrevoking its precautionary measure. On March 17, 2009, the labor Court ofthe city of San Isidro, at the request of Telecom Argentina, revoked theprecautionary measure.

 

BothTelecom Argentina and Telecom Personal have sent, in accordance with theArgentine rules on publication of material events, several notes andinformation on the subjects mentioned in this section, which are available atthe CNV website:  www.cnv.gov.ar (section“Autopista Financiera”).

 

***Civil, tax, commercial, labor andregulatory proceedings***

 

We areparties to several civil, tax, commercial, labor and regulatory proceedings andclaims that have arisen in the ordinary course of business. As of December 31,2008, Telecom has established reserves in an aggregate amount of P$441 millionto cover potential losses related to these claims and contingencies in itsConsolidated Financial Statements (P$86 million were deducted from assets andP$355 million have been included under liabilities).

 

*Proceedings Related to the APE*

* *

In October 2005,Telecom requested that the overseeing judge declare that, by the issuance ofdebt with new payment terms and the payment of cash consideration pursuant tothe APE on August 31, 2005, Telecom has duly fulfilled the APE accordingto the terms of section 59 of the Bankruptcy Law. On December 14, 2005,the reviewing court ordered the APE execution, which order was not appealed.

 

Toaddress the risk that creditors who had not affirmatively consented to therestructuring might file actions in the United States against it to seekcollection of their original investments, in September 2005, TelecomArgentina filed a petition with the United States Bankruptcy Court for theSouthern District of New York under Section 304 of the U.S. Bankruptcy Lawseeking recognition of the APE in the United States.

 

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Oneclaimant, The Argo Fund, filed an opposition to Telecom’s petition.  Allrulings were granted in favor of Telecom Argentina’s position. Therefore, thefinal judgment (i) gave the APE full force and effect in the UnitedStates, (ii) ruled that the Trustee of the Indenture and thenon-participating creditors were bound by the terms of the APE and (iii) ruledthat the restructured notes were extinguished by Argentine law and had to becancelled.

 

*Labor Claims for which ENTel is Liable*

* *

TheTransfer Agreement provides that ENTel, and not Telecom Argentina, is liablefor all amounts owing in connection with claims based upon ENTel’s contractualand statutory obligations to former ENTel employees, whether or not theseclaims are made prior to the Transfer Date, if the events giving rise to theseclaims occurred prior to the Transfer Date. Certain former employees of ENTelhave brought claims against Telecom, arguing that notwithstanding the TransferAgreement or an executive act of the Argentine government, Telecom should beheld jointly and severally liable for claims made prior to the TransferDate.  The Supreme Court concluded thattransferees under privatizations may be held jointly and severally liable forobligations arising from employment contracts prior to the Transfer Date.

 

As of December 31,2008, the total amount of these labor claims filed against Telecom Argentina,including accrued interest and expenses, was approximately P$9 million. Interestand expenses will continue to accrue on any pending amount until it is paid infull. Telecom Argentina believes that the pending claims will not have asignificant effect on our results of operations or financial position for theseclaims for two reasons: (1) under the Transfer Agreement, ENTel hasexpressly agreed to indemnify Telecom Argentina in respect of these claims and (2) theArgentine Government has agreed to be jointly and severally liable with ENTelin respect of these indemnity obligations and has authorized Telecom Argentinato debit an account of the Argentine Government at *Banco Nación*for any amounts payable by the Argentine Government under this indemnity. Underthe Debt Consolidation Act, ENTel and the Argentine Government may dischargetheir above-described obligations to Telecom Argentina by issuing 16-year bondsto Telecom Argentina. In its ruling, the Supreme Court recognized the right oflicensees to demand that the Argentine Government comply with its TransferAgreement obligations.

 

Althoughwe cannot guarantee the outcome of these proceedings, in the opinion of ourmanagement and internal legal counsel, the final outcome of these proceedingswill not have a material effect on our financial position and results ofoperations.

 

*Other Labor Claims*

* *

Duringfiscal year 2005, legal claims were received regarding the salary concept of Section 15of the CBA 201/92 that established both an additional payment for longer dailyworking hours and a reduction of daily working hours. These claims wereadvanced by the labor unions and became the subject of negotiations forimprovements in salary and labor conditions. As a result of these negotiations,and in accordance with the criteria adopted by the Labor Court of Appeals,Telecom Argentina agreed to a new salary scale as of January 2006, and areduction in daily working hours. Since January 2006, the cause of thelegal claims has disappeared, therefore it is unlikely that Telecom Argentinawill receive new claims for periods after January 2006.  As of the date of this Annual Report, most ofthese claims have been settled and paid. However, new claims in connection withthe period before January 2006 could be received in the future.

 

ResolutionNo. 444/04 of the Ministry of Labor, Employment and Social Security (the “Ministryof Labor”) recognized FOETRA Buenos Aires Union as the representative forTelecom Personal’s employees in the collective bargaining process. TelecomPersonal appealed the Resolution arguing that its enforcement would modify theexisting union agreement maintained by Telecom Personal employees with theArgentine Federation of Commercial and Service Employees under the CollectiveLabor Agreement No. 130/75.  Hence,the Resolution would conflict with the agreement between the Ministry of Laborwith Movicom employees (the original operator of cellular telephone service),which applies to the Collective Labor Agreement No. 130/75 and to TelecomPersonal’s principal business.   TelecomPersonal has pursued various avenues for recourse, including seekingadministrative review, and judicial review of its claims.  However, to date, all administrative andjudicial recourse has been exhausted, including an appeal to the NationalSupreme Court of Justice.  The Ministryof Labor had notified Telecom Personal to create the negotiation commission inorder to negotiate with FOETRA the incorporation of its employees to FOETRA’sCollective Labor Agreement.  TelecomPersonal had rejected the above mentioned notification, which as of the date ofthis Annual Report is still pending a judicial resolution.

 

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Additionally,former sales representatives of Telecom Personal have brought legal actions foralleged untimely termination of their contracts and have submitted claims forthe payment of different items such as commission differences, senioritybonuses and lost profit. While decisions on some of these claims are stillpending, most of the claims have been agreed upon by the parties, while othershave obtained a favorable partial judgment.

 

*Consumer Trade Union Proceedings*

* *

In November 1995,Telecom Argentina was served with notice of a complaint filed by a consumertrade union, “*Consumidores Libres Cooperativa Limitada deProvisión de Servicios Comunitarios*,” against Telecom Argentina,Telefónica, Telintar and the Argentine Government. The suit seeks to declarenull, illegal and unconstitutional all tariff rules and agreements relatedto the Transfer Agreement and to reduce the tariffs of the licensees so as toobtain a rate of return not in excess of an annual 16% on fixed assets asdescribed in the List of Conditions.  Furthermore,the complaint seeks reimbursement of sums allegedly received in excess of the16% rate of return as well as sums resulting from the reduction in the rate ofturnover tax for the city of Buenos Aires.

 

In October 2001,the Federal Court of Appeals for Contentious and Administrative Matters issueda precautionary measure suspending the ability of telecommunications companiesto increase tariffs by reference to the U.S. consumer price index. However, thePublic Emergency Law and the reformation of the exchange regime have had ananalogous result to that proposed by the precautionary measure, by prohibiting,as of January 6, 2002, contracts held with the public administration,including public work and services contracts, from being adjusted to dollars orother foreign currencies. Public Emergency Law was subsequently extended troughDecember 31, 2009. See “Item 4—Regulatory Framework—RegulatoryEnvironment—Rates—Public Emergency Law.”

 

As ofthe date of this Annual Report, a decision of the Court of Appeals is stillpending. Although we cannot guarantee the outcome of these proceedings, in ouropinion, based on the information available to us and the opinion of our legalcounsel, the possibility that they will have a significant impact on ourfinancial position is remote.

 

Additionally,upon the extension of the exclusivity period for the provision oftelecommunication services, *Consumidores LibresCooperativa Limitada de Provisión de Servicios Comunitarios* filed anew lawsuit in Argentine federal courts against the service providers and theArgentine Government. Plaintiffs are seeking damages, an injunction revokingthe licenses granted to telecommunication service providers and termination ofthe exclusivity period. This case is currently in a preliminary stage.

 

On August 14,2003, Telecom Argentina was served notice of a legal action brought by the “Unionof Users and Consumers” against Telecom Argentina, Telefónica and the SC. Theaction was filed before the Federal Court in Administrative Litigation Matters No. 8and requested the reimbursement of certain additional charges included inmonthly fixed-line service fees billed by Telecom Argentina. On August 22,2003, Telecom Argentina contested this claim on the grounds that the chargesare valid since they were expressly provided for under applicableadministrative rules and regulations. As of the date of this AnnualReport, the decision on this claim is still pending. Although we cannotguarantee the outcome of this proceeding, in the opinion of our management andinternal legal counsel, the final outcome of this proceeding will not have amaterial effect on our financial position and results of operations.

 

In December 2005,the entity *Asociación Protección Consumidores Del MercadoComún Del Sur—Proconsumer* brought an action against the cellularcompanies, including Telecom Personal. The action seeks to obtain reimbursementfor any amounts billed to Telecom Personal customers in connection with aninvestment contribution to the Universal Service Fiduciary Fund.  Their claim for reimbursement was estimatedbased on charges made to Telecom Personal customers for total billed amounts,plus compensatory interest on any awarded damages.  The interest was estimated at a rate appliedby each company to its customers in the event of delay in customer payments. Inits answer to the complaint, one of Telecom Personal’s main arguments statedthat the process of reimbursing its customers had already begun and thereforethe complaint should be fully dismissed. The full reimbursement for the amountsreceived by Telecom Personal in connection with the investment contribution andcorresponding interest were listed separately in customer bills and furnishedin accordance with the report of the

 

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CNC of December 2006.  The report also contained a notation for theapplicable interest rate. The total reimbursement amounts that Telecom Personalhas yet to make are still undetermined and are subject to the reported findingsof an accounting expert.  As of the dateof this Annual Report, a decision on this claim is still pending.

 

**Tax Matters**

 

***TaxMatters Relating to Telecom Argentina***

 

In December 2008,the National Congress approved Law N 26,476, the “Law on Tax Regularization andRepatriation of Capital” establishing a regime for the regularization of taxliabilities, the repatriation of funds and the registration of employees.  Title I of the law provides taxpayers with acomplete exemption for penal responsibilities in tax matters, for fines, and apartial exemption for interest arising out of tax or social securityliabilities prior to December 31, 2007.

 

Asdiscussed in previous Annual Reports, Telecom Argentina was party to variouslegal proceedings arising from claims by AFIP with regards to:

 

a)AFIP’s claim for income tax for fiscal years 1993 to 1999 arising fromdisagreements in the calculation of depreciation of its fiber optic network.

 

b)AFIP’s claims for income tax for fiscal years 1997 to 2000 challenging certaindeductions for bad debt expenses of Telecom Argentina.

 

c)AFIP’s claims regarding invoices for services presumed not rendered.

 

Upondetailed analysis of the Regularization Regime, on April 30, 2009 TelecomArgentina decided to settle the AFIP’s claims in the time-frame established byTitle I of the above-mentioned law.

 

In order to qualify for the Regularization Regime,Telecom Argentina had to voluntarily dismiss legal proceedings previouslyinitiated against AFIP’s claims. As a result of the Regularization Regime,regarding the matter mentioned in c) above, Telecom Argentina has requested theCourt to suspend the penal proceedings and dismiss the claims against officersand employees who had been called to give testimony, since the lawprovides for the suspension of penal proceedings upon adoption of theRegularization Regime, and complete extinguishment of a penal case uponcancellation of all amounts due under the payment plan pursuant to this Regime. As of the date of this Annual Report, adecision of the Court on this matter is still pending.

 

TelecomArgentina’s compliance with the Regularization Regime generated a reversion ofreserves and recognition of a new debt owed to AFIP in the amount of P$34million (nominal value), (P$4 million payable upon Telecom Argentina’s joiningthe Regime, and the balance payable in 120 monthly installments at an annualinterest rate of 9%).  The Company hasalso recognized a debt for legal fees in connection with these regularizedprocesses estimated at P$14 million (nominal value).  The value of both liabilities has beenestimated at net present value according to Argentine GAAP and has been setforth under the captions “Taxes Payable” and “Other Liabilities” classified byeach liability’s nature and due date. The corresponding balancing entries have been made to the Incomestatement for the first quarter of 2009.

 

In December 2001,the AFIP made an additional income tax claim on the amortization period utilizedby Telintar to depreciate its fiber optic network in submarine cables. Telintarwas dissolved and merged in equal parts into Telecom Argentina InternacionalS.A. and TelefónicaLarga Distancia de Argentina S.A., entities controlled by Telecom Argentina andTelefónica, respectively. Telecom Argentina Internacional S.A. was subsequentlymerged with and into Telecom Argentina in September 1999.  In July 2005, the National Fiscal Courtresolved against Telecom Argentina ratifying the tax assessment relating toadditional taxes, although it excluded interest and penalties. On the samegrounds as described in the above paragraph, during the third quarter of 2005,Telecom Argentina recorded a current tax liability amounting to P$0.5 millionagainst income taxes in its income statement. Telecom Argentina and Telefónicahave appealed this judgment before the corresponding Federal Court.  In spite of the unfavorable judgments,Telecom Argentina believes that the ultimate outcome of these cases will notresult in an incremental adverse impact on Telecom Argentina’s results ofoperations and financial condition.

 

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***TaxMatters Relating to Telecom Personal***

 

In December 2006,the AFIP assessed additional income tax and tax on minimum presumed income forthe 2000 and 2001 tax years claiming that Telecom Personal incorrectly deductedcertain uncollectible receivables. Personal appealed this assessment with theNational Fiscal Tribunal. The AFIP’s claim is contrary to certainjurisprudential precedents by the National Fiscal Tribunal. Consequently,Telecom Personal and its legal counsel believe that the matter will be resolvedin its favor when the appeal process is completed.

*** ***

***TaxMatters Relating to Micro Sistemas***

 

On December 4,2000, our subsidiary, Micro Sistemas S.A., received a notice from the Secretaryof Treasury Resolution No. 468/00 requesting Micro Sistemas to pay P$1.1million (approximately P$5.1 million as of December 31, 2008) infines with respect to its failure to comply, prior to its acquisition byTelecom Soluciones, with the terms and conditions of a special tax regulationapplicable to Micro Sistemas and requesting payment of the claimed taxcompounded with interest. Having exhausted the administrative appeals, on October 3,2007, Micro Sistemas filed an appeal before the Federal Court of Appeals forAdministrative Matters.  This appeal isstill pending.  By virtue of the factthat the administrative ruling is being appealed before a judicial court, theArgentine government cannot require payment of a disputed fine or tax until afirm decision has been reached, therefore, this matter will be clarified whenthe court reaches a decision on the merits of the appeal.

 

MicroSistemas’ legal counsel for this claim believe that the defense had strongarguments and should have persuaded the court to reject the resolution adoptedby the Secretary of Treasury. Furthermore, if Micro Sistemas were to berequired to pay these amounts, Telecom Argentina may be able to seekreimbursement for these pursuant to indemnification provisions agreed to by theformer owners of Micro Sistemas in the 1997 contract for the purchase of MicroSistemas. Taking into account both the strong factual and legal basis to obtainthe rejection of the Secretary of Treasury’s resolution and the existence ofsuch indemnity provisions, Telecom Argentina’s management considers that thepossibility of Micro Sistemas being forced to perform the Secretary of theTreasury’s request for payment of fines is remote.

* *

*General Proceedings*

 

Differentlegal actions were brought, mainly by former employees of Telecom Argentinaagainst the National Government and Telecom Argentina, requesting that Decree No. 395/92– which expressly exempted Telecom Argentina from issuing the profit sharingbonds provided in Law No. 23,696 – be struck down asunconstitutional.  The plaintiffs alsoclaimed compensation for the damages they had suffered because such bonds hadnot been issued.  In August 2008,the Supreme Court of Justice found Decree No. 395/92 unconstitutional whenresolving a similar case against Telefónica.

 

Inthose suits for which judgment has already been rendered, the trial courtjudges hearing the matter resolved to dismiss the actions brought – relying onarguments made by each cases’ respective prosecutors.  The trial court judges noted that Decree No. 395/92was valid and constitutional. However, based on the National Supreme Court ofJustice’s judgment on this matter, the three Divisions of the Courts of Appealruled that Decree No. 395/92 was unconstitutional.

 

Inorder to defend its rights, Telecom Argentina filed various appeals againstthese unfavorable decisions, and although these decisions have not beenreviewed by the National Supreme Court of Justice, it should be noted that theabovementioned ruling of the Supreme Court on the case against Telefónica hascreated a judicial precedent that, in the opinion of Telecom Argentina’s legalcounsel, increases the probability that it must affront certain contingenciesas a result of an adverse ruling, notwithstanding the right of repetition thatattends Telecom Argentina against the National State.

 

Saiddecision found the abovementioned decree unconstitutional and ordered to sendthe proceedings back to the court of origin so that said court could decide onwhich was the subject compelled to pay —licensee and/or National Government-and the parameters that were to be taken into account in order to quantify thecomplaints set forth therein (percent of profit sharing, prescription criteria,distribution method between the beneficiaries of the program).

 

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As ofthe date of this Annual Report, Telecom Argentina’s management, with the aid ofits legal counsel, has recorded provisions for contingencies that it estimatesare sufficient to hedge the risks associated with these claims, havingconsidered the legal background up to this date.

 

Thereare several proceedings that have been initiated against us with respect toalleged regulatory violations from 2000 to May 2009. If the outcomes ofthese proceedings are unfavorable to us, they could result in fines ofapproximately P$7.7 million. For each of these proceedings, we are challengingCNC’s imposition of fines before administrative authorities and/or the courts.The most significant of these proceedings relate to the printing of telephonedirectories in small font sizes which were allegedly not clear enough to readand did not comply with the certain terms for remedying such non-compliance, aswell as certain problems in several cases relating to failures in connectionwith the process of presubscribing. Theft of telephone cables was a problem of increased significance for usin 2005 and 2006, and the CNC imposed fines for delays ascribed to stolencables in 2005.

 

In1999, the Argentine national environmental agency (*Secretaríade Medio Ambiente y Desarrollo Sustentable*) initiated anadministrative proceeding against us in accordance with Argentine environmentallaw in relation to our waste management based on liquid drainage at anunderground chamber. The action was brought to require Telecom Argentina toregister with the National Register of Generators and Operators of HazardousWaste. Such registration requires Telecom Argentina to pay an annual fee whichis calculated by applying a formula that considers the extent of the hazard andquantity of the waste. Telecom Argentina believes that its activities do notgenerate such waste, and that the waste in the underground chamber wasgenerated by other parties. Telecom Argentina nonetheless removed the liquiddrainage in accordance with environmental law. We have filed the requisiteformal responses in connection with this administrative proceeding and webelieve that we will not have to register with any environmental agency as aresult of this liquid drainage. In February 2009, Telecom Argentinareceived a notification from the environmental agency requesting once again forTelecom Argentina to be registered in the National Registry of Generators andOperators of Hazardous Waste. In March 2009, Telecom Argentina filed arequest for administrative review seeking to obtain rejection of theenvironmental agency’s ordinance. As of the date hereof, there has been noresolution of the matter.

 

Sinceyear 2005, the Company has seen a noticeable increase in judicial andout-of-court claims seeking the collection of various municipal fees in variousmunicipalities and in the City of Buenos Aires. As of December 31, 2008,the Company has a reserve of approximately P$41.2 million for such claims.

 

For adescription of certain administrative appeals made by the Telecom Group withrespect to certain regulatory actions, see “Item 4—Information on theCompany—Regulatory Framework.” For a description of certain tax matters, see “Item5—Operating and Financial Review and Prospects—Taxes.”

** **

**Dividend Policy**

 

Thedeclaration, amount and payment of dividends are determined by a majority voteof all holders of Telecom Argentina stock. Under the Argentine CorporationsLaw, dividends may only be declared out of liquid and realized profitsdetermined based on non-consolidated financial statements prepared inaccordance with Argentine GAAP and other applicable regulations issued by theCNV and other regulatory bodies. Furthermore, liquid and realized profits canonly be distributed when all accumulated losses from past periods have beenabsorbed and the legal reserve has been constituted (or reconstituted).

 

The lasttime Telecom Argentina paid dividends was for the fiscal year ended December 31,2000. At December 31, 2001, Telecom Argentina had unassigned positiveresults of P$901 million. However, at its annual shareholders’ meeting held on April 24,2002, the shareholders decided that because of the political and economicsituation in Argentina and Telecom Argentina’s financial condition, it wouldnot pay dividends for the year ended December 31, 2001. In the year ended December 31,2002, Telecom Argentina suffered a P$4,386 million loss that reduced its netassets by 84.3% and resulted in negative unassigned results, a situation thatcontinued through subsequent periods. For this reason, Telecom Argentina didnot meet the conditions required under the Argentine Corporations Law for thedistribution of dividends in years ended December 31, 2002, 2003 and 2004.

 

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Thenotes that Telecom Argentina issued pursuant to the APE in 2005 also providethat if Telecom Argentina makes any distribution payment (a term which includesany dividend), then the minimum excess cash payment for the relevant periodmust be at least two and a half times such distribution payment.

 

TelecomArgentina’s shareholders, at their meeting of April 27, 2006, approved theabsorption of part of the accumulated deficit with Telecom Argentina’s legalreserve and part with its inflation adjustment of capital account. Followingthis action, Telecom’s accumulated deficit amounted to P$1,836 million and itslegal reserve was fully depleted. As a result, pursuant to the ArgentineCorporations Law, Telecom Argentina was not permitted to distribute anydividends for the year ended December 31, 2005. Similarly, TelecomArgentina’s shareholders, at their meeting of April 27, 2007, approved thetransfer of the accumulated deficit at December 31, 2006, in its entirety,to the next fiscal year. Following this action, Telecom’s accumulated deficitamounted to P$1,592 million and no dividends were permitted for fiscal year2006. Additionally, Telecom Argentina’sshareholders, at their meeting of April 29, 2008, approved the transfer ofthe accumulated deficit at December 31, 2007, in its entirety, to the nextfiscal year.  Following this action,Telecom’s accumulated deficit amounted to P$708 million and no dividends werepermitted for fiscal year 2007. Until it absorbs the remainingaccumulated deficit and fully rebuilds its legal reserve to an amount of P$277million, Telecom Argentina will be similarly prohibited from making anydistributions. Net income for the year 2008 was P$961 million, while RetainedEarnings as of December 31, 2008 showed a positive balance of P$253 million.The Board of Directors submitted for consideration at the annual shareholders’meeting, the allocation of Retained Earnings in the amount of P$253 million forthe partial reconstitution of the legal reserve previously absorbed on April 27,2006. However, Telecom Argentina’s shareholders meeting has been provisionallysuspended by a precautionary measure. See “—Legal Proceedings Relating to ShareOwnership—The Argentine Antitrust Commission’s Resolutions No. 04/09,43/09, 44/09, 62/09 and 64/09” above.

 

Underthe above-described restrictions, the legal ability of shareholders at anysubsequent annual meeting of Telecom Argentina to vote to distribute dividendsdepends on: (i) the reconstitution of Telecom Argentina’s legal reservethat was used to partially absorb accumulated deficit (P$277 million absorbedon April 27, 2006); (ii) the existence of liquid and realized profitsin excess of (i); and (iii) satisfaction of the financial conditionsnecessary to distribute dividends without negatively affecting the interests ofTelecom Argentina.

 

Inelaborating the annual report in compliance with Argentine requirements, at theend of each fiscal year, the Board of Directors analyzes Telecom Argentina’s economicand financial position and its compliance with the above-mentionedrestrictions.  The Board of Directorsthen proposes a course of action with respect to retained earnings, which mayor may not include a dividend distribution. The decision with regards to the Board’s proposal is made by TelecomArgentina’s shareholders at the Shareholders Meeting.

** **

**Significant Changes**

 

Noundisclosed significant changes have occurred since the date of theConsolidated Financial Statements.

** **

**ITEM 9.**                             THEOFFER AND LISTING

 

Thecapital stock of Telecom Argentina is divided into three classes: Class AOrdinary Shares, nominal value P$1.00 each (“Class A Shares”),representing approximately 51% of the outstanding capital stock of TelecomArgentina, Class B Ordinary Shares, nominal value P$1.00 each (“Class BShares”), representing approximately 45% of the outstanding capital stock ofTelecom Argentina, and Class C Ordinary Shares, nominal value P$1.00 each(“Class C Shares”), representing approximately 4% of Telecom Argentina’soutstanding capital stock.

 

As of December 31,2008, the number of shares authorized and outstanding was as follows:

 
| Class A Shares |   | 502,034,299 |   |
|---------------------|--------|-------------|--------|
| Class B Shares |   | 440,910,912 |   |
| Class C Shares |   | 41,435,767  |   |
| Total               |   | 984,380,978 |   |

 

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The Class BShares are currently listed on the Buenos Aires Stock Exchange. The ADSsrepresenting Class B Shares are currently listed on the New York StockExchange under the symbol TEO. Each ADS currently represents 5 Class BShares.

 

Becauseof the serious economic situation in Argentina, the Buenos Aires Stock Exchangeresolved to trade Telecom Argentina’s listed shares in a reduced trading panelbeginning in April 2002 (according to the provisions of Section 38(b) ofthe rules to list on the exchange). Telecom Argentina’s shares continuedto trade on the reduced trading panel so long as its negative retained earningsabsorbed the totality of its reserves and more than fifty percent of itsadjusted capital stock. Trading of Telecom Argentina’s former corporate bondswas also transferred to a reduced trading panel (according to the provisions ofSections 39(a) and (c) of the exchange rules mentioned above) asa consequence of its suspension of payments on our financial indebtedness andthe above-mentioned position of its shareholders’ equity. The Buenos AiresStock Exchange transfers an issuer’s securities to the reduced trading panel (“*rueda reducida*,” as opposed to the “*rueda común*”)upon the occurrence of certain negative events, such as the aforementioned andothers including the voluntary filing for *Concurso preventivo*or the failure to file financial information as required by applicableregulations. A transfer to the reduced trading panel informs investors that anegative event has occurred with respect to an issuer.

 

TelecomArgentina’s shareholders, at their meeting of April 27, 2006, approved theabsorption of part of the accumulated deficit with Telecom Argentina’s legalreserve and part with its inflation adjustment of capital account. After thisabsorption was effected, Telecom Argentina’s accumulated deficit no longerexceeded its reserves and 50% of its capital stock and the shares of TelecomArgentina were transferred to the *rueda común* ofthe Buenos Aires Stock Exchange. Similarly, since Telecom Argentina alsosuccessfully completed the restructuring of its financial indebtedness in 2005,its bonds are also able to be traded on the *rueda común*.

 

The table belowshows the high and low closing prices of the Class B Shares in pesos forthe periods indicated on the Mercado de Valores de Buenos Aires (the “BuenosAires Stock Market” or “BASM”), the current principal non-U.S. trading marketfor such securities. See “—The Argentine Securities Market.” Prices have beenadjusted to reflect dividends, if any. See “Item 3—Key Information—ExchangeRates” for the exchange rates applicable during the periods set forth below.

 
| ** **     | ** ** | **Pesos per Class B Share  on BASM(1)** | ** ** |
|----------------|------------|----------------------------------------------|------------|
| ** **     | ** ** | **High**                                     | ** ** | **Low** | ** ** |
| *Annual*       |       |                                         |       |   |   |
| 2004           |       | 6.60                                         |       | 4.19 |   |
| 2005           |       | 8.65                                         |       | 6.00 |   |
| 2006           |       | 11.95                                        |       | 6.10 |   |
| 2007           |       | 17.25                                        |       | 11.75 |   |
| 2008           |       | 15.20                                        |       | 3.70 |   |
| * *       |       |                                         |       |   |   |
| *Quarterly*    |       |                                         |       |   |   |
| **2007**       |       |                                         |       |   |   |
| First Quarter  |       | 14.00                                        |       | 11.75 |   |
| Second Quarter |       | 17.25                                        |       | 13.35 |   |
| Third Quarter  |       | 16.85                                        |       | 12.50 |   |
| Fourth Quarter |       | 16.90                                        |       | 14.05 |   |
| **2008**       |       |                                         |       |   |   |
| First Quarter  |       | 15.20                                        |       | 12.15 |   |
| Second Quarter |       | 13.90                                        |       | 9.35 |   |
| Third Quarter  |       | 9.25                                         |       | 6.75 |   |
| Fourth Quarter |       | 8.04                                         |       | 3.70 |   |
| * *       |       |                                         |       |   |   |
| *Monthly*      |       |                                         |       |   |   |
| **2008**       |       |                                         |       |   |   |
| December       |       | 6.91                                         |       | 5.49 |   |

 

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| ** **                             |   | **Pesos per Class B Share  on BASM(1)** |   |
|----------------------------------------|--------|----------------------------------------------|--------|
| ** **                             |   | **High**                                     |   | **Low** |   |
| **2009**                               |   |                                         |   |   |   |
| January                                |   | 6.40                                         |   | 5.54 |   |
| February                               |   | 6.06                                         |   | 5.15 |   |
| March                                  |   | 6.15                                         |   | 4.90 |   |
| April                                  |   | 6.80                                         |   | 5.63 |   |
| May                                    |   | 8.15                                         |   | 6.58 |   |
| June (through June 24, 2009) |   | 9.15                                         |   | 7.12 |   |

 

----

(1)          Reflectspeso nominal amounts as of that date.

*Source: Bolsa de Comercio de Buenos Aires.*

 

The Class BShares trade on the New York Stock Exchange in the form of ADSs issued by theDepositary under the Deposit Agreement dated as of November 8, 1994, amongTelecom Argentina, the Depositary and the registered Holders from time to timeof the ADSs issued thereunder (the “Deposit Agreement”). Each ADS represents 5 Class BShares.

 

The table belowshows the high and low closing prices of the ADSs in U.S. dollars on the NewYork Stock Exchange for the periods indicated.

 
| ** **                             | ** ** | **US$ per  ADS** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **High**              | ** ** | **Low** | ** ** |
| *Annual*                               |       |                  |       |   |   |
| 2004                                   |       | 11.11                 |       | 7.32 |   |
| 2005                                   |       | 14.63                 |       | 10.20 |   |
| 2006                                   |       | 21.64                 |       | 9.76 |   |
| 2007                                   |       | 28.36                 |       | 19.52 |   |
| 2008                                   |       | 23.97                 |       | 5.12 |   |
| * *                               |       |                  |       |   |   |
| *Quarterly*                            |       |                  |       |   |   |
| **2007**                               |       |                  |       |   |   |
| First Quarter                          |       | 22.87                 |       | 20.10 |   |
| Second Quarter                         |       | 28.36                 |       | 21.72 |   |
| Third Quarter                          |       | 26.41                 |       | 19.52 |   |
| Fourth Quarter                         |       | 26.96                 |       | 21.75 |   |
| **2008**                               |       |                  |       |   |   |
| First Quarter                          |       | 23.97                 |       | 18.76 |   |
| Second Quarter                         |       | 21.67                 |       | 14.25 |   |
| Third Quarter                          |       | 14.40                 |       | 10.73 |   |
| Fourth Quarter                         |       | 12.62                 |       | 5.12 |   |
| * *                               |       |                  |       |   |   |
| *Monthly*                              |       |                  |       |   |   |
| **2008**                               |       |                  |       |   |   |
| December                               |       | 9.64                  |       | 7.60 |   |
| **2009**                               |       |                  |       |   |   |
| January                                |       | 9.38                  |       | 7.62 |   |
| February                               |       | 8.76                  |       | 6.81 |   |
| March                                  |       | 8.03                  |       | 6.55 |   |
| April                                  |       | 9.25                  |       | 7.29 |   |
| May                                    |       | 10.91                 |       | 8.40 |   |
| June (through June 24, 2009) |       | 11.34                 |       | 9.21 |   |

 

On June 24,2009, the reported last sale price of the ADSs on the New York Stock Exchangewas US$11.31.

 

Class BShares also quote in the Mexican Stock Exchange through the InternationalQuotation System (“SIC”).

 

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**Plan ofDistribution**

 

Notapplicable.

** **

**The Argentine SecuritiesMarket**

 

There are twelve securities exchanges in Argentina, ofwhich six (including the Buenos Aires Stock Exchange) have affiliated stockmarkets and are authorized to quote publicly offered securities. The oldest andlargest of these exchanges is the Buenos Aires Stock Exchange, founded in 1854,on which approximately 90% of all equity trades are executed. For the yearended December 31, 2008, the ten most actively traded equity issuesrepresented approximately 81% of the total volume of equity traded on themarket. Trading in securities listed on an exchange is conducted through aMercado de Valores (“Stock Market”) affiliated with such exchange.

 

Securitiesmay also be listed and traded on the Mercado Abierto Electrónico S.A. (the “MAE”),an electronic over-the-counter market trading system that functionsindependently from the Buenos Aires Stock Exchange and the Buenos Aires StockMarket. However, in March 1992, the Buenos Aires Stock Exchange, theBuenos Aires Stock Market and representatives of the dealers on the MAEimplemented an agreement that causes trading in equity and equity-relatedsecurities to be conducted exclusively on the Buenos Aires Stock Market, whileall corporate debt securities listed on the Buenos Aires Stock Exchange mayalso be traded on the MAE. Trading in Argentine Government securities, whichare not covered by the agreement, is expected to be conducted principally onthe MAE. The agreement does not extend to other Argentine stock exchanges.

 

TheCNV has passed a set of resolutions establishing a system of self-regulatoryentities, under which each self-regulatory entity (which currently includeseach exchange and the MAE, among others) is responsible for developing andimplementing regulations governing its respective stock market, subject to theapproval and oversight of the CNV. Since March 1, 1993, in addition to CNVauthorization, listing on an exchange or the MAE has been required in order tooffer to the public within the territory of Argentina securities other thannegotiable obligations (*obligaciones negociables*)or other notes of private sector issuers. Internal rules of each exchangefor its affiliated Stock Market establish conditions for listing securities,admitting brokers, conducting trades and controlling the truthfulness of anyinformation which is required to be reported in connection therewith.

 

Changesto the legal framework have been introduced permitting issuance and trading ofnew financial products in the Argentine capital markets, including commercialpaper, futures, options and new types of corporate bonds. The ArgentineGovernment deregulated brokerage fees and eliminated transfer taxes and stamptaxes on publicly offered securities transactions in November 1991.

 

On May 22,2001, the Argentine Government issued the Transparency Decree, which provided alegal framework to strengthen the level of protection of the investor in themarket and promotes the development, liquidity, stability, solvency andtransparency of the market by generating procedures to guarantee the efficientdistribution of savings and good practices in the administration ofcorporations.  The Transparency Decreeapplies to individuals and entities that participate in the public offering ofsecurities, as well as to stock exchanges. Among its key provisions, the decreebroadens the definition of a “security” and governs the treatment of negotiablesecurities. It seeks to improve transparency by imposing certain disclosureobligations on administrators and members of Supervisory Committees, amongothers, requiring publicly listed companies to form audit committees composedof three or more members of the Board of Directors (the majority of whom mustbe independent under CNV regulations), governing insider trading, marketmanipulation and securities fraud and regulating going-private transactions andacquisitions of voting shares, including controlling stakes in publiccompanies.

 

**TheBuenos Aires Stock Market**

 

TheBuenos Aires Stock Market, which is affiliated with the Buenos Aires StockExchange, is the largest stock market in Argentina. The Buenos Aires StockMarket is a corporation, whose approximately 133 shareholder members are theonly individuals and entities authorized to trade in the securities listed onthe Buenos Aires Stock Exchange. Trading on the Buenos Aires Stock Market isconducted by continuous open outcry, from 11:00 a.m. to 5:00 p.m. eachbusiness day. The Buenos Aires Stock Market also operates an electroniccontinuous market system each business day, on which privately arranged tradesare registered and made public.

 

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Althoughthe Buenos Aires Stock Exchange is one of Latin America’s largest securitiesexchanges in terms of market capitalization, it remains relatively small andilliquid compared to major world markets, and therefore, is subject to greatervolatility. To control price volatility, the Buenos Aires Stock Market operatesa system which suspends dealing in a particular issuer’s shares for fifteenminutes when the price changes 10% with respect to that day’s opening price.Once trading resumes, the trading is then suspended for another fifteen minutesif the price changes more than 15% with respect to that day’s opening price. Ifthe price then changes 20% with respect to that day’s opening price, and forevery 5% fluctuation in price thereafter, the trading of such shares isinterrupted for an additional ten minutes. Investors in the Argentinesecurities market are mostly individuals, mutual funds and companies.Institutional investors that trade securities on the Buenos Aires Stock Market,which represent a relatively small percentage of trading activity, consist of alimited number of investment funds.

 

Certainhistorical information regarding the Buenos Aires Stock Exchange is set forthin the table below.

 
| ** **                                         | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Market capitalization (P$ billions)(1)        |       | 1,234    |       | 1,773    |       | 1,229    |       | 771      |       | 690      |       |
| As percent of GDP(1)                               |       | 119      |       | 218      |       | 188      |       | 163      |       | 146      |       |
| Volume (P$ millions)(1)                       |       | 237,790  |       | 209,905  |       | 131,984  |       | 145,523  |       | 82,099   |       |
| Average daily trading volume (P$ millions)(1) |       | 963      |       | 850      |       | 532      |       | 576      |       | 326      |       |
| Number of traded companies (including Cedears)     |       | 267      |       | 278      |       | 268      |       | 259      |       | 235      |       |

 

----

(1)          End-of-periodfigures for trading on the Buenos Aires Stock Exchange.

*Sources: Comisión Nacional deValores and Instituto Argentino de Mercado de Capitales.*

 

**Selling Shareholders**

 

Notapplicable.

** **

**Dilution**

 

Notapplicable.

** **

**Expenses of the Issue**

 

Notapplicable.

** **

**ITEM 10.**                                ADDITIONALINFORMATION

** **

**MEMORANDUM AND ARTICLES OF ASSOCIATION**

 

**Register**

 

TelecomArgentina’s bylaws were registered in the *Inspección General deJusticia* (General Board of Corporations) on July 13, 1990 undernumber 4570, book 108, volume “A” of Corporations. The bylaws with allamendments thereto was registered in the General Board of Corporations on October 24,2005 under number 12799, book 29 of Corporations.

** **

**Objects and Purposes**

 

Article I,Section 3 of the bylaws states that the object of Telecom Argentina is torender, either on its own account or on account of, or in association with,third parties, telecommunications public services, except for radiobroadcasting, under the terms, if any, of the licenses granted by relevantauthorities. The bylaws authorize Telecom Argentina to take all actionspermitted by law to fulfill its aforementioned objects.

 

On March 1,2001, the SC authorized Telecom Argentina to expand its corporate purpose, toinclude the marketing of equipment, infrastructure and goods of any typerelated or complementary to telecommunications, and the performance of worksand provision of all types of services, including consulting and securityrelated to

 

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telecommunications, as well as the development oftelecommunications technology and information processing systems. Thisexpansion of the corporate purpose has been approved by the CNV. As a result,the bylaws which reflect this change have been approved and registered in theirfinal form.

 

On April 30,2003 Telecom Argentina’s shareholders voted not to adhere to the regimeestablished by Decree 677/01 (the Statutory Regime of Public Offer of MandatoryAcquisition) and approved the consequent modification of Article 1° ofTelecom Argentina’s bylaws. On February 18, 2004, Telecom Argentina’sshareholders voted to change the company’s name to “Telecom Argentina S.A.”

** **

**Telecom Argentina’scapital stock**

 

Thefollowing is a summary of the rights of the holders of Telecom Argentinashares. These rights are set out in Telecom Argentina’s *estatutossociales* (bylaws) or are provided for by applicable Argentine law,and may differ from those typically provided to shareholders of U.S. companiesunder the corporations laws of some states of the United States.

* *

*Limited Liability of Shareholders*

 

UnderArgentine law, a shareholder’s liability for losses of a company is generallylimited to the value of his or her shareholdings in the company. UnderArgentine law, however, a shareholder who votes in favor of a resolution thatis subsequently declared void by a court as contrary to Argentine law or acompany’s bylaws (or regulations, if any) may be held jointly and severallyliable for damages to such company, to other shareholders or to third partiesresulting from such resolution. In connection with recommending any action forapproval by shareholders, the Board of Directors of Telecom Argentina hasobtained opinions of counsel concerning the compliance of the actions withArgentine law and our bylaws (or regulations, if any). We currently intend toobtain similar opinions in the future. Although the issue is not free fromdoubt, based on advice of counsel, we believe that a court in Argentina inwhich a case has been properly presented would hold that a non-controllingshareholder voting in good faith and without a conflict of interest in favor ofsuch a resolution based on the advice of counsel that such resolution is notcontrary to Argentine law or our bylaws or regulations, would not be liableunder this provision.

* *

*Voting Rights*

 

Inaccordance with the bylaws, each share entitles the holder thereof to one voteat meetings of the shareholders of Telecom Argentina. All of Telecom Argentina’sdirectors are appointed jointly by shareholders in an ordinary generalshareholders’ meeting.

 

UnderArgentine law, shareholders are entitled to cumulative voting procedures forthe election of up to one-third of the vacancies to be filled on the Board ofDirectors and the Supervisory Committee. If any shareholder notifies acorporation of its decision to exercise its cumulative voting rights not laterthan three business days prior to the date of a shareholders’ meeting, allshareholders are entitled, but not required, to exercise their cumulativevoting rights. Under cumulative voting, the aggregate number of votes that ashareholder may cast is multiplied by the number of vacancies to be filled inthe election, and each shareholder may allocate the total number of its votesamong a number of candidates not to exceed one-third of the number of vacanciesto be filled. Shareholders not exercising cumulative voting rights are entitledto cast the number of votes represented by their shares for each candidate. Thecandidates receiving the most votes are elected to the vacancies filled bycumulative and non-cumulative voting. If no candidate for a particular vacancyreceives an absolute majority of votes, the two candidates that received themost votes will participate in a run-off election, and the candidate receivingthe most votes in the run-off election will be deemed elected.

 

Inaddition, any person who enters into a voting agreement with other shareholdersin a public company must inform the CNV of that voting agreement and must filea copy of that voting agreement with the CNV.

* *

*Meetings of Shareholders*

 

Shareholders’meetings may be ordinary meetings or extraordinary meetings. Telecom Argentinais required to hold an annual ordinary meeting of shareholders in each fiscalyear to consider the matters outlined in Article 234 of

 

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the Argentine Corporations Law, Article 72 of LawNo. 17,811 (as amended by the Transparency Decree) and CNV rules,including but not limited to:

 

·                  approvalof Telecom Argentina’s financial statements and general performance of thedirectors and members of the Supervisory Committee for the preceding fiscalyear;

 

·                  election,removal and remuneration of directors and members of the Supervisory Committee;

 

·                  allocationof profits; and

 

·                  appointmentof external auditors.

 

Matterswhich may be considered at these or other ordinary meetings includeconsideration of the responsibility of directors and members of the SupervisoryCommittee, as well as capital increases and the issuance of negotiableobligations. Extraordinary shareholders’ meetings may be called at any time toconsider matters beyond the scope of the ordinary meeting, including amendmentsto the bylaws, issuances of certain securities that permit profit sharing,anticipated dissolution, merger and transformation from one type of company toanother, etc. Shareholders’ meetings may be convened by the Board of Directorsor the members of the Supervisory Committee. The Board of Directors or the membersof the Supervisory Committee are also required to convene shareholders’meetings upon the request of any shareholder or group of shareholders holdingat least 5% in the aggregate of Telecom Argentina’s capital stock. If the Boardof Directors or the members of the Supervisory Committee fail to do so, themeeting may be called by the CNV or by the courts.

 

Noticeof the shareholders’ meeting must be published in the Official Bulletin of theRepublic of Argentina and in a widely circulated newspaper in Argentina atleast twenty days prior to the meeting. In order to attend a meeting,shareholders must submit proper evidence of their ownership of shares viabook-entry account held at the Caja de Valores S.A. If so entitled to attendthe meeting, a shareholder may be represented by proxy.

 

Class BShares represented by ADSs will be voted by the Depositary in accordance withinstructions of the holders of the ADSs. In order for voting instructions to bevalid, the Depositary must receive them on or before the date specified in therelevant notice. There is no guarantee that an ADS holder will receive votingmaterials in time to instruct the Depositary to vote.

 

Thequorum for ordinary meetings consists of a majority of the stock entitled tovote and resolutions may be adopted by the affirmative vote of a majority ofthe shareholders present that have issued a valid vote, without countingvoluntary abstentions. If no quorum is present at the meeting, a second meetingmay be called at which shareholders present, whatever their number, shallconstitute a quorum and resolutions may be adopted by a majority of theshareholders present. The quorum for extraordinary meetings is 60% of the stockentitled to vote. However, if a quorum is not present at the first meeting, thequorum requirement for the second meeting will be 30% of the stock entitled tovote. In both cases, decisions are adopted by a majority of valid votes, exceptfor certain fundamental matters such as:

 

·                  mergersand spin-offs, when Telecom Argentina is not the surviving entity and thesurviving entity is not listed on any stock exchange;

 

·                  anticipatedliquidation;

 

·                  changeof our domicile to outside Argentina;

 

·                  totalor partial repayment of capital; or

 

·                  asubstantial change in the corporate purpose.

 

Eachof these actions requires a favorable vote of more than 50% of all the stockentitled to vote.

 

Insome of these cases, a dissenting shareholder is entitled to appraisal rights.

 

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Anyresolution adopted by the shareholders at ordinary or extraordinaryshareholders’ meetings that affects the rights of one particular class of stockmust also be ratified by a special meeting of that class of shareholdersgoverned by the rules for ordinary meetings.

* *

*Dividends*

 

Dividendscan be lawfully paid and declared only out of our realized and liquid profit.

 

TheBoard of Directors submits to the shareholders for approval at an ordinarymeeting of shareholders our financial statements for the previous fiscal year,together with a report thereon by the Board of Directors. The shareholders,upon approving the financial statements, determine the allocation of TelecomArgentina’s net profits (if any). The Argentine Corporations Law requiresArgentine companies to allocate 5% of any net profits to legal reserve, untilthe amount of this reserve equals 20% of our capital stock. The legal reserveis not available for distribution. The remainder of net profits may be paid asdividends on common stock or retained as a voluntary reserve, contingencyreserve or other account, or a combination thereof, all as determined by theshareholders. Dividends may not be paid if the legal reserve has been impaired,nor until it has been fully rebuilt. Notwithstanding, the obligation to paydeclared dividends expires three years after the distribution date pursuant to Section 17of Telecom Argentina’s bylaws, as amended by the shareholders’ meeting held on April 24,2002.

 

Argentinelaw permits that the Board of Directors of certain companies (such as TelecomArgentina) approves the distribution of anticipated dividends on the basis of aquarter balance or a balance sheet especially prepared for purposes of payingsuch dividends, provided that both the external auditors and the SupervisoryCommittee have issued an opinion report. The actual payment of these dividends,and the perfection of the obligation to pay them remains subject to theavailability of sufficient disposable income as determined in the financialstatements for the year.

* *

*Capital Increase and Reductions*

 

TelecomArgentina may increase its capital upon authorization of the shareholders at anordinary meeting. All capital increases must be registered with the CNV,published in the Official Bulletin and registered with the Public Registry ofCommerce. Capital reductions may be voluntary or mandatory. Shares issued inconnection with any increase in capital must be divided among the variousclasses in proportion to the number of shares of each class outstanding at thedate of the issuance, provided that the number of shares of each class actuallyissued may vary based on the exercise of preemptive rights and additional preemptiverights in accordance with the procedure described under “Preemptive Rights.”

 

Avoluntary reduction of capital must be approved by an extraordinary meeting ofthe shareholders and may take place only after notice thereof is published andcreditors are given an opportunity to obtain payment or collateralization oftheir claims, or attachment.

 

Inaccordance with Article 206 of the Argentine Corporations Law, suspendedby successive decrees until December 10, 2005, reduction of a company’scapital stock is mandatory when losses have exceeded reserves and at least 50%of the stated capital.

 

At theshareholders’ annual meeting held on April 27, 2006**,**Telecom Argentina’s shareholders approved the financial statements for the yearended December 31, 2005 and approved the decision to apply all of thelegal reserves of Telecom Argentina and a certain portion of the capitaladjustment account to absorb the accumulated losses. As a result, TelecomArgentina reduced its losses and regularized its situation under Article 206,and was not, and currently is not required to reduce its capital stock.

* *

*Preemptive Rights*

 

UnderArgentine law, holders of a company’s common shares of any given class havepreferential or preemptive rights, proportional to the number of shares ownedby each holder, to subscribe for any shares of capital stock of the same classas the shares owned by the shareholder or for any securities convertible intosuch shares issued by the company.

 

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In the event of an increase in capital, shareholdersof Telecom Argentina of any given class have a preemptive right to purchase anyissue of shares of such class in an amount sufficient to maintain theirproportionate ownership of Telecom Argentina’s capital stock. For any shares ofa class not preempted by any holder of that class, the remaining holders of theclass will assume pro rata the non-preempting shareholders’ preemptive rights.Pursuant to the bylaws, if any Class B or Class C Shares are notpreempted by the existing holders of each such class, the other classes maypreempt such class. However, if any shares of Class A are not preempted bythe existing holders of such class, holders of Class B or Class CShares shall have no preemptive rights with respect to such shares of Class Aunless otherwise approved by the regulatory authorities. Preemptive rights mustbe exercised within thirty days following the time when notices to theshareholders of their opportunity to preempt the capital increase are publishedfor three days in the Official Bulletin of the Republic of Argentina and awidely circulated newspaper in Argentina.

 

Pursuantto the Argentine Corporations Law, preemptive rights could only be restrictedor suspended in certain particular and exceptional cases by a resolution of anextraordinary meeting of shareholders when required by the interest of thecompany.

* *

*Conflicts of Interest*

 

Ashareholder that votes on a business transaction in which its interestconflicts with that of Telecom Argentina may be liable for damages underArgentine law, but only if the transaction would not have been approved withoutits vote. See “Item 3—Key Information—Risk Factors—Risk Factors Relating toArgentina—Shareholders may be liable under Argentine law for actions that aredetermined to be illegal or ultra vires.”

* *

*Redemption or Repurchase*

 

TelecomArgentina’s stock is subject to redemption in connection with a reduction ofcapital by a majority vote of shareholders at an extraordinary shareholders’meeting. Pursuant to the Argentine Corporations Law, Telecom Argentina mayrepurchase the stock with retained earnings or available reserves, upon adetermination of the Board of Directors that the repurchase is necessary inorder to avoid severe damage to our business (subject to shareholderratification) or in connection with a merger or acquisition. In addition,Telecom Argentina can purchase up to 10% of its capital stock in the BuenosAires stock exchange pursuant to the Transparency Decree complying with therequirements and procedures stated therein. If the purchase is made pursuant tothe Transparency Decree, Telecom Argentina must resell the repurchased shares withinthree years and must give shareholders a preemptive right to purchase theshares. If the purchase is made according to the Argentine Corporations Law,the repurchased shares must be sold within one year, unless the shareholdersextend the term.

* *

*Appraisal Rights*

 

Whenevercertain extraordinary resolutions are adopted at shareholders’ meetings such asa merger of Telecom Argentina into another entity, a change of corporatepurpose, transformation from one type of corporate form to another, or TelecomArgentina’s shares cease to be traded publicly, any shareholder dissenting fromthe adoption of any resolution may withdraw from Telecom Argentina and receivethe book value per share determined on the basis of Telecom Argentina’s annualfinancial statements (as approved by the annual ordinary shareholders’meeting), *provided* that the shareholder exercisesits appraisal rights within five days following the meeting at which theresolution was adopted in the case of a dissenting shareholder. This right mustbe exercised within fifteen days following the meeting if the dissentingshareholder was absent and can prove that he was a shareholder on the day ofthe meeting. In the case of a merger of Telecom Argentina or a spin-off ofTelecom Argentina, no appraisal rights may be exercised if Telecom Argentina isthe surviving company.

 

Appraisalrights are extinguished if the resolution is subsequently overturned at anothershareholders’ meeting held within sixty days of the expiration of the timeperiod during which absent shareholders may exercise their appraisal rights.

 

Paymenton the appraisal rights must be made within one year of the date of theshareholders’ meeting at which the resolution was adopted. If the resolutionwas to cease to publicly offer Telecom Argentina’s stock, the payment period isreduced to sixty days from the date of the resolution.

 

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Notwithstandingthe foregoing, should Telecom Argentina decide to cease trading its sharespublicly, pursuant to Section 31 of the Transparency Decree, a tenderoffer by Telecom Argentina must be conducted prior to the exercise of appraisalrights by any shareholder.

* *

*Liquidation*

 

Uponliquidation of Telecom Argentina, one or more liquidators may be appointed towind up its affairs. All outstanding shares of common stock will be entitled toparticipate equally in any distribution upon liquidation.

 

In theevent of liquidation, the assets of Telecom Argentina shall be applied tosatisfy its debts and liabilities. If any surplus remains, it shall bedistributed to the holders of shares in proportion to their holdings.

* *

*Acquisitions of 5% or More of the Voting Stock of aPublic Company*

 

UnderArgentine law, any person acquiring 5% or more of the voting stock of a publiccompany must inform the CNV in writing of the acquisition of such voting stock.Additionally, such person must inform the CNV in writing of each additionalacquisition of 5% of the voting stock of that particular company, until suchperson acquires control of that company.

** **

**Powers of the Directors**

 

Thebylaws of Telecom Argentina do not contain any provision regarding the abilityto vote on a proposal, arrangement or contract where a director is aninterested party. Under Argentine law, a director may sign contracts with thecompany that are related to the company’s activities so long as the conditionsare on an arm’s-length basis. If such contract does not meet such conditions,the agreement may only be subscribed with the prior approval of the Board ofDirectors or, in absence of quorum, with the approval of the SupervisoryCommittee. Such transactions must be dealt with at the following shareholders’meeting, and if such meeting does not approve them, the Board of Directors orthe Supervisory Committee (as the case may be) are jointly responsible for anydamages caused to Telecom Argentina. Argentine law also requires that if adirector has a personal interest contrary to Telecom Argentina’s, this must benoted to the Board of Directors and to the Supervisory Committee. The directormust refrain from participating in any deliberations or risk becoming jointlyand severally liable for all damages caused to Telecom Argentina as a result ofthe conflict.

 

Additionally,the Transparency Decree dictates that the contracts between a company and adirector (that qualifies as a “related party”) when they exceed 1% of theshareholders’ equity of the company, must be submitted to prior approval of theAudit Committee or of two independent evaluation firms to ensure that thetransaction is in accordance with market conditions. Such transactions mustalso be approved by the Board of Directors and reported to the CNV and the marketswhere the shares of the company are listed. If the Audit Committee or theindependent evaluation firms have not determined the terms of the transactionto be “reasonably acceptable to the market,” then the contract in question mustbe submitted for consideration at a shareholders’ meeting.

 

Section 10of the bylaws of Telecom Argentina establishes that the remuneration of themembers of the Board of Directors is to be determined by the shareholders attheir annual meeting. The Audit Committee is to issue a prior opinion on thereasonability of the proposed remuneration, which the Board of Directorssubmits for approval to the shareholders. Therefore, the Directors do not havethe ability to vote on compensation for themselves nor for any other director.

 

Thebylaws of Telecom Argentina do not contain any provision regarding thepossibility of granting loans to members of the Board of Directors or Companyexecutives.

 

Thebylaws of Telecom Argentina do not establish a maximum age to be member of theBoard of Directors.

 

Neitherthe bylaws of Telecom Argentina nor any Argentine law require that members ofthe Board be shareholders.

 

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**Limitations on ForeignInvestment in Argentina**

 

Underthe Argentine Foreign Investment Law, as amended (the “FIL”), the purchase ofstock by an individual or legal entity domiciled abroad or by a local companyof foreign capital (as defined in the FIL) constitutes a foreign investmentsubject to the FIL. Foreign investments generally are unrestricted. However,foreign investments in certain industries, such as broadcasting, are restrictedas to percentage. No approval is necessary to purchase the Class B Shares.The FIL does not limit the right of non-resident or foreign owners to hold orvote the Class B Shares, and there are no restrictions in TelecomArgentina’s bylaws limiting the rights of non-residents or non-Argentines tohold or to vote Telecom Argentina’s Class B Shares. Notwithstanding theforegoing, regulations implemented by the CNV require that all shareholdersthat are companies who register to participate at a shareholders’ meetingshould provide details of their registration in the Republic of Argentina. Toacquire participation in a company in Argentina, non-Argentine companies arerequired to comply with the share ownership registration requirements asprovided for under Section 123 of the Argentine Corporations Law.

** **

**Change of Control**

 

Thereare no provisions in the bylaws of Telecom Argentina which may have the effectof delaying, deferring or preventing a change in control of Telecom Argentinaand that would only operate with respect to a merger, acquisition or corporaterestructuring involving Telecom Argentina or any of its subsidiaries, exceptfor the regulatory authorization required for the transfer of Nortel’s Class AShares discussed below. Moreover, the Privatization Regulations and the List ofConditions as modified by Resolutions SC 111/03 and 29/04 prohibit, withoutprior SC approval, (i) any transfer of our capital stock that reducesNortel’s ownership of Telecom Argentina to less than 51%, or (ii) anytransfer of shares of Nortel that reduces the shareholding of the actualordinary shareholders to less than 51% of the voting stock of Nortel, exceptwith prior authorization of the SC.

 

Underthe Transparency Decree and General Resolution No. 401/02 of the CNV, aparty that wishes to obtain either a majority or a significant equity ownershipinterest in a corporation must offer the same price offered to the majorityshareholder to all of the corporation’s shareholders. This regulation appliesto all Argentine corporations with listed securities unless the corporation’sshareholders specifically vote not to adopt the regime, in which case thecorporation is required to publicly disclose that its shareholders have votednot to be subject to the regime. On April 30, 2003, Telecom Argentina’sshareholders voted not to adopt the regime established by the TransparencyDecree and General Resolution No. 401/02, under which Telecom Argentina iscurrently classified as a “*Sociedad No Adherida alRégimen Estatutario Optativo de Oferta Pública de Adquisición Obligatoria*or a “Corporation Not Adhering to the Optional Statutory Regime of Public Offerof Mandatory Acquisition.”

** **

**MATERIALCONTRACTS**

 

For informationregarding the *Acuerdo Preventivo Extrajudicial*(“APE”) agreement and a summary description of the notes issued pursuant to theAPE, see “Item 5—Operating and Financial Review and Prospects—Liquidity andCapital Resources.” For information regarding the shareholders’ agreements, see“Item 7—Major Shareholders and Related Party Transactions—Shareholders’Agreements.” We are not a party to the shareholders’ agreements.

** **

**FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN ARGENTINA**

 

Due tothe deterioration of the economic and financial situation in Argentinathroughout 2001, the difficulties in dealing with the servicing of the publicforeign debt and the decrease of the total level of deposits in the financialsystem, the Argentine Government issued Decree No. 1570/01, which, as of December 3,2001, established a number of monetary and currency exchange control measuresthat included restrictions on the free disposition of funds with banks andrestrictions on transferring funds abroad, with certain exceptions fortransfers related to foreign trade and certain other transfers subject to theprior authorization of the BCRA.

 

On February 8,2002, the BCRA issued tight restrictions on the transfer of funds abroad inorder to make payments of principal and/or interest by requiring priorauthorization from the BCRA. Since 2003, these restrictions have beenprogressively curbed. However, there can be no assurances that the BCRA willnot once again require its prior authorization for the transfer of fundsabroad.

 

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Havingcompleted its debt restructuring as of August 2005, Telecom Argentina isno longer subject to certain significant BCRA restrictions. However,restrictions imposed by the BCRA that do continue to apply to our operationsinclude the following:

 

(i)             subjectto certain exceptions, the acquisition of foreign currency as an investment orto apply it to foreign portfolio investments is limited, on a monthly basis, tothe larger of US$2 million, *provided* thatas of the date of acquisition, Telecom Argentina does not hold due and unpaidprincipal or interest foreign debt;

 

(ii)            theacquisition of foreign currency to pay principal maturities on foreign debtobligations can be made on the day of such maturities or:

 

1.              within365 days prior to the maturity date;

 

2.              withina certain period of time prior to the maturity date, as a result of theoccurrence of specific conditions established under foreign refinancingagreements executed after February 11, 2002; or

 

3.              morethan 365 days prior to the maturity date *provided* that (a) prepaymentis not part of a restructuring process and (b) the foreign currency amountto be used to prepay non-Argentine debt must not be higher than the presentvalue of the portion of the debt being cancelled *or*prepayment shall be 100% offset with new external financing, the present valueof which (as determined using a discount rate fixed by the BCRA) shall notexceed the value of the cancelled debt. If the prepayment is made as part of arestructuring process with foreign creditors, the new debt terms and conditionsand the prepayment being made must not imply an increase in the present valueof the outstanding debt *provided further*that (a) the foreign debt obligations are registered with the BCRA and (b) fundsdisbursed under the debt obligations so repaid have entered Argentina prior tono less than 365 days from the date of payment.

 

In June 2005,the Argentine Government imposed certain restrictions on inflows and outflowsof foreign currency to the local foreign exchange market that remain in effect.New indebtedness entered into the foreign exchange market and debt renewalswith non-Argentine residents from the private sector entered in the localforeign exchange market shall be agreed upon and cancelled in terms not shorterthan 365 calendar days, whatever the form of cancellation thereof. Thefollowing transactions, among others, are exempted from this restriction: (i) foreigntrade financings (i.e., exports advance payments, pre-financing of exports andimports financing); (ii) balances of foreign exchange transactions withcorrespondent exchange entities (which are not credit lines); and (iii) primarydebt security issuances with a public offering and listing.

 

Anyinflow of funds to the local foreign exchange market arising from, but notlimited to, (i) foreign indebtedness, other than the cases described inthe following paragraph; (ii) primary stock issuances of companiesresiding in Argentina not under a public offering and that are not listed inself-governed markets, to the extent they do not create direct investmentfunds; (iii) portfolio investments of non-residents intended to hold localcurrency and assets and liabilities of the financial sector and non-financialprivate sector, to the extent they are not arising from the primarysubscription of debt securities under a public offering and listed inself-governed markets and/or the primary subscription of stock of companiesresiding in Argentina under a public offering and listed in self-governedmarkets; and (iv) portfolio investments of non-residents intended for thepurchase of any right in secondary markets regarding securities issued by thepublic sector; shall be subject to the creation of a nominative,non-transferable and non-compensated deposit, for 30% of the amount involved inthe relevant transaction, for a term of 365 calendar days, pursuant to theterms and conditions established in the regulations.

 

Anyinflow of funds to the local foreign exchange market arising from, but notlimited to, the following transactions are not subject to the 30%-mandatorydeposit: (a) foreign indebtedness of Argentine residents under foreigntrade financings; (b) primary debt security issuances with a publicoffering and listed; (c) foreign indebtedness with Multilateral andBilateral Credit Institutions and Official Credit Agencies, directly or throughtheir related agencies; (d) investments of non-Argentine residents inArgentina under (i) primary subscription of

 

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securities issued by the public sector (except forsecurities issued by the BCRA); and (ii) direct investments, includingcapital contributions to local companies of direct investment (namely, acompany set up or not as legal entity in which the foreign direct investorholds at least 10% of ordinary shares or voting rights or its equivalent), andforeign funds transferred into Argentina by non-Argentine residents for thepurpose of purchasing local assets that qualify as direct investment (such asreal estate located in Argentina); and (e) foreign financial indebtednessprovided: (i) the proceeds from the exchange settlement, net of taxes andexpenses, to the purchase of foreign currencies to cancel foreign debtprincipal and/or to the creation of long term foreign assets; or (ii) theyare incurred and cancelled in an average life of not less than two years,including payments of principal and interest in the calculation, and to theextent they are applied to investments in “non financial assets.” In thiscontext, “non financial assets” investments means, among others, investments ofassets capable of being registered in the financial statements of the borrowereither as fixed assets or as inventory.

 

Therecan be no assurance that the BCRA will not once again require its priorauthorization for, or restrict in some other way, the transfer of funds abroadfor principal and/or interest payments by Telecom to its foreign creditors orfor dividend payments by Telecom to its foreign shareholders.

** **

**TAXATION**

** **

**Argentine Taxes**

 

Thefollowing summary of certain Argentine tax matters is based upon the tax lawsof Argentina, and regulations thereunder, in effect as of the date of thisAnnual Report on Form 20-F and is subject to any subsequent change inArgentine laws and regulations which may come into effect after such date.

* *

*Taxation of Dividends*

 

Pursuantto Argentine Law No. 25,063 passed by the Argentine Congress on December 7,1998, dividends of cash, property or capital stock of Telecom Argentina on the Class A,B and C Shares or ADSs are, in general, exempt from Argentine withholding taxand other taxes. Nevertheless, under such law, a corporation that makes adistribution of dividends to its shareholders in excess of the amount of itsaccumulated income at the close of the previous taxable year, as determined byapplication of the Argentine Income Tax Law (the “Income Tax Law”), shall haveto withhold a 35% tax from such excess. For purposes of this rule, the amountof income to be considered shall be determined by (1) deducting fromtaxable income (calculated under the general rules of the Income Tax Law)the income tax paid by the company during the fiscal year in which the profitsthat are being distributed were earned and (2) adding the dividends andprofits received as distributions from other corporations not subject to tax.If the distribution is in kind, then the corporation must pay the tax to thetax authorities and will be entitled to seek reimbursement from theshareholders.

* *

*Taxation of Capital Gains*

 

Capitalgains earned by non-resident individuals or foreign companies from the sale,exchange or other disposition of ADSs or Class A, B and C Shares are notsubject to tax.

* *

*Tax on Personal Property*

 

Argentine Law No. 25,585, as amended by Law No. 26,317,imposes a Tax on Personal Property. According to this tax the following personsare subject to an annual tax on certain assets, which is levied at ratesranging from 0.50% to 1.25% depending on the value of such assets as of December 31of each year: (i) individuals domiciled in Argentina for assets located inArgentina and abroad and (ii) individuals domiciled outside of Argentinafor assets located in Argentina. For purposes of this tax, shares of stock ofArgentine corporations, such as Telecom Argentina’s ADSs and Class A, Band C Shares are considered as assets located in Argentina.

 

Although the Tax on Personal Property does notexplicitly apply to individuals or entities domiciled outside Argentina,pursuant to Argentine Law No. 25,585, shares of stock corporations orother equity interests in companies regulated by Argentine Corporations Law19,550, as amended, such as the ADSs

 

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(held in book entry form or evidenced by ADRs) and Class A,B and C Shares, and whose holders are individuals and/or undivided estatesdomiciled in Argentina or in a foreign country, shall be subject to the Tax onPersonal Property.

 

The tax rate to be applied is 0.50% and the taxablebase is the value of the shareholders’ equity as stated in the most recentbalance sheet of the company as of December 31 of each year. Such taxshall be assessed on and paid by the corresponding Argentine company issuer ofthe shares, such as Telecom Argentina. The tax so paid shall be considered as adefinite payment.

 

Theabovementioned rules include an irrebuttable presumption that shares ofstock corporations and other equity interests of companies regulated byArgentine Corporations Law 19,550, as amended, such as the ADSs (held in bookentry form or evidenced by ADRs) and the Class A, B and C Shares, whoseholders are companies, any other legal entities, enterprises, permanentestablishments, trusts, and exploitations, domiciled, settled or located in aforeign country, belong indirectly to individuals or individual estatesdomiciled in a foreign country.

 

Although,Telecom Argentina is required to pay this tax on behalf of the holders of theADSs, Class A, B and C Shares, it has the right to obtain reimbursement ofthe amounts paid from its shareholders even if this requires holding and/orforeclosing the property on which the tax is due.

 

Therefore,Telecom Argentina’s ADSs (held in book entry form or evidenced by ADRs) and Class A,B and C Shares held by individuals, irrespective of their place of residence,and legal entities domiciled outside of Argentina are subject to the Tax onPersonal Property which, as mentioned above, shall be paid by Telecom Argentinaon behalf of such holders of ADSs (held in book entry form or evidenced byADRs) and Class A, B and C Shares.

 

TelecomArgentina has, from time to time, requested that its shareholders reimburse theamounts of tax on personal property paid on their behalf and has receivedpartial reimbursement of such taxes, however no assurances can be made thatTelecom Argentina will be successful in seeking reimbursement of all such taxespaid from holders of ADSs and Class A, B, and C shares. Therefore, as of December 31,2008 Telecom Argentina has recorded an allowance for the amounts pending ofcollection.

* *

*Value Added Tax*

 

Thesale or disposition of ADSs or Class A, B and C Shares is not subject tovalue added tax.

* *

*Other Taxes*

 

Thereare no Argentine inheritance or succession taxes applicable to the ownership,transfer or disposition of ADSs or Class A, B and C Shares. There are noArgentine stamp, issue, registration or similar taxes or duties payable byholders of ADSs or Class A, B and C Shares.

* *

*Deposit and Withdrawal of Class B Shares inExchange for ADSs*

 

NoArgentine tax is imposed on the deposit or withdrawal of Class A, B and CShares in exchange for ADSs.

* *

*Tax Treaties*

 

Argentinahas entered into tax treaties with several countries. There is currently noincome tax treaty or convention in effect between Argentina and the UnitedStates.

** **

**United States FederalIncome Taxes**

 

Thefollowing discussion is a summary of the material U.S. federal income taxconsequences to the U.S. Holders described below of the ownership anddisposition of ADSs or Class B Shares, but it does not purport to be acomprehensive description of all of the tax considerations that may be relevantto a holder of such securities. This summary applies only to persons that holdADSs or Class B Shares as capital assets for U.S. federal income tax

 

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purposes and does not address the tax consequencesapplicable to all categories of investors, some of which may be subject tospecial rules, such as:

 

·                  certainfinancial institutions;

 

·                  dealersand traders in securities who use a mark-to-market method of tax accounting;

 

·                  personsholding ADSs or Class B Shares as part of a hedging transaction, straddle,wash sale, conversion transaction or integrated transaction or persons enteringinto a constructive sale with respect to the ADSs or Class B Shares;

 

·                  personswhose functional currency for U.S. federal income tax purposes is not the U.S.dollar;

 

·                  personsliable for the alternative minimum tax;

 

·                  tax-exemptentities, including an “individual retirement account” or “Roth IRA”;

 

·                  entitiesclassified as partnerships for U.S. federal income tax purposes;

 

·                  personsthat own or are deemed to own 10% or more of any class of Telecom Argentinastock;

 

·                  personswho acquired our ADSs or Class B Shares pursuant to the exercise of anemployee stock option or otherwise as compensation; or

 

·                  personsholding shares in connection with a trade or business conducted outside of theUnited States.

 

If anentity that is classified as a partnership for U.S. federal income tax purposesholds ADSs or Class B Shares, the U.S. federal income tax treatment of apartner will generally depend on the status of the partner and the activitiesof the partnership.  Partnerships holdingADSs or Class B Shares and partners in such partnerships should consulttheir tax advisers as to the particular U.S. federal income tax consequences ofholding and disposing of the ADSs or Class B Shares.

 

Thissummary is based upon the tax laws of the United States, including the InternalRevenue Code of 1986, as amended to the date hereof (the “Code”),administrative pronouncements, judicial decisions and final, temporary andproposed Treasury regulations, all as of the date hereof, changes to any of whichmay affect the tax consequences described herein, possibly with retroactiveeffect. As mentioned above, there is currently no income tax treaty orconvention in effect between Argentina and the United States. U.S. Holdersshould consult their tax advisors as to the U.S., Argentine or other taxconsequences of the acquisition, ownership and disposition of ADSs or Class BShares in their particular circumstances, including the effect of any state orlocal tax laws.

 

Inaddition, this summary is based in part on representations of the Depositaryand assumes that each obligation provided for in, or otherwise contemplated by,the Deposit Agreement or any other related document will be performed inaccordance with its terms.

 

Asused herein, the term “U.S. Holder” means for U.S. federal income tax purposes,a beneficial owner of ADSs or Class B Shares that is:

 

·                  acitizen or resident of the United States;

 

·                  acorporation, or other entity taxable as a corporation, created or organized inor under the laws of the United States, any state therein or the District ofColumbia; or

 

·                  anestate or trust the income of which is subject to U.S. federal income taxationregardless of its source.

 

Ingeneral, for U.S. federal income tax purposes, holders of ADSs will be treatedas the owners of the underlying Class B Shares.  Accordingly, no gain or loss will berecognized if a U.S. Holder exchanges ADSs for the underlying Class BShares represented by those ADSs.

 

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TheU.S. Treasury has expressed concerns that parties to whom American depositaryshares are released before delivery of shares to the depositary (“pre-release”),or intermediaries in the chain of ownership between holders and the issuer ofthe security underlying the American depositary shares, may be taking actionsthat are inconsistent with the claiming of foreign tax credits by holders ofAmerican depositary shares. Such actions would also be inconsistent withclaiming the reduced rate of tax, described below, applicable to dividendsreceived by certain non-corporate holders. Accordingly, the analysis of thecreditability of Argentine taxes, and the availability of the reduced rate oftax for dividends received by certain non-corporate holders described below,could be affected by actions taken by such parties or intermediaries.

 

Thisdiscussion assumes that Telecom Argentina is not, and will not become, apassive foreign investment company, as described below.

* *

*Taxation of Distributions*

 

To theextent paid out of current or accumulated earnings and profits of TelecomArgentina (as determined in accordance with U.S. federal income taxprinciples), distributions made with respect to ADSs or Class B Shareswill be included in the income of a U.S. Holder as ordinary dividend income.Because we do not maintain calculations of our earnings and profits under U.S.federal income tax principles, it is expected that distributions will generallybe reported to U.S. holders as dividends. Subject to applicable limitations andthe discussion above regarding concerns expressed by the U.S. Treasury, undercurrent law, dividends paid to certain non-corporate U.S. Holders in taxableyears beginning before January 1, 2011 will be taxable at a maximum rateof 15% if the dividends represent “qualified dividend income.” “Qualifieddividend income” means dividends received from qualified foreign corporations,and a foreign corporation is treated as a qualified foreign corporation withrespect to dividends paid on stock which is readily tradable on a securitiesmarket in the United States, such as the New York Stock Exchange where our ADSsare traded. U.S. Holders should consult their tax advisors regarding theavailability of the reduced dividend tax rate in light of their particularcircumstances. The amount of this dividend will include any amounts withheld byus or our paying agent in respect of Argentine taxes. Dividends will be treatedas foreign source dividend income to you and will not be eligible for the “dividendsreceived deduction” generally allowed to U.S. corporations under the Code.Dividends will be included in a U.S. Holder’s income on the date of the U.S.Holder’s (or in the case of ADSs, the Depositary’s) receipt of thedividend.  The amount of the distributionwill equal the U.S. dollar value of the pesos received, calculated by referenceto the exchange rate in effect on the date such distribution is received (which,for holders of ADSs, will be the date such distribution is received by theDepositary), whether or not the Depositary or U.S. Holder in fact converts anypesos received into U.S. dollars. If the distribution is converted into U.S.dollars on the date of receipt, you should not be required to recognize foreigncurrency gain or loss in respect of the dividend income. Any gains or lossesresulting from the conversion of pesos into U.S. dollars after the date onwhich the distribution is received will be treated as ordinary income or loss,as the case may be, of the U.S. Holder and will be U.S. source income or loss.

 

Subjectto applicable limitations and conditions that may vary depending uponcircumstances and subject to the discussion above regarding concerns expressedby the U.S. Treasury, Argentine income taxes withheld from dividends on ADSs orClass B Shares will be creditable against a U.S. Holder’s U.S. federalincome tax liability. However, amounts paid on account of the Tax on PersonalProperty will not be eligible for credit against a U.S. Holder’s federal incometax liability. The rules governing foreign tax credits are complex, andU.S. Holders should consult their tax advisors regarding the creditability offoreign taxes in their particular circumstances. Instead of claiming a credit,U.S. Holders may elect to deduct otherwise creditable Argentine taxes incomputing taxable income, subject to generally applicable limitations underU.S. law.  An election to deduct foreigntaxes instead of claiming foreign tax credits applies to all taxes paid oraccrued in the taxable year to foreign countries and possessions of the UnitedStates.

* *

*Sale, Exchange or Other Disposition of ADSs or Class BShares*

 

Gainor loss realized by a U.S. Holder on the sale, exchange and other dispositionof ADSs or Class B Shares will be subject to U.S. federal income tax ascapital gain or loss, and will be long-term capital gain or loss if the U.S.Holder has held the ADSs or Class B shares for more than one year. Theamount of the gain or loss will be equal to the difference between the U.S.Holder’s tax basis in the ADSs or Class B Shares disposed of and theamount realized on the disposition, in each case as determined in U.S. dollars.Gain or loss, if any, will generally be U.S.

 

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source gain or loss for foreign tax credit purposes.U.S. Holders should consult their tax advisors regarding the U.S. federal taxtreatment of capital gains, which may be taxed at lower rates than ordinaryincome for individuals, and capital losses, the deductibility of which issubject to limitations.

 

Depositsand withdrawals of Class B Shares in exchange for ADSs will not result intaxable gain or loss for U.S. federal income tax purposes.

* *

*Passive Foreign Investment Company Rules*

 

TelecomArgentina believes that it was not a “passive foreign investment company” (“PFIC”)for U.S. federal income tax purposes for the taxable year 2008. However, sincePFIC status depends upon the composition of a company’s income and assets andthe market value of its assets from time-to-time, there can be no assurancethat Telecom Argentina will not be a PFIC for any taxable year.

 

If TelecomArgentina were a PFIC for any taxable year during which a U.S. Holder held anADS or a Class B Share, gain recognized by a U.S. Holder on a sale orother disposition (including certain pledges) of the ADSs or Class BShares would be allocated ratably over the U.S. Holder’s holding period for theADSs or Class B Shares sold, exchanged or disposed. The amounts allocatedto the taxable year of the sale or other exchange and to any year beforeTelecom Argentina became a PFIC would be taxed as ordinary income. The amountallocated to each other taxable year would be subject to tax at the highestrate in effect for individuals or corporations, as appropriate, for thattaxable year, and an interest charge would be imposed on the amount allocatedto such taxable year. Further, any distribution in respect of ADSs or Class BShares to the extent in excess of 125 percent of the average of the annualdistributions on ADSs or Class B Shares received by the U.S. Holder duringthe preceding three years or the U.S. Holder’s holding period, whichever isshorter, would be subject to taxation in the same manner as gain, describedimmediately above. Certain elections may be available that would result inalternative treatments (such as mark-to-market treatment) of the ADSs or Class BShares.  U.S. Holders should consulttheir tax advisers to determine whether any of these elections would beavailable and, if so, what the consequences of the alternative treatments wouldbe in their particular circumstances.

 

IfTelecom Argentina were a PFIC for any year during which a U.S. Holder held ADSsor Class B Shares, it generally would continue to be treated as a PFICwith respect to that holder for all succeeding years during which the U.S.Holder held ADSs or Class B Shares, even if the Company ceased to meet thethreshold requirements for PFIC status.

 

Inaddition, if Telecom Argentina were a PFIC or, with respect to a particularU.S. Holder, were treated as a PFIC in a taxable year in which TelecomArgentina pays a dividend or for the prior taxable year, the 15% dividend ratediscussed above with respect to dividends paid to certain non-corporate holderswould not apply.

* *

*Information Reporting and Backup Withholding*

 

Paymentof dividends and sales proceeds that are made within the United States orthrough certain U.S.-related financial intermediaries generally are subject toinformation reporting, and may be subject to backup withholding, unless (i) youare a corporation or other exempt recipient or (ii) in the case of backupwithholding, you provide a correct taxpayer identification number and certifythat you are not subject to backup withholding.

 

Theamount of any backup withholding from a payment to you will be allowed as acredit against your U.S. federal income tax liability and may entitle you to arefund, provided that the required information is timely furnished to theInternal Revenue Service.

** **

**DOCUMENTS ON DISPLAY**

 

Telecomfiles annual and special reports and other information with the SEC. You mayread and copy any document that Telecom files at the Public Reference Room ofthe SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain informationon the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. You may also inspect Telecom Argentina’s filings at theregional offices of the SEC located at 175 W. Jackson Boulevard, Suite 900,Chicago, Illinois, 60604 and 233 Broadway, New York, New York 10279. In addition,the SEC maintains an Internet site at http://www.sec.gov that contains reportsand other information regarding issuers that file electronically with the SEC.

 

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Youmay request a copy of these filings by writing or telephoning the offices ofTelecom, Alicia Moreau de Justo 50, (C1107AAB) Buenos Aires, Argentina. Telecom’stelephone number is 011-54-11-4968-4000.

 

Telecommaintains a website at www.telecom.com.ar. The contents of the website are notpart of this Annual Report.

** **

**ITEM 11.**                      QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Summarizedbelow are the financial instruments we held as of December 31, 2008 thatare sensitive to changes in interest rates and foreign exchange rates. As amatter of policy, we may enter into forward exchange contracts, foreigncurrency swaps or other derivatives to manage the exposure attributed toforeign exchange rate and interest rate fluctuations associated with theprincipal amount of our borrowings in foreign currencies. We use theseinstruments to reduce risk by creating offsetting market exposures. Theinstruments we hold are not held for financial trading purposes. No foreignexchange forward or other derivatives for speculative purposes were outstandingduring the reporting periods covered by this Annual Report.

 

We donot have any other material market risk exposure.

 

(a)   ForeignExchange Rate Risk

 

Foreignexchange exposure arises from our funding operations and, to a lesser extent,our historical capital expenditures for network equipment. Since theConvertibility Law pegged the peso at a value of P$1.00 per US$1.00, exchangerate risks prior to 2002 were mainly related to changes in the value of theU.S. dollar in comparison with currencies other than the Argentine peso. In January 2002,the Argentine Government devalued the Argentine peso and currently thepeso/U.S. dollar exchange rate is determined by a free market with certaincontrols. See “Item 10—Additional information—Foreign Investment and ExchangeControls in Argentina.”

 

Ourresults of operations are very sensitive to changes in the peso/dollar andpeso/euro exchange rates because our primary assets and revenues aredenominated in pesos while substantially all of our liabilities are denominatedin dollars or euro. As of December 31, 2008, a substantial majority of ourconsolidated debt obligations (approximately 99%) were issued in currenciesother than the Argentine peso. As of December 31, 2008, approximately 41%of our financial debt was issued in U.S. dollars, approximately 44% was issuedin euro, approximately 10% was issued in Japanese yen and approximately 4% wasissued in guaraníes.

 

DuringAugust and September 2005, following Telecom Argentina’s successfulcompletion of its debt restructuring process, Telecom Argentina entered intotwo foreign exchange currency swap contracts to hedge its exposure to the euroand Japanese yen-denominated Series A notes fluctuations with respect tothe U.S. dollar, which remain in effect as of the date of this Annual Report.The hedge contracts did not include any requirement to post collateral. BecauseTelecom Argentina primarily generates cash flows in Argentine pesos and theterms of the swap did not match the terms of the euro and Japaneseyen-denominated obligations (due to the existence of mandatory prepayment termsin the underlying debt) these hedges were regarded as ineffective pursuant toapplicable accounting standards.  Theseswap agreements expired in October 2008, generating a net inflowapproximately equivalent to P$170 million. See Note 4.t to our ConsolidatedFinancial Statements for a more detailed discussion of our swap agreements.

 

Additionallythe Company has investments denominated in euros (approximately 63%) and U.S.dollars (approximately 37%) that are also sensitive to changes in peso/dollarand peso/euro exchange rates.

 

Theoff-balance sheet risk in these outstanding forward exchange contracts involvedboth the risk of the counterparty not performing under the terms of thecontract and the risk associated with changes in market value. However, theseinstruments were negotiated with institutions and corporations with significantfinancial capacity; therefore, the Company considers the risk of non-compliancewith the obligations agreed to by such counterparties to be minimal.

 

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Actionstaken by the Argentine Government could cause future exchange rates to varysignificantly from current or historical exchange rates. Fluctuations in exchangerates may adversely affect the value, translated or converted into U.S.dollars, of our net assets, earnings and any declared dividends. We cannot giveany assurance that any future movements in the exchange rate of the Argentinepeso against the US dollar and other foreign currencies will not adverselyaffect our results of operations and financial condition. However, we believethat significant depreciation in the Argentine peso against major foreigncurrencies may have a material adverse impact on our capital expenditureprogram.

 

(b)         InterestRate Risk

 

We areexposed to interest rate risk resulting from fluctuations in interest rates onour debt obligations. Upward fluctuations in interest rates increase the costof new debt and the interest cost of outstanding floating rate borrowings.

 

As of December 31,2008 the Company had no significant outstanding floating rate borrowings.  Therefore, the Company is not currentlyexposed to significant fluctuations in the fair values of its debt obligations.

 

Thefollowing tables provide information regarding instruments that are sensitiveto foreign exchange rates and interest rates as of December 31, 2008. Weconduct our business primarily in Argentine peso, which is also our functionaland reporting currency. For debt obligations, the table presents cash flows byexpected maturity dates based on the amortization schedules set forth in therelevant debt instruments and related weighted average rates.

 
| ** **                                              | ** ** | **Consolidated Debt as of  December 31, 2008   (P$ millions)** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **Total  Outstanding  2008**                                             | ** ** | **2009** | ** ** | **2010** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Fair  Market  Value (1)** | ** ** |
| **U.S. Dollars**                                        |       | 843                                                                      |       | 5 |   | 688 |   | 52 |   | 52 |   | 46 | ** ** | **720** | ** ** |
| Fixed rate                                              |       | 838                                                                      |       | — |   | 688 |   | 52 |   | 52 |   | 46 | ** ** | **715** | ** ** |
| Average interest fixed rate                             |       | 9.03                                                                     | %          |   |   |   |   |   |   |   |   |   | ** ** | ** ** | ** ** |
| Variable rate                                           |       | 5                                                                        |       | 5 |   | — |   | — |   | — |   | — | ** ** | **5** | ** ** |
| Average interest variable rate                          |       | 4.03                                                                     | %          |   |   |   |   |   |   |   |   |   | ** ** | ** ** | ** ** |
| **Euros**                                               |       | 897                                                                      |       | — |   | — |   | 311 |   | 311 |   | 275 | ** ** | **713** | ** ** |
| Fixed rate                                              |       | 897                                                                      |       | — |   | — |   | 311 |   | 311 |   | 275 | ** ** | **713** | ** ** |
| Average interest fixed rate                             |       | 6.89                                                                     | %          |   |   |   |   |   |   |   |   |   | ** ** | ** ** | ** ** |
| **Japanese Yen**                                        |       | 193                                                                      |       | — |   | — |   | 67 |   | 67 |   | 59 | ** ** | **153** | ** ** |
| Fixed rate                                              |       | 193                                                                      |       | — |   | — |   | 67 |   | 67 |   | 59 | ** ** | **153** | ** ** |
| Average interest fixed rate                             |       | 3.69                                                                     | %          |   |   |   |   |   |   |   |   |   | ** ** | ** ** | ** ** |
| **Argentine Pesos**                                     |       | 15                                                                       |       | — |   | — |   | 5 |   | 5 |   | 5 | ** ** | **12** | ** ** |
| Fixed rate                                              |       | 15                                                                       |       | — |   | — |   | 5 |   | 5 |   | 5 | ** ** | **12** | ** ** |
| Average interest fixed rate + CER                       |       | 3.42                                                                     | %          |   |   |   |   |   |   |   |   |   | ** ** | ** ** | ** ** |
| **Guaraníes**                                      |       | 84                                                                       |       | 84 |   | — |   | — |   | — |   | — | ** ** | **84** | ** ** |
| Fixed rate                                              |       | 84                                                                       |       | 84 |   | — |   | — |   | — |   | — | ** ** | **84** | ** ** |
| Average interest fixed rate                             |       | 8.84                                                                     | %          |   |   |   |   |   |   |   |   |   | ** ** | ** ** | ** ** |
| **Total Group Debt (principal)**                        | ** ** | **2,032**                                                                | ** ** | **89** | ** ** | **688** |   | 435 |   | 435 |   | 385 | ** ** | **1,682** | ** ** |
| Estimated effect of expected prepayments                |       | —                                                                   |       | 1,255 |   | — |   | (435 | ) | (435 | ) | (385 | ) | — |   |
| **Total Group Debt based on  expected prepayments (2)** | ** ** | **2,032**                                                                | ** ** | **1,344** | ** ** | **688** |   | — |   | — |   | — | ** ** | **1,682** | ** ** |
| Accrued interest                                        |       | 20                                                                       |       | 20 |   | — |   | — |   | — |   | — | ** ** | **20** | ** ** |
| Effect on discounting Debt                              |       | (9                                                                       | )          | (9 | ) | — |   | — |   | — |   | — |   | — |   |
| **Total Group Debt**                                    | ** ** | **2,043**                                                                | ** ** | **1,355** | ** ** | **688** |   | — |   | — |   | — | ** ** | **1,702** | ** ** |

 

(1)          Thefair value of the Company’s debt as of December 31, 2008 was estimatedbased on the purchase price of notes bought by the Company in the last quarterof 2008 or, if the purchase price was not available, on the average quotedmarket price provided by financial agencies.

 

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(2)          TelecomArgentina Series A note contain mandatory prepayment requirements whichrequire it to apply its “excess cash” for specified purposes, includingprepayment of the notes. Total Group Debt after estimated effect of expectedprepayments reflects Management’s expectations, as of December 31, 2008,regarding the effect of this mandatory and optional prepayment provision on itsoutstanding indebtedness during fiscal year 2009, assuming that all excess cashgenerated during this period is applied to prepay the Series A notes.Estimates set forth in this row are Management estimates based on availableinformation as of December 31, 2008 and constitute forward lookingstatements. These statements are not guarantees of future performance and arebased upon assumptions as to future events that may not prove to be accurate.Actual amounts of excess cash that Telecom Argentina has available for prepaymentsduring this period may differ. See “Forward Looking Statements.” Management ofthe Company will periodically revise its estimates of future excess cashavailability and will consider the effect any variations may have. The aboveestimates of future prepayments were made to satisfy the requirements ofArgentine GAAP and do not constitute a modification of the Company’s existingcontractual payment commitments, nor should it be considered a decision of theCompany to prepay any of its outstanding financial obligations.

 

(c)          Sensitivityto Exchange Rates and Interest Rates

 

Weestimate, based on composition of our balance sheet as of December 31,2008, that every variation in the exchange rate of P$0.10 against the U.S.dollar and proportional variations for the euro, yen and guaraníes against theArgentine peso, plus or minus, would result in a variation of approximatelyP$48 million of our consolidated financial indebtedness. These analyses arebased on the assumption that this variation of the Argentine peso occurred atthe same time against all other currencies.

 

Additionallywe estimate, based on the composition of our balance sheet as of December 31,2008, that every variation in the exchange rate of P$0.10 against the U.S.dollar and proportional variations for the euro and yen against Argentine peso,plus or minus, would result in a variation of approximately P$24 million of ourconsolidated financial investments. These analyses are based on the assumptionthat this variation of the Argentine peso occurred at the same time against allother currencies.

 

Weestimate, based on the current composition of our balance sheet as of December 31,2008, that every variation in the interest rates of 100 basis points, plus orminus, to our current floating-rate consolidated debt would result in avariation of approximately P$0.05 million of interest expense on an annualbasis, assuming no change in the principal amount of this indebtedness. Theanalysis is based on the assumption that such variation of interest ratesoccurred at the same time for the different type of floating rates to which ouractual debt is exposed.

 

Thissensitivity analysis provides only a limited, point-in-time view of the marketrisk sensitivity of certain of our financial instruments. The actual impact ofmarket foreign exchange rate and/or interest rate changes on our financialinstruments may differ significantly from the impact shown in the sensitivityanalysis.

 

**ITEM12.**                      DESCRIPTIONOF SECURITIES OTHER THAN EQUITY SECURITIES

 

Notapplicable.

 

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**PART II**

 

**ITEM13.**                      DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES

 

Noneof Telecom Argentina, Telecom Personal nor Núcleo are currently in default onany outstanding indebtedness.

 

**ITEM14.**                      MATERIALMODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Duringfiscal year 2005 we completed a financial restructuring in which TelecomArgentina canceled all of its outstanding indebtedness and issued newsecurities.

 

Duringthe first quarter of fiscal year 2006, we successfully solicited bondholderconsent to modify certain conditions of Telecom Argentina’s Series A and Series Bnotes.

 

See “Item5—Operating and Financial Review and Prospects—Liquidity and Capital Resources”for more information on these modifications.

 

**ITEM15.**                      CONTROLSAND PROCEDURES

** **

**Evaluation of disclosurecontrols and procedures**

 

Telecom’smanagement, with the participation of our chief executive and financialofficers, evaluated the effectiveness of the Company’s “disclosure controls andprocedures” (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) as of December 31, 2008 (the “Evaluation Date”). Based uponthat evaluation, our chief executive and financial officers have concluded thatas of the Evaluation Date, the Company’s disclosure controls and procedureswere effective.

** **

**Management’s Report onInternal Control Over Financial Reporting**

 

Telecom’smanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting for Telecom as defined in Exchange Act Rule 13a-15(f) and15d-15(f). Our internal control over financial reporting was designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith Argentine generally accepted accounting principles (Argentine GAAP) andreconciling the Argentine GAAP figures to US GAAP.

 

Managementconducted an evaluation of the effectiveness of Telecom’s****internalcontrol over financial reporting based on the framework in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”). Based on this evaluation, and as set forth in itsreport dated March 6, 2009, and included in Item 18, management concludedthat Telecom’s internal control over financial reporting was effective as of December 31,2008. The effectiveness of Telecom’s internal control over financial reportingas of December 31, 2008 has been audited by Price Waterhouse & Co.S.R.L., an independent registered public accounting firm, as stated in theirreport which is included herein. See the complete Management’s Report onInternal Control Over Financial Reporting in Item 18.

** **

**Changes in InternalControl Over Financial Reporting**

 

Therewere no changes in the Company’s internal control over financial reporting thatoccurred during the period covered by this Annual Report on Form 20-F thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

** **

**ITEM16A.**             AUDITCOMMITTEE FINANCIAL EXPERT

 

On April 29,2008, the Board of Directors of Telecom Argentina appointed the members of theAudit Committee for fiscal year 2008 and determined that Domingo JorgeMessuti  qualified as an Audit Committeefinancial expert. In conducting this evaluation, the Board took into accountthat Mr. Messuti holds a PhD in Economics from Universidad de Buenos Airesand an MBA from Columbia University (New York); he has lectured 

 

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in Universidad de Buenos Aires, Universidad de SanAndrés and Stanford University (California); he was Chairman of Banco Ciudad deBuenos Aires and BICE and served as a Director for several domestic companies.Based on Mr. Messuti’s professional background and training, the Board ofDirectors of Telecom Argentina has determined for the year 2008 that he meetsthe criteria for an Audit Committee financial expert. Mr. Messuti is anindependent director under CNV and SEC rules and under the New York StockExchange listing standards.

 

SinceTelecom Argentina’s annual shareholders’ meeting has been provisionallysuspended and directors and alternate directors are appointed at the annualshareholders’ meeting, there have been no changes to the members of the AuditCommittee of Telecom Argentina as of the date of this Annual Report. See “Item8— Financial Information—Legal Proceedings—Legal Proceedings Related to ShareOwnership—The Argentine Antitrust Commission’s Resolutions No. 04/09,43/09, 44/09, 62/09 and 64/09.”  Therefore,Mr. Messuti, continues to hold his position as Audit Committee financialexpert as of the date of this Annual Report.

** **

**ITEM16B.**             CODE OFETHICS

 

TheBoard of Directors of Telecom Argentina has approved a Code of Business Conductand Ethics which applies to directors, members of the Supervisory Committee,officers and employees of the Telecom Group. No waivers, express or implicit, have been granted to any senior officeror member of the Board of Directors of Telecom Argentina with respect to any provisionof the Code. See Exhibits 11.1 and 11.2 to our Annual Report on Form 20-Ffor 2004 dated June 29, 2005. The Code of Business Conduct and Ethics isalso available on our website at www.telecom.com.ar.

** **

**ITEM16C.**             PRINCIPALACCOUNTANT FEES AND SERVICES

 

Thefollowing table provides information on the aggregate fees billed by ourprincipal accountants (in millions of pesos) for the years ended December 31,2008 and 2007.

 
| **Services Rendered**  | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit Fees (1)         |       | 5.0      |       | 4.5      |       |
| Audit-Related Fees (2) |       | 1.2      |       | 0.1      |       |
| Tax Fees               |       | 0.3      |       | 0.2      |       |
| All Other Fees         |       | 0.1      |       | 0.1      |       |
| **Total**              | ** ** | **6.6**  | ** ** | **4.9**  | ** ** |

 

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(1)          Includes fees related to the integrated audit of the ConsolidatedFinancial Statements as of December 31, 2008 and 2007, limited reviews ofinterim financial statements presented during 2008 and 2007, SEC filing reviewsand other attestation services.

 

(2)          Includes fees for permitted internal control advice.

 

***AuditCommittee Pre-Approval Policies and Procedures***

 

On March 22,2004, Telecom Argentina’s Board of Directors approved policies and proceduresrelating to the pre-approval of auditors’ services and other permitted services(collectively, “Pre-Approval Procedures”) for the engagement of any serviceprovided by external auditors to Telecom Argentina and its subsidiaries.Telecom Argentina’s Board performed Pre-Approval Procedures until April 2004(the date on which the Audit Committee came into effect), after whichPre-Approval Procedures were performed by the Audit Committee. Consequently,since that date, all auditors’ services were pre-approved by the AuditCommittee.

 

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The Pre-ApprovalProcedures provide for services that require:

 

·                  specificpre-approval - to be approved on a case-by-case basis; and

 

·                  generalpre-approval - any category or general kind of service that come within theguidelines established to safeguard auditor independence and come within themaximum amounts set by the Audit Committee.

 

The Pre-ApprovalProcedures also provide for the following categorization of services:

 

“Prohibitedservices” are those services that external auditors are not allowed to providebased on prohibitions contained in the statutory rules of Argentina andthe United States (*i.e.*bookkeeping;financial information system design and implementation; appraisal or valuationservices, fairness opinions or contribution-in-kind reports; actuarialservices; internal audit outsourcing services; management functions;broker/dealer, investment adviser, or investment banking services; expertservices unrelated to the audit).

 

“PermittedServices” include (a) audit services; (b) audit-related services; (c) taxservices, and (d) other services. Moreover, the services included in eachcategory were also detailed, and, were appropriate, any limits imposed on theprovision thereof to ensure external auditors’ independence.

 

ThePre-Approval Procedures also require pre-approval for the following services:

 

·                  Annualaudit and quarterly reviews of Telecom’s financial statements: the AuditCommittee is required to approve the terms for the engagement and remunerationof such services.

 

·                  Other“Audit Services”: the Audit Committee is required to define the services thatwill be subject to general pre-approval on an annual basis, setting the annualservice fee amount, or the annual amount allocated to each individual servicecategory, or to each service, within which fee caps the provision shall receivegeneral pre-approval.

 

·                  “Audit-relatedServices” and “Tax Services”: the Audit Committee is required to define thecategories or types of services that will receive general pre-approval,provided that they fall within the annual fee cap set for that service, andestablish the guidelines for prior engagement of these services.

 

·                  OtherPermitted Services: are not subject to general pre-approval, and any otherservices require specific pre-approval by the Audit Committee for each service.

 

·                  Delegation:the Audit Committee may solely delegate the specific pre-approval of serviceswith any of its members that qualify as an “Independent Director.” AnIndependent Director must immediately report to the Audit Committee afterengaging any service by delegation. Under no circumstances may the authority toeither approve or pre-approve services be delegated to Telecom’s management.

 

·                  Disclosureof overall billed fees: external auditors shall include in their audit reportsthe information about the relationship between the overall fees paid in respectof Audit Services and of services other than audit services. In addition, theAudit Committee shall, on a yearly basis, prepare a report to the Board whichwill be included in Form 20-F, providing a detailed account of all feesinvoiced by external auditors to Telecom Argentina and to its subsidiaries,grouped into four categories, namely, audit fees, audit related fees, taxconsultation fees and all other fees described in the first three bullet pointsabove.

 

·                  AdditionalRequirements: the Audit Committee is required to adopt additional measures tofulfill its supervisory obligations related to external auditors’ duties, inorder to ensure the independence from Telecom, such as the review of a formalwritten statement by the external auditors outlining all relations existingbetween them and Telecom, in accordance with Rule No. 1 of theIndependence Standards Board, and discussions with the external auditors andthe methods and procedures that have been designed to ensure theirindependence.

 

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·                  Amendments:the Audit Committee has authority to amend the Pre-Approval Procedures,rendering an account of any such amendment to the Board of Directors during thefirst meeting of the Board of Directors held after making the amendments.

 

IfTelecom’s external auditors are to provide any service, the service must eitherbe granted general pre-approval or specific pre-approval under the Pre-ApprovalProcedures. The Pre-Approval Procedures require the Audit Committee to considerwhether the services to be provided are consistent with the legal andprofessional rules in effect in Argentina and the United States relatingto external auditors’ independence. Every six months, the Audit Committee isrequired to report to the Board of Directors on all services provided byexternal auditors to Telecom Argentina and its subsidiaries.

** **

**ITEM16D.**             EXEMPTIONSFROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Notapplicable.

** **

**ITEM16E.**               PURCHASESOF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS

 

NeitherTelecom nor, to Telecom’s knowledge, any “affiliated purchaser” (as defined in Rule 10b-18(a)(3))repurchased any of Telecom Argentina’s Class B Ordinary Shares (includingAmerican Depositary Shares, or American Depositary Receipts evidencing suchshares) during fiscal year 2008.

** **

**ITEM16F.**               CHANGEIN REGISTRANT’S CERTIFYING ACCOUNTANT

 

No changes in registrant’s certifying accountanthave occurred since the date of the prior Annual Report on Form 20-F.

** **

**ITEM16G.**             CORPORATEGOVERNANCE

 

Telecom Argentina’s corporate governance practices differ fromcorporate governance practices of U.S. companies.  Telecom Argentina maintains a detaileddescription of the significant differences in corporate governance practices onits website at www.telecom.com.ar, last updated in January 2009.

 

The following is a summary of the material aspects in which TelecomArgentina’s corporate governance policies differ from those followed by U.S.companies under New York Stock Exchange listing standards.

 

·                  Composition of the Board of Directors:The NYSE requires each board of directors to be composed of a majority ofindependent directors.  Although this isnot required under Argentine law, as of the date of this summary, thesix-member Board of Telecom Argentina has three directors who qualify as “independent”according to SEC Rules.

 

·                  Board of Directors AnnualSelf-Evaluation:  The NYSE requiresboards of directors of listed companies to conduct a self-evaluation at leastannually, and report thereon, determining whether it and its committees are functioningeffectively.  Under Argentine law, theboard’s performance is evaluated at the Annual Ordinary Shareholders Meeting.

 

·                  Nominating/Corporate GovernanceCommittee: NYSE listed companies are required to have a nominating/corporategovernance committee.  Neither Argentinelaw nor Telecom Argentina’s Bylaws require the creation of anominating/corporate governance committee. In Argentina, it is unusual (though possible) for the Board to nominatenew directors and the Board of Directors of Telecom Argentina refrains frommaking such proposals.  The right tonominate and appoint directors is vested in the shareholders who nominate andappoint regular and alternate directors at the Shareholders’ meetings.  On certain occasions, the ArgentineCorporations Law delegates the right todesignate directors to the Supervisory Committee.

 

·                  Compensation Committee: NYSE listedcompanies are required to have a compensation committee composed entirely ofindependent directors. Neither Argentine law nor Telecom Argentina’s Bylawsrequire the creation of a “compensation committee.” Telecom Argentina’sexecutive compensation matters 

 

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are undertaken by the Board ofDirectors.  The compensation of themembers of Telecom Argentina’s Board of Directors is determined by theshareholders at the Annual Shareholders’ meeting.

 

·                  Audit Committee Hiring Policies: TheNYSE requires listed companies to have an audit committee which sets clearhiring policies for employees or former employees of the independentauditors.  There is no such provisionregarding the hiring of external auditors’ employees contained in Argentine lawor Telecom Argentina’s bylaws.

 

Accordingto the provisions of General Resolution No. 516/07 of the CNV, which iseffective for fiscal years beginning on or after January 1, 2008, TelecomArgentina prepares and submits to the CNV, on an annual basis, a report whichindicates and details the CNV’s recommended corporate governance practices asset forth in  the CNV Public OfferRegime, explains the practices followed by Telecom Argentina, and the reasonsfor any variation from practices recommended by the CNV.  Telecom Argentina’s first report regardingcorporate governance practices, according to Resolution No. 516/07, wassubmitted to the CNV on June 12, 2009 and can be accessed through the CNV’sweb site,  www.cnv.gov.ar.

 

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**PART III**

 

**ITEM17.**                      FINANCIALSTATEMENTS

 

TheRegistrant has responded to Item 18 in lieu of responding to this Item.

 

**ITEM18.**                      FINANCIALSTATEMENTS

 

Referenceis made to pages F-1 through F-75.

 

Thefollowing financial statements are filed as part of this Form 20-F:

 
| ** **                                                                                                                 | ** ** | **Page** |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **Telecom  Argentina S.A.:**                                                                                               |       |     |
| Report of Independent Registered Public Accounting  Firm                                                                   |       | F-1      |
| Management’s Report on Internal Control over Financial  Reporting                                                     |       | F-2      |
| Consolidated Balance Sheets as of December 31,  2008 and 2007                                                         |       | F-3      |
| Consolidated Statements of Income for the years ended  December 31, 2008, 2007 and 2006                               |       | F-4      |
| Consolidated Statements of Changes in Shareholders’  Equity for the years ended December 31, 2008, 2007 and 2006 |       | F-5      |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2008, 2007 and 2006                           |       | F-6      |
| Index to the Notes to the Consolidated Financial  Statements                                                               |       | F-7      |
| Notes to the Consolidated Financial Statements                                                                             |       | F-8      |

 

**ITEM19.**                      EXHIBITS

* *

*Exhibits:*

 
| 1.1    | * * | *Estatutos* (bylaws) of  Telecom Argentina, as amended, which include its corporate charter  (incorporated by reference to Exhibit 3.1 to Telecom’s registration  statement on Form F-1 (No. 333-111790)).                                                                                                                                                                                                                                |
|--------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 1.2    | * * | *Estatutos* (bylaws) of  Telecom Argentina, as amended, which include its corporate charter (English  translation) (incorporated by reference to Exhibit 3.2 to Telecom’s  registration statement on Form F-1 (No. 333-111790)).                                                                                                                                                                                                          |
|   | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.1    |     | Indenture  dated August 31, 2005 between Telecom Argentina S.A. as Issuer and The  Bank of New York as Trustee, Registrar, Paying Agent and Transfer Agent  (incorporated by reference to Telecom’s report on Form 6-K dated  January 27, 2006).                                                                                                                                                                                          |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.2    |     | First  Supplemental Indenture, dated as of March 27, 2006, between Telecom  Argentina S.A. as Issuer and The Bank of New York as Trustee, Registrar,  Paying Agent and Transfer Agent for Series A Notes due 2014 and  Series B Notes due 2011 (incorporated by reference to Telecom’s report  on Form 6-K dated April 12, 2006).                                                                                               |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.3    |     | Indenture  dated December 22, 2005 between Telecom Personal S.A. as Issuer,  JPMorgan Chase Bank, N.A. as Trustee, Co-Registrar, New York Paying Agent and  New York Transfer Agent, JPMorgan Bank Luxembourg S.A. as Luxembourg Paying  Agent and Transfer Agent, Banco Río de la Plata S.A., as Argentina Paying  Agent and Transfer Agent and Registrar and JPMorgan Chase Bank N.A., Sucursal  Buenos Aires, as Trustee’s Representative*. |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1    |     | Deposit  Agreement, dated November 8, 1994, as amended (incorporated by reference  to Telecom’s registration statement on Form F-6 (No. 333-86048)).                                                                                                                                                                                                                                                                                      |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 8.1    |     | List  of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 11.1   |     | Code  of Business Conduct and Ethics of Telecom (incorporated by reference to Telecom’s  annual report                                                                                                                                                                                                                                                                                                                                                   |

 

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|   |   | on  Form 20-F for 2004 dated June 29, 2005).                                                                                                                                                                                                        |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                          |
| 11.2   |   | Code  of Business Conduct and Ethics of Telecom (English translation) (incorporated  by reference to Telecom’s annual report on Form 20-F for 2004 dated  June 29, 2005).                                                                      |
|   |   |                                                                                                                                                                                                                                                          |
| 12.1   |   | Certification  of Franco Bertone of Telecom Argentina S.A. pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                          |
| 12.2   |   | Certification  of Valerio Cavallo of Telecom Argentina S.A. pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                          |
| 13.1   |   | Certification  of Franco Bertone and Valerio Cavallo pursuant to U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                        |
|   |   |                                                                                                                                                                                                                                                          |
| 15.1   |   | Shareholders’  Agreement between Telecom Italia International, N.V. and W de  Argentina—Inversiones S.L., dated September 9, 2003 (incorporated by  reference to Exhibit 4.3 to Nortel’s Annual Report on Form 20-F for  2003). |

 

*                 Pursuant toInstruction 1(b)(i) to Item 19 of Form 20-F, we undertake to furnishthis document upon request of the Commission.

 

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**SIGNATURE**

 

Theregistrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned tosign this Annual Report on its behalf.

 
|   | Telecom  Argentina S.A. |
|--------|-------------------------|
|   |                    |
|   |                    |
|   | By:                     | /s/  Valerio Cavallo |
|   |                    | Name: | Valerio  Cavallo |
|   |                    | Title: | Chief  Financial Officer |

 

Date:                    June 26,2009

 

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**ConsolidatedFinancial Statements as of December 31, 2008 and December 31, 2007and for the years ended December 31, 2008, 2007 and 2006**

 

**$  : Argentine peso**

**US$  : US dollar**

**$3.453 = US$1****as of December 31,2008**

 

----

### **Table ofContents**

 

### **Report of IndependentRegistered Public Accounting Firm**

### ** **

Tothe Board of Directors and Shareholders of Telecom Argentina S.A.

 

Inour opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of income, shareholders’ equity and cash flows presentfairly, in all material respects, the financial position of Telecom ArgentinaS.A. and its subsidiaries at December 31, 2008 and 2007, and the resultsof their operations and their cash flows for each of the three years in theperiod ended December 31, 2008 in conformity with accounting principles generally accepted in Argentina.  Also in our opinion, the Company maintained,in all material respects, effective internal control over financial reportingas of December 31, 2008, based on criteria established in *Internal Control - Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). TheCompany’s management is responsible for these financial statements, formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting, includedin Management’s Report on Internal Control Over Financial Reporting appearingunder Item 18. Our responsibility is to express opinions on these financialstatements and on the Company’s internal control over financial reporting basedon our integrated audits.  We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States) and auditing standards generally accepted inArgentina.  Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement and whether effectiveinternal control over financial reporting was maintained in all materialrespects.  Our audits of the financialstatements included examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on theassessed risk.  Our audits also includedperforming such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a reasonable basis for ouropinions.

 

Accountingprinciples generally accepted in Argentina vary in certain significant respectsfrom accounting principles generally accepted in the United States of America.Information relating to the nature and effect of such differences is presentedin Note 15 to the consolidated financial statements.

 

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal control over financial reporting includes thosepolicies and procedures that (i) pertain to the maintenance of recordsthat, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 
|    PRICE  WATERHOUSE & CO. S.R.L.

  |                               |
|-------------------------------------------------------------------|------------------------------------|
| By                                                                |  /s/ Juan C. Grassi (Partner) |   |
| Juan C. Grassi                                                    |                               |
|                                                                   |                                    |  |

 

 

Buenos Aires, Argentina

March 6,2009

 

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**Management’sReport on Internal Control Over Financial Reporting**

 

Telecom Group’s management isresponsible for establishing and maintaining adequate internal control overfinancial reporting for Telecom Group as defined in Exchange Act Rule 13a-15(f) and15d-15(f). Our internal control over financial reporting was designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith Argentine generally accepted accounting principles (Argentine GAAP) and reconciling the Argentine GAAP figures toUS GAAP. Internal control over financial reporting includes thosepolicies and procedures that:

 

·                  pertain to themaintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the company;

 

·                  providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with Argentine GAAP and reconciled to US GAAP and thatreceipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and

 

·                  providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

Management conducted an evaluationof the effectiveness of Telecom Group’s****internalcontrol over financial reporting based on the framework in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”). Based on our evaluation, management concludedthat the Telecom Group’s internal control over financial reporting waseffective as of December 31, 2008. The effectiveness of Telecom Group’sinternal control over financial reporting as of December 31, 2008 has beenaudited by Price Waterhouse & Co S.R.L., an independent registeredpublic accounting firm, as stated in their report which is included herein.

 

 
| /s/  Franco Bertone      |   | /s/  Valerio Cavallo     |
|--------------------------|--------|--------------------------|
| Franco  Bertone          |   | Valerio  Cavallo         |
| Chief  Executive Officer |   | Chief  Financial Officer |

 

Buenos Aires, Argentina

March 6th, 2009

 

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**ConsolidatedBalance Sheets as of December 31, 2008 and 2007**

(In millions of Argentinepesos - see Note 3.c)

 
| ** **                                                              | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
|                                                                    |       |                          |       |                          |       |
| **ASSETS**                                                              |       |                          |       |                          |       |
| **Current Assets**                                                      |       |                          |       |                          |       |
| Cash  and banks                                                         |       | $                             | 36         |                          | $          | 45 |   |
| Investments                                                             |       | 1,089                         |       | 947                           |       |
| Accounts  receivable, net                                               |       | 1,009                         |       | 898                           |       |
| Other  receivables, net                                                 |       | 201                           |       | 332                           |       |
| Inventories,  net                                                       |       | 251                           |       | 157                           |       |
| Other  assets, net                                                      |       | 6                             |       | 5                             |       |
| **Total current assets**                                                | ** ** | **2,592**                     | ** ** | **2,384**                     | ** ** |
| **Non-Current Assets**                                                  |       |                          |       |                          |       |
| Other  receivables, net                                                 |       | 87                            |       | 282                           |       |
| Investments                                                             |       | 7                             |       | 2                             |       |
| Fixed  assets, net                                                      |       | 6,188                         |       | 5,738                         |       |
| Intangible  assets, net                                                 |       | 772                           |       | 760                           |       |
| Other  assets, net                                                      |       | 3                             |       | 5                             |       |
| **Total non-current assets**                                            | ** ** | **7,057**                     | ** ** | **6,787**                     | ** ** |
| **TOTAL ASSETS**                                                        | ** ** | **$**                         | **9,649**  | ** **                    | **$**      | **9,171** | ** ** |
| **LIABILITIES**                                                         |       |                          |       |                          |       |
| **Current Liabilities**                                                 |       |                          |       |                          |       |
| Accounts  payable                                                       |       | $                             | 1,769      |                          | $          | 1,640 |   |
| Debt                                                                    |       | 1,355                         |       | 1,474                         |       |
| Salaries  and social security payable                                   |       | 237                           |       | 164                           |       |
| Taxes  payable                                                          |       | 618                           |       | 266                           |       |
| Other  liabilities                                                      |       | 48                            |       | 50                            |       |
| Contingencies                                                           |       | 36                            |       | 49                            |       |
| **Total current liabilities**                                           | ** ** | **4,061**                     | ** ** | **3,643**                     | ** ** |
| **Non-Current Liabilities**                                             |       |                          |       |                          |       |
| Accounts  payable                                                       |       | 27                            |       | —                        |       |
| Debt                                                                    |       | 688                           |       | 1,724                         |       |
| Salaries  and social security payable                                   |       | 83                            |       | 43                            |       |
| Taxes  payable                                                          |       | 224                           |       | 289                           |       |
| Other  liabilities                                                      |       | 146                           |       | 120                           |       |
| Contingencies                                                           |       | 319                           |       | 243                           |       |
| **Total non-current liabilities**                                       | ** ** | **1,487**                     | ** ** | **2,419**                     | ** ** |
| **TOTAL LIABILITIES**                                                   | ** ** | **$**                         | **5,548**  | ** **                    | **$**      | **6,062** | ** ** |
| Minority  interest                                                      | ** ** | **81**                        | ** ** | **79**                        | ** ** |
| **SHAREHOLDERS’ EQUITY**                                           | ** ** | **$**                         | **4,020**  | ** **                    | **$**      | **3,030** | ** ** |
| **TOTAL LIABILITIES, MINORITY INTEREST AND  SHAREHOLDERS’ EQUITY** | ** ** | **$**                         | **9,649**  | ** **                    | **$**      | **9,171** | ** ** |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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### **Consolidated Statementsof Income for the years ended December 31, 2008, 2007 and 2006**

(In millions ofArgentine pesos, except per share data in Argentine pesos -see Note 3.c)

 
| ** **                                              | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| ***Continuing operations***                             |       |                                      |       |   |   |   |   |
| Net  sales                                              |       | $                                         | 10,608     |   | $ | 9,074 |   | $ | 7,372 |   |
| Cost  of services                                       |       | (5,648                                    | )          | (4,973 | ) | (4,494 | ) |
| **Gross profit**                                        | ** ** | **4,960**                                 | ** ** | **4,101** | ** ** | **2,878** | ** ** |
| General  and administrative expenses                    |       | (368                                      | )          | (313 | ) | (267 | ) |
| Selling  expenses                                       |       | (2,551                                    | )          | (2,152 | ) | (1,717 | ) |
| **Operating income**                                    | ** ** | **2,041**                                 | ** ** | **1,636** | ** ** | **894** | ** ** |
| Gain  on equity investees                               |       | —                                    |       | — |   | 5 |   |
| Financial  results, net                                 |       | (265                                      | )          | (441 | ) | (484 | ) |
| Other  expenses, net                                    |       | (268                                      | )          | (98 | ) | (184 | ) |
| **Net income before income tax and minority  interest** | ** ** | **1,508**                                 | ** ** | **1,097** | ** ** | **231** | ** ** |
| Income  tax (expense) benefit, net                      |       | (535                                      | )          | (292 | ) | 22 |   |
| Minority  interest                                      |       | (12                                       | )          | (23 | ) | (22 | ) |
| **Net income from continuing operations**               | ** ** | **961**                                   | ** ** | **782** | ** ** | **231** | ** ** |
| ***Discontinued operations***                           | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income  from the operations                             |       | —                                    |       | 1 |   | 13 |   |
| Income  from assets disposal                            |       | —                                    |       | 101 |   | — |   |
| **Net income from discontinued operations**             | ** ** | **—**                                | ** ** | **102** | ** ** | **13** | ** ** |
| **Net income**                                          | ** ** | **$**                                     | **961**    | ** ** | **$** | **884** | ** ** | **$** | **244** | ** ** |
| **Net income per share**                                | ** ** | **$**                                     | **0.98**   | ** ** | **$** | **0.90** | ** ** | **$** | **0.25** | ** ** |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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** **

**Consolidated Statements of Changes in Shareholders’Equity**

**for the years ended December 31, 2008, 2007and 2006**

(In millions of Argentine pesos — see Note 3.c)

 
| ** **                                                                                                             | ** ** | **Shareholders’  contributions** | ** ** | **Unappropriated  earnings**                | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                                                                                                             | ** ** | **Common  stock**                     | ** ** | **Inflation  adjustment  of common  stock** | ** ** | **Total**  | ** ** | **Legal  reserve** | ** ** | **Foreign  currency  translation  adjustments** | ** ** | **Accumulated  earnings  (deficit)** | ** ** | **Total** | ** ** | **Total  Shareholders’  equity** | ** ** |
| **Balances as of January 1, 2006**                                                                                | ** ** | **$**                                 | **984**    | ** **                                  | **3,044**  | ** ** | **4,028**  | ** ** | **277** | ** ** | **31** | ** ** | **(2,469** | **)** | **(2,161** | **)** | **$** | **1,867** | ** ** |
| As  approved by the Shareholders’ Ordinary Meeting held on April 27, 2006:  Absorption of accumulated losses |       | —                                |       | (356                                        | )          | (356       | )          | (277 | ) | — |   | 633 |   | 356 |   | — |   |
| Foreign  currency translation adjustments                                                                              |       | —                                |       | —                                      |       | —     |       | — |   | 18 |   | — |   | 18 |   | 18 |   |
| Net  income for the year                                                                                               |       | —                                |       | —                                      |       | —     |       | — |   | — |   | 244 |   | 244 |   | 244 |   |
| **Balances as of December 31, 2006**                                                                              | ** ** | **$**                                 | **984**    | ** **                                  | **2,688**  | ** ** | **3,672**  | ** ** | **—** | ** ** | **49** | ** ** | **(1,592** | **)** | **(1,543** | **)** | **$** | **2,129** | ** ** |
| Foreign  currency translation adjustments                                                                              |       | —                                |       | —                                      |       | —     |       | — |   | 17 |   | — |   | 17 |   | 17 |   |
| Net  income for the year                                                                                               |       | —                                |       | —                                      |       | —     |       | — |   | — |   | 884 |   | 884 | ** ** | **884** | ** ** |
| **Balances as of December 31, 2007**                                                                              | ** ** | **$**                                 | **984**    | ** **                                  | **2,688**  | ** ** | **3,672**  | ** ** | **—** | ** ** | **66** | ** ** | **(708** | **)** | **(642** | **)** | **$** | **3,030** | ** ** |
| Foreign  currency translation adjustments                                                                              |       | —                                |       | —                                      |       | —     |       | — |   | 21 |   | — |   | 21 |   | 21 |   |
| Changes  in the fair value of cash flow hedges, net of tax                                                             |       | —                                |       | —                                      |       | —     |       | — |   | 8 |   | — |   | 8 |   | 8 |   |
| Net  income for the year                                                                                               |       | —                                |       | —                                      |       | —     |       | — |   | — |   | 961 |   | 961 |   | 961 |   |
| **Balances as of December 31, 2008**                                                                              | ** ** | **$**                                 | **984**    | ** **                                  | **2,688**  | ** ** | **3,672**  | ** ** | **—** | ** ** | **95** | ** ** | **253** | ** ** | **348** | ** ** | **$** | **4,020** | ** ** |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-5

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Table of Contents

** **

**Consolidated Statements of Cash Flows for the years ended December 31,2008, 2007 and 2006**

 (In millions of Argentine pesos - see Note3.c)

 
| ** **                                                                                   | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2008**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES**                                                    | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income for the year                                                                      |       | $                                         | 961        |   | $ | 884 |   | $ | 244 |   |
| Net income from discontinued operations                                                      |       | —                                    |       | (102 | ) | (13 | ) |
| Net income for the year from continuing operations                                           |       | 961                                       |       | 782 |   | 231 |   |
| **Adjustments to reconcile net  income to net cash flows provided by continuing operations** |       |                                      |       |   |   |   |   |
| Allowance for doubtful accounts and other  allowances                                        |       | 99                                        |       | 124 |   | 103 |   |
| Depreciation of fixed assets                                                                 |       | 1,267                                     |       | 1,377 |   | 1,342 |   |
| Amortization of intangible assets                                                            |       | 22                                        |       | 39 |   | 49 |   |
| Gain on equity investees                                                                     |       | —                                    |       | — |   | (5 | ) |
| Consumption of materials                                                                     |       | 110                                       |       | 80 |   | 66 |   |
| Gain on sale/disposal of fixed assets and other  assets                                      |       | —                                    |       | (19 | ) | (7 | ) |
| Provision for lawsuits and contingencies                                                     |       | 100                                       |       | 79 |   | 153 |   |
| Holdings (gain) loss on inventories                                                          |       | (2                                        | )          | 59 |   | 5 |   |
| Interest and other financial losses on loans                                                 |       | 563                                       |       | 498 |   | 534 |   |
| Income tax                                                                                   |       | 531                                       |       | 284 |   | (43 | ) |
| Minority interest                                                                            |       | 12                                        |       | 23 |   | 22 |   |
| Net increase in assets                                                                       |       | (486                                      | )          | (366 | ) | (283 | ) |
| Net increase (decrease) in liabilities                                                       |       | 142                                       |       | (14 | ) | 193 |   |
| **Total cash flows provided by  operating activities**                                       | ** ** | **3,319**                                 | ** ** | **2,946** | ** ** | **2,360** | ** ** |
| **CASH FLOWS FROM INVESTING  ACTIVITIES**                                                    |       |                                      |       |   |   |   |   |
| Fixed asset acquisitions                                                                     |       | (1,546                                    | )          | (1,208 | ) | (825 | ) |
| Intangible asset acquisitions                                                                |       | (15                                       | )          | (35 | ) | (41 | ) |
| Acquisition of Cubecorp                                                                      |       | (97                                       | )          | — |   | — |   |
| Proceeds for the sale of fixed assets and other  assets                                      |       | 12                                        |       | 21 |   | 17 |   |
| Decrease (increase) in investments not considered  as cash and cash equivalents              |       | 329                                       |       | (533 | ) | 45 |   |
| Proceeds for the sale of equity investees                                                    |       | —                                    |       | 182 |   | — |   |
| **Total cash flows used in  investing activities**                                           | ** ** | **(1,317**                                | **)**      | **(1,573** | **)** | **(804** | **)** |
| **CASH FLOWS FROM FINANCING  ACTIVITIES**                                                    |       |                                      |       |   |   |   |   |
| Debt proceeds                                                                                |       | 91                                        |       | 45 |   | 36 |   |
| Payment of debt                                                                              |       | (1,444                                    | )          | (1,290 | ) | (1,113 | ) |
| Payment of interest and debt-related expenses                                                |       | (185                                      | )          | (293 | ) | (414 | ) |
| Cash dividends paid                                                                          |       | (20                                       | )          | (38 | ) | — |   |
| Payment of capital reimbursement of Nucleo                                                   |       | —                                    |       | — |   | (4 | ) |
| **Total cash flows used in  financing activities**                                           | ** ** | **(1,558**                                | **)**      | **(1,576** | **)** | **(1,495** | **)** |
| **INCREASE (DECREASE) IN CASH AND  CASH EQUIVALENTS**                                        | ** ** | **444**                                   | ** ** | **(203** | **)** | **61** | ** ** |
| **CASH AND CASH EQUIVALENTS AT  THE BEGINNING OF YEAR**                                      | ** ** | **458**                                   | ** ** | **661** | ** ** | **600** | ** ** |
| **CASH AND CASH EQUIVALENTS AT  THE END OF THE YEAR**                                        | ** ** | **$**                                     | **902**    | ** ** | **$** | **458** | ** ** | **$** | **661** | ** ** |

 

See Note 6 forsupplementary cash flow information.

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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** **

**Index tothe Notes to the Consolidated Financial Statements**

** **
| **Note**   | ** **                                      | ** ** | **Page**   |
|------------|-------------------------------------------------|------------|------------|
| ** ** | ** **                                      | ** ** | ** ** |
| **1**      | The Company and its operations                  | **F-8**    |
| ** ** |                                            | ** ** |
| **2**      | Regulatory framework                            | **F-8**    |
| ** ** |                                            | ** ** |
| **3**      | Preparation  of financial statements            | **F-17**   |
| ** ** |                                            | ** ** |
| **4**      | Summary of  significant accounting policies     | **F-19**   |
| ** ** |                                            | ** ** |
| **5**      | Breakdown of  the main accounts                 | **F-27**   |
| ** ** |                                            | ** ** |
| **6**      | Supplementary  cash flow information            | **F-31**   |
| ** ** |                                            | ** ** |
| **7**      | Related party  transactions                     | **F-33**   |
| ** ** |                                            | ** ** |
| **8**      | Debt                                            | **F-36**   |
| ** ** |                                            | ** ** |
| **9**      | Shareholders’ equity                       | **F-41**   |
| ** ** |                                            | ** ** |
| **10**     | Income tax                                      | **F-42**   |
| ** ** |                                            | ** ** |
| **11**     | Commitments  and contingencies                  | **F-44**   |
| ** ** |                                            | ** ** |
| **12**     | Acquisition of  Cubecorp                        | **F-48**   |
| ** ** |                                            | ** ** |
| **13**     | Segment information                             | **F-49**   |
| ** ** |                                            | ** ** |
| **14**     | Unconsolidated  information                     | **F-53**   |
| ** ** |                                            | ** ** |
| **15**     | Differences  between Argentine GAAP and US GAAP | **F-54**   |
| ** ** |                                            | ** ** |
| **16**     | Other  financial statement information          | **F-68**   |
| ** ** |                                            | ** ** |
| **17**     | Subsequent events                               | **F-75**   |

 

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** **

**Notes to the ConsolidatedFinancial Statements**

** **

**1.            The Company and its operations**

 

TelecomArgentina S.A. (“Telecom Argentina” or “Telecom” and together with itssubsidiaries, the “Company” or the “Telecom Group”, indistinctively) was created by a decree of the ArgentineGovernment in January 1990 and organized as a *sociedadanónima* under the name “Sociedad Licenciataria Norte S.A.” in April 1990.

 

Telecom Argentinacommenced operations on November 8, 1990 (the “Transfer Date”), upon thetransfer to the Company of the telecommunications network of the northernregion of Argentina previously owned and operated by the state-owned company,Empresa Nacional de Telecomunicaciones (“ENTel”).

 

TelecomArgentina’s license, as originally granted, was exclusive to provide telephoneservices in the northern region of Argentina through November 8, 1997,with the possibility of a three-year extension. In March 1998, theArgentine Government extended the exclusivity period to late 1999 andestablished the basis for a transition period towards deregulation of thetelecommunications market.

 

In this context, the SCprovided for a transition period, which ended on October 10, 1999. As fromsuch date, the Company began providing telephone services in the southernregion of Argentina and competing in the previously exclusive northern region.

 

The Company provides fixed-line public telecommunicationservices, international long-distance service, data transmission and Internetservices in Argentina. Accordingly, the Company had amended its by-laws inaccordance with the prior approval obtained from the Department ofCommunications (“SC”, the “Regulatory Authority”) and the *Comisión Nacional de Valores (“CNV*”), the NationalSecurities Commission in Argentina.

 

A description of thesubsidiaries with their respective percentage of capital stock owned as of December 31,2008, is presented as follows:

 
| **Reportable segment**       | ** ** | **Subsidiaries**                                                   | ** ** | **Percentage of  capital stock  owned and  voting rights  (i)** | ** ** | **Indirect  control  through** | ** ** | **Date of  acquisition** | ** ** |
|------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|--------------------------------|------------|--------------------------|------------|
| **Voice, data and Internet** |       | Telecom Argentina USA Inc.                                         |       | 100.00                                                          | %          |                           |       | 09.12.00                 |       |
|                         |       | Micro Sistemas Sociedad Anonima (“Micro  Sistemas”) (ii) |       | 99.99                                                           | %          |                           |       | 12.31.97                 |       |
|                         |       | Cubecorp Argentina S.A. (“Cubecorp”)                     |       | 100.00                                                          | %          |                           |       | 07.15.08                 |       |
|                         |       |                                                               |       |                                                            |       |                           |       |                     |       |
| **Wireless**                 |       | Telecom Personal S.A. (“Personal”)                       |       | 99.99                                                           | %          |                           |       | 07.06.94                 |       |
|                         |       | Nucleo  S.A. (“Nucleo”)                                  |       | 67.50                                                           | %          | Personal                       |       | 02.03.98                 |       |

 

----

(i)                                     Percentage of equity interest owned hasbeen rounded.

(ii)                                  Dormant entity at December 31, 2008.

 

As of December 31, 2007 and 2006, the operationsfrom the former subsidiary Publicom has been consolidated in a separate captionin the consolidated statement of income (“Discontinued operations”); so, theformer reportable segment “Directories publishing” has been replaced for thisline item in the Segment information.

 

**2.            Regulatory framework**

 

**(a) Regulatory bodies and general legal framework**

 

TelecomArgentina and Personal operate in a regulated industry. Regulation not only covers rates andservice terms, but also the terms on whichvarious licensing and technical requirements are imposed.

 

Theprovision of telecommunication services is regulated by the SC and supervisedby the *Comisión Nacional de Comunicaciones*, theNational Communications Commission (“CNC”). The CNC is responsible for thegeneral oversight and supervision of telecommunications services. The SC hasthe authority to develop, suggest and implement policies; to ensure that thesepolicies are applied; to review the applicable legal regulatory framework; toact as the enforcing authority with respect to the laws governing the relevantactivities; to approve the major technical plans and to resolve administrativeappeals filed against CNC resolutions.

 

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** **

**2.            Regulatory framework (continued)**

 

Theprincipal features of the regulatory framework in Argentina have been createdby:

 

·                  The Privatization Regulations,including the List of Conditions;

·                  The Transfer Agreement;

·                  The Licenses granted to TelecomArgentina and its subsidiaries;

·                  The Tariff Agreements; and

·                  Various governmental decrees,including Decree No. 764/00, establishing the regulatory framework forlicenses, interconnection, universal service and radio spectrum management.

 

Nucleo,Personal’s Paraguayan controlled company, is supervised by the *Comisión Nacional de Telecomunicaciones de Paraguay*,**the National Communications Commission of Paraguay (“CONATEL”).Telecom Argentina USA, Telecom’s subsidiary, is supervised by the FederalCommunications Commission (the “FCC”).

 

**(b) Licenses granted as of December 31, 2008**

 

Asof December 31, 2008, Telecom Argentina has been granted the followingnon-expiring licenses to provide the following services in Argentina:

 

·                  Local fixed telephony;

·                  Public telephony;

·                  Domestic and internationallong-distance telephony;

·                  Domestic and internationalpoint-to-point link services;

·                  Domestic and international telexservices;

·                  Value added services, datatransmission, videoconferencing and broadcasting signal services; and

·                  Internet access.

 

Asof December 31, 2008, the Company’s subsidiaries have been granted thefollowing licenses:

 

·                  Personal has been granted anon-exclusive, non-expiring license to provide mobile telecommunicationservices in the northern region of Argentina and data transmission and valueadded services throughout the country. In addition, Personal owns licenses to providemobile radio communication services in the Federal District and Greater BuenosAires areas, as well as a non-expiring license to provide PCS servicesthroughout the country and it is registered to provide national andinternational long-distance telephone services; and

·                  Nucleo S.A. (“Nucleo”) has beengranted a renewable five-year period license to provide mobiletelecommunication services in Paraguay as well as PCS services and Internetaccess in certain areas of that country.

 

**(c) Revocation of the license**

 

TelecomArgentina’s license is revocable in the case of non-compliance with certainobligations, including but not limited to:

 

·                  the interruption of all or asubstantial portion of service;

·                  the serious non-performance ofmaterial obligations;

·                  the modification of itscorporate purpose or change of domicile to a jurisdiction outside Argentina;

·                  any sale, encumbrance ortransfer of assets which may result in a reduction of level of servicesprovided, without the prior approval of the regulatory authority;

·                  the reduction of NortelInversora S.A.’s (“Nortel”, the parent company of the Company) interest inTelecom Argentina to less than 51%, or the reduction of Nortel’s commonshareholders’ interest in Nortel to less than 51%, in either case without priorapproval of the regulatory authorities;

·                  the assignment or delegation ofTelecom Italia S.p.A.’s (“Telecom Italia” or “the Operator”) functions withoutthe prior approval of the regulatory authority; and

·                  the Company’s bankruptcy.

 

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**2.****                                  ****Regulatory framework (continued)**

 

Personal’slicenses are revocable in the case of non-compliance with certain obligations,including but not limited to:

 

·      repeated interruptions of theservices;

·      any transfer of the licenseand/or the related rights and obligations, without the prior approval of theRegulatory Authority;

·      any encumbrance of the license;

·      the voluntary insolvencyproceedings or bankruptcy of Personal and,

·      the liquidation or dissolutionof Personal, without the prior approval of the Regulatory Authority.

 

Nucleo’slicenses are revocable mainly in the case of:

 

·      interruption of services;

·      the bankruptcy of Nucleo and,

·      non-compliance with certainobligations.

 

**(d) Decree No. 764/00**

 

DecreeNo. 764/00 substantially modified three regulations:

 

·      **General Regulation of Licenses**

 

Thisregulation establishes a single nationwide license for the provision of alltelecommunication services to the public, including fixed-line, wireless,national and international, irrespective of whether these services are providedthrough telecommunications infrastructure owned by the service provider. Underthe regulation, a licensee’s corporate purpose does not need to be exclusivelythe provision of telecommunications services. In addition, the regulation doesnot establish any minimum investment or coverage requirements. Broadcastingservice companies may also apply for a license to provide telecommunications services.The regulation further authorizes the resale of telecommunications servicessubject to the receipt of a license, and there are no restrictions onparticipation by foreign companies.

 

·      **Argentine InterconnectionRegulation**

 

Thisregulation provides for an important reduction in the reference prices forinterconnection. The regulation also increases the number of functions that thedominant operator must provide, including the obligation to provideinterconnection at the local exchange level, to provide billing services and tounbundle the local loop. This regulation also introduces interconnection fornumber translation services (NTS) such as Internet, audiotext, collect callingand the implementation of number portability, all of which shall be subject tofuture regulations.

 

On January 22,2009, the SC issued Resolution No. 8/09 by means of which it was created aWorking Commission made up by members of the SC and the CNC, with a 120-daysterm to prepare a draft of the Number Portability Regulation.

 

·      **Universal Service (“SU”)Regulation**

 

The SU regulation required entities that receiverevenues from telecommunications services to contribute 1% of these revenues(net of taxes) to the Universal Service Fiduciary Fund (“the SU fund”). Theregulation adopted a “pay or play” mechanism for compliance with the mandatorycontribution to the SU fund. The regulation established a formula forcalculating the subsidy for the provision of SU, which takes into account thecost of providing this service and any foregone revenues. Additionally, theregulation created a committee responsible for the administration of the SUfund and the development of specific SU programs.

 

On June 8, 2007, the SC issued Resolution No. 80/07which stipulated that until the SU Fund is effectively implemented,telecommunication service providers, such as Telecom Argentina and Personal,are required to deposit the contributions corresponding to future obligationsoriginating since the Resolution was issued onward into a special individual accountheld in their name at the Banco de la Nación Argentina. The amounts to bedeposited would be determined according to the provisions of CNC Resolution No. 2,713/07,issued in August 2007.

 

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**2.****                                  ****Regulatory framework (continued)**

 

**New****SU Regulation**

 

**Decree No. 558/08,published on April 4, 2008, recently caused certain changes to the SUregime.**

 

**The Decree establishes that,with respect to obligations originated under Decree No. 764/00, the SCwill assess the value of those that were complied with, and the level offunding from the SU Fund for those that are still pending. Likewise, the SCcould choose to consider as SU other undertakings which are carried out by thetelecommunication services providers, and provide for their compensation so asto guarantee their continuity.**

 

**The new regulationestablishes two SU categories: a) areas with uncovered or unsatisfied needs;and b) customer groups with unsatisfied needs. It also determines that the SCwill have exclusive responsibility for the issuance of general and specificresolutions regarding the new regulation, as well as for interpreting andapplying it.**

** **

**It also establishes that theSC will review the SU programs which were established under the previousregulation, guaranteeing the continuity of those being under execution andimplementing those that were reviewed.**

** **

**The Decree requires Telecomand Telefonica de Argentina S.A. (“Telefonica”) to extend the coverage of theirfixed line networks, within their respective areas of activity, within 60months from the effective date of publication of the Decree. The SC willdetermine on a case by case basis if the providers will be compensated withfunds from the SU Fund.**

** **

**The level of financing of SUPrograms which were established under the previous regulation and are stillongoing will be determined by the SC, whereas telecommunications providersappointed to participate in future SU Programs will be selected by competitivebidding.**

** **

**The Decree requirestelecommunications service providers to contribute 1% of their revenues (net oftaxes) to the SU Fund and keeps the “pay or play” mechanism for thecontribution of the monthly fee or, if corresponds, the claim of thereceivable.**

** **

**Decree No. 558/08 alsomandates the creation of the SU Fund and orders that it must be establishedwithin 180 days from the date of publication. The providers oftelecommunications services shall act in their capacity as trustors in thistrust, which shall rely on the assistance of a Technical Committee made up byseven members (two members shall be appointed by the SC, one member shall beappointed by the CNC, three members shall be appointed by the telecommunicationservices providers — two of which shall be appointed by Telecom and Telefonicaand one by the rest of the providers — and another member to be appointed byindependent carriers). This Technical Committee will be informed by the SC ofthe programs to be financed and will be entrusted with assisting andcontrolling the SU Fund, carrying out technical-economic evaluations ofexisting projects and supervising the process of competitive bidding andadjudication of new SU programs, with the prior approval of the SC.**

** **

**The Decree also requirestelecommunications service providers to create, within 60 days from itseffective date of publication, a procedure to select the Fiduciary institutionand to provide a Fiduciary agreement proposal, both subject to the SC approval.At the date of issuance of these consolidated financial statements, theTechnical Committee has been created and has begun to analyze the limit of itsfunctions and the procedures associated to them. Likewise, telecommunicationsservice providers had already selected the Fiduciary institution and had sentto the SC the Fiduciary agreement which was approved by the SC in January 2009,but there is still pending some administrative matters for the creation of theSU Fund.**

** **

On December 9, 2008, the SC issued Resolution No. 405/08which stipulates that telecommunication service providers should deposit intotheir special accounts the 1% of the revenues as defined in Decree No. 558/08,without offsetting any cost incurred for the provision of this service.

 

**On January 12, 2009, theCompany and Personal, filed their claims before the SC against the provisionsof SC Resolution No. 405/08, based on the illegality of this rule, for itis opposite to the provisions of the Decree No. 558/08, and offends therights of both licensees to consider in the determination of the investmentcontribution, the compensation for the provision of the programs of SU, inaccordance with the “pay or play” mechanism, as stated in the Decree No. 558/08.**

 

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**2.****                                  ****Regulatory framework (continued)**

 

**The management of the Group,with the opinion of its legal counsels, considers it has meritorious legaldefenses for the favorable outcome of the claims filed against Resolution No. 405/08.**

** **

**At the date of issuance ofthese consolidated financial statements, the SU programs are still pending ofapproval from the Regulatory Authority.**

** **

***In Telecom***

 

Bythe end of 2002, the SC formed a Working group whose main purpose was toanalyze the method to be applied in measuring the costs of the SU performance—in particular the application of the “HCPM Model”, based in incremental costsof a theoretical network—, as well as the definition and methodology for thecalculation of the “Non-Monetary Benefits”, in order to determine the costs tooffset for the performance of the SU. Said Working group determined that,considering the complexity of this methodology, efforts should be made to go onwith the initial programs, independently from the HCPM model, and that therewas a need to carry out a thorough revision of the present General Regulationsof the SU to make said regulations operative in the short term, according tothe existing social needs.

 

Afterseveral years from the beginning of the opening of the market and the cominginto effect of the first regulations of the SU, said regulations are still tobe implemented. Therefore, those under said regulations suppliers have notreceived set-offs for the supplies under the SU.

 

Incompliance with SC Resolution No. 80/07 and CNC Resolution No. 2,713/07, for the period July 2007 - December 2008 Telecom has estimated areceivable of $401 (unaudited) and filed the calculations for review by theRegulatory Authority. This receivable has not been recorded since it is subjectto the approval of the SU programs, the review by the Regulatory Authority andthe availability of funds in the trust.

 

***In Personal***

 

SinceJanuary 2001, Personal has been recording a provision related to itsobligation to make contributions to the SU fund. As of December 31, 2008, this provisionamounts to $121. In addition, in compliance with SC Resolution No. 80/07and CNC Resolution No. 2,713/07, Personal has determined for the period July 2007- December 2008 an account payable of $39. As a consequence, as of December 31,2008, Personal had depositedthe correspondent contributions on their respective maturity date (amounting to$36) into the special individual account held in their name at the Banco de laNación Argentina; these contributions were recorded as a receivable in the lineitem “Other receivables” of the consolidated balance sheets.

 

As from January 2001,Personal, as well as the other wireless providers, had charged SU fund amountsto customers.

 

SC Resolution No. 99/05 required entities that derived revenuesfrom telecommunications services to contribute 1% of these revenues to the SUfund, and prohibited billing to customers any SU amounts.

 

Asa consequence, the CNC, by means of CNC Note No. 726/05, requested thatPersonal discontinue billing SU amounts to customers and reimburse allcollected SU amounts plus interest (applying the same rate used for overdueinvoices from customers).

 

Althoughthe SC resolutions were appealed, management decided to reimburse the SUamounts which had been billed to post-paid customers from January 1, 2001through June 28, 2005, the date on which Personal ceased billing SUamounts.

 

Although Personal reimbursedthe SU amounts, it will not surrender its rights to consider the resolutionsillegitimate and without merit.

 

During the first quarterof 2006, Personal fully reimbursed its active post-paid customers allpreviously billed SU amounts plus interest (amounting to $15 and calculatedusing the Banco Nacion Argentina interest rate collected by banks). Inaddition, as from May 2006, Personal has reimbursed the SU amounts billedto its former customers and former post-paid customers that have changed intoprepaid customers (amounting to $4) and still remains pending an amount of $6that is available for collecting.

 

In December 2006,the CNC issued a preliminary report on the verification of such SUreimbursement, which stated that Personal fulfilled the reimbursement of theamounts including interest. However, the report stated that the interest rateapplied differed from the rate required by the CNC; so, on August 7, 2008,the CNC ordered Personal to adjust the reimbursement applying the samerate used for overdue invoices from customers (that is, one and a half of the Banco NacionArgentina interest rate collected by banks).

 

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**2.****                                  ****Regulatory framework (continued)**

 

In September 2008,Personal has rejected the claim explaining its grounds to justify the interestrate applied. However, the management of Personal has considered theimplementation of the reimbursement of the interests claimed by the CNC. As aconsequence, Personal has recorded a provision of $9 with counterpart in theline item “Financial results, net”. Personal estimates this implementationwould be ready soon.

 

**(e) Regulation for the call by call selection of the providers oflong-distance services**

 

On December 28, 2001,the former Ministry of Infrastructure and Housing issued General Resolution No. 613/01which approved a system that allows callers to select their preferredlong-distance provider for each call. This call by call selection system isreferred to as “SPM”.

 

Subsequently, as a result ofthe claims submitted by several carriers objecting to General Resolution No. 613/01,the Ministry of Economy issued General Resolution No. 75/03, whichintroduced several changes to the regulations providing for SPM. The mainchanges relate to the following: long-distance carriers’ freedom to provideSPM, changes in blockage modality due to delinquency, changes in the serviceconnection modality and greater flexibility of obligations connected withservice promotion and advertising. Resolution No. 75/03 also provides thatorigin providers, both fixed and wireless, must have their equipment andnetworks available to provide the SPM service on June 6, 2003. As of thedate of these consolidated financial statements, this long-distance servicemodality is not implemented.

 

**(f) ****Public telephony in penal institutions**

 

As stated by Decree No. 690/06,in August 2007, the SC issued Resolution No. 155/07, where itapproves the “Rule for Communications that are started in PenalInstitutions”. Said management stipulates technical requirements that must becomplied with by the telephone lines installed in penal institutions and systemwith the purpose of registering the communications carried out.

 

Said rule shall be inforce in one year, which may be extended to a similar period, counting as fromsixty days from the date in which the technical definition the CNC must issueis actually available.

 

At the date of issuance ofthese consolidated financial statements, the Company was evaluating thefeasible technical alternatives to implement in order to comply with this newrule.

 

**(g) “Tax Stability” principle: impact ofchanges in Social Security contributions**

 

On March 23, 2007, theSC issued Resolution No. 41/07 addressing the treatment of the impact ofchanges in Social Security contributions that occurred in the past severalyears.

 

Subsequent to November 8,1990, there were several increases in the rates of Social SecurityContributions, which were duly paid by Telecom. At the same time, and under theframework of the argentina@internet.todos Program, the Company paid, mostlyduring fiscal year 2000, reduced social security contribution rates.

 

Pursuant to Resolution No. 41/07,Telecom Argentina has the right to offset the net impact of rate increases insocial security contributions.

 

The Company made the requiredpresentations to the SC of the net receivable under Resolution No. 41/07,which were subject to audits by the Regulatory Authority.

 

During the third quarter of2007, the CNC performed the audits on the information given by the Company. TheCompany had access to documentation of the CNC audits, which resulted in nosignificant differences from the amounts as determined by Telecom.Consequently, the Company recorded a receivable from increases in socialsecurity contributions and cancelled payables from reduction in social securitycontribution rates and other fines due by the Company.

 

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**2.****                                  ****Regulatory framework (continued)**

 

At December 31, 2008,the Company has a net receivable of $81 which, in addition with the receivableof $23 corresponding to the tax on deposits to and withdrawals from bankaccounts (“IDC”), is included in the line item “Other receivables” ($11 ascurrent receivables and $93 as non-current receivables).

 

**Since the resolution allowsthe Company to offset the receivables with existing and/or future regulatoryduties and the intention of the Company is to exercise its offsetting rights,the receivable was recorded net of reserves. At December 31, 2008, thereserves corresponding to these regulatory duties amounted to $86.**

** **

**As from December 2008,the Company has begun the billing to the customers of the increases in therates of its social security contributions accrued from October 2008,applying the same mechanism used to bill the IDC.**

** **

**(h) Rendering of fixed telephony throughmobile telephony infrastructure**

 

**By SC Resolution No. 151/07,fixed service with primary category is added to the granting of particularfrequency bands, with the purpose of rendering a basic telephone servicethrough the use of wireless infrastructure pertaining to the mobile telephonyservice in rural and suburban areas, which are within the licensees’ fixtelephony service original Region. The Company has started to install fixedlines based on this technology in rural and suburban areas, in order to renderthis service in those areas.**

** **

**(i) Tariff structure of the national andinternational regulated fixed line services**

 

**Rate Rebalancing**

** **

**The variation in revenuesresulting from the Rate Rebalancing for the two-year period beginning February 1997was determined to amount to an increase of $9.5 million, by means of SCResolution No. 4,269/99.**

** **

**In December 2007, theRegulatory Authority notified the Company its intention of offsetting thisdifference with the Resolution No. 41/07 receivables. As a consequence,during fiscal year 2007, the Company recorded a reserve on this matter onbehalf of the CNC final results, which was shown as a deduction from theResolution No. 41/07 receivables.**

** **

**Price Cap**

** **

**The Price Cap was a regulationmechanism applied in order to calculate changes in Telecom tariffs, based onchanges in the U.S. Consumer Price Index (“U.S. C.P.I.”) and an efficiencyfactor.**

** **

**In September 2007, theRegulatory Bodies finalized the 1999 Price Cap audit resulting in a payable bythe Company of $10.2. Management of the Company is reviewing the results, andif the amount is appropriate, the Company intends to offset this balance withthe credit resulting from SC Resolution No. 41/07, described in (g) above.**

** **

**On April 6, 2000, theArgentine Government, Telefonica and Telecom Argentina signed an agreement (“PriceCap 2000”) that set the price cap efficiency factor at 6.75% (6% set by the SCand 0.75% set by Telecom Argentina and Telefonica) for the period of November 2000to November 2001.**

** **

**The 2000 Price cap auditresults are still pending. Should the outcome is a payable by the Company itcan be offset with the Resolution No. 41/07 receivables.**

** **

**In April 2001, theArgentine Government, Telefonica and Telecom Argentina signed an agreement (“2001Price Cap”) that set the efficiency factor for reduction of tariffs at 5.6% forthe period from November 2001 to October 2002.**

** **

**However, a preliminaryinjunction against Telecom Argentina disallowed Telecom to apply tariffincreases by reference to the U.S. C.P.I. Telecom Argentina appealed thisinjunction arguing that if one part of the formula cannot be applied, the PriceCap system should be nullified. Finally, Public Emergency Law No. 25,561explicitly prohibited tariff adjustments, so, at the date of issuance of theseconsolidated financial statements, the pesification and the freeze of theregulated tariffs are still in force. Additional information is given in Note11.d — Other claims.**

** **

**Tax on deposits to andwithdrawals from bank accounts (“IDC”)**

** **

**On February 6, 2003, theMinistry of Economy, through Resolution No. 72/03, defined the mechanismto allow, as from that date, tariff increases of the basic telephony servicesreflecting the impact of the IDC. The amount of the tax charged must be shownseparately on the customers’ bills. The Company has determined a remainingunrecovered amount of approximately $23 that arose before the issuance ofResolution No. 72/03, which will be claimed within the tariffrenegotiation process (see (j) below).**

 

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**2.****                                  ****Regulatory framework (continued)**

 

**In April 2007, theCompany provided the CNC with supporting documentation on this amount for itsaudit. The Company**had access to documentation of the RegulatoryAuthority’s audits that corroborates the amounts claimed by the Company and theapplication of a similar offsetting mechanism pursuant to Resolution No. 41/07.Therefore, as of December 31, 2008 and 2007, the Company recorded as “Otherreceivable” a total of $23.

** **

**In accordance with the NewLetter of Understanding (see (j) below) these matters should have beenfulfilled by the Regulatory Bodies no further than June 30, 2006.**

** **

**(j) Renegotiation of agreements with the Argentine Government**

 

Telecom Argentina’s tariff scheme and procedures aredetailed in the Tariff Agreement entered into by Telecom Argentina and theArgentine Government in November 1991, as amended in February 1992.Pursuant to the Tariff Agreement, all tariffs were to be calculated in USdollars and converted into Argentine pesos at the time the customer was billedusing the exchange rate prevailing at that time. Under the Convertibility law thatwas effective until January 2002, the applicable exchange rate was $1 toUS$1. Tariffs were to be adjusted twice a year in April and October basedon the variation of the U.S. C.P.I. These adjustments were not applied since2000 according to a resolution of the SC.

 

However,in January 2002, the Argentine Government enacted Law No. 25,561, *Ley deEmergencia Pública y Reforma del Régimen Cambiario*(the “PublicEmergency Law”), which provided, amongother aspects, for the following:

 

·      The pesification of tariffs;

·      The elimination of dollar orother foreign-currency adjustments and indexing provisions for tariffs;

·      The establishment of an exchangerate for dollar-denominated prices and rates of $1 =US$1; and

·      The renegotiation of theconditions of the contractual agreements entered into between privatizedcompanies and the Argentine Government.

 

TheArgentine Government is entitled to renegotiate these agreements based on thefollowing criteria:

 

·      The overall impact of tariffsfor public services on the economy and income levels;

·      Service quality and investmentplans, as contractually agreed;

·      The customers’ interests andaccess to the services;

·      The security of the systems; and

·      The profitability of the serviceproviders.

 

Decree No. 293/02,dated February 12, 2002, entrusted the Ministry of Economy with therenegotiation of the agreements. Initially, the contractual renegotiationproposals were to be submitted to the Argentine Government within 120 daysafter the effective date of the Decree, although this term was further extendedfor an additional 180-day period. Telecom Argentina filed all information asrequired by the Argentine Government, which included information on the impactcaused by the economic crisis on the Company’s financial position and itsrevenues, the pre-existing mechanisms for tariff adjustments, operating costs,indebtedness, payment commitments with the Argentine Government and future andon-going investment commitments.

 

Furthermore,in July 2003, Decree No. 311/03 created the Unidad de Renegociación yAnálisis de Contratos de Servicios Públicos (“UNIREN”), (Division for theRenegotiation and Analysis of Contracts of Public Utilities Services), a “specialdivision” within the Ministry of Economy and the Ministry of Federal Planning,Public Investments and Services, pursuant to which the contractualrelationships between the Argentine Government and the service providers wereto be revised and renegotiated. In October 2003, the Argentine Governmentenacted Law No. 25,790 pursuant to which the original term to renegotiatethe contracts was extended through December 31, 2004. As from that date,the Argentine Government enacted subsequent laws pursuant to which this termwas extended through December 31, 2009.

 

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**2.****                                  ****Regulatory framework (continued)**

 

In May 2004, theCompany signed a Letter of Understanding (“LOU”) with the Argentine Governmentpursuant to which the Company committed not to modify the current tariffstructure through December 31, 2004 and to continue with the tariffrenegotiation process, which the Company expected to have concluded before December 31,2004. The Company also committed to offer phone services to beneficiaries ofgovernmental welfare programs and to extend internet services in the interiorof the country at reduced prices.

 

**Even though the Company fulfilled its commitments under theLOU, the Argentine Government did not make a specific offer related to therenegotiation of the tariffs at the date set in the LOU.**

** **

**New Letter of Understanding with the UNIREN**

** **

OnMarch 6, 2006, Telecom Argentina signed a new Letter of Understanding (the“Letter”) with the UNIREN. Once the procedures set forth in the currentregulations are fulfilled, the Letter will constitute the necessary precedentfor the signing of the *Acta Acuerdo deRenegociación del Contrato de Transferencia de Acciones* (the Minuteof Agreement of the Renegotiation) approved by Decree No. 2,332/90, asstated in Section 9 of Public Emergency Law.

 

Themain terms and conditions of the Letter include:

 

·    The CNC and UNIREN determined that Telecom Argentinasatisfactorily complied with the majority of the obligations required by theTransfer Agreement and the regulatory framework. Isolated violations weresatisfactorily remedied through fines and/or sanctions. Other matters arisingin the normal course of business are still pending resolution, which wasoriginally expected by June 30, 2006. The Regulatory Authority iscurrently analyzing these matters and their resolutions will be graduallyknown;

·    Telecom Argentina’s commitments to invest in thetechnological development and updating of its network;

·    Telecom Argentina’s commitment to the achievement ofits long-term service quality objectives;

·    The signing parties’ commitment to comply with andmaintain the terms set forth in the Transfer Agreement, and in the currentregulatory framework;

·    The Argentine Government’s commitment to consolidatean appropriate and standardized regulatory framework for telecommunicationsservices and to give Telecom Argentina fair and equivalent treatment to thatgiven to other telecommunications providers that may take part in the process;

·    Telecom Argentina’s commitment and the commitment ofits indirect shareholders Telecom Italia S.p.A. and W de Argentina -Inversiones S.L., to suspend for a period of 210 working days any and allclaims, appeals and proceedings filed or in the process of being filed, inadministrative, arbitral or judicial offices, in Argentina or in any otherjurisdiction, on the grounds of any act or measure taken after the enactment ofthe Public Emergency Law with respect to the Transfer Agreement and theLicense. The suspension will take effect as from the 30th day of the conclusion of the public hearing tobe held to debate the Letter. Once the Minute of Agreement of the Renegotiationis ratified, any and all claims, appeals and/or proceedings will bedisregarded;

·    The ending termination charge of internationalincoming calls to a local area will be increased to be equivalent tointernational standards, which is at present strongly depreciated;

·    Off-peak telephone hours corresponding to reducedtariffs shall be unified with regards to local calls, long distance domesticand international calls.

 

OnMay 18, 2006, the Letter was debated in a public hearing aimed atobtaining the necessary consensus for the final signing of the Minute ofAgreement of the Renegotiation. The Minute of Agreement of Renegotiation willbe effective once all the requirements stipulated in the Agreement and in theregulatory framework are complied with, which among other things, requires thata Telecom Argentina Stockholders’ Meeting be held to approve the Minute. BothTelecom Argentina and its indirect stockholders Telecom Italia S.p.A. and W deArgentina - Inversiones S.L. have opportunely fulfilled the Agreement’scommitments.

 

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**2.****                                  ****Regulatory framework (continued)**

 

At the date of issuance of these financial statements,the Company is expecting the fulfillment of the necessary steps for the signingof the Minutes of Agreement of the Renegotiation.

 

Although there can be noassurance as to the ultimate outcome of these matters, it is the opinion of theManagement of the Company that the renegotiation agreement process will besuccessfully completed.

 

**(k) “Buy Argentine” Act**

 

In December 2001,the Argentine Government passed Public Law No. 25,551 (“Compre TrabajoArgentino” or the “Buy Argentine” Act) and in August 2002, passed Decree No. 1,600/02which approved and brought into effect the Compre Trabajo Argentino. The lawrequires Telecom Argentina to give preference to national goods and services,as defined in Public Laws No. 25,551 and No. 18,875, in anyprocurement related to the rendering of public telephony services (sect.1 &2).

 

Preference must be givenso long as the price of such goods is equal to or lesser than the price of anon-national good (including Customs duties, taxes and other expenses relatedto a good’s nationalization) increased by 7% (when the offeror is a small ormedium size company) or 5% (when the offeror is any other company) (sect.3).

 

Compre Trabajo Argentinoalso mandates that Telecom Argentina publish any bid for services in theOfficial Bulletin in order to provide any and all prospective offerors with theinformation necessary for them to participate. This mandatory publicationrequires considerable lead-time prior to the issuance of the purchase order andhas had the result of extending the period needed to complete certainpurchases. Non-compliance with Compre Trabajo Argentino is subject to criminalsanctions.

 

Public Law No. 18,875establishes the obligation to exclusively contract services with local companiesand professionals, as defined in such law. Any exception must receive priorapproval by the corresponding Ministry.

 

In August 2004, CNCResolution No. 2,350/04 enacted the “Procedure for the fulfillment of theBuy Argentine Act”, including the obligation for the Company to presenthalf-year affidavit on the fulfillment of these rules. Non-compliance with thisprocedure is subject to administrative sanctions.

 

This regulation, thus,reduce the operating flexibility of the Company due to the time required torequest bids for services and/or to obtain an approval of the relevantauthority when necessary, and the higher administrative expenses derived fromthe obligation to present half-year affidavits.

 

**3.****            ****Preparation of financial statements**

 

**(a) Basis of presentation**

 

The consolidatedfinancial statements of the Company have been prepared in accordance withgenerally accepted accounting principles used in Argentina (“Argentine GAAP”),considering the regulations of the CNV, which differ in certain significantrespects from generally accepted accounting principles in the United States ofAmerica (“US GAAP”). Such differences involve methods of measuring the amountsshown in the financial statements, as well as additional disclosures requiredby US GAAP and Regulation S-X of the Securities and Exchange Commission (“SEC”).

 

However, certainreclassifications and accommodations have been made to conform more closely tothe form and content required by the SEC.

 

**(b) Basis of consolidation**

 

These consolidatedfinancial statements include the accounts of Telecom Argentina and itssubsidiaries over which it has effective control (Personal, Nucleo, MicroSistemas, Telecom Argentina USA and Cubecorp). As of December 31,2007 and 2006, the operations from the former subsidiary Publicom has beenconsolidated in a separate caption in the consolidated statement of income (“Discontinuedoperations”); so, the former reportable segment “Directories publishing” hasbeen replaced for this line item in the Segment information.

 

All significantintercompany accounts and transactions have been eliminated in preparation ofthe consolidated financial statements.

 

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**3.****                                  ****Preparation of financial statements (continued)**

 

In accordancewith Argentine GAAP, the presentation of the parent company’s individualfinancial statements is mandatory. Consolidated financial statements are to beincluded as supplementary information to the individual financial statements.For the purpose of these financial statements, individual financial statementshave been omitted since they are not required for SEC reporting purposes (seeNote 14 for a description of certain condensed unconsolidated information).

 

**(c) Presentation of financial statements in constant ArgentinePesos**

 

As required by theArgentine Government Decree No. 1,269/02 and CNV Resolution No. 415/02,the Company’s consolidated financial statements have been restated in constantArgentine pesos until February 28, 2003, following the method establishedby RT 6 of the *Consejo Profesional de Ciencias Económicas de laCiudad Autónoma de Buenos Aires* (“CPCECABA”).

 

However, on March 25,2003, the Argentine Government reinstructed the CNV to preclude companies frompresenting price-level restated financial statements. Therefore, CNV ResolutionNo. 441/03 resolved discontinuing inflation accounting as of March 1,2003. The Company complied with the CNV resolution and accordingly recorded theeffects of inflation until February 28, 2003. Comparative figures werealso restated until that date.

 

In October 2003,the CPCECABA resolved to discontinue inflation accounting as of September 30,2003. Since Argentine GAAP required companies to prepare price-level restatedfinancial statements through September 30, 2003, the application of theCNV resolution represented a departure from Argentine GAAP. Changes in wholesale price indices forthe periods indicated were as follows:

 

| **Periods**                              | ** ** | **% change** | ** ** |
|------------------------------------------|------------|--------------|------------|
| January 2002  - February 2003  |       | 119.73       |       |
| January 2002  - September 2003 |       | 115.03       |       |

 

As recommended byArgentine GAAP, the following table presents a comparison between certaincondensed balance sheet and income statement information for the year ended December 31,2008, as restated for the effects of inflation through September 30, 2003,and the corresponding reported amounts which included restatement only through February 28,2003:

 
| ** **                    | ** ** | **As reported (*)  (I)** | ** ** | **As restated through   September 30, 2003 (**)   (II)** | ** ** | **Effect  (I) - (II)** | ** ** |
|-------------------------------|------------|--------------------------|------------|---------------------------------------------------------------|------------|-----------------------------|------------|
| **Total assets**              |       | 9,649                    |       | 9,599                                                         | ** ** | **(50**                     | **)**      |
| **Total liabilities**         |       | 5,548                    |       | 5,530                                                         | ** ** | **(18**                     | **)**      |
| **Minority interest**         |       | 81                       |       | 81                                                            | ** ** | **—**                  | ** ** |
| **Shareholders’ equity** |       | 4,020                    |       | 3,988                                                         | ** ** | **(32**                     | **)**      |
|                          |       |                     |       |                                                          | ** ** |                        | ** ** |
| **Net income**                |       | 961                      |       | 970                                                           | ** ** | **9**                       | ** ** |

 

----

(*)  As required by CNV resolution.

(**)As required by Argentine GAAP.

 

**(d) Use of estimates**

 

The preparation of theconsolidated financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

**(e) Reclassifications**

 

Certain reclassificationsof prior year information have been made to conform to the current yearpresentation.

 

**(f) Statement of cash flows**

 

The Company considers allhighly liquid temporary investments with an original maturity of three monthsor less at the time of purchase to be cash equivalents.

 

Thestatement of cash flows has been prepared using the indirect method.

 

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**3.****                                  ****Preparation of financial statements (continued)**

 

**(g) Concentration of credit risk**

 

The Company’scash equivalents and investments include money market mutual funds placed withvarious major financial institutions with high credit ratings. The Company’sinvestment policy limits its credit exposure to any one issuer/obligor.

 

The Company’s customersinclude numerous corporations. The Company serves a wide range of customers,including residential customers, businesses and governmental agencies. As such,the Company’s account receivables are not subject to significant concentrationof credit risk. While receivables for sales to these various customers aregenerally unsecured, the financial condition and creditworthiness of customersare routinely evaluated. Fixed customer lines were 3,937,000 (unaudited) at December 31,2008, 3,849,000 (unaudited) at December 31, 2007 and 3,750,000 (unaudited)at December 31, 2006 and wireless customer lines, excluding prepaid linesand Internet subscribers (Argentina and Paraguay combined) were 4,425,000(unaudited) at December 31, 2008, 3,767,000 (unaudited) at December 31,2007 and 3,032,000 (unaudited) at December 31, 2006.

 

The Companyprovides for losses relating to accounts receivable. The allowance for lossesis based on management’s evaluation of various factors, including the creditrisk of customers and other information. While management uses the informationavailable to make evaluations, future adjustments to the allowance may benecessary if future economic conditions differ substantially from theassumptions used in making the evaluations. Management has considered allsignificant events and/or transactions that are subject to reasonable andnormal methods of estimation, and the accompanying consolidated financialstatements reflect that consideration.

 

**(h) Earnings per share**

 

The Company computes netincome per common share by dividing net income for the year by the weightedaverage number of common shares outstanding.

 

### **4.**             Summaryof significant accounting policies

### ** **

Thefollowing is a summary of significant accounting policies followed by the Company in the preparation of the financial statements.

 

**(a) Foreign currency translation**

 

The financial statementsof the Company’s foreign subsidiaries are translated in accordance with RT 18, “SpecificConsiderations for the Preparation of Financial Statements”. RT 18 establishesguidelines to classify foreign investments either as “foreign operations” or “foreignentities”. A company is to be regarded as a foreign entity if it isfinancially, economically and organizationally autonomous. Otherwise, a companyis to be regarded as a foreign operation if its operations are integral tothose of the Company. The Company’s foreign subsidiaries have been classifiedas foreign entities since they are financially, economically andorganizationally autonomous. Accordingly, and pursuant to RT 18, financialstatements of foreign entities are translated using year-end exchange rates forassets, liabilities and results of operations. Adjustments resulting from thesetranslations are accumulated and reported as “Foreign currency translationadjustments”, a separate line item in the equity section.

 

**(b) Revenue recognition**

 

**The Company’s principalsources of revenues by reportable segments are:**

** **

**Voice, data and Internet services**

** **

***·******Fixed telephone services:***

 

Domestic servicesrevenues consist of monthly basic fees, measured service, long-distance callsand monthly fees for additional services, including call forwarding, callwaiting, three-way calling, itemized billing and voicemail.

 

Revenues are recognizedwhen earned. Unbilled revenues from the billing cycle dating to the end of eachmonth are calculated based on traffic and are accrued at the end of the month.

 

Basic fees are generallybilled monthly in advance and are recognized when services are provided. Billedbasic fees for which the related service has not yet been provided are deductedfrom corresponding accounts receivable. Revenues derived from othertelecommunications services, principally network access, long distance andairtime usage, are recognized monthly as services are provided.

 

Revenues from the sale ofprepaid calling cards are recognized in the month in which the traffic is usedor in which the card expires, whichever happens first. Remaining unused trafficfor unexpired calling cards is shown as “Deferred revenue” in accounts payable.

 

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**4.            Summary of significant accounting policies (continued)**

 

Revenues frominstallations consist primarily of amounts charged for the installation oflocal access lines. Installation fees are recognized at the time ofinstallation or activation. The direct incremental cost related toinstallations and activations are expensed as incurred. Installation andactivation costs exceed installation revenues for all periods presented.Reconnection fees charged to customers when resuming service after suspensionare deferred and recognized ratably over the average life for those customerswho are assessed a reconnection fee. Associated direct expenses are alsodeferred over the estimated customer relationship period in an amount equal toor less than the amount of deferred revenues. Reconnection revenues are higherthan its associated direct expenses.

 

Interconnection chargesrepresent amounts received by the Company from other local service providersand long-distance carriers for calls that are originated on their networks andtransit and/or terminate on the Company’s network. Revenue is recognized asservices are provided.

 

The revenues and relatedexpenses associated with the sale of equipment are recognized when the productsare delivered and accepted by the customers.

 

***·******International long-distance services:***

 

TheCompany provides international telecommunications service in Argentinaincluding voice and data services and international point-to-point leasedcircuits.

 

Revenuesfrom international long-distance service reflect payments under bilateralagreements between the Company and foreign telecommunications carriers,covering inbound international long-distance calls.

 

Revenuesare recognized as services are provided.

 

***·******Datatransmission and Internet services:***

 

Data and Internetrevenues mainly consist of fixed monthly fees received from residential andcorporate customers for data transmission (including private networks, dedicatedlines, broadcasting signal transport and videoconferencing services) andInternet connectivity services (dial-up and broadband). These revenues arerecognized as services are rendered.

 

Revenues from thesale of modems and the related sale expenses (which are generally higher thanthe connection fees charged to customers) are recognized when the products aredelivered and accepted by the customers.

 

**Wireless telecommunication services**

 

The Companyprovides wireless telephone service throughout Argentina via cellular and PCSnetworks. Cellular and PCS fees consist of monthly basic fees, airtime usage charges, roaming,charges for termination of calls coming from other cellular operators (“TLRD”), calling party pays charges (“CPP”) andadditional charges for value-added services, including call waiting, callforwarding, three-way calling, voicemail, short message systems (“SMS”), andfor other miscellaneous cellular and PCS services. These revenues arerecognized as services are rendered.

 

Basic fees are generallybilled monthly in advance and are recognized when services are provided. Billedbasic fees for which the related service has not yet been provided are deductedfrom corresponding accounts receivable.

 

Equipment salesconsist principally of revenues from the sale of wireless handsets to new andexisting customers and to agents and other third-party distributors. Therevenues and related expenses associated with the sale of wireless handsets,which are generally higher than the prices paid by the customers, arerecognized when the products are delivered and accepted by them.

 

Revenues from the sale ofprepaid calling cards are recognized in the month in which the traffic is usedor in which the card expires, whatever happens first. Remaining unused trafficfor unexpired calling cards is shown as deferred revenue in currentliabilities.

 

**Discontinued operations (former “Directory publishing”)**

 

Revenues andexpenses related to publishing directories are recognized on the “issue basis”method of accounting, which recognizes the revenues and expenses at the timethe related directory is published, fulfilling the Company’s contractualobligation to customers.

 

Revenues related to Internet advertising are recognizedat the time the advertisement is available on the Internet network.

 

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**4.            Summaryof significant accounting policies (continued)**

 

**(c) Foreign currency transaction gains/losses**

 

Foreign currencytransaction gains and losses are included in the determination of net income orloss.

 

However, CNV Resolution No.398 allowed the application ofCPCECABA Resolution MD No.3/02, issued in March 2002, which provides thatforeign currency transaction gains or losses on or after January 6, 2002,related to foreign-currency denominated debts as of such date must be allocatedto the cost of assets acquired or constructed with such financing, as long as aseries of conditions and requirements established in such standard arefulfilled. The Company adopted these resolutions and allocated the costs tofixed assets accordingly.

 

In July 2003, the CPCECABA suspendedsuch accounting treatment and therefore required foreign currency transactiongains and losses to be included in the determination of net income as from July 28,2003.

 

The net carrying value ofthese capitalized costs was $67 as of December 31, 2008 (in the Voice,data and Internet segment) and $106 as of December 31, 2007 ($96 in theVoice, data and Internet segment and $10 in the Wireless segment).

 

**(d) Cash and banks**

 

Cash and banks are stated at face value.

 

**(e) Trade accounts, other receivables and payables, in currency,arising from the sale or purchase of goods and services and financialtransactions**

 

Certain receivables and payables on the sale or purchaseof goods and services, respectively, and those arising from financialtransactions, aremeasured based on the calculation of their discounted value using the internal rate of return of such assets orliabilities at the time of initial measurement. This method is alsocalled the “amortized cost” method and is equivalent to the face value of thereceivables/payables plus the accrued interest less the collections/paymentsmade at year-end.

 

Asmentioned in Note 3.g, the Company provides for losses relating to doubtfulaccounts based on management’s evaluation of various factors.

 

**(f) Other receivables and payables in currency not included in (e) and(g)**

 

Other non-current receivables and non-current payablesnot included in (e) above and (g) below, are measured based on the calculation of theirdiscounted value using the internal rate ofreturn of such assets or liabilities at year-end.

 

Othercurrent receivables and current payables are stated at face value.

 

**(g) Deferred tax assets and liabilities and credits on minimumpresumed income tax**

 

Deferredtax assets and liabilities and minimum presumed income tax credits are stated at face value.

 

Since2002, the Telecom Group, following the guidelines of the FACPCE, has treatedthe differences between the tax basis and book basis of non-monetary items fordeferred income tax calculation purposes as temporary differences. Additionalinformation on the impact of this treatment in the Company’s financial positionis given in Note 10.

 

**(h) Investments**

 

Time deposits are valuedat their cost plus accrued interest at year-end.

 

The Company hasinvestments in certain government bonds. The Company has classified these securitiesas held-to-maturity as management has the intent and ability to hold thosesecurities to maturity.

 

Mutual funds are carriedat market value. Unrealized gains and losses are included in financial results,net, in the consolidated statements of income.

 

The2003 Telecommunications Fund is recorded at the lower of cost or net realizablevalue.

 

**(i) Inventories, net**

 

Inventories arestated at replacement cost, which does not exceed the net realizable value.Where necessary, provision is made for obsolete, slow moving or defectiveinventory.

 

From time to time, theManagement of Personal and Nucleo decide to sell wireless handsets at priceslower than their respective replacement costs. This strategy is aimed atachieving higher market penetration by reducing customer access costs whilemaintaining the companies’ overall wireless business profitability. As thispolicy is the result of management’s decision, promotional prices are not usedto calculate the net realizable value of such inventories.

 

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**4.            Summaryof significant accounting policies (continued)**

 

**(j) Other assets, net**

 

Fixedassets held for sale are stated at cost, less accumulated depreciation at thetime of transfer to the held-for-sale category. All amounts have been restatedfor inflation as mentioned in Note 3.c. which does not exceed the estimatedrealizable value of such assets. Where necessary, a provision was made for theadjustment of the restated cost at realizable value.

 

**(k) Fixed assets, net**

 

Fixed assets received from “ENTel”have been valued at their transfer price. Subsequent additions have been valuedat cost less accumulated depreciation. All amounts have been restated forinflation as mentioned in Note 3.c.

 

As of the date of these financialstatements, the Company has received the transfer of title pertaining tosubstantially all of the fixed assets received from ENTel, other than 14.7% ofthe total transferred buildings, representing $11 of net carrying value as of December 31,2008. Nevertheless, the Company is in complete possession of these fixed assetsand operates them normally.

 

For fixed assets whose operating condition warrantsreplacement earlier than the end of the useful life assigned by the Company toits fixed asset category, the Company calculates the depreciation charge basedon the adjusted remaining useful life assigned in accordance with the relatedasset replacement.

 

The cost of maintenance and repairs is charged toexpense as incurred. The cost of significant renewals and improvements is addedto the carrying amount of the respective assets. When assets are retired orotherwise disposed of, the cost and related accumulated depreciation areremoved from the accounts, and any resulting gain or loss is reflected in thestatements of income.

 

The Company capitalizes interest on long-termconstruction projects. Additional information is given in Note 5.n.

 

Depreciation expense is calculated using thestraight-line method over the estimated useful lives of the related assets,based on the rates specified below:

 
| **Asset**                           | ** ** | **Estimated useful   life (years)** | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|
| Buildings received from ENTel       |       | 20                                  |       |
| Buildings                           |       | 50                                  |       |
| Tower and pole                      |       | 15                                  |       |
| Transmission equipment              |       | 10-20                               |       |
| Wireless network access             |       | 5-10                                |       |
| Switching equipment                 |       | 5-8                                 |       |
| Power equipment                     |       | 7-15                                |       |
| External wiring                     |       | 10-20                               |       |
| Computer equipment                  |       | 3-5                                 |       |
| Telephony equipment and instruments |       | 5-10                                |       |
| Installations                       |       | 3-10                                |       |

 

As a consequence of thecommercial decision of accelerating the migration from TDMA technology to GSMtechnology, during fiscal year 2007 Personal had accelerated depreciation ofthe TDMA network, expecting to be concluded by March 31, 2008. As aconsequence of the claim of several customers, the canceling of the TDMA networkconcluded in June 2008. By means of this, the depreciation of this networkamounted to $243 and $64 for the years ended December 31, 2007 and 2008,respectively.

 

The Company is subject to asset retirement obligations(“ARO”) associated with its cell and switch site operating leases. The Company,in most cases, has the right to renew the initial lease term. Accordingly, theCompany records a liability for an ARO. When the liability is initiallyrecorded, the entity capitalizes a cost by increasing the carrying amount ofthe related long-lived asset. The capitalized cost is depreciated over theestimated useful life of the related asset. Subsequent to the initialmeasurement, an entity should recognize changes in the ARO that result from (1) thepassage of time and (2) revisions made to either the timing or amount ofestimated cash flows. Changes resulting from revisions in the timing or amountof estimated cash flows should be recognized as increases or decreases in thecarrying amount of the ARO and the associated capitalized retirement cost.Increases in the ARO as a result of upward revisions in undiscounted cash flowestimates should be considered new obligations and initially measured usingcurrent credit-adjusted risk-free interest rates. Any decreases in the ARO as aresult of downward revisions in cash flow estimates should be treated asmodifications of an existing ARO, and should be measured at the historicalinterest rate used to measure the initial ARO.

 

Fixed assets as a whole does not exceed the estimatedrealizable value (See 4.m below).

 

F-22

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Tableof Contents

 

**4.            Summaryof significant accounting policies (continued)**

 

**(l) Intangible assets, net**

 

Intangibleassets are stated at cost, less accumulated amortization. All amounts have beenrestated for inflation as mentioned in Note 3.c.

 

Intangible assetscomprise the following:

 

*·** Software obtained ordeveloped for internal use*

 

The Company hascapitalized certain costs associated with the development of computer softwarefor internal use. These costs are being amortized on a straight-line basis overa period ranging between 5 years and 6.5 years.

 

*·** Debt issue costs*

 

Expenses incurred inconnection with the issuance of debt are deferred and are being amortized underthe interest method over the life of the related issuances.

 

*·** PCS license*

 

TheCompany adopted RT 17, “Overallconsiderations for the preparation of financial statements”, on January 1, 2002. This standardprescribes the accounting treatment for both identifiable intangibles andgoodwill after initial recognition. Upon adoption of this standard,amortization of indefinite life intangibles ceased. Impairment testing of theseassets is now required. The Company identified Personal’s PCS licenses asindefinite life intangibles.

 

*·** PCS and Band B of Paraguaylicenses*

 

Nucleo’s PCS and Band Blicenses were amortized under the straight-line method over 10 years throughfiscal year 2007. Renovation costs are being amortized in 5 years.

 

*·** Rights of use*

 

TheCompany purchases network capacity under agreements which grant the exclusiveright to use a specified amount of capacity for a period of time. Acquisitioncosts are capitalized and amortized over the terms of the respective capacityagreements, generally 15 years.

 

*·** Exclusivity agreements*

 

Exclusivity agreementswere entered into with certain retailers and third parties relating to thepromotion of the Company’s services and products. Amounts capitalized are beingamortized over the life of the agreements, which range from 7 to 29 years.

 

*·** Customer relationships*

 

Acquired in the purchaseof shares of Cubecorp, it is amortized over the terms of permanence of thecustomers which was estimated in 15 years.

 

Intangible assets as awhole does not exceed the estimated realizable value (See 4.m below).

 

**(m) Impairment of long-lived assets**

 

The Company periodicallyevaluates the carrying value of its long-lived assets and certain intangibleassets for impairment when events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. The carrying value of along-lived asset is considered impaired by the Company when the expected cashflows, discounted and without interest cost, from such an asset, is less thanits carrying value. In that event, a loss would be recognized based on theamount by which the carrying value exceeds the fair market value of thelong-lived asset. Fair market value is determined primarily using theanticipated cash flows discounted at a rate commensurate with the riskinvolved.

 

The devaluation of theArgentine peso, which occurred in January 2002, and the “pesification” ofTelecom Argentina’s tariffs materially affected the Company’s financialposition and results of operations, and changed the rules under which theCompany operated. However, as indicated inNote 2.j., Law No. 25,561 authorized the Argentine Government to renegotiatethe conditions of the contracts with the privatized companies, taking intoaccount their profitability, among other criteria.

 

Inthis regard, the Company has made certain assumptions in the determination ofits estimated cash flows to evaluate a potential impairment of its long-livedassets in relation to each operating segment. In the preparation of suchestimates and in connection with the fixed-line business, the Company hasconsidered different scenarios, some of which contemplate the modification ofthe current level of Telecom Argentina’s regulated tariffs which would enableTelecom Argentina to finance the technological renovation of its fixed-linenetwork in the next years.

 

Basedon the foregoing, the Company considered an impairment charge not to benecessary for its long-lived assets.

 

F-23

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Tableof Contents

 

**4.            Summaryof significant accounting policies (continued)**

 

**(n) Capital leases**

 

Fixedasset acquisitions financed by leases are recorded at the estimated price whichwould have been paid on a cash basis, with the unpaid amount discounted usingthe internal rate of return at the moment of the initial measurement (includingthe purchase price option), recorded as a liability.

 

AtDecember 31, 2008 the Company holds capital leases in the amount of $9,maturing in fiscal year 2009. A summary by major class of fixed assets coveredby capital leases at December 31, 2008 is as follows:

 
| ** **                | ** ** | **Book value** | ** ** | **Lease terms** | ** ** | **Amortization period** | ** ** |
|---------------------------|------------|----------------|------------|-----------------|------------|-------------------------|------------|
| Computer  equipment       |       | 19             |       | 3 years         |       | 5 years                 |       |
| Accumulated  depreciation |       | (6             | )          |            |       |                    |       |
| **Net value**             | ** ** | **13**         | ** ** | ** **      | ** ** | ** **              | ** ** |

 

**(o) Severance indemnities**

 

Severancepayments made to employees are expensed as incurred.

 

**(p) Taxes payable**

 

*·**Income taxes*

 

As per Argentinean TaxLaw, the provisions for income taxes have been computed on a separate returnbasis (i.e., the Company does not prepare a consolidated income tax return).All income tax payments are made by the subsidiaries as required by the taxlaws of the countries in which they respectively operate. The Company recordsincome taxes using the method required by RT 17.

 

Accordingly,deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statementcarrying amounts and their respective tax bases. RT 17 also requires companiesto record a valuation allowance for that component of net deferred tax assetswhich are not recoverable. The statutory income tax rate in Argentina was 35%for all periods presented.

 

Cash dividendsreceived from a foreign subsidiary are computed on the statutory income taxrate. As per Argentinean Tax Law, income taxes paid abroad may be recognized astax credits.

 

The statutoryincome tax rate in Paraguay was 10% for all periods presented. As perParaguayan Tax Law, dividends paid are computed with an additional income taxrate of 5%. Additionally, when dividends are paid to foreign shareholders,there is an additional income tax rate of 15%, which is deducted from theamounts paid to the shareholders.

 

*·**Tax on minimum presumed income*

 

The Company issubject to a tax on minimum presumed income. This tax is supplementary toincome tax. The tax is calculated by applying the effective tax rate of 1% onthe tax basis of certain assets. The Company’s tax liabilities will be thehigher of income tax or minimum presumed income tax. However, if the tax onminimum presumed income exceeds income tax during any fiscal year, such excessmay be computed as a prepayment of any income tax excess over the tax onminimum presumed income that may arise in the next ten fiscal years.

 

For the year ended December 31,2008, Telecom has estimated a provision for income taxes, net of part of the receivable from the tax onminimum presumed income and of payments in advance of income taxes.Accordingly, and considering that Telecom’s 2008 economic-financial projectionsestimate an income tax payable, the receivable for the tax on minimum presumed income was included in “Other non-currentreceivables”.

 

For the year ended December 31,2008, Personal has estimated a provisionfor income taxes, net of the receivable from the tax on minimum presumed incomeand of payments in advance of income taxes.

 

*·**Turnover tax*

 

Under Argentinetax law, the Company is subject to a tax levied on gross revenues. Rates differdepending on the jurisdiction where revenues are earned for tax purposes.Average rates were approximately 4.0% for the years ended December 31, 2008,2007 and 2006.

 

**(q) Other liabilities**

 

·      **Pension benefits**

 

Argentine lawsprovide for pension benefits to be paid to retired employees from governmentpension plans and/or privately managed fund plans to which employees may electto contribute. Amounts payable to such plans are accounted for on an accrualbasis. The Company does not sponsor any stock option plan.

 

F-24

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Tableof Contents

 

**4.            Summary of significant accounting policies (continued)**

 

Retirementliabilities shown under other liabilities represent benefits under collectivebargaining agreements for employees who retire upon reaching normal retirementage, or earlier due to disability. Benefitsconsist of the payment of a single lump sum equal to the salary of one monthfor each five years of service. There is no vested benefit obligation until theoccurrence of those conditions. The collective bargaining agreements do notprovide for other post-retirement benefits such as life insurance, health care,and other welfare benefits. The net periodic pension costs are recognized as employees render theservices necessary to earn pension benefits. Actuarial assumptions anddemographic data, as applicable, were used to measure the benefit obligation asrequired by RT 23. The Company does not makeplan contributions or maintain separate assets to fund the benefits atretirement.

 

Thefollowing tables summarize benefit costs for the years ended December 31,2008, 2007 and 2006, as well as the benefit obligations associated withpostretirement benefit plans as of December 31, 2008 and 2007:

 
|                                    |   | **As  of December 31,** |       |     |   |   |
|-----------------------------------------|--------|------------------------------|------------|----------|--------|--------|
|                                    |   | **2008**                     | ** ** | **2007** |   |   |   |   |
| Accumulated benefit obligation          |   | $                            | 5          |     | $      | 7      |   |   |   |   |
| Effect of future compensation increases |   | 4                            |       | 11       |   |   |   |   |
| **Projected benefit obligation**        |   | **$**                        | **9**      |     | **$**  | **18** |   |   |   |   |

 
| ** **             | ** ** | **Years  ended December 31,** | ** ** |
|------------------------|------------|------------------------------------|------------|
| ** **             | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost           |       | $                                  | 1          |   | $ | 1 |   | $ | 1 |   |
| Interest cost          |       | 3                                  |       | 3 |   | 3 |   |
| **Total benefit cost** | ** ** | **$**                              | **4**      | ** ** | **$** | **4** | ** ** | **$** | **4** | ** ** |

 

Theactuarial assumptions used are based on market interest rates, past experienceand management’s best estimate of future economic conditions. Changes in theseassumptions may impact future benefit costs and obligations. The mainassumptions used in determining expense and benefit obligations are as follows:

 
| ** **                              | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Discount rate (1)                       |       | 10.5     | %          | 10.5     | %          | 10.5     | %          |
| Projected increase rate in compensation |       | 10-16    | %          | 10.5-14  | %          | 10-12    | %          |

 

----

(1)Represents estimates of real rate of interest rather than nominalrate in $.

 

·                  **Deferred revenue on saleof capacity**

 

Under certainnetwork capacity purchase agreements, the Company sells excess purchasedcapacity to other carriers. Revenues are deferred and recognized as servicesare provided.

 

·                  **Court fee**

 

Under the out-of-courtrestructuring agreement (“Acuerdo Preventivo Extrajudicial” or APE), theCompany was subject to a court fee of 0.25% levied on the total amount finallyapproved as restructured by the court. The fee is paid in up to one hundred andten monthly installments with an annual interest rate of 6% through September 2014.

 

**(r) Exchange of debt instruments**

 

Argentine GAAP requiresthat an exchange of debt instruments with substantiallydifferent terms be considered a debt extinguishment and that the old debtinstrument be derecognized. Argentine GAAP clarifies that from a debtor’sperspective, an exchange of debt instruments between, or a modification of adebt instrument by, a debtor and a creditor shall be deemed to have beenaccomplished with debt instruments that are substantially different if thepresent value of the cash flows under the terms of the new debt instrument isat least 10 percent different from the present value of the remaining cashflows under the terms of the original instrument. The new debt instrumentshould be initially recorded at fair value and that amount should be used todetermine the debt extinguishment gain or loss to be recognized. Fair valueshould be determined by the present value of the future cash flows to be paidunder the terms of the new debt instrument discounted at a rate commensuratewith the risks of the debt instrument and time value of money. This criterionwas used by Telecom Argentina to account for its respective debt restructuringin August 2005. Additional information is given in Note 8.

 

**(s) Litigation**

 

The Company, in theordinary course of business, is subject to various legal proceedings. Thereserve for contingencies was established considering the potential outcome ofthese matters and the legal counsel’s opinion.

 

F-25

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Tableof Contents

 

**4.            Summaryof significant accounting policies (continued)**

 

**(t) Derivatives to hedge the Company’s exposure to foreigncurrency and/or interest rate fluctuations**

 

The Company has adopted the Caption No. 2 of RT 18issued by the FACPCE, “Accounting for Derivative Instruments and HedgingActivities”, which requires the recognition of all derivative financialinstruments as assets and/or liabilities at their estimated fair value, whetherdesignated in a hedging relationship or not. Changes in the fair value ofeffective cash flow hedges are recognized as a separate component ofShareholders’ equity of the balance sheet and subsequently reclassified toearnings when the hedged items affect earnings. Gains and losses from fairvalue hedges are recognized in earnings in the period of any changes in thefair value of the related recognized asset or liability. Derivatives notdesignated or qualifying as a hedging instrument or ineffective derivatives areadjusted to fair value through earnings.

 

**1. Foreign currency swapcontracts related to Notes**

 

During fiscal year 2005, the Company entered into twoforeign exchange currency swap contracts to hedge its exposure to the Euro andJapanese yen-denominated Notes fluctuations with respect to the US dollar.These swap agreements expired in October 2008, generating a net income offunds approximately equivalent to $170.

 

Considering that the Company’s cash flows generationis in Argentine pesos and the terms of the swap do not perfectly match theterms of the Euro and Japanese yen-denominated obligations, these hedges wereregarded as ineffective. Therefore, the changes in the fair value of thesehedges were recognized in the financial results as “Gain (loss) on derivatives”.

 

**2. Non-Deliverable Forward (“NDF”)contracts to purchase US Dollars at fixed rate**

 

***a) For Notes denominated inforeign currency***

 

During last quarter of 2008, Telecom Argentina entered into several contracts to purchase a total amount of US$ 108.5million for a fixedforward average price of Argentine peso 3.49 per US dollar maturing April 2009in order to hedge itsexposure to foreign currency fluctuations with respect toits Notes denominated in foreign currency. During January 2009, theCompany entered into new supplementary derivative contracts (additionalinformation in Note 17).

 

Consideringthat the Company primarily generates cash flows in Argentine pesos and theterms of the NDF do not perfectly match the terms of the foreigncurrency-denominated obligations (due to the existence of the prepaid terms),these hedges were regarded as ineffective. Therefore, the changes in the fairvalue of these hedges were recognized in the financial results as “Gain (loss)on derivatives” with the counterpart in the line “Other receivables” in anamount of $9.

 

***b) For foreign currency service contracts***

 

In June 2008,Personal entered into several NDF contracts to purchase a total amount of US$39.7 million between September 2008 and December 2009 for fixedforward prices of Argentine peso 3.0785 through 3.4450 per US dollar in orderto hedge its exposure to US dollar fluctuations related to a software licenseservice contract to be quarterly cancelled in US dollars. Some of thesecontracts have matured (US$ 7.1 million in September 2008 and US$ 7.1million in December 2008) and the outstanding contracts amount to US$ 25.4million.

 

In July 2008,Telecom also entered into several NDF contracts to purchase a total amount ofUS$ 4.7 million between January 2009 and September 2009 for fixedforward prices of Argentine peso 3.11 through 3.30 per US dollar in order tohedge its exposure to US dollar fluctuations related to a software and hardwareservice contract to be monthly cancelled in US dollars.

 

Thecritical terms of NDF contracts and service contracts (amounts and maturities)are the same, allowing a perfect cash flows matching between both contracts.

 

Consideringthe management objective and strategy to reduce its exposure to US dollarfluctuations and denominate its obligations in Argentine peso, currency inwhich the Company mainly generates its cash flow, the Company designated theseNDF contracts as effective cash flow hedges of software license servicecontract (an unrecognized firm commitment). Changesin the fair value of cash flow hedges were recognized as a separate componentof Shareholders’ equity of the balance sheet, which subsequently will bereclassified to earnings when the hedged item affects earnings. As of December 31, 2008, the fairvalue of these derivative instruments was a receivable of $13.

 

F-26

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Tableof Contents

 

**4.            Summaryof significant accounting policies (continued)**

 

These instruments werenegotiated with institutions and corporations with significant financialcapacity; therefore, the Company considered that the risk of non-compliancewith the obligations agreed to by such counterparties to be minimal.

 

The Company does not enter into derivative contracts forspeculative purposes.

 

**(u) Vacation expenses**

 

Vacation expensesare fully accrued in the period the employee renders services to earn suchvacation.

 

**(v) Advertising costs**

 

Advertising costsare expensed as incurred. Advertising costs for the years ended December 31,2008, 2007 an 2006 are shown in Note 16.h. under the line item “Advertising”.

 

**(w) Resultsfrom discontinued operations**

 

Under Argentine GAAP, the sale of the formersubsidiary Publicom, approved by the Company’s Board of Directors in March 2007,shall be accounted for as “Discontinued operation” in accordance with theguidelines of RT 9, that considers that an entity’s component is discontinuedif: i) it has been sold at the date of issuance of the financial statements;ii) it constitutes a separate line of business and iii) it is identified eitheras operating purposes or financial reporting purposes.

 

By this means, the Company has consolidatedPublicom as of the disposal date identifying the results of operations in aseparate line “Income from discontinued operations” of the consolidatedstatements of income.

 

A summary of the results of operations ofPublicom, net of intercompany transactions, which were included in thisseparate line, is as follows:

 
| ** **                                                                 | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| **Income from the operations**                                             | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| **Net sales**                                                              | ** ** | **$**                                       | **3**      | ** ** | **$** | **65** | ** ** |
| Salaries and social security                                               |       | (2                                          | )          | (11 | ) |
| Taxes                                                                      |       | —                                      |       | (1 | ) |
| Maintenance, materials and supplies                                        |       | —                                      |       | (22 | ) |
| Bad debt expense                                                           |       | —                                      |       | (1 | ) |
| Fees for services                                                          |       | —                                      |       | (1 | ) |
| Advertising                                                                |       | (1                                          | )          | (3 | ) |
| Other commissions                                                          |       | —                                      |       | (3 | ) |
| Others                                                                     |       | (1                                          | )          | (4 | ) |
| **Operating (loss) income before  depreciation and amortization**          | ** ** | **(1**                                      | **)**      | **19** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets        |       | —                                      |       | (1 | ) |
| **Operating (loss) income**                                                | ** ** | **(1**                                      | **)**      | **18** | ** ** |
| Financial results, net                                                     |       | 1                                           |       | 2 |   |
| Other expenses, net                                                        |       | —                                      |       | (2 | ) |
| **Net income before income tax**                                           | ** ** | **—**                                  | ** ** | **18** | ** ** |
| Income tax benefit (expense)                                               |       | 1                                           |       | (5 | ) |
| **Net income from the operations**                                         | ** ** | **1**                                       | ** ** | **13** | ** ** |
|                                                                       |       |                                        |       |   |   |
| **Income from assets disposal**                                            |       |                                        |       |   |   |
| Income from the sale of the shares                                         |       | 182                                         |       | — |   |
| Equity value at March 31, 2007                                        |       | (15                                         | )          | — |   |
| Assignment of Publicom’s dividends receivable at  March 31, 2007 |       | (3                                          | )          | — |   |
| **Net income before income taxes**                                         | ** ** | **164**                                     | ** ** | **—** | ** ** |
| Income taxes                                                               |       | (63                                         | )          | — |   |
| **Net income from assets disposal**                                        | ** ** | **101**                                     | ** ** | **—** | ** ** |
|                                                                       |       |                                        |       |   |   |
| **Income from discontinued  operations**                                   | ** ** | **$**                                       | **102**    | ** ** | **$** | **13** | ** ** |

 

**5.           Breakdown of the main accounts**

 

**(a)****        ****Cash and banks**

 

Cash and banks consist of the following:

 
| ** ** | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|------------|------------|-------------------------------|------------|-------------------------------|------------|
| Cash       |       | $                             | 9          |                          | $          | 7 |   |
| Banks      |       | 27                            |       | 38                            |       |
| ** ** | ** ** | **$**                         | **36**     | ** **                    | **$**      | **45** | ** ** |

 

F-27

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Tableof Contents

 

**5.            Breakdown of the main accounts (continued)**

 

**(b)****        ****Investments**

 

Investments consist of the following:

 
| ** **                    | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|-------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Current**                   |       |                          |       |                          |       |
| Time  deposits                |       | $                             | 718        |                          | $          | 848 |   |
| Government  bonds             |       | 223                           |       | —                        |       |
| Mutual  funds                 |       | 144                           |       | 99                            |       |
| Related  parties (Note 7)     |       | 4                             |       | —                        |       |
| ** **                    | ** ** | **$**                         | **1,089**  | ** **                    | **$**      | **947** | ** ** |
| **Non current**               |       |                          |       |                          |       |
| Related  parties (Note 7)     |       | $                             | 6          |                          | $          | 1 |   |
| 2003  Telecommunications Fund |       | 1                             |       | 1                             |       |
| ** **                    | ** ** | **$**                         | **7**      | ** **                    | **$**      | **2** | ** ** |

 

**(c)****         ****Accounts receivable**

 

Accounts receivable consist of the following:

 
| ** **                                   | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Current**                                  | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Voice,  data and Internet                    |       | $                             | 538        |                          | $          | 478 |   |
| Wireless  (i)                                |       | 602                           |       | 539                           |       |
| Wireless  – related parties (Note 7)    |       | 5                             |       | 7                             |       |
| Subtotal                                     | ** ** | **1,145**                     | ** ** | **1,024**                     | ** ** |
| Allowance  for doubtful accounts (Note 16.e) |       | (136                          | )          | (126                          | )          |
| ** **                                   | ** ** | **$**                         | **1,009**  | ** **                    | **$**      | **898** | ** ** |
| **Non current**                              | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Voice,  data and Internet                    | ** ** | **$**                         | 1          | ** **                    | **$**      | — | ** ** |
| Allowance  for doubtful accounts (Note 16.e) |       | (1                            | )          | —                        |       |
| ** **                                   | ** ** | **$**                         | **—** | ** **                    | **$**      | **—** | ** ** |

 

----

(i) Includes $20 as of December 31, 2008 and $25 as of December 31,2007 corresponding to Nucleo’s receivables.

 

**(d) Otherreceivables**

 

Other receivables consist of the following:

 
| ** **                                                       | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Current**                                                      | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Prepaid  expenses                                                |       | $                             | 57         |                          | $          | 42 |   |
| Tax  credits                                                     |       | 48                            |       | 40                            |       |
| SU  credits (Note 2.d)                                           |       | 36                            |       | 9                             |       |
| NDF  for Notes (Note 4.t.2.a and 4.t.1)                          |       | 9                             |       | 212                           |       |
| NDF  for service contracts (Note 4.t.2.b)                        |       | 13                            |       | —                        |       |
| Credit on SC Resolution No. 41/07 and IDC  (Note 2.g and i) |       | 11                            |       | 12                            |       |
| Restricted  funds                                                |       | 9                             |       | 9                             |       |
| Other                                                            |       | 41                            |       | 31                            |       |
| Subtotal                                                         | ** ** | **224**                       | ** ** | **355**                       | ** ** |
| Regulatory  contingencies (Notes 2 g and i and 16.e)             |       | (11                           | )          | (12                           | )          |
| Allowance  for doubtful accounts (Note 16.e)                     |       | (12                           | )          | (11                           | )          |
|                                                             | ** ** | **$**                         | **201**    | ** **                    | **$**      | **332** | ** ** |
| **Non current**                                                  | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Credit on SC Resolution No. 41/07 and IDC  (Note 2.g and i) |       | $                             | 93         |                          | $          | 77 |   |
| Prepaid  expenses                                                |       | 21                            |       | 15                            |       |
| Credit  on minimum presumed income tax                           |       | 20                            |       | 227                           |       |
| Other  tax credits                                               |       | 17                            |       | 13                            |       |
| Restricted  funds                                                |       | 15                            |       | 14                            |       |
| Other                                                            |       | 13                            |       | 13                            |       |
| Subtotal                                                         | ** ** | **179**                       | ** ** | **359**                       | ** ** |
| Regulatory  contingencies (Notes 2 g and i and 16.e)             |       | (75                           | )          | (64                           | )          |
| Allowance  for doubtful accounts (Note 16.e)                     |       | (17                           | )          | (13                           | )          |
|                                                             | ** ** | **$**                         | **87**     | ** **                    | **$**      | **282** | ** ** |

 

**(e)****         ****Inventories**

 

Inventories consist of the following:

 
| ** **                                   | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| Wireless  handsets and equipment (Note 16.f) |       | $                             | 267        |                          | $          | 175 |   |
| Allowance  for obsolescence (Note 16.e)      |       | (16                           | )          | (18                           | )          |
|                                         | ** ** | **$**                         | **251**    | ** **                    | **$**      | **157** | ** ** |

 

F-28

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Tableof Contents

 

**5.            Breakdown of the main accounts (continued)**

 

**(f) Otherassets**

 

Other assets consist of the following:

 
| ** **                              | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Current**                             | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Fixed  assets held for sale             |       | $                             | 7          |                          | $          | 5 |   |
| Allowance  for other assets (Note 16.e) |       | (1                            | )          | —                        |       |
| ** **                              | ** ** | **$**                         | **6**      | ** **                    | **$**      | **5** | ** ** |
| **Non current**                         | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Fixed  assets held for sale             |       | $                             | 6          |                          | $          | 9 |   |
| Allowance  for other assets (Note 16.e) |       | (3                            | )          | (4                            | )          |
| ** **                              | ** ** | **$**                         | **3**      | ** **                    | **$**      | **5** | ** ** |

 

**(g) Fixedassets**

 

Fixed assets consist of the following:

 
| ** **                          | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Non current**                     | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Net  carrying value (Note 16.a)     |       | $                             | 6,207      |                          | $          | 5,758 |   |
| Write-off  of materials (Note 16.e) |       | (19                           | )          | (20                           | )          |
| ** **                          | ** ** | **$**                         | **6,188**  | ** **                    | **$**      | **5,738** | ** ** |

 

**(h) Accountspayable**

 

Accounts payable consist of the following:

 
| ** **                                              | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Current**                                             | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Fixed  assets suppliers                                 |       | $                             | 773        |                          | $          | 563 |   |
| Other  assets and services suppliers                    |       | 607                           |       | 679                           |       |
| Inventories  suppliers                                  |       | 157                           |       | 202                           |       |
| **Subtotal**                                            | ** ** | **1,537**                     | ** ** | **1,444**                     | ** ** |
| Deferred  revenues                                      |       | 134                           |       | 103                           |       |
| Related  parties (Note 7)                               |       | 62                            |       | 53                            |       |
| Agent  commissions                                      |       | 21                            |       | 34                            |       |
| SU  reimbursement (Note 2.d.2)                          |       | 15                            |       | 6                             |       |
| ** **                                              | ** ** | **$**                         | **1,769**  | ** **                    | **$**      | **1,640** | ** ** |
| **Non current**                                         | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Fixed  assets suppliers — Related parties (Note 7) | ** ** | **$**                         | **27**     | ** **                    | **$**      | **—** | ** ** |

 

**(i) Salariesand social security payable**

 

Salaries and social security payable consist of thefollowing:

 
| ** **                                     | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Current**                                    | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Vacation,  bonuses and social security payable |       | $                             | 193        |                          | $          | 145 |   |
| Termination  benefits                          |       | 44                            |       | 19                            |       |
| ** **                                     | ** ** | **$**                         | **237**    | ** **                    | **$**      | **164** | ** ** |
| **Non current**                                | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Termination  benefits                          | ** ** | **$**                         | **83**     | ** **                    | **$**      | **43** | ** ** |

 

**(j) Taxespayable**

 

Taxes payable consist of the following:

 
| ** **                      | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|---------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Current**                     | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Income  tax, net                |       | $                             | 290        |                          | $          | 1 |   |
| Tax on SU (Note 2.d)            |       | 121                           |       | 97                            |       |
| VAT,  net                       |       | 67                            |       | 55                            |       |
| Turnover  tax                   |       | 47                            |       | 43                            |       |
| Internal  taxes                 |       | 25                            |       | 19                            |       |
| Regulatory  fees                |       | 15                            |       | 11                            |       |
| Tax  on minimum presumed income |       | —                        |       | 15                            |       |
| Other                           |       | 53                            |       | 25                            |       |
| ** **                      | ** ** | **$**                         | **618**    | ** **                    | **$**      | **266** | ** ** |
| **Non current**                 | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Deferred  tax liabilities       | ** ** | **$**                         | **224**    | ** **                    | **$**      | **289** | ** ** |

 

F-29

----

Table of Contents

 

**5.            Breakdown of the main accounts (continued)**

 

**(k) Otherliabilities**

 

Other liabilities consist of the following:

 
| ** **                                                 | ** ** | **As of  December  31, 2008** | ** ** | **As of  December  31, 2007** | ** ** |
|------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Current**                                                | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Guarantees  received                                       |       | $                             | 12         |                          | $          | 7 |   |
| Deferred revenue on sale of capacity and related  services |       | 10                            |       | 7                             |       |
| Court  fee                                                 |       | 3                             |       | 3                             |       |
| Contingencies  payable                                     |       | —                        |       | 20                            |       |
| Other                                                      |       | 21                            |       | 13                            |       |
| ** **                                                 | ** ** | **$**                         | **46**     | ** **                    | **$**      | **50** | ** ** |
| **Non current**                                            | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Deferred revenue on sale of capacity and related  services |       | $                             | 86         |                          | $          | 60 |   |
| Asset  retirement obligations                              |       | 37                            |       | 26                            |       |
| Court  fee                                                 |       | 11                            |       | 12                            |       |
| Retirement  benefits                                       |       | 9                             |       | 18                            |       |
| Other                                                      |       | 3                             |       | 4                             |       |
| ** **                                                 | ** ** | **$**                         | **146**    | ** **                    | **$**      | **120** | ** ** |

 

**(l) Netsales**

 

Net sales consist of the following:

 
| ** **                   | ** ** | **Years ended December 31,** | ** ** |
|------------------------------|------------|-----------------------------------|------------|
| ** **                   | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Voice                        |       | $                                 | 2,701      |   | $ | 2,601 |   | $ | 2,467 |   |
| Internet                     |       | 735                               |       | 528 |   | 430 |   |
| Data                         |       | 217                               |       | 173 |   | 156 |   |
| **Voice, data and Internet** | ** ** | **3,653**                         | ** ** | **3,302** | ** ** | **3,053** | ** ** |
| Prepaid  and post-paid       |       | 2,362                             |       | 1,988 |   | 1,404 |   |
| Roaming,  TLRD and CPP       |       | 1,645                             |       | 1,412 |   | 1,085 |   |
| Value  added services        |       | 1,735                             |       | 1,264 |   | 815 |   |
| Sale  of handsets            |       | 712                               |       | 583 |   | 536 |   |
| Other                        |       | 111                               |       | 92 |   | 124 |   |
| **Wireless in Argentina**    | ** ** | **6,565**                         | ** ** | **5,339** | ** ** | **3,964** | ** ** |
| Prepaid  and post-paid       |       | 269                               |       | 301 |   | 244 |   |
| Roaming,  TLRD and CPP       |       | 79                                |       | 102 |   | 90 |   |
| Value  added services        |       | 7                                 |       | 5 |   | 1 |   |
| Sale  of handsets            |       | 8                                 |       | 7 |   | 8 |   |
| Internet                     |       | 13                                |       | 5 |   | — |   |
| Other                        |       | 14                                |       | 13 |   | 12 |   |
| **Wireless in Paraguay**     | ** ** | **390**                           | ** ** | **433** | ** ** | **355** | ** ** |
| **Total net sales**          | ** ** | **$**                             | **10,608** | ** ** | **$** | **9,074** | ** ** | **$** | **7,372** | ** ** |

 

**(m) Gainon equity investees**

 

Gain on equity investees consists of the following:

 
| ** **                               | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------------|------------|
| ** **                               | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Gain  on capital reimbursement of Nucleo |       | $                                 | —     |   | $ | — |   | $ | 6 |   |
| Loss  on 2003 Telecommunications Fund    |       | —                            |       | — |   | (1 | ) |
| ** **                               | ** ** | **$**                             | **—** | ** ** | **$** | **—** | ** ** | **$** | **5** | ** ** |

 

**(n) Financialresults, net**

 

Financial results, net consist of the following:

 
| ** **                                 | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------------------|------------|
| ** **                                 | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Generated by assets**                    |       |                              |       |   | ** ** | ** ** | ** ** |
| Interest  income                           |       | $                                 | 85         |   | $ | 94 |   | $ | 77 |   |
| Related  parties (Note 7)                  |       | 1                                 |       | 1 |   | — |   |
| Foreign  currency exchange gain            |       | 104                               |       | 26 |   | 6 |   |
| Holding  (gain) loss on inventories        |       | 2                                 |       | (59 | ) | (5 | ) |
| Other                                      |       | 7                                 |       | — |   | 8 |   |
| **Total generated by assets**              | ** ** | **$**                             | **199**    | ** ** | **$** | **62** | ** ** | **$** | **86** | ** ** |
| **Generated by liabilities**               | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  expense                          |       | $                                 | (203       | ) | $ | (294 | ) | $ | (365 | ) |
| Less  capitalized interest on fixed assets |       | 20                                |       | 23 |   | 14 |   |
| Loss  on discounting of debt               |       | (53                               | )          | (84 | ) | (131 | ) |
| Foreign  currency exchange loss            |       | (233                              | )          | (293 | ) | (204 | ) |
| Gain  (loss) on derivatives                |       | (29                               | )          | 141 |   | 114 |   |
| Gain  on purchase of Notes                 |       | 34                                |       | — |   | — |   |
| Other                                      |       | —                            |       | 4 |   | 2 |   |
| **Total generated by liabilities**         | ** ** | **$**                             | **(464**   | **)** | **$** | **(503** | **)** | **$** | **(570** | **)** |
| ** **                                 | ** ** | **$**                             | **(265**   | **)** | **$** | **(441** | **)** | **$** | **(484** | **)** |

 

F-30

----

Tableof Contents

 

**5.            Breakdownof the main accounts (continued)**

 

**(o) Otherexpenses, net**

 

Other expenses, net consist of the following:

 
| ** **                                                     | ** ** | **Years  ended December 31,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                     | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Severance payments and termination benefits                    |       | $                                  | (144       | ) | $ | (84 | ) | $ | (48 | ) |
| Provision for contingencies (Note 16.e)                        |       | (100                               | )          | (79 | ) | (82 | ) |
| Allowance for obsolescence of inventories (Note  16.e)         |       | (12                                | )          | (7 | ) | (5 | ) |
| Provision for regulatory contingencies (Note 16.e)             |       | (12                                | )          | (42 | ) | (14 | ) |
| Allowance for doubtful accounts and other assets               |       | (6                                 | )          | (4 | ) | (13 | ) |
| Allowance for obsolescence of materials (Note 16.e)            |       | (2                                 | )          | — |   | (22 | ) |
| Gain on sale of fixed assets and other assets                  |       | —                             |       | 19 |   | 7 |   |
| Gain on SC Resolution No. 41/07 and IDC (Note  2.g and i) |       | —                             |       | 92 |   | — |   |
| Other, net                                                     |       | 8                                  |       | 7 |   | (7 | ) |
| ** **                                                     | ** ** | **$**                              | **(268**   | **)** | **$** | **(98** | **)** | **$** | **(184** | **)** |

 

### **6.**                                     Supplementarycash flow information

### ** **

The statement of cashflows has been prepared using the indirect method.

 

The following table reconciles the balances includedas cash and banks and current investments in the balance sheet to the totalamounts of cash and cash equivalents at the beginning and end of the yearsshown in the statements of cash flows:

 
| ** **                                                                   | ** ** | **As of  December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                     | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Cash and banks                                                               |       | $                            | 36         |   | $ | 45 |   | $ | 30 |   | $ | 44 |   |
| Current investments                                                          |       | 1,089                        |       | 947 |   | 631 |   | 596 |   |
| **Total as per balance sheet**                                               | ** ** | **$**                        | **1,125**  | ** ** | **$** | **992** | ** ** | **$** | **661** | ** ** | **$** | **640** | ** ** |
| Less:                                                                        |       |                         |       |   |   |   |   |   |   |
| Items not considered cash and cash equivalents                               |       |                         |       |   |   |   |   |   |   |
| - Time deposits with maturities of more than three  months                   |       | —                       |       | (534 | ) | — |   | — |   |
| - Government bonds                                                           |       | (223                         | )          | — |   | — |   | (40 | ) |
| **Total cash and cash equivalents  as shown in the statement of cash flows** | ** ** | **$**                        | **902**    | ** ** | **$** | **458** | ** ** | **$** | **661** | ** ** | **$** | **600** | ** ** |

 

The cash flows provided by operating activities (originated infinancial transactions) are as follows:

 
| ** **                                                   | ** ** | **Years  ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                   | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Foreign currency exchange gain on cash and cash  equivalents |       | $                                  | 70         |   | $ | 17 |   | $ | 6 |   |
| Interest income generated by current investments             |       | 44                                 |       | 52 |   | 42 |   |
| Interest income generated by accounts receivable             |       | 42                                 |       | 41 |   | 35 |   |
| Collection (payment) on swap settlement                      |       | 170                                |       | 12 |   | (41 | ) |
| **Subtotal (originated in  financial transactions)**         | ** ** | **326**                            | ** ** | **122** | ** ** | **42** | ** ** |
| Other cash flows provided by operating activities            |       | 2,993                              |       | 2,824 |   | 2,318 |   |
| **Total cash flows provided by  operating activities**       | ** ** | **$**                              | **3,319**  | ** ** | **$** | **2,946** | ** ** | **$** | **2,360** | ** ** |

 

Income taxes eliminated from operating activities components:

 
| ** **                                                   | ** ** | **Years  ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                   | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Reversal of income tax included in the statement of  income  |       | $                                  | 535        |   | $ | 292 |   | $ | (22 | ) |
| Income taxes paid                                            |       | (4                                 | )          | (8 | ) | (21 | ) |
| **Total income taxes eliminated from  operating activities** | ** ** | **$**                              | **531**    | ** ** | **$** | **284** | ** ** | **$** | **(43** | **)** |

 

Changes inassets/liabilities components:

 
| ** **                                              | ** ** | **Years  ended December 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                              | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Net (increase) decrease in  assets**                  |       |                               |       |   |   |   |   |
| Investments not considered as cash or cash  equivalents |       | $                                  | (23        | ) | $ | (2 | ) | $ | (5 | ) |
| Trade accounts receivable                               |       | (175                               | )          | (221 | ) | (132 | ) |
| Other receivables                                       |       | (180                               | )          | (92 | ) | (61 | ) |
| Inventories                                             |       | (107                               | )          | (51 | ) | (85 | ) |
| Other assets                                            |       | (1                                 | )          | — |   | — |   |
| ** **                                              | ** ** | **$**                              | **(486**   | **)** | **$** | **(366** | **)** | **$** | **(283** | **)** |
| **Net (decrease) increase in  liabilities**             | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accounts payable                                        |       | $                                  | 52         |   | $ | (22 | ) | $ | 247 |   |
| Salaries and social benefits payable                    |       | 112                                |       | 44 |   | 30 |   |
| Taxes payable                                           |       | 8                                  |       | 5 |   | (33 | ) |
| Other liabilities                                       |       | 8                                  |       | 9 |   | 22 |   |
| Contingencies                                           |       | (38                                | )          | (50 | ) | (73 | ) |
| ** **                                              | ** ** | **$**                              | **142**    | ** ** | **$** | **(14** | **)** | **$** | **193** | ** ** |

 

F-31

----

Tableof Contents

 

**6.****                                    ****Supplementary cash flowinformation****(continued)**

 

Interest paid during the years ended December 31,2008, 2007 and 2006, amounted to $185, $293 and $414, respectively.

 

·                  ***Main non-cash operatingtransactions:***

 
| ** **                                                          | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                          | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Provision for minimum presumed income tax                           |       | $                                 | —     |   | $ | 34 |   | $ | 46 |   |
| Derivatives                                                         |       | 200                               |       | 129 |   | 155 |   |
| Credit on minimum presumed income tax offset with  income taxes     |       | 285                               |       | 128 |   | — |   |
| Credit on income tax from cash dividends paid by  foreign companies |       | 5                                 |       | 7 |   | — |   |
| Foreign currency translation adjustments in assets                  |       | 47                                |       | 56 |   | 73 |   |
| Foreign currency translation adjustments in  liabilities            |       | 8                                 |       | 30 |   | 37 |   |
|                                                                     |            |                                   |            |  |  |  |  |  |  |  |

 

·                  ***Most significant investingactivities:***

 

Fixedassets acquisitions include:

 
| ** **                                                          | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                          | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Acquisition  of fixed assets (Note 16.a)                            |       | $                                 | (1,656     | ) | $ | (1,416 | ) | $ | (1,176 | ) |
| Plus:                                                               |       |                              |       |   |   |   |   |
| Cancellation  of accounts payable used in prior years acquisitions  |       | (626                              | )          | (445 | ) | (116 | ) |
| Less:                                                               |       |                              |       |   |   |   |   |
| Acquisition  of fixed assets through incurrence of accounts payable |       | 703                               |       | 623 |   | 446 |   |
| Capitalized  interest on fixed assets                               |       | 20                                |       | 23 |   | 14 |   |
| Wireless  handsets lent to customers at no cost (i)                 |       | 3                                 |       | 5 |   | 4 |   |
| Asset  retirement obligations                                       |       | 10                                |       | 2 |   | 3 |   |
| ** **                                                          | ** ** | **$**                             | **(1,546** | **)** | **$** | **(1,208** | **)** | **$** | **(825** | **)** |

 

----

(i)           Under certain circumstances,the Company lends handsets to customers at no cost pursuant to term agreements.Handsets remain the property of the Company and customers are generallyobligated to return them at the end of the respective agreements.

 

Intangibleassets acquisitions include:

 
| ** **                                                               | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                               | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Acquisition  of intangible assets (Note 16.b)                            |       | $                                 | (41        | ) | $ | (27 | ) | $ | (72 | ) |
| Plus:                                                                    |       |                              |       |   |   |   |   |
| Cancellation  of accounts payable used in prior years acquisitions       |       | (5                                | )          | (14 | ) | (6 | ) |
| Less:                                                                    |       |                              |       |   |   |   |   |
| Acquisition  of intangible assets through incurrence of accounts payable |       | 31                                |       | 6 |   | 13 |   |
| Debt  issue costs classified as financing activities                     |       | —                            |       | — |   | 24 |   |
| ** **                                                               | ** ** | **$**                             | **(15**    | **)** | **$** | **(35** | **)** | **$** | **(41** | **)** |

 

Acquisitionof Cubecorp includes:

 
| ** **                                                         | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                         | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Cash  paid for the acquisition of the shares of Cubecorp           |       | $                                 | (98        | ) | $ | — |   | $ | — |   |
| Cash  and cash equivalents included in the acquisition of Cubecorp |       | 1                                 |       | — |   | — |   |
| ** **                                                         | ** ** | **$**                             | **(97**    | **)** | **$** | **—** | ** ** | **$** | **—** | ** ** |

 

The following tablepresents the cash flows from purchases, sales and maturities of securitieswhich were not considered cash equivalents in the statement of cash flows:

 
| ** **                                                                | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Collection of time deposits with maturities of more  than three months    |       | $                                 | 334        |   | $ | (532 | ) | $ | — |   |
| Loan to Nortel                                                            |       | (5                                | )          | (1 | ) | — |   |
| Government bonds with maturities of more than three  months               |       | —                            |       | — |   | 45 |   |
| **Total cash flows from  investments not considered as cash equivalents** | ** ** | **$**                             | **329**    | ** ** | **$** | **(533** | **)** | **$** | **45** | ** ** |

 

F-32

----

Tableof Contents

 

**6.****                                    ****Supplementary cash flowinformation****(continued)**

 

·                  ***Financing activitiescomponents:***

 
| ** **                                     | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                     | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Debt proceeds                                  |       | $                                 | 91         |   | $ | 45 |   | $ | 36 |   |
| Payment of Notes                               |       | (1,119                            | )          | (932 | ) | (1,027 | ) |
| Purchase of Notes                              |       | (237                              | )          | — |   | — |   |
| Payment of bank loans                          |       | (88                               | )          | (358 | ) | (86 | ) |
| Payment of interest on Notes                   |       | (180                              | )          | (264 | ) | (316 | ) |
| Payment of interest on bank loans              |       | (5                                | )          | (29 | ) | (74 | ) |
| Dividends paid                                 |       | (20                               | )          | (38 | ) | — |   |
| Payment of debt restructuring related expenses |       | —                            |       | — |   | (24 | ) |
| Payment of liquidating dividend of Nucleo      |       | —                            |       | — |   | (4 | ) |
| **Total financing activities  components**     | ** ** | **$**                             | **(1,558** | **)** | **$** | **(1,576** | **)** | **$** | **(1,495** | **)** |

 

In April 2008, Nucleo paid cash dividends amounting to $62,corresponding $20 to the minority shareholders. In May 2007, Nucleo hadpaid cash dividends amounting to $88, corresponding $38 to the minorityshareholders.

 

**7 - Related party transactions**

** **

**(a) Controllinggroup**

 

Asof December 31, 2008, Nortel is the controlling shareholder of TelecomArgentina. Nortel owns all of the outstanding Class A shares and36,832,408 Class B shares of Telecom Argentina, representing 54.74% of thetotal common stock of Telecom Argentina.

 

Nortel’sordinary shares (67.79% of the capital stock) are owned by SoforaTelecomunicaciones S.A. (“Sofora”). As of December 31, 2008, Sofora’ sshares (as recorded in this company) are owned by the Telecom Italia Group(50%), W de Argentina – Inversiones S.L. (48%) and France Câbles et Radio andAtlas Services Belgium (jointly the remaining 2%).

 

Inconnection with these transactions, a Shareholders’ Agreement between W deArgentina - Inversiones S.L., Telecom Italia S.p.A. and Telecom ItaliaInternational N.V. for the joint management of Sofora, Nortel, Telecom and itssubsidiaries was executed.

 

TheTelecom Italia Group is the operator of Telecom Argentina.

 

**(b) Putoption acquired by W de Argentina – Inversiones S.L.**

 

InSeptember 2003, W de Argentina – Inversiones S.L., acquired a put optionon the 2% interest in Sofora that was owned by France Câbles et Radio and AtlasServices Belgium. Telecom Argentina has been informed by W de Argentina –Inversiones S.L. that it exercised its 2% option on February 1, 2008.Additionally, Sofora has notified Telecom Argentina that on February 12,2008, it received from France Câbles et Radio and from Atlas Services Belgium aletter notifying Sofora of such companies’ transfer of the 2% interest inSofora, and requesting that such transfer be registered in favor of W deArgentina–Inversiones S.L.

 

Sofora,with the goal of obtaining certainty on this matter, submitted a petition tothe SC requesting it to determine if, in accordance with rules andregulations in effect, the parties participating in said transaction had torequest the prior authorization of the relevant authorities.

 

Similarly,W de Argentina – Inversiones S.L. has informed Telecom that it is theirposition that prior authorization by the SC was not necessary, and accordingly,that it requested the immediate registration of such transfer of interest andthat it had brought legal actions accordingly.

 

Atthe date of issuance of these consolidated financial statements, neither theCourt nor the SC have decided on this subject.

 

**(c) Calloptions acquired by Telecom Italia International N.V.**

 

InSeptember 2003, Telecom Italia International N.V. acquired two calloptions on W de Argentina – Inversiones S.L.’ entire interest in Sofora (“theTelecom Italia International N.V. Options”) for an aggregate purchase price(premium price) of US$60 million.

 

Theexercise of the Telecom Italia International N.V. Options is subject to theprior approval of the SC (according to SC Note No. 1,004/08, dated June 26,2008).

 

F-33

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Tableof Contents

 

**7 - Related party transactions (continued)**

 

OnDecember 29, 2008, the Argentine Antitrust Commission issued Resolution No. 123/08resolving that until the Commission issues its decision over the Telecom ItaliaInternational N.V. Options, as provided by Law No. 25.156, the TelecomItalia Group companies *“must refrain fromexercising, assigning, transferring or taking any other action with respect to,those purchase options”*. The Telecom Italia Group filed an appealagainst CNDC Resolution No. 123/08. On January 28, 2009, theArgentine Antitrust Commission, by means of Resolution No. 6/09, rejectedthe appeal for lack of irreparable damage but affirmed that the parties wouldkeep their rights, because the Resolution No. 123/08 only “*implies a suspension of the terms provided in the Options until theRegulatory Authority mentioned in Law No. 25.156”*resolves onthe Transaction, as mentioned in e) below.

 

TelecomArgentina has been informed that W de Argentina — Inversiones S.L. filed acomplaint against Telecom Italia International N.V., before the National Courtof First Instance N° 8, Secretariat N° 15 of the City of Buenos Aires, with thepurpose of obtaining a decree of nullity on the Telecom Italia InternationalN.V. Options. During said proceedings, the intervening judge ordered entry ofthe complaint in Sofora’s registry of shareholders, pursuant to the terms ofsection 229 of the National Civil and Commercial Code of Procedure. At the dateof issuance of these consolidated financial statements, resolution of thecomplaint is still pending.

 

TheTelecom Italia International N.V. Options are: (i) a call option for thepurchase of 48% of Sofora’s share capital, which can be exercised since December 31,2008, and (ii) a call option on 2% of Sofora’s share capital, which can beexercised between December 31, 2008 and December 31, 2013

 

**(d) Relatedparties**

 

Related parties are thoselegal entities or individuals which are related to the indirect shareholders ofthe Company.

 

**(e) Changesin the equity stocks of the indirect shareholders of Telecom Italia**

 

OnOctober 25, 2007, a consortium made up of Assicurazioni Generali S.p.A., IntesaSan Paolo S.p.A., Mediobanca S.p.A., Sintonia S.A. (Benetton) and Telefonica,S.A. (from Spain) bought Olimpia S.p.A.’s entire stock through the Italiancompany Telco S.p.A., which held approximately 23.6% of Telecom Italia S.p.A.’svoting shares (the “Transaction”)”. As a consequence of additional shareacquisitions in March 2008, Telco S.p.A. currently owns approximately24.5% of Telecom Italia S.p.A.’s voting shares.

 

Asa consequence of the Transaction, Pirelli & C. S.p.A. and itssubsidiaries and controlled companies are no longer related parties of theTelecom Group.

 

TheTransaction has generated different opinions with respect to its impact onArgentina’s telecommunications market in light of the Law for Defense of the Competition (Leyde Defensa de la Competencia) and the existing regulatory framework. Someof these different opinions were adopted by members of Telecom Argentina’s Board. Various legalactions involving Telecom’s indirect shareholders were also initiated.

 

Similarly, the Transactionrequired the intervention of the Argentine Antitrust Commission and the CNC.

 

Additionalinformation on the Transaction and its consequences can be consulted inwww.cnv.gov.ar (section “Autopista de Información Financiera”) and inwww.sec.gov.

 

**(f) Balancesand transactions with related parties**

 

The Company hastransactions in the normal course of business with certain related parties. Forthe periods presented, the Company has not conducted any transactions withexecutive officers and/or persons related to them. Those balances andtransactions are less than $1; therefore they are not shown due to rounding.

 

F-34

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Table of Contents

 

**7 - Related party transactions(continued)**

 

The following is asummary of the balances and transactions with related parties as of December31, 2008 and December 31, 2007 and for the years ended December 31, 2008, 2007and 2006:

 
| ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | **As of December** | ** ** | **As of December** | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|--------------------|------------|--------------------|------------|
| **Investments**                                          | ** ** | ** ** | ** ** | ** ** | ** ** | **31, 2008**       | ** ** | **31, 2007**       | ** ** |
| Standard Bank (a) (c)                               | ** ** | ** ** | ** ** | ** ** | ** ** | $                  | 4          |               | $          | — |   |
| ** **                                               |       |       |       |       |       | **$**              | **4**      | ** **         | **$**      | **—** | ** ** |
| **Accounts receivable**                                  |       |       |       |       |       | ** **         | ** ** | ** **         | ** ** |
| TIM Celular S.A. (b)                                     |       |       |       |       |       | $                  | 2          |               | $          | 5 |   |
| Telecom Italia S.p.A.  (b)                               |       |       |       |       |       | 3                  |       | 2                  |       |
| ** **                                               |       |       |       |       |       | **$**              | **5**      | ** **         | **$**      | **7** | ** ** |
| **Non-current investments**                              |       |       |       |       |       | ** **         | ** ** | ** **         | ** ** |
| Nortel S.A.                                              |       |       |       |       |       | $                  | 6          |               | $          | 1 |   |
| ** **                                               |       |       |       |       |       | **$**              | **6**      | ** **         | **$**      | **1** | ** ** |
| **Current accounts payable:**                            |       |       |       |       |       | ** **         | ** ** | ** **         | ** ** |
| Italtel Argentina S.A.  (b)                              |       |       |       |       |       | $                  | 37         |               | $          | 25 |   |
| Telecom Italia Sparkle S.p.A. (b)                        |       |       |       |       |       | 12                 |       | 9                  |       |
| Latin American Nautilus  Argentina S.A. (b)              |       |       |       |       |       | 4                  |       | 2                  |       |
| Latin American Nautilus Ltd. (b)                         |       |       |       |       |       | 3                  |       | —             |       |
| Telecom Italia S.p.A.  (b)                               |       |       |       |       |       | 2                  |       | 12                 |       |
| Latin American Nautilus  USA Inc. (b)                    |       |       |       |       |       | 1                  |       | 1                  |       |
| TIM Celular S.A. (b)                                     |       |       |       |       |       | 1                  |       | —             |       |
| Etec S.A. (b)                                            |       |       |       |       |       | 1                  |       | 1                  |       |
| Entel S.A. (Bolivia)  (b) (d)                       |       |       |       |       |       | —             |       | 2                  |       |
| La Caja Aseguradora de  Riesgos del Trabajo ART S.A. (a) |       |       |       | 1          |       | 1                  |       |
| ** **                                               |       |       |       |       |       | **$**              | **62**     | ** **         | **$**      | **53** | ** ** |
| **Non-current accounts payable:**                        |       |       |       |       |       | ** **         | ** ** | ** **         | ** ** |
| Telecom Italia Sparkle S.p.A. (b)                        |       |       |       |       |       | $                  | 24         |               | $          | — |   |
| Latin American Nautilus  Argentina S.A. (b)              |       |       |       |       |       | 2                  |       | —             |       |
| Latin American Nautilus  USA Inc. (b)                    |       |       |       |       |       | 1                  |       | —             |       |
| ** **                                               |       |       |       |       |       | **$**              | **27**     | ** **         | **$**      | **—** | ** ** |

 
| ** **                                               | ** ** | ** **                                       | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                               | ** ** | **Transaction description**                      | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Services rendered:**                                   | ** ** | ** **                                       | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| TIM Celular S.A. (b)                                     |       | Roaming                                          |       | $                                 | 14         |   | $ | 12 |   | $ | 9 |   |
| Telecom Italia S.p.A.  (b)                               |       | Roaming                                          |       | 6                                 |       | 7 |   | 5 |   |
| Telecom Italia Sparkle S.p.A. (b)                        |       | International  inbound calls                     |       | 7                                 |       | 6 |   | 6 |   |
| Latin American Nautilus  Argentina S.A. (b)              |       | International  inbound calls                     |       | 1                                 |       | 2 |   | 1 |   |
| Entel S.A. (Bolivia)  (b) (d)                       |       | International  inbound calls                     |       | —                            |       | 3 |   | 2 |   |
| Standard Bank (a) (c)                               |       | Usage  of fixed telephony                        |       | 5                                 |       | 5 |   | — |   |
| Standard Bank (a) (c)                               |       | Interest                                         |       | —                            |       | 1 |   | — |   |
| Nortel S.A.                                              |       | Interest                                         |       | 1                                 |       | — |   | — |   |
| **Total services rendered**                              | ** ** | ** **                                       | ** ** | **$**                             | **34**     | ** ** | **$** | **36** | ** ** | **$** | **23** | ** ** |
| **Services received:**                                   | ** ** | ** **                                       | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Telecom Italia Sparkle S.p.A. (b)                        |       | International  outbound calls                    |       | (41                               | )          | (17 | ) | (19 | ) |
| Telecom Italia S.p.A.  (b)                               |       | Fees  for services and roaming                   |       | (14                               | )          | (28 | ) | (17 | ) |
| Italtel Argentina S.A.  (b)                              |       | Maintenance,  materials and supplies             |       | (6                                | )          | (3 | ) | (4 | ) |
| TIM Celular S.A. (b)                                     |       | Roaming  and Maintenance, materials and supplies |       | (5                                | )          | (6 | ) | (10 | ) |
| Etec S.A. (b)                                            |       | International  outbound calls                    |       | (4                                | )          | (4 | ) | (4 | ) |
| Latin American Nautilus  Argentina S.A. (b)              |       | Lease  of circuits                               |       | (4                                | )          | (1 | ) | (2 | ) |
| Latin American Nautilus  USA Inc. (b)                    |       | International  outbound calls                    |       | (2                                | )          | (1 | ) | (1 | ) |
| Entel S.A. (Bolivia)  (b) (d)                       |       | International  outbound calls                    |       | (1                                | )          | (5 | ) | (4 | ) |
| La Caja Aseguradora de  Riesgos del Trabajo ART S.A. (a) |       | Salaries  and social security                    |       | (10                               | )          | (8 | ) | (6 | ) |
| Caja de Seguros S.A.  (a)                                |       | Insurance                                        |       | (3                                | )          | (2 | ) | (2 | ) |
| La Estrella Cía de Seguros  de retiro S.A. (a)      |       | Salaries  and social security                    |       | (1                                | )          | (1 | ) | — |   |
| Caja de Ahorro y Seguro  S.A. (a)                        |       | Insurance                                        |       | —                            |       | (1 | ) | (2 | ) |
| Haras El Capricho S.A.  (a)                              |       | Advertising                                      |       | —                            |       | (1 | ) | — |   |
| **Total services received**                              | ** ** | ** **                                       | ** ** | **$**                             | **(91**    | **)** | **$** | **(78** | **)** | **$** | **(71** | **)** |
| **Purchases of fixed assets/intangible  assets:**        |       |                                             |       |                              |       |   |   |   |   |
| Italtel Argentina S.A.  (b)                              |       |                                             |       | $                                 | 111        |   | $ | 85 |   | $ | 51 |   |
| Telecom Italia Sparkle S.p.A. (b)                        |       |                                             |       | 33                                |       | 26 |   | 47 |   |
| Latin American Nautilus Ltd.(b)                          |       |                                             |       | 4                                 |       | — |   | — |   |
| Latin American Nautilus  Argentina S.A.(b)               |       |                                             |       | 2                                 |       | 1 |   | 3 |   |
| Telecom Italia S.p.A.  (b)                               |       |                                             |       | 1                                 |       | 2 |   | — |   |
| Latin American Nautilus  USA Inc.(b)                     |       |                                             |       | 1                                 |       | — |   | 1 |   |
| **Total fixed assets and  intangible assets**            | ** ** | ** **                                       | ** ** | **$**                             | **152**    | ** ** | **$** | **114** | ** ** | **$** | **102** | ** ** |

 

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(a)          Such companies relate to W deArgentina - Inversiones S.L.

(b)         Such companies relate toTelecom Italia Group.

(c)          This company is a relatedparty as from April 2007.

(d)         This entity is no longerrelated party at April 2008.

 

F-35

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Table of Contents

 

**7 - Related party transactions(continued)**

 

The transactionsdiscussed above were made on terms no less favorable to the Company than wouldhave been obtained from unaffiliated third parties. The Board of Directorsapproved transactions representing more than 1% of the total shareholdersequity of the Company, after being approved by the Audit Committee incompliance with Decree No. 677/01.

 

## **8 - Debt**

## ** **

### **8.1. Short-term and long-term debt**

###  

### **As of December 31, 2008 and 2007, the Company’sshort-term and long-term debt comprises the following:**

 
| ** **                      | ** ** | **As of  December** | ** ** | **As of  December** | ** ** |
|---------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                      | ** ** | **31, 2008**        | ** ** | **31, 2007**        | ** ** |
| **Short-term debt:**            | ** ** | ** **          | ** ** | ** **          | ** ** |
| - Principal:                    |       |                |       |                |       |
| Notes                           |       | $                   | 1,255      |                | $          | 1,372 |   |
| Bank loans                      |       | 89                  |       | 69                  |       |
| Subtotal                        |       | 1,344               |       | 1,441               |       |
| - Accrued interest              |       | 20                  |       | 30                  |       |
| - Effect on discounting of debt |       | (9                  | )          | —              |       |
| - Derivatives                   |       | —              |       | 3                   |       |
| **Total short-term debt**       | ** ** | **$**               | **1,355**  | ** **          | **$**      | **1,474** | ** ** |
| **Long-term debt:**             | ** ** | ** **          | ** ** | ** **          | ** ** |
| - Principal:                    |       |                |       |                |       |
| Notes                           |       | $                   | 688        |                | $          | 1,781 |   |
| Bank loans                      |       | —              |       | 5                   |       |
| Subtotal                        |       | 688                 |       | 1,786               |       |
| - Effect on discounting of debt |       | —              |       | (62                 | )          |
| **Total long-term debt**        | ** ** | **$**               | **688**    | ** **          | **$**      | **1,724** | ** ** |
| **Total debt**                  | ** ** | **$**               | **2,043**  | ** **          | **$**      | **3,198** | ** ** |

 

Thefollowing table segregates the Telecom Group’s debt by company as of December 31,2008:

 
| ** **                                     | ** ** | **Telecom** | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Consolidated as  of December 31,  2008** | ** ** | **Consolidated as  of December 31,  2007** | ** ** |
|------------------------------------------------|------------|-------------|------------|--------------|------------|------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ·  **Principal**                     |       | 1,255       |       | 688          |       | 89         | ** ** | **2,032**                                       | ** ** | **3,227**                                       | ** ** |
| ·  **Accrued interest**              |       | 17          |       | 1            |       | 2          | ** ** | **20**                                          | ** ** | **30**                                          | ** ** |
| **Subtotal**                                   | ** ** | **1,272**   | ** ** | **689**      | ** ** | **91**     | ** ** | **2,052**                                       | ** ** | **3,257**                                       | ** ** |
| ·  **Effect on discounting of debt** |       | (9          | )          | —       |       | —     | ** ** | **(9**                                          | **)**      | **(62**                                         | **)**      |
| ·  **Derivatives**                   |       | —      |       | —       |       | —     | ** ** | **—**                                      | ** ** | **3**                                           | ** ** |
| **Total debt**                                 | ** ** | **1,263**   | ** ** | **689**      | ** ** | **91**     | ** ** | **2,043**                                       | ** ** | **3,198**                                       | ** ** |
| ·   **Short-term debt**         |       | 1,263       |       | 1            |       | 91         | ** ** | **1,355**                                       | ** ** | **1,474**                                       | ** ** |
| ·   **Long-term debt**          |       | —      |       | 688          |       | —     | ** ** | **688**                                         | ** ** | **1,724**                                       | ** ** |

** **

### **8.2. Debt of Telecom Argentina**

###  

InAugust 2005, Telecom Argentina issued Notes in compliance with the termsof the debt restructuring APE. The following table shows the maincharacteristics of the outstanding series of Notes as of December 31,2008:

 
| ** **                | ** ** | ** ** | ** ** | ** **                       | ** ** | **Outstanding**                  | ** ** | ** **            | ** ** | **Interest  rate**               | ** ** | ** **         | ** ** | **Book  value at December 31, 2008 (in millions of $)** | ** ** | **Fair  value**       | ** ** |
|---------------------------|------------|------------|------------|----------------------------------|------------|----------------------------------|------------|-----------------------|------------|----------------------------------|------------|--------------------|------------|--------------------------------------------------------------|------------|-----------------------|------------|
| **Series**                | ** ** | **Class**  | ** ** | **Nominal  value (in  million)** | ** ** | **nominal  value (in  million)** | ** ** | **Outstanding  debt** | ** ** | **(“Step-  up”)  (*)** | ** ** | **Maturity  date** | ** ** | **Principal**                                                | ** ** | **Accrued  interest** | ** ** | **Total  nominal  value** | ** ** | **Gain on  discounting  of debt** | ** ** | **Total** | ** ** | **as of  December  31, 2008** | ** ** |
| **Listed**                |       |       | ** ** | ** **                       | ** ** | ** **                       |       |                  | ** ** | ** **                       |       |               |       |                                                         | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** |   |   | ** ** | ** ** | ** ** |
| **A-1   ** |       | 1          |       | US$98                            |       | US$98                            |       | US$40                 |       | 8.00                             | %          | Oct 2014           |       | 139                                                          |       | 2                     |       | 141 |   | (1 | ) | 140 |   | 108 |   |
| **A-1   ** |       | 2          |       | Euro 493                         |       | Euro 414                         |       | Euro 170              |       | 6.89                             | %          | Oct 2014           |       | 816                                                          |       | 12                    |       | 828 |   | (5 | ) | 823 |   | 661 |   |
| ** **                |       |       |       |                             |       |                             |       |                  |       |                             |       |               | ** ** | **955**                                                      | ** ** | **14**                | ** ** | **969** | ** ** | **(6** | **)** | **963** | ** ** | **769** | ** ** |
| **Unlisted**              |       |       |       |                             |       |                             |       |                  |       |                             |       |               | ** ** | ** **                                                   | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **A-2   ** |       | 1          |       | US$7                             |       | US$7                             |       | US$3                  |       | 8.00                             | %          | Oct 2014           |       | 11                                                           |       | —                |       | 11 |   | — |   | 11 |   | 8 |   |
| **A-2   ** |       | 2          |       | Euro 41                          |       | Euro 41                          |       | Euro 17               |       | 6.89                             | %          | Oct 2014           |       | 81                                                           |       | 1                     |       | 82 |   | (1 | ) | 81 |   | 65 |   |
| **A-2   ** |       | 3          |       | Yen 12,328                       |       | Yen 12,328                       |       | Yen 5,074             |       | 3.69                             | %          | Oct 2014           |       | 193                                                          |       | 2                     |       | 195 |   | (2 | ) | 193 |   | 155 |   |
| **A-2   ** |       | 4          |       | $ 26                        |       | $ 26                        |       | (**) $ 15        |       | 3.42                             | %          | Oct 2014           |       | 15                                                           |       | —                |       | 15 |   | — |   | 15 |   | 12 |   |
| ** **                |       |       |       |                             |       |                             |       |                  |       |                             |       |               | ** ** | **300**                                                      | ** ** | **3**                 | ** ** | **303** | ** ** | **(3** | **)** | **300** | ** ** | **(***) 240** | ** ** |
| ** **                |       |       |       |                             |       |                             |       |                  |       |                             |       |               | ** ** | **1,255**                                                    | ** ** | **17**                | ** ** | **1,272** | ** ** | **(9** | **)** | **1,263** | ** ** | **1,009** | ** ** |

 

----

(*)           Penalty interest, ifapplicable, will accrue at an additional annual rate of 2% on overdue principaland interest.

(**)        The outstanding debt includesthe CER adjustment.

(***)      Corresponds to the estimatesmade by the Company considering the fair value of the Listed Notes.

 

Asfrom the issuance of the Notes through October 15, 2008, the Company hasmade principal prepayments (mandatory and, sometimes, optional), which prepaidall principal amortization payments originally scheduled up to October 2011.By means of this, since the issuance date of the notes, the Company hascancelled 58.84% of Series A Notes and 100% of Series B Notes (issuedby US$999 million).

 

F-36

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**Table of Contents**

 

**8 - Debt (continued)**

 

Since October 16, 2008, Telecom Argentina purchased Notes pursuantto market purchase transactions, acquiring an aggregate principal nominalamount of Euros 78,940,277 of Series A Regulation S Euro Notes Due 2014(equivalent to an outstanding nominal amount of Euros 32,491,818). The Notesacquired were cancelled according with the terms and conditions of therespective Indentures. As a consequence of these operations, the Series ANotes nominal outstanding debt is 41.16%.

 

**Measurement of the Notes**

 

**Thenew debt was initially recorded at fair value. Fair value was determined as thepresent value of the future cash flows to be paid under the terms of the newdebt instruments discounted at a rate commensurate with the risks of the debtinstrument and time value of money at the time of the debt restructuring (August 2005).Based on the opinion of an external financial expert, the estimated payments ofthe restructured debt have been discounted to its present value (at eachmeasurement date) using the August 31, 2005 discount rate of (i) 10.5%for the dollar nominated notes; (ii) 9.2% for the euro nominated notes and(iii) 7.3% for the Japanese yen nominated notes (all tax-free rates forthe noteholders, as applicable).**

** **

**Rating**

 
| ** **                   | ** ** | **Standard & Poor’s International Ratings  LLC, Argentine branch** | ** ** | **Fitch Ratings** |
|------------------------------|------------|---------------------------------------------------------------------------------------|------------|-------------------|
| ** **                   | ** ** | **International scale**                                                               | ** ** | **Local scale**   | ** ** | **International scale** | ** ** | **Local scale** |
| **Date  of issuance**        |       | B-                                                                                    |       | BBB-              |   | B- |   | BBB- |
| **September 30,  2008** |       | B+                                                                                    |       | AA-               |   | B+ |   | AA- |
| **December 31,  2008**  |       | B                                                                                     |       | AA-               |   | B |   | AA- |
| **February 12,  2009**  |       | B-                                                                                    |       | AA-               |   | B |   | AA- |

 

**Covenants**

 

**Mandatoryprepayments**

 

If the Company generates “ExcessCash” as contractually defined and calculated, such Excess Cash generally willbe applied on a semi-annual basis to make payments on the remaining scheduledinstallments of the debt instruments in its direct order of maturity.

 

Excess cash is measuredsemi-annually based on the consolidated financial statements of the Company(excluding Personal and Nucleo) as of June 30 and December 31 of eachyear, and any excess cash should be applied no later than the due date of thescheduled amortization payments immediately subsequent to each June 30 or December 31,respectively.

 

Based on the December 31,2007 and June 30, 2008 financial statements, the Company has determined an“excess cash” of $427 and $179, respectively. As a consequence, with these “excesscash” and voluntary payments, Telecom Argentina madeprincipal payments of Notes, in the amount of $822 and $ 253 on April 15,2008 and October 15, 2008, respectively.

 

Based on the December 31,2008 financial statements, the Company has determined an “excess cash” of $109(equivalent to US$ 32 million).

 

However, if at any timeduring the excess cash period, Telecom Argentina makes any distribution payment(as defined in the APE, including but not limited to the payment of dividends)the aggregate amount of the excess cash applied to pay the Notes will have tobe at least two and a half times such distribution payment.

 

Also,the Notes are redeemed at Telecom Argentina’s option, in whole or in part,without payment of any premium or penalty, at any time after the issuance date andprior to the maturity date at the redemption price equal to 100% of theoutstanding principal amount thereof (adjusted to take into account anyprepayments or repurchases), together with accrued interest, if any, to thedate fixed for redemption and the corresponding additional amounts, if any.Telecom Argentina, atits option, may make payments on the remaining scheduled installments of thedebt instruments in direct order of maturity.

 

**Telecom must make an offer to redeem all outstanding notes,as described in the Indenture, in the case of a change of control.**

** **

**Negativecovenants**

 

The terms and conditionsof the Notes require that the Company complies with various negative covenants,including limitations on:

 

**a)**                                Incurrence and/or assumption of, and/or permitting to existin Telecom Argentina or its restricted subsidiaries (as defined in the TrustAgreement), any liens on the respective properties, assets or income for thepurpose of securing any indebtedness of any person, except for certain permittedliens;

** **

**F-37**

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**Table of Contents**

** **

**8 - Debt (continued)**

** **

**b)**                               Incurrence of and/or permitting any restricted subsidiariesto incur any indebtedness (other than certain permitted indebtedness) unlessTelecom Argentina meets a specified indebtedness/EBITDA ratio with respect toTelecom Argentina and its restricted subsidiaries (other than Personal andNucleo) of 2.75 to 1, except for certain permitted liens;

** **

**c)**                                Making specified restricted payments, including making anyinvestments (other than permitted investments); under this covenant, theCompany cannot make any investment in securities or indebtedness of, or extendloans to, other persons, unless such transactions are specifically permitted.Under the Telecom Argentina notes, specific limits are imposed on the amountand conditions of loans that may be made by Telecom Argentina to Personal;

** **

**d)**                               The sale of certain assets with some exceptions, i.e. aminimum 75% of consideration received should be in cash or cash equivalents andthe proceeds of certain asset sales, in some circumstances, shall be used topay the relevant debt instrument;

** **

**e)**                                Sale and leaseback transactions: Telecom shall apply anynet cash proceeds of such transaction to the purchase or optional redemption ofNotes;

** **

**f)**                                  Capital expenditures except for those expressly permitted(the extraordinary meeting of noteholders held on March 27, 2006, haseliminated Personal’s restriction);

** **

**g)**                               Telecom will not merge into or consolidate with any personor sell, assign, transfer or otherwise convey or dispose of all orsubstantially all of its assets, except for certain permitted conditions.

** **

On March 27, 2006, the Company held an extraordinarymeeting of noteholders to amend the Trust Agreement dated August 31, 2005entered into by the Company and the Bank of New York as Trustee, Payment Agent,Transfer Agent and Registrar. The approved amendments were as follows:

 

(i)                           Amend Clauses (a) and (c) of Section 3.17 “Limitation onCapital Expenditures” to eliminate Personal’s restriction to its capacity tomake capital expenditures;

 

(ii)                        Amend Section 3.21 “Reinvestment of Dividends Paid by TelecomPersonal” to eliminate it in its entirety. This section establishes thatTelecom Argentina should reinvest in Personal any dividend received byPersonal; and

 

(iii)                     Eliminate certain definitions, such as, “Telecom Personal PermittedCapital Expenditures” and “Telecom Personal Distribution Payment”.

 

On March 27, 2006, the Bank of New York as Trusteeentered into a supplementary Trust Agreement with Telecom Argentina in order toinclude the approved amendments. The Company paid to the noteholders that votedthe amendments consent fees for $18. These fees were deferred and are amortizedunder the interestmethod over the life of the debt.

 

The Company is incompliance with all debt covenants.

 

**Events ofdefault**

 

The terms and conditionsof the Notes provide for certain events of default as follows:

 

(i)                                  Failure to pay principal or interest;

 

(ii)                               Cross-default provisions, such as failureto pay principal or interest on any other outstanding indebtedness of theCompany’s subsidiaries, which equals or exceeds an aggregate amount of US$ 20million;

 

(iii)                            Any final judgment against Telecom Argentina providingfor the payment of an aggregate amount exceeding US$ 20 million and, havingpassed the specified term, without being satisfied, discharged or stayed;

 

(iv)                           Any voluntary petition for bankruptcy byTelecom Argentina, special bankruptcy proceedings or out-of-courtreorganization agreements;

 

(v)                              Any event or condition which results inthe revocation or loss of the licenses held by either Telecom Argentina and/orany of its restricted subsidiaries which would materially affect the entities ́business operations, their financial condition and results of operations and,

 

(vi)                           Any failure on the part of Telecom toduly observe and perform any of the commitments and covenants in respect of theNotes, in excess of the terms permitted under the Trust Agreement.

 

Should any of theevents of default above described occur, with respect to Telecom Argentina or,if applicable, any of its restricted subsidiaries, then Telecom Argentina shallbe in default under the Notes.

 

F-38

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**Table of Contents**

** **

**8 - Debt (continued)**

** **

Provided any of theevents of default occurs, the creditors are entitled, at their option, andsubject to certain conditions, to demand the principal amount and accruedinterest of the relevant debt instrument to be due and payable.

 

Upon a “major devaluation”event (a devaluation of the argentine peso of 25% or more in any period of sixconsecutive months after the issuance date as compared to January 1,2004), Telecom Argentina may reschedule principal amortization payments on anyor all series of notes under certain circumstances described in the Indenture.Telecom Argentina may exercise its right to reschedule principal payments withrespect to any series of notes up to two times, but may not elect to rescheduletwo consecutive payments. Telecom Argentina’s right to reschedule any principalpayment shall immediately terminate upon the making of any Distribution Paymentby Telecom Argentina, among other circumstances, as described in the Indenture.

 

·                  ***Claims by non-participantcreditors***

 

In October 2005,Telecom requested that the overseeing judge declare that, by the issuance ofdebt with new payment terms and the payment of cash consideration pursuant tothe APE on August 31, 2005, Telecom has duly fulfilled the APE accordingto the terms of section 59 of the Bankruptcy Law. On December 14, 2005,the reviewing court ordered the APE execution, which order was not appealed.

 

Telecom Argentina believed that certainnon-participating creditors might file actions in the United States against itto seek collection of their original investments. Accordingly, in September 2005,Telecom Argentina filed a petition with the Courts of New York under Section 304of the U.S. Bankruptcy Law seeking execution of the APE process in the UnitedStates.

 

An alleged creditor, the Argo Fund, filed severalactions against Telecom’s petition. All rulings were granted in favor ofTelecom Argentina’s position. So, the final judgment (i) approved theexecution of the APE process in the United States, (ii) ruled that theTrustee of the Indenture and the non-participating creditors were bound by theterms of the APE process and (iii) ruled that the restructured notes wereextinguished by law and had to be settled.

 

### **8.3. Restructured debt of the subsidiaries**

### ** **

***(a) Personal***

 

**1. Notes**

 

On December 22, 2005, Personal used the proceeds ofthe issuance of new notes (as further described below) and bank loans togetherwith available cash to fully settle the outstanding indebtedness which had beenrestructured back in November 2004. Personal’s objective was to improveits debt profile, by modifying its interest rates.

 

The Shareholders Meeting of Personal authorized theBoard of Directors to determine the terms and conditions of the issue, includingbut not limited to, amount, price, interest rate and denomination of the notes.

 

During fiscal year 2008, Personal cancelled the two lastSeries 2 installments (including accrued interest) for an aggregate amountof $50 ($44 for principal amount and $6 for interest amount).

 

Additionally, during fiscal year 2008, Personalcancelled Series 3 interest for an amount of $65 (equivalent to US$20million). During the last quarter of fiscal year 2008, Personal purchased Notespursuant to market purchase transactions, acquiring an aggregate principalnominal amount of US$ 40,098,000 of Series 3 Medium Term Notes due 2010.The Notes acquired were cancelled according with the terms and conditions ofthe respective Indentures. At the date of issuance of these consolidatedfinancial statements, Personal purchased Notes pursuant to market purchasetransactions (additional information in Note 17).

 

The followingtable shows the outstanding series of Notes as of December 31, 2008:

 
| ** ** | ** ** | ** **                        | ** ** | **Outstanding**                   | ** ** | ** **          | ** ** | ** **         | ** ** | ** **         | ** ** | **Book value as of December 31, 2008 (in millions  of $)** | ** ** | **Fair****value as**  | ** ** |
|------------|------------|-----------------------------------|------------|-----------------------------------|------------|---------------------|------------|--------------------|------------|--------------------|------------|-----------------------------------------------------------------|------------|-----------------------|------------|
| **Series** | ** ** | **Nominal  value (in  millions)** | ** ** | **nominal  value (in  millions)** | ** ** | **Term  in  years** | ** ** | **Maturity  date** | ** ** | **Annual  rate %** | ** ** | **Principal**                                                   | ** ** | **Accrued  interest** | ** ** | **Issue discount  and underwriting  fees** | ** ** | **Total** | ** ** | **of  December  31, 2008** | ** ** |
| 3          |       | US$                               | 240        |                              | US$        | 200                 |       | 5                  |       | December 2010 |       | 9.25                                                            |       | 690                   |       | 1 |   | (2 | ) | 689 |   | 602 |   |
| ** ** | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **          | ** ** | ** **         | ** ** | **Total**          | ** ** | **690**                                                         | ** ** | **1**                 | ** ** | **(2** | **)** | **689** | ** ** | **602** | ** ** |
|            |            |                                   |            |                                   |            |                     |            |                    |            |                    |            |                                                                 |            |                       |            |  |  |  |  |  |  |  |  |

 

F-39

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Table of Contents

 

**8 - Debt (continued)**

 

**Rating**

 
| ** **                   | ** ** | **Standard & Poor’s International Ratings  LLC, Argentine branch** | ** ** | **Fitch Ratings** |
|------------------------------|------------|----------------------------------------------------------------------------------|------------|-------------------|
| ** **                   | ** ** | **International scale**                                                          | ** ** | **Local scale**   | ** ** | **International scale** | ** ** | **Local scale** |
| **Date  of issuance**        |       | B-                                                                               |       | BBB-              |   | B- |   | BBB- |
| **September 30,  2008** |       | B+                                                                               |       | AA-               |   | B+ |   | AA- |
| **December 31,  2008**  |       | B                                                                                |       | AA-               |   | B |   | AA- |
| **February 12,  2009**  |       | B-                                                                               |       | AA-               |   | B |   | AA- |

 

**2. Bankloans**

 

In October 2005, Personal entered into a US$20million loan agreement with a financial institution due February 2008. Atmaturity date, Personal fully paid this loan for an aggregate amount of US$12million, equivalent to $38 ($37 for principal and $1 for interest).

 

**3. Covenants**

 

The terms and conditionsof Personal’s Notes require that Personal comply with various covenants,including:

 

**·**                  in the case of a changeof control, Personal shall make an offer to redeem all outstanding notes, asdescribed in the Indenture;

**·**                  in the case of Series 3, if at any time the Leverage Ratio (totaloutstanding indebtedness / consolidated EBITDA for the most recently completedperiod of four consecutive fiscal quarters) is in excess of 3.00 to 1.00 andPersonal makes any payment of dividends, the rate of interest accruing on thenotes shall increase by 0.5% per annum.

** **

**4. Negativecovenants**

 

The terms and conditionsof Personal’s Notes require that Personal comply with various negativecovenants, including limitations on:

 

**a)**             Incurrence and/or assumption of, and/or permitting to existin Personal or its subsidiaries (as defined in the relevant debt instruments),any liens on the respective properties, assets or income for the purpose ofsecuring any indebtedness of any person, except for certain permitted liens;

** **

**b)**            Incurrence of and/or permitting any restricted subsidiariesto incur any indebtedness unless on the date of theincurrence of such indebtedness, after giving effect to such incurrence and thereceipt and application of the proceeds therefrom, the Leverage Ratio does notexceed 3.00 to 1.00;

** **

**c)**             Permittingany of its subsidiaries to, directly or indirectly, enter into, renew or extendany transaction or arrangement including the purchase, sale, lease or exchangeof property or assets, or the rendering of any service, with any holder of 10%or more of the capital stock of Personal, except upon terms not less favorableto Personal or such subsidiary than those that could be obtained in acomparable arm’s-length transaction with a person that is not an affiliate ofPersonal;

** **

**d)**            The sale of certain assets with some exceptions, i.e. aminimum 75% of consideration received should be in cash or cash equivalents;

** **

**e)**             Sale and leaseback transactions;

** **

**f)**               Personal will not merge into or consolidate with any personor sell, assign, transfer or otherwise convey or dispose of all orsubstantially all of its assets, except for certain permitted conditions.

** **

**5. Eventsof default**

 

The terms and conditionsof Personal’s Notes provide for certain events of default as follows:

 

a)             Failure to pay principal or interest;

 

b)            Cross-default provisions, such as failureto pay principal or interest on any other outstanding indebtedness of Personalor its subsidiaries, which equals or exceeds an aggregate amount of US$ 20million and shall continue after the grace period;

 

c)             Any final judgment against Personal orits subsidiaries providing for the payment of an aggregate amount exceeding US$20 million;

 

d)            Any voluntary petition for bankruptcy byPersonal or its subsidiaries, special bankruptcy proceedings or out-of-courtreorganization agreements and,

 

e)             Any event or condition which results inthe revocation or loss of the licenses held by either Personal and/or any ofits subsidiaries which would materially affect the entities ́ businessoperations, their financial condition and results of operations.

 

Provided any of the eventsof default occurs, the creditors are entitled, at their option, to declare theprincipal amount of the relevant debt instrument to be due and payable.

 

F-40

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**Table of Contents**

** **

**8 - Debt (continued)**

 

***(b) Nucleo***

 

***Debtin foreign currency (US$)***

 

During fiscal year 2006, Nucleo entered intonew loans with banks with operations in Paraguay for a total amount of US$ 9.5million; at December 31, 2008, Nucleo has cancelled US$ 7.9 million at therespective due date.

 

At the date of issuanceof these consolidated financial statements, Nucleo has cancelled the remainingUS$ 1.6 million.

 

***Debtin local currency (Guaranies)***

 

During fiscal year 2007,Nucleo entered into new loans with banks with operations in Paraguay for atotal amount of Guaranies 62,156 million (equivalent to $40), with a maturity date between six andnine months and a payment of accrued interests that shall be madequarterly. At December 31, 2008, Nucleo has cancelled, at the due date,Guaranies 49,406 million (equivalent to $32) and has renewed the remaining loanfor a total amount of Guaranies 12,750 million (equivalent to $8). This newloan is a bullet loan with an average four-month installments. During fiscalyear 2009, Nucleo has renewed this loan with a year-maturity date and a paymentof accrued interests that shall be made quarterly.

 

During the second andthird quarter of 2008, Nucleo entered into new loans with banks with operationsin Paraguay for a total amount of Guaranies 107,700 million (equivalent to$75), with an average maturity date of nine months. At the date of issuance ofthese consolidated financial statements, Nucleo has cancelled, Guaranies 20,800million (equivalent to $15).

 

***(c) Cubecorp***

 

At the time ofincorporation to the Telecom Group, Cubecorp had bank loans for a total amountof $9 (equivalent to US$ 2.5 million). At December 31, 2008, suchfinancial debt was totally cancelled.

 

## **9 - Shareholders’ equity**

## ** **

**(a) Commonstock**

 

At December 31,2008, the Company had 502,034,299 authorized, issued and outstanding shares of$1 par value Class A Common Stock (51% of the total capital stock),440,910,912 shares of $1 par value Class B Common Stock (44.79% of thetotal capital stock) and 41,435,767 shares of $1 par value Class C CommonStock (4.21% of the total capital stock - see c below). Common stockholders areentitled to one vote for each share held of record on all matters submitted toa vote of shareholders.

 

TheCompany’s shares are authorized by the CNV, the BCBA and the New York StockExchange (“NYSE”) for public trading. Only 404,078,504 of Class B sharesare traded since Nortel owns all of the outstanding Class A shares and36,832,408 Class B shares; and Class C shares are dedicated to theemployee stock ownership program, as described below.

 

EachADS represents 5 Class B shares and are traded on the NYSE under theticker symbol TEO. Class B also began trading on the Mexican StockExchange on July 15, 1997.

 

**(b) Restrictionson distribution of profits**

 

The Company issubject to certain restrictions on the distribution of profits. Under theArgentine Corporations Law, the by-laws of the Company and rules andregulations of the CNV, a minimum of 5% of net income for the year calculatedin accordance with Argentine GAAP, plus/less previous years adjustments and, ifany, considering the absorption of accumulated losses, must be appropriated byresolution of the shareholders to a legal reserve until such reserve reaches20% of the outstanding capital (common stock plus inflation adjustment ofcommon stock). Accordingly, Telecom Argentina has absorbed the legal reserve inits entirety during fiscal year 2006 ($277). Telecom Argentina will not be ableto distribute dividends until the Company absorbs the total amount ofaccumulated losses and restores the legal reserve.

 

**(c) Shareownership program**

 

In 1992, a decree fromthe Argentine Government, which provided for the creation of the Company uponthe privatization of ENTel, established that 10% of the capital stock thenrepresented by 98,438,098 Class C shares was to be included in the*“Programa de Propiedad Participada* or PPP” (an employeeshare ownership program sponsored by the Argentine Government). Pursuant to thePPP, the Class C shares were held by a trustee for the benefit of formeremployees of the state-owned company who remained employed by the Company andwho elected to participate in the plan.

 

F-41

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## **Table of Contents**

 

**9 - Shareholders’ equity (continued)**

 

In 1999, Decree No. 1,623/99of the Argentine Government eliminated the restrictions on some of the Class Cshares held by the PPP, although it excluded Class C shares of the Fund ofGuarantee and Repurchasesubject to an injunction against their use. In March 2000, theshareholders’ meeting of the Company approved the conversion of up tounrestricted 52,505,360 Class C shares into Class B shares (theseshares didn’t belong to the Fund of Guarantee and Repurchase).

 

TheAnnual General and Extraordinary Meetings held on April 27, 2006, approvedthat the power for the conversion of up to 41,339,464 Class “C” ordinaryshares into the same amount of Class “B” ordinary shares, be delegated tothe Board of Directors. The conversion will take place in one or more times,based on: a) what is determined by Banco de la Ciudad de Buenos Aires(Fiduciary agent of PPP) as the case may be; and b) the amount of Class “C”shares eligible for conversion. As granted by the Meetings, the Boardtransferred the powers to convert the shares to some of the Board’s membersand/or the Company’s executive officers. During fiscal year 2006, 4,496,471 Class “C”ordinary shares were converted into Class “B” ordinary shares.

 

Class “C”shares of the Fund of Guarantee and Repurchase which were affected by aninjunction measure recorded in file *“Garcías de Vicchi,Amerinda y otros c/ Sindicación de Accionistas Clase C del Programa dePropiedad Participada*” were not eligible for conversion. As of thedate of these consolidated financial statements, the injunction was notreleased, although it is limited to the amount of 4,593,274 shares.

 

OnSeptember 7, 2007, new authorities were appointed for PPP’s ExecutiveCommittee for a two-year term.

 

41,418,562Class “C” shares are still part of theFund of Guarantee and Repurchase and are subject to the injunctiondescribed above. The remaining 17,205 Class “C” shares belong toindividual shareholders, 2,822 of which are blocked by different injunctions*.*

 

### **10.          Incometax**

### ** **

As describe inNote 4.p, the Company accounts for incometaxes in accordance with the guidelines of RT 17.

 

Income tax payablefor the years ended December 31, 2008 and 2007 consists of the following:

 
| ** **                                         | ** ** | **As of December 31, 2008** | ** ** | **As of December** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|--------------------|------------|
| ** **                                         | ** ** | **Telecom**                      | ** ** | **Cubecorp**       | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Total** | ** ** | **31, 2007** | ** ** |
| ** **                                         | ** ** | ** **                       | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income  tax provision                              |       | $                                | 238        |               | $          | — |   | $ | 390 |   | $ | 7 |   | $ | 635 |   | $ | 134 |   |
| Credit on minimum presumed income tax              |       | (230                             | )          | —             |       | (5 | ) | — |   | (235 | ) | (103 | ) |
| Payments  in advance of income taxes               |       | (8                               | )          | —             |       | (94 | ) | (8 | ) | (110 | ) | (30 | ) |
| **Income tax payable (receivable)**                | ** ** | **—**                       | ** ** | **—**         | ** ** | **291** | ** ** | **(1** | **)** | **290** | ** ** | **1** | ** ** |
| Non  current net deferred tax liabilities (assets) |       | 210                              |       | 9                  |       | 6 |   | (1 | ) | 224 |   | 289 |   |
| **Total deferred tax liabilities (assets)**        | ** ** | **$**                            | **210**    | ** **         | **$**      | **9** | ** ** | **$** | **297** | ** ** | **$** | **(2** | **)** | **$** | **514** | ** ** | **$** | **290** | ** ** |

 

The tax effects oftemporary differences that give rise to significant portions of the Company’sdeferred tax assets and liabilities are presented below:

 
| ** **                                                              | ** ** | **As of December 31, 2008** | ** ** | **As of  December** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------|------------|
| ** **                                                              | ** ** | **Telecom**                      | ** ** | **Cubecorp**        | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Total** | ** ** | **31, 2007** | ** ** |
| ** **                                                              | ** ** | ** **                       | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Tax  loss carryforwards                                                 |       | $                                | —     |                | $          | 1 |   | $ | 1 |   | $ | — |   | $ | 2 |   | $ | 130 |   |
| Allowance  for doubtful accounts                                        |       | 34                               |       | —              |       | 41 |   | — |   | 75 |   | 81 |   |
| Provision  for contingencies                                            |       | 125                              |       | —              |       | 30 |   | — |   | 155 |   | 129 |   |
| Other  deferred tax assets                                              |       | 105                              |       | 1                   |       | 7 |   | — |   | 113 |   | 117 |   |
| **Total deferred tax assets**                                           | ** ** | **264**                          | ** ** | **2**               | ** ** | **79** | ** ** | **—** | ** ** | **345** | ** ** | **457** | ** ** |
| Fixed  assets                                                           |       | (63                              | )          | —              |       | (49 | ) | 4 |   | (108 | ) | (103 | ) |
| Inflation  adjustments (i)                                              |       | (387                             | )          | (10                 | )          | (16 | ) | (3 | ) | (416 | ) | (527 | ) |
| Purchase  price allocation of Cubecorp’s fixed assets (ii)         |       | (23                              | )          | —              |       | — |   | — |   | (23 | ) | — |   |
| Other  deferred tax liabilities (iii)                                   |       | (1                               | )          | —              |       | (4 | ) | — |   | (5 | ) | — |   |
| Estimated  cash dividends receivable from foreign companies             |       | —                           |       | —              |       | (5 | ) | — |   | (5 | ) | (10 | ) |
| **Total deferred tax liabilities**                                      | ** ** | **(474**                         | **)**      | **(10**             | **)**      | **(74** | **)** | **1** | ** ** | **(557** | **)** | **(640** | **)** |
| **Subtotal deferred tax assets (liabilities)**                          | ** ** | **(210**                         | **)**      | **(8**              | **)**      | **5** | ** ** | **1** | ** ** | **(212** | **)** | **(183** | **)** |
| -  Valuation allowance                                                  |       | —                           |       | (1                  | )          | (11 | ) | — |   | (12 | ) | (106 | ) |
| **Net deferred tax (liabilities) assets as of  December 31, 2008** | ** ** | **$**                            | **(210**   | **)**               | **$**      | **(9** | **)** | **$** | **(6** | **)** | **$** | **1** | ** ** | **$** | **(224** | **)** | ** ** | ** ** |
| **Net deferred tax (liabilities) assets as of  December 31, 2007** | ** ** | **$**                            | **(283**   | **)**               | **—** | ** ** | **$** | **(4** | **)** | **$** | **(2** | **)** | ** ** | ** ** | **$** | **(289** | **)** |

 

----

(i)             Mainly relate to inflation adjustment on fixed assets, intangibles andother assets for financial reporting purposes.

(ii)         Thisdeferred tax liability was generated by the acquisition of shares of Cubecorpand has no impact in the consolidated statement of income.

(iii)       Thisdeferred tax liability was generated by the effect of changes in the fair valueof cash flow hedges and has no impact in the consolidated statement of income.

 

F-42

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Table of Contents

 

**10.          Incometax (continued)**

** **

Income tax benefit(expense) for the years ended December 31, 2008, 2007 and 2006 consists ofthe following:

 
| ** **                     | ** ** | **Year ended December 31, 2008** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|
| ** **                     | ** ** | **Telecom**                           | ** ** | **Cubecorp** | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Telecom  Argentina  USA** | ** ** | **Total** | ** ** |
| ** **                     | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  tax expense           |       | $                                     | (238       | ) | $ | — |   | $ | (390 | ) | $ | (7 | ) | $ | — |   | $ | (635 | ) |
| Deferred tax benefit (expense) |       | 94                                    |       | (1 | ) | 2 |   | 3 |   | — |   | 98 |   |
| Valuation allowance            |       | 3                                     |       | (1 | ) | — |   | — |   | — |   | 2 |   |
| **Income tax expense**         | ** ** | **$**                                 | **(141**   | **)** | **$** | **(2** | **)** | **$** | **(388** | **)** | **$** | **(4** | **)** | **$** | **—** | ** ** | **$** | **(535** | **)** |

 
| ** **                                       | ** ** | **Year  ended December 31, 2007** |       |
|--------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                       | ** ** | **Telecom**                            | ** ** | **Cubecorp** | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Telecom  Argentina  USA** | ** ** | **Total** | ** ** |
| ** **                                       | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  tax expense                             |       | $                                      | —     |   | $ | — |   | $ | (116 | ) | $ | (17 | ) | $ | (1 | ) | $ | (134 | ) |
| Deferred tax expense                             |       | (159                                   | )          | — |   | (87 | ) | (1 | ) | — |   | (247 | ) |
| Valuation allowance                              |       | 100                                    |       | — |   | (11 | ) | — |   | — |   | 89 |   |
| Current tax expense from discontinued operations |       | (63                                    | )          | — |   | — |   | — | ** ** | **—** |   | (63 | ) |
| **Income tax expense**                           | ** ** | **$**                                  | **(122**   | **)** | **$** | **—** | ** ** | **$** | **(214** | **)** | **$** | **(18** | **)** | **$** | **(1** | **)** | **$** | **(355** | **)** |

 
| ** **                       | ** ** | **Year  ended December 31, 2006** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|
| ** **                       | ** ** | **Telecom**                            | ** ** | **Cubecorp** | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Telecom  Argentina  USA** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  tax expense             |       | $                                      | —     |   | $ | — |   | $ | — |   | $ | (8 | ) | $ | — |   | $ | (8 | ) |
| Deferred tax (expense) benefit   |       | (48                                    | )          | — |   | (4 | ) | 1 |   | — |   | (51 | ) |
| Valuation allowance              |       | 81                                     |       | — |   | — |   | — |   | — |   | 81 |   |
| **Income tax benefit (expense)** | ** ** | **$**                                  | **33**     | ** ** | **$** | **—** | ** ** | **$** | **(4** | **)** | **$** | **(7** | **)** | **$** | **—** | ** ** | **$** | **22** | ** ** |

 

Income tax benefit(expense) from continuing operations for the years ended December 31,2008, 2007 and 2006 differed from the amounts computed by applying the Company’sstatutory income tax rate to pre-tax income (loss) as a result of thefollowing:

 
| ** **                                                           | ** ** | **Argentina** | ** ** | **International** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------------|------------|---------------|------------|-------------------|------------|-----------|------------|
| Pre-tax income on a separate return basis                            |       | $             | 2,186      |              | $          | 39        |       | $ | 2,225 |   |
| Non taxable items – Gain on equity investees                    |       | (731          | )          | —            |       | (731      | )          |
| Non taxable items – Other                                       |       | 48            |       | (15               | )          | 33        |       |
| Subtotal                                                             |       | 1,503         |       | 24                |       | 1,527     |       |
| Statutory income tax rate                                            |       | 35            | %          | 10                | %          |      |       |
| **Income tax expense at statutory  tax rate**                        | ** ** | **(527**      | **)**      | **(2**            | **)**      | **(529**  | **)**      |
| Additional income tax from cash dividends paid by  foreign companies |       | (6            | )          | (2                | )          | (8        | )          |
| Change in valuation allowance                                        |       | 2             |       | —            |       | 2         |       |
| **Income tax expense as of  December 31, 2008**                 | ** ** | **$**         | **(531**   | **)**             | **$**      | **(4**    | **)**      | **$** | **(535** | **)** |
|                                                                 |       |          |       |              |       |      |       |
| Pre-tax income on a separate return basis                            |       | $             | 1,399      |              | $          | 89        |       | $ | 1,488 |   |
| Non taxable items – Gain on equity investees                    |       | (391          | )          | —            |       | (391      | )          |
| Non taxable items – Other                                       |       | (34           | )          | 17                |       | (17       | )          |
| Subtotal                                                             |       | 974           |       | 106               |       | 1,080     |       |
| Statutory income tax rate                                            |       | 35            | %          | (*                | )          |      |       |
| **Income tax expense at statutory  tax rate**                        | ** ** | **(341**      | **)**      | **(12**           | **)**      | **(353**  | **)**      |
| Additional income tax from cash dividends paid by  foreign companies |       | (21           | )          | (7                | )          | (28       | )          |
| Change in valuation allowance                                        |       | 89            |       | —            |       | 89        |       |
| **Income tax expense as of  December 31, 2007**                 | ** ** | **$**         | **(273**   | **)**             | **$**      | **(19**   | **)**      | **$** | **(292** | **)** |
|                                                                 |       |          |       |              |       |      |       |
| Pre-tax income on a separate return basis                            |       | $             | 268        |              | $          | 79        |       | $ | 347 |   |
| Non taxable items – Gain on equity investees                    |       | (116          | )          | —            |       | (116      | )          |
| Non taxable items – Other                                       |       | (8            | )          | (7                | )          | (15       | )          |
| Subtotal                                                             |       | 144           |       | 72                |       | 216       |       |
| Statutory income tax rate                                            |       | 35            | %          | 10                | %          |      |       |
| **Income tax expense at statutory  tax rate**                        | ** ** | **(52**       | **)**      | **(7**            | **)**      | **(59**   | **)**      |
| Change in valuation allowance                                        |       | 81            |       | —            |       | 81        |       |
| **Income tax benefit (expense) as  of December 31, 2006**       | ** ** | **$**         | **29**     | ** **        | **$**      | **(7**    | **)**      | **$** | **22** | ** ** |

** **

----

**(*) In 2007, the statutorytax rate in Paraguay was 10% and in the USA the effective tax rate was 39.5%.**

** **

**F-43**

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**Table of Contents**

** **

**11.          Commitments and contingencies**

 

**(a) Purchasecommitments**

 

The Company has enteredinto various purchase commitments amounting in the aggregate to approximately$943 as of December 31, 2008, primarily related to the supply of switchingequipment, external wiring, infrastructure agreements, inventory and otherservice agreements.

 

**(b) Investment commitments**

 

In August 2003, Telecom Argentina was notified by theSC of a proposal for the creation of a $70-million fund (the “*Complejo Industrial de las Telecomunicaciones 2003”* or “2003Telecommunications Fund”) to be funded by the major telecommunication companiesand aimed at developing the telecommunications sector in Argentina. Banco deInversion y Comercio Exterior (“BICE”) was designated as Trustee of the Fund.

 

In November 2003, the Company contributed $1.5 at theinception of the Fund. In addition, management announced that it is the Company’sintention to promote agreements with local suppliers which would facilitatetheir access to financing.

 

**(c) Commitments and contingencies assumed byTelecom from the sale of Publicom**

 

OnMarch 29, 2007, Telecom’s Board of Directors approved the sale of itsequity interest in Publicom to Yell Publicidad S.A. (a company incorporated inSpain, member of the Yell Group- *Grupo Yell*),which was executed on April 12, 2007 (the “Closing Date”).

 

Aseries of declarations and guarantees, standard for this type of transactions,assumed by Telecom towards the buyer with respect to Publicom and to itself andothers assumed by the buyer towards Telecom and towards itself are included inthe contract. Reciprocal obligations and commitments are also set forth,between Telecom and the buyer.

 

Ithas been ruled that Telecom shall indemnify and shall hold the buyer harmlessfrom any and all damages that might result from:

 

(i) Anyclaim addressed to the buyer by third parties in which the owner’s equity,entitlement to inherent rights and /or unrestricted disposal of shares issuccessfully objected;

 

(ii) Damagesand losses of equity derived from incorrectness or inaccuracy of thedeclarations and guarantees;

 

(iii) Damagesand losses of equity derived from the non-fulfillment of the obligations andcommitments undertaken by Telecom.

 

Theseindemnities granted by Telecom have time as well as economic limits.

 

OnClosing Date and after the stock transfer was actually performed, Publicomaccepted a proposal from Telecom. According to said proposal, Telecom:

 

·                  engages Publicom to publishTelecom’s directories (“white pages”) for a 5-year period, which may beextended upon expiry date;

·                  engages Publicom todistribute Telecom’s white pages for a 20-year period, which may beextended upon expiry date;

·                  engages Publicom to maintainthe Internet portal, which allows to access the white pages through theweb, for a 20-year period, term which may be extended upon expiry date;

·                  grants Publicom the right tolease advertising spaces on the white pages for a 20-year period, whichmay be extended upon expiry date; and

·                  authorizes the use of certaintrademarks for the distribution and/or consultation on the Internet and/oradvertising spaces agreements for the same specified period.

 

Telecomreserves the right to supervise certain matters associated with white pages publishingand distribution activities that allow Telecom to assure the fulfillment of itsregulatory obligations during the term of the proposal. The terms andconditions of the proposal include usual provisions that allow Telecom to applyeconomic sanctions in the case of non-compliance, and in the case of seriousnon-compliance, allow Telecom to require an early termination. In the lattercase, the Company could enter into an agreement with other providers.

 

Theproposal set prices for the publishing, printing and distribution of the 2007directories, and provided clauses for the subsequent editions in order toensure Telecom that said services will be contracted at market price.

 

Telecomshall continue to include in its own invoices the amounts to be paid by itscustomers to Publicom for the contracted services or those that may becontracted in the future, and subsequently collect the amounts for saidservices on behalf and to the order of Publicom, without absorbing anydelinquency.

 

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Table of Contents

 

**11.          Commitments and contingencies****(continued)**

 

**(d) Contingencies**

 

The Company is a party to several civil, tax,commercial, labor and regulatory proceedings and claims that have arisen in theordinary course of its business. In order to determine the proper level ofreserves relating to these contingencies, the Management of the Company, basedon the opinion of its internal and external legal counsels, assesses thelikelihood of any adverse judgments or outcomes related to these matters aswell as the range of probable losses that may result from the potentialoutcomes. A determination of the amount of reserves required, if any, for thesecontingencies is made after careful analysis of each individual case. Thedetermination of the required reserves may change in the future due to newdevelopments or changes as a matter of law or legal interpretation.Consequently, as of December 31, 2008, the Company has establishedreserves in an aggregate amount of $441 to cover potential losses under theseclaims ($86 for regulatory contingencies deducted from assets and $355 includedunder liabilities) and certain amounts deposited in theCompany’s bank accounts have been restricted as to their use due to somejudicial proceedings. As of December 31, 2008, these restricted fundstotaled $24 (included in the line item “Other receivables”).

 

In the last fiscal years, aseries of changes in legal interpretations of precedents (among others, in taxmatters) has affected the Company’s positions. By means of this, in December 2003,the AFIP (the Argentine Federal Tax Authority) assessed additional income taxesfor the 1997 tax year on certain deductions for uncollectible credits.

 

In August 2005, TelecomArgentina appealed the claim. During 2006, Telecom Argentina paid $10.8 in principal and $8.3 ininterest (that were recorded as a provision during fiscal year 2005). In case theposition is sustained in Telecom Argentina’s favor, there will be a contingentreceivable against the National Government amounting to $19.1 which estimatesit would recover through government bonds. Under Argentine GAAP, as of the dateof issuance of these consolidated financial statements, the above referencedpayment does not meet the criteria to be recognized as a tax credit.

 

The AFIP has alsoassessed additional income tax claims for the 1998, 1999 and 2000 tax years. Asof the date of these financial statements, Telecom Argentina appealed thesesentences before the National Fiscal Court. Telecom Argentina together with itslegal counsel believes it has meritorious legal defenses in case of anypotential unfavorable judgment.

 

InAugust 2008, the Supreme Court of Justice, when resolving a case againstTelefonica, found the Decree No. 395/92 unconstitutional. Different legalactions were brought mainly by former employees of the Company against theNational Government and the Company requesting that Decree No. 395/92 —which expressly exempted the Company from issuing the profit sharing bondsprovided in Law No. 23,696 — be stricken down as unconstitutional and,therefore, claiming compensation for the damages they had suffered because suchbonds failed to have been issued.

 

Althoughmost of such actions are still pending, in such actions in which judgment hasalready been rendered, the Trial Court Judges hearing the matter resolved todismiss the actions brought — relying upon the criterion upheld by the relevantProsecutors in each case — pointing that such rule was valid andconstitutional.

 

Inturn, and after the plaintiffs appealed such decisions, the different Courts ofAppeal hearing the matters passed judgments following different andcontradictory criteria. While two Divisions confirmed the decisions of therelevant *ad quo*, another Division struck theaforementioned Decree unconstitutional.

 

Inorder to support its rights, the Company filed appeals against thoseunfavorable decisions, and although said decisions have not yet been analyzedby the Supreme Court of Justice, it is to be noted that the abovementioneddecision of the Supreme Court, when resolving on the similar case againstTelefonica, has generated a judicial precedent which, to the opinion of thelegal counsels of the Company, increases the probabilities that the Company hasto affront these contingencies, notwithstanding the right of repetition thatattends Telecom against the National State.

 

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Table of Contents

 

**11.          Commitments and contingencies****(continued)**

 

SaidCourt decision found the abovementioned decree unconstitutional and ordered to sendthe proceedings back to the court of origin so that said court could decide onwhich was the subject compelled to pay —licensee and/or National Government-and the parameters that were to be taken into account in order to quantify thecomplaints set forth therein (percent of profit sharing, prescription criteria,distribution method between the beneficiaries of the program).

 

Asof December 31, 2008, the management of the Company, with the aid of itslegal counsels, has recorded allowances that estimates sufficient to insure therisks derived from these claims, having considered the legal antecedentsavailable at the date of issuance of these consolidated financial statements.

 

In addition, the Companyis subject to other claims and legal actions that have arisen in the ordinarycourse of its business. Although there can be no assurance as to the ultimatedisposition of these matters, it is the opinion of the Management of theCompany, based upon the information available at this time and consultation withexternal and internal legal counsel, that the expected outcome of these otherclaims and legal actions, individually or in the aggregate, will not have amaterial effect on the Company’s financial position or results of operations.Accordingly, no reserves have been established for the outcome of theseactions.

 

Below is a summary of themost significant other claims and legal actions for which reserves have notbeen established:

 

*Labor proceedings*

 

Based on a legal theoryof successor company liability, Telecom Argentina has been named as aco-defendant with ENTel in several labor lawsuits brought by former employeesof ENTel against the state-owned company. The Transfer Agreement provided thatENTel and the Argentine Government, and not the Company, are liable for allamounts owed in connection with claims brought by former ENTel employees, whether or not such claims were made prior tothe Transfer Date, if the events giving rise to such claims occurred prior tothe Transfer Date.

 

ENTel and the ArgentineGovernment have agreed to indemnify and hold the Company harmless in respect ofsuch claims. Under current Argentine legislation, the Argentine Government maysettle any amounts payable to the Company for these claims through the issuanceof treasury bonds. As of December 31, 2008, total claims in these laborlawsuits amounted to $9.

 

*Tax matters*

 

In December 2000,Telecom Argentina received notices from the AFIP of proposed adjustments toincome taxes for the fiscal years 1993 through 1999 based on Telecom Argentina’scriteria for calculating depreciation of its fiber optic network.

 

In April 2005,Telecom Argentina was notified of the National Fiscal Court’s unfavorableresolution which ratified the AFIP tax assessment relating to additional taxesand interest, although it excluded penalties. As of the date of issuance ofthese consolidated financial statements, Telecom Argentina paid $12.5 inprincipal and $24.8 in interest and has recorded a charge to income taxes of$12.5 and financial results, net (interest generated by liabilities) of $24.8in the statement of income. In October 2007, the National Court of Appealshas confirmed the resolution of the National Fiscal Court and has determined afine amounting to $6.6. The Company has appealed the decision to the ArgentineSupreme Court of Justice, which was granted.

 

Inthe event judicial appeals are sustained in its favor, Telecom Argentina willhave a contingent receivable against the National Government amounting to $37.3which estimates it would recover through government bonds. Under ArgentineGAAP, as of the date of issuance of these consolidated financial statements,the above referenced payment does not meet the criteria to be recognized as atax credit. If the judicial appeals are not favorably resolved, TelecomArgentina estimates it will be required to pay approximately $15 (includingfines for $6.6).

 

Additionally, in December 2001,Telecom Argentina received notices from the AFIP of proposed adjustments toincome taxes based on the amortization period utilized by Telecom Argentina todepreciate its optic fiber network in Telintar’s submarine cables. Telintar wasdissolved and merged in equal parts into Telecom Argentina Internacional S.A.and Telefonica Larga Distancia de Argentina S.A., entities controlled byTelecom Argentina and Telefonica, respectively. Telecom Argentina InternacionalS.A. was subsequently merged with and into Telecom Argentina in September 1999.

 

F-46

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Table of Contents

 

**11.          Commitments and contingencies****(continued)**

 

In July 2005, theNational Fiscal Court resolved against Telecom Argentina ratifying the taxassessment relating to additional taxes, although it excluded interest andpenalties. On the same grounds as described in the second paragraph above,during the third quarter of 2005, Telecom Argentina recorded a current taxliability amounting to $0.5 against income taxes in the statement of income. TelecomArgentina has appealed this sentence before the National Fiscal Court.

 

In spite of theunfavorable judgments, Telecom Argentina believes that the ultimate outcome ofthese cases will not result in an incremental adverse impact on TelecomArgentina’s results of operations and financial condition.

 

In December 2006,the AFIP assessed additional income taxes and taxes on minimum presumed incomefor the 2000 and 2001 tax years claiming that Personal incorrectly deductedcertain uncollectible receivables. Personal appealed this assessment with theNational Tax Court. The AFIP’s claim is contrary to some jurisprudentialprecedents, especially to other sentences issued by the Circuit of the NationalTax Court where this matter is being treated. Consequently, Personal and itslegal counsel believe they have meritorious legal defenses in case of anypotential unfavorable judgment.

 

*Other claims*

 

*Consumer Trade Union Proceedings*

 

In November 1995,Telecom Argentina, together with Telefonica de Argentina, Telintar and theArgentine Government were named as defendants in a lawsuit filed in Argentinefederal courts by a consumer activist group. The complaints in this lawsuitcontend that consumers have been injured because of the application ofunjustified tariffs for the provision of fixed line services. Plaintiffs areseeking damages, an injunction against the reduction of tariffs, disgorgementof all monies that the defendants have earned through the charge of thealledged abusive tariffs and a cap of 16% on the Company’s annual rate ofreturn on its fixed assets. The court has rejected some of the claims butagreed to a stay of the others pending the outcome of the appeal.

 

In October 2001,the court awarded the plaintiffs an injunction enjoining the indexing of tariffsby the U.S. C.P.I. as permitted by the Transfer Agreement pending a finalresolution in the case. Telecom Argentina vigorously appealed this decision.Hearings on the case are currently in process. Telecom Argentina believes theclaims have no merit. Telecom Argentina cannot predict the outcome of thiscase, or reasonably estimate a range of possible loss given the current statusof the litigation.

 

Upon the extensionof the exclusivity period for the provision of telecommunication services, thesame consumer group filed a new lawsuit in Argentine federal courts against theservice providers and the Argentine Government. Plaintiffs are seeking damages,an injunction against the revocation of licenses granted to telecommunicationservice providers and finalization of the exclusivity period. This case is at apreliminary stage, but Telecom Argentina does not believe it has merit andintends to contest it vigorously. Telecom Argentina is unable, however, topredict the outcome of this case, or reasonably estimate a range of possibleloss given the current status of the litigation.

 

*Users and Consumer Trade UnionProceedings*

 

In August 2003,another consumer group filed suit against Telecom Argentina in Argentinefederal court alleging the unconstitutionality of certain resolutions issued bythe SC. These resolutions had amended a prior resolution which prescribed theway service providers had to refund customers for additional charges includedin monthly fixed-line service fees. The amendment was intended to establishanother method of refunding customers due to practical reasons. TelecomArgentina complied with the amended resolution and provided refunds tocustomers. The case is at a preliminary stage, but Telecom Argentina does notbelieve it has merit and will contest it vigorously. Telecom Argentina isunable, however, to predict the outcome of the case, or reasonably estimate arange of possible loss given the current status of the litigation.

 

F-47

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Table of Contents

 

**12.  Acquisition of Cubecorp**

 

***(i)******      ******Description of the transaction***

 

On July 15,2008, Telecom Argentina acquired 100% of the shares of Cubecorp forapproximately $98, equivalent to US$ 32.3 million at that date. Subsequently,Telecom transferred 5% of the shares to Personal for an approximate amount of$5, equivalent to US$ 1.6 million.

 

Within theframework of the positioning of the Company as an integrated ICT (“Information and Communication Technology”)solutions provider for the corporate wholesale segment and for the Government,Telecom acquires with Cubecorp a Data Center located in Pacheco, Department ofBuenos Aires. It provides IT outsourcing services which include: computerizedequipment, connectivity, information security, monitoring, storage, backboardand data recovery, support, operation and administration. Furthermore, Telecomadds to its interdisciplinary professional staff dedicated to the Data Centerssolutions, a specialized and qualified staff, dedicated both to the operationand maintenance of the Data Center and to the marketing of these services.

 

With thisacquisition, Telecom strengthens its Data Center services, as the Data Centeracquired is equipped with world class infrastructure, which permits to offerclients with high reliability, availability and scalability customized to theirneeds. This service quality is supported by several certifications obtained byCubecorp (Banco Central de la República Argentina, SAP, EMC, Suntone, Cisco,Oracle and Microsoft).

 

On August 1st,2008, Telecom and Personal jointly made irrevocable capital contributions for$10.5 to Cubecorp in accordance with their respective participations, and thecorresponding shares are expected to be issued during fiscal year 2009.

 

The Board ofDirectors of Telecom and Cubecorp held on September 10, 2008, and October 7,2008, respectively, approved the Preliminary Agreement of Merger, by whichTelecom would incorporate Cubecorp by merger, effective January 1st, 2009.As a consequence of this agreement and in order to facilitate the merger,Personal sold to Telecom its shares in an amount of US$1.8 million (equivalentto $6).

 

***(ii)******  ******Accounting treatment***

 

UnderArgentine GAAP, the transaction described in a) above, was accounted for inaccordance with the guidelines of RT 18 and RT 21, using the “Purchase method”.

 

The Companyhas then: i) determined the cost of acquisition as the total amount paid forthe shares plus directly attributable costs related to the transaction and ii)assigned the cost of the acquisition to the assets acquired and liabilitiesassumed based on their estimated fair values at the date of acquisition. Theallocation of the acquisition cost to the assets acquired and liabilitiesassumed resulted in an increase of the value of the fixed assets acquired andthe recognition of customer-related intangible assets, both net of tax effect.

 

The effectsof the application of this method are included in “Application of the purchasemethod” in the table below.

 

In addition,at the time of the acquisition and in accordance with RT 21, Telecom hasconformed the accounting policies used by Cubecorp to the Company’s. The onlysignificant adjustment was the recognition of a deferred tax liabilitygenerated by the difference between book value of the fixed assets adjusted forinflation and the tax value of those assets. The effect is included in “Conformityof accounting policies” in the table below.

 

F-48

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**12.  Acquisition of Cubecorp (continued)**

 

***(iii)******    ******Effect of the acquisition in the consolidated financialstatements***

 

A summary ofthe assets acquired and liabilities assumed, based on an special financialstatement as of June 30, 2008 issued by the seller, is as follows:

 
| ** **                                      | ** ** | **Special  financial  statement  as of June  30, 2008** | ** ** | **Conformity  of  accounting  policies** | ** ** | **Application  of the  purchase  method** | ** ** | **Estimated  fair value of  Cubecorp’s  assets and  liabilities** | ** **    |
|-------------------------------------------------|------------|---------------------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------------------------------------|---------------|
| **ASSETS**                                      | ** ** | ** **                                              | ** ** | ** **                               | ** ** | ** **                                | ** ** | ** **                                                             | ** **    |
| Cash and banks                                  |       | 1                                                       |       | —                                   |       | —                                    |       | 1                                                                      |          |
| Other receivables                               |       | 19                                                      |       | —                                   |       | (9                                        | )          | 10                                                                     |          |
| Fixed assets                                    |       | 30                                                      |       | —                                   |       | 100                                       |       | (a)                                                                    |  130     |   |
| Intangible assets — customer  relationship |       | —                                                  |       | —                                   |       | 2                                         |       | (b)                                                                    |  2       |   |
| **Total  assets**                               | ** ** | **50**                                                  | ** ** | **—**                               | ** ** | **93**                                    | ** ** | **(I) **                                                          | ** 143** | ** ** |
| **LIABILITIES**                                 | ** ** | ** **                                              | ** ** | ** **                               | ** ** | ** **                                | ** ** | ** **                                                             | ** **    |
| Accounts payable                                |       | 3                                                       |       | —                                   |       | —                                    |       | 3                                                                      |          |
| Loans                                           |       | 8                                                       |       | —                                   |       | —                                    |       | 8                                                                      |          |
| Salaries and social security  payable           |       | 2                                                       |       | —                                   |       | —                                    |       | 2                                                                      |          |
| Taxes payable                                   |       | —                                                  |       | 3                                        |       | 27                                        |       | 30                                                                     |          |
| Other liabilities                               |       | 1                                                       |       | —                                   |       | —                                    |       | 1                                                                      |          |
| Contingencies                                   |       | 1                                                       |       | —                                   |       | —                                    |       | 1                                                                      |          |
| **Total  liabilities**                          | ** ** | **15**                                                  | ** ** | **3**                                    | ** ** | **27**                                    | ** ** | **(II) **                                                         | ** 45**  | ** ** |
| ** **                                      | ** ** | ** **                                              | ** ** | ** **                               | ** ** | ** **                                | ** ** | ** **                                                             | ** **    |
| **Total  paid for shares**                      | ** ** | ** **                                              | ** ** | ** **                               | ** ** | ** **                                | ** ** | **(I) – (II)**                                          | **98**        | ** ** |
|                                                 |            |                                                         |            |                                          |            |                                           |            |                                                                        |               |  |  |

 

----

(a)            Includes $64 of purchase price allocation to fixed assets.

(b)           Corresponds to Cubecorp’s customer relationship.

 

The effectin the Group’s results of operations for the period between Cubecorp’sacquisition date and December 31, 2008 (that was included in the Voice,data and Internet reportable segment - see Note 13), is as follows:

 
| Net sales                                                |       | 6      |   |
|----------------------------------------------------------|------------|--------|--------|
| Salaries and social security                             |       | (2     | )      |
| Taxes                                                    |       | (1     | )      |
| Fees for services                                        |       | (2     | )      |
| Energy, water and others                                 |       | (1     | )      |
| Others                                                   |       | (1     | )      |
| **Operating  loss before depreciation and amortization** | ** ** | **(1** | **)**  |
| Fixed assets depreciation                                |       | (4     | )      |
| **Operating  loss**                                      | ** ** | **(5** | **)**  |
| Financial results, net                                   |       | 1      |   |
| Income tax expense                                       |       | (2     | )      |
| **Net loss**                                             | ** ** | **(6** | **)**  |

 

Cubecorp’scash flow contribution for the period between Cubecorp’s acquisition date and December 31,2008, is as follows:

 
| **Cash flow  used for operating activities**                       | ** ** | **—** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|
|                                                               |       |       |       |
| **Cash flow  provided by (used for) investing activities**         | ** ** | ** ** | ** ** |
| Fixed asset acquisitions                                           |       | (1         | )          |
| Cash and cash equivalents  included in Cubecorp’s acquisition |       | 1          |       |
| **Cash flow  provided by investing activities**                    | ** ** | **—** | ** ** |
|                                                               |       |       |       |
| **Cash flow  provided by (used for) financing activities**         | ** ** | ** ** | ** ** |
| Capital contribution received                                      |       | 11         |       |
| Payment of debt                                                    |       | (9         | )          |
| **Cash flow  provided by financing activities**                    | ** ** | **2**      | ** ** |
| **Increase  in cash and cash equivalents**                         | ** ** | **2**      | ** ** |
| **Cash and  cash equivalents at the beginning of period**          | ** ** | **—** | ** ** |
| **Cash and  cash equivalents at year end**                         | ** ** | **2**      | ** ** |

 

**13.         ****Segment information**

 

Operating segments arerevenue-producing components of the enterprise for which separate financialinformation is produced internally for management. Under this definition, theCompany conducts its business through five legal entities which represent fiveoperating segments. Under Argentine GAAP, these operating segments have beenaggregated into reportable segments according to the nature of the products andservices provided. The Company manages itssegments to the net income (loss) level of reporting.

 

Telecom Argentina and its subsidiaries conform thefollowing reportable segments:

 
| **Reportable  segment**       | ** ** | **Consolidated company/ Operating segment** |
|-------------------------------|------------|---------------------------------------------|
| **Voice,  data and Internet** |       | Telecom  Argentina                          |
|                          |       | Telecom  Argentina USA                      |
|                          |       | Cubecorp                                    |
|                          |       | Micro  Sistemas (i)                         |
|                          |       |                                        |
| **Wireless**                  |       | Personal                                    |
|                          |       | Nucleo                                      |

 

----

(i)            Dormant entity at December 31,2008, 2007 and 2006.

 

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**13.         ****Segment information (continued)**

 

The accounting policiesof the operating segments are the same as those described in Note 4.Intercompany sales have been eliminated.

 

Forthe years ended December 31, 2008, 2007 and 2006, more than 95% of theCompany’s revenues were from services provided within Argentina. More than 95%of the Company’s fixed assets are in Argentina. Segment financial informationwas as follows:

 

***Forthe year ended December 31, 2008***

 

·                  ***Income statementinformation***

 
| ** **                                                          | ** ** | **Voice, data  and  Internet** | ** ** | **Wireless** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------|------------|--------------|------------|------------|------------|
| **Results from continuing operations**                              | ** ** | **(a)**                        | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Subtotal** | ** ** | **Total** | ** ** |
| Services                                                            |       | 3,612                          |       | 5,853        |       | 382        | ** ** | **6,235** | ** ** | **9,847** | ** ** |
| Equipment sales                                                     |       | 41                             |       | 712          |       | 8          | ** ** | **720** | ** ** | **761** | ** ** |
| **Net sales**                                                       | ** ** | **3,653**                      | ** ** | **6,565**    | ** ** | **390**    | ** ** | **6,955** | ** ** | **10,608** | ** ** |
| Salaries and social security                                        |       | (931                           | )          | (256         | )          | (30        | )          | **(286** | **)** | **(1,217** | **)** |
| Taxes                                                               |       | (223                           | )          | (590         | )          | (12        | )          | **(602** | **)** | **(825** | **)** |
| Maintenance, materials and supplies                                 |       | (373                           | )          | (148         | )          | (20        | )          | **(168** | **)** | **(541** | **)** |
| Bad debt expense                                                    |       | (10                            | )          | (55          | )          | (2         | )          | **(57** | **)** | **(67** | **)** |
| Interconnection costs                                               |       | (156                           | )          | —       |       | —     | ** ** | **—** | ** ** | **(156** | **)** |
| Cost of international outbound calls                                |       | (145                           | )          | —       |       | —     | ** ** | **—** | ** ** | **(145** | **)** |
| Lease of circuits                                                   |       | (67                            | )          | (38          | )          | (19        | )          | **(57** | **)** | **(124** | **)** |
| Fees for services                                                   |       | (181                           | )          | (197         | )          | (11        | )          | **(208** | **)** | **(389** | **)** |
| Advertising                                                         |       | (137                           | )          | (224         | )          | (27        | )          | **(251** | **)** | **(388** | **)** |
| Agent commissions and distribution of prepaid cards  commissions    |       | (43                            | )          | (691         | )          | (35        | )          | **(726** | **)** | **(769** | **)** |
| Other commissions                                                   |       | (51                            | )          | (104         | )          | (4         | )          | **(108** | **)** | **(159** | **)** |
| Roaming                                                             |       | —                         |       | (174         | )          | (3         | )          | **(177** | **)** | **(177** | **)** |
| Charges for TLRD                                                    |       | —                         |       | (707         | )          | (57        | )          | **(764** | **)** | **(764** | **)** |
| Cost of sales                                                       |       | (38                            | )          | (978         | )          | (10        | )          | **(988** | **)** | **(1,026** | **)** |
| Others                                                              |       | (264                           | )          | (242         | )          | (25        | )          | **(267** | **)** | **(531** | **)** |
| **Operating income before  depreciation and amortization**          | ** ** | **1,034**                      | ** ** | **2,161**    | ** ** | **135**    | ** ** | **2,296** | ** ** | **3,330** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets |       | (822                           | )          | (375         | )          | (92        | )          | **(467** | **)** | **(1,289** | **)** |
| **Operating income**                                                | ** ** | **212**                        | ** ** | **1,786**    | ** ** | **43**     | ** ** | **1,829** | ** ** | **2,041** | ** ** |
| Financial results, net                                              |       | (166                           | )          | (102         | )          | 3          | ** ** | **(99** | **)** | **(265** | **)** |
| Other expenses, net                                                 |       | (212                           | )          | (56          | )          | —     | ** ** | **(56** | **)** | **(268** | **)** |
| **Net (loss) income before income  tax and minority interest**      | ** ** | **(166**                       | **)**      | **1,628**    | ** ** | **46**     | ** ** | **1,674** | ** ** | **1,508** | ** ** |
| Income tax, net                                                     |       | (143                           | )          | (388         | )          | (4         | )          | **(392** | **)** | **(535** | **)** |
| Minority interest                                                   |       | —                         |       | —       |       | (12        | )          | **(12** | **)** | **(12** | **)** |
| **Net (loss) income**                                               | ** ** | **(309**                       | **)**      | **1,240**    | ** ** | **30**     | ** ** | **1,270** | ** ** | **961** | ** ** |

 

----

(a)          Includes net sales of $40,operating income before depreciation of $10, operating profit of $8 and netincome of $8 corresponding to Telecom Argentina USA.

 

·                  ***Balance sheet information***

 
| **Fixed assets, net**                                                                     |   | 4,032 |   | 1,788  |   | 368    | ** ** | **2,156**  | ** ** | **6,188**  | ** ** |
|-------------------------------------------------------------------------------------------|--------|-------|--------|--------|--------|--------|------------|------------|------------|------------|------------|
| **Intangible assets, net**                                                                |   | 173   |   | 598    |   | 1      | ** ** | **599**    | ** ** | **772**    | ** ** |
| **Capital expenditures (without  ARO and debt issue costs)**                              |   | 924   |   | 661    |   | 102    | ** ** | **763**    | ** ** | **1,687**  | ** ** |
| **Net book value of Cubecorp’s  fixed assets included in the acquisition of shares** |   | 132   |   | — |   | — | ** ** | **—** | ** ** | **132**    | ** ** |
| **Depreciation of fixed assets**                                                          |   | (806  | )      | (370   | )      | (91    | )          | **(461**   | **)**      | **(1,267** | **)**      |
| **Amortization of intangible  assets (without debt issue costs)**                         |   | (16   | )      | (5     | )      | (1     | )          | **(6**     | **)**      | **(22**    | **)**      |
| **Net financial debt**                                                                    |   | (679  | )      | (139   | )      | (85    | )          | **(224**   | **)**      | **(903**   | **)**      |

 

·                  ***Cash flow information***

 
| **Cash  flows provided by operating activities**                                           | ** ** | **1,781**  | ** ** | **1,435**  | ** ** | **103**    | ** ** | **1,538**  | ** ** | **3,319**  | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **Cash  flows from investing activities:**                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition  of fixed assets and intangible assets                                         |       | (826       | )          | (636       | )          | (99        | )          | **(735**   | **)**      | **(1,561** | **)**      |
| Acquisition  of Cubecorp                                                                   |       | (97        | )          | —     |       | —     | ** ** | **—** | ** ** | **(97**    | **)**      |
| Decrease  (increase) in investments not considered as cash and cash equivalents and  other |       | 346        |       | (5         | )          | —     | ** ** | **(5**     | **)**      | **341**    | ** ** |
| **Total  cash flows used in investing activities**                                         | ** ** | **(577**   | **)**      | **(641**   | **)**      | **(99**    | **)**      | **(740**   | **)**      | **(1,317** | **)**      |
| **Cash  flows from financing activities:**                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Debt  proceeds                                                                             |       | —     |       | 3          |       | 88         | ** ** | **91**     | ** ** | **91**     | ** ** |
| Payment  of debt                                                                           |       | (1,197     | )          | (208       | )          | (39        | )          | **(247**   | **)**      | **(1,444** | **)**      |
| Payment  of interest and debt-related expenses                                             |       | (109       | )          | (72        | )          | (4         | )          | **(76**    | **)**      | **(185**   | **)**      |
| Cash  dividends paid                                                                       |       | —     |       | —     |       | (20        | )          | **(20**    | **)**      | **(20**    | **)**      |
| **Total  cash flows provided by (used in) financing activities**                           | ** ** | **(1,306** | **)**      | **(277**   | **)**      | **25**     | ** ** | **(252**   | **)**      | **(1,558** | **)**      |
| **(Decrease)  increase in cash and cash equivalents**                                      |       | (102       | )          | 517        |       | 29         | ** ** | **546**    | ** ** | **444**    | ** ** |
| **Cash  and cash equivalents at the beginning of the year**                                |       | 147        |       | 246        |       | 65         | ** ** | **311**    | ** ** | **458**    | ** ** |
| **Cash  and cash equivalents at year end**                                                 | ** ** | **45**     | ** ** | **763**    | ** ** | **94**     | ** ** | **857**    | ** ** | **902**    | ** ** |

 

F-50

----

Table of Contents

 

**13.         ****Segment information (continued)**

 

***Forthe year ended December 31, 2007***

 

·                  ***Income statementinformation***

 
| ** **                                                          | ** ** | **Voice, data  and  Internet** | ** ** | **Wireless** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------|------------|--------------|------------|------------|------------|
| ** **                                                          | ** ** | **(a)**                        | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Subtotal** | ** ** | **Total** | ** ** |
| Services                                                            |       | 3,284                          |       | 4,756        |       | 426        | ** ** | **5,182** | ** ** | **8,466** | ** ** |
| Equipment sales                                                     |       | 18                             |       | 583          |       | 7          | ** ** | **590** | ** ** | **608** | ** ** |
| **Net sales**                                                       | ** ** | **3,302**                      | ** ** | **5,339**    | ** ** | **433**    | ** ** | **5,772** | ** ** | **9,074** | ** ** |
| Salaries and social security                                        |       | (744                           | )          | (188         | )          | (28        | )          | **(216** | **)** | **(960** | **)** |
| Taxes                                                               |       | (196                           | )          | (453         | )          | (11        | )          | **(464** | **)** | **(660** | **)** |
| Maintenance, materials and supplies                                 |       | (307                           | )          | (122         | )          | (18        | )          | **(140** | **)** | **(447** | **)** |
| Bad debt expense                                                    |       | (12                            | )          | (57          | )          | (2         | )          | **(59** | **)** | **(71** | **)** |
| Interconnection costs                                               |       | (151                           | )          | —       |       | —     | ** ** | **—** | ** ** | **(151** | **)** |
| Cost of international outbound calls                                |       | (138                           | )          | —       |       | —     | ** ** | **—** | ** ** | **(138** | **)** |
| Lease of circuits                                                   |       | (58                            | )          | (25          | )          | (18        | )          | **(43** | **)** | **(101** | **)** |
| Fees for services                                                   |       | (140                           | )          | (151         | )          | (9         | )          | **(160** | **)** | **(300** | **)** |
| Advertising                                                         |       | (89                            | )          | (195         | )          | (22        | )          | **(217** | **)** | **(306** | **)** |
| Agent commissions and distribution of prepaid cards  commissions    |       | (29                            | )          | (620         | )          | (55        | )          | **(675** | **)** | **(704** | **)** |
| Other commissions                                                   |       | (46                            | )          | (80          | )          | (4         | )          | **(84** | **)** | **(130** | **)** |
| Roaming                                                             |       | —                         |       | (149         | )          | (2         | )          | **(151** | **)** | **(151** | **)** |
| Charges for TLRD                                                    |       | —                         |       | (556         | )          | (53        | )          | **(609** | **)** | **(609** | **)** |
| Cost of sales                                                       |       | (18                            | )          | (867         | )          | (8         | )          | **(875** | **)** | **(893** | **)** |
| Others                                                              |       | (188                           | )          | (184         | )          | (29        | )          | **(213** | **)** | **(401** | **)** |
| **Operating income before  depreciation and amortization**          | ** ** | **1,186**                      | ** ** | **1,692**    | ** ** | **174**    | ** ** | **1,866** | ** ** | **3,052** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets |       | (828                           | )          | (510         | )          | (78        | )          | **(588** | **)** | **(1,416** | **)** |
| **Operating income**                                                | ** ** | **358**                        | ** ** | **1,182**    | ** ** | **96**     | ** ** | **1,278** | ** ** | **1,636** | ** ** |
| Financial results, net                                              |       | (262                           | )          | (185         | )          | 6          | ** ** | **(179** | **)** | **(441** | **)** |
| Other expenses, net                                                 |       | (61                            | )          | (35          | )          | (2         | )          | **(37** | **)** | **(98** | **)** |
| **Net income before income tax  and minority interest**             | ** ** | **35**                         | ** ** | **962**      | ** ** | **100**    | ** ** | **1,062** | ** ** | **1,097** | ** ** |
| Income tax, net                                                     |       | (60                            | )          | (214         | )          | (18        | )          | **(232** | **)** | **(292** | **)** |
| Minority interest                                                   |       | —                         |       | —       |       | (23        | )          | **(23** | **)** | **(23** | **)** |
| **Net (loss) income from  continuing operations**                   | ** ** | **(25**                        | **)**      | **748**      | ** ** | **59**     | ** ** | **807** | ** ** | **782** | ** ** |
| Income from discontinued operations                                 |       | 102                            |       | —       |       | —     | ** ** | **—** | ** ** | **102** | ** ** |
| **Net income**                                                      | ** ** | **77**                         | ** ** | **748**      | ** ** | **59**     | ** ** | **807** | ** ** | **884** | ** ** |

 

----

(a)          Includes net sales of $40,operating income before depreciation of $9, operating profit of $8 and netincome of $7 corresponding to Telecom Argentina USA.

 

·                  ***Balance sheet information***

 
| **Fixed assets, net**                                             |   | 3,927  |   | 1,494 |   | 317    | ** ** | **1,811** | ** ** | **5,738**  | ** ** |
|-------------------------------------------------------------------|--------|--------|--------|-------|--------|--------|------------|-----------|------------|------------|------------|
| **Intangible assets, net**                                        |   | 154    |   | 606   |   | — | ** ** | **606**   | ** ** | **760**    | ** ** |
| **Capital expenditures (without  ARO and debt issue costs)**      |   | 799    |   | 546   |   | 96     | ** ** | **642**   | ** ** | **1,441**  | ** ** |
| **Depreciation of fixed assets**                                  |   | (815   | )      | (498  | )      | (64    | )          | **(562**  | **)**      | **(1,377** | **)**      |
| **Amortization of intangible  assets (without debt issue costs)** |   | (13    | )      | (12   | )      | (14    | )          | **(26**   | **)**      | **(39**    | **)**      |
| **Net financial debt**                                            |   | (1,358 | )      | (612  | )      | (23    | )          | **(635**  | **)**      | **(1,993** | **)**      |

 

·                  ***Cash flow information***

 
| **Cash flows provided by  operating activities**                                          | ** ** | **1,738**  | ** ** | **1,052**  | ** ** | **156**    | ** ** | **1,208**  | ** ** | **2,946**  | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **Cash flows from investing  activities:**                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition of fixed assets and intangible assets                                         |       | (600       | )          | (547       | )          | (96        | )          | **(643**   | **)**      | **(1,243** | **)**      |
| Proceeds for the sale of equity investees                                                 |       | 182        |       | —     |       | —     | ** ** | **—** | ** ** | **182**    | ** ** |
| Decrease (increase) in investments not considered  as cash and cash equivalents and other |       | (511       | )          | (1         | )          | —     | ** ** | **(1**     | **)**      | **(512**   | **)**      |
| **Total cash flows used in  investing activities**                                        | ** ** | **(929**   | **)**      | **(548**   | **)**      | **(96**    | **)**      | **(644**   | **)**      | **(1,573** | **)**      |
| **Cash flows from financing  activities:**                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Debt proceeds                                                                             |       | —     |       | —     |       | 45         | ** ** | **45**     | ** ** | **45**     | ** ** |
| Payment of debt                                                                           |       | (889       | )          | (371       | )          | (30        | )          | **(401**   | **)**      | **(1,290** | **)**      |
| Payment of interest and debt-related expenses                                             |       | (182       | )          | (108       | )          | (3         | )          | **(111**   | **)**      | **(293**   | **)**      |
| Cash dividends paid                                                                       |       | —     |       | —     |       | (38        | )          | **(38**    | **)**      | **(38**    | **)**      |
| **Total cash flows used in  financing activities**                                        | ** ** | **(1,071** | **)**      | **(479**   | **)**      | **(26**    | **)**      | **(505**   | **)**      | **(1,576** | **)**      |
| **(Decrease) increase in cash and  cash equivalents**                                     |       | (262       | )          | 25         |       | 34         | ** ** | **59**     | ** ** | **(203**   | **)**      |
| **Cash and cash equivalents at  the beginning of the year**                               |       | 409        |       | 221        |       | 31         | ** ** | **252**    | ** ** | **661**    | ** ** |
| **Cash and cash equivalents at  year end**                                                | ** ** | **147**    | ** ** | **246**    | ** ** | **65**     | ** ** | **311**    | ** ** | **458**    | ** ** |

 

F-51

----

Table of Contents

 

**13.         ****Segment information (continued)**

 

***Forthe year ended December 31, 2006***

 

·                  ***Income statementinformation***

 
| ** **                                                          | ** ** | **Voice, data  and  Internet** | ** ** | **Wireless** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------|------------|--------------|------------|------------|------------|
| ** **                                                          | ** ** | **(a)**                        | ** ** | **Personal** | ** ** | **Nucleo** | ** ** | **Subtotal** | ** ** | **Total** | ** ** |
| Services                                                            |       | 3,046                          |       | 3,428        |       | 347        | ** ** | **3,775** | ** ** | **6,821** | ** ** |
| Equipment sales                                                     |       | 7                              |       | 536          |       | 8          | ** ** | **544** | ** ** | **551** | ** ** |
| **Net sales**                                                       | ** ** | **3,053**                      | ** ** | **3,964**    | ** ** | **355**    | ** ** | **4,319** | ** ** | **7,372** | ** ** |
| Salaries and social security                                        |       | (663                           | )          | (146         | )          | (20        | )          | **(166** | **)** | **(829** | **)** |
| Taxes                                                               |       | (175                           | )          | (355         | )          | (9         | )          | **(364** | **)** | **(539** | **)** |
| Maintenance, materials and supplies                                 |       | (227                           | )          | (77          | )          | (13        | )          | **(90** | **)** | **(317** | **)** |
| Bad debt expense                                                    |       | (16                            | )          | (46          | )          | (1         | )          | **(47** | **)** | **(63** | **)** |
| Interconnection costs                                               |       | (159                           | )          | —       |       | —     | ** ** | **—** | ** ** | **(159** | **)** |
| Cost of international outbound calls                                |       | (111                           | )          | —       |       | —     | ** ** | **—** | ** ** | **(111** | **)** |
| Lease of circuits                                                   |       | (30                            | )          | (12          | )          | (14        | )          | **(26** | **)** | **(56** | **)** |
| Fees for services                                                   |       | (107                           | )          | (141         | )          | (11        | )          | **(152** | **)** | **(259** | **)** |
| Advertising                                                         |       | (70                            | )          | (137         | )          | (18        | )          | **(155** | **)** | **(225** | **)** |
| Agent commissions and distribution of prepaid cards  commissions    |       | (21                            | )          | (476         | )          | (51        | )          | **(527** | **)** | **(548** | **)** |
| Other commissions                                                   |       | (42                            | )          | (66          | )          | (5         | )          | **(71** | **)** | **(113** | **)** |
| Roaming                                                             |       | —                         |       | (135         | )          | (2         | )          | **(137** | **)** | **(137** | **)** |
| Charges for TLRD                                                    |       | —                         |       | (410         | )          | (35        | )          | **(445** | **)** | **(445** | **)** |
| Cost of sales                                                       |       | (26                            | )          | (963         | )          | (10        | )          | **(973** | **)** | **(999** | **)** |
| Others                                                              |       | (144                           | )          | (127         | )          | (16        | )          | **(143** | **)** | **(287** | **)** |
| **Operating income before  depreciation and amortization**          | ** ** | **1,262**                      | ** ** | **873**      | ** ** | **150**    | ** ** | **1,023** | ** ** | **2,285** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets |       | (935                           | )          | (383         | )          | (73        | )          | **(456** | **)** | **(1,391** | **)** |
| **Operating income**                                                | ** ** | **327**                        | ** ** | **490**      | ** ** | **77**     | ** ** | **567** | ** ** | **894** | ** ** |
| Gain (loss) on equity investees                                     |       | (1                             | )          | 6            |       | —     | ** ** | **6** | ** ** | **5** | ** ** |
| Financial results, net                                              |       | (375                           | )          | (122         | )          | 13         | ** ** | **(109** | **)** | **(484** | **)** |
| Other expenses, net                                                 |       | (137                           | )          | (48          | )          | 1          | ** ** | **(47** | **)** | **(184** | **)** |
| **Net (loss) income before income  tax and minority interest**      | ** ** | **(186**                       | **)**      | **326**      | ** ** | **91**     | ** ** | **417** | ** ** | **231** | ** ** |
| Income tax, net                                                     |       | 33                             |       | (4           | )          | (7         | )          | **(11** | **)** | **22** | ** ** |
| Minority interest                                                   |       | —                         |       | —       |       | (22        | )          | **(22** | **)** | **(22** | **)** |
| **Net (loss) income from  continuing operations**                   | ** ** | **(153**                       | **)**      | **322**      | ** ** | **62**     | ** ** | **384** | ** ** | **231** | ** ** |
| Income from discontinued operations                                 |       | 13                             |       | —       |       | —     |       | — | ** ** | **13** | ** ** |
| **Net (loss) income**                                               | ** ** | **(140**                       | **)**      | **322**      | ** ** | **62**     | ** ** | **384** | ** ** | **244** | ** ** |

 

----

(a)          Includes net sales of $29,operating income before depreciation of $15, operating profit of $14 and netincome of $14 corresponding to Telecom Argentina USA.

 

·                  ***Balance sheet information***

 
| **Fixed assets, net**                                             |   | 4,047  |   | 1,449  |   | 243 | ** ** | **1,692**  | ** ** | **5,739**  | ** ** |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|-----|------------|------------|------------|------------|------------|
| **Intangible assets, net**                                        |   | 147    |   | 622    |   | 12  | ** ** | **634**    | ** ** | **781**    | ** ** |
| **Capital expenditures (without  ARO and debt issue costs)**      |   | 592    |   | 557    |   | 76  | ** ** | **633**    | ** ** | **1,225**  | ** ** |
| **Depreciation of fixed assets**                                  |   | (924   | )      | (366   | )      | (52 | )          | **(418**   | **)**      | **(1,342** | **)**      |
| **Amortization of intangible  assets (without debt issue costs)** |   | (11    | )      | (17    | )      | (21 | )          | **(38**    | **)**      | **(49**    | **)**      |
| **Net financial debt**                                            |   | (2,324 | )      | (1,026 | )      | (2  | )          | **(1,028** | **)**      | **(3,352** | **)**      |

 

·                  ***Cash flow information***

 
| **Cash flows provided by  operating activities**                                          | ** ** | **1,606**  | ** ** | **647**    | ** ** | **107**    | ** ** | **754**    | ** ** | **2,360**  | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **Cash flows from investing  activities:**                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition of fixed assets and intangible assets                                         |       | (435       | )          | (379       | )          | (52        | )          | **(431**   | **)**      | **(866**   | **)**      |
| Decrease (increase) in investments not considered  as cash and cash equivalents and other |       | 62         |       | —     |       | —     | ** ** | **—** | ** ** | **62**     | ** ** |
| **Total cash flows used in  investing activities**                                        | ** ** | **(373**   | **)**      | **(379**   | **)**      | **(52**    | **)**      | **(431**   | **)**      | **(804**   | **)**      |
| **Cash flows from financing  activities:**                                                |       |       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Debt proceeds                                                                             |       | —     |       | —     |       | 36         | ** ** | **36**     | ** ** | **36**     | ** ** |
| Payment of debt                                                                           |       | (984       | )          | (73        | )          | (56        | )          | **(129**   | **)**      | **(1,113** | **)**      |
| Payment of interest and debt-related expenses                                             |       | (283       | )          | (128       | )          | (3         | )          | **(131**   | **)**      | **(414**   | **)**      |
| Cash dividends paid                                                                       |       | —     |       | —     |       | (4         | )          | **(4**     | **)**      | **(4**     | **)**      |
| **Total cash flows used in  financing activities**                                        | ** ** | **(1,267** | **)**      | **(201**   | **)**      | **(27**    | **)**      | **(228**   | **)**      | **(1,495** | **)**      |
| **(Decrease) increase in cash and  cash equivalents**                                     |       | (34        | )          | 67         |       | 28         | ** ** | **95**     | ** ** | **61**     | ** ** |
| **Cash and cash equivalents at  the beginning of the year**                               |       | 443        |       | 154        |       | 3          | ** ** | **157**    | ** ** | **600**    | ** ** |
| **Cash and cash equivalents at  year end**                                                | ** ** | **409**    | ** ** | **221**    | ** ** | **31**     | ** ** | **252**    | ** ** | **661**    | ** ** |

 

F-52

----

Table ofContents

 

**14.          Unconsolidatedinformation**

 

In accordance with Argentine GAAP, the presentation of the parentcompany’s individual financial statements is mandatory. Consolidated financialstatements are to be included as supplementary information. For the purpose ofthese financial statements, individual financial statements have been omittedsince they are not required for SEC reporting purposes. The tables belowpresent unconsolidated financial statement information, as follows:

 

*Balance sheets:*

 
| ** **                                           | ** ** | **As of  December** | ** ** | **As of  December** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                                           | ** ** | **31, 2008**        | ** ** | **31, 2007**        | ** ** |
| **ASSETS**                                           |       |                |       |                |       |
| **Current Assets**                                   |       |                |       |                |       |
| Cash and banks                                       |       | $                   | 19         |                | $          | 22 |   |
| Investments                                          |       | 552                 |       | 733                 |       |
| Accounts receivable, net                             |       | 487                 |       | 438                 |       |
| Other receivables, net                               |       | 77                  |       | 278                 |       |
| Other assets, net                                    |       | 6                   |       | 5                   |       |
| **Total current assets**                             | ** ** | **1,141**           | ** ** | **1,476**           | ** ** |
| **Non-Current Assets**                               |       |                |       |                |       |
| Other receivables, net                               |       | 55                  |       | 258                 |       |
| Investments (i)                                      |       | 1,825               |       | 1,192               |       |
| Fixed assets, net                                    |       | 3,898               |       | 3,919               |       |
| Intangible assets, net                               |       | 171                 |       | 154                 |       |
| Other assets, net                                    |       | 3                   |       | 5                   |       |
| **Total non-current assets**                         | ** ** | **5,952**           | ** ** | **5,528**           | ** ** |
| **TOTAL ASSETS**                                     | ** ** | **$**               | **7,093**  | ** **          | **$**      | **7,004** | ** ** |
| **LIABILITIES**                                      |       |                |       |                |       |
| **Current Liabilities**                              |       |                |       |                |       |
| Accounts payable                                     |       | $                   | 813        |                | $          | 761 |   |
| Debt                                                 |       | 1,263               |       | 1,360               |       |
| Salaries and social security payable                 |       | 195                 |       | 136                 |       |
| Taxes payable                                        |       | 59                  |       | 65                  |       |
| Other liabilities                                    |       | 36                  |       | 25                  |       |
| Contingencies                                        |       | 25                  |       | 39                  |       |
| **Total current liabilities**                        | ** ** | **2,391**           | ** ** | **2,386**           | ** ** |
| **Non-Current Liabilities**                          |       |                |       |                |       |
| Accounts payable                                     |       | 27                  |       | —              |       |
| Debt                                                 |       | —              |       | 967                 |       |
| Salaries and social security payable                 |       | 82                  |       | 43                  |       |
| Taxes payable                                        |       | 212                 |       | 283                 |       |
| Other liabilities                                    |       | 116                 |       | 99                  |       |
| Contingencies                                        |       | 245                 |       | 196                 |       |
| **Total non-current liabilities**                    | ** ** | **682**             | ** ** | **1,588**           | ** ** |
| **TOTAL LIABILITIES**                                | ** ** | **$**               | **3,073**  | ** **          | **$**      | **3,974** | ** ** |
| **SHAREHOLDERS’ EQUITY**                        | ** ** | **$**               | **4,020**  | ** **          | **$**      | **3,030** | ** ** |
| **TOTAL LIABILITIES AND  SHAREHOLDERS’ EQUITY** | ** ** | **$**               | **7,093**  | ** **          | **$**      | **7,004** | ** ** |

 

----

(i) Includes$1,824 and $1,191 as of December 31, 2008 and December 31, 2007,respectively, corresponding to Telecom Argentina’s equity interests in itsconsolidated subsidiaries. As of December 31, 2008, includes $1,691, $129and $4, corresponding to Personal, Cubecorp and Telecom Argentina USA,respectively. As of December 31, 2007, includes $1,189 and $2,corresponding to Personal and Telecom Argentina USA, respectively.

 

*Statements of income:*

 
| ** **                                 | ** ** | **Years  ended December 31,** | ** ** |
|--------------------------------------------|------------|------------------------------------|------------|
| ** **                                 | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Results from continuing  operations**    |       |                               |       |   |   |   |   |   |   |   |
| Net  sales                                 |       | $                                  | 4,226      |   | $ | 3,772 |   | $ | 3,404 |   |
| Cost  of services                          |       | (2,318                             | )          | (2,046 | ) | (1,953 | ) |
| **Gross  profit**                          | ** ** | **1,908**                          | ** ** | **1,726** | ** ** | **1,451** | ** ** |
| General  and administrative expenses       |       | (233                               | )          | (191 | ) | (162 | ) |
| Selling  expenses                          |       | (893                               | )          | (709 | ) | (625 | ) |
| **Operating  income**                      | ** ** | **782**                            | ** ** | **826** | ** ** | **664** | ** ** |
| Gain  on equity investees (i)              |       | 694                                |       | 328 |   | 34 |   |
| Financial  results, net                    |       | (162                               | )          | (260 | ) | (376 | ) |
| Other  expenses, net                       |       | (210                               | )          | (51 | ) | (120 | ) |
| **Net  income before income tax**          | ** ** | **1,104**                          | ** ** | **843** | ** ** | **202** | ** ** |
| Income  tax (expense) benefit, net         |       | (143                               | )          | (59 | ) | 33 |   |
| **Net  income from continuing operations** | ** ** | **961**                            | ** ** | **784** | ** ** | **235** | ** ** |
| **Income  from discontinued operations**   |       | —                             |       | 100 |   | 9 |   |
| **Net  income**                            | ** ** | **$**                              | **961**    | ** ** | **$** | **884** | ** ** | **$** | **244** | ** ** |

 

----

(i) The **gain (loss) on equityinvestees** includes:

 
| ** **                    | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|
| ** **                    | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Personal                      |       | $                                 | 694        |   | $ | 328 |   | $ | 33 |   |
| Telecom  Argentina USA        |       | 2                                 |       | — |   | 2 |   |
| Cubecorp                      |       | (2                                | )          | — |   | — |   |
| 2003  Telecommunications Fund |       | —                            |       | — |   | (1 | ) |
| **Total**                     | ** ** | **$**                             | **694**    | ** ** | **$** | **328** | ** ** | **$** | **34** | ** ** |

 

F-53

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Table ofContents

 

**14.          Unconsolidatedinformation (continued)**

 

*Condensed statements of cash flows:*

 
| ** **                                                                                          | ** ** | **Years  ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                          | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Cash flows provided by operating activities**                                                     | ** ** | **$**                              | **1,774**  | ** ** | **$** | **1,732** | ** ** | **$** | **1,606** | ** ** |
| **Cash flows from investing activities**                                                            | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition  of fixed and intangible assets                                                         |       | (818                               | )          | (595 | ) | (435 | ) |
| Dividends received                                                                                  |       | 220                                |       | — |   | — |   |
| Cubecorp’s acquisition and paid in capital                                                     |       | (109                               | )          | — |   | — |   |
| Decrease  (increase) in investments not considered as cash and cash equivalents and  other concepts |       | 357                                |       | (329 | ) | 62 |   |
| **Total cash flows used in investing activities**                                                   | ** ** | **(350**                           | **)**      | **(924** | **)** | **(373** | **)** |
| **Cash flows from financing activities**                                                            | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payment  of debt                                                                                    |       | (1,188                             | )          | (889 | ) | (984 | ) |
| Payment  of interest and debt-related expenses                                                      |       | (109                               | )          | (182 | ) | (283 | ) |
| **Total cash flows used in investing activities**                                                   | ** ** | **(1,297**                         | **)**      | **(1,071** | **)** | **(1,267** | **)** |
| **Increase (decrease) in cash and cash equivalents**                                                | ** ** | **127**                            | ** ** | **(263** | **)** | **(34** | **)** |
| **Cash and cash equivalents at the beginning of  year**                                             | ** ** | **221**                            | ** ** | **484** | ** ** | **518** | ** ** |
| **Cash and cash equivalents at the end of the year**                                                | ** ** | **$**                              | **348**    | ** ** | **$** | **221** | ** ** | **$** | **484** | ** ** |

 

**15.          D****ifferences between Argentine GAAP and US GAAP**

 

The Company’s consolidatedfinancial statements are prepared in accordance with Argentine GAAP, whichdiffer in certain significant respects from US GAAP. Such differences involvemethods of measuring the amounts shown in the consolidated financialstatements, as well as additional disclosures required by US GAAP andRegulation S-X of the SEC.

 

**I.    Differencesin measurement methods**

** **

As indicated in Note 3.c, theCompany’s consolidated financial statements include the effects of inflationuntil February 28, 2003. Under US GAAP, financial statements are preparedon a historical cost basis.

 

However, the followingreconciliation does not include the reversal of the adjustments to theconsolidated financial statements for the effects of inflation, because, aspermitted by the SEC, it represents a comprehensive measure of the effects ofprice-level changes in the Argentine economy, and as such, is considered a moremeaningful presentation than historical cost-based financial reporting for bothArgentine GAAP and US GAAP.

 

The principal differences,other than inflation accounting, between Argentine GAAP and US GAAP aredescribed below, together with an explanation, where appropriate, of the methodused in the determination of the necessary adjustments.

 
| ** **                                                   | ** ** | **Years  ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                   | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Reconciliation of net income:**                            |       |                               |       |   |   |   |   |
| **Total net income under Argentine  GAAP**                   | ** ** | **$**                              | **961**    | ** ** | **$** | **884** | ** ** | **$** | **244** | ** ** |
| **US GAAP adjustments:**                                     | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Foreign currency  translation (a)                            |       | —                             |       | (4 | ) | (17 | ) |
| Depreciation of foreign  currency exchange differences (b.2) |       | 39                                 |       | 104 |   | 104 |   |
| Telecom Argentina’s Debt  Restructurings (c)            |       | —                             |       | 296 |   | 418 |   |
| Extinguishment of  Nucleo’s restructured debts (d)      |       | —                             |       | — |   | 7 |   |
| Fair value option for  Notes of Telecom Argentina (e)        |       | 205                                |       | — |   | — |   |
| Other adjustments (f)                                        |       | (16                                | )          | 9 |   | (2 | ) |
| Tax effects on US GAAP  adjustments (g)                      |       | (80                                | )          | (143 | ) | (185 | ) |
| Minority interest (h)                                        |       | —                             |       | 2 |   | 3 |   |
| **Net income under US GAAP**                                 | ** ** | **$**                              | **1,109**  | ** ** | **$** | **1,148** | ** ** | **$** | **572** | ** ** |

 
| ** **                                                               | ** ** | **As  of December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                               | ** ** | **2008**                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Reconciliation of shareholders’  equity:**                        |       |                         |       |   |   |   |   |
| **Total shareholders’ equity under  Argentine GAAP**                | ** ** | **$**                        | **4,020**  | ** ** | **$** | **3,030** | ** ** | **$** | **2,129** | ** ** |
| **US GAAP adjustments:**                                                 | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Foreign currency  translation (a)                                        |       | —                       |       | (72 | ) | (49 | ) |
| Capitalization of  foreign currency exchange differences (b.1)           |       | (784                         | )          | (784 | ) | (784 | ) |
| Accumulated depreciation  of foreign currency exchange differences (b.2) |       | 717                          |       | 678 |   | 574 |   |
| Telecom Argentina’s Debt  Restructurings (c)                        |       | —                       |       | (579 | ) | (875 | ) |
| Fair value option for  Notes of Telecom Argentina (e)                    |       | 253                          |       | — |   | — |   |
| Other adjustments (f)                                                    |       | (12                          | )          | 3 |   | (6 | ) |
| Tax effects on US GAAP  adjustments (g)                                  |       | (61                          | )          | 239 |   | 382 |   |
| Minority interest (h)                                                    |       | —                       |       | 23 |   | 16 |   |
| **Shareholders’ equity under US GAAP**                              | ** ** | **$**                        | **4,133**  | ** ** | **$** | **2,538** | ** ** | **$** | **1,387** | ** ** |

 

F-54

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Table of Contents

 

**15.          Differences between Argentine GAAP and US GAAP (continued)**

 
| ** **                                                                                                                         | ** ** | **Years  ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                                         | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Description of changes in  shareholders’ equity under US GAAP:**                                                            |       |                               |       |   |   |   |   |
| **Shareholders’ equity as of the  beginning of the year**                                                                     | ** ** | **$**                              | **2,538**  | ** ** | **$** | **1,387** | ** ** | **$** | **819** | ** ** |
| Cumulative-effect  adjustment to retained earnings of the fair value option for Notes of Telecom  Argentina, net of tax effect (*) |       | 408                                |       | — |   | — |   |
| Other comprehensive  income (loss)                                                                                                 |       | 78                                 |       | 3 |   | (4 | ) |
| Net income under US GAAP                                                                                                           |       | 1,109                              |       | 1,148 |   | 572 |   |
| **Shareholders’ equity as of the end  of the year**                                                                           | ** ** | **$**                              | **4,133**  | ** ** | **$** | **2,538** | ** ** | **$** | **1,387** | ** ** |

 

----

(*) Cumulative-effectadjustment to retained earnings of the fair value option for Notes of TelecomArgentina is comprised as follows:

 
| ** **                                                              | ** ** | **January  1st, 2008** | ** ** | ******Gain (Loss)** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|---------------------|------------|
| Fair value option for  Notes of Telecom Argentina                       |       |                   |       |                |       |
| Book value of Notes  under Argentine GAAP                               |       | $                      | 2,324      |                |       |   |
| US GAAP adjustment for  debt restructurings                             |       | 579                    |       |                |       |
| Book value of Notes  under US GAAP (i)                                  |       | 2,903                  |       |                |       |
| Fair value of Notes (ii)                                                |       | 2,268                  |       |                |       |
| Difference between book  value and fair value of debt (i)-(ii)          |       |                   |       | $                   | 635        |   |
| Reversal of Telecom  Argentina debt issuance costs                      |       |                   |       |                |       |
| Net carrying value of  debt issuance costs under Argentine GAAP         |       | 8                      |       |                |       |
| US GAAP adjustment for  the restructured debt issuance costs            |       | (1                     | )          |                |       |
| Adjustment for net  carrying value of debt issuance costs under US GAAP |       |                   |       | (7                  | )          |
| Tax effects on US GAAP  adjustments                                     |       |                   |       | (220                | )          |
| Total cumulative-effect  adjustment, net of tax effect                  |       |                   |       | $                   | 408        |   |
|                                                                         |            |                        |            |                     |            |  |  |

 

**a) Foreign currency translation**

 

As indicated in Note 4.a,under Argentine GAAP, the financial statements of the Company’s foreignsubsidiaries are translated using year-end exchange rate in accordance with RT18. Translation adjustments are accumulated and reported as a separatecomponent of shareholders’ equity.

 

Under US GAAP, Statement ofFinancial Accounting Standards (“SFAS”) No.52, “Foreign Currency Translation” (“SFASNo.52”) requires determination of the functional currency related to foreignsubsidiaries. In the case of foreign subsidiaries whose local currency is notthe functional currency, the remeasurement of assets and liabilities to thefunctional currency is required prior to translation of assets and liabilitiesusing the year-end exchange rate to the reporting currency.

 

Until December 31, 2007,the functional currency of Nucleo, a Paraguayan subsidiary, was the US dollar.Therefore, following the guidelines established in SFAS No.52, remeasurementadjustments were included in the income statement, while translationadjustments from the functional currency to the reporting currency, theArgentine Peso, were recorded as a separate component of shareholders’ equity.

 

Based on significant changesin the economic facts and circumstances affecting the operations of Nucleo,such as the generation of a substantial portion of its service revenues inguaraníes and the changes on the currency of its financial indebtedness from USdollar to guaraní, management has concluded that, as from the current year, theParaguayan currency, the guaraní, is the functional currency of suchsubsidiary.

 

Consequently, since January 1st,2008, the functional currency of Nucleo has been changed from the US dollar tothe guaraní.

 

The effects of such changewere applied prospectively since the beginning of the year. As the changeresults in the elimination of the reconciling item between Argentine GAAP andUS GAAP, as from January 1st, 2008 there is no reconciling item thataffects income and shareholders’ equity at the end of the year 2008.

 

**b) Capitalization of foreign currency exchangedifferences**

 

**b.1)**UnderArgentine GAAP, foreign currency exchange differences (gains or losses)generated on or after January 6, 2002 through July 28, 2003, inconnection with foreign-currency denominated debts as of such dates wereallocated to the cost of assets acquired or constructed with such financing, aslong as a series of conditions and requirements were met. Under US GAAP,foreign currency exchange differences cannot be capitalized, and were expensedas incurred. Therefore, such capitalization and its reversal were reversed.

 

**b.2)**Thisadjustment represents the effect on accumulated depreciation and thedepreciation for the years ended December 31, 2008, 2007 and 2006, of theadjustment described in b.1) above.

 

F-55

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Table ofContents

 

**15.****         ****Differences between ArgentineGAAP and US GAAP (continued)**

 

**c) Telecom Argentina’s Debt Restructurings**

 

As discussed in Note 8.2, Telecom Argentinacompleted the restructuring of its outstanding indebtedness in August 2005(“Debt Restructuring”). The Debt Restructuring involved (i) the fullsettlement of certain outstanding loans of the Company and (ii) thecombination of a partial debt settlement and a refinancing of the remainingoutstanding loans of the Company with modified terms. In connection with (ii),the Company issued new debt instruments.

 

Under Argentine GAAP, the new debt instrumentsissued by Telecom Argentina were recorded at estimated net present value atrestructuring date, recognizing in the year 2005, a net pre-tax gain on TelecomArgentina’s debt restructuring of $1,424 (a gain on discount on principal andinterest of $1,151 and a gain on discounting of debt of $352, net of relatedexpenses of $79).

 

Under US GAAP, the Company concluded under bothSFAS No.15, “Accounting by Debtors and Creditors for Troubled DebtRestructurings” and the Emerging Issues Task Force Issue No.02-04 (“EITFNo.02-04”), “Debtors Accounting for a Modification or an Exchange of DebtInstruments in accordance with SFAS 15”, that the Debt Restructuringrepresented a troubled debt restructuring. Accordingly, under US GAAP, the DebtRestructuring was accounted for as (i) a full settlement of certainoutstanding loans with cash and (ii) a combination of a partial debtsettlement and a continuation of debt with modified terms.

 

For thoseoutstanding loans which were fully settled, there was no difference inmeasurement basis between Argentine GAAP and US GAAP. Accordingly, under bothArgentine GAAP and US GAAP a gain of $19 on Debt Restructuring was recognized.

 

For thoseoutstanding loans which were restructured by a partial cash settlement and theissuance of new debt instruments with modified terms, the Company hasdetermined the total future cash payments specified by the new terms of thedebt, including principal, and interest (and contingent payment, if applicable)on a payable-by-payable basis.

 

Accordingly, forthose restructured loans where their carrying value did not exceed the totalfuture mandatory cash payments specified by the terms of the new instruments,no gain was recognized under US GAAP as of the date of the Debt Restructuring.The carrying values of the loans are being reduced as payments were made.Interest expense was computed as the discount rate that equated the presentvalue of the future cash payments specified by the new debt with the carryingamount of the original loans.

 

For thoserestructured loans where their total future mandatory cash payments specifiedby the new terms were less than the respective carrying amounts, the carryingamounts were reduced to an amount equal to the total future mandatory cashpayments specified by the new terms, recording a gain of $91 under US GAAP.Thereafter, all cash payments under the new terms were accounted for asreductions of the carrying amount of the payables and no interest expense wasrecognized. When any principal prepayments were made, the Company estimated thetotal new future mandatory cash payments and consequently recorded a gain underUS GAAP as a result of the reduction of the estimated future interest paymentsat the time of prepayment.

 

This measurementcriterion under US GAAP detailed above has been applied to the restructureddebts of Telecom Argentina until December 31, 2007, the moment in whichthe Company adopted SFAS No.159 as described in e) below.

 

In summary, the USGAAP reconciling item of net income for the years ended December 31, 2007and 2006 reflects the (a) reversal of the loss on accretion recognizedunder Argentine GAAP, (b) reversal of interest expense of new debtinstruments computed under Argentine GAAP, (c) gain arising under US GAAPfrom principal prepayments and (d) computation of interest expense underUS GAAP, as described above.

 

The US GAAPreconciling item for the Debt Restructurings until the adoption of SFAS No.159for the restructured debt of Telecom is comprised as follows:

 

*Included in the reconciliation of net income:*

 
| ** **                                                         | ** ** | **Years  ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                         | ** ** | **2007**                           | ** ** | **2006** | ** ** |
| Reversal of loss on  accretion recognized under Argentine GAAP (a) |       | $                                  | 84         |   | $ | 131 |   |
| Reversal of interest  expense computed under Argentine GAAP (b)    |       | 170                                |       | 226 |   |
| Gain on principal  prepayments under US GAAP (c)                   |       | 158                                |       | 179 |   |
| Computation of interest  expense under US GAAP (d)                 |       | (116                               | )          | (118 | ) |
| **Total US GAAP reconciling item for  Debt Restructurings**        | ** ** | **$**                              | **296**    | ** ** | **$** | **418** | ** ** |

 

F-56

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Table ofContents

 

**15.****         ****Differences between ArgentineGAAP and US GAAP (continued)**

 

*Included in the reconciliation ofshareholders ́ equity:*

* *
| ** **                                                                                                      | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **Telecom Argentina’s Debt**                                                                               | ** ** | **2007**              | ** ** | **2006** | ** ** |
| **Total debt under Argentine GAAP  (a)**                                                                        | ** ** | **$**                 | **2,327**  | ** ** | **$** | **2,894** | ** ** |
| Reversal of gain on  discount on principal and interest under Argentine GAAP                                    |       | 1,151                 |       | 1,151 |   |
| Gain on the fully  settled debt under US GAAP at restructuring date                                             |       | (19                   | )          | (19 | ) |
| Gain for restructured  debts that their future cash payments are less then their carrying amount  under US GAAP |       | (91                   | )          | (91 | ) |
| Discounting of debt  amount at year-end                                                                         |       | 62                    |       | 146 |   |
| Gain on principal  prepayments under US GAAP                                                                    |       | (337                  | )          | (179 | ) |
| Difference between  Argentine GAAP and US GAAP on the computed interest                                         |       | (187                  | )          | (133 | ) |
| **Total debt under US GAAP (b)**                                                                                | ** ** | **$**                 | **2,906**  | ** ** | **$** | **3,769** | ** ** |
| **Total US GAAP reconciling item for  Debt Restructurings (b) - (a)**                                      | ** ** | **$**                 | **579**    | ** ** | **$** | **875** | ** ** |

 

**d) Extinguishment of Nucleo’s restructured debts**

 

In the firstquarter of 2006, Nucleo issued new debt which, together with available cash,was used to fully settle the outstanding bank loans which had been restructuredin November 2004.

 

As Nucleo’srestructured debt was fully settled, under both Argentine GAAP and US GAAP, theCompany derecognized such debt and recorded, under US GAAP, a result onextinguishment of liabilities which was measured by the difference between thecarrying amount of the debts and the cash surrendered.

 

Nucleo’srestructured debt had been accounted for under SFAS No.15 and EITF 02-04 underUS GAAP, as “troubled debt restructuring”. Accordingly, under US GAAP, thecarrying amount of Nucleo’s restructured debt as of the date of extinguishmentdiffered from such amount under Argentine GAAP. This difference between the USGAAP carrying amount basis of Nucleo’s restructured debt and the Argentine GAAPbasis gave rise to a different gain on debt extinguishment. The reconcilingitem of net income for the year ended December 31, 2006 represents suchdifferent gain on Nucleo’s debt extinguishment.

 

**e) Fair value option for Notes of Telecom Argentina**

 

The Company adopted the provisions of SFAS No.159, “Thefair value option for financial assets and financial liabilities — Including anamendment of FASB Statement No. 115” (“SFAS No.159”) on January 1,2008. Pursuant to this pronouncement, the fair value option can be elected onan instrument by instrument basis. The Company elected to fair value all seriesof the Notes of Telecom Argentina at the adoption date. Such Notes wereoriginated from a troubled debt restructuring concluded in August 2005 andwere valued as described in c) above. Management of the Company believed thatthe fair value option better reflects the current value of the debt andapproximates such debt value to that recorded under Argentine GAAP. Moreover,the adoption of the fair value for Notes of Telecom Argentina is consistentwith the valuation criterion followed for the swap contracts entered to inconnection with this debt, which are recorded at fair value both under US GAAPand Argentine GAAP. Telecom Personal Notes were not generated from a troubleddebt restructuring and therefore Management did not elect to fair value theseNotes. No material differences existed between the fair value of the Notes ofTelecom Personal and their book value under Argentine GAAP (which do not differwith respect to US GAAP for these instruments).

 

As a result of theadoption of SFAS 159, the Company reversed the associated debt issuance costspreviously capitalized.

 

The adjustment under US GAAP, net of tax effect, atthe adoption date was $408 ($0.41 peso per share) which was recorded as acumulative-effect adjustment to retained earnings as of January 1, 2008,while the subsequent effects of fair value measurement were shown as areconciliation item to income statement in the US GAAP reconciliation as of andfor the year ended December 31, 2008.

 

The US GAAPreconciling item for fair value option for Notes of Telecom Argentina iscomprised as follows:

 

***Includedin the reconciliation of net income:***

 
| **Year ended December 31, 2008**                                                  | ** ** | **Gain (Loss)** | ** ** |
|----------------------------------------------------------------------------------------|------------|-----------------|------------|
| Gain on change in fair  value of Telecom Notes                                         |       | $               | 198        |   |
| Reversal of amortization  of Telecom debt issuance costs recorded under Argentine GAAP |       | 7               |       |
| **Total US GAAP reconciling item for  fair value option**                              | ** ** | **$**           | **205**    | ** ** |

 

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Table ofContents

 

**15.****         ****Differences between ArgentineGAAP and US GAAP (continued)**

 

***Included in the reconciliation ofshareholders ́ equity:***

* *
| ** **                                                                       | ** ** | **As of December ****31, 2008** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| Book value of Telecom  Argentina Notes under Argentine GAAP (a)                  |       | $                                    | 1,263      |   |
| Fair value of Telecom  Argentina Notes (b)                                       |       | 1,009                                |       |
| Difference between book  value and fair value of Telecom Argentina Notes (a)-(b) |       | 254                                  |       |
| Reversal of net carrying  value of Telecom Argentina debt issuance costs         |       | (1                                   | )          |
| **Total US GAAP reconciling item  for fair value option**                        | ** ** | **$**                                | **253**    | ** ** |

 

**f) Other adjustments**

 

The US GAAP reconciling items included under “otheradjustments” were as follows for all years presented:

 

***Included in the reconciliation ofnet income:***

 
| ** **                                                     | ** ** | **Years  ended December 31,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                     | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Inventories                                                    |       | $                                  | (16        | ) | $ | 8 |   | $ | — |   |
| Present-value accounting                                       |       | —                             |       | 1 |   | (6 | ) |
| Fixed assets held for  sale                                    |       | —                             |       | (1 | ) | (1 | ) |
| Cost related to certain  amendments of restructured debt terms |       | —                             |       | 1 |   | (2 | ) |
| Accounting for  investments in debt securities                 |       | —                             |       | — |   | 7 |   |
| **Total other adjustments (f)**                                | ** ** | **$**                              | **(16**    | **)** | **$** | **9** | ** ** | **$** | **(2** | **)** |

 

***Included in the reconciliation of shareholders ́equity:***

 
| ** **                                                     | ** ** | **As  of December 31,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                     | ** ** | **2008**                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| Inventories                                                    |       | $                            | (8         | ) | $ | 8 |   | $ | — |   |
| Present-value accounting                                       |       | (2                           | )          | (2 | ) | (3 | ) |
| Fixed assets held for  sale                                    |       | (2                           | )          | (2 | ) | (1 | ) |
| Cost related to certain  amendments of restructured debt terms |       | —                       |       | (1 | ) | (2 | ) |
| **Total other adjustments (f)**                                | ** ** | **$**                        | **(12**    | **)** | **$** | **3** | ** ** | **$** | **(6** | **)** |

 

·*Inventories*

 

As indicated inNote 4.i, under Argentine GAAP, inventories are stated at replacement cost.Under US GAAP, inventories are stated at the lower of cost or market. Theadjustment corresponds to the difference between inventories at replacementcost and inventories at cost using the “First in first out” method (“FIFO”).

 

·*Present-value accounting*

 

As indicated inNote 4.f, under Argentine GAAP, certain monetary assets and liabilities aremeasured based on the calculation of their discounted value. Under US GAAP,discounting of these assets and liabilities is precluded.

 

·*Fixed assets held for sale*

 

Under ArgentineGAAP, the Company classified certain fixed assets as held for sale which arestated at the lower of cost less accumulated depreciation at the time oftransfer to the held-for-sale category, or market. However, under US GAAP, along-lived asset to be sold is classified as held for sale only if all of theconditions in paragraph 30 of SFAS No.144 are met. As some of these conditionsare not met under US GAAP, these assets have to be classified as held and usedand depreciated. The US GAAP adjustment for the years presented represents thehigher depreciation of such assets held and used under US GAAP as of each year.

 

·*Costs related to certain amendments of restructured debt terms*

 

As discussed inNote 8.2, in the first quarter of 2006, Telecom Argentina agreed with certainfinancial creditors to amend its restructured debt terms to modify certaincovenants.

 

Under ArgentineGAAP, costs related to such amendment are deferred and amortized under theinterest method over the remaining life of the related debt.

 

However, under USGAAP, the Company followed the guidance in EITF 96-19 “Debtor’s Accounting fora Modification or Exchange of Debt Instruments” which provides more specific rules toaddress how to account for costs related to the modification of debt terms.Under EITF 96-19, while the fees to be paid by the debtor to the creditor aspart of the modification are to be amortized as an adjustment of interestexpense over the remaining term of the modified debt instrument, the costs tobe paid to third parties directly related to the modification (such as legalfees) are expensed as incurred. Therefore, the costs incurred during the firstquarter of 2006 with third parties were expensed as incurred under US GAAP.

 

However, since the adoption of SFAS No.159 asdescribed in e) above, this US GAAP reconciliation item related to debtissuance costs of Telecom Argentina has been eliminated.

 

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**15.****         ****Differences between ArgentineGAAP and US GAAP (continued)**

 

·*Accounting for investments in debt securities*

 

Under Argentine GAAP,certain investments in debt securities were recorded at fair value withunrealized gain of $7, recognized in the statement of income for the year endedDecember 31, 2005. Under US GAAP, these investments were classified asavailable-for-sale and unrealized gain was excluded from earnings and reportedas a separate component of shareholders equity until sale or disposal.

 

In the first quarter of2006, the Company sold these investments. Therefore, for the year ended December 31,2006, the Company recognized the gain in the statement of income for US GAAPpurposes.

 

**g) Tax effects on US GAAP adjustments**

 

The adjustment representsthe effect on deferred income taxes of the foregoing reconciling items, asappropriate.

 

**h) Minority interest**

 

The adjustment representsthe effect on minority interest of the foregoing reconciling items, asappropriate.

 

**i) Accounting for stock transferred by the Argentinegovernment to employees**

 

Under Argentine GAAP,there are no specific rules governing the accounting to be followed byemployers when a principal shareholder transfers shares to a company’semployees. However, under US GAAP, the Company has elected to follow AccountingPrinciples Board Opinion No. 25 (“APB No.25”), “Accounting for StockIssued to Employees,” and related interpretations.

 

The Argentine governmentagreed to establish a Share Ownership Plan, principally for the benefit of theformer employees of ENTel transferred to the Company. Under the terms of theplan, employees eligible to participate acquired the shares of the Companypreviously held by the Government for an amount significantly less than thethen market value of the shares as of the Transfer Date.

 

Had the Company beenrequired by SEC regulations to include a reconciliation between Argentine GAAPand US GAAP for the fiscal year 1991, it would have included as a reconcilingitem a charge amounting to $465 in the statement of income. However, thischarge represented a reclassification between equity accounts, andconsequently, it had no impact on Shareholders’ equity determined under USGAAP. The charge was calculated based upon the difference between the estimatedtotal price per share paid by Nortel as of the Transfer Date and the purchaseprice to be paid by eligible employees.

 

**j) Other Derivatives**

 

As discussed in Notes 8.2and 8.3, the Company entered into several financing arrangements as part of theDebt Restructurings and the issuance of Personal’s new debt. These financialinstruments contain derivative instruments that are “embedded” in the financialinstruments, i.e. optional redemption and/or mandatory prepayment features. TheCompany assessed whether the economic characteristics of these embeddedderivatives are clearly and closely related to the economic characteristics ofthe remaining component of the financial instruments (i.e., the host contract),according to SFAS No.133 and the related implementation guidance. Since it wasdetermined that the embedded derivative possesses economic characteristics thatare clearly and closely related to the economic characteristics of the hostcontract, the embedded derivative were not separated from the host contract.

 

**k) Impairment of long-lived assets, except forindefinite-life PCS license**

 

As indicated in Note 4.m,under Argentine GAAP, the carrying value of a long-lived asset is consideredimpaired by the Company when the expected discounted cash flows, from such anasset, is less than its carrying value. In that event, a loss would berecognized based on the amount by which the carrying value exceeds the fairmarket value of the long-lived asset. Fair market value is determined primarilyusing the anticipated cash flows discounted at a rate commensurate with therisk involved.

 

Under US GAAP, as a firststep, the carrying value of a long-lived asset is considered impaired by theCompany when the expected cash flows, undiscounted, from such an asset, is lessthan its carrying value. In such case, a loss would be recognized based on theamount by which the carrying value exceeds the fair market value of thelong-lived asset.

 

Based on both ArgentineGAAP and US GAAP assessments, there was no impairment identified for long-livedassets.

 

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**15.****                             ****Differences between ArgentineGAAP and US GAAP (continued)**

 

**l) Accounting for Uncertainty in Income Taxes (FIN No.48)**

 

The Company adopted the provisions of FASBInterpretation No.48 “Accounting for Uncertainty in Income Taxes” (FIN No.48),an interpretation of FASB Statement No.109 “Accounting for income taxes” on January 1,2007. The adoption of FIN No.48 for the Company did not have any impact on theCompany’s results nor Shareholders’ equity. Disclosures required under FINNo.48 are not included because uncertain tax positions are immaterial.

 

**II. Additional disclosure requirements**

** **

**a)****        ****Disclosureof lease information**

 

Under US GAAP, additional disclosures are requiredas per SFAS No.13 “Accounting for Leases”, as follows:

 

*Operatingleases*

 

In the normal course of business, the Companyleases cell sites, switch sites, satellite capacity and circuits under variousnoncancelable operating leases that expire on various dates through 2016.Rental expense is recognized ratably over the lease terms. Future minimum leasepayments as of December 31, 2008, are as follows:

 
| Year ending December 31, 2009 |       | 100   |    |
|------------------------------------|------------|-------|---------|
| Year ending December 31, 2010 |       | 69    |    |
| Year ending December 31, 2011 |       | 38    |    |
| Year ending December 31, 2012 |       | 7     |    |
| Thereafter                         |       | 2     |    |
| **Total**                          | ** ** | **$** | **216** | ** ** |
|                                    |            |       |         |  |

 

Rental expense and lease ofcircuits for the years ended December 31, 2008, 2007 and 2006 are includedin Note 17 h) under Lease of circuits and Rental expense accounts.

 

Information related tofinancial leases as of December 31, 2008 is described in Note 4.n.

 

**b)****        ****Additionaldisclosure related to financial assets and liabilities recognized at “fairvalue”.**

 

Since 2008, SFAS No. 157“Fair Value Measurements” (“SFAS 157”) was effective for Telecom Group. SFAS157 defines the fair value of assets and liabilities and establishes aframework to measure it. Its implementation had no impact on the valuation ofassets and liabilities which were already recognized at fair value. However, thisStatement establishes requirements for additional information disclosed in thissection.

 

SFAS 157 establishes ahierarchy of fair value, based on the information used to measure the financialassets and liabilities and also establishes different valuation techniques(market approach, income approach and cost approach). According to SFAS 157,valuation techniques used to measure fair value shall maximize the use ofobservable inputs.

 

The levels of hierarchy of “fairvalue” under SFAS 157 are:

 

·                  Level 1: Fair value determined by observable inputs inactive markets for the same assets or liabilities.

·                  Level 2: Fair value determined based on observableinputs that can result in prices of similar assets or liabilities in activemarkets, prices for identical assets or liabilities in inactive markets or fromobservable market correlation or other means.

·                  Level 3: Fair value determined by unobservable inputswhere the reporting entity is required to develop its own assumptions.

 

Financial assets and liabilitiesrecognized at fair value as of December 31, 2008, their inputs, valuationtechniques and the level of hierarchy, are listed below:

 

Derivative financial instruments (Forwards contracts to purchase USdollars at fixed exchange rates): Thesederivative financial instruments are included in other current receivables. Theamount as of December 31, 2008, is $22. The fair value is determined byinformation obtained in the “Open Electronic Market (MAE)”, the mostrepresentative market for this type of instruments in Argentina. As MAEdetermines the values based on actual transactions and calculations regardingthe volatility of the currency, the derivative financial instruments’ valuationis classified as Level 2.

 

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**15.****                             ****Differences between ArgentineGAAP and US GAAP (continued)**

 

Mutual Funds: These funds are includedin current investments. The amount as of December 31, 2008, is $148. Thefair value is based on information obtained from active markets and correspondsto quoted market prices as of year end, therefore its valuation is classifiedas Level 1.

 

Telecom Argentina notes: Asdetailed in e) above, Telecom Argentina Notes are recognized at fair valueunder US GAAP as of December 31, 2008. The fair value of these notes,which are included in current and non — current debt, is $ 1,009 as of December 31,2008. The fair value of these notes is based on the purchase price of notesbought by the Company in the last quarter of 2008 or, if the purchase price isnot available, on the average quoted market prices provided by financialagencies. Therefore its valuation is classified as Level 2.

 

**c)****        ****Disclosuresabout fair value of financial instruments**

 

Under Argentine GAAP, there are no specific rules regardingdisclosure of fair value of financial instruments. Under US GAAP, SFAS No. 107,“Disclosures About Fair Value of Financial Instruments”, it is required to disclosefair value information about financial instruments whether or not recognized inthe balance sheet, for which it is practicable to estimate fair value. SFAS No. 133,amends SFAS No. 107 to include in SFAS No. 107 the disclosurerequirements of credit risk concentrations from SFAS No. 105. See Note3.f. for details of concentration of credit risk. The financial instrumentswhich are discussed in this section include, among others, cash and cashequivalents, accounts receivable, accounts payable and other instruments.

 

Derived fair value estimates cannot besubstantiated by comparison to independent markets and, in many cases, couldnot be realized in an immediate sale of the instrument. Also, because ofdifferences in methodologies and assumptions used to estimate fair value, theCompany’s fair values should not be compared to those of other companies.

 

The methods and assumptions used to estimate thefair values of each class of financial instrument as of December 31, 2008and 2007 are as follows:

 

*Cash and cash equivalents*

 

The Company considers all highly liquid investmentswith original maturities of three months or less, to be cash and cashequivalents. The carrying amount reported in the balance sheet approximatesfair value.

 

*Accounts receivable, net*

 

Carrying amounts are considered to approximate fairvalue due to the short term nature of these accounts receivables and nosignificant changes in interest rates. All amounts that are assumed to beuncollectible within a reasonable time are written off and/or reserved.

 

*Accounts payable*

 

The carrying amount of accounts payable reported inthe balance sheet approximates its fair value due to the short term nature ofthese accounts payable and no significant changes in interest rates.

 

*Debt*

 

The fair value of the Company’s debt as of December 31,2008 is based on the purchase price of notes bought by the Company in the lastquarter of 2008 or, if purchase price is not available, on the average quotedmarket prices. As of December 31, 2008, the fair value of the Company’sdebt was $1,702 and the related carrying amount was $2,043 under ArgentineGAAP. As of December 31, 2007, the fair value of the Company’s debt was$3,156 and the related carrying amount was $3,198 under Argentine GAAP.

 

*Other receivables and other liabilities*

 

The carrying amount of other receivables and otherliabilities reported in the balance sheet approximates fair value due to theirshort-term nature.

 

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**15.****                             ****Differences between ArgentineGAAP and US GAAP (continued)**

 

**d)****        ****Risks anduncertainties**

 

The Company’s customers are mostly concentrated inArgentina. Historically, social, political and economic conditions in Argentinaare volatile and may impair the Company’s operations. Furthermore, the Companymay be affected by the international financial crisis which has negativelyimpacted most of the worldwide economies. This volatility could make it difficultfor the Company to develop its business, generate revenues or achieve orsustain profitability. In the past, volatility in Argentina has been caused by:currency devaluation, significant governmental influence over many aspects oflocal economies, political and economic instability, unexpected changes inregulatory requirements, social unrest or violence, slow or negative economicgrowth, imposition of trade barriers and price and exchange controls. TheCompany has no control over these matters.

 

The Company’s future results of operations andfinancial condition could be impacted by the following factors, among others:

 

·                  the ability tofinance and manage expected growth;

·                  customerchurn-rates;

·                  impact ofcompetitive services, products and pricing;

·                  dependence onkey personnel;

·                  legalproceedings;

·                  governmentregulation; and

·                  level ofeconomic activity in Argentina.

 

**e)****        ****Assetretirement obligations**

 

The balance of the Company’s asset retirementobligations as of December 31, 2008 and 2007 was $37 and $26, respectivelyand is included in other long-term liabilities on the consolidated balancesheets. Accretion expense and settlements during 2008 and 2007 were notsignificant.

 

**f)****          ****SegmentInformation**

 

As discussed in Note 13, the Company has identifiedits operating segments to be the six legal entities through which it conductsbusiness. The identification of these segments is consistent with therequirements of paragraph 10 of SFAS No.131 “Disclosures about Segments of anEnterprise and Related Information”.

 

Under Argentine GAAP, the Company has combinedthese operating segments into two reportable segments based on the nature ofproducts and services provided by the entities. The two reportable segmentsunder Argentine GAAP are: Voice, data and Internet services and Wirelessservices.

 

Paragraph 17 of SFAS No.131 indicates that two ormore operating segments may be combined into a single operating segment ifaggregation is consistent with the objective and basic principles of theStatement, if the segments have similar economic characteristics, and, if thesegments are similar in each of the following areas (a) the nature ofproducts and services, (b) the nature of the production processes, (c) thetype or class of customer for products and services, (d) the method usedto distribute products or provide services and (e) if applicable, thenature of the regulatory environment, for example, banking, insurance, orpublic utilities. For example, similar long-term average gross margins fortwo operating segments would be expected if their economic characteristics weresimilar.

 

The Company has assessed whether the operatingsegments combined to create the “Wireless services” reportable segment havesimilar economic characteristics. As such, the Company determined that Nucleo(the subsidiary which provides wireless services in Paraguay) does not showsimilar long-term average gross margins with those of Personal. Accordingly,following the guidance in paragraph 17 of SFAS No. 131, Nucleo would notbe aggregated together with Personal to create one reportable segment, butrather it would be shown as a separate operating segment.

 

Even though Nucleo and Personal have been combinedinto one reportable segment under Argentine GAAP, Note 13 to the consolidated financialstatements discloses information for both Personal and Nucleo separately and acolumn totaling both entities to report the wireless reportable segment.

 

Considering that separate information for Nucleo isalready disclosed in Note 13, the effect of the application of paragraph 17 ofSFAS No. 131 would only be the (i) elimination of the column totalingPersonal and Nucleo and (ii) labeling Nucleo as a separate Wirelesssegment.

 

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**15.****                             ****Differences between ArgentineGAAP and US GAAP (continued)**

 

**g)****       ****Sale ofequity interest in Publicom**

 

As discussed in Note 4.w) under Argentine GAAP, thesale of equity interest in Publicom has been accounted for as “Discontinuedoperation”.

 

Additionally, the Company has assessed whether thistransaction shall be accounted for as a “Discontinued operation” under US GAAPin accordance with SFAS No.144, “Accounting for the Impairment or Disposal ofLong-Lived Assets” (“SFAS 144”).

 

The Company has considered that Publicom is acomponent of the entity whose disposal meets both of the two conditions statedin the paragraph 42 of SFAS 144. For our conclusion, we have assessed the guidancestated in EITF 03-13 “Applying the Conditions in paragraph 42 of SAFS 144 inDetermining Whether to Report Discontinued Operations” and its decision treeprovided in Exhibit 03-13A.

 

Although this disposal transaction is expected tobe generated continuing cash flows by Telecom Argentina as result of itscontinuing involvement, the Company has considered that such continuing cashflows are not significant compared to those that would have been generated byPublicom absent the sale transaction and there is no significant continuinginvolvement in the operations and core business of Publicom. As a consequence,the Company concluded that classification of the sale of Publicom as adiscontinued operation is also appropriate under US GAAP.

 

**h)****       ****Balancesheet classification differences**

 

*Deferred income taxes*

 

Under Argentine GAAP, the net deferred taxliability has been classified as a non-current tax payable as of December 31,2008, 2007 and 2006.

 

Under US GAAP, the Company applies the principlesof SFAS No.109. Pursuant to SFAS No.109, the classification of the deferred taxfor a temporary difference is determined by the classification of the asset orliability for financial reporting to which the temporary difference is related.A temporary difference is related to an asset or liability if reduction of theasset or liability causes the temporary difference to reverse. For temporarydifferences not related to an asset or liability for financial reporting or forloss carryforwards, the deferred tax should be classified according to theexpected reversal date of the temporary difference or carryforward.

 

As of December 31, 2008, the net currentdeferred tax liability is $273 and the net non-current deferred tax liabilityis $12 under US GAAP. As of December 31, 2007, the net current deferredtax liability is $173 and the net non-current deferred tax asset is $123 underUS GAAP.

 

*Restricted cash*

 

Under Argentine GAAP, as described in Note 11, theCompany has classified restricted cash amounting to $24 as other receivables,as of December 31, 2008. Under US GAAP, restricted cash may be shown as aseparate line item on the face of the balance sheet or classified as cash orinvestments, as appropriate, but identified in the notes to the financialstatements. Restricted cash at December 31, 2008 represented cash inescrow related to certain judicial proceedings. The restricted cash was $23 asof December 31, 2007.

 

*Revenue recognition*

 

As indicated in Note 4.b, under Argentine GAAP,installation fees are recognized at the time of installation or activation.Associated direct expenses are expensed as incurred. These costs exceedinstallation revenues for all years presented.

 

For US GAAP purposes, non-refundable installationfees are deferred and recognized over the estimated customer relationshipperiod. Associated direct expenses are also deferred over the estimatedcustomer relationship period in an amount equal to the amount of deferredrevenues. Since installation costs exceed installation revenues for all yearspresented and considering that this excess is recognized immediately, there isno measurement difference between Argentine GAAP and US GAAP in this regard.However, the amount of assets and liabilities under US GAAP would differ as aresult of the deferral of revenues and related costs. This effect for US GAAPpurposes of recording the related deferred asset and liability is notsignificant for the years presented.

 

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**15.****                             ****Differences between ArgentineGAAP and US GAAP (continued)**

 

*Classification of Telecom Argentina’s restructureddebt*

 

Under Argentine GAAP, Telecom Argentina hasclassified the outstanding balance of its restructured debt as current andnon-current based on the contractual maturity of the new debt instrumentsadjusted to reflect Telecom Argentina’s intent and ability to apply estimatedcash flows to make prepayments. As described in Note 8 in making the classification,Telecom Argentina uses its best estimates of generating cash flows during thefollowing periods.

 

Under US GAAP, current restructured debt includesamounts due within the next twelve months at the balance sheet date. All otheramounts are classified as non-current. Therefore, as of December 31, 2008,current and non current debt under US GAAP would have been $218 and $1,571,respectively. As of December 31, 2007, current and non current debt underUS GAAP would have been $573 and $3,204, respectively.

 

**i)****          ****Indefeasiblerights of use**

 

*Acquisition of indefeasible rights of use*

 

In the ordinary course of business, the Companyenters into certain capacity agreements (the “IRU Contracts”) pursuant to whichthe Company purchases the rights to use of fiber optic capacity for a period of10 - 15 years. The rights of use purchased in 2008 amounted to $40 of which $29is still outstanding as of December 31, 2008. The Company is alsocommitted to pay operation and maintenance costs (O&M) over the life of theIRU contracts.

 

Under Argentine GAAP, the Company recognized theup-front cash payment and the remaining payable related to the IRU Contracts asan intangible asset. The intangible asset is being amortized under thestraight-line method over the term of the Contracts. Amortization expense isincluded under intangible amortization in the statement of income.

 

Under US GAAP, the Company evaluated the guidancein EITF 01-08 “Determining whether an arrangement contains a lease”, anddetermined that these contracts do not contain a lease element, rather they areservice contracts. In addition, under US GAAP, neither the cash up-frontpayments nor the remaining amount payables under the contracts qualify forrecognition as intangible assets. Rather the prepayment would be recognized asa prepaid asset. The Company would recognize service expense on a straight-linebasis over the term of the IRU contracts. Accordingly, amortization expensewould have been reduced by $10, $7 and $4 for the years ended December 31,2008, 2007 and 2006, respectively, and service expense would have beenincreased by same amounts for those years.

 

*Sale of a portion of indefeasible rights of usepurchased*

 

In the ordinary course of business, the Companyentered into certain capacity agreements, pursuant to which the Companyprovides the right to use a portion of the capacity acquired under IRUContracts mentioned above. As of December 31, 2008, $30 related to thecapacity agreements is still uncollected.

 

Under Argentine GAAP, the Company recognized thisuncollected receivable and liability (deferred revenue) related to theseagreements. The Company will recognize revenue under the straight-line methodover the term of the agreement.

 

Under US GAAP, the remaining amount under thecontracts do not qualify for recognition as liability (deferred revenue), andtherefore receivable and liability recognized under Argentine GAAP should bereversed under US GAAP.

 

**j)****          ****Incomestatement classification differences**

 

The following table reconciles the operating incomeas shown in the statement of income under Argentine GAAP to the operatingincome that would be reported under US GAAP, which contemplate classificationdifferences under US GAAP:

 
| ** **                                            | ** ** | **Years  ended December 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                            | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Operating income under Argentine GAAP**             | ** ** | **$**                              | **2,041**  | ** ** | **$** | **1,636** | ** ** | **$** | **894** | ** ** |
| Foreign currency translation                          |       | —                             |       | 2 |   | 6 |   |
| Depreciation of foreign currency exchange differences |       | 39                                 |       | 104 |   | 104 |   |
| Other expenses, net as operating loss under US GAAP   |       | (268                               | )          | (98 | ) | (184 | ) |
| Inventories                                           |       | (14                                | )          | (51 | ) | (5 | ) |
| Amortization of debt issue cost of Telecom            |       | 7                                  |       | — |   | — |   |
| Other                                                 |       | —                             |       | (1 | ) | (1 | ) |
| **Operating income under US GAAP**                    | ** ** | **$**                              | **1,805**  | ** ** | **$** | **1,592** | ** ** | **$** | **814** | ** ** |

 

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**15.          D****ifferences between Argentine GAAP and US GAAP (continued)**

 

**k)****      ****Earnings pershare**

 

Under Argentine GAAP, the Company computesnet income per common share and dividends per share by dividing the net incomefor the year by the weighted average number of common shares outstanding.

 

Under US GAAP, basic and diluted net income pershare is presented in conformity with SFAS No. 128 “Earnings per Share”for all years presented.

 

Basic net income per share is computed by dividingthe net income available to common shareholders for the year by the weightedaverage shares of common stock outstanding during the year. Diluted net incomeper share is computed by dividing the net income for the year by the weightedaverage number of common and dilutive potential common shares then outstandingduring the year. Since the Company has no dilutive potential common stockoutstanding, there are no dilutive earnings per share amounts as described inSFAS No. 128.

 

The following tables set forth the computation ofbasic and diluted net income per share (for continuing and discontinuedoperations) for the years indicated:

 
| ** **                                        | ** ** | **Years ended  December 31,** | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|
| ** **                                        | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Numerator: (Net income under US GAAP)             |       |                               |       |   |   |   |   |
| from continuing operations                        |       | 1,109                              |       | 1,046 |   | 559 |   |
| from discontinued operations                      |       | —                             |       | 102 |   | 13 |   |
| **Net income under US GAAP**                      | ** ** | **1,109**                          | ** ** | **1,148** | ** ** | **57****2** | ** ** |
| Denominator:                                      |       |                               |       |   |   |   |   |
| Number of shares outstanding                      |       | 984,380,978                        |       | 984,380,978 |   | 984,380,978 |   |
|                                              |       |                               |       |   |   |   |   |
| **Basic and diluted net income per common share** | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| from continuing operations                        |       | 1.13                               |       | 1.06 |   | 0.57 |   |
| from discontinued operations                      |       | —                             |       | 0.11 |   | 0.01 |   |
| **Net income per common share**                   | ** ** | **1.13**                           | ** ** | **1.17** | ** ** | **0.58** | ** ** |

 

**l)****          ****Cash flowsstatement classification differences**

 

The statements of cash flowspresented in the primary financial statements are prepared based on ArgentineGAAP amounts. Under both Argentine GAAP and US GAAP, the Company considers allhighly liquid investments with original maturities of three months or less tobe cash equivalents. As a result, no differences exist between the total amountof the increase or decrease in cash and cash equivalents reported in theprimary financial statements and the same totals that would be reported in astatement of cash flows prepared based on US GAAP amounts. However, asdiscussed further below, certain differences exist between cash flows fromoperating, investing and financing activities reported in the primary financialstatements and the cash flows from operating, investing and financingactivities that would be reported under SFAS No. 95 “*Statement ofCash Flows*”.

 

Under Argentine GAAP,payments to creditors for interest and withholding tax payments were reportedas financing activities whereas these transactions would be classified as cashflows used in operating activities for US GAAP purposes. Additionally, underArgentine GAAP, cash outflows for the acquisition of indefeasible rights ofuse, which amounted to $15, $31 and $39 for fiscal years 2008, 2007 and 2006,respectively, were reported as investing activities. Under US GAAP, thesetransactions would be classified as cash outflows from operating activities.

 

Under US GAAP, the totalamounts of cash and cash equivalents at the beginning and end of the years shownin the consolidated statements of cash flows are required to be the sameamounts as similarly titled line items shown in the balance sheets, as of thosedates. A table reconciling the balances included as cash and banks and currentinvestments in the balance sheet to the total amounts of cash and cashequivalents at the beginning and end of the years shown in the statements ofcash flows is included in Note 6 to the financial statements.

 

In addition, under ArgentineGAAP the effect of exchange rate changes on cash and cash equivalents were notdisclosed by presenting a fourth cash flow statement category as required by USGAAP.

 

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**15.          D****ifferences between Argentine GAAPand US GAAP (continued)**

 

The following tables setforth the condensed statements of cash flows prepared in accordance with USGAAP:

 
| ** **                                                                                 | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                 | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Cash flows provided by operating activities**                                            | ** ** | **$**                             | **3,049**  | ** ** | **$** | **2,605** | ** ** | **$** | **1,949** | ** ** |
| **Cash flows from investing activities**                                                   | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition of fixed assets and intangible assets                                          |       | (1,546                            | )          | (1,212 | ) | (827 | ) |
| Proceeds for the sale of equity investees                                                  |       | —                            |       | 182 |   | — |   |
| Acquisition of Cubecorp                                                                    |       | (97                               | )          | — |   | — |   |
| (Increase) Decrease in investments not considered as cash and cash  equivalents and others |       | 341                               |       | (512 | ) | 62 |   |
| **Total cash flows used in investing activities**                                          | ** ** | **(1,302**                        | **)**      | **(1,542** | **)** | **(765** | **)** |
| **Cash flows from financing activities**                                                   | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Debt proceeds                                                                              |       | 91                                |       | 45 |   | 36 |   |
| Payment of debt                                                                            |       | (1,444                            | )          | (1,290 | ) | (1,113 | ) |
| Payment of debt-related expenses and others                                                |       | —                            |       | — |   | (52 | ) |
| Dividends paid                                                                             |       | (20                               | )          | (38 | ) | — |   |
| **Total cash flows used in financing activities**                                          | ** ** | **(1,373**                        | **)**      | **(1,283** | **)** | **(1,129** | **)** |
| **Effect of exchange rate changes on cash and cash equivalents**                           | ** ** | **70**                            | ** ** | **17** | ** ** | **6** | ** ** |
| **Increase (decrease) in cash and cash equivalents**                                       | ** ** | **444**                           | ** ** | **(203** | **)** | **61** | ** ** |
| **Cash and cash equivalents at the beginning of year**                                     | ** ** | **458**                           | ** ** | **661** | ** ** | **600** | ** ** |
| **Cash and cash equivalents at year end**                                                  | ** ** | **$**                             | **902**    | ** ** | **$** | **458** | ** ** | **$** | **661** | ** ** |

 

**m)****    ****Changes inuseful lives of fixed assets**

 

During the year 2007, theTelecom Group performed an integral review of the useful lives of the fixedassets as from September 30, 2007 based on the work of independentappraisers, Organización Levin de Argentina S.A. As a result of this review,the remaining useful lives of certain fixed assets (fiber optic network, GSMtechnology network access and switching equipment, and certain software) wereextended as from September 30, 2007. This reassessment resulted in a $14reduction in depreciation expense for the year ended December 31, 2007.

 

In addition, and as aconsequence of the migration from TDMA technology to GSM technology during theyear 2007, Personal recognized accelerated depreciation of $84 related to theseassets.

 

The effect on net income forthe mentioned changes in the estimated useful lives was a loss of $46, whichrepresented a loss of Argentine pesos 0.05 per share for the year 2007.

 

**n)****       ****Severancepayments**

 

Under Argentine law and laboragreements, the Company is required to make minimum severance payments to itsemployees dismissed without cause and employees leaving its employment incertain other circumstances. Under Argentine GAAP, severance payments areexpensed as incurred. Under US GAAP, the Company follows the guidelinesestablished by SFAS No.112, “Employers’ Accounting for Post-employment Benefits”,and SFAS No.43, “Accounting for Compensated Absences”, which requires theaccrual of severance costs if they relate to services already rendered, are relatedto rights that accumulate or vest, are probable of payment and are reasonablyestimable. While the Company expects to make severance payments in the future,it is impossible to estimate the number of employees that will be dismissedwithout proper cause in the future, if any, and accordingly the Company has notrecorded such liability under US GAAP.

 

**o)****        ****Investmentsin debt securities**

 

Note 16.c to the financialstatements presents the additional disclosure requirements in accordance withSFAS No.115, “Accounting for Certain Investments in Debt and Equity Securities”.

 

**p)****        ****Softwaredeveloped or obtained for internal use**

 

In March 1998, theAmerican Institute of Certified Public Accountants (AICPA) issued Statement ofPosition (SOP) No.98-1 “Accounting for the Costs of Computer Software Developedor Obtained for Internal Use.” This statement requires that certain internaland external costs associated with the purchase and/or development of internaluse software be capitalized rather than expensed. The adoption of this standardunder US GAAP had no impact on the Company’s financial position or results ofoperations since the Company’s policy in capitalizing/expensing software costsis aligned to SOP 98-1.

 

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**15.          D****ifferences between Argentine GAAPand US GAAP (continued)**

 

**q)****        ****Othercomprehensive income**

 

Under US GAAP, the Companyadopted SFAS No.130 (“SFAS 130”), “Reporting Comprehensive Income”. SFAS No.130establishes guidelines for the reporting and display of comprehensive incomeand its components (revenues, expenses, gains and losses) in a full set ofgeneral-purpose financial statements. SFAS No.130 requires that all items thatare required to be recognized under accounting standards as components ofcomprehensive income be reported in a financial statement that is displayedwith the same prominence as other financial statements. Accumulated othercomprehensive income is presented below, net of income tax benefit/expense:

 
| ** **                                     | ** ** | **Years  ended December 31,** | ** ** |
|------------------------------------------------|------------|------------------------------------|------------|
| ** **                                     | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Net income under US GAAP**                   | ** ** | **$**                              | **1,109**  | ** ** | **$** | **1,148** | ** ** | **$** | **572** | ** ** |
| Other comprehensive income:                    |       |                               |       |   |   |   |   |
| - Foreign currency translation                 |       | 70                                 |       | 3 |   | 1 |   |
| - Derivative instruments                       |       | 13                                 |       | — |   | — |   |
| - Investments classified as available-for-sale |       | —                             |       | — |   | (7 | ) |
| Tax benefit (expense)                          |       | (5                                 | )          | — |   | 2 |   |
| **Comprehensive income**                       | ** ** | **$**                              | **1,187**  | ** ** | **$** | **1,151** | ** ** | **$** | **568** | ** ** |

 
| ** **                                 | ** ** | **As of  December 31,** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **2008**                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| Accumulated other comprehensive income (a) | ** ** | **$**                        | **103**    | ** ** | **$** | **25** | ** ** | **$** | **22** | ** ** |
|                                            |            |                              |            |  |  |  |  |  |  |  |

 

----

(a) Accumulated other comprehensiveincome as of December 31, 2008, 2007 and 2006 includes charges related toforeign currency translation adjustments. In addition, accumulated othercomprehensive income as of December 31, 2008 includes charges related toderivative instruments.

 

**r)****        ****Valuationand qualifying accounts**

 

Under Rule 12-09 of Regulation S-X of the SEC, the Company isrequired to file Schedule II “Valuation and qualifying accounts”. This scheduleis designed to present an analysis of valuation reserves, such as the allowancefor doubtful accounts. Note 16.e to the Argentine GAAP financial statementspresents this information for the years indicated. The Company considers thisinformation is similar in format and content to that required by the SEC.

 

**s)****        ****Recentlyissued accounting pronouncements**

 

In September 2006, the FASB issued SFAS No.157. The changes tocurrent practice resulting from the application of SFAS No.157 relate to thedefinition of fair value, the methods used to estimate fair value, and therequirement for expanded disclosures about estimates of fair value. Thedefinition of fair value retains the exchange price notion in earlierdefinitions of fair value. SFAS No.157 clarifies that the exchange price is theprice in an orderly transaction between market participants to sell the assetor transfer the liability in the market in which the reporting entity wouldtransact for the asset or liability. SFAS No.157 was effective for the Companyon January 1, 2008, except for one-year delay of effective date forcertain nonfinancial assets and nonfinancial liabilities. The adoption of SFASNo.157, as far as it is effective, did not have any impact on the Company’scurrent financial position nor results of operations.

 

In September 2006, the Emerging Issues Task Force issued the EITFNo.06-1 “Accounting for consideration given by a service provider tomanufacturers or resellers of equipment necessary for an end-customer toreceive service from the service provider.” The issue is whether the provisionsof EITF No.01-9, “Accounting for Consideration Given by a Vendor to a Customer(Including a Reseller of the Vendor’s Products)” should be applied to paymentsmade by a service provider to manufacturers and/or retailers/resellers ofspecialized equipment that is necessary for a customer to receive a servicefrom the service provider and in that event, it should be characterized as areduction of revenue or as an expense depending on the nature of theconsideration. The EITF No.06-1 was effective for the Company on January 1,2008. The adoption of EITF No.06-1 did not have any impact on the Company’scurrent financial position nor results of operations.

 

In December 2007, the FASB issued SFAS No.160, “NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No.51” (“SFASNo.160”). This Statement amends ARB 51 to establish accounting and reportingstandards for the noncontrolling interest in a subsidiary and for thedeconsolidation of a subsidiary. SFAS No.160 requires: a) noncontrollinginterest to be presented in the consolidated statement of financial positionwithin equity; and b) consolidated net income attributable to thenoncontrolling interest to be presented on the face of the consolidatedstatement of income. In addition, the Statement requires expanded disclosuresin the consolidated financial statements that clearly identify and distinguishbetween the interests of the parent’s owners and the interests of thenoncontrolling owners of a subsidiary. SFAS No.160 is effective for financialstatements issued for fiscal years beginning on or after December 15,2008. The Company is currently analyzing the impact that the adoption of SFASNo.160 will have on the Company’s financial position and results of operations.

 

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Tableof Contents

 

**16.****                    ****Other financial statementinformation**

 

The followingtables present additional consolidated financial statement disclosures requiredunder Argentine GAAP:

 

a.            Fixed assets, net

b.           Intangible assets, net

c.           Securities and equity investments

d.          Current investments

e.           Allowances and provisions

f.             Cost of services

g.          Foreign currency assets and liabilities

h.          Expenses

i.              Aging of assets and liabilities

 

**(a)****         ****Fixed assets, net**

 
| ** **                               | ** ** | **Original  value** | ** ** | ** **       | ** ** |
|------------------------------------------|------------|---------------------|------------|------------------|------------|
| ** **                               | ** ** | ** **          | ** ** | **Additions**    | ** ** | ** ** | ** ** | **Foreign** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **As of  the**      | ** ** | **from the**     | ** ** | ** ** | ** ** | **currency** | ** ** | ** ** | ** ** | ** ** | ** ** | **As of  the** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **beginning  of**   | ** ** | **acquisition**  | ** ** | ** ** | ** ** | **translation** | ** ** | ** ** | ** ** | ** ** | ** ** | **end of  the** | ** ** | ** ** | ** ** |
| **Principal  account**                   | ** ** | **year**            | ** ** | **of  Cubecorp** | ** ** | **Additions** | ** ** | **adjustments** | ** ** | **Transfers** | ** ** | **Decreases** | ** ** | **year** | ** ** | ** ** | ** ** |
| Land                                     |       | 113                 |       | 10               |       | — |   | 1 |   | — |   | — |   | 124 |   | ** ** | ** ** |
| Building                                 |       | 1,456               |       | 81               |       | — |   | — |   | 9 |   | (5 | ) | 1,541 |   | ** ** | ** ** |
| Tower and pole                           |       | 375                 |       | —           |       | — |   | 3 |   | 40 |   | (2 | ) | 416 |   | ** ** | ** ** |
| Transmission  equipment                  |       | 4,268               |       | —           |       | 29 |   | 25 |   | 255 |   | (45 | ) | 4,532 |   | ** ** | ** ** |
| Wireless network  access                 |       | 1,587               |       | —           |       | 24 |   | 7 |   | 261 |   | (d) | (172 | ) | 1,707 |   | ** ** | ** ** |
| Switching  equipment                     |       | 4,298               |       | —           |       | — |   | 8 |   | 183 |   | — |   | 4,489 |   | ** ** | ** ** |
| Power equipment                          |       | 593                 |       | 12               |       | — |   | 5 |   | 50 |   | (2 | ) | 658 |   | ** ** | ** ** |
| External wiring                          |       | 6,194               |       | —           |       | — |   | — |   | 192 |   | (20 | ) | 6,366 |   | ** ** | ** ** |
| Computer equipment                       |       | 3,405               |       | 32               |       | 20 |   | 17 |   | 341 |   | (59 | ) | 3,756 |   | ** ** | ** ** |
| Telephony  equipment and instruments     |       | 863                 |       | —           |       | 3 |   | 16 |   | 9 |   | — |   | 891 |   | ** ** | ** ** |
| Equipment lent to  customers at no cost  |       | 121                 |       | —           |       | 36 |   | 12 |   | 7 |   | (11 | ) | 165 |   | ** ** | ** ** |
| Vehicles                                 |       | 132                 |       | —           |       | 28 |   | 1 |   | — |   | (3 | ) | 158 |   | ** ** | ** ** |
| Furniture                                |       | 77                  |       | 3                |       | 1 |   | 2 |   | 1 |   | — |   | 84 |   | ** ** | ** ** |
| Installations                            |       | 327                 |       | 28               |       | 2 |   | 3 |   | 17 |   | — |   | 377 |   | ** ** | ** ** |
| Improvements in  third parties buildings |       | 102                 |       | —           |       | — |   | — |   | 15 |   | — |   | 117 |   | ** ** | ** ** |
| Work in progress                         |       | 585                 |       | —           |       | 1,394 |   | 4 |   | (1,351 | ) | — |   | 632 |   | ** ** | ** ** |
| **Subtotal**                             | ** ** | **24,496**          | ** ** | **(a)**          | **166**    | ** ** | **(b)** | **1,537** | ** ** | **104** | ** ** | **29** | ** ** | **(319** | **)** | **26,013** | ** ** | ** ** | ** ** |
| Asset retirement  obligations            |       | 26                  |       | —           |       | 10 |   | 1 |   | — |   | — |   | 37 |   | ** ** | ** ** |
| Advances to  suppliers                   |       | —              |       | —           |       | 19 |   | — |   | — |   | — |   | 19 |   | ** ** | ** ** |
| Materials                                |       | 256                 |       | —           |       | (c) | 90 |   | 5 |   | (29 | ) | (110 | ) | 212 |   | ** ** | ** ** |
| **Total as  of December 31, 2008**  | ** ** | **24,778**          | ** ** | **166**          | ** ** | **1,656** | ** ** | **110** | ** ** | **—** | ** ** | **(429** | **)** | **26,281** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | ** **          | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total as  of December 31, 2007**  | ** ** | **23,379**          | ** ** | **—**       | ** ** | **1,416** | ** ** | **110** | ** ** | **—** | ** ** | **(127** | **)** | **24,778** | ** ** | ** ** | ** ** |
|                                          |            |                     |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                               | ** ** | ** **        | ** ** | ** **       | ** ** | ** **   | ** ** | ** ** | ** ** | ** **      | ** ** | ** **    | ** ** | ** **      | ** **  | **Net**      | ** ** | **Net**      | ** ** |
|------------------------------------------|------------|-------------------|------------|------------------|------------|--------------|------------|------------|------------|-----------------|------------|---------------|------------|-----------------|-------------|--------------|------------|--------------|------------|
| ** **                               | ** ** | **Depreciation**  | ** ** | **carrying**     | ** ** | **carrying** | ** ** |
| ** **                               | ** ** | **Accumulated**   | ** ** | **Additions**    | ** ** | ** **   | ** ** | ** ** | ** ** | **Foreign**     | ** ** | ** **    | ** ** | **Accumulated** | ** **  | **value**    | ** ** | **value**    | ** ** |
| ** **                               | ** ** | **as of  the**    | ** ** | **from the**     | ** ** | ** **   | ** ** | ** ** | ** ** | **currency**    | ** ** | **Decreases** | ** ** | **as of  the**  | ** **  | **as of**    | ** ** | **as of**    | ** ** |
| ** **                               | ** ** | **beginning  of** | ** ** | **acquisition**  | ** ** | **Annual**   | ** ** | ** ** | ** ** | **translation** | ** ** | **and**       | ** ** | **end of  the** | ** **  | **December** | ** ** | **December** | ** ** |
| **Principal  account**                   | ** ** | **the year**      | ** ** | **of  Cubecorp** | ** ** | **rate (%)** | ** ** | **Amount** | ** ** | **adjustments** | ** ** | **transfers** | ** ** | **year**        | ** **  | **31, 2008** | ** ** | **31, 2007** | ** ** |
| Land                                     |       | —            |       | —           |       | —       |       | —     |       | —          |       | —        |       | —          | ** **  | **124**      | ** ** | **113**      | ** ** |
| Building                                 |       | (824              | )          | (6               | )          | 4 — 10  |       | (65        | )          | —          |       | 5             |       | (890            | )           | **651**      | ** ** | **632**      | ** ** |
| Tower and pole                           |       | (270              | )          | —           |       | 5 — 8   |       | (16        | )          | (3              | )          | 2             |       | (287            | )           | **129**      | ** ** | **105**      | ** ** |
| Transmission  equipment                  |       | (3,566            | )          | —           |       | 11 — 14 |       | (211       | )          | (13             | )          | 44            |       | (3,746          | )           | **786**      | ** ** | **702**      | ** ** |
| Wireless network  access                 |       | (1,300            | )          | —           |       | 11 — 14 |       | (118       | )          | (4              | )          | (d)           | 172        |            | (1,250      | )            | **457**    | ** **   | **287**    | ** ** |
| Switching  equipment                     |       | (3,689            | )          | —           |       | 11 — 15 |       | (197       | )          | (5              | )          | 1             |       | (3,890          | )           | **599**      | ** ** | **609**      | ** ** |
| Power equipment                          |       | (488              | )          | (5               | )          | 10 — 11 |       | (38        | )          | (5              | )          | 2             |       | (534            | )           | **124**      | ** ** | **105**      | ** ** |
| External wiring                          |       | (4,745            | )          | —           |       | 6            |       | (282       | )          | —          |       | 20            |       | (5,007          | )           | **1,359**    | ** ** | **1,449**    | ** ** |
| Computer  equipment                      |       | (2,762            | )          | (21              | )          | 18 — 22 |       | (222       | )          | (13             | )          | 58            |       | (2,960          | )           | **796**      | ** ** | **643**      | ** ** |
| Telephony  equipment and instruments     |       | (812              | )          | —           |       | 11 — 18 |       | (25        | )          | (11             | )          | —        |       | (848            | )           | **43**       | ** ** | **51**       | ** ** |
| Equipment lent to  customers at no cost  |       | (89               | )          | —           |       | 50           |       | (38        | )          | (11             | )          | 10            |       | (128            | )           | **37**       | ** ** | **32**       | ** ** |
| Vehicles                                 |       | (75               | )          | —           |       | 20           |       | (19        | )          | (1              | )          | 3             |       | (92             | )           | **66**       | ** ** | **57**       | ** ** |
| Furniture                                |       | (63               | )          | (2               | )          | 10           |       | (5         | )          | —          |       | —        |       | (70             | )           | **14**       | ** ** | **14**       | ** ** |
| Installations                            |       | (248              | )          | (2               | )          | 8 — 25  |       | (16        | )          | (1              | )          | —        |       | (267            | )           | **110**      | ** ** | **79**       | ** ** |
| Improvements in  third parties buildings |       | (69               | )          | —           |       | 3            |       | (11        | )          | —          |       | —        |       | (80             | )           | **37**       | ** ** | **33**       | ** ** |
| Work in progress                         |       | —            |       | —           |       |         |       | —     |       | —          |       | —        |       |            | ** **  | **632**      | ** ** | **585**      | ** ** |
| **Subtotal**                             | ** ** | **(19,000**       | **)**      | **(36**          | **)**      | ** **   | ** ** | **(1,263** | **)**      | **(67**         | **)**      | **317**       | ** ** | **(20,049**     | **)**       | **5,964**    | ** ** | **5,496**    | ** ** |
| Asset retirement  obligations            |       | (20               | )          | —           |       | 16— 21  |       | (4         | )          | (1              | )          | —        |       | (25             | )           | **12**       | ** ** | **6**        | ** ** |
| Advances to  suppliers                   |       | —            |       | —           |       |         |       | —     |       | —          |       | —        |       | —          | ** **  | **19**       | ** ** | **—**   | ** ** |
| Materials                                |       | —            |       | —           |       |         |       | —     |       | —          |       | —        |       | —          | ** **  | **212**      | ** ** | **256**      | ** ** |
| **Total as  of December 31, 2008**  | ** ** | **(19,020**       | **)**      | **(36**          | **)**      | ** **   | ** ** | **(e)**    | **(1,267** | **)**           | **(68**    | **)**         | **317**    | ** **      | **(20,074** | **)**        | **6,207**  | ** **   | **5,758**  | ** ** |
| ** **                               | ** ** | ** **        | ** ** | ** **       | ** ** | ** **   | ** ** | ** ** | ** ** | ** **      | ** ** | ** **    | ** ** | ** **      | ** **  | ** **   | ** ** | ** **   | ** ** |
| **Total as  of December 31, 2007**  | ** ** | **(17,618**       | **)**      | **—**       | ** ** | ** **   | ** ** | **(e)**    | **(1,377** | **)**           | **(68**    | **)**         | **43**     | ** **      | **(19,020** | **)**        | **5,758**  | ** **   | ** ** | ** ** |
|                                          |            |                   |            |                  |            |              |            |            |            |                 |            |               |            |                 |             |              |            |              |            |  |  |

 

----

(a)          Includes $43 in Building and $22 in Installationscorresponding to the purchase price allocation of Cubecorp.

(b)         Includes $26 in Transmissionequipment, $24 in Wireless network access, $33 in Equipment lent to customersat no cost, $1 in Telephony equipment and instruments and $247 in Work inprogress, transferred from materials.

(c)          Net of $331 transferred tofixed assets.

(d)         Corresponds to the cancelingof the TDMA network.

(e)          Includes $(39) and $(104), in December 2008 and2007, respectively, corresponding to the depreciation of capitalized foreigncurrency exchange differences.

 

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Table of Contents

 

**16.****                    ****Other financial statementinformation (continued)**

 

**(b)****    ****Intangible assets, net**

 
| ** **                                       | ** ** | **Original value** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|
| ** **                                       | ** ** | **As of the**      | ** ** | **Additions** | ** ** | ** ** | ** ** | **Foreign** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **beginning**      | ** ** | **from the** | ** ** | ** ** | ** ** | **currency** | ** ** | ** ** | ** ** | **As of the** | ** ** |
| ** **                                       | ** ** | **of the**         | ** ** | **acquisition** | ** ** | ** ** | ** ** | **translation** | ** ** | ** ** | ** ** | **end of the** | ** ** |
| **Principal account**                            | ** ** | **year**           | ** ** | **of Cubecorp** | ** ** | **Additions** | ** ** | **adjustments** | ** ** | **Decreases** | ** ** | **year** | ** ** |
| Software  obtained or developed for internal use |       | 446                |       | — |   | — |   | 4 |   | — |   | 450 |   |
| Debt issue costs                                 |       | 37                 |       | — |   | — |   | — |   | — |   | 37 |   |
| PCS license                                      |       | 658                |       | — |   | — |   | — |   | — |   | 658 |   |
| Band B license  and PCS license (Paraguay)       |       | 211                |       | — |   | 1 |   | 28 |   | — |   | 240 |   |
| Rights of use                                    |       | 164                |       | — |   | 40 |   | — |   | — |   | 204 |   |
| Exclusivity  agreements                          |       | 54                 |       | — |   | — |   | — |   | — |   | 54 |   |
| Cubecorp’s  customer relationship           |       | —             |       | 2 |   | — |   | — |   | — |   | 2 |   |
| **Total  as of December 31, 2008**          | ** ** | **1,570**          | ** ** | **2** | ** ** | **41** | ** ** | **32** | ** ** | **—** | ** ** | **1,645** | ** ** |
|                                             | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total  as of December 31, 2007**          | ** ** | **1,535**          | ** ** | **—** | ** ** | **27** | ** ** | **39** | ** ** | **(a)** | **(31** | **)** | **1,570** | ** ** |
|                                                  |            |                    |            |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                       | ** ** | ** **       | ** ** | ** **   | ** ** | ** **      | ** ** | ** **    | ** ** | ** **      | ** ** | **Net**      | ** ** | **Net**      | ** ** |
|--------------------------------------------------|------------|------------------|------------|--------------|------------|-----------------|------------|---------------|------------|-----------------|------------|--------------|------------|--------------|------------|
| ** **                                       | ** ** | **Amortization** | ** ** | **carrying** | ** ** | **carrying**    | ** ** |
| ** **                                       | ** ** | **Accumulated**  | ** ** | ** **   | ** ** | **Foreign**     | ** ** | ** **    | ** ** | **Accumulated** | ** ** | **value as** | ** ** | **value as** | ** ** |
| ** **                                       | ** ** | **as of the**    | ** ** | ** **   | ** ** | **currency**    | ** ** | ** **    | ** ** | **as of the**   | ** ** | **of**       | ** ** | **of**       | ** ** |
| ** **                                       | ** ** | **beginning**    | ** ** | ** **   | ** ** | **translation** | ** ** | ** **    | ** ** | **end of the**  | ** ** | **December** | ** ** | **December** | ** ** |
| **Principal account**                            | ** ** | **of the year**  | ** ** | **Amount**   | ** ** | **adjustments** | ** ** | **Decreases** | ** ** | **year**        | ** ** | **31, 2008** | ** ** | **31, 2007** | ** ** |
| Software  obtained or developed for internal use |       | (439             | )          | (5           | )          | (3              | )          | —        |       | (447            | )          | **3**        | ** ** | **7**        | ** ** |
| Debt issue costs                                 |       | (22              | )          | (10          | )          | —          |       | —        |       | (32             | )          | **5**        | ** ** | **15**       | ** ** |
| PCS license                                      |       | (70              | )          | —       |       | —          |       | —        |       | (70             | )          | **588**      | ** ** | **588**      | ** ** |
| Band B license  and PCS license (Paraguay)       |       | (211             | )          | —       |       | (28             | )          | —        |       | (239            | )          | **1**        | ** ** | **—**   | ** ** |
| Rights of use                                    |       | (45              | )          | (12          | )          | —          |       | —        |       | (57             | )          | **147**      | ** ** | **119**      | ** ** |
| Exclusivity  agreements                          |       | (23              | )          | (5           | )          | —          |       | —        |       | (28             | )          | **26**       | ** ** | **31**       | ** ** |
| Cubecorp’s  customer relationship           |       | —           |       | —       |       | —          |       | —        |       | —          | ** ** | **2**        | ** ** | **—**   | ** ** |
| **Total  as of December 31, 2008**          | ** ** | **(810**         | **)**      | **(b)**      | **(32**    | **)**           | **(31**    | **)**         | **—** | ** **      | **(873**   | **)**        | **772**    | ** **   | **760**    | ** ** |
|                                             | ** ** | ** **       | ** ** | ** **   | ** ** | ** **      | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** ** |
| **Total  as of December 31, 2007**          | ** ** | **(754**         | **)**      | **(c)**      | **(50**    | **)**           | **(37**    | **)**         | **(a)**    | **31**          | ** ** | **(810**     | **)**      | **760**      | ** ** | ** ** | ** ** |
|                                                  |            |                  |            |              |            |                 |            |               |            |                 |            |              |            |              |            |  |  |

 

----

(a)     Includes $20 corresponding to decreasesin Debt issue costs and $11 corresponding to decreases in Exclusivityagreements.

(b)    An amount of $(16) is included in cost ofservices, $(1) in administrative expenses, $(5) in selling expensesand $(10) in financial results, net.

(c)     An amount of $(35) is included in cost ofservices, $(1) in administrative expenses, $(3) in selling expensesand $(11) in financial results, net.

 

**(c)****    ****Securities and equity investments**

 
| ** **                               | ** ** | ** ** | ** ** | ** **     | ** **  | **Net**         | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** |
|------------------------------------------|------------|------------|------------|----------------|-------------|-----------------|------------|----------------|------------|----------------|------------|----------------|------------|
| ** **                               | ** ** | ** ** | ** ** | ** **     | ** **  | **realizable**  | ** ** | **Cost value** | ** ** | **Book value** | ** ** | **Book value** | ** ** |
| ** **                               | ** ** | ** ** | ** ** | ** **     | ** **  | **value as of** | ** ** | **as of**      | ** ** | **as of**      | ** ** | **as of**      | ** ** |
| **Issuer and characteristic**            | ** ** | **Market** | ** ** | **Number of**  | ** **  | **December**    | ** ** | **December**   | ** ** | **December**   | ** ** | **December**   | ** ** |
| **of the securities**                    | ** ** | **value**  | ** ** | **securities** | ** **  | **31, 2008**    | ** ** | **31, 2008**   | ** ** | **31, 2008**   | ** ** | **31, 2007**   | ** ** |
| **CURRENT  INVESTMENTS**                 | ** ** | ** ** | ** ** | ** **     | ** **  | ** **      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** |
| **Government  bonds**                    |       |       |       |           |        |            |       |           |       |           |       |           |       |
| Germany  Government bonds (i)            |       | €     | 1          |           | 45,000,000  |            | 223        |           | 200        |           | 223        |           | —     |   |
| **Total  government bonds**              |       |       |       |           | ** **  | **223**         | ** ** | **200**        | ** ** | **223**        | ** ** | **—**     | ** ** |
| **Mutual  funds**                        |       |       |       |           |        |            |       |           |       |           |       |           |       |
| Superahorro$ Clase B                |       | $          | 0.28       |           | 232,455,950 |            | 65         |           | 65         |           | 65         |           | —     |   |
| Optimun CDB $ Clase B               |       | $          | 1.86       |           | 14,824,098  |            | 27         |           | 27         |           | 27         |           | 5          |   |
| Fima $                                   |       | $          | 1.23       |           | 42,000,150  |            | 52         |           | 51         |           | 52         |           | —     |   |
| Other mutual funds                       |       |       |       |           |        | —          |       | —         |       | —         |       | 94             |       |
| **Total  mutual funds**                  |       |       |       |           | ** **  | **144**         | ** ** | **143**        | ** ** | **144**        | ** ** | **99**         | ** ** |
| **Related  parties — Mutual funds** |       |       |       |           |        |            |       |           |       |           |       |           |       |
| Alpha $ Clase A                     |       | $          | 1.25       |           | 3,226,422   |            | 4          |           | 4          |           | 4          |           | —     |   |
| **Total  related parties**               |       |       |       |           | ** **  | **4**           | ** ** | **4**          | ** ** | **4**          | ** ** | **—**     | ** ** |
| **Total  current investments**           |       |       |       |           | ** **  | **371**         | ** ** | **347**        | ** ** | **371**        | ** ** | **99**         | ** ** |

 

----

(i) TheCompany has classified these securities as held-to-maturity as management hasthe intent and ability to hold them to maturity (March 2009).

 

F-69

----

Tableof Contents

 

**16.****                             ****Other financial statementinformation (continued)**

 

**(d) Currentinvestments**

 
| ** **                                               | ** ** | **Cost as of**     | ** ** | **Book value as of**  | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | **December ** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                               | ** ** | **31, 2008**       | ** ** | **2008**              | ** ** | **2007** | ** ** |
| ** **                                               | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| **CURRENT INVESTMENTS**                                  | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| **Time deposits**                                        | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| **With an original maturity of three months or  less**   | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| In  foreign currency                                     |       | $                  | 611        |                  | $          | 611 |   | $ | 283 |   |
| In  Argentine pesos                                      |       | 106                |       | 107                   |       | 31 |   |
| ** **                                               | ** ** | **$**              | **717**    | ** **            | **$**      | **718** | ** ** | **$** | **314** | ** ** |
| **With an original maturity of more than three  months** |       |               |       |                  |       |   |   |
| In  foreign currency                                     |       | $                  | —     |                  | $          | — |   | $ | 534 |   |
| ** **                                               | ** ** | **$**              | **—** | ** **            | **$**      | **—** | ** ** | **$** | **534** | ** ** |
| **Total  current investments**                           | ** ** | **$**              | **717**    | ** **            | **$**      | **718** | ** ** | **$** | **848** | ** ** |
| **NON-CURRENT INVESTMENTS**                              | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| In  Argentine pesos — Related parties               |       | $                  | 6          |                  | $          | 6 |   | $ | 1 |   |
| **Total  non-current investments**                       | ** ** | **$**              | **6**      | ** **            | **$**      | **6** | ** ** | **$** | **1** | ** ** |

 

**(e) Allowancesand provisions**

 
| **Items**                                           | ** ** | **Opening   balances** | ** ** | **Additions** | ** ** | **Reclassifications** | ** ** | **Deductions** | ** ** | **As of****December   31,****2008** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|---------------|------------|-----------------------|------------|----------------|------------|------------------------------------------|------------|
| **Deducted from current assets**                    |       |                   |       |          |       |                  |       |           |       |                                     |       |
| Allowance  for doubtful accounts receivables        | ** ** | **126**                |       | 67            |       | (1                    | )          | (56            | )          | **136**                                  | ** ** |
| Allowance  for doubtful accounts and other assets   | ** ** | **11**                 |       | 2             |       | 1                     |       | (1             | )          | **13**                                   | ** ** |
| Regulatory  contingencies                           | ** ** | **12**                 |       | —        |       | 1                     |       | (2             | )          | **11**                                   | ** ** |
| Allowance  for obsolescence of inventories          | ** ** | **18**                 |       | 12            |       | —                |       | (14            | )          | **16**                                   | ** ** |
| **Total deducted from current assets**              | ** ** | **167**                | ** ** | **81**        | ** ** | **1**                 | ** ** | **(73**        | **)**      | **176**                                  | ** ** |
| **Deducted from non-current assets**                | ** ** | ** **             |       |          |       |                  |       |           | ** ** | ** **                               | ** ** |
| Allowance  for doubtful accounts receivables        | ** ** | **—**             |       | —        |       | 1                     |       | —         | ** ** | **1**                                    | ** ** |
| Valuation  allowance of net deferred tax assets (a) | ** ** | **106**                |       | (2            | )          | —                |       | (92            | )          | **12**                                   | ** ** |
| Regulatory  contingencies                           | ** ** | **64**                 |       | 12            |       | (1                    | )          | —         | ** ** | **75**                                   | ** ** |
| Allowance  for doubtful accounts and other assets   | ** ** | **17**                 |       | 4             |       | (1                    | )          | —         | ** ** | **20**                                   | ** ** |
| Write-off  of materials                             | ** ** | **20**                 |       | 2             |       | —                |       | (3             | )          | **19**                                   | ** ** |
| **Total deducted from non-current assets**          | ** ** | **207**                | ** ** | **16**        | ** ** | **(1**                | **)**      | **(95**        | **)**      | **127**                                  | ** ** |
| **Total deducted from assets**                      | ** ** | **374**                | ** ** | **(b)**       | **97**     | ** **            | **—** | ** **     | **(168**   | **)**                                    | **303**    | ** ** |
| ** **                                          | ** ** | ** **             | ** ** | ** **    | ** ** | ** **            | ** ** | ** **     | ** ** | ** **                               | ** ** |
| **Included under current liabilities**              | ** ** | ** **             |       |          |       |                  |       |           | ** ** | ** **                               | ** ** |
| Provision  for contingencies                        | ** ** | **49**                 |       | —        |       | 25                    |       | (38            | )          | **36**                                   | ** ** |
| **Total included under current liabilities**        | ** ** | **49**                 | ** ** | **—**    | ** ** | **25**                | ** ** | **(38**        | **)**      | **36**                                   | ** ** |
| **Included under non-current liabilities**          | ** ** | ** **             |       |          |       |                  |       |           | ** ** | ** **                               | ** ** |
| Provision  for contingencies                        | ** ** | **243**                |       | 101           |       | (25                   | )          | —         | ** ** | **319**                                  | ** ** |
| **Total included under non-current liabilities**    | ** ** | **243**                | ** ** | **101**       | ** ** | **(25**               | **)**      | **—**     | ** ** | **319**                                  | ** ** |
| **Total included under liabilities**                | ** ** | **292**                | ** ** | **(c)**       | **101**    | ** **            | **—** | ** **     | **(38**    | **)**                                    | **355**    | ** ** |

 

----

| (a) |   | This allowance is included in Taxes payable non-current.                                   |   |
|-----|--------|--------------------------------------------------------------------------------------------|--------|
| (b) |   | Includes $67 in selling expenses, $32 in other  expenses, net and $(2) in income tax. |   |
| (c) |   | Includes $100 in other expenses, net and $1 corresponds to the  acquisition of Cubecorp.   |   |

 
| **Items**                                           | ** ** | **Opening   balances** | ** ** | **Additions** | ** ** | **Reclassifications** | ** ** | **Deductions** | ** ** | **As of   December   31, 2007** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|---------------|------------|-----------------------|------------|----------------|------------|--------------------------------------|------------|
| **Deducted from current assets**                    |       |                   |       |          |       |                  |       |           |       |                                 |       |
| Allowance  for doubtful accounts receivables        | ** ** | **105**                |       | 71            |       | —                |       | (50            | )          | **126**                              | ** ** |
| Allowance  for doubtful accounts and other assets   | ** ** | **16**                 |       | —        |       | 5                     |       | (10            | )          | **11**                               | ** ** |
| Regulatory  contingencies                           | ** ** | **—**             |       | —        |       | (e)                   | 14         |           | (2         | )                                    | **12**     | ** ** |
| Allowance  for obsolescence of inventories          | ** ** | **12**                 |       | 7             |       | —                |       | (1             | )          | **18**                               | ** ** |
| **Total deducted from current assets**              | ** ** | **133**                | ** ** | **78**        | ** ** | **19**                | ** ** | **(63**        | **)**      | **167**                              | ** ** |
| **Deducted from non-current assets**                | ** ** | ** **             |       |          |       |                  |       |           | ** ** | ** **                           | ** ** |
| Valuation  allowance of net deferred tax assets (a) | ** ** | **195**                |       | —        |       | —                |       | (89            | )          | **106**                              | ** ** |
| Regulatory  contingencies                           | ** ** | **—**             |       | 42            |       | (e)                   | 22         |           | —     | ** **                           | **64**     | ** ** |
| Allowance  for doubtful accounts and other assets   | ** ** | **18**                 |       | 4             |       | (5                    | )          | —         | ** ** | **17**                               | ** ** |
| Write-off  of materials                             | ** ** | **22**                 |       | —        |       | —                |       | (2             | )          | **20**                               | ** ** |
| **Total deducted from non-current assets**          | ** ** | **235**                | ** ** | **46**        | ** ** | **17**                | ** ** | **(91**        | **)**      | **207**                              | ** ** |
| **Total deducted from assets**                      | ** ** | **368**                | ** ** | **(d)**       | **124**    | ** **            | **36**     | ** **     | **(154**   | **)**                                | **374**    | ** ** |
| ** **                                          | ** ** | ** **             | ** ** | ** **    | ** ** | ** **            | ** ** | ** **     | ** ** | ** **                           | ** ** |
| **Included under current liabilities**              | ** ** | ** **             |       |          |       |                  |       |           | ** ** | ** **                           | ** ** |
| Provision  for contingencies                        | ** ** | **85**                 |       | —        |       | 14                    |       | (50            | )          | **49**                               | ** ** |
| **Total included under current liabilities**        | ** ** | **85**                 | ** ** | **—**    | ** ** | **14**                | ** ** | **(g)**        | **(50**    | **)**                                | **49**     | ** ** |
| **Included under non-current liabilities**          | ** ** | ** **             |       |          |       |                  |       |           | ** ** | ** **                           | ** ** |
| Provision  for contingencies                        | ** ** | **234**                |       | 79            |       | (70                   | )          | —         | ** ** | **243**                              | ** ** |
| **Total included under non-current liabilities**    | ** ** | **234**                | ** ** | **79**        | ** ** | **(70**               | **)**      | **—**     | ** ** | **243**                              | ** ** |
| **Total included under liabilities**                | ** ** | **319**                | ** ** | **(f)**       | **79**     | ** **            | **(e)**    | **(56**        | **)**      | **(50**                              | **)**      | **292** | ** ** |
|                                                     |            |                        |            |               |            |                       |            |                |            |                                      |            |  |  |  |

 

----

| (d) |   | Includes $71 in selling expenses and $53 in  other expenses, net.                                                                                          |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (e) |   | Reclassified $36 to other receivables —  “Regulatory contingencies” and $20 to other liabilities — “Contingencies  payable”. |
| (f) |   | Included in other expenses, net.                                                                                                                           |
| (g) |   | Includes  $8 by application of SC Resolution No. 41/07.                                                                                               |

 

F-70

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Tableof Contents

 

**16.****                             ****Other financial statementinformation (continued)**

 

**(f) Costof services**

 
| ** **                                             | ** ** | **Years  ended December 31,** | ** ** |
|--------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                             | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Inventory balance at the beginning of the year         |       | $                                  | 175        |   | $ | 188 |   | $ | 113 |   |
| Plus:                                                  |       |                               |       |   |   |   |   |
| Purchases                                              |       | 1,105                              |       | 927 |   | 1,060 |   |
| Holding results on inventories                         |       | 2                                  |       | (59 | ) | (5 | ) |
| Wireless handsets lent to customers at no cost (a)     |       | (3                                 | )          | (5 | ) | (4 | ) |
| Replacements                                           |       | (23                                | )          | (2 | ) | (4 | ) |
| Foreign currency translation adjustments in  inventory |       | (1                                 | )          | 1 |   | 1 |   |
| Cost of services (Note 16.h)                           |       | 4,660                              |       | 4,098 |   | 3,521 |   |
| Less:                                                  |       |                               |       |   |   |   |   |
| Inventory balance at year end                          |       | (267                               | )          | (175 | ) | (188 | ) |
| **COST OF SERVICES**                                   | ** ** | **$**                              | **5,648**  | ** ** | **$** | **4,973** | ** ** | **$** | **4,494** | ** ** |

 

----

(a)            Under certain circumstances, the Companylends handsets to customers at no cost pursuant to term agreements. Handsetsremain the property of the Company and customers are generally obligated toreturn them at the end of the respective agreements.

 
| ** **                                                       | ** ** | **Years  ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Services**                                                     | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                        |       | $                                  | 9,847      |   | $ | 8,466 |   | $ | 6,821 |   |
| Cost of sales                                                    |       | (4,622                             | )          | (4,080 | ) | (3,495 | ) |
| **Gross profit from services**                                   | ** ** | **$**                              | **5,225**  | ** ** | **$** | **4,386** | ** ** | **$** | **3,326** | ** ** |
| **Handsets**                                                     | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                        |       | $                                  | 720        |   | $ | 590 |   | $ | 544 |   |
| Cost of sales                                                    |       | (988                               | )          | (875 | ) | (973 | ) |
| **Gross loss from handsets**                                     | ** ** | **$**                              | **(268**   | **)** | **$** | **(285** | **)** | **$** | **(429** | **)** |
| **Voice, Internet and data  equipment**                          | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                        |       | $                                  | 41         |   | $ | 18 |   | $ | 7 |   |
| Cost of sales                                                    |       | (38                                | )          | (18 | ) | (26 | ) |
| **Gross profit (loss) from voice,  Internet and data equipment** | ** ** | **$**                              | **3**      | ** ** | **$** | **—** | ** ** | **$** | **(19** | **)** |
| **TOTAL GROSS PROFIT**                                           | ** ** | **$**                              | **4,960**  | ** ** | **$** | **4,101** | ** ** | **$** | **2,878** | ** ** |

 

F-71

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Tableof Contents

 

**16.****                             ****Other financial statementinformation (continued)**

 

**(g) Foreigncurrency assets and liabilities**

 
| ** **                                     | ** ** | **As of December 31, 2008**            | ** **   | **As of December   31, 2007**     | ** ** |
|------------------------------------------------|------------|----------------------------------------|--------------|-----------------------------------|------------|
| **Items**                                      | ** ** | **Amount of foreign   currency   (i)** | ** **   | **Current   exchange  rate** | ** ** | **Amount in   local   currency** | ** ** | **Amount in   local currency** | ** ** |
| **Current  assets**                            |       |                                   |         |                              |       |   |   |   |   |   |
| **Cash  and banks**                            |       |                                   |         |                              |       |   |   |   |   |   |
| Cash                                           |       | G                                      | 5,733        |                              | 0.0006976  |   | 4 |   | — |   |
| Bank accounts                                  |       | US$                                    | 1            |                              | 3.45300    |   | 5 |   | 10 |   |
|                                           |       | G                                      | —       |                              | —     |   | — |   | 10 |   |
| **Investments**                                |       |                                   |         |                              |       |   |   |   |   |   |
| Time deposits                                  |       | US$                                    | 89           |                              | 3.45300    |   | 307 |   | 761 |   |
|                                           |       | EURO                                   | 63           |                              | 4.79070    |   | 304 |   | 49 |   |
|                                           |       | ¥                                 |         | —                            |       | — |   | — |   | 7 |   |
| Government bonds                               |       | EURO                                   | 47           |                              | 4.79070    |   | 223 |   | — |   |
| **Accounts  receivable**                       |       |                                   |         |                              |       |   |   |   |   |   |
|                                           |       | US$                                    |  25     |                              | 3.45300    |   | 87 |   | 69 |   |
|                                           |       | SDR                                    | 1            |                              | 5.31855    |   | 5 |   | — |   |
|                                           |       | G                                      | 22,973       |                              | 0.0006976  |   | 17 |   | 23 |   |
| Related parties                                |       | US$                                    |  1      |                              | 3.45300    |   | 5 |   | 7 |   |
| **Other  receivables**                         |       |                                   |         |                              |       |   |   |   |   |   |
| Prepaid expenses                               |       | US$                               | 3            |                              | 3.45300    |   | 10 |   | 7 |   |
|                                           |       | G                                      | 3,822        |                              | 0.0006976  |   | 2 |   | 2 |   |
| Derivatives                                    |       | US$                               | —       |                              | —     |   | — |   | 212 |   |
| Others                                         |       | US$                               | 5            |                              | 3.45300    |   | 20 |   | 5 |   |
|                                           |       | G                                      | 1,724        |                              | 0.0006976  |   | 1 |   | 2 |   |
| **Non-current  assets**                        |       |                                   |         |                              |       |   |   |   |   |   |
| Others                                         |       | US$                                    |  2      |                              | 3.45300    |   | 8 |   | — |   |
|                                           |       | G                                      | 475          |                              | 0.0006976  |   | 1 |   | — |   |
| **Total  assets**                              |       |                                   |         |                              |       | ** ** | **$** | **999** | ** ** | **$** | ** ****1,164** | ** ** |
| **Current  liabilities**                       |       |                                   |         |                              |       |   |   |   |   |   |
| **Accounts  payable**                          |       |                                   |         |                              |       |   |   |   |   |   |
| Suppliers                                      |       | US$                                    |  227    |                              | 3.45300    |   | 784 |   | $ |  561 |   |
|                                           |       | G                                      | 25,291       |                              | 0.0006976  |   | 18 |   | 17 |   |
| ** **                                     |       | EURO                                   | 9            |                              | 4.79070    |   | 42 |   | 28 |   |
| Deferred  revenues                             |       | G                                      | 9,656        |                              | 0.0006976  |   | 7 |   | 10 |   |
| Related parties                                |       | US$                                    |  5      |                              | 3.45300    |   | 18 |   | 12 |   |
| ** **                                     |       | EURO                                   | —       |                              | —     |   | — |   | 12 |   |
| **Debt**                                       |       |                                   |         |                              |       |   |   |   |   |   |
| Notes –  Principal                        |       | US$                                    |  43     |                              | 3.45300    |   | 150 |   | 617 |   |
| ** **                                     |       | EURO                                   | 187          |                              | 4.79070    |   | 897 |   | 618 |   |
|                                           |       | ¥                                 | 5,074        |                              | 0.03813    |   | 193 |   | 86 |   |
| Banks loans and  others – Principal       |       | US$                                    | 2            |                              | 3.45300    |   | 5 |   | 47 |   |
|                                           |       | G                                      | 120,650      |                              | 0.0006976  |   | 84 |   | 22 |   |
| Accrued interest                               |       | US$                                    | 1            |                              | 3.45300    |   | 3 |   | 15 |   |
|                                           |       | EURO                                   | 3            |                              | 4.79070    |   | 13 |   | 14 |   |
|                                           |       | ¥                                 | 40           |                              | 0.03813    |   | 2 |   | 1 |   |
|                                           |       | G                                      | 2,157        |                              | 0.0006976  |   | 2 |   | — |   |
| Gain on  discounting of debt                   |       | US$                                    |  — |                              | 3.45300    |   | (1 | ) | — |   |
| ** **                                     |       | EURO                                   | (1           | )                                 | 4.79070    |   | (6 | ) | — |   |
| ** **                                     |       | ¥                                 |         | (52                               | )          | 0.03813 |   | (2 | ) | — |   |
| Derivatives                                    |       | US$                                    |  — |                              | —     |   | — |   | 3 |   |
| **Salaries  and social security payable**      |       |                                   |         |                              |       |   |   |   |   |   |
| Vacation,  bonuses and social security payable |       | G                                      | 930          |                              | 0.0006976  |   | 1 |   | 1 |   |
| **Taxes  payable**                             |       |                                   |         |                              |       |   |   |   |   |   |
| Income tax                                     |       | G                                      | —       |                              | —     |   | — |   | 1 |   |
| VAT                                            |       | G                                      | —       |                              | —     |   | — |   | 1 |   |
| **Other  liabilities**                         |       |                                   |         |                              |       |   |   |   |   |   |
| Deferred revenue  on sale of capacity          |       | US$                                    |  3      |                              | 3.45300    |   | 10 |   | 7 |   |
| Others                                         |       | G                                      | —       |                              | —     |   | — |   | 1 |   |
| **Non-current  liabilities**                   |       |                                   |         |                              |       |   |   |   |   |   |
| **Accounts  payable**                          |       |                                   |         |                              |       |   |   |   |   |   |
| Related parties                                |       | US$                                    |  8      |                              | 3.45300    |   | 27 |   | — |   |
| **Debt**                                       |       |                                   |         |                              |       |   |   |   |   |   |
| Notes –  Principal                        |       | US$                                    |  199    |                              | 3.45300    |   | 688 |   | 859 |   |
| ** **                                     |       | EURO                                   | —       |                              | —     |   | — |   | 799 |   |
|                                           |       | ¥                                 |         | —                            |       | — |   | — |   | 111 |   |
| Banks loans and  others – Principal       |       | US$                               | —       |                              | —     |   | — |   | 5 |   |
| Gain on  discounting of debt                   |       | US$                               | —       |                              | —     |   | — |   | (8 | ) |
| ** **                                     |       | EURO                                   | —       |                              | —     |   | — |   | (45 | ) |
| ** **                                     |       | ¥                                 |         | —                            |       | — |   | — |   | (9 | ) |
| **Taxes  payable**                             |       |                                   |         |                              |       |   |   |   |   |   |
| Deferred tax  liabilities (assets)             |       | G                                      | (1,615       | )                                 | 0.0006976  |   | (1 | ) | 2 |   |
| **Other  liabilities**                         |       |                                   |         |                              |       |   |   |   |   |   |
| Deferred revenue  on sale of capacity          |       | US$                                    |  25     |                              | 3.45300    |   | 86 |   | 60 |   |
| Others                                         |       | US$                                    |  1      |                              | 3.45300    |   | 2 |   | — |   |
| **Total  liabilities**                         |       |                                   |         |                              |       | ** ** | **$** | **3,022** | ** ** | **$** | ** ****3,848** | ** ** |

 

----

(i) US$ = United Statesdollars; G= Guaranies; ¥ = Japanese Yen; SDR= Special Drawing Rights.

 

F-72

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Tableof Contents

 

**16.****                             ****Other financial statementinformation (continued)**

 

**(h) Expenses**

 
| ** **                                                       | ** ** | **Expenses**           | ** ** | ** **                       | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|----------------------------------|------------|
| ** **                                                       | ** ** | **Cost of   services** | ** ** | **General  and  administrative** | ** ** | **Selling** | ** ** | **Year  ended   December 31, 2008** | ** ** |
| Salaries and social security                                     |       | $                      | 548        |                             | $          | 208 |   | $ | 488 |   | $ | **1,244** |   |
| Recoverable costs                                                |       | (9                     | )          | (3                               | )          | (5 | ) | **(17** | **)** |
| Capitalized costs                                                |       | (1                     | )          | (9                               | )          | — | ** ** | **(10** | **)** |
| Depreciation of fixed assets                                     |       | 1,129                  |       | 32                               |       | 106 | ** ** | **1,267** | ** ** |
| Amortization of intangible assets                                |       | 16                     |       | 1                                |       | 5 | ** ** | **22** | ** ** |
| Taxes                                                            |       | 316                    |       | 9                                |       | 65 | ** ** | **390** | ** ** |
| Turnover tax                                                     |       | 435                    |       | —                           |       | — | ** ** | **435** | ** ** |
| Maintenance, materials and supplies                              |       | 438                    |       | 17                               |       | 86 | ** ** | **541** | ** ** |
| Bad debt expense                                                 |       | —                 |       | —                           |       | 67 | ** ** | **67** | ** ** |
| Interconnection costs                                            |       | 156                    |       | —                           |       | — | ** ** | **156** | ** ** |
| Cost of international outbound calls                             |       | 145                    |       | —                           |       | — | ** ** | **145** | ** ** |
| Lease of circuits                                                |       | 124                    |       | —                           |       | — | ** ** | **124** | ** ** |
| Fees for services                                                |       | 81                     |       | 70                               |       | 238 | ** ** | **389** | ** ** |
| Advertising                                                      |       | —                 |       | —                           |       | 388 | ** ** | **388** | ** ** |
| Agent commissions and distribution of prepaid cards  commissions |       | —                 |       | —                           |       | 769 | ** ** | **769** | ** ** |
| Other commissions                                                |       | —                 |       | —                           |       | 159 | ** ** | **159** | ** ** |
| Roaming                                                          |       | 177                    |       | —                           |       | — | ** ** | **177** | ** ** |
| Charges for TLRD                                                 |       | 764                    |       | —                           |       | — | ** ** | **764** | ** ** |
| Cost of voice, Internet and data equipment sales                 |       | 38                     |       | —                           |       | — | ** ** | **38** | ** ** |
| Cost of directories publishing                                   |       | 13                     |       | —                           |       | — | ** ** | **13** | ** ** |
| Transportation and freight                                       |       | 22                     |       | 15                               |       | 138 | ** ** | **175** | ** ** |
| Insurance                                                        |       | 3                      |       | 3                                |       | 3 | ** ** | **9** | ** ** |
| Energy, water and others                                         |       | 59                     |       | 7                                |       | 13 | ** ** | **79** | ** ** |
| Rental expense                                                   |       | 44                     |       | 16                               |       | 24 | ** ** | **84** | ** ** |
| International and satellite connectivity                         |       | 55                     |       | —                           |       | — | ** ** | **55** | ** ** |
| Others                                                           |       | 107                    |       | 2                                |       | 7 | ** ** | **116** | ** ** |
| **Total**                                                        | ** ** | **$**                  | **4,660**  | ** **                       | **$**      | **368** | ** ** | **$** | **2,551** | ** ** | **$** | **7,579** | ** ** |

 
| ** **                                                       | ** ** | **Expenses**           | ** ** | ** **                        | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|-----------------------------------|------------|
| ** **                                                       | ** ** | **Cost of   services** | ** ** | **General  and   administrative** | ** ** | **Selling** | ** ** | **Year  ended   December 31, 2007** | ** ** |
| Salaries and social security                                     |       | $                      | 433        |                              | $          | 170 |   | $ | 387 |   | $ | **990** |   |
| Recoverable costs                                                |       | (9                     | )          | (3                                | )          | (6 | ) | **(18** | **)** |
| Capitalized costs                                                |       | (1                     | )          | (11                               | )          | — | ** ** | **(12** | **)** |
| Depreciation of fixed assets                                     |       | 1,230                  |       | 28                                |       | 119 | ** ** | **1,377** | ** ** |
| Amortization of intangible assets                                |       | 35                     |       | 1                                 |       | 3 | ** ** | **39** | ** ** |
| Taxes                                                            |       | 241                    |       | 4                                 |       | 45 | ** ** | **290** | ** ** |
| Turnover tax                                                     |       | 370                    |       | —                            |       | — | ** ** | **370** | ** ** |
| Maintenance, materials and supplies                              |       | 358                    |       | 16                                |       | 73 | ** ** | **447** | ** ** |
| Bad debt expense                                                 |       | —                 |       | —                            |       | 71 | ** ** | **71** | ** ** |
| Interconnection costs                                            |       | 151                    |       | —                            |       | — | ** ** | **151** | ** ** |
| Cost of international outbound calls                             |       | 138                    |       | —                            |       | — | ** ** | **138** | ** ** |
| Lease of circuits                                                |       | 101                    |       | —                            |       | — | ** ** | **101** | ** ** |
| Fees for services                                                |       | 59                     |       | 73                                |       | 168 | ** ** | **300** | ** ** |
| Advertising                                                      |       | —                 |       | —                            |       | 306 | ** ** | **306** | ** ** |
| Agent commissions and distribution of prepaid cards  commissions |       | —                 |       | —                            |       | 704 | ** ** | **704** | ** ** |
| Other commissions                                                |       | —                 |       | 1                                 |       | 129 | ** ** | **130** | ** ** |
| Roaming                                                          |       | 151                    |       | —                            |       | — | ** ** | **151** | ** ** |
| Charges for TLRD                                                 |       | 609                    |       | —                            |       | — | ** ** | **609** | ** ** |
| Cost of voice, Internet and data equipment sales                 |       | 18                     |       | —                            |       | — | ** ** | **18** | ** ** |
| Cost of directories publishing                                   |       | 2                      |       | —                            |       | — | ** ** | **2** | ** ** |
| Transportation and freight                                       |       | 16                     |       | 9                                 |       | 117 | ** ** | **142** | ** ** |
| Insurance                                                        |       | 2                      |       | 4                                 |       | 5 | ** ** | **11** | ** ** |
| Energy, water and others                                         |       | 55                     |       | 6                                 |       | 7 | ** ** | **68** | ** ** |
| Rental expense                                                   |       | 37                     |       | 13                                |       | 17 | ** ** | **67** | ** ** |
| International and satellite connectivity                         |       | 33                     |       | —                            |       | — | ** ** | **33** | ** ** |
| Others                                                           |       | 69                     |       | 2                                 |       | 7 | ** ** | **78** | ** ** |
| **Total**                                                        | ** ** | **$**                  | **4,098**  | ** **                        | **$**      | **313** | ** ** | **$** | **2,152** | ** ** | **$** | **6,563** | ** ** |

 

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**16.****                             ****Other financial statementinformation (continued)**

 
| ** **                                                       | ** ** | **Expenses**          | ** ** | ** **                        | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|-----------------------------------|------------|
| ** **                                                       | ** ** | **Cost of  services** | ** ** | **General  and   administrative** | ** ** | **Selling** | ** ** | **Year  ended   December 31, 2006** | ** ** |
| Salaries and social security                                     |       | $                     | 383        |                              | $          | 141 |   | $ | 315 |   | $ | **839** |   |
| Capitalized costs                                                |       | —                |       | (10                               | )          | — | ** ** | **(10** | **)** |
| Depreciation of fixed assets                                     |       | 1,183                 |       | 42                                |       | 117 | ** ** | **1,342** | ** ** |
| Amortization of intangible assets                                |       | 46                    |       | —                            |       | 3 | ** ** | **49** | ** ** |
| Taxes                                                            |       | 213                   |       | 2                                 |       | 36 | ** ** | **251** | ** ** |
| Turnover tax                                                     |       | 288                   |       | —                            |       | — | ** ** | **288** | ** ** |
| Maintenance, materials and supplies                              |       | 229                   |       | 13                                |       | 75 | ** ** | **317** | ** ** |
| Bad debt expense                                                 |       | —                |       | —                            |       | 63 | ** ** | **63** | ** ** |
| Interconnection costs                                            |       | 159                   |       | —                            |       | — | ** ** | **159** | ** ** |
| Cost of international outbound calls                             |       | 111                   |       | —                            |       | — | ** ** | **111** | ** ** |
| Lease of circuits                                                |       | 56                    |       | —                            |       | — | ** ** | **56** | ** ** |
| Fees for services                                                |       | 63                    |       | 56                                |       | 140 | ** ** | **259** | ** ** |
| Advertising                                                      |       | —                |       | —                            |       | 225 | ** ** | **225** | ** ** |
| Agent commissions and distribution of prepaid cards  commissions |       | —                |       | —                            |       | 548 | ** ** | **548** | ** ** |
| Other commissions                                                |       | —                |       | 2                                 |       | 111 | ** ** | **113** | ** ** |
| Roaming                                                          |       | 137                   |       | —                            |       | — | ** ** | **137** | ** ** |
| Charges for TLRD                                                 |       | 445                   |       | —                            |       | — | ** ** | **445** | ** ** |
| Cost of voice, Internet and data equipment sales                 |       | 26                    |       | —                            |       | — | ** ** | **26** | ** ** |
| Transportation and freight                                       |       | 16                    |       | 7                                 |       | 60 | ** ** | **83** | ** ** |
| Insurance                                                        |       | 3                     |       | 4                                 |       | 5 | ** ** | **12** | ** ** |
| Energy, water and others                                         |       | 43                    |       | 5                                 |       | 13 | ** ** | **61** | ** ** |
| Rental expense                                                   |       | 44                    |       | 3                                 |       | 3 | ** ** | **50** | ** ** |
| International and satellite connectivity                         |       | 27                    |       | —                            |       | — | ** ** | **27** | ** ** |
| Others                                                           |       | 49                    |       | 2                                 |       | 3 | ** ** | **54** | ** ** |
| **Total**                                                        | ** ** | **$**                 | **3,521**  | ** **                        | **267**    | ** ** | **1,717** | ** ** | **5,505** | ** ** |
|                                                                  |            |                       |            |                                   |            |  |  |  |  |  |  |  |  |

 

**(i) Agingof assets and liabilities**

** **
| **Date due**                               | ** ** | **Investments** | ** ** | **Accounts  receivable** | ** ** | **Other   receivables** | ** ** | **Accounts    payable** | ** ** | **Debt**   | ** ** | **Salaries    and social   security   payable** | ** ** | **Taxes   payable** | ** ** | **Other   liabilities** | ** ** |
|--------------------------------------------|------------|-----------------|------------|--------------------------|------------|-------------------------|------------|-------------------------|------------|------------|------------|-------------------------------------------------|------------|---------------------|------------|-------------------------|------------|
| **Total due**                              | ** ** | **—**      | ** ** | **332**                  | ** ** | **—**              | ** ** | **(a)**                 | **52**     | ** ** | **—** | ** **                                      | **—** | ** **          | **—** | ** **              | **—** | ** ** |
| **Not due**                                | ** ** | ** **      |       |                     |       |                    |       |                    |       |       |       |                                            |       |                |       |                    |       |
| First  quarter 2009                        |       | 1,089           |       | 677                      |       | 149                     |       | 1,699                   |       | 63         |       | 114                                             |       | 323                 |       | 30                      |       |
| Second  quarter 2009                       |       | —          |       | —                   |       | 24                      |       | 14                      |       | 374        |       | 43                                              |       | 295                 |       | 8                       |       |
| Third  quarter 2009                        |       | —          |       | —                   |       | 14                      |       | 2                       |       | —     |       | 34                                              |       | —              |       | 4                       |       |
| Fourth  quarter 2009                       |       | —          |       | —                   |       | 14                      |       | 2                       |       | 918        |       | 46                                              |       | —              |       | 4                       |       |
| January 2010  thru December 2010 |       | 6               |       | —                   |       | 71                      |       | 7                       |       | 688        |       | 22                                              |       | —              |       | 12                      |       |
| January 2011  thru December 2011 |       | —          |       | —                   |       | 10                      |       | 20                      |       | —     |       | 17                                              |       | —              |       | 11                      |       |
| January 2012  and thereafter          |       | —          |       | —                   |       | 6                       |       | —                  |       | —     |       | 44                                              |       | —              |       | 86                      |       |
| No  date due established                   |       | 1               |       | —                   |       | —                  |       | —                  |       | —     |       | —                                          |       | 224                 |       | 37                      |       |
| **Total not due**                          | ** ** | **1,096**       | ** ** | **677**                  | ** ** | **288**                 | ** ** | **1,744**               | ** ** | **2,043**  | ** ** | **320**                                         | ** ** | **842**             | ** ** | **192**                 | ** ** |
| **Total as of December 31, 2008**     | ** ** | **1,096**       | ** ** | **1,009**                | ** ** | **288**                 | ** ** | **1,796**               | ** ** | **2,043**  | ** ** | **320**                                         | ** ** | **842**             | ** ** | **192**                 | ** ** |
|                                       |       |            |       |                     |       |                    |       |                    |       |       |       |                                            |       |                |       |                    |       |
| **Balances bearing interest**              |       | 1,095           |       | 331                      |       | —                  |       | —                  |       | 2,043      |       | —                                          |       | —              |       | 14                      |       |
| **Balances not bearing interest**          |       | 1               |       | 678                      |       | 288                     |       | 1,796                   |       | —     |       | 320                                             |       | 842                 |       | 178                     |       |
| **Total**                                  | ** ** | **1,096**       | ** ** | **1,009**                | ** ** | **288**                 | ** ** | **1,796**               | ** ** | **2,043**  | ** ** | **320**                                         | ** ** | **842**             | ** ** | **192**                 | ** ** |
|                                       |       |            |       |                     |       |                    |       |                    |       |       |       |                                            |       |                |       |                    |       |
| **Average annual interest rate (%)**       | ** ** | **4.19**        | ** ** | **(b**                   | **)**      | **—**              | ** ** | **—**              | ** ** | **(c**     | **)**      | **—**                                      | ** ** | **—**          | ** ** | **6.00**                | ** ** |
|                                            |            |                 |            |                          |            |                         |            |                         |            |            |            |                                                 |            |                     |            |                         |            |  |

 

----

| (a) |   | At the date of issuance  of these consolidated financial statements, $38 has been cancelled.                                                                                                 |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) |   | $45 bear 50% over the  Banco Nación Argentina 30-day interest rate paid by banks, $123 bear 50% over  the Banco Nación Argentina notes payable discount rate and $163 bear 28.46%. |
| (c) |   | See Note 8.                                                                                                                                                                                  |

 

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Tableof Contents

 

**17.****                    ****Subsequent events**

 

·                  ***Derivatives related toTelecom’s Notes***

 

In January 2009, the Company entered into two derivative contracts(an Euro “Zero Cost Collar” and a yen NDF, both maturing in April 2009) assupplementary of the contracts mentioned in Note 4.t.2.a, to hedge its exposureto foreign currency fluctuations with respect to the Euro and Japaneseyen-denominated Notes. The terms of the contracts are related to: i) thepurchase of a “Call Option” for an amount of € 80.3 million and the sell of a “PutOption” for an equal amount, with a strike price of 1.36 US$/€ and 1.2795US$/€, respectively; and ii) the purchase of a total amount of Japanese yen5,120 million for a fixed forward price of 88.88 Yen/US$.

 

·                  ***Purchase of Notes ofPersonal***

 

As of the date of issuance of these consolidated financial statements,Personal purchased Notes pursuant to market purchase transactions, acquiring anaggregate principal nominal amount of US$ 3,968,000 of Series 3 MediumTerm Notes due 2010. The Notes acquired were cancelled according with the termsand conditions of the respective Indentures.

 

·                  ***Nucleo’s new loans***

 

In February 2009, Nucleo has renewed two loans with banks withoperations in Paraguay for: (i) a total amount of Guaranies 12,000 million(equivalent to $8) with a maturity date of five months and a payment of accruedinterests that shall be made quarterly and (ii) a total amount ofGuaranies 12,300 million (equivalent to $9) with a maturity date of twelvemonths and a payment of accrued interests that shall be made monthly.Additionally, Nucleo has entered into a new loan for a total amount ofGuaranies 12,000 million (equivalent to $8) with a maturity date of six monthsand a payment of accrued interests that shall be made quarterly.

 

F-75

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Table ofContents

 

**EXHIBIT INDEX**

 
| 1.1    | * * | *Estatutos* (bylaws) of  Telecom Argentina, as amended, which include its corporate charter  (incorporated by reference to Exhibit 3.1 to Telecom’s registration  statement on Form F-1 (No. 333-111790)).                                                                                                                                                                                                                                |
|--------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 1.2    | * * | *Estatutos* (bylaws) of  Telecom Argentina, as amended, which include its corporate charter (English  translation) (incorporated by reference to Exhibit 3.2 to Telecom’s  registration statement on Form F-1 (No. 333-111790)).                                                                                                                                                                                                          |
|   | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.1    |     | Indenture  dated August 31, 2005 between Telecom Argentina S.A. as Issuer and The  Bank of New York as Trustee, Registrar, Paying Agent and Transfer Agent  (incorporated by reference to Telecom’s report on Form 6-K dated  January 27, 2006).                                                                                                                                                                                          |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.2    |     | First  Supplemental Indenture, dated as of March 27, 2006, between Telecom  Argentina S.A. as Issuer and The Bank of New York as Trustee, Registrar,  Paying Agent and Transfer Agent for Series A Notes due 2014 and  Series B Notes due 2011 (incorporated by reference to Telecom’s report  on Form 6-K dated April 12, 2006).                                                                                               |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.3    |     | Indenture  dated December 22, 2005 between Telecom Personal S.A. as Issuer,  JPMorgan Chase Bank, N.A. as Trustee, Co-Registrar, New York Paying Agent and  New York Transfer Agent, JPMorgan Bank Luxembourg S.A. as Luxembourg Paying  Agent and Transfer Agent, Banco Río de la Plata S.A., as Argentina Paying  Agent and Transfer Agent and Registrar and JPMorgan Chase Bank N.A., Sucursal  Buenos Aires, as Trustee’s Representative*. |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1    |     | Deposit  Agreement, dated November 8, 1994, as amended (incorporated by reference  to Telecom’s registration statement on Form F-6 (No. 333-86048)).                                                                                                                                                                                                                                                                                      |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 8.1    |     | List  of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 11.1   |     | Code  of Business Conduct and Ethics of Telecom (incorporated by reference to  Telecom’s annual report on Form 20-F for 2004 dated June 29, 2005).                                                                                                                                                                                                                                                                                             |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 11.2   |     | Code  of Business Conduct and Ethics of Telecom (English translation) (incorporated  by reference to Telecom’s annual report on Form 20-F for 2004 dated  June 29, 2005).                                                                                                                                                                                                                                                                      |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 12.1   |     | Certification  of Franco Bertone of Telecom Argentina S.A. pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                   |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 12.2   |     | Certification  of Valerio Cavallo of Telecom Argentina S.A. pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                  |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 13.1   |     | Certification  of Franco Bertone and Valerio Cavallo pursuant to U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                        |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 15.1   |     | Shareholders’  Agreement between Telecom Italia International, N.V. and W de Argentina–Inversiones  S.L., dated September 9, 2003 (incorporated by reference to  Exhibit 4.3 to Nortel’s Annual Report on Form 20-F for 2003).                                                                                                                                                                                                  |

 

*                 Pursuant toInstruction 1(b)(i) to Item 19 of Form 20-F,we undertake to furnish this document upon request of the Commission.

 

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