Table of Contents

 

**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, 2009** |
| ** ** | ** **                                                                                                                                                      |
| **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: 54-11-4968-3743, Fax: 54-11-4968-3616,  E-mail: pinsussa@ta.telecom.com.ar,**

**Alicia Moreau de Justo 50, 10th 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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**TABLE OF CONTENTS**

 
| ** **                            | ** **                                                                    | **Page** |
|---------------------------------------|-------------------------------------------------------------------------------|----------|
|                                  |                                                                          |     |
| PRESENTATION OF FINANCIAL INFORMATION | ii                                                                            |
| FORWARD-LOOKING STATEMENTS            | iii                                                                           |
| GLOSSARY OF TERMS                     | iv                                                                            |
|                                  |                                                                          |
| PART I                           |
|                                  |
| ITEM 1.                               | IDENTITY OF  DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        | 1        |
| ITEM 2.                               | OFFER  STATISTICS AND EXPECTED TIMETABLE                                      | 1        |
| ITEM 3.                               | KEY INFORMATION                                                               | 1        |
| ITEM 4.                               | INFORMATION ON  THE COMPANY                                                   | 18       |
| ITEM 4A.                              | UNRESOLVED STAFF  COMMENTS                                                    | 50       |
| ITEM 5.                               | OPERATING  AND FINANCIAL REVIEW AND PROSPECTS                                 | 50       |
| ITEM 6.                               | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES                                   | 97       |
| ITEM 7.                               | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 110      |
| ITEM 8.                               | FINANCIAL INFORMATION                                                         | 114      |
| ITEM 9.                               | THE OFFER AND LISTING                                                         | 128      |
| ITEM  10.                             | ADDITIONAL  INFORMATION                                                       | 131      |
| ITEM 11.                              | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 143      |
| ITEM 12.                              | DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 146      |
|                                  |                                                                          |     |
| PART II                          |
|                                  |
| ITEM 13.                              | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES                              | 147      |
| ITEM 14.                              | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 147      |
| ITEM 15.                              | CONTROLS AND  PROCEDURES                                                      | 147      |
| ITEM 16A.                             | AUDIT  COMMITTEE FINANCIAL EXPERT                                             | 147      |
| ITEM 16B.                             | CODE OF ETHICS                                                                | 148      |
| ITEM 16C.                             | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       | 148      |
| ITEM 16D.                             | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 149      |
| ITEM 16E.                             | PURCHASES  OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS      | 150      |
| ITEM 16F.                             | CHANGE IN  REGISTRANT’S CERTIFYING ACCOUNTANT                            | 150      |
| ITEM 16G.                             | CORPORATE  GOVERNANCE                                                         | 150      |
|                                  |                                                                          |     |
| PART III                         |
|                                  |
| ITEM 17.                              | FINANCIAL  STATEMENTS                                                         | 152      |
| ITEM 18.                              | FINANCIAL  STATEMENTS                                                         | 152      |
| ITEM 19.                              | EXHIBITS                                                                      | 152      |

 

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**PRESENTATION OF FINANCIALINFORMATION**

 

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 ofDecember 31, 2009, unless otherwise indicated.

 

Theterm “Telecom Argentina” refers to Telecom Argentina S.A. excluding itssubsidiaries, as of December 31, 2009, Telecom Personal S.A., NúcleoS.A., Springville S.A., Telecom Argentina USA, Inc. and Micro SistemasS.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.

 

*Consolidated Financial Statements*. Our Consolidated FinancialStatements as of December 31, 2009 and 2008 and for the years endedDecember 31, 2009, 2008 and 2007, and the notes thereto (the “ConsolidatedFinancial Statements”) are set forth on pages F-1 through F-72 of thisAnnual Report.

 

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.

 

*Exchange Rates*. In this Form 20-F, except as otherwisespecified, references to “US$” and “dollars” are to U.S. dollars and referencesto “P$” and “pesos” are to Argentine pesos. The exchange rate between thedollar and the peso as of December 31, 2009 was P$3.800=US$1.00. Prior toJanuary 6, 2002, the exchange rate had been fixed at one peso per U.S.dollar in accordance with the Convertibility Law during the periodApril 1, 1991 through January 6, 2002. However, as a result of theelimination of the fixed exchange rate and the devaluation of the peso, theexchange rate between the dollar and the peso has since declined substantially.As of June 25, 2010, the exchange rate (ask price) was P$3.93=US$1.00.Unless otherwise indicated, our Consolidated Financial Statements use theexchange rate as of each relevant date or year-end quoted by Banco de la NaciónArgentina (“Banco Nación”). Such translation should not be construed asrepresenting that the peso amounts actually represent actual dollar amounts orthat any person could convert the peso amounts into dollars at the rateindicated or at any other exchange rate. For more information regardinghistorical exchange rates and the peso, see “Item 3—Key Information—ExchangeRates.”

 

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 and subsequentrelated 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 and prepaymentsof 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 current expectations, estimatesand projections of our management and information currently available to theTelecom Group. These statements include, but are not limited to, statementsmade in “Item 5— Operating and Financial Review and Prospects” under thecaptions “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 involvecertain risks and uncertainties that are difficult to predict. In addition,certain forward-looking statements are based upon assumptions as to futureevents that may not prove to be accurate.

 

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

 

·      uncertainties relating to political and economicconditions in Argentina;

 

·      inflation, the devaluation of the peso and exchangerate risks;

 

·      restrictions on the ability to exchange pesos intoforeign currencies and transfer funds abroad;

 

·      the elimination of indexes to adjust rates chargedfor certain public services;

 

·      the final results of the contract renegotiationprocess with the Argentine government regarding the adjustment to our regulatedrates charged for public services;

 

·      the creditworthiness of our actual or potentialcustomers;

 

·      nationalization;

 

·      technological changes;

 

·      the impact of legal or regulatory matters or reformand 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 our actual results, performance orachievements to differ materially from our 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.

 

*Access charge:* Amount paid per minute charged by network operators for the use of theirnetwork by other network operators.

 

*Access deficit:*  Theportion of costs related to the access network that are not covered by therevenues generated by the use or availability of subscribers connected to suchnetwork.

 

*Access network:*  Theelements that allow the connection of each subscriber to the correspondinglocal switch. They consist of the termination point, elements of outside plantand specific parts of the local switching equipment that make available thepermanent connection from the termination point to the local switch.

 

*ADS:*  TelecomArgentina’s American Depositary Share, listed on the New York Stock Exchange,each representing 5 Class B Shares.

 

*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 (AdministraciónFederal 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 (Area Metropolitana Buenos Aires):*  The area of the Federal District (or BuenosAires city) and greater Buenos Aires (Gran Buenos Aires), which extends to thecity of La Plata to the South, the city of Campana to the North, the city ofGeneral Rodríguez to the West and the city of Monte Grande to the Southwest.

 

*Analog:*  A mode oftransmission or switching which is not digital, e.g., the representation ofvoice, video or other modulated electrical audio signals which are not indigital form.

 

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

 

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

 

*Argentina:*  Republic ofArgentina.

 

*Argentine Bankruptcy Law:*  Law No. 24,522, as amended.

 

*Argentine GAAP:* Generally Accepted Accounting Principles in Argentina.

 

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*ARPU (Average Revenue per User):*  Calculated by dividing total revenueexcluding mainly handset, outcollect (wholesale) roaming, cell site rental andactivation fee revenue by weighted-average number of subscribers during theperiod.

 

*Basic telephone services: *The supply offixed telecommunications links which form part of the public telephone network,or are connected to such network, and the provision of local and long-distancetelephone service (domestic and international).

 

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

 

*CAT:*  CompañíaArgentina de Teléfonos S.A.

 

*Cellular service:*  Awireless telephone service provided by means of a network of interconnectedlow-powered base stations, each of which covers one small geographic cellwithin the total cellular 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 public telephone services are offered.

 

*CNC (Comisión Nacional deComunicaciones):*  The Argentine National CommunicationsCommission.

 

*CNDC (Comisión Nacional deDefensa de la Competencia):*  Argentine Antitrust 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*:  TelecomArgentina S.A. and its consolidated subsidiaries.

 

*Concurso preventivo:*  A voluntary reorganization proceedinggoverned by Argentine law.

 

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

 

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

 

*CPP (Calling Party Pays):*  The system whereby the party placing a callto a wireless phone rather than the wireless subscriber pays for the air timecharges for the call.

 

*Cubecorp:*  CubecorpArgentina S.A.

 

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

 

*Digital:*  A mode ofrepresenting a physical variable such as speech using digits 0 and 1 only. Thedigits are transmitted in binary form as a series of pulses. Digital networksallow for higher capacity and higher flexibility through the use ofcomputer-related technology for the transmission and manipulation of telephone calls.Digital systems offer lower noise interference and can incorporate encryptionas a protection from external interference.

 

*FACPCE (FederaciónArgentina de Consejos Profesionales en Ciencias Económicas):*  ArgentineFederation of Professional Councils of Economic Sciences.

 

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*FCR:*  FranceCables et Radio S.A.

 

*France Telecom Group*: We refer to FCR and AtlasServices Belgium S.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.

 

*Fiber Optic:*  Atransmission medium which permits extremely high capacities. It consists of athin strand of glass that provides a pathway along which waves of light cantravel for telecommunications purposes.

 

*Free Pulses:*  The numberof Free 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 thirdgeneration services.

 

*IFRS*: International Financial Reporting Standards, as issued by theInternational Accounting Standards Board.

 

*Internet:*  A collectionof interconnected networks spanning the entire world, including university,corporate, government and research networks from around the globe. Thesenetworks all use the IP (Internet Protocol) communications protocol.

 

*Issuance Date:*  Thedate of issuance and delivery of the notes, cash consideration and cashinterest payments 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 of Conditions:*  The Privatization Regulations, including the *Pliego de Bases y Condiciones* was approved by Decree No. 62/90,as amended. Pursuant to the List of Conditions, Telecom Argentina was requiredto comply with rate regulations and meet certain minimum annual standardsregarding the expansion of its telephone system and improvements in the qualityof its service in order to maintain and extend the exclusivity of itsnon-expiring license to provide fixed-line public telecommunications servicesand Basic telephone services in the northern region of Argentina. After themarket was opened to competition, the outstanding obligations that continue inforce are the rate regulations and those related to the quality of service; theobligations related to the expansion of the network are no longer required.

 

*Microsistemas:*  Micro SistemasS.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.

 

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*Network:*  Aninterconnected collection of elements. In a telephone network, these consist ofSwitches connected to each other and to consumer equipment for the transmissionof data. The transmission equipment may be based on Fiber Optic or metalliccable or point-to-point radio connectors.

 

*NGN (Next Generation Networks):*  A packet-based network able to provideservices including telecommunication services and able to make use of multiplebroadband, 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 rateswere pesified at the exchange rate of US$1.00 = P$1.00. See “Item 4—Informationon the Company—Regulatory Framework—Regulatory Environment—Rates.”

 

*Núcleo*:  Núcleo S.A.

 

*PCS (Personal Communications Service):*  A wireless communications service withsystems that operate in a manner similar to cellular systems.

 

*Penetration:*  Themeasurement of the take-up of services. As of any date, the Penetration iscalculated by dividing the number of subscribers by the population of the regionand expressed as a percentage.

 

*Personal*:  TelecomPersonal S.A.

 

*Pesification:* Modification of the exchange rate by the Argentine government pursuantto the Public Emergency Law.

 

*Presubscription of Long-Distance Service:*  The selection by the customer ofinternational and domestic long-distance telecommunications services from along-distance telephone service operator.

 

*Price Cap:*  Rateregulation mechanism applied in order to determine rate discounts based on aformula made 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.

 

*Privatization Regulations:*  The Argentine government’s privatizationprogram as set forth in the State Reform Law approved in August 1989 andsubsequent decrees.

 

*Public Emergency Law:*  The Public Emergency and Foreign ExchangeSystem Reform Law No. 25,561 adopted by the Argentine government onJanuary 6, 2002, as amended by Law No. 25,790, Law No. 25,820,Law No. 25,972, Law No. 26,077, Law No. 26,204, LawNo. 26,339, Law No. 26,456 and Law No. 26,563. Among others, thePublic Emergency Law grants the executive branch of the Argentine governmentthe power to set the exchange rate between the peso and foreign currencies andto issue regulations related to the foreign exchange market and to renegotiatepublic service agreements.

 

*Pulse:*  Unit onwhich the rate structure of the regulated fixed line services is based.

 

*Rate Agreement:*  TheNovember Agreement, as supplemented by the February Agreement. TheRate Agreement, among other things, permits Telecom Argentina to effectaggregate rate reductions required pursuant to the List of Conditions bylowering rates for some or all categories of service, *provided*that the net reductions meet applicable targets.

 

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

 

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*Regulatory Bodies:*  Collectively, the SC and the CNC.

 

*RT:*  Technicalresolutions issued by the FACPCE. As of December 31, 2009, the RTeffective and which applied to the Company were: 6, 7, 8, 9, 14, 15, 16, 17,18, 21, 23 and 26.  These collectivetechnical resolutions constitute Argentine GAAP, with the exception of RT 7which establishes the auditing rules and RT 15 which regulates the role ofthe public accountant. In addition, RT 17 establishes that specific measurementquestions not addressed by existing RTs must be resolved by applying generalaccounting measurement rules, the Argentine GAAP conceptual framework, IFRS,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:*  Satellitesare used, among other things, for links with countries that cannot be reachedby cable to provide an alternative to cable and to form closed user networks.

 

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

 

*SCI (Secretaría de Comercio Interior):*  Secretary of Internal Commerce.

 

*SEC:*  Securitiesand Exchange Commission of the United States of America.

 

*Sofora:*  SoforaTelecomunicaciones S.A.

 

*Springville:*  SpringvilleS.A.

 

*SRC:*  SubscriberRetention Costs.

 

*SRMC (Servicios deRadiocomunicaciones Móviles Celular):*  Mobile CellularRadiocommunications Service.

 

*STM (Servicio TelefónicoMóvil):*  Mobile Telephone Service.

 

*Switches:*  These areused to set up and route telephone calls either to the number called or to thenext switch along the path. They may also record information for billing andcontrol 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.

 

*Telco S.p.A.*:  A jointcompany 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).

 

*Telecom/Telecom Group*:  Telecom Argentina and its consolidatedsubsidiaries.

 

*Telecom Argentina*:  TelecomArgentina S.A.

 

*Telecom Italia:*  Telecom ItaliaS.p.A.

 

*Telecom Italia Group:*  Telecom Italia and its consolidatedsubsidiaries, except where referring to the Telecom Italia Group as TelecomArgentina’s operator in which case it means Telecom Italia and Telecom ItaliaInternational, N.V.

 

*Telecom Personal*:  TelecomPersonal S.A.

 

*Telefónica:*  Telefónica deArgentina S.A.

 

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

 

*Telintar:* Telecomunicaciones Internacionales de ArgentinaTelintar S.A.

 

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

 

*Transfer Date:* November 8, 1990, the date upon which Telecom Argentina commencedoperations upon the transfer from the Argentine government of thetelecommunications system in the northern region of Argentina that waspreviously owned and operated by *Empresa Nacional deTelecomunicaciones*.

 

*UNIREN (Unidad deRenegociación y Análisis de Contratos de Servicios Públicos):* Renegotiation and Analysis of Contracts of PublicServices Division.

 

*Universal Service:*  The availability of Basic telephone service,or access to the public telephone network via different alternatives, at anaffordable price to all persons within a country or specified area.

 

*US GAAP:*  GenerallyAccepted Accounting Principles in the United States of America.

 

*Value Added Services:*  Services that provide additionalfunctionality to the basic transmission services offered by atelecommunications network such as voicemail, message signaling, caller-ID,call transferring, call waiting, call conferencing, IVR dialing, ring backtones, personal e-cards, short message systems (SMS), national andinternational roaming, automatic call routing, access to wireless internet andaccess to email via BlackBerry.

 

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

 

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**PART I**

 

**ITEM 1.                  IDENTITY OF DIRECTORS, SENIORMANAGEMENT AND ADVISERS**

 

Notapplicable.

 

**ITEM 2.                  OFFER STATISTICS AND EXPECTEDTIMETABLE**

 

Notapplicable.

 

**ITEM 3.                  KEY INFORMATION**

 

**SelectedFinancial Data**

 

Thefollowing tables set forth our selected consolidated financial data for each ofthe years in the five-year period ended December 31, 2009. 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 31,2009, 2008 and 2007 and the selected consolidated balance sheet data as of December 31,2009 and 2008 have been derived from our Consolidated Financial Statementsincluded elsewhere in this Annual Report. Our selected consolidated balancesheet data as of December 31, 2007 has been derived from our consolidatedfinancial statements as of December 31, 2007 and 2006 and for the threeyears in the period ended December 31, 2007, which are not included inthis Annual Report.

 

Ourselected consolidated income statement data for the years ended December 31,2006 and 2005 and our selected consolidated balance sheet data as of December 31,2006 and 2005 have been derived from our consolidated financial statements asof December 31, 2006 and 2005 and for the three years in the period ended December 31,2006. The consolidated financial statements as of December 31, 2006 and2005 and for the three years in the period ended December 31, 2006 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 Accounting Pronouncements*

 

InMarch 2009, the FACPCE approved Technical Resolution (“RT”) 26 “Adoptionof International Financial Reporting Standards”.  RT 26 adopts IFRS as issued by theInternational Accounting Standards Board (“IASB”) and states that the adoptionof IFRS is effective for publicly-listed companies beginning January 1,2011.

 

OnDecember 30, 2009, the CNV issued Resolution No. 562/09 (“RG 562/09”)adopting RT 26 of the FACPCE for certain public companies (as defined by Law No. 17,811— Regime for Public Offering).  RG 562/09requires public companies—such as Telecom Argentina—to prepare the financialstatements according to RT 26 for fiscal years beginning on or after January 1,2012, while early adoption is permitted for fiscal years beginning on or after January 1,2011.  Resolution No. 562/09 alsopermits the preparation of financial statements in accordance with IFRS asadditional information to a company’s statutory financial statements for thefiscal year beginning on or after January 1, 2010.  See Note 16 to our Consolidated FinancialStatements.

 

Asof the date of this Annual Report, the FACPCE is revising RT 26 in order toalign the effective date of RT 26 with RG 562/09.

 

*Supplementary Unconsolidated Financial Information*

 

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

 

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Table of Contents

 

**CONSOLIDATED SELECTED INCOME STATEMENT AND BALANCE SHEET DATA**

 
| ** **                                                                 | ** ** | **As of and for the Year Ended December 31,**        | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2009**                                                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                 | ** ** | **(P$ millions, except per share and per ADS data)** | ** ** |
| INCOME STATEMENT DATA                                                      |       |                                                      |       |   |   |   |   |   |   |   |   |
| *Argentine GAAP Amounts*                                                   | * *   | * *                                                  | * *   | * * | * * | * * | * * | * * | * * | * * | * * |
| Continuing operations                                                      |       |                                                      |       |   |   |   |   |   |   |   |   |
| Net sales                                                                  |       | 12,226                                                    |       | 10,608 |   | 9,074 |   | 7,372 |   | 5,668 |   |
| Cost of services and general, administrative and  selling expenses         |       | (9,464                                                    | )          | (8,567 | ) | (7,438 | ) | (6,478 | ) | (5,171 | ) |
| Operating income                                                           |       | 2,762                                                     |       | 2,041 |   | 1,636 |   | 894 |   | 497 |   |
| Other, net (1)                                                             |       | (560                                                      | )          | (545 | ) | (562 | ) | (685 | ) | (471 | ) |
| Gain on debt restructuring, net                                            |       | —                                                    |       | — |   | — |   | — |   | 1,424 |   |
| Income tax (expense) benefit, net                                          |       | (797                                                      | )          | (535 | ) | (292 | ) | 22 |   | (119 | ) |
| Net income from continuing operations                                      |       | 1,405                                                     |       | 961 |   | 782 |   | 231 |   | 1,331 |   |
| Discontinued operations (2)                                                |       |                                                      |       |   |   |   |   |   |   |   |   |
| Net income from discontinued operations                                    |       | —                                                    |       | — |   | 102 |   | 13 |   | 3 |   |
| Net income                                                                 |       | 1,405                                                     |       | 961 |   | 884 |   | 244 |   | 1,334 |   |
| Net income per share (3)                                                   |       | 1.43                                                      |       | 0.98 |   | 0.90 |   | 0.25 |   | 1.36 |   |
| Net income per ADS (4)                                                     |       | 7.14                                                      |       | 4.88 |   | 4.49 |   | 1.24 |   | 6.78 |   |
| *US GAAP Amounts (5)*                                                      | * *   | * *                                                  | * *   | * * | * * | * * | * * | * * | * * | * * | * * |
| Operating income                                                           |       | 2,596                                                     |       | 1,871 |   | 1,628 |   | 842 |   | 466 |   |
| Net income                                                                 |       | 1,241                                                     |       | 1,121 |   | 1,169 |   | 591 |   | 1,143 |   |
| Net income attributable to Telecom Argentina                               |       | 1,226                                                     |       | 1,109 |   | 1,148 |   | 572 |   | 1,138 |   |
| Net income attributable to Noncontrolling Interest                         |       | 15                                                        |       | 12 |   | 21 |   | 19 |   | 5 |   |
| Net income from continuing operations per share  (3)                       |       | 1.25                                                      |       | 1.13 |   | 1.06 |   | 0.57 |   | 1.16 |   |
| Net income from discontinued operations per share  (3)                     |       | —                                                    |       | — |   | 0.11 |   | 0.01 |   | — |   |
| Net income per share (3)                                                   |       | 1.25                                                      |       | 1.13 |   | 1.17 |   | 0.58 |   | 1.16 |   |
| Net income from continuing operations per ADS (4)                          |       | 6.23                                                      |       | 5.63 |   | 5.31 |   | 2.84 |   | 5.77 |   |
| Net income from discontinued operations per ADS  (4)                       |       | —                                                    |       | — |   | 0.52 |   | 0.07 |   | 0.01 |   |
| Net income per ADS (4)                                                     |       | 6.23                                                      |       | 5.63 |   | 5.83 |   | 2.91 |   | 5.78 |   |
|                                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |
| BALANCE SHEET DATA                                                         |       |                                                      |       |   |   |   |   |   |   |   |   |
| *Argentine GAAP Amounts*                                                   | * *   | * *                                                  | * *   | * * | * * | * * | * * | * * | * * | * * | * * |
| Current assets                                                             |       | 2,943                                                     |       | 2,600 |   | 2,384 |   | 1,767 |   | 1,542 |   |
| Fixed assets, net                                                          |       | 6,839                                                     |       | 6,188 |   | 5,738 |   | 5,739 |   | 5,958 |   |
| Total assets                                                               |       | 10,633                                                    |       | 9,657 |   | 9,171 |   | 8,720 |   | 8,563 |   |
| Current liabilities                                                        |       | 4,169                                                     |       | 4,069 |   | 3,643 |   | 3,373 |   | 2,206 |   |
| Current debt                                                               |       | 763                                                       |       | 1,355 |   | 1,474 |   | 1,395 |   | 905 |   |
| Non-current liabilities                                                    |       | 936                                                       |       | 1,487 |   | 2,419 |   | 3,146 |   | 4,449 |   |
| Non-current debt                                                           |       | 58                                                        |       | 688 |   | 1,724 |   | 2,703 |   | 3,996 |   |
| Noncontrolling Interest                                                    |       | 92                                                        |       | 81 |   | 79 |   | 72 |   | 41 |   |
| Common stock                                                               |       | 984                                                       |       | 984 |   | 984 |   | 984 |   | 984 |   |
| Total shareholders’ equity                                            |       | 5,436                                                     |       | 4,020 |   | 3,030 |   | 2,129 |   | 1,867 |   |
| Total liabilities, Noncontrolling Interest, and  shareholders’ equity |       | 10,633                                                    |       | 9,657 |   | 9,171 |   | 8,720 |   | 8,563 |   |
| *US GAAP Amounts (5)*                                                      | * *   | * *                                                  | * *   | * * | * * | * * | * * | * * | * * | * * | * * |
| Total assets                                                               |       | 10,637                                                    |       | 9,520 |   | 9,112 |   | 8,814 |   | 8,711 |   |
| Current liabilities                                                        |       | 4,153                                                     |       | 3,203 |   | 2,909 |   | 2,644 |   | 1,856 |   |
| Non-current liabilities                                                    |       | 1,009                                                     |       | 2,103 |   | 3,609 |   | 4,727 |   | 6,000 |   |
| Total Telecom shareholders’ equity                                    |       | 5,383                                                     |       | 4,133 |   | 2,538 |   | 1,387 |   | 819 |   |
| Noncontrolling Interest                                                    |       | 92                                                        |       | 81 |   | 56 |   | 56 |   | 36 |   |
| Total equity (6)                                                           |       | 5,475                                                     |       | 4,214 |   | 2,594 |   | 1,443 |   | 855 |   |

 

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(1)          Other, net includes gain on equity investees, “financialresults, net,” other expenses, net and Noncontrolling Interest.

 

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

 

(3)          Calculated based on 984,380,978 shares outstandingduring each year.

 

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

 

(5)          For a description of the differences betweenArgentine GAAP and US GAAP as they relate to us, please refer to Note 15 to ourConsolidated Financial Statements. The following tables show the principalreconciling items between our consolidated selected Argentine GAAP and US GAAPamounts shown for all years presented.

 

(6)          As required by ASC 810, total equity includesNoncontrolling Interest (See Note 15.I.g) to our Consolidated FinancialStatements).

 
| ** **                                               | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                               | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                               | ** ** | **(P$ millions)**      | ** ** |
| **Total assets under Argentine  GAAP**                   | ** ** | **10,633**                  | ** ** | **9,657** | ** ** | **9,171** | ** ** | **8,720** | ** ** | **8,563** | ** ** |
| *Valuation differences*:                                 |       |                        |       |   |   |   |   |   |   |   |   |
| Foreign-currency translation                             |       | —                      |       | — |   | (72 | ) | (50 | ) | (10 | ) |
| Capitalization of foreign currency exchange  differences |       | (57                         | )          | (67 | ) | (106 | ) | (210 | ) | (314 | ) |
| Other adjustments                                        |       | (1                          | )          | (11 | ) | 5 |   | (3 | ) | 6 |   |
| Tax effects on US GAAP adjustments                       |       | 20                          |       | 27 |   | 35 |   | 75 |   | 110 |   |
| *Balance sheet classification  differences*:             |       |                        |       |   |   |   |   |   |   |   |   |
| Deferred income taxes                                    |       | 108                         |       | (27 | ) | 88 |   | 295 |   | 363 |   |
| Other classification differences (i)                     |       | (66                         | )          | (59 | ) | (9 | ) | (13 | ) | (7 | ) |
| **Total assets under US GAAP**                           | ** ** | **10,637**                  | ** ** | **9,520** | ** ** | **9,112** | ** ** | **8,814** | ** ** | **8,711** | ** ** |

 
| ** **                                          | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------------------|------------|-----------------------------|------------|
| ** **                                          | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | **(P$ millions)**      | ** ** |
| **Total current liabilities under  Argentine GAAP** | ** ** | **4,169**                   | ** ** | **4,069** | ** ** | **3,643** | ** ** | **3,373** | ** ** | **2,206** | ** ** |
| *Balance sheet classification  differences:*        |       |                        |       |   |   |   |   |   |   |   |   |
| Deferred income taxes                               |       | —                      |       | 273 |   | 173 |   | — |   | — |   |
| Financial indebtedness                              |       | —                      |       | (1,137 | ) | (901 | ) | (716 | ) | (348 | ) |
| Other classification differences (i)                |       | (16                         | )          | (2 | ) | (6 | ) | (13 | ) | (2 | ) |
| **Total current liabilities under  US GAAP**        | ** ** | **4,153**                   | ** ** | **3,203** | ** ** | **2,909** | ** ** | **2,644** | ** ** | **1,856** | ** ** |

 

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

 
| ** **                                              | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                              | ** ** | **(P$ millions)**      | ** ** |
| **Total non-current liabilities  under Argentine GAAP** | ** ** | **936**                     | ** ** | **1,487** | ** ** | **2,419** | ** ** | **3,146** | ** ** | **4,449** | ** ** |
| *Valuation differences:*                                |       |                        |       |   |   |   |   |   |   |   |   |
| Foreign-currency translation                            |       | —                      |       | — |   | — |   | (1 | ) | (3 | ) |
| Debt Restructurings                                     |       | —                      |       | — |   | 579 |   | 875 |   | 1,300 |   |
| Fair value option for Notes of Telecom Argentina        |       | —                      |       | (254 | ) | — |   | — |   | — |   |
| Other adjustments                                       |       | 23                          |       | 2 |   | 2 |   | 3 |   | 3 |   |
| Tax effects on US GAAP adjustments                      |       | (8                          | )          | 88 |   | (204 | ) | (307 | ) | (455 | ) |

 

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| ** **                                       | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| *Balance sheet classification  differences:*     |       |                        |       |   |   |   |   |   |   |   |   |
| Deferred income taxes                            |       | 108                         |       | (300 | ) | (85 | ) | 295 |   | 363 |   |
| Financial indebtedness                           |       | —                      |       | 1,137 |   | 901 |   | 716 |   | 348 |   |
| Other classification differences (i)             |       | (50                         | )          | (57 | ) | (3 | ) | — |   | (5 | ) |
| **Total non-current liabilities  under US GAAP** | ** ** | **1,009**                   | ** ** | **2,103** | ** ** | **3,609** | ** ** | **4,727** | ** ** | **6,000** | ** ** |

 

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

 
| ** **                                                    | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                    | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                    | ** ** | **(P$ millions)**      | ** ** |
| **Total shareholders’ equity  under Argentine GAAP**     | ** ** | **5,436**                   | ** ** | **4,020** | ** ** | **3,030** | ** ** | **2,129** | ** ** | **1,867** | ** ** |
| *Valuation differences:*                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Foreign-currency translation                                  |       | —                      |       | — |   | (49 | ) | (33 | ) | (5 | ) |
| Capitalization of foreign currency exchange  differences, net |       | (57                         | )          | (67 | ) | (106 | ) | (210 | ) | (314 | ) |
| Debt Restructurings                                           |       | —                      |       | — |   | (579 | ) | (875 | ) | (1,297 | ) |
| Fair value option for Notes of Telecom Argentina*             |       | —                      |       | 253 |   | — |   | — |   | — |   |
| Other adjustments                                             |       | (24                         | )          | (12 | ) | 3 |   | (6 | ) | 3 |   |
| Tax effects on US GAAP adjustments                            |       | 28                          |       | (61 | ) | 239 |   | 382 |   | 565 |   |
| Noncontrolling interest                                       |       | 92                          |       | 81 |   | 56 |   | 56 |   | 36 |   |
| **Total equity under US GAAP**                                | ** ** | **5,475**                   | ** ** | **4,214** | ** ** | **2,594** | ** ** | **1,443** | ** ** | **855** | ** ** |

 

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*                 On January 1,2008, the Company adopted the provisions of ASC 825 regarding a fair valueoption for valuation of financial assets and liabilities. The adjustment underUS GAAP, net of tax effect, at the date of adoption of this provision was P$408million (P$0.41 per share), which was recorded as a cumulative-effectadjustment to retained earnings as of January 1, 2008.  The subsequent effects of fair valuemeasurement were shown as a reconciliation item to the income statement in theUS GAAP reconciliation as of and for the years ended December 31, 2009 and2008.

 
| ** **                                                                             | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                             | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                             | ** ** | **(P$ millions)**           | ** ** |
| **Operating income under  Argentine GAAP**                                             | ** ** | **2,762**                        | ** ** | **2,041** | ** ** | **1,636** | ** ** | **894** | ** ** | **497** | ** ** |
| *Valuation differences:*                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Foreign–currency translation                                                      |       | —                           |       | — |   | 2 |   | 6 |   | 2 |   |
| Depreciation of foreign currency exchange differences                                  |       | 10                               |       | 39 |   | 104 |   | 104 |   | 117 |   |
| Inventories                                                                            |       | 2                                |       | (14 | ) | (51 | ) | (5 | ) | (14 | ) |
| Reversal of amortization of Telecom Debt issuance  costs recorded under Argentine GAAP |       | 1                                |       | 7 |   | — |   | — |   | — |   |
| Other adjustments                                                                      |       | —                           |       | — |   | (1 | ) | (1 | ) | — |   |
| *Income statement classification  differences:*                                        |       |                             |       |   |   |   |   |   |   |   |   |
| Other expenses, net as operating loss under US  GAAP                                   |       | (175                             | )          | (202 | ) | (62 | ) | (156 | ) | (136 | ) |
| Interests related to Asset Retirement Obligations  as operating loss under US GAAP     |       | (4                               | )          | — |   | — |   | — |   | — |   |
| **Operating income under US GAAP**                                                     | ** ** | **2,596**                        | ** ** | **1,871** | ** ** | **1,628** | ** ** | **842** | ** ** | **466** | ** ** |

 

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| ** **                                                                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                    | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                    | ** ** | **(P$ millions)**           | ** ** |
| **Total net income under Argentine  GAAP**                                                    | ** ** | **1,405**                        | ** ** | **961** | ** ** | **884** | ** ** | **244** | ** ** | **1,334** | ** ** |
| *Valuation differences:*                                                                      |       |                             |       |   |   |   |   |   |   |   |   |
| Foreign-currency translation                                                                  |       | —                           |       | — |   | (2 | ) | (12 | ) | (7 | ) |
| Depreciation of foreign currency exchange  differences, net of reversal of its capitalization |       | 10                               |       | 39 |   | 104 |   | 104 |   | 129 |   |
| Debt Restructurings                                                                           |       | —                           |       | — |   | 296 |   | 418 |   | (1,230 | ) |
| Extinguishment of Personal’s and Núcleo’s  restructured debts                  |       | —                           |       | — |   | — |   | 5 |   | 165 |   |
| Fair value option for Notes of Telecom Argentina                                              |       | (253                             | )          | 205 |   | — |   | — |   | — |   |
| Other adjustments                                                                             |       | (25                              | )          | (16 | ) | 9 |   | (2 | ) | (5 | ) |
| Tax effects on US GAAP adjustments                                                            |       | 89                               |       | (80 | ) | (143 | ) | (185 | ) | 328 |   |
| Valuation allowance                                                                           |       | —                           |       | — |   | — |   | — |   | 424 |   |
| Noncontrolling interest                                                                       |       | 15                               |       | 12 |   | 21 |   | 19 |   | 5 |   |
| **Total net income under US GAAP**                                                            | ** ** | **1,241**                        | ** ** | **1,121** | ** ** | **1,169** | ** ** | **591** | ** ** | **1,143** | ** ** |
| **Net income attributable to  Telecom Shareholders’ equity**                             | ** ** | **1,226**                        | ** ** | **1,109** | ** ** | **1,148** | ** ** | **572** | ** ** | **1,138** | ** ** |

 

**Capitalizationand Indebtedness**

 

Notapplicable.

 

**Reasonsfor the Offer and Use of Proceeds**

 

Notapplicable.

 

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**ExchangeRates**

 

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, 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              |       |
| Year Ended December 31, 2009                            |       | 3.85     |       | 3.49    |       | 3.75            |       | 3.80              |       |
| Month Ended December 31, 2009                           |       | 3.82     |       | 3.79    |       | 3.81            |       | 3.80              |       |
| Month Ended January 31, 2010                            |       | 3.84     |       | 3.79    |       | 3.80            |       | 3.84              |       |
| Month Ended February 28, 2010                           |       | 3.86     |       | 3.83    |       | 3.85            |       | 3.86              |       |
| Month Ended March 31, 2010                              |       | 3.88     |       | 3.86    |       | 3.86            |       | 3.88              |       |
| Month Ended April 30, 2010                              |       | 3.89     |       | 3.87    |       | 3.88            |       | 3.89              |       |
| Month Ended May 31, 2010                                |       | 3.93     |       | 3.89    |       | 3.90            |       | 3.93              |       |
| Month Ended June 30, 2010 (through  June 25, 2010) |       | 3.93     |       | 3.92    |       | 3.92            |       | 3.93              |       |

 

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(1)          Yearly data reflect average of month-end rates.

 

*Sources*:  *Banco Nación*

 

OnJune 25, 2010, the closing exchange rate (ask price) quoted by BancoNación was P$3.93=US$1.00.

 

**Capitalizationand Indebtedness**

 

Notapplicable.

 

**Reasonsfor the Offer and Use of Proceeds**

 

Notapplicable.

 

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**RiskFactors**

 

*You should consider the following risks with respect to an investmentin Telecom and investments in Argentine corporations that are not normallyassociated with investments in the securities of issuers in the United Statesand other jurisdictions.*

 

***Risks Relating to Argentina***

 

**Overview**

 

Substantiallyall of our property, operations and customers are located in Argentina, and asignificant portion of our indebtedness is denominated in foreign currencies.Accordingly, our financial condition and results of operations depend to asignificant extent on economic and political conditions prevailing in Argentinaand on the rates of exchange between the peso and foreign currencies. In 2001and 2002 the Argentine economy experienced a severe recession as well as apolitical crisis. The abandonment of dollar-peso parity in 2002 led tosignificant devaluation of the peso against major international currencies andour need to restructure our financial indebtedness. Although Argentina hasexperienced economic growth and political conditions have shown improvement inrecent years, these conditions have affected and may continue to affect ourfinancial condition and results of operations.

 

**Devaluationof the peso may adversely affect our results of operations, our capitalexpenditure program 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 depreciation in the Argentine pesoagainst major foreign currencies also may have an adverse impact on our capitalexpenditure program and increase the amount of our debt obligations. Telecomseeks to manage the risk of devaluation of the peso by entering into certainNDF contracts to purchase U.S. dollars at a fixed rate in order to hedge itsexposure to foreign currency fluctuations caused by its financial debt andtrading liabilities denominated in foreign currencies. Additionally, Telecommay continue to repurchase its foreign currency-denominated notes in openmarket transactions in order to reduce its exposure to foreign currencyfluctuations.  See “Item 5—Operating andFinancial Review and Prospects—Liquidity and Capital Resources—Debt Obligationsand Debt Service Requirements” and “Item 11—Quantitative and QualitativeDisclosures About Market Risk.”

 

TheArgentine peso has been subject to significant devaluation in the past and maybe subject to fluctuations in the future. In the five-month period ended May 31,2010, the devaluation of the peso against the U.S. dollar was 3.4%. Given theeconomic and political conditions in Argentina, it is impossible to predictwhether, and to what extent, the value of the peso may depreciate or appreciateagainst the U.S. dollar, the euro or other foreign currencies. We cannotpredict how these conditions will affect the consumption of services providedby the Telecom Group or our ability to meet our debt obligations denominated incurrencies other than the peso. Moreover, we cannot predict whether theArgentine government will further modify its monetary policy and, if so, whatimpact any of these changes could have on the value of the peso and,accordingly, on our financial condition and results of operations.

 

**Inflationcould accelerate, causing adverse effects on the economy and negativelyimpacting Telecom’s margins.**

 

Inthe past, Argentina has experienced periods of high levels of inflation.  More recently, levels of inflation haveincreased since 2005 and have remained relatively high from 2006 to 2009.  The recent economic recovery could lead tohigher inflation, which may result in increased costs.

 

The*Instituto Nacional de Estadística y Censos*(the Argentine National Statistics and Census Institute or “INDEC”) estimatesthat the Argentine consumer price increased by 8.5% in 2007, 7.2% in 2008 and7.7% in 2009; and the wholesale price index increased by 14.6% in 2007, 8.8% in2008 and 9.9% in 2009.  In the fivemonths ending May 31, 2010, the consumer price index in Argentinaincreased 5.1% and the wholesale price index increased 7.0%.  There is a substantial disparity between theinflation indexes published by the INDEC and those estimated by privateconsulting firms.

 

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TheArgentine government has implemented several actions in order to monitor andcontrol prices for the most relevant goods and services. Despite such actionsand the effects of the current global economic crisis, the Argentine economycontinues to experience high levels of inflation. If the BCRA issues significantamounts of currency to finance public sector spending, to service public debt,to intervene in the foreign exchange market or to assist financial institutionsin distress, or if the value of the peso cannot be stabilized through strictfiscal and monetary policies, a significant increase in inflation rates can beexpected.

 

Inaddition, public sector spending has increased over the past years, a trend,that if continued, may cause the government to incur a fiscal deficit and leadto higher inflation. Since the majority of our revenues are denominated inpesos, any further increase in the rate of inflation not accompanied by aparallel increase in our rates would decrease our revenues in real terms andadversely affect our results of operations. As discussed below under “RisksAssociated with Telecom and its Operations,” Telecom Argentina’s ability toincrease its regulated rates is subject to approval of regulatory authorities.We cannot guarantee that any possible rate increase will be sufficient tocounter the effect of inflation and we cannot assure you that the results ofany future rate negotiations will be favorable to us and to our financialcondition.

 

**Futurepolicies of the Argentine government may affect the economy as well as theoperations 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 and imposedfines on telecommunications companies, particularly incumbent operators such asour company. See “Item 8—Financial Information—Legal Proceedings” for moreinformation. In addition, local municipalities in the regions where we operatehave also introduced regulations and proposed various taxes and fees for theinstallation of infrastructure, equipment and expansion of fixed line andwireless 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 any changesto the existing laws and regulations will not adversely affect our business,financial condition or results of operations.

 

**TheArgentine government may exercise greater intervention in private sectorcompanies, including Telecom Argentina.**

 

Therecent global financial crisis has resulted in a significant reduction inglobal GDP and 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.

 

InNovember 2008, Argentina nationalized, through Law No. 26,425, all ofits private pension and retirement system, which had been previously administeredby the AFJP, and appointed ANSES as its administrator. Argentina’snationalization of its pension and retirement system constitutes a significantchange in the government’s approach to exercising influence over Argentina’smain publicly-traded companies.  Onaverage, approximately 20% of the share ownership and a significant portion ofthe public float of these companies were owned by the AFJP and are now held byANSES.

 

Thegovernment could exercise influence over corporate governance decisions of companiesin which it owns shares by combining its ability to exercise its shareholdervoting rights to designate board and supervisory committee members with itsability to dictate tax and regulatory matters. Additionally, since the AFJP were significant institutional investors inArgentina, the nationalization of the private retirement system affected thelevels of access to financing in capital markets for publicly-tradedcompanies.  The role that the governmentwill play, acting through ANSES, in making investments in new issuances ofequity and debt in capital markets, is unclear due 

 

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tothe absence of clearly established policies. This has reduced the volume of trading and on the liquidity of Argentina’scapital markets.  Furthermore, ANSES’selection criteria for electing individuals to boards of directors inpublicly-traded companies in which it owns shares is still unknown, as are itsmandates to directors or supervisory committee members of said companies andthe government’s response to situations such as, among others, companies’participation in governmental bidding processes. Until the government’s practicesand policies are defined, these matters could create uncertainties forinvestors of public companies in Argentina, 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 ifANSES holds a greater ownership position. However, there is a risk that ANSES could claim full voting rights atannual shareholder meetings, rather than limiting its voting rights to 5% ofcompany shares, in accordance with the limitation prescribed by Law No. 26,425.  In fact, ANSES has already attempted toexercise voting powers commensurate with its total share ownership at variousshareholder meetings of many companies, including Telecom Argentina.  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.

 

Itis difficult for us to predict the actions that the 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,fiscal deficit, 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, increased pressure on the devaluation of the pesoas a result of greater investor and public risk aversion, a decline inArgentina’s export product prices, contraction of consumer and investorspending and a significant drop in the primary fiscal surplus.

 

Althoughthe current state of the international financial markets in terms ofvolatility, liquidity and access to credit has improved as compared to thesecond half of 2008 and most of 2009, several factors remain that could affectthe global financial markets, such as, among other factors, a growing concernregarding government deficits, governments’ abilities to honor their respectivesovereign debts and general uncertainty about the global economic recovery. Ifinternational economic conditions were to worsen, Argentina could be negativelyaffected as a result of lower international demand for its products andservices, higher international interest rates, lower capital inflows and higherrisk aversion.  These factors could causethe Argentine economy to contract.

 

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 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 uncertainties about the country’s economic and politicalfuture.

 

Inthe event of further economic, social or political crises, companies inArgentina may face the risk of civil and social unrest, strikes, expropriation,nationalization, forced renegotiation or modification of existing contracts,and changes in taxation policies including tax increases and retroactive taxclaims. In addition, Argentine courts have issued rulings changing existingjurisprudence on labor matters and requiring companies to assume increasing 

 

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responsibilityfor and assumption of costs and risks associated with utilizing sub-contractedlabor. Since we operate in a context in which the governing law and applicableregulations change frequently, it is difficult to predict whether ourcommercial activities will be affected positively, negatively or at all by suchchanges.

 

**Argentina’spast fiscal problems and the incomplete restructuring of Argentina’s sovereigndebt may negatively affect the macroeconomic environment.**

 

AlthoughArgentina has shown a fiscal surplus in recent years, the Argentine governmenthas a history of fiscal deficit that was aggravated by the devaluation of theArgentine peso in early 2002.  Sincealmost all of the financial obligations of the Argentine government weredenominated in foreign currencies at the time the dollar-peso parity waseliminated, there was an increase in the cost of financial services (in termsof Argentine pesos) of the debt of the Argentine government. Since theArgentine government’s fiscal revenues were denominated in large part inArgentine pesos, the Argentine government was severely affected in its abilityto carry out its payment obligations using foreign currency and defaulted on asignificant part of its public debt in 2002. The Argentine government’s sovereign debt default and its consequencesmay continue to negatively affect the ability of private companies, includingTelecom, to obtain access to capital markets or other forms 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, amountsnot 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 repayment of Argentina’s debt to the IMF, which involved a disbursementof US$9.5 billion.  Nonetheless, a numberof bondholders who held out from the exchange offer have initiated legalactions against the Argentine government. A judgment against the Argentine government in these pending cases couldreduce sources for funding and investment capital and could potentially impactthe government’s ability to adopt measures that promote economic growth.

 

Recently,the Argentine government made progress on another attempt to restructure itspublic debt, thereby, potentially significantly reducing the levels of countryrisk.   Nonetheless, the implementationof this restructuring plan has been delayed by disagreements regarding the useof Central Bank reserves to repay the outstanding public debt, a measure thathas been challenged by courts and has been criticized for its possibleinflationary effects on the economy. In April 2010, the Argentinegovernment announced an exchange offer for the unrestructured debt.  It is expected that this process will becompleted in late June.

 

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.

 

Asof December 31, 2009, the outstanding principal amount of Argentina’spublic debt was equivalent to US$147,119 billion (of which approximately 54.06%is denominated in foreign currency). There can be no assurance that the Argentine government will not defaulton its obligations under its bonds in the event that it experiences anothereconomic crisis. A new default by the Argentine government could lead to a newrecession, higher inflation, restrictions for Argentine companies to accessfunds, and unemployment and social unrest, which would negatively affect ourfinancial condition, funding and results of operations.

 

**TheArgentine banking 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 2005 to 2007, aperiod of economic growth coupled with relative stability of the country’sexchange rate and inflation resulted in the restoration of public confidence, agradual accumulation of deposits in Argentine financial institutions, andimproved liquidity of the financial system. However, since 2008 certain eventssuch as conflicts between the Argentine government and certain sectors of the economy,together with the international financial crisis, have deteriorated depositors’confidence, leading to a slowdown in the growth of deposits, an increase in thedollarization of certain deposits and an increase in interest rates on loansgranted to the non-financial sector.

 

Inthe first half of 2009, midterm elections and certain expectations of a furtherdevaluation of the peso impacted the Argentine financial system.  Deposits decreased to levels below previousperiods, while deposits

 

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denominatedin U.S. dollars rose strongly.  However,in the second half of 2009, deposits denominated in pesos have regainedstrength due to the recovery of the domestic and global economies. The privatesector’s capital outflow reached approximately US$8.4 billion in 2009, most ofsuch increase having occurred in the first half of the year.  This trend reversed in the first quarter of2010, with a capital inflow of approximately US$7 million.

 

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.

 

**Shareholdersmay be liable under Argentine law for actions that are determined to be illegalor ultra 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, Telecom Argentina’s Board of Directors frequently obtains andplans to obtain, opinions of counsel concerning the compliance of the actionswith Argentine law and Telecom Argentina’s bylaws (or regulations if any).Although the issue is not free from doubt, based on advice of counsel, TelecomArgentina believes that a court in Argentina in which a case has been properlypresented would hold that a noncontrolling shareholder voting in good faith andwithout a conflict of interest in favor of such a resolution and based on theadvice of counsel that such resolution is not contrary to Argentine law or theCompany’s bylaws or regulations, would not be liable under this provision.

 

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

 

**ThePesification and freezing of rates may continue to adversely affect TelecomArgentina’s revenues.**

 

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 31,2011. See “Item 4—Information on the Company—Regulatory Framework—RegulatoryEnvironment—Rates.”

 

OnMarch 6, 2006, Telecom Argentina executed a Letter of Understanding (the “Letterof Understanding 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, the only agreed upon adjustments to the rate structure werethe rate increases to the termination charge for international incoming callsand the extension of the time bands for peak-hour rates applied to local anddomestic long distance calls. See “Item 4—Information on the Company—RegulatoryFramework—Regulatory Environment—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.

 

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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 2005, the Argentine government has implemented variousmeasures to control inflation such as price controls of certain goods andservices.  It is possible that servicesnot currently regulated in this manner by the Argentine government may be thesubject to future price controls or that similar mechanisms affecting oureconomic and financial situation may be implemented.

 

**We mustcomply with conditions in our license, and regulations and laws relatedthereto, and such compliance may at times be outside of our control.**

 

Weare subject to a complex series of laws and regulations with respect to most ofthe telecommunications 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.

 

Asof the date of this Annual Report, we cannot predict if any measures will betaken by Regulatory Bodies, the CNDC, or other relevant authorities, andwhether, if taken, they will affect our operations or the price of TelecomArgentina’s shares, among other things.

 

**Weoperate in a competitive environment which may result in a reduction in ourmarket share in the 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, 2009, 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 given the substantial telecommunications experience of many ourcompetitors. 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 

 

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Internetservices market, we must constantly upgrade our access technology and software,embrace emerging transmission technologies and improve the responsiveness,functionality, coverage and features of our services. To remain competitive inthe wireless telecommunications market, we must enhance our wireless networksby expanding our network infrastructure and extending 3G technology andbandwidth for mobile data transmission. We also aim to facilitate the synergy between fixed and mobilecommunications. In the Wireless segment, we expect to continue to devoteresources to customer retention and loyalty and to the replacement of handsetsdue to technological updates. These enhancements and the introduction of newservices will demand increased capital expenditures and high subscriberretention costs. We must also adapt to changing market conditions. Futuretechnological developments may result in decreased customer demand for certainof our services 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 may adversely affect our ability tosuccessfully invest in, and implement, new technologies, coverage and servicesin a timely fashion. Accordingly, we cannot assure you that we will have theability to make needed capital expenditures and operating expenses. If we areunable to make these capital expenditures, or if our competitors are able toinvest in their businesses to a greater degree than we are, our competitiveposition will be 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.

 

**Futureallocations of wireless frequency bands may affect the competitiveness of theArgentine wireless industry and could impact Telecom Personal’s competitiveposition within it.**

 

The SC is responsible for the allocation of bands in the wirelessspectrum within promulgated regulations. Telecom Personal cannot guarantee thatits requests to participate in the reallocation process related to the bands tobe released by Telefónica Móviles, S.A. will be granted, or that the frequencybands will not be reallocated to existing or future competitors of TelecomPersonal, negatively affecting Telecom Personal’s competitive position and itsability to offer cellular services to its customers on a competitive basis. See“Item 4—Information on the Company—Regulatory Framework—Other RegulatoryRegulations—Regulations Applicable to PCS Services” for a detailed descriptionof Telecom Personal’s license.

 

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**Nortel, as our controlling shareholder, and Sofora as Nortel’scontrolling shareholder, exercise control over significant matters affectingus.**

 

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 those of Nortel and Sofora and have givenW de Argentina—Inversiones veto power with respect to certain matters relatingto us where the Telecom Italia Group would otherwise prevail.  However, as a result of the legal proceedingsdescribed below under “Our principal indirect shareholders are involved invarious legal proceedings which impact our corporate governance and may resultin changes of ownership by our controlling shareholders,” the influence of theTelecom Italia Group has been limited by judicial and administrativeresolutions and the Telecom Italia Group and the Werthein Group were not ableto elect new directors at the shareholders’ meeting held on April 28,2010.  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 TelecomArgentina’s shareholders’ equity are subjected to 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.”

 

**Ourprincipal indirect shareholders are involved in various legal proceedings whichimpact our corporate governance and may result in changes of ownership by ourcontrolling shareholders.**

 

Ourprincipal indirect shareholders are party to a number of legal proceedingswhich have affected and may continue to affect Telecom Argentina’s Board ofDirectors and matters of corporate governance and may result in changes ofownership by our controlling shareholders. W de Argentina-Inversiones S.L., one of Telecom Argentina’s principalindirect shareholders, has initiated certain legal proceedings against anotherprincipal indirect shareholder of Telecom Argentina, Telecom Italia S.p.A. andthe members appointed at the request of Telecom Italia S.p.A. to TelecomArgentina’s Board of Directors, alleging, among other things, that Telefónica, S.A. (of Spain)’s stake in TelcoS.p.A. engenders a conflict of interest and violates the ArgentineTelecommunications regulatory framework, since Telefónica, S.A. (of Spain), the parentcompany of Telecom Argentina’s main competitor -Telefónica deArgentina S.A.- has an ownership stake in Telecom Italia S.p.A.

 

VariousArgentine antitrust and regulatory authorities, and judicial bodies in relatedproceedings, have issued a series of rulings in connection with the transactionby which Telefónica (of Spain)acquired its stake in Telco S.p.A.  Theseactions affect the exercise of the voting rights of certain of Telecom’sshareholders, Telecom Italia International N.V. and Telecom Italia S.p.A., andmembers of the board of directors of Telecom Argentina appointed at the requestof Telecom Italia S.p.A.  Argentinecourts have also repeatedly postponed Telecom Argentina’s annual shareholdersmeetings and board meetings and suspended consideration of certain matters atthe shareholders’ meeting scheduled for April 28, 2010.  These suspended agenda items include, amongother things, the election of the directors to Telecom Argentina’s board andmembers of the Supervisory Committee. Although Telecom and the Telecom ItaliaGroup have filed appeals and sought other relief from these actions, we do notknow when or if the voting rights will be restored or whether similar actionswill be taken in the future.

 

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Inaddition, the CNDC and judicial bodies in related proceedings have issuedorders relating to certain internal governance matters and it is possible thatother resolutions will be issued in the future that affect our governancematters.

 

Argentineantitrust and regulatory authorities and judicial bodies in related proceedingshave also instituted legal proceedings relating to the Telecom Italia Group’sownership in our parent company, Sofora, which proceedings may affect theTelecom Italia Group’s ownership of Telecom Argentina.  On December 29, 2008, the CNDC issued aresolution stating that the Telecom Italia Group must refrain from exercising,assigning, transferring or taking any other action with respect to certain calloptions that it holds with respect to shares of Sofora owned by W de Argentina-InversionesS.L.  This resolution was annulled byChamber A of the Criminal Economic Court of Appeals on June 17, 2010.Additionally, the SCI issued an order that would, if implemented, require theTelecom Italia Group to divest its entire direct and indirect ownershipinterest in Telecom Argentina. However, Chamber A of the Criminal EconomicCourt of Appeals annulled this resolution and ordered “*that a newresolution be issued through the appropriate authority and through a newproceeding*.”

 

Regulatoryreview and litigation over the matters described above are ongoing, and wecannot predict the outcome of these proceedings, or the effect that theproceedings may have on our governance matters, share ownership or ouroperations.  For further detail, see “Item8— Financial Information—Legal Proceedings—Legal Proceedings Relating to ShareOwnership.”

 

**Ouroperations and financial condition could be affected by union activity.**

 

InArgentina, labor organizations have substantial support and have considerablepolitical influence. In recent years, the demands of our labor organizationshave increased as a result of the increase in cost of living (which wasaffected by the increased level of inflation) and salaries in Argentina.Certain claims initiated in 2005 by labor organizations with respect to fixedline services led to negotiations that resulted in the improvement of salarylevels and a reduction of working hours. See “Item 8—FinancialInformation—Legal Proceedings—Civil, tax, commercial, labor and regulatory proceedings—LaborClaims.” Moreover, certain labor organizations have advocated that certain ofour non-unionized employees should be represented by trade unions. Unionorganizations could also request that we delegate currently outsourced tasks toCompany employees.  Furthermore, if thenumber of employees covered by trade unions increases, we may incur increasedcosts for the higher compensation that we and our contractors may need to payto unionized employees.

 

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

 

**TheArgentine government may order salary increases to be paid to employees in theprivate sector or changes in labor regulations, which would increase our costof doing business.**

 

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 rates, 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.

 

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**We areinvolved in various legal proceedings which could result in unfavorabledecisions and financial penalties for us.**

 

Weare party 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 our favor,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 Argentine Employment Contract Act to restrict an employer’sability to change the form and conditions of work expected of an employee.

 

Recently,the Argentine Supreme Court has recognized that certain benefits paid byemployers to employees qualify as part of employees’ compensation under theArgentine Employment Contract Act. Additionally, certain organizations such as trade unions, OSTEL (SocialWork Association of Telephone Workers and Employees of Argentina) and theCompensation Fund have filed complaints against Telecom Argentina objecting tothe differences in the calculation of social contributions and have obtainedfavorable rulings for these claims.

 

Asa result of these changes, Telecom Argentina may face increased risk ofindividual and collective employment litigation. If this occurs, we cannotguarantee that this litigation will not have an adverse effect on our resultsof operations and financial condition.

 

Moreover,in 2009, the environmental agency required Telecom Argentina to be registeredin the National Registry of Generators and Operators of Hazardous Waste (as ithad been previously required to do in 1999). This registration would requireTelecom Argentina to pay an annual fee calculated in accordance with a formulathat takes into consideration the extent of the hazard and the quantity of thewaste. Telecom Argentina filed a request for administrative review seeking toobtain rejection of the environmental agency’s ordinance. We cannot guaranteethat the rejection will be obtained.  Ifsuch rejection is not obtained, Telecom Argentina would face increased costswhich may include retroactive fees.

 

See“Item 8—Financial Information—Legal Proceedings— Civil, tax, commercial, laborand regulatory proceedings.”

 

**We maybe subject to measures by the Argentine government that may modify or imposeobligations to provide telecommunications services without or with reducedcompensation which may result in losses.**

 

Certainregulatory measures that are still pending implementation, includingregulations governing the unbundling of the local access (commonly known aslocal loop) and number portability, could have the effect of increasingcompetition for the services we offer and increasing capital expenditures.Moreover, the Argentine government could modify some of the currentregulations, without granting the Company its 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 pending 2000 and 2001 Price Cap SC reviews. Any such changes couldhave a material impact on our operations.

 

**Theenforcement of regulations aimed at protecting consumers may have an adverseeffect on us.**

 

TheConsumer Protection Act No. 24,240, as amended and/or supplemented (the “ConsumerProtection Act”) establishes a series of principles and rules for theprotection of consumers and users. The Consumer Protection Act applies to thetelecommunications industry and to any other industry in which consumers andusers are involved.

 

OnMarch 12, 2008, the Argentine Congress passed the legislative bill toreform the Consumer Protection Act, which was promulgated by the ExecutiveBranch in Decree No. 565/2008 dated April 3, 2008, and published inthe Official Bulletin on April 7, 2008.

 

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Thisreform substantially amends various aspects of the Consumer Protection Act, themost important of which are: (i) the extension of the definition of aconsumer; (ii) an increase in the fines that could be imposed to providersand the possibility that relevant administrative authorities may orderproviders to pay direct damages up to a maximum amount; (iii) the courtsmay order providers to pay punitive damages to consumers up to a maximum amountof P$5 million, depending on the seriousness of the breach, among othercircumstances; and (iv) provisions governing the possibility that consumerassociations commence class actions in representation of the rights of anindeterminate group of consumers.

 

Theseamendments may increase the number of legal actions commenced against variouscompanies that provide goods and services to individual users or consumers.This possibility may entail risks for Telecom Argentina and Personalconcerning, among others, the prices charged for its services, or theobligation to return amounts charged for its services. If such were the case,any of such consequences could have an adverse effect on our financialsituation and on the results of our operations.

 

**TheBCRA has imposed restrictions on the transfer of funds outside of Argentina inthe past; some restrictions currently exist and may increase in the future,which could prevent us from making payments on dividends, debt and tradeliabilities.**

 

Inthe past, the Argentine government has imposed a number of monetary andcurrency exchange control measures, including restrictions on the freedisposition of funds deposited with banks and restrictions or limitations onthe access to foreign exchange markets and transfers of funds abroad, includingfor purposes of paying principal and interest on debt, trade liabilities toforeign suppliers and dividend payments to foreign shareholders. Although mostsignificant restrictions or limitations have been eliminated, certainrestrictions imposed by the BCRA on the access to foreign exchange markets andtransfer of funds continue to apply to us and may in the future limit ourability to make payments on our debt to creditors and trade liabilities outsideof Argentina. There can be no assurance that the BCRA will not increaserestrictions for making payments of principal, interest and/or tradeliabilities to our foreign creditors, dividend payments to foreign shareholdersor require its prior authorization for such purposes, which would limit our abilityto service our debt and/or comply with payments related to trade contracts withforeign suppliers.  See “Item10—Additional Information—Foreign Investment and Exchange Controls inArgentina.”

 

**Fluctuationsin Telecom Argentina’s share price depend on various factors, some of which areoutside of our control.**

 

Themarket price of our shares is subject to change due to various factors whichare outside of our control such as changes in market expectations, changes inthe economic and political situation of Argentina, changes in measures used byinvestors or analysts to value our stock or market trends unrelated to ourperformance and operations. We cannot predict when such external factors willaffect our stock price or whether their effects will be positive or negative.

 

Inaddition, future conversions of Telecom Argentina’s Class C Shares couldaffect the trading price of Telecom Argentina’s shares if a large number ofconverted shares are sold in the public markets within a short time period. See“Item 6—Directors, Senior Management and Employees—Share Ownership—ShareOwnership Plan.”

 

Finally,currency fluctuations could impact the value of an investment in TelecomArgentina. Although Telecom Argentina’s ADSs listed on the New York StockExchange are U.S. dollar denominated securities, they do not eliminate thecurrency risk associated with an investment in an Argentine company.

 

**Ourconsolidated financial statements under Argentine GAAP may not give you thesame information as financial statements prepared under US GAAP or IFRS.**

 

Thereis a lower level of regulation of the Argentine securities markets and of theactivities of investors in these markets as compared with the securitiesmarkets in the United States and certain other developed countries. We maintainour financial books and records and prepare our financial statements inconformity with Argentine GAAP, which differs in certain significant aspectsfrom US GAAP.  In this regard, we haveincluded a description of the principal differences between Argentine GAAP andUS GAAP as they relate to us in Note 15 to our Consolidated FinancialStatements.

 

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InMarch 2009, the FACPCE approved Technical Resolution (“RT”) 26, adoptingIFRS as issued by the International Accounting Standards Board (“IASB”). TheCNV subsequently adopted RT 26 through Resolution No. 562/09 for certainpublic companies such as Telecom Argentina. This Resolution requires Telecom to prepare its financial statements inaccordance with IFRS for fiscal years beginning January 1, 2012, andpermits early adoption of IFRS for fiscal years beginning January 1, 2011.We have not quantified the impact that the adoption of IFRS would have on ourfinancial condition or results of operations and therefore we cannot assure youthat its adoption will not have an adverse effect on our financial condition orresults of operations. However, we have provided you with a summary of thesignificant differences between Argentine GAAP and IFRS as they relate to us inNote 16 to our Consolidated Financial Statements.

 

**ITEM 4.  INFORMATION ON THECOMPANY**

 

**INTRODUCTION**

 

**TheCompany**

 

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, andthrough our subsidiaries, wireless telecommunications services andinternational wholesale services.

 

As of December 31, 2009, our telephone systemincluded approximately 4.4 million lines in service. This is equivalent toapproximately 22 lines in service per 100 inhabitants in the Northern Region ofArgentina and 394 lines in service per employee.

 

As of December 31, 2009, our Internet businesshas approximately 1.3 million customers and our Wireless reportable segment hasapproximately 14.5 million customers in Argentina and approximately 1.8 millioncustomers in Paraguay.

 

***Business Strategy***

 

We pursue a business strategy focused on increasingour market share in each of our segments, increasing our profitability andmaximizing value generation for our customers, shareholders, employees and thebroader community we serve.  In order topromote the achievement of our goals and minimize possible adverse effects onour business due to macroeconomic conditions and industry-specific regulation,we continually adapt our business strategy through investments in productinnovation and development of additional complementary services aimed atimproving our customers’ user experience.

 

Our priorities still lie in operational efficiencyand the effectiveness of the planning and control processes.  We view these as key competitive factors forour Company and its long-term corporate sustainability.  We also consider our integrated vision of ourbusiness, processes and technology to be a key competitive factor in ourcorporate management, thereby enabling us to provide high-value options toconsumers.

 

We seek to promote the well-being of ouremployees.  In this regard, we invest inour human resources through communication, training and development programs,promoting work-life balance, enabling telecommuting, and facilitating open andtransparent relationships with individual employees and trade unions.

 

Our investments in technology are designed tocontinually adapt our coverage, increase the capacity of our infrastructure,implement new service platforms to provide quality service in spite ofincreasing traffic volumes caused by the expansion of our customer base, andimplement new Value Added Services, access to social networks, and contentdistribution.

 

Through our broadband and 3G mobile coverage, weoffer our customers continuous Internet access, providing Internet access forboth recreational and professional activities, regardless of the user’sphysical location. We 

 

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provide our consumers with fixed and mobileterminals providing access to data, multimedia and value-added services. Withrespect to our business products and services, we offer integrated solutions tomeet the communication and information technology needs of businesses byproviding virtual access to applications and platforms in our data centers.

 

We maintain affordable prices commensurate with themarket’s purchasing power, focusing on achieving our revenue growth byexpanding our customer base and continuing to offer new products and services.We simplified our price structure by developing service packages at fixedprices targeted to different customer profiles. These service packages provide consumers with a clear view of andcontrol over their communication expenses.

 

Our penetration of communication services in the Argentinemarket, notwithstanding a challenging macroeconomic environment, has continuedto show sustained growth.  In 2009, weincreased our market share in fixed and mobile lines and broadband access. Thismarket penetration was coupled with sound financial performance demonstrated byhigher operating margins and net profit. With respect to our cash flow, wehighlight the early repayment of all of Telecom Argentina’s financialindebtedness issued in the 2005 debt restructuring, which terminated ourobligation to comply with the covenants under the Notes’ indenture and hasreduced the cost of financial indebtedness and our exposure of risk tofluctuations in foreign currency exchange rates.

 

We believe that the strategy implemented by ourCompany’s Management sets a foundation for the Telecom Group to reach its goalsof continuous improvement in service quality, strengthening its market positionand increasing its operating efficiency, to meet the needs of a dynamictelecommunications market.

 

***Organizational Structure***

 

Thefollowing chart shows our principal subsidiaries and affiliated companies as ofDecember 31, 2009, and jurisdiction of organization.

 

 

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(*)         Dormant entity.

 

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***Consolidated Subsidiary Information***

 

Thefollowing table presents information relating to our consolidated subsidiariesfor the fiscal year ended as of December 31, 2009:

 
| **Subsidiary  (1)**              | ** ** | **Activity**                | ** ** | **Reportable  Segment**   | ** ** | **Percent   Ownership** | ** ** | **Percentage of  Telecom’s Total  Consolidated  Net Sales** | ** ** |
|----------------------------------|------------|-----------------------------|------------|---------------------------|------------|-------------------------|------------|------------------------------------------------------------------|------------|
| Telecom Personal S.A.            |       | Wireless  Services          |       | Wireless                  |       | 99.99                   |       | 62.4                                                             |       |
| Núcleo S.A. (2)             |       | Wireless  Services          |       | Wireless                  |       | 67.50                   |       | 3.6                                                              |       |
| Springville S.A. (2) (3)    |       | Wireless  Services          |       | Wireless                  |       | 100.00                  |       | —                                                           |       |
| Telecom Argentina USA, Inc. |       | International  Service      |       | Voice,  Data and Internet |       | 100.00                  |       | 0.3                                                              |       |
| Micro Sistemas S.A. (3)          |       | Electronic  Equipment Sales |       | Voice,  Data and Internet |       | 99.99                   |       | —                                                           |       |
| **Total**                        |       |                        |       |                      | ** ** | ** **              | ** ** | **66.3**                                                         | ** ** |

 

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(1)          All subsidiaries are incorporated in Argentina,except for Núcleo S.A. (Paraguay), Springville S.A. (Uruguay) and TelecomArgentina USA, Inc. (USA).

 

(2)          Interest held indirectly through Telecom Personal.

 

(3)          Dormant subsidiary as of December 31, 2009.

 

Ourprincipal executive offices are located at Alicia Moreau de Justo 50, C1107AAB,Buenos Aires, Argentina, telephone number: 54-11-4968-4000.

 

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

 

**RecentDevelopments**

 

*Telecom Personal Dividend Payments*

 

OnMay 5, 2010 Telecom Personal distributed a dividend of P$575,000,000.

 

*Telecom Argentina Dividend Payments*

 

TelecomArgentina’s shareholders, at their meeting of April 28, 2010, approved thedistribution of dividends in two installments. On May 5, 2010, Telecom Argentina paid a dividend installmentto its shareholders in the amount of P$689,066,685 and is scheduled to pay asecond installment of dividends of P$364,220,961 on December 20, 2010.

 

*Legal Proceedings Relating to Share Ownership*

 

Nortel and Telecom Argentina’s principal indirectshareholders are party to a number of legal proceedings which affect theirrespective Boards of Directors and matters of corporate governance.  In 2009, the CNDC, SC, SCI and certainjudicial bodies have issued various resolutions regarding this matter. See “Item8—Financial Information—Legal Proceedings—Legal Proceedings Relating to ShareOwnership.”

 

**History**

 

Telecom Argentina was created by Decree No. 60of the 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.”

 

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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. In 2003Nortel’s common stock was transferred to an Argentine company namedSofora.  As of December 31, 2009,Sofora was held 50% by the Telecom Italia Group and 50% by W de Argentina—Inversiones,a holding company incorporated in the Kingdom of Spain, and a company of theWerthein Group. See “Item 7—Major Shareholders and Related PartyTransactions—Major Shareholders.”

 

Pursuant to the Privatization Regulations, 10% ofTelecom Argentina’s common stock was transferred to a Share Ownership Plan forcertain former 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 intoa management agreement (the “Management Agreement”) with Telecom Italia andFCR, 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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**THE BUSINESS**

 

**General**

 

As of the date of this Annual Report, we conduct ourbusiness through six legal entities which represent six 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.          |
|                      |       | Micro  Sistemas S.A. (i)                   |
|                      |       |                                       |
| Wireless                  |       | Telecom  Personal                          |
|                      |       | Núcleo                                |
|                      |       | Springville  (i)                           |

 

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(i)             Dormant entity at December 31, 2009.

 

***Voice, Data and Internet***. TelecomArgentina owns a local telephone line network, public long-distance telephonetransmission facilities and a data transmission network in the Northern Region.Telecom Argentina also owns a network in the Southern Region. Voice, Data andInternet 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 ofDecember 31, 2009, Telecom Argentina had approximately 4.4 million linesin service;

 

·                  *International long-distance services.*TelecomArgentina provides international telecommunications service in Argentinaincluding voice and data services and international point-to-point leasedcircuits;

 

·                  *Data transmission and Internet services.*TelecomArgentina provides data transmission and Internet connectivity services,including traditional dial-up and broadband connections, ADSL dedicated lines,private networks, national and international broadcasting signal transport andvideoconferencing services. As of December 31, 2009, Telecom Argentina hadapproximately 1.3 million subscribers to the Internet service;

 

·                  *Information and Communication Technology Services.*TelecomArgentina provides ICT services and value-added solutions; and

 

·                  *Other Basic telephone services.*Other servicesprovided by Telecom Argentina include supplementary services such as callwaiting, call forwarding, conference calls, caller ID, voice mail, video callsand itemized billing, and telecommunications consulting and telecommunicationsequipment and maintenance services.

 

***Wireless Telecommunication***. We providewireless services through our subsidiaries in Argentina and Paraguay. Oursubsidiary Telecom Personal provides wireless telephone service throughoutArgentina via cellular and PCS networks. Telecom Personal’s service offeringsinclude:

 

·                  GSM and 3G wireless communication over UMTS/HSDPA networks (including GPRS, EDGE and HSDPA high-speed wireless,videoconferencing, full track download, multimedia messaging, online streaming,corporate mailing and BlackBerry solutions); and

 

·                  Sale of wireless communication devices(cellular phones, 3G modems, 3G hotspots, wireless internet and netbooks).

 

Wealso provide cellular and PCS services in Paraguay through Núcleo, a subsidiaryof Telecom Personal. As of December 31, 2009, Telecom Personal had approximately14.5 million wireless subscribers in Argentina and approximately 1.8 million inParaguay.

 

SeeNote 13 to our Consolidated Financial Statements and: “Item 5—Operating andFinancial Review and Prospects—Years ended December 31, 2009, 2008 and 2007—Resultsof Operations by Reportable Segment” for additional information as to ourresults of operations by reportable segment.

 

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**Voice,Data and Internet**

 

TelecomArgentina is the principal provider of Basic telephone services in the NorthernRegion, and since late 1999 has also provided Basic telephone services in theSouthern Region.

 

SinceNovember 2000, the telecommunications sector in Argentina is completelyopen to competition. Our operations are subject to a complex series of laws andregulations of the Argentine government. In addition, we are subject to thesupervision of the Regulatory Bodies. See “Regulatory Framework—RateRegulations” below.

 

TheArgentine government has taken certain measures that have affected revenuesfrom the services we provide. By the enactment of the Public Emergency Lawsince January 6, 2002, the rates charged by Telecom Argentina for fixedline services such as measured service, public telephone service, national andinternational long-distance and monthly basic charges and installation chargeshave been pesified (regulated services since the Transfer Date). We cannotpredict when the Public Emergency Law will cease to be effective or how theseor other government regulations may affect our future revenues. See “RegulatoryFramework—Rate Regulations” below and “Item 5—Operating and Financial Reviewand Prospects—Economic and Political Developments in Argentina.”

 

*Telecom Argentina’s Telephone Network*

 

TelecomArgentina’s fixed-line telephone network includes installed telephones andswitchboards, a network of access lines connecting customers to exchanges andtrunk lines connecting exchanges and long-distance transmission equipment. Thefollowing table illustrates the deployment of Telecom Argentina’s telephonenetwork:

 
| ** **                               | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Number of installed lines (1)            |       | 4,595,043                   |       | 4,442,629                   |       | 4,238,542                   |       | 3,896,637                   |       | 3,828,147                   |       |
| Net lines installed (during each year)   |       | 152,414                     |       | 204,087                     |       | 341,905                     |       | 68,490                      |       | 25,141                      |       |
| Net lines installed cumulative (2)       |       | 3,024,079                   |       | 2,871,665                   |       | 2,667,578                   |       | 2,325,673                   |       | 2,257,183                   |       |
| Number of lines in service (3)           |       | 4,364,386                   |       | 4,298,820                   |       | 4,207,744                   |       | 4,094,653                   |       | 3,949,911                   |       |
| Net lines in service added for the year  |       | 65,566                      |       | 91,076                      |       | 113,091                     |       | 144,742                     |       | 159,613                     |       |
| Net lines in service added cumulative    |       | 2,962,417                   |       | 2,896,851                   |       | 2,805,775                   |       | 2,692,684                   |       | 2,547,942                   |       |
| Lines in service per 100 inhabitants (4) |       | 22                          |       | 22                          |       | 22                          |       | 21                          |       | 21                          |       |
| Pending applications (5)                 |       | 78,400                      |       | 67,400                      |       | 65,700                      |       | 60,800                      |       | 52,000                      |       |
| Public phones installed                  |       | 50,275                      |       | 58,375                      |       | 70,550                      |       | 81,568                      |       | 82,771                      |       |

 

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(1)          Reflects total number of lines available in Switches.Since the 2006, also includes NGN lines.

 

(2)          Cumulative net lines installed since the TransferDate.

 

(3)          Reflects number of lines capable of generatingtraffic. Includes direct inward dialing lines, which do not use installed linecapacity.

 

(4)          Corresponds to the Northern Region of Argentina.

 

(5)          Corresponds to lines requested by clients, but notyet installed.

 

***Revenues***

 

Voice,Data and Internet Services include, among other charges, monthly basic charges,measured service charges, installation charges, public telephone services andinterconnection services related to “essential facilities.” The rates for thesecharges are regulated by rules governing our license, which establish “maximumprices” that can be charged to clients. Telecom Argentina is able to chargeprices below the maximum regulated prices as long as the discount is appliedequally to clients who share the same characteristics (under the so calledprinciple of “non-discrimination”). In accordance with this ability, TelecomArgentina charges lower prices than the maximum regulated prices for many ofthe services offered.

 

Theremaining services included in the Voice, Data and Internet reportable segmentare not subject to regulation and, as a result, Telecom Argentina is able toset the corresponding rates.

 

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*a)    Retail — Residential andBusiness customers*

 

*Monthly Basic Charges*. Telecom Argentina bills amonthly basic charge to its customers. The charge is based on pulses, valued atthe price per pulse prevailing during the periods included in the invoice.  The number of pulses varies depending on thetype of customer. As of December 31, 2009, approximately 84% of lines inservice were for residential customers and public telephony and approximately16% were for professional, commercial and government customers. Additionally,due to the regulatory regime, Telecom Argentina is obliged to offer discountsto certain retired individuals and low consumption residential customers.

 

*Measured Service Charges*. In addition to a monthlybasic charge, Telecom Argentina bills a monthly measured service charge fromalmost all of its customers which is based on telephone usage. Measured serviceis billed at the price per unit of time. Charges for local and domesticlong-distance measured service vary with the price per unit of usage. Thenumber of units of usage depends on the time of day, the day of the week, thedistance traveled and the duration of calls. During the summer months (December throughMarch) there is decreased consumption due to the fact that many customers areon vacation. Additionally, due to competition, Telecom Argentina offersdiscounts to customers mainly for domestic long-distance service, as semi-flatrate plans that include a set quantity of minutes for a fixed charge.

 

Localminutes were approximately 12.5 billion in 2009, 13.0 billion in 2008 and 13.6billion in 2007. During the past three years, despite increased economicactivity in Argentina and the growth in our fixed line customer base, thevolume of local minutes has decreased slightly due to the strong growth inwireless telephony and the resulting migration of traffic to wireless service.  During 2009, we maintained strong sales oftargeted and selective offer plans in urban areas by increasing the penetrationrate in our fixed line customer base.

 

Domesticlong-distance minutes decreased slightly to 2.9 billion in 2009 from 3.0 billionin 2008 and 2007. Ever since the Northern Region was opened to competition in1997, Telecom Argentina has maintained its position as the regional marketleader for domestic long-distance traffic. During 2009, deploying a similarstrategy to that which was adopted for local traffic, we launched new incentiveplans positioned to maintain average revenues generated by customers.

 

Inthe year ended December 31, 2009 approximately 79% of measured servicerevenue was generated by residential and professional customers, andapproximately 21% was generated by business and government customers.  In the year ended December 31, 2008,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*. Internationallong-distance traffic minutes decreased to 151 million in 2009 from 157 millionin 2008 and 142 million in 2007. The decrease in 2009 was mainly due to strong competitionand the introduction of VoIP (Voice Over Internet Protocol).

 

Since1992, international rates have been reduced annually as a consequence of theapplication of the Price Cap described in “Regulatory Framework—RateRegulations—Price Cap.” Telecom Argentina also has reduced internationallong-distance rates in order to compete with the new providers of long-distancecalling services.

 

Despitefacing strong competition, Telecom Argentina still retains an important marketshare of international long-distance traffic in the Northern Region, andcontinued to be the market leader for international long-distance in theNorthern region in the last year.

 

*Installation Charges*. Revenues from installationcharges consist primarily of fees levied for installation of new phone lines.Telecom Argentina offers discounts in multiple localities to reduce the rateauthorized by the government, with the aim of stimulating demand in thoseareas. The penetration of fixed-line telephony has continued to demonstrate a slowgrowth in Argentina, whereas it is decreasing in various other parts of theworld.

 

*Public Telephone Services*. As of December 31,2009, there were 50,275 public lines installed of which 4,850 are in theSouthern Region. Local and domestic long-distance traffic experienced asystematic reduction as a result of a strong development in the cellulartelephone industry in Argentina. As a result, public-telephony traffic for 2009fell to 300 million minutes compared to 394 million minutes for 2008 and 556 millionminutes for the 2007. The 

 

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trafficin domestic long-distance public-telephony was 150 million minutes for 2009,182 million minutes for 2008 and 243 million minutes for 2007. The traffic ininternational long-distance public-telephony has experienced a slight decreasein 2009, decreasing to 67 million minutes during 2009, from 69 million minutesin 2008 and 64 million minutes in 2007.

 

*Other National Telephone Services.*Telecom Argentina providesdedicated lines to businesses. Dedicated lines are dedicated point-to-pointleased lines. In addition to installation fees, Telecom Argentina receivesrevenues from dedicated analog urban/interurban lines.  These revenues are calculated according tothe price for long distance codes of urban/interurban calls.

 

Additionally,other national telephone services include charges for supplementary services(such as call waiting, call forwarding, conference calls, caller ID, voicemailand itemized billing).

 

*New Voice Products and Services.*Throughout 2009, TelecomArgentina continued to introduce new products and services in the market, inresponse to customer needs and in line with its goal to increase revenuesgenerated by customers in its access lines. The new products and servicesinclude the new line of “Aladino” telephone sets and the offering ofvalue-added packages for voice. Additionally, Telecom Argentina continued providing customers withinnovative services such as SMS from fixed telephones. Due to these value-addedpackages, our rate of penetration in our fixed line customer base increased ascompared to the previous year.

 

*Data Transmission Services*. The data services businessincludes nationwide data transmission services, virtual private networks,symmetric Internet access, national and international broadcasting signaltransport and videoconferencing services. These services are provided mainly tocorporations and governmental agencies. Telecom Argentina also provides certainValue Added Services, including electronic standard documents telecommunicationsoftware exchange and fax storage and delivery service. The data servicesbusiness also includes the lease of networks to other providers,telecommunications consulting services, operation and maintenance oftelecommunications systems, supply of telecommunications equipment andprovision of related services. Corporate data transmission services areprovided mainly through frame relay and ATM networks. In 2007, TelecomArgentina developed an IP Virtual Private Network and began the migration oflines connected to the ATM networks to the IP Virtual Private Network. TelecomArgentina has a non-expiring license to provide the aforementioned services.

 

During2009, we maintained our focus on ICT solutions. The new strategy is supportedby the data center, a key component in this process, as well as by the creationof the Delivery Management Data Center and Value Added Services Support center.As a result of these efforts, we provide convergence solutions in whichtraditional voice and data services are bundled with Internet access, web,multimedia, ICT and Data Center services.

 

During2009, we made additional investments in the data center, thereby strengtheningour infrastructure and allowing us to develop a new portfolio of products andsolutions.

 

Wehave developed many successful partnerships with global IT leaders, allowing usto provide high-quality solutions. For example, we act as Positron’s exclusiverepresentative in Argentina for the provision of 911 services.

 

*Internet*. Telecom Argentina introduced residential Internetservice under the brand name Arnet in 1998 and has been providingInternet-related services directly to its customers since November 2001.Telecom Argentina mainly offers this service in the major cities of Argentina.In recent years, Telecom Argentina’s Internet service has experienced higherdemand and usage in less populated areas of the country. The Internet servicesinclude broadband ADSL and Dial-Up.

 

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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,** | ** ** |
|------------|------------|-----------------------|------------|
| ** ** | ** ** | **2009**              | ** ** | **2008** | ** ** | **2007** | ** ** |
| ADSL (1)   |       | 1,223,000             |       | 1,042,000 |   | 783,000 |   |
| Dial-Up    |       | 55,000                |       | 65,000 |   | 76,000 |   |

 

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(1)          Includes ADSL access in the Northern Region and ADSLclients in the Southern 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 2008 and 2009throughout the country, increasing 33% and 17% respectively, reachingapproximately 1.2 million connections as of December 31, 2009.

 

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.

 

Duringthe period from 2007 to 2009, Telecom Argentina continued to increase itscustomer base, in line with or exceeding the market’s expansion. TelecomArgentina’s ADSL customer base reached 1 million clients in November 2008,thereby securing its leadership position in the broadband market.  As of December 2009, our nationwidemarket share was 31%. During 2009, we continued our strategy of increasingconnection speed for clients by directing customers to products offering higherbandwidth and significantly increasing the penetration of 3Mb service in ourcustomer base.

 

TelecomArgentina maintained its strategy of adapting its product portfolio to itsclients’ needs by introducing new products. In 2009, Telecom Argentinaimplemented a new platform of Value Added Services for business customers bylaunching a new product portfolio, “Biz Plus.” This product offers higher-value solutions and innovative features (e.g. standard mail and hosting services andservices such as calendar, agenda, SMS, gigamail, mail collection services, etc.).For the residential segment and through a strategic alliance with Direct TV,Telecom launched its first satellite TV service offering. This package featuresbroadband services, local calling and satellite TV services.

 

Additionally, Internetrevenues include Internet access services. Telecom Argentina offers its 0610,0611 and 0612 internet access services. The 0610 service is provided at ratesreflecting up to a 30% discount compared to regular urban rates for connectionslasting 30 minutes, depending on the time and day of the connection. Trafficgenerated by these services has been decreasing, falling from 2.3 billionminutes in 2007 to 1.4 billion minutes in 2008 and to 0.7 billion minutes in2009 with similar effects on net sales. After the implementation of an agreement reached with the Argentinegovernment, by the end of fiscal year 2009, Telecom Argentina offered Internetdial-up access to 100% of the users of fixed lines located in its coverageregion.

 

*b)    Wholesale*

 

*Interconnection Revenues*. Telecom Argentina collectsfees from other operators for interconnection services.  These fees primarily include local access,termination, and long-distance transport of calls, rentals of network capacityand commissions calling party pays fees. These fees are payable by mobile operatorsas well as fixed line operators.

 

Additionally,Telecom Argentina, remained the leading provider of wholesaletelecommunications solutions for various fixed and mobile operators,independent operators, local operators, public telephony licensees, cableoperators, Internet Access Providers (ISP), TV and radio channels,production companies and other service providers. The services marketed byTelecom Argentina include, among others, traffic and interconnection resources,third-party billing, dedicated internet access services, transport of videosignals in standard definition and high definition, streaming audio and video,dedicated links, backhaul links for mobile operators, Internet ProtocolVirtual Private Network and datacenter hosting services.

 

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TelecomArgentina continued to strengthen its position as a provider of solutions forthe broadcasting segment by offering transportation solutions for audio andvideo signals both as dedicated private links and on the Internet. We providedsolutions to cable operators and TV channels for the distribution of videosignals. During 2009, we continued to increase the number of clients connectedto Telecom Argentina’s video matrix located in the cities of Buenos Aires,Cordoba and Rosario. Telecom Argentina also carried the first highdefinition-quality video transmission for a broadcasting provider.

 

*International Long-Distance Service.*Telecom Argentina holds anon-expiring license to provide international telecommunications services inArgentina, including voice and data services and international point-to-pointleased circuits.

 

Revenuesfrom wholesale international long-distance service reflect payments underbilateral agreements between Telecom Argentina and foreign telecommunicationscarriers, covering virtually all international long-distance calls into or outof Argentina using our network. Revenues from international long-distanceservice therefore consist mainly of:

 

·                  amounts earned from foreigntelecommunications carriers for connection to the Argentine telephone network;

 

·                  bandwidth capacity under an IndefeasableRight of Use basis (IRU’S);

 

·                  international point-to-point leased circuits;and

 

·                  international data 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 foreign telecommunicationscarriers. Settlements among carriers are usually made on a net basis. Incomingtraffic with carriers measured in minutes accounted for 643 million minutes in2009, 618 million minutes in 2008 and 605 million minutes in 2007.

 

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.  Additionally, it serves the retail marketthrough sales of prepaid cards and A.N.I. recognition services (a technologysimilar to caller ID that allows customer identification of a particularprepaid card).

 

***Network and Equipment***

 

Inline with the previous fiscal year, coverage, capacity, quality andavailability have been the focus for the development of the network strategyduring 2009.

 

Withinthis context, we continued the deployment of fiber optic connections to ensurethat broadband availability in each city satisfies our customers’ increasingdemands. At present, over 90 percent of our customers are served throughpremises interconnected by fiber-optic networks.  For 10% of our customers in small areas where

 

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fiberoptic service is not available, we continued deploying high capacity SDH radio links(standard technology for synchronous data transmission on optical media) andcompleted the purchase and approval process for new adaptive modulation IPradios which permit Ethernet connectivity.

 

Wecontinued our strategy of having a single transmission backbone for the fixed,mobile and broadband and corporate connectivity services. To this end, wecompleted the update of our IP structure, enabling higher node and linkcapacities and introduced the first 40 Gbit links to meet the increasingdemands of current and future systems.

 

Theimplementation of Dense Wavelength Division Multiplexing (“DWDM”) continues tobe of great importance in the national long-distance network, allowing us toexceed prior capacity limits and facilitating national long-distance Ethernettransmission in the capital cities of all of the provinces and in mostlocations with higher customer volume. We have deployed this DWDM network in the city of Buenos Aires, in orderto interconnect data centers and main buildings in the network and to ensurefast broadband availability thereby.

 

Withregards to the fixed access network, we have identified two overlapping needs:the need to maintain 100% digitalized TDM lines in operational status and todeploy new generation networks (NGN) and the need to reach customers’ homeswith an increasingly higher broadband. In order to fulfill these two demands,we are developing a strategy of FTTC (Fiber to the Cabinet) and anotherstrategy of FTTB (Fiber to the Building) in some important buildings in thecity of Buenos Aires.

 

Weare negotiating a Life Extension (useful life extension) agreement with the TDMtechnology providers to ensure that TDM operations have an adequate servicelevel agreement for the next five years. We believe that these serviceagreements provide sufficient time to allow development of new IP technologiesfor this type of services. At the same time, the Company continues to deployNGN networks to meet new demand requirements.

 

Atthe voice core level (sixth generation microprocessor), a new generation callcontrol structure was deployed, both for national and international services,taking into consideration the geographical distribution and site redundancy toensure adequate service availability.

 

Withrespect to customer service, the Company continued its strategy of periodicallyfollowing-up and monitoring restored service in areas which had beencharacterized by high claim rates. In 2009, Telecom Argentina restored servicein 450 areas with this method. Additionally, the Company’s supervision centers have been integrated toprovide a single system to monitor interruptions of network service, thusreducing the time for diagnosis and repair.

 

**Wireless**

 

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

 

***Wireless Telecommunication Services inArgentina—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. The penetration of cellular service in Argentina has increased fromapproximately 96% of the population as of December 31, 2007 toapproximately 107.5% and 117.7% as of December 31, 2008, and 2009,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 

 

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Personalutilizes GSM technology and 3G technology in its networks and primarily offersits services of STM and SRMC services on the 850 MHZ frequency band, and PCSservice on the 1900 MHZ frequency band.

 

TelecomPersonal’s business is growing rapidly. From December 31, 2008 toDecember 31, 2009, its subscriber base in Argentina grew approximately15%. As of December 31, 2009, Telecom Personal had approximately 14.5million subscribers compared to approximately 12.6 million subscribers as ofDecember 31, 2008, and approximately 10.7 million subscribers as ofDecember 31, 2007. Growth in Telecom Personal’s cellular subscriber baseresults in growth in net sales in the wireless segment. Net sales of TelecomPersonal were P$7,628 million in 2009, P$6,565 million in 2008 and P$5,339million in 2007.

 

TelecomPersonal offers advanced supplementary wireless services, known as Value AddedServices. During 2009, Telecom Personal capitalized on the increased speed ofits 3G network to expand and improve its roster of services together with thesupply of smart phones in order to complement Telecom Personal’s deployment ofValue Added Services. The following are some of the services offered in 2009:

 

·                  “Personal Música”: A music store which allowsdownloading full tracks and other music contents.

 

·                  “Pack 2.0 (“Lo mejor de Internet”)”:Unlimited access to the mobile version of Facebook, MySpace, Hi5, Windows LiveMessenger, Hotmail, Yahoo mail, Yahoo Weather and Yahoo Finance.

 

·                  SMS Messenger: Allows the customer to enterMSN and chat with contacts as if using a PC.

 

·                  Advertising with geolocation: Allows theimplementation of advertising campaigns tailored to the location of consumers.

 

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 2009 and2008.

 

*Service Plans.*  Telecom Personal wireless customers areoffered a variety of flexible pricing options for wireless services. These optionsinclude prepaid, post-paid and “cuentas claras” plans.

 

*Prepaid Plans*. Under prepaid plans, the customer pays inadvance for telephone calls and Value Added Services using a prepaid card. Whenthe card runs out of minutes, the customer can recharge the prepaid card usinga prepaid system or can purchase virtual prepaid phone cards on TelecomPersonal’s website, by phone, at ATMs and drugstores or through authorizedagents. Since there are no monthly bills, prepaid plans allow subscribers tocommunicate with maximum flexibility while maintaining control over theirconsumption. A subscriber can add credit to the card and make and receivelocal, national and international calls. During 2009, a plan for the provisionof new features, products and services was implemented including packages ofData, SMS, voice and international calls.

 

*Post-paid Plans*. Telecom Personal offers a National FlatRate post-paid plan and a Local Flat Rate post-paid plan. Post-paid plansinclude caller ID, voicemail and a personalized greeting, call forwarding, dataservices, a multimedia personalized greeting, telephone technical support andcall waiting. The plans deploy Personal Digital Invoicing, enabling customersto view, download and print 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 offers a specified number of freeminutes per month. Once the free minutes have been used, the subscriber cancontinue using the wireless service at a set price per minute. The charges foradditional minutes will be added to the next month’s bill. Under the NationalFlat Rate Plan, a subscriber can make calls to and from any location withinArgentina at a constant rate because the per minute rate includes the localpublic network, national long-distance and national roaming. Under the LocalFlat Rate Plan, where the per minute rate includes the Local Public Network andRoaming, a subscriber can make local calls within any locality in the countrybut calls from one locality to another are charged at an extra rate.

 

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During2009, we experienced an increase in the number of subscribers to bundled planswhich include a limited quantity of megabytes, voice minutes and SMS.

 

*“Cuentas Claras” Plans*. Under the “cuentas claras”plans, a subscriber pays a set monthly bill and, once the contract minutes permonth have been used, the subscriber can obtain additional minutes byrecharging the phone card through the prepaid system.

 

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

 
| ** **                   | ** ** | **As of December 31,** | ** ** |
|------------------------------|------------|-----------------------------|------------|
| ** **                   | ** ** | **2009**                    | ** ** | **% of Total** | ** ** | **2008** | ** ** | **% of Total** | ** ** | **2007** | ** ** | **% of Total** | ** ** |
| *Wireless subscribers**:*(1) |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Prepaid                      |       | 10,051,000                  | * *   | *69.5* |   | 8,303,000 | * * | *66.1* |   | 7,062,000 | * * | *66.2* | * * |
| Post-paid                    |       | 1,715,000                   | * *   | *11.8* |   | 1,454,000 | * * | *11.6* |   | 1,134,000 | * * | *10.6* | * * |
| “Cuentas Claras”   |       | 2,709,000                   | * *   | *18.7* |   | 2,807,000 | * * | *22.3* |   | 2,470,000 | * * | *23.2* | * * |
| Total                        |       | 14,475,000                  | * *   | *100.0* |   | 12,564,000 | * * | *100.0* |   | 10,666,000 | * * | *100.0* | * * |

 

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(1)          Wireless subscribers means total registered andactive wireless subscribers at the end of the relevant period. An “activewireless subscriber” is a wireless subscriber who makes or receives 3 phonecalls within the last 90 days of such relevant period.

 

***Network and Equipment***

 

TelecomPersonal is the operator of mobile networks at a national level, and usesworld-class technology 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.

 

Bythe end of 2009, the access network radio bases exceeded 2,700, distributedthroughout the country. In line with the increase in customer traffic,expansion of the 2G network capacity continues.

 

Wecompleted a migration of the core network to a split or distributedarchitecture which strengthened node accessibility in the event of potentialinterruptions in the transmission network. This migration and networkredistribution will lower Telecom Personal’s transmission costs and improve itsawareness of service availability in areas distant from the switchers.  This also provides a convergent core networkfor second (GSM) or third generation (3G) services.

 

Additionally,during 2009, 40% of the long-distance traffic relations has migrated to theGroup’s IP network.

 

Developmentof text messaging, multimedia messaging and data connectivity continues, aswell as the implementation of BlackBerry, Ring Back Tones (musical ringtones)and mobile Intranet (wireless access to the corporate network).

 

Wecontinued to deploy a 3G access network that enables a general roll-out ofmobile broadband services. This layer operates in coordination with our GSMaccessibility and is tailored to provide the customer with adequate

 

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resourcesfor the type of services it demands. During 2009, we installed over 1,200 newgeneration access nodes, expanding our NGN coverage to over 80% of current GSMcoverage.  In addition, our networkcapacity was amplified to respond to an increase in users, mainly by customersusing 3G mobile broadband.

 

***Wireless Telecommunications Services inParaguay—Núcleo***

 

Weprovide nationwide wireless 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 granted licenses to provide commercial wirelessservices, internet access and videoconference and data transmission services inParaguay.

 

Themarket for cellular telephony in Paraguay continued experiencing a significantlevel of competition in 2009 due to aggressive rate competition, new productand service launches, and marketing promotions. As of December 31, 2009,Núcleo had approximately a 32% share of the market for cellular services inParaguay.  The customer base for its corecellular services declined by 1% as compared to the previous year. As of December 31,2009,Núcleo had 1,605,000 pre-paid customers, 153,000 customers with the serviceplan “Control Plan,” and 36,000 post-paid customers.

 

Nucleohas implemented focused core offerings and promotions in order to remaincompetitive on price and to better understand the price elasticity for certainfeatures. It continued the series of promotions launched last year, designed togive customers the ability to choose a time slot in advance at a reduced costand communicate with callers on other networks without being charged forinterconnection fees. A range of new products were added, such as the “FamilyPlan” and “Number Amigo.” These products allow free calls to other destinationsin a pre-selected core network, thus allowing customers to reach selectedparties at low costs and improving customer loyalty.

 

Núcleo faced strong competition to leverageproducts and services offerings for the youth segment.  In this regard, Núcleo distinguished itselfby being the first operator in the country to launch Messenger and Facebookwireless applications. Núcleoimplemented marketing campaigns encouraging greater use of services, such as “Themore you recharge your phone, the more you save,”  benefits of SMS,  and deals for free cell phone minutes.

 

Núcleoalso introduced new promotions in the post-paid segment with the aim ofmarketing its Value-Added Services. Núcleo sought to develop its Value-AddedServices through SMS and instituted various marketing campaigns, includingcampaigns offering prizes such as Ecosport trucks or trips to the World Cup.

 

Amongthe new 3G technology products, Núcleo launched a marketing campaignhighlighting its browsing speed as a competitive advantage, thereby achievingsignificant growth in the second half of 2009.

 

Alsoin 2009, Núcleo completed locking roaming agreements that allow customers touse prepaid service in Argentina, Uruguay and Brazil.

 

Núcleoalso implemented plans tailored to large customers which led to gaining newcustomers, thereby consolidating our existing product portfolio and capturingcustomers from our competitors.

 

***Network and Equipment***

 

Duringfiscal year 2009, Núcleo achieved many milestones in the development of andimprovements to its network and equipment. Núcleo completed the installation of 100 new B nodes, thereby achievinga 100% increase in installed capacity in its 3G network. Núcleo also prepareditself for future development of its 3G networks by upgrading its GPRS nodehardware and software to enable higher traffic capacity and better data servicefor its Value Added Services.  Withrespect to Núcleo’s GSM network, Núcleo rendered new sites operative, therebyincreased the number of cellular sites by 12% and added over ten locations tothe Núcleo network.  Finally, Núcleocontinued its network core expansion, increasing processing capacity of theAsuncion and Ciudad del Este stations.

 

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**Descriptionof the Operator**

 

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.

 

Bythe end of 2009, in Italy, the Telecom Italia Group had reached approximately16.1 million retail accesses (“accesses” refers to any telecommunicationsconnections offered by the Telecom Italia Group, including consumer andbusiness connections), a wholesale customer portfolio of 6.2 million accessesand 30.8 million mobile telephone lines. In addition, the Telecom Italia Group’sbroadband portfolio in Italy reached 8.7 million accesses as of December 31,2009 (including 7.0 million retail accesses and 1.7 million wholesaleaccesses). As of December 31, 2009, the Telecom Italia Group had 41.1million mobile telephone lines in Brazil.

 

**Competition**

 

*Voice, Data and Internet Services*

 

*Basic Telephony 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”), IPlan, Comsat, Telecentro,Telefónica (principally in the Southern Region) and Telecom Argentina(principally in the Northern Region). Telefónica has the dominant market sharefor provision of telecommunications service in the Southern Region. Some ofthese competitors may be better capitalized than us and have substantialtelecommunications experience. Accordingly, if economic conditions in Argentinaimprove and competitors increase their presence in the Northern Region, TelecomArgentina expects that it will face additional pressure on the rates it chargesfor its services and experience limited loss in market share in the NorthernRegion.

 

*Internet and Data Services*. We face nationwidecompetition in the Internet service market in Argentina from Telefónica,Netizen, Gigared, UOL, Ertach (which was recently acquired by Telmex),Telecentro and Cablevisión (Fibertel), among others. Our data services businessfaces competition from Telefónica, Comsat, Grupo Telmex Argentina, and fromseveral providers of niche data services such as Impsat, IPlan and others.

 

*Wireless Telecommunications Services*

 

*Wireless Telecommunications Services in Argentina.* The wirelesstelecommunications market in Argentina has been open to competition since 1993and was expanded to include PCS services in 1999. During recent years, GSMtechnology has created intense competition for subscribers among the variousservice providers, including giving rise to severe pricing pressure,significant handset subsidies and increased sales incentives provided todealers. The introduction of 3G technology since May 2008 allowedoperators to focus competition on Value Added Services.

 

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.

 

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TelefónicaMóviles, operating in Argentina under the trade name “Movistar,” is another ofthe largest 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 Southern Region.  This Southern region is Unifon’s originalservice 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 yet 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“—Regulatory Framework—Other Regulatory Regulations—Regulations Applicable toPCS Services” for additional details on Telecom Personal’s license.

 

*Wireless Telecommunications Services in Paraguay*. Currentlythere are four participants in the wireless service market in Paraguay. As of December 31,2009, Núcleo had an approximate 32% share of the cellular services market inParaguay. Telefónica Celular del Paraguay S.A. (a Millicom International Cellularsubsidiary) had approximately 54%, Hola Paraguay S.A. had approximately 4% andAmerica Móvil (under the brand name “Claro”) had approximately 10%. Officialstatistics are not published in Paraguay and, therefore, this informationregarding subscriber amounts is an estimate.

 

**REGULATORY FRAMEWORK**

 

**RegulatoryBodies and general 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.

 

Theprincipal features of the regulatory framework in Argentina have been createdby:

 

·                  The Privatization Regulations, including theList of Conditions;

 

·                  The Transfer Agreement;

 

·                  The Licenses granted to Telecom Argentina andits subsidiaries;

 

·                  The Rate 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”).

 

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**Licensesgranted as of December 31, 2009**

 

Asof December 31, 2009, Telecom Argentina has been granted the followingnon-expiring licenses to provide the following services in Argentina:

 

·                  Local fixed telephony;

 

·                  Public telephony;

 

·                  Domestic and international long-distancetelephony;

 

·                  Domestic and international point-to-point linkservices;

 

·                  Domestic and international telex services;

 

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

 

·                  Internet access.

 

Asof December 31, 2009, the Company’s subsidiaries have been granted the followinglicenses:

 

·                  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 and internationallong-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.

 

**Revocationof 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;

 

·                  a reduction of ownership of Nortel in thecapital stock of Telecom Argentina to less than 51%, or the reduction ofownership of Sofora in the Capital Stock with voting power of Nortel to lessthan 51%, in either 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.

 

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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.

 

**Liberalizationof the Argentine Telecommunications Industry**

 

InMarch 1998, the Argentine government issued Decree No. 264/98,introducing a plan for the liberalization of the Argentine telecommunicationsindustry, or the “Plan.” Decree No. 264/98 provided for the extension ofthe period of exclusivity with respect to the provision of basic telephony andinternational long-distance services until some time between October 8,1999 and November 8, 1999, depending on the particular region. The Planalso provided for: (i) the immediate liberalization of pay telephoneservices and (ii) during July 1998, the liberalization of telephoneservice in rural areas. In addition, the Plan contemplated that in January 1999,data transmission services within the countries included in Mercosur would beopen to competition, subject to the following conditions: (i) each of theMercosur countries enters into agreements providing for the liberalization ofthese services and establishing similar regulatory bodies and (ii) reciprocityexists between countries with respect to the granting of licenses. 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.

 

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.

 

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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 Claro), 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 Southern Region).

 

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.

 

Asof December 31, 2009, Telecom Argentina had installed 4,850 public linesin the Southern Region. Telecom Argentina has installed public telephonytelecommunication centers, or CETs, providing access to public telephonyservices, Internet and fax services in the Southern Region in major citiesincluding Buenos Aires, La Plata, Mar del Plata, Mendoza, San Luis, VillaMercedes, Tandil, San Juan, Ushuaia and Junín. Telecom Argentina competes witha number of other companies for the provision of public telephone services.

 

**RegulatoryEnvironment**

 

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

 

OnSeptember 5, 2000, the Argentine executive branch issued Decree No. 764/00which enacted 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.

 

Thebasic guidelines for these regulations are as follows:

 

*General Regulation of Licenses.* This regulation establishesa single nationwide license for the provision of all telecommunication servicesto the public, 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. Thisregulation governs the license through which Telecom Argentina offers servicesin the Southern Region and is complementary to Telecom Argentina’s obligationspursuant to its preexisting licenses.

 

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*Argentine Interconnection Regulation.* Compared to the priorinterconnection regulation (Decree 266/98), this regulation provides for areduction of approximately 50% in the reference interconnection prices ineffect at the time. The regulation also increases the number of infrastructureelements and services that the dominant operator is required to provide,including interconnection at the local exchange level, billing services andunbundling of local loops. This regulation also introduces interconnection fornumber translation services (NTS) such as Internet, audiotext, collect callingand the implementation of number portability, all of which are subject tofuture regulations.

 

OnJanuary 22, 2009, the SC issued Resolution No. 8/09 through which itcreated a Working Commission composed of members of the SC and the CNC and gavethem a term of 120 days to prepare a draft of the Number PortabilityRegulation.  As of the date of thisAnnual Report, the CNC regulation regarding the implementation of numberportability is still pending.

 

*Regulation Governing the Administration, Management and Control of theRadioelectronic Spectrum.* This regulation establishes the principlesand requirements 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.

 

*Universal Service (“SU”) Regulation.* The Universal Serviceregulation requires entities that receive revenues from telecommunicationsservices to contribute 1% of these revenues (net of taxes) to the UniversalService Fiduciary 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 SU programs.The Regulatory Authority has not instituted this committee nor has itimplemented the SU Fund pursuant to this regulation.

 

OnJune 8, 2007, the SC issued Resolution No. 80/07 which stipulatedthat until the SU Fund is effectively implemented, telecommunication serviceproviders, such as Telecom Argentina and Personal, are required to deposit anycontributions accrued since the issuance of such Resolution into a specialindividual account held in their name at Banco Nación. CNC Resolution No. 2,713/07,issued in August 2007, established how these contributions are to becalculated.

 

*New Universal 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 Service regime.  Decree No. 558/08 established that theSC would assess the value of service providers’ direct program contributions incompliance 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.

 

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.

 

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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 the 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 trustees for thisfund, and shall rely on the assistance of a Technical Committee made up of sevenmembers (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.

 

OnDecember 9, 2008, the SC issued Resolution No. 405/08 which requirestelecommunication service providers to deposit 1% of their revenues intospecial accounts, as defined in Decree No. 558/08, without passing on anycosts incurred for the provision of their services.

 

OnJanuary 12, 2009, Telecom Argentina and Telecom Personal filed claimsbefore the SC objecting 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 considers thatthe Telecom Group has meritorious legal arguments for the claims filed againstResolution No. 405/08.

 

Atthe date of issuance of this Annual Report, the SU programs are still pendingapproval by the SC.

 

OnApril 4, 2009, by means of SC Resolution No. 88/09, the SC created anew program denominated “Telephony and Internet for towns without provision ofbasic Telephone services” that will be subsidized with funds from the SU Fund.The new program seeks to provide local telephony, domestic long distance, internationallong distance services and Internet services in towns that currently do notprovide basic telephone services. SC Resolution No. 88/09 specifies themethodology that licensees will have to follow for proposals to render theseservices in several of the 1,491 towns and 1,496 schools identified in theResolution’s Annex. The proposed projects approved by SC will be sent to theTechnical Committee of the SU Fund so that the availability of funds can beevaluated and such funds can be included in a bidding process provided for inDecree No. 558/08.

 

*In Telecom Argentina*

 

Bythe end of 2002, the SC formed a working group responsible for analyzing themethod to be applied to measure the net costs of SU performance —particularly,the application 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 the performance of SU obligations. Theworking group decided that, given the complexity of this 

 

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methodology,efforts should be made to continue the initial programs independently fromapplication of the HCPM Model, and that there was a need to carry out acomprehensive review of the present general regulations relating to SU toensure that these regulations were operative in the near term considering theexisting 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$656 million for theperiod initiated in July 2007 through December 31, 2009 and filed itscalculations for review by the regulatory authority. This receivable has notyet been recorded since it is subject to the approval of the SU programs, thereview of the SC and the availability of funds in the SU Trust.

 

*In Telecom Personal*

 

SinceJanuary 2001, Telecom Personal has been recording a provision related toits obligation to make contributions to the SU Fund. As of December 31,2009, this provision amounted to P$155 million. In addition, since July 2007and in compliance with SC Resolution No. 80/07 and CNC Resolution No. 2,713/07,Telecom Personal has deposited the corresponding contributions on theirrespective maturity date (amounting to P$66 million as of December 31,2009) into a special individual account held under their name at the Banco dela Nación Argentina; these contributions were recorded as a receivable as of December 31,2009.

 

SinceJanuary 2001, Personal, as well as the other wireless providers, hadcharged SU fund amounts to customers.  SCResolution No. 99/05 required entities that derived revenues fromtelecommunications services to contribute 1% of these revenues to the SU fund,and prohibited billing to customers any SU amounts.  As a result, the CNC, through CNC Note No. 726/05,requested that Telecom Personal discontinue billing SU amounts to customers andreimburse all collected SU amounts plus interest (applying the same rate usedfor overdue invoices 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 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.

 

InDecember 2006, the CNC issued a preliminary report regarding verificationof Telecom Personal’s SU reimbursement. The report indicated that Telecom Personal completed the requirement ofreimbursement of the SU amounts including reimbursement of related interest.However, the report stated that the interest rate applied differed from therate required by the CNC. Finally, on August 7, 2008, the CNC orderedTelecom Personal to adjust the reimbursement applying the same interest rateused for overdue invoices from customers (i.e. one and a half of the BancoNación interest rate collected by banks).

 

InSeptember 2008, Telecom Personal rejected this claim, explaining itsjustification for the applied interest rate. However, Telecom Personal’smanagement decided to reimburse the interest claimed by the CNC. As a result,Telecom Personal recorded a provision of P$10 million. During the third quarterof 2009, Telecom Personal began the process of reimbursing interest to itscustomers (amounting to P$5 million as of December 31, 2009).

 

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

 

Duringyear 2000, Telecom Argentina filed an administrative appeal for revocation ofcertain provisions of the regulations attached to Decree No. 764/00. Theadministrative appeal argues that:

 

·                  the contested regulations contain inequitiesthat violate the provisions adopted in connection with the privatization of theBasic telephone service;

 

·                  broadcasting companies may rendertelecommunications services through one entity while Telecom is unable to doso; and

 

·                  the reduction of interconnection rates doesnot compensate for the access deficit which itself is not being recognized orcompensated pursuant to Universal Service Regulations.

 

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

 

***Rates***

 

*Transfer Agreement.* Pursuant to the originalterms of the Transfer Agreement, Telecom Argentina was permitted to adjust therates it charged for domestic telephone calls in accordance with the monthlyvariation of the Argentine consumer price index, or, in certain circumstances,a weighted average of the Argentine consumer price index and the devaluation ofthe Argentine currency against the dollar. However, the Convertibility Law,which took effect on April 1, 1991, prohibited peso-based price adjustmentmechanisms, thereby preventing the operation of this indexing mechanism.

 

*Rate Agreement.* On November 28, 1991, Telecom Argentinaand Telefónica signed an agreement (known as the November Agreement) withthe Argentine 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.

 

*Public Emergency Law.* As a consequence of thesevere and ongoing deterioration 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 rates for measured service, public telephone service,long-distance, some supplementary services and monthly basic and installationcharges;

 

·                  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 rates that Telecom Argentina maycharge in the future.

 

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

 

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

 

·                  Service quality and investment plans, ascontractually agreed;

 

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·                  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 informationrequired 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 rate 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, 2011.

 

*Letter of Understanding 2004 (“LOU”).* As part of our negotiationsunder Decree No. 293/02 on the rate structure, on May 20, 2004,Telecom Argentina and Telefónica signed the Letter of Understanding 2004 withthe Argentine government pursuant to which it committed not to modify the currentrate structure through December 31, 2004 and to continue with the raterenegotiation process, which Telecom Argentina expected to have concludedbefore December 31, 2004. Telecom Argentina also committed to offer phoneservices to beneficiaries of governmental welfare programs and to extendinternet services in the interior of the country at reduced prices. Thisagreement was implemented by several SC Resolutions (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 therates at the date set in the LOU.

 

*Letter of Understanding 2006.* On March 6, 2006,Telecom Argentina signed the Letter of Understanding 2006 with the UNIREN onbehalf of the Argentine government. Upon the fulfillment of the procedures setforth in the rules and regulations presently in effect, the Letter ofUnderstanding 2006 will provide the framework for the signing of the “ActaAcuerdo de Renegociación del Contrato de Transferencia de Acciones” or Minutesof Agreement of the Renegotiation of the Transfer Agreement (the “Minutes ofAgreement of the Renegotiation”) approved by Decree No. 2,332/90, asstated in Section 9 of the Public Emergency Law.

 

Themain terms and conditions 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 theachievement of 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;

 

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·                  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,arbitral or judicial offices, in Argentina or in any other country, that arefounded in or related to any act or measure taken after the issuance of thePublic Emergency Law with respect to the Transfer Agreement and to the Licensegranted to Telecom Argentina by Decree No. 2,347/90, after 30 days fromthe end of the public hearing convened to deal with the Letter of Understanding2006 have elapsed, and to discontinue said claims, appeals and petitions afterthe Minutes of Agreement of the Renegotiation have been ratified (As of thedate of this Annual Report, both Telecom Argentina and its indirectstockholders Telecom Italia and W de Argentina—Inversiones have honored thiscommitment);

 

·                  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 toreduced rates shall be unified with regards to local calls, long-distancedomestic and international calls.

 

OnMay 18, 2006, the Letter of Understanding 2006 was subject to a publichearing procedure, with the purpose of encouraging the participation of theusers and the community in general, taking into consideration that the Letter’sterms and conditions will provide the framework for the signing of the Minutesof Agreement of the Renegotiation. These Minutes of Agreement of theRenegotiation shall be in effect once all the requirements stipulated in theregulatory framework are complied with, which among other things, requires thata Telecom Argentina Stockholders’ Meeting be held to approve said Minutes. BothTelecom Argentina and its indirect stockholders Telecom Italia S.p.A. and W deArgentina - Inversiones S.L. have timely fulfilled the Agreement’s commitments.

 

Asof the date of this Annual Report, Telecom Argentina continues to awaitcompletion of the administrative steps required for the National Executive tosubmit to the National Congress a proposed Memorandum of Agreement forRenegotiation. Although Telecom’s Management believes that the contractrenegotiation process will be satisfactorily completed, to date there is nocertainty regarding either the outcome or the timing of the resolution of thenegotiations.

 

***Rate Regulations***

 

*Rate Rebalancing.*At the time of ENTel’sprivatization, the need for a future amendment of rates to rebalance thepricing of domestic and international charges was foreseen. Subsequentagreements established the right of licensees to a Rate Rebalancing and setforth some methods to implement a new rate 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 Rate Rebalancingwas 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 rate 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 methods to facilitate neutral results on revenues. The *Banco Interamericano de Reconstrucción y Fomento*, orInterAmerican Bank for Reconstruction and Development, was responsible formaking measurements on a semi-annual basis, over a two-year period, to 

 

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determinethe effects of the Rate Rebalancing. Decree No. 92/97 provides for a method to offset changes in revenueresulting from the Rate Rebalancing at the time of applying the Price Caps.

 

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.

 

*Historical Rates.* The following table sets forth certain ofour maximum month-end rates for various components of local service anddomestic long-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 |   |

 

----

(1)          Figures shown do not include value added tax chargedto customers.

(2)          In accordance with Public Emergency Law these rateswere pesified at the exchange rate 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.

 

*Price Cap.* The List of Conditions required that rates undergoan annual reduction until the Regulatory Bodies determine that there is “effectivecompetition” in the markets we serve. The Price Cap was a regulation methodapplied in order to calculate changes in Telecom Argentina’s rates, based onchanges in the U.S. Consumer Price Index (“U.S. C.P.I.”) and an efficiencyfactor. A 2% (measured in real dollar terms) reduction in the prior year’srates was required for each of the third through the seventh year following theTransfer Date (through November 7, 1997). In addition, following theextension 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 any balance that needed to be applied. As a result ofthe 1999 Price Cap audit process and Telecom Argentina’s reviews, theRegulatory Authority notified us, in August 2009, of the existence of anoutstanding balance of P$3.1 million plus interest which has yet to be applied.** **Thisamount was offset with the credit resulting from SC Resolution No. 41/07.See “—Tax Stability: Social Security Contribution Variations.”

 

OnDecember 15, 1999, the Argentine government, Telecom Argentina andTelefónica agreed to implement certain modifications to the rate structure inorder to facilitate actions of the Argentine government designed to improve thelevel of competitiveness of the Argentine economy.

 

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Amongother issues, the agreement contemplated:

 

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

 

·                  a 5.5% reduction in revenues from residentialcustomers from local Basic telephone service (these reductions were madeavailable to customers who requested the rate reduction); and

 

·                  the continuance of the 0610 Internet accessdial-up charge to residential customers.

 

Theserate 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 through 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 2000, 2001 and2002, carried forward at an interest rate of 12%. Additionally, the impact ofthe adjustments described above for the period November 2000 to October 2001was to be applied to the price cap reduction of November 2000.

 

OnApril 6, 2000, the Argentine government, Telefónica and Telecom Argentinasigned an agreement (“Price Cap 2000”) that set the price cap efficiency factorat 6.75% (6% set by the SC and 0.75% set by Telecom Argentina and Telefonica)for the period of November 2000 to November 2001.

 

The2000 Price cap audit results are still pending. Should the outcome of theseaudit results yield a payable by Telecom Argentina, this payable can be offsetwith the receivables generated by Resolution No. 41/07.

 

InApril 2001, the Argentine government, Telefónica and Telecom Argentinasigned an agreement (“2001 Price Cap”) that set an efficiency factor forreduction of rates at 5.6% for the period from November 2001 to October 2002.

 

However,in October 2001 a preliminary injunction against Telecom Argentinadisallowed Telecom Argentina to apply rate increases by reference to the U.S.C.P.I. Telecom Argentina appealed this injunction arguing that if one part ofthe formula could not be applied, the Price Cap system should be nullified.Finally, Public Emergency Law No. 25,561 explicitly prohibited rateadjustments. As of the date of this Annual Report, the pesification and thefreeze of the regulated rates 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 rate regulation procedures. See “Item 8—FinancialInformation—Legal Proceedings—Civil, tax, commercial, labor and regulatoryproceedings—General Proceedings—Consumer Trade Union Proceeding.”

 

*Installation Charges.* Under the Rate Agreement,Telecom Argentina was required to gradually reduce installation charges so asto achieve pricing levels equal to those for internationally mature networks(estimated in the Rate Agreement to be US$250) and to eliminate distinctionsbetween residential and commercial users. Decree No. 92/97 establishedthat, beginning in November 1997, installation charges could not exceedthe amount charged in mature international markets. In accordance with thisdecree, the current maximum permitted charge is US$150 (pursuant to the PublicEmergency Law, this charge was pesified at the exchange rate ofUS$1.00=P$1.00). Telecom Argentina has been applying several promotions toinstallation charges. Average levels of promotional installation charges in2009 were P$57.

 

*Monthly Basic Charges.* Until the effective date ofDecree No. 92/97, customers were entitled to a certain number of FreePulses per line depending on the category of each customer and the number oflines in the area. As a result of the application of Decree No. 92/97 andin order to offset rate reductions for domestic and international long-distanceservices, Free Pulses were eliminated for all categories of customers, monthlybasic charges were equalized throughout the country.  Decree No. 92/97, however, provided fora special reduced rate that is available to certain retired people andlow-consumption residential customers.

 

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*Long-Distance Rates.* Decree No. 92/97reduced the average weighted domestic long-distance rate by approximately 33%.Under this revised rate schedule, interurban rates were significantly reduced,with maximum long-distance rates reduced by 56%. Calls within Provincial Code 1(up to 30 Km) made within provincial cities are now billed at an urban rate.

 

*Letter of Understanding Relating to Basic Services.* Pursuant tothe Letter of Understanding 2006, described under “—Letter of Understanding2006,” the Government has agreed that Telecom Argentina can increase thetermination charges applied to incoming international calls and reduce the timebands for off-peak local rates. As of the date of this Annual Report, TelecomArgentina is expecting the completion of certain administrative steps requiredfor the National Executive to submit to the National Congress a proposedMemorandum of Agreement for Renegotiation.

 

*Tax on deposits to and withdrawals from bank accounts (“IDC”).* On February 6,2003, the Ministry of Economy, through Resolution No. 72/03, defined themethod to allow, going forward, rate 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 rate renegotiation process (See “—Rates—Letter ofUnderstanding 2006.”). In April 2007, Telecom Argentina provided the CNCwith supporting documentation about this amount for its audit. TelecomArgentina had access to the CNC’s audit documentation which corroborates theamounts claimed by Telecom Argentina and its application of a similaroffsetting method pursuant to Resolution N° 41/07. Therefore, during fiscalyear 2007, Telecom Argentina recorded a total of P$23 million as “Otherreceivables”.

 

*Tax Stability: 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 proposed use for the resulting savings and increases incontribution rates that have occurred. Pursuant to Resolution No. 41/07,Telecom Argentina may offset the impact of costs caused by increases in SocialSecurity contribution rates that have been implemented in accordance with theapplicable regulations against the savings caused by reductions in the levelsof Social Security contributions initially earmarked for theargentina@internet.todos Program.

 

TelecomArgentina’s implementation of Resolution No. 41/07 was subject to CNCaudits, which were carried out during the third quarter of 2007. TelecomArgentina gained access to the documentation related to the CNC’s audits andthis documentation showed no significant differences as compared to the netamounts that Telecom Argentina had determined.

 

Consequently,Telecom Argentina recorded a receivable from increases in social securitycontributions and canceled payables stemming from reductions in social securitycontribution rates and other fines due by the Company. As of December 31,2009, Telecom Argentina has a net receivable of P$68 million which, in additionwith the receivable of P$23 million corresponding to the IDC, is included inthe line item “Other receivables” (P$4 million as current receivables and P$87million as non-current receivables).

 

SinceResolution No. 41/07 gives Telecom Argentina the right to offsetreceivables with existing and/or future regulatory duties and, given itsintention to exercise this right, the receivable was recorded net of reserves.At December 31, 2009, the reserves corresponding to these regulatoryduties amounted to P$79 million.

 

In2009, Telecom Argentina has continued billing customers the increases in itssocial security contribution rate accrued from October 2008, applying thesame method used to bill the IDC.

 

***Other Regulatory Regulations***

 

*Regulation for the Call by Call Selection of the Providers ofLong-Distance Services.* On December 28, 2001, the formerMinistry of Infrastructure and Housing issued General Resolution No. 613/01,approving a system that allows callers to select their preferred long-distanceprovider for each call. This call by call selection system is referred to as “SPM.”

 

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Subsequently,as a result of 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 setting forth the SPM. Themain changes relate to the following: long-distance carriers’ freedom toprovide SPM, changes in blockage modality due to delinquency, changes in theservice connection modality and greater flexibility of obligations related toservice 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 modalityhas not been implemented.

 

*Buy Argentine Act.* In December 2001, theArgentine government passed Public Law No. 25,551 (the “*Compre Trabajo 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 priority to national goods and services,as defined in Public Laws No. 25,551 and No. 18,875, in anyprocurement related to the rendering of basic telecommunications services.Priority must be given to national goods and services as long as the price ofsuch goods is equal to or lesser than the price of a foreign good (includingcustoms duties, taxes and other expenses that are linked to the nationality ofgoods) increased by 7% (when the Argentine offeror is a small or medium sizecompany) 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 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 by such law, with local companies and professionals. Anyexception must receive the prior approval of the relevant Ministry.

 

InAugust 2004, CNC Resolution No. 2,350/04 enacted the “Procedure forthe fulfillment of the Buy Argentine Act,” which requires Telecom Argentina topresent biannual affidavits addressing its compliance with these rules.Non-compliance with this obligation is subject to administrativesanctions.  Since this regulationrequires Telecom Argentina to ask bids for goods and services and/or to obtainany necessary approvals by a relevant authority, and given the higheradministrative expenses derived from the obligation to present biannualaffidavits, this regulation reduces Telecom Argentina’s operating flexibility.

 

*Public telephony in penal institutions.* In June 2006, DecreeNo 690/06 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.  The issuance of these technical definitionsis still pending.

 

Asof the date of this Annual Report, Telecom Argentina is implementing technicalalternatives in order to comply with this new rule.

 

*Rendering of fixed telephony through mobile telephony infrastructure.* In August 2007,through SC Resolution No. 151/07, fixed telephony was granted access toparticular frequency bands, with the purpose of providing Basic telephoneservices in rural and suburban areas through the wireless infrastructure usedfor the provision of mobile telephony service. Telecom Argentina and Telefónicawill provide this service within their respective fixed telephony serviceoriginal regions.  Telecom Argentina hasinstalled fixed lines based on this technology in order to satisfy servicedemand in rural and suburban areas.

 

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*Calling Party Pays—CPP.* As of April 15, 1997,pursuant to Decree No. 92/97 and SC General Resolution Nos. 263/97 and344/97, wireless telephone services apply the “calling party pays,” or “CPP,”system, whereby the party placing a call from a fixed-line to a wireless phonepays for the air time charges for the call. As an exception to this rule,traffic originating from public telephones does not pay CPP, and is insteadcharged according to the “Mobile Party Pays” or MPP system, whereby thecellular party pays for the call received.

 

InMarch 2002, Telecom Personal started entering into agreements with thetelephone operators to charge CPP for calls made by calling cards. Mobileoperators have also agreed to pay for traffic terminated in each others’networks at agreed prices.

 

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 a prefix“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, the SC has yet to complete these revisions.

 

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

 

LawNo. 25,891.  Law No. 25,891 wasadopted on April 2, 2004, but material regulations under this law arestill pending. This regulation intends to regulate the commercial distributionof wireless services and includes mandated registration of personal data forall customers, creating a Public Registry in the SC named “*RegistroPúblico Nacional de Clientes y Usuarios de Comunicaciones Móviles.*”

 

*Regulations Applicable to PCS Services*

 

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

 

*AMBA.* In June 1999, Telecom Personal and Unifón werejointly awarded a license of 40 MHZ in the PCS Band for the region includingthe AMBA. Miniphone and Movicom each exercised the right to acquire a licenseof 20 MHZ in the PCS Band. Telecom Personal and Unifón have divided the 40 MHZlicense awarded to the two companies and the additional 20 MHZ license grantedto Miniphone (10 per company).

 

*Interior Regions.* Telecom Personal holds licenses of 40 MHZ inthe PCS Band in the Southern Region. Telecom Personal also holds a license of20 MHZ in the PCS Band in the Northern Region.

 

InAugust 2006, the CNC issued Res No. 2,528/06 declaring that TelecomPersonal had fulfilled its obligations under the *Pliego deBases y Condiciones* for the acquisition of the licenses for theprovision of PCS. In addition, the SC issued Note No. 1040/06 whichenabled Telecom Personal to recover the promissory notes used to guarantee thegranted PCS licenses and therefore, all such notes have been recovered as ofthe date of this 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 shareholdercontrol of stakes held in Compañía de Radiocomunicaciones Móviles S.A. and inCompañía de Teléfonos del Plata in Telefónica Móviles’ favor. Thisauthorization was conditioned upon the return, without charge, of frequencybands exceeding an aggregate 50 MHZ in accordance with then current laws andpursuant to a plan to be subsequently issued.

 

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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. Since then, Telecom Personal haspresented successive requests to the SC demonstrating its interest inparticipating in the frequency band reassignment process when this occurs, butas of the date of this Annual Report, the SC has not 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$1,694 million in the year ended December 31,2009, P$1,597 million in the year ended December 31, 2008 and P$1,302million in the year ended December 31, 2007.

 

Thefollowing table sets forth our actual consolidated capital expenditures for theyears ended December 31, 2009, 2008 and 2007.

 
| ** **                                                        | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                        | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                        | ** ** | **(P$ millions)(1)**        | ** ** |
| Land and buildings                                                |       | 94                               |       | 104 |   | 68 |   |
| Switching and transmission                                        |       | 455                              |       | 391 |   | 416 |   |
| Access and outside plant                                          |       | 493                              |       | 478 |   | 277 |   |
| Computer equipment                                                |       | 468                              |       | 456 |   | 397 |   |
| Rights of use, exclusivity agreements and licenses                |       | 23                               |       | 41 |   | 27 |   |
| Other                                                             |       | 161                              |       | 127 |   | 117 |   |
| **Subtotal capital  expenditures(2)(3)**                          | ** ** | **1,694**                        | ** ** | **1,597** | ** ** | **1,302** | ** ** |
| Materials                                                         |       | 127                              |       | 90 |   | 139 |   |
| Asset retirement obligations                                      |       | 3                                |       | 10 |   | 2 |   |
| **Total fixed assets and  intangible assets capital expenditure** | ** ** | **1,824**                        | ** ** | **1,697** | ** ** | **1,443** | ** ** |

 

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(1)          The allocation of work in progress among items isestimated.

 

(2)          Includes capitalized interest on fixed assets ofP$15 million, P$20 million and P$23 million as of December 31, 2009, 2008and 2007, respectively.

 

(3)          Includes materials consumption amounting to P$190million, P$331 million and P$381 million as of December 31, 2009, 2008 and2007, respectively.

 

Inaddition, the following table shows capital expenditures, for the years endedDecember 31, 2009, 2008 and 2007 by reportable segment:

 
| ** **                                         | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                         | ** ** | **(P$ millions)**           | ** ** |
| **Voice, Data and Internet**                       |       |                             |       |   |   |   |   |
|                                               |       |                             |       |   |   |   |   |
| Land and buildings                                 |       | 36                               |       | 38 |   | 20 |   |
| Switching and transmission                         |       | 245                              |       | 235 |   | 267 |   |
| Access and outside plant                           |       | 241                              |       | 208 |   | 131 |   |
| Computer equipment                                 |       | 150                              |       | 216 |   | 162 |   |
| Rights of use, exclusivity agreements and licenses |       | 21                               |       | 40 |   | 27 |   |
| Other                                              |       | 110                              |       | 97 |   | 82 |   |
| **Subtotal**                                       | ** ** | **803**                          | ** ** | **834** | ** ** | **689** | ** ** |
| Materials                                          |       | 112                              |       | 90 |   | 110 |   |
| Asset retirement obligations                       |       | 2                                |       | 2 |   | — |   |
| **Voice, Data and Internet**                       | ** ** | **917**                          | ** ** | **926** | ** ** | **799** | ** ** |

 

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| ** **                                                        | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                        | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                        | ** ** | **(P$ millions)**           | ** ** |
| **Wireless**                                                      | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                              |       |                             |       |   |   |   |   |
| Land and buildings                                                |       | 58                               |       | 66 |   | 48 |   |
| Switching and transmission                                        |       | 210                              |       | 156 |   | 149 |   |
| Access and outside plant                                          |       | 252                              |       | 270 |   | 146 |   |
| Computer equipment                                                |       | 318                              |       | 240 |   | 235 |   |
| Rights of use, exclusivity agreements and licenses                |       | 2                                |       | 1 |   | — |   |
| Other                                                             |       | 51                               |       | 30 |   | 35 |   |
| **Subtotal**                                                      | ** ** | **891**                          | ** ** | **763** | ** ** | **613** | ** ** |
| Materials                                                         |       | 15                               |       | — |   | 29 |   |
| Asset retirement obligations                                      |       | 1                                |       | 8 |   | 2 |   |
| **Wireless**                                                      | ** ** | **907**                          | ** ** | **771** | ** ** | **644** | ** ** |
|                                                              |       |                             |       |   |   |   |   |
| **Total fixed assets and  intangible assets capital expenditure** | ** ** | **1,824**                        | ** ** | **1,697** | ** ** | **1,443** | ** ** |

 

During2009, 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.

 

Asa result 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. These costs are estimates and remain subject to the finalization ofservices and other contracts relating to these expenditures.

 

Weestimate that our capital expenditures will be approximately P$2.2 to P$2.4billion for 2010 (including materials). See “Item 5—Operating and FinancialReview and Prospects—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.

 

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**PROPERTY, PLANT AND EQUIPMENT**

 

Asdetailed below, our principal physical properties consist of transmissionequipment, access facilities, outside plant (external wiring) and switching equipment.These properties are, at present, mainly located throughout the NorthernRegion. We believe that these assets are, and for the foreseeable future willbe, adequate and suitable for their respective uses.

 
| ** **                                                                               | ** ** | **As of December 31, 2009** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                               | ** ** | **Voice, Data  and Internet**    | ** ** | **Wireless** | ** ** | **Total** | ** ** |
| ** **                                                                               | ** ** | **(P$ millions)(*)**        | ** ** |
| Land and buildings                                                                       |       | 839                              |       | 154 |   | 993 |   |
| Switching and transmission                                                               |       | 1,127                            |       | 940 |   | 2,067 |   |
| Access and outside plant                                                                 |       | 1,519                            |       | 689 |   | 2,208 |   |
| Computer equipment                                                                       |       | 509                              |       | 709 |   | 1,218 |   |
| Other                                                                                    |       | 78                               |       | 53 |   | 131 |   |
| **Fixed assets, net carrying  value without materials and asset retirement obligations** | ** ** | **4,072**                        | ** ** | **2,545** | ** ** | **6,617** | ** ** |
| Asset retirement obligations                                                             |       | 3                                |       | 10 |   | 13 |   |
| Materials                                                                                |       | 108                              |       | 101 |   | 209 |   |
| **Total fixed assets, net  carrying value**                                              | ** ** | **4,183**                        | ** ** | **2,656** | ** ** | **6,839** | ** ** |

 

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(*)         The allocation of work in progress among items isestimated.

 

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

 
| ** **                | ** ** | **2009**        | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------|------------|-----------------|------------|----------|------------|----------|------------|
| ** **                | ** ** | **(thousands)** | ** ** |
| Fixed telephony customers |       | 3,991           |       | 3,937    |       | 3,849    |       |
| Internet (*)              |       | 1,290           |       | 1,122    |       | 866      |       |
| Wireless subscribers      |       | 16,269          |       | 14,375   |       | 12,285   |       |

 

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(*)         In 2009, 2008 and 2007, includes 12,000, 15,000 and7,000 Internet (wimax) customers in Paraguay, respectively.

 

Asof December 31, 2009, we have entered into purchase commitments totalingP$993 million primarily for switching equipment, external wiring,infrastructure works, inventory and other services. In general, the contractswere financed, directly or indirectly, by domestic and foreign vendors.

 

Ourcurrent major suppliers of equipment are CIA Ericsson S.A.C.I, Nokia SiemensNetworks Argentina, Nokia Inc., Infosonics Corporation, Huawei TechInvestment Co. Ltd. Argentina,Motorola Industrial Ltda, LG Electronics de Sao Paulo Ltda., and ItaltelArgentina S.A.

 
| **ITEM  4A.** | **UNRESOLVED STAFF COMMENTS** |
|---------------|-------------------------------|

 

None.

 
| **ITEM  5.** | **OPERATING AND FINANCIAL REVIEW 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 our Consolidated FinancialStatements.

 

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Thefollowing discussion and analysis is presented by the management of our companyand provides a view of our financial condition, operating performance and prospectsfrom management’s perspective. The strategies and expectations referred to inthis discussion are considered forward-looking statements and may be stronglyinfluenced or changed by shifts in market conditions, new initiatives that weimplement and other factors. Since much of this discussion is forward-looking,you are urged to review carefully the factors referenced elsewhere in thisAnnual Report that may have a significant influence on the outcome of suchforward-looking statements. We cannot provide assurance that the strategies andexpectations referred to in this discussion will come to fruition.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.

 

**ManagementOverview**

 

TheTelecom Group ended the 2009 fiscal year in a solid financial situation as wellas with a strong market position. The Telecom Group has continued to expand itscustomer base, reaching 4.4 million fixed lines in service,1.3 million Internet subscribers, and 16.3 million cellularsubscribers. To promote the expansion of business and the growth of thecustomer base in every business segment, capital expenditures (includingmaterials) were increased by 8% from 2008 to P$1,821 million in 2009, whichrepresents 15% of consolidated net sales.

 

Telecomis considered to be one of the leading companies in the Argentinetelecommunications sector. The Company has attained this position withoutneglecting its commitment to generate economic value for its shareholders,demonstrating improvements in revenues and profitability. In addition, thestrong cash flow generation has allowed Telecom Argentina to repay the balanceof financial debt undertaken in 2005 as a result of its debt restructuring. Therepayment was completed five years in advance of the schedule originallyestablished with Telecom Argentina’s creditors. Telecom Argentina’s financialdebt payments in 2009 totaled P$1,442 million.

 

Continuingthe trend of prior years, net sales in 2009 grew by 15% compared to 2008,reaching P$12,226 million. Operating income before depreciation andamortization in 2009 increased by P$570 million from 2008, reaching P$3,900million, equivalent to 32% of net sales. Operating income increased P$721million in 2009 compared to 2008, reaching P$2,762 million, equivalent to 23%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. For a discussion of these and other factors that mayaffect our results of operations, please see “Years ended December 31, 2009,2008 and 2007—Factors Affecting Results of Operations” and “Trend Information”below.

 

Fora detailed analysis of our results of operations for fiscal year 2009, see “Yearsended December 31, 2009, 2008 and 2007” below.

 

**Economic and PoliticalDevelopments in Argentina**

 

Beginningin the second half of 2001 and 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 converted and froze our rates for regulated services in theVoice, Data and Internet reportable segment into pesos at a 1:1 peso/U.S.dollar ratio (referred to herein as “Pesification”), among other measures.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%.

 

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Afterthe above-mentioned crisis, the Argentine economy began a new period of rapidgrowth. Argentina’s gross domestic product increased for six years in a rowfrom 2003 to 2008, at an average rate of 8.5%. However, the recentinternational financial crisis affected the country, and Argentina’s growthrate decreased significantly to 0.9% in 2009. In the last quarter of 2009, theeconomy showed notable signs of recovery and it is expected that the annualgrowth rate in 2010 will be approximately 4%.

 

Theincrease in the consumer price index was 12.3% in 2005, 9.8% in 2006, 8.5% in2007, 7.2 % in 2008 and 7.7% in 2009, while the wholesale price index increased10.7% in 2005, 7.1% in 2006, 14.6% in 2007, 8.8% in 2008 and 10.3% in 2009 asreported by the INDEC, though, since 2007, the public credibility of the INDECas a reference for reporting Argentine economic statistics has beenchallenged.  For further detail regardingArgentine economic conditions see “Item 3—Key Information—Risk Factors—Risksrelating to Argentina—Inflation could accelerate, causing adverse effects onthe economy and negatively impacting Telecom’s margins.”

 

Duringthe period between 2005 and 2007, the peso remained relatively stable againstthe U.S. dollar, with US$1.00 trading within a range of P$2.86 to P$3.16.However, the international financial crisis created uncertainty that affectedthe Argentine exchange rate, as reflected by a peso/dollar exchange rate ofP$3.45 per US$1.00 dollar at December 31, 2008 and P$3.80 per US$1.00dollar as of December 31, 2009, an increase of 9.5% and 10.1% per year,respectively.

 

Argentina’seconomic activity during the first half of 2009 was affected by a significantdecline in its industrial output, coupled with a severe drought that impactedits agricultural production. Capital outflows were fueled by uncertaintiescaused by mid-term elections. However, given Argentina’s strong trade surplusgenerated by a significant decrease in imports, coupled with a healthierperformance in exports, the Central Bank took measures to maintain thestability of the peso/U.S. Dollar exchange rate.

 

Additionally,the Argentine government made progress on restructuring the public debt thathad not been restructured in 2005, thereby significantly reducing the levels ofcountry risk. Nonetheless, the implementation of the restructuring plan hasbeen delayed by disagreements regarding the use of Central Bank reserves to paythe unrestructured public debt. In April 2010, the Argentine governmentannounced an exchange offer for the unrestructured debt.  It is expected that this process will becompleted in late June.

 

Thestagnation of the economy reduced Argentina’s fiscal surplus. In order tomaintain Argentina’s activity level, the government implemented certainexpansive fiscal policies, increasing public spending by 27% annually, a figurethat represents a higher rate than the total 18% growth of annual income.  Argentina’s public spending reduced theprimary fiscal surplus to 1.5% of gross domestic product in 2009 from 3.1% in2008.

 

Insum, despite having commenced 2009 with a reduction in growth, Argentina’seconomy has shown signs of recovery, though this recovery has caused inflationto increase.  For 2010, it is expectedthat the Argentine economy will return to stronger growth and show higherlevels of inflation.

 

Becausethe substantial majority of our property and operations are located inArgentina, macroeconomic and political conditions in Argentina will continue toaffect us. The Argentine government has exercised and continues to exercisesignificant influence over many aspects of the Argentine economy. Accordingly,Argentine governmental actions concerning the economy could significantlyaffect private sector entities in general and our operations in particular, aswell as affect market conditions, prices and returns on Argentine securities,including ours. While the key factors of our business were strong in 2009, andour operating results have increased as a result of growth in our wireless andInternet business, our operating results and financial condition remainvulnerable to fluctuations in the Argentine economy.

 

**CriticalAccounting Policies**

 

OurConsolidated Financial Statements, prepared in accordance with Argentine GAAP,and 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 US GAAP reconciliation. We haveidentified the following critical accounting estimates and related assumptionsand uncertainties inherent in our accounting policies, which we believe areessential to an

 

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understandingof the underlying financial reporting risks and the effect that theseaccounting estimates, assumptions and uncertainties have on our ConsolidatedFinancial Statements.

 

Ouraccounting policies 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.

 

***Use of 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; and

 

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

 

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.

 

***Income Taxes—Deferred income tax and tax on minimumpresumed income***

 

*Income tax*

 

Weare required to estimate our income taxes in each of the companies of theTelecom Group. This process involves the jurisdiction-by-jurisdictionestimation of actual current tax exposure and the assessment of temporarydifferences resulting from the different treatment of certain items, such ascertain accruals and amortization, for tax and financial reporting purposes.These differences result in deferred-tax assets and liabilities, which areincluded in our stand-alone and consolidated balance sheets. In the course ofour tax planning procedures, we must assess the fiscal year of the reversal ofour deferred-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.

 

*Tax on minimum presumed income*

 

Weare subject 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 a legal expiration term of 10 years. This credit has beenclassified as a non-current receivable of P$7 million while P$23 million has beenoffset against current tax income liabilities in the consolidated balancesheet.

 

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***Accounting for and Recoverability of Long-LivedAssets***

 

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 acquisition are depreciated.

 

*Initial Valuation and Depreciation*

 

Werecord purchased property, plant and equipment, and purchased intangible assetsat acquisition or construction cost (adjusted for inflation as necessary — seeNote 3.c. to our Consolidated Financial Statements). Fixed assets received from“ENTel” have been valued at their transfer price. Subsequent additions havebeen valued at cost. Construction costs include directly allocable costs, anappropriate allocation of material and interest accrued during the constructionperiod. However, general and administration expenses are not capitalized.Property, plant and equipment and intangible assets, except for indefiniteuseful life intangibles, are depreciated or amortized on a straight-line basisover their estimated useful lives. The determination of the estimated usefullives involves significant judgment. The Company periodically reviews theestimated useful lives of its property, plant and equipment and purchasedintangible 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-lived assets.

 

Theidentification of impairment indicators, the estimation of future cash flowsand the determination of fair values for assets (or groups of assets) requiremanagement 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 the expected applicable discount rateand future undiscounted cash flows estimates due to, among other things,competition and the outcome of the tariff negotiations with the Argentinegovernment, could significantly impact these judgments and could require futureadjustments to the recorded assets.

 

*Intangible assets with indefinite useful life—PCS license*

 

UnderArgentine GAAP and US GAAP, the Company determined that its PCS license met thedefinition of an indefinite-lived intangible asset for the periods presented.Therefore, the Company does not amortize the cost of its license; however, theCompany tests it annually for impairment. Under Argentine GAAP and US GAAP, an

 

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impairmentloss is recognized when the carrying amount exceeds the asset’s fair valuebased on discounted future expected cash flows. Through this evaluation, it wasdetermined that the carrying amount of the PCS license did not exceed the fairvalue of the asset. As a result, no impairment has been recognized for US GAAPand Argentine GAAP purposes. Furthermore, the intangible asset recorded(totaling P$588 million as of December 31, 2009) is not at risk of failingthe impairment test.

 

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, theevolution of technology and other factors. These changes, if any, may requirematerial adjustments to the book value of the PCS license.

 

***Contingencies***

 

Weare subject 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 counsel 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 decisions or changes in ourmethod of resolving such matters, such as changes in settlement strategy.

 

***Allowance for 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, ourhistorical write-offs, customer creditworthiness and changes in our customerpayment terms when evaluating the adequacy of our allowance for doubtfulaccounts. If the financial condition of our customers were to deteriorate, ouractual write-offs could be higher than expected.

 

***Asset Retirement Obligations***

 

Weare subject to asset retirement obligations (“ARO”) associated with our celland switch site operating leases. We have the right to renew the initial termof most of these leases. Under Argentine GAAP, there are no specific standardsfor the recognition of asset retirement obligations. Therefore, we record aliability for an ARO with respect to the leases following the guidance providedby ASC 410. When the liability is initially recorded, we capitalize a costby increasing the carrying amount of the related long-lived asset. Thecapitalized cost is depreciated over the estimated useful life of the relatedasset. Subsequent to the initial measurement, we should recognize changes inthe ARO that result from (1) the passage of time and (2) revisionsmade to either the timing or amount of estimated cash flows. Changes resultingfrom revisions in the timing or amount of estimated cash flows are recognizedas increases 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.

 

Asof December 31, 2009, our asset retirement obligations included in othernon current liabilities amounted to P$44 million and the related net carryingvalue of the capitalized cost included in fixed asset amounted to P$13 million.

 

***Fair value of Notes of Telecom Argentina under USGAAP***

 

TelecomArgentina’s Series A Notes issued pursuant to the APE were paid in October 2009.

 

TelecomArgentina’s notes were valued under Argentine GAAP at estimated net presentvalue. Under US GAAP, on January 1, 2008 Telecom Argentina adopted theprovisions of ASC 825 regarding the fair value option for financial assets andfinancial liabilities. Fair value measurements required the use of differentvaluation

 

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techniqueswhich were also based on observable inputs. The fair value of Telecom Argentina’snotes as of December 31, 2008 was based on the purchase price of notesbought by Telecom Argentina in the last quarter of 2008 or, if the purchaseprice was not available, on the average quoted market prices provided byfinancial agencies.

 

***Derivative Instruments***

 

TelecomArgentina records all derivative financial instruments as assets and/orliabilities at their estimated fair value. Changes in fair value of effectivecash flow hedges are recognized as a separate component of shareholders’ equityon the balance sheet and subsequently reclassified to earnings when the hedgeditems affect earnings. Derivatives not designated or qualifying as a hedginginstrument or ineffective derivatives are adjusted to fair value throughearnings. The Company’s determination of fair value may change in the futuredue to changes in the inputs available and its related valuation techniquesused to estimate fair value.

 

***Retirement Benefits***

 

Collectivebargaining agreements provide benefits to employees who retire upon reachingnormal retirement age, or at an earlier time due to disability. These benefitsconsist of payments of a single lump sum equal to a one-month salary for every fiveyears of service to the Company. There is no vested benefit obligation untilthe occurrence of these conditions. Actuarial assumptions and demographic data,as applicable, are used to measure the Company’s obligation to provide thesebenefits. The Company does not make plan contributions or maintain separateassets to fund the benefits at retirement.

 

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. These changes, ifany, may require adjustments to the recorded liabilities.

 

**NewAccounting Standards under Argentine GAAP**

 

InMarch 2009, the FACPCE approved Technical Resolution (“RT”) 26 “Adoptionof International Financial Reporting Standards”. RT 26 adopts IFRS as issued bythe International Accounting Standards Board (“IASB”) and states that theadoption of IFRS is effective for publicly-listed companies as of January 1,2011.

 

OnDecember 30, 2009, the CNV issued Resolution No. 562/09 (“RG 562/09”)adopting RT 26 of the FACPCE for certain public companies (as defined by Law No. 17,811— Regime for Public Offering). RG 562/09 requires public companies, such asTelecom Argentina, to prepare the financial statements according to RT 26 forfiscal years beginning on or after January 1, 2012, while early adoptionis permitted for fiscal years beginning on or after January 1, 2011.Resolution No. 562/09 also permits the preparation of financial statementsin accordance with IFRS as additional information to a company’s statutoryfinancial statements for the fiscal year beginning on or after January 1,2010. See Note 16 to our Consolidated Financial Statements.

 

Asof the date of this Annual Report, the FACPCE is revising RT 26 in order toalign its effective date to that of RG 562/09.

 

**Yearsended December 31, 2009, 2008 and 2007**

 

Forpurposes of these sections the fiscal years ended December 31, 2009, 2008and 2007 are called “2009,” “2008” and “2007,” respectively.

 

Ourresults of operations are determined 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 broad range of telecommunicationservices. To fulfill its purpose, it conducts different activities that aredistributed among the companies in the Group. Each company represents anoperating segment. These operating segments have been aggregated into tworeportable segments according to the nature of the products and servicesprovided. These reportable segments 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.  Micro Sistemas S.A. (i) |
| Wireless                  |       | Telecom  Personal S.A.  Núcleo S.A.  Springville S.A. (i)                     |

 

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(i)   Dormantentity at December 31, 2009.

 

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, voicemail, etc), interconnectionwith other operators, data transmission (including private networks,point-to-point traffic, radio and TV signal transmission), outsourcing of ITsolutions and Internet services.

 

·                  Wireless: GSM and 3G wireless communicationsover UMTS/ HSDPA networks (including GPRS, EDGE and HSDPA high-speed wireless,videoconferencing, full track download, multimedia messaging, online streaming,corporate mailing and BlackBerry solutions) and sale of wireless communicationdevices (cellular phones, 3G modems, 3G hotspots, wireless internet andnetbooks).

 

Thefollowing table shows our net sales as a percentage of total consolidated netsales within our reportable segments for the year ended December 31, 2009:

 
| **Reportable  Segment**  | ** ** | **Net Sales  (P$ million)** | ** ** | **Percentage of  Consolidated Net Sales** | ** ** |
|--------------------------|------------|----------------------------------|------------|-------------------------------------------|------------|
|                     |       |                             |       |                                      |       |
| Voice, Data and Internet |       | 4,157                            |       | 34.0                                      |       |
| Wireless                 |       | 8,069                            |       | 66.0                                      |       |
| **TOTAL**                | ** ** | **12,226**                       | ** ** | **100.0**                                 | ** ** |

 

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

 

***Factors Affecting 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 in2010 are analyzed below under “—Trend Information.”

 

*Impact of Political and Economic Environment in Argentina*. Levels ofeconomic activity affect the volume of local and long-distance traffic, thedemand for new fixed lines, ADSL and 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.

 

*Rate Regulation*. 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 charges and measuredservice charges), installation charges in the fixed telephony business, publictelephone charges and charges for Internet dial-up traffic are subject toregulation. These rates were pesified and rate increases were frozen by theArgentine government in 2002. Telecom Argentina has been in discussions withregulators with respect to rate adjustments and, on March 6, 2006, TelecomArgentina signed the Letter of Understanding 2006 with the Argentine governmentwhich permits Telecom Argentina to raise certain of its regulated rates.However, the agreement is still subject to the implementation of certainadministrative steps and the pending approval by the legislative branch.Although the Company’s management expects that the contract renegotiationprocess will be

 

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satisfactorilycompleted, to date there is no certainty regarding either the outcome of thenegotiations or the timing of such outcome.

 

*Competition*. The Argentine telecommunications market has becomeincreasingly competitive. In our Voice, Data and Internet reportable segment,competition is mainly focused on long-distance and Internet service as well ason government and corporate accounts. For the past several years, the Argentine wireless market has beencharacterized by rapid growth and increasingly competitive conditions. The Wirelessreportable segment’s customer base is expected to continue expanding in 2010albeit at more moderate rates than those of recent years. We aim to obtainhigh-value wireless customers and encourage consumption via the launching ofnew products and services.

 

*Technology Developments*. Improvements in technologyinfluence demand for services. For example, demand for fixed linetelecommunications services has been affected by continued significant growthin the Wireless reportable segment. Growth in the Voice, Data and Internetreportable segment at present is being driven by the expansion of ADSL. Theincrease in broadband adoption has also proven to be a critical factor infacilitating the offering of Value Added Services to customers and the bundlingof services. In the Wireless reportable segment, we have seen an increase inthe number of subscribers due to the implementation of 3G technology andrelated services supported by 3G technology. Continued investment in 3Ginfrastructure is expected to fuel demand for cellular services because it supportsa wide variety of enhanced services such as data transmission and 3G services.

 

*Capital Expenditures*. The Company continues tomake significant investments designed to take advantage of growth opportunitiesin our businesses. In the Voice, Data and Internet reportable segment, weinvest to sustain the growth in broadband services, to continue developing theNGN, to develop a new portfolio of data center products and ICT infrastructuresolutions to meet the needs of mobile operators and to continue with theupdating of commercial and support systems. In the Wireless reportable segment,we are in the process of expanding the network infrastructure and extending the3G technology coverage and bandwidth for mobile data transmission.

 

*Wireless Subscriber Acquisition Costs, Subscriber Retention Costs andPromotional Activities*. Our Wireless reportable segment hasincurred a significant level of these costs as a result of the increase in thecustomer base and intense competition. The Voice, Data and Internet reportablesegment has also increased its promotional activities, particularly withrespect to ADSL services, where our competitors have intensified theirmarketing campaigns.

 

*Currency Effects*. The majority of our revenues are receivedin pesos whereas a significant portion of the materials and supplies related tothe construction and maintenance of our networks and services are incurred inforeign currencies. A significant portion of our financial indebtedness is alsodenominated in foreign currencies. Consequently, the Pesification of ourregulated rates and subsequent fluctuations in the exchange rates between thepeso and the U.S. dollar and other currencies will continue to affect theamount of our revenues in comparison to our costs and debt service obligationsincurred in foreign currencies.

 

**(A)  Consolidated Results of Operations**

 

Inthe year ended December 31, 2009, we reported net income of P$1,405million, compared to net income of P$961 million for the year ended December 31,2008.

 

Consolidatednet sales in 2009 were P$12,226 million compared to P$10,608 million in 2008.The increase of P$1,618 million (a 15% increase) can be largely attributed tothe growth in the Wireless reportable segment and in ADSL services.

 

In2009, operating costs (including depreciation and amortization) totaled P$9,464million, representing an increase of P$897 million, or 10%. The mostsignificant changes in operating costs included an increase in salaries andsocial security contributions; an increase in taxes, mainly caused by theincrease in sales and changes in average rates of gross revenues undermultilateral agreements and provincial taxes; an increase in commissions as aresult of the increase in prepaid subscriber base; an increase in bad debtexpense as a result of a reduction in the level of collection of receivablescaused by the economic stagnation and an increase in maintenance costs and feesand other costs attributable to higher consumption and the effect of inflationon prices.

 

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Althoughthe economic situation in Argentina began to show signs of recovery from theglobal financial crisis in the last quarter of 2009, our fixed telephoneservice is still affected by the Pesification of tariffs in early 2002; as aresult, the increase in the structure of disbursable costs for the Voice, Dataand Internet reportable segment (18%) is higher than the increase in net sales(14%). Consequently, our operations continue to be influenced by thePesification and freezing of regulated tariffs and macroeconomic factors.

 

**(A.1)  2009 Compared to 2008**

 
|                                                               |       | ** **                        |       | ** ** |       | ** **             |       |              |       | **Change  by segment** |       |
|--------------------------------------------------------------------|------------|-----------------------------------|------------|------------|------------|------------------------|------------|-------------------|------------|------------------------|------------|
|                                                               |       | **Year  Ended December 31,** |       | ** ** |       |                   |       | **Voice,  Data**  |       | ** **             |       |
|                                                               |       | **2009**                          |       | **2008**   |       | **Total  Change**      |       | **and  Internet** |       | **Wireless**           |       |
|                                                               |       | **(P$ millions)**            |       | **%**      |       | **(P$ millions)** |       |
| Net sales                                                          |       | 12,226                            |       | 10,608     |       | 15                     |       | 1,618             |       | 504                    |       | 1,114 |   |
| Cost of services and general, administrative and  selling expenses |       | (9,464                            | )          | (8,567     | )          | 10                     |       | (897              | )          | (300                   | )          | (597 | ) |
| **Operating income**                                               | ** ** | **2,762**                         | ** ** | **2,041**  | ** ** | **35**                 | ** ** | **721**           | ** ** | **204**                | ** ** | **517** | ** ** |
| Gain on equity investees                                           |       | 13                                |       | —     |       | n/a                    |       | 13                |       | —                 |       | 13 |   |
| Financial results, net                                             |       | (329                              | )          | (265       | )          | 24                     |       | (64               | )          | (6                     | )          | (58 | ) |
| Other, net (1)                                                     |       | (244                              | )          | (280       | )          | (13                    | )          | 36                |       | 64                     |       | (28 | ) |
| Income tax                                                         |       | (797                              | )          | (535       | )          | 49                     |       | (262              | )          | (128                   | )          | (134 | ) |
| **Net income from continuing  operations**                         | ** ** | **1,405**                         | ** ** | **961**    | ** ** | **46**                 | ** ** | **444**           | ** ** | **134**                | ** ** | **310** | ** ** |

 

----

(1)    Other, net includes Otherexpenses, net and noncontrolling interest.

 

**Netsales**

 

During2009, net sales increased by approximately 15% to P$12,226 million fromP$10,608 million in 2008. It should be noted that both reportable segmentsshowed increases in revenue, albeit at different growth rates. As in theprevious year, the main source of the Telecom Group revenues came from theWireless reportable segment, which accounted for 66% of the Company’sconsolidated net sales in 2009.

 

Netsales in the Voice, Data and Internet reportable segment increased by 14% ascompared to 2008.  Voice sales grew 5%due to an increase in the customer base, though the segment experienced aslight reduction in traffic volume. Data sales rose 26% due to the increase inthe customer base and new product offerings for corporate customers. Internetsales led growth in this segment with a 44% increase mainly attributable to 17%growth in the ADSL customer base despite Internet sales having been affected bymajor discounts offered to new customers in the first months of subscription.Regulated voice services are still affected by the Pesification of rates asdiscussed in “Item 4—Information on the Company—The Business—Voice, Data andInternet —Rates” in more detail.

 

Netsales for the Wireless reportable segment increased by 16% compared to 2008. InArgentina, net sales grew 16% mainly as a result of a 15% increase in thecustomer base and a 34% increase in the sales of Value Added Services. InParaguay, net sales increased 13% as compared to the previous year.

 

In2009, service revenues in the Wireless reportable segment amounted to P$7,267million, representing a 17% increase from 2008. Service revenues accounted for90% of total sales in this reportable segment.

 

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Thechart below shows consolidated net sales for 2009 and 2008 and their breakdownbetween reportable segments:

 

 

Fora further breakdown of our consolidated net sales, see “—Results of Operationsby Reportable Segment” below.

 

**Cost ofservices and General, Administrative and Selling Expenses**

 

Totalcost of services and general, administrative and selling expenses increased byP$897 million totaling P$9,464 million in 2009, representing a 10% increase ascompared to 2008. The increase was mainly due to an increase in disbursablecosts in both reportable segments as a result of the increase in the variablecosts of sales, the effect of inflation on our overall cost structure andparticularly aggressive competition in the wireless and broadband businesses.

 
|                                                                            |       |                              |       |      |       |                   |       |              | **Change  by segment** |         |
|---------------------------------------------------------------------------------|------------|-----------------------------------|------------|-----------|------------|------------------------|------------|-------------------|------------------------|--------------|
|                                                                            |       | **Year  Ended December 31,** |       |      |       |                   |       | **Voice,  Data**  |                   |         |   |
|                                                                            |       | **2009**                          |       | **2008**  |       | **Total  Change**      |       | **and  Internet** |                   | **Wireless** |   |
|                                                                            |       | **(P$ millions)**            |       | **%**     |       | **(P$ millions)** |       |
| Salaries and social security                                                    |       | 1,504                             |       | 1,217     |       | 24                     |       | 287               |                   | 220          |   | 67 |   |
| Taxes                                                                           |       | 999                               |       | 832       |       | 20                     |       | 167               |                   | 36           |   | 131 |   |
| Maintenance, materials and supplies                                             |       | 597                               |       | 528       |       | 13                     |       | 69                |                   | 37           |   | 32 |   |
| Bad debt expense                                                                |       | 131                               |       | 67        |       | 96                     |       | 64                |                   | 23           |   | 41 |   |
| Interconnection costs                                                           |       | 180                               |       | 156       |       | 15                     |       | 24                |                   | 24           |   | — |   |
| Costs of international outbound calls                                           |       | 152                               |       | 145       |       | 5                      |       | 7                 |                   | 7            |   | — |   |
| Fees for services                                                               |       | 500                               |       | 400       |       | 25                     |       | 100               |                   | 33           |   | 67 |   |
| Advertising                                                                     |       | 360                               |       | 388       |       | (7                     | )          | (28               | )                      | (19          | ) | (9 | ) |
| Cost of wireless handsets and Voice, Data, and  Internet equipment              |       | 1,137                             |       | 1,028     |       | 11                     |       | 109               |                   | 6            |   | 103 |   |
| Agent’s commissions and commissions for the  distribution of prepaid cards |       | 878                               |       | 769       |       | 14                     |       | 109               |                   | 7            |   | 102 |   |
| Other commissions                                                               |       | 190                               |       | 159       |       | 19                     |       | 31                |                   | 4            |   | 27 |   |
| TLRD and Roaming                                                                |       | 898                               |       | 941       |       | (5                     | )          | (43               | )                      | —       |   | (43 | ) |
| Other operating expenses                                                        |       | 800                               |       | 648       |       | 23                     |       | 152               |                   | 81           |   | 71 |   |
| Depreciation of fixed assets and amortization of  intangible assets             |       | 1,138                             |       | 1,289     |       | (12                    | )          | (151              | )                      | (159         | ) | 8 |   |
| **Total Cost of Services and  General, Administrative and Selling Expenses**    | ** ** | **9,464**                         | ** ** | **8,567** | ** ** | **10**                 | ** ** | **897**           | ** **             | **300**      | ** ** | **597** | ** ** |

 

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Themain operating costs and the changes between 2009 and 2008 are illustratedbelow:

 

 

----

(1)   Includes baddebt expense, other commissions and other operating expenses.

 

*Salaries and Social Security*

 

During2009, salaries and social security charges were approximately P$1,504 million,representing a 24% increase from 2008. This was primarily due to an increase insalary levels, mainly caused by the adjustment to their collective bargainingagreements between Telecom Argentina’s unionized personnel and TelecomArgentina (unionized personnel represent 73% of the totalnumber of Telecom Argentina’s employees).

 

*Taxes*

 

Taxexpenses increased 20% to P$999 million in 2009 from P$832 million in 2008,mainly due to charges of turnover tax (P$84 million) and other taxes calculatedon the basis of revenues (P$43 million), as a result of the increase in totalnet sales during the year.  Additionally,in 2009 there was an increase of P$19 million in the tax on deposits andwithdrawals from bank accounts, as a consequence of increased financialtransactions, collection of dividends and payment of income tax.

 

*Maintenance, Materials and Supplies*

 

Expensesrelated to maintenance, materials and supplies increased 13% to P$597 millionin 2009 from P$528 million in 2008. This increase was due to higher maintenancecosts across both segments. In the Voice, Data and Internet reportable segment,the change was primarily due to higher maintenance costs for network equipment,buildings and utility vehicles and the increase in the prices of certainsupplies due to the effects of inflation. In the Wireless reportable segment,the increase was mainly due to an increase in cost of maintenance of radio basesystems related to the development of the GSM network, higher maintenance costsfor buildings and the increase in prices of certain supplies due to the effectsof inflation.

 

*Bad Debt Expense*

 

In 2009 bad debt expense amounted to P$131 million, anincrease of 96% as compared to 2008, though it represents only 1% ofconsolidated net sales. The increase was mainly due to a reduction in thecollection of receivables caused by the economic slowdown.

 

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*Interconnection Costs*

 

In 2009, interconnection costs amounted to P$180million, an increase of 15% as compared to 2008. The increase was mainly due tohigher traffic volume from Telecom Argentina’s network and price increasescaused by inflation.

 

*Costs of International Outbound Calls*

 

Thecosts of international outbound calls, which reflect payments made underbilateral agreements between Telecom Argentina and international carriers inrespect of outgoing calls made by our customers, increased 5% from P$145million in 2008 to P$152 million in 2009. The increase is largely due to costincreases as a result of the devaluation of the peso against other foreigncurrencies, partially offset by decreases in outgoing call traffic.

 

*Fees for Services*

 

Ourfees for services totaled P$500 million for 2009 as compared to P$400 millionfor 2008. This increase was mainly due to the renegotiation of most of thecontracts reflecting the effects of inflation and to higher service costs inboth segments, especially service costs related to call centers (P$58 million),software and hardware fees (P$18 million) and cleaning and security fees (P$11million).

 

*Advertising*

 

Costsrelated to advertising decreased by P$28 million, or 7%, to P$360 million in2009.  During2009, Telecom Argentina continued advertising campaigns focused largely on theInternet business while Telecom Personal continued its marketing campaigns toacquire new subscribers and retain customers.

 

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

 

During2009, the cost of wireless handsets and Voice, Data and Internet equipmentincreased to P$1,137 million from P$1,028 million in 2008. The increase incosts of handsets in the Wireless reportable segment was primarily attributableto an increase in handsets sold as a result of the expansion of the subscriberbase and the number of customers that upgraded their handsets. The increase in costs in the Voice, Data and Internet reportablesegment was primarily attributable to increasedsales of “Aladino” telephone sets, which allow SMS services or video calls onfixed lines depending on the model, and modems as a result of the growth in theInternet business, partially offset by a decrease in sales of data equipment.

 

*Agent’s Commissions and Commissions for the Distribution of PrepaidCards*

 

Salescommissions increased by P$109 million to P$878 million in 2009 from P$769million in 2008. The steady increase over the past few years in agent’scommissions and commissions for the distribution of prepaid cards is mainly dueto the increase in the prepaid subscriber base.

 

*TLRD and Roaming*

 

During2009, costs of TLRD and roaming decreased 5% to P$898 million from P$941million in 2008. The change was mainly due to a decrease in wireless traffic onother wireless operators’ networks.

 

*Other Operating Expenses*

 

Otheroperating expenses, which include lease of circuits, transportation andfreight, rental and energy expenses, among others, increased 23% to P$800million in 2009 from P$648 million in 2008 in both reportable segments as aresult of the increase in the prices of fuel andelectricity used to provide Telecom Argentina’s services and higher costsassociated with the provision of Value Added Services to Telecom Personalcustomers, increased use of the public network, cost increases in transport andfreight and higher costs of site leases.

 

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*Depreciation of Fixed Assets and Amortization of Intangible Assets*

 

Depreciationof fixed assets and amortization of intangible assets decreased by P$151million, or 12%, to P$1,138 million during 2009. This decrease was mainly dueto certain assets having reached the end of their respective amortizationperiods and the change in the useful lives of certaintechnical assets (see Note 12 to our Consolidated Financial Statements), partiallyoffset by depreciation of assets acquired during the fiscal year.

 

Fora further breakdown of our consolidated costs of services, general andadministrative and selling expenses, see “—Results of Operations by ReportableSegment” below.

 

**Operatingincome**

 

During2009, consolidated operating income was P$2,762 million representing anincrease of P$721 million or 35% from 2008. Operating income represented 23% ofconsolidated net sales in 2009. This increase was mainly due to growth in netsales, partially offset by higher salaries and social security contributioncosts, fees for services, commissions, maintenance, materials and supplies andtaxes.

 

**FinancialResults, net**

 

During2009, Telecom recorded a net financial loss of approximately P$329 millioncompared to a net financial loss of approximately P$265 in 2008, representing a24% increase as compared to the previous year. As a result of a P$1,372 millionor 152% reduction in the net financial debt as compared to the end of 2008,interest from loans (including the effect of the net present value) decreasedby P$78 million or 32%. In 2009, the effect of differences in net foreigncurrency exchange generated an increased loss of P$78 million as compared to2008. In addition, note repurchase transactions generated a P$2 million loss ascompared to the P$34 million gain in fiscal year 2008, resulting in a negativevariation of P$36 million.

 

**Gain onequity investees**

 

In2009, Núcleo underwent a voluntary capital reduction which yielded areimbursement of capital to its shareholders. Therefore, the Company recorded aP$13 million foreign currency translation adjustment realized on Núcleo’scapital reimbursement.

 

**Other,net**

 

Mainvariations of Other, net are related to Gain on equity investees and Other expenses,net.

 

*Other expenses, net*

 

Otherexpenses, net mainly include severance payments, provisions for lawsuits andother contingencies and allowance for obsolescence of materials.

 

Otherexpenses, net decreased by P$36 million or 13% from fiscal year 2008,representing 2% of consolidated net sales. This change was mainly due to lowercosts of severance payments as compared to the previous year, partially offsetby increased costs of labor and tax claims and higher allowances forobsolescence of materials in both Telecom Argentina and Telecom Personal.

 

**Incometax**

 

TheCompany’s income tax charge includes three effects: (i) the current taxpayable for the year pursuant to fiscal legislation applicable to each companyin the Telecom Group; (ii) the effect of applying the deferred tax methodon temporary differences arising out of the asset and liability valuationaccording to fiscal vs. accounting criteria; and (iii) the analysis ofrecoverability of deferred tax assets.

 

(i)    Regarding current tax expenses, TelecomArgentina, Personal and Núcleo generated tax profit in fiscal year 2009.Telecom Argentina’s income tax charge assessed in 2009 amounted to P$301million as compared to P$238 million in fiscal year 2008. In the case ofTelecom Personal, in 2009, the current tax assessed amounted to P$511 millioncompared to P$390 million in the previous fiscal year. In both years, TelecomArgentina and Telecom

 

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Personalgenerated tax profits that gave rise to tax liabilities. These liabilities wereoffset against tax credits for minimum presumed income and withholdings. Núcleo’sincome tax increased in the fiscal years under review due to an overchargerelated to the payment of dividends to shareholders.

 

(ii)   Regarding the deferred tax, in 2009 and 2008income at Telecom Argentina was basically generated by changes in timingdifferences arising from tax vs. accounting criteria applied to the valuationof assets and liabilities. In fiscal year 2009, Telecom Argentina generated again of P$31 million mainly attributable to the decrease of tax liabilitiesfrom deferred tax on fixed assets while in 2008 it generated a gain of P$93million. Telecom Personal and Núcleo generated an aggregate P$7 million loss in2009 while they generated an aggregate P$5 million gain in 2008.

 

(iii)  Regarding deferred tax assets, in 2009,Telecom Personal recorded a valuation allowance for deferred tax assets of P$2million while no changes in the mentioned allowance were recorded for TelecomArgentina in that year. As of December 31, 2008, Telecom Argentinarecorded a P$2 million reduction of the deferred tax asset valuation allowancewhile no changes in the mentioned allowance were recorded for Telecom Personalin that year.

 

**Netincome**

 

For2009, we recorded net income of P$1,405 million (12% of consolidated sales).The Voice, Data and Internet reportable segment accounted for a loss of P$175million while the Wireless reportable segment contributed a P$1,580 milliongain to our consolidated net income in 2009.

 

**(A.2)  2008 Compared to 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      |       | 17                     |       | 1,534            |       | 351                   |       | 1,183 |   |
| Cost of services and general, administrative and  selling expenses |       | (8,567                           | )          | (7,438     | )          | 15                     |       | (1,129           | )          | (497                  | )          | (632 | ) |
| **Operating income**                                               | ** ** | **2,041**                        | ** ** | **1,636**  | ** ** | **25**                 | ** ** | **405**          | ** ** | **(146**              | **)**      | **551** | ** ** |
| Financial results, net                                             |       | (265                             | )          | (441       | )          | (40                    | )          | 176              |       | 96                    |       | 80 |   |
| Other, net (1)                                                     |       | (280                             | )          | (121       | )          | 131                    |       | (159             | )          | (151                  | )          | (8 | ) |
| Income tax                                                         |       | (535                             | )          | (292       | )          | 83                     |       | (243             | )          | (83                   | )          | (160 | ) |
| **Net income from continuing  operations**                         | ** ** | **961**                          | ** ** | **782**    | ** ** | **23**                 | ** ** | **179**          | ** ** | **(284**              | **)**      | **463** | ** ** |
| **Income from discontinued  operations**                           | ** ** | **—**                       | ** ** | **102**    | ** ** | **(100**               | **)**      | **(102**         | **)**      | **(102**              | **)**      | **—** | ** ** |
| **Net income**                                                     | ** ** | **961**                          | ** ** | **884**    | ** ** | **9**                  | ** ** | **77**           | ** ** | **(386**              | **)**      | **463** | ** ** |

 

----

(1)       Other,net includes Other expenses, net and noncontrolling interest.

 

**NetSales**

 

During2008, net sales increased approximately 17% to P$10,608 million from P$9,074million in 2007. The increase is largely attributable to the increase ofP$1,183 million in revenues generated by the Wireless reportable segment(reaching 66% of the Company’s consolidated net sales). It should be noted thatboth reportable segments showed revenue increases, but at different growthrates.

 

Netsales in Voice, Data and Internet reportable segment increased by 11% comparedto 2007. Internet sales, including internet equipment, led growth in thissegment with a 39% increase (P$207 million) mainly as a result of the 33%increase in our ADSL customer base. Data sales, including data equipment, grewby 25%, largely attributed to a higher number of leased circuits, dedicatedtraffic and a substantial growth in a private network service with additionalnew features. Finally, Voice sales grew by 4% due to an increase in thecustomer base, generating a higher number of monthly basic charges and chargesfor supplementary services, partially offset by a slight

 

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reductionin traffic volume. Regulated voice services are still affected by thePesification of rates to pesos as discussed in “Item 4—Information on theCompany—The Business—Voice, Data and Internet—Rates” in more detail.

 

Netsales for the Wireless reportable segment grew by 21% compared to 2007. The netincrease was mainly due to growth in Argentina of 23%, partially offset by a decreasein Paraguay of 10%. As a result of the strong growth of the customer base inArgentina, as a general matter, all line items comprising net sales for thereportable segment have grown considerably. Particularly, revenues from ValueAdded Services, roaming services and TLRD, and post-paid services, includingfixed-charge and excess minutes, all increased.

 

In2008, service revenues in the Wireless reportable segment amounted to P$6,235million, representing 20% growth from 2007. The growth of service revenue in2008 was 23% in Argentina while in Paraguay service revenue decreased by 10%.

 

Thechart below shows net sales for 2008 and 2007 and their breakdown betweenreportable segments:

 

 

Fora further breakdown of our consolidated net sales, see “—Results of Operationsby Reportable Segment” below.

 

**Cost ofServices and General, Administrative and Selling Expenses**

 

Totalcost of services and general, administrative and selling expenses increased 15%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 broadband businessesin Argentina. Depreciation and amortization expenses were reduced by P$127million, 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        |       | 27                     |       | 257              |       | 187                   |       | 70 |   |
| Taxes                                                              |       | 832                              |       | 668        |       | 25                     |       | 164              |       | 26                    |       | 138 |   |
| Maintenance, materials and supplies                                |       | 528                              |       | 436        |       | 21                     |       | 92               |       | 68                    |       | 24 |   |
| Bad debt expense                                                   |       | 67                               |       | 71         |       | (6                     | )          | (4               | )          | (2                    | )          | (2 | ) |
| Interconnection costs                                              |       | 156                              |       | 151        |       | 3                      |       | 5                |       | 5                     |       | — |   |
| Costs of international outbound calls                              |       | 145                              |       | 138        |       | 5                      |       | 7                |       | 7                     |       | — |   |
| Fees for services                                                  |       | 400                              |       | 307        |       | 30                     |       | 93               |       | 41                    |       | 52 |   |
| Advertising                                                        |       | 388                              |       | 306        |       | 27                     |       | 82               |       | 48                    |       | 34 |   |
| Cost of wireless handsets and Voice, Data, and Internet  equipment |       | 1,028                            |       | 897        |       | 15                     |       | 131              |       | 18                    |       | 113 |   |

 

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|                                                                            |       |                             |       |      |       |                   |       |             |       | **Change by segment** |       |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|------------------------|------------|------------------|------------|-----------------------|------------|
|                                                                            |       | **Year Ended December 31,** |       |      |       |                   |       | **Voice, Data**  | ** ** | ** **            |       |
|                                                                            |       | **2008**                         | ** ** | **2007**  |       | **Total Change**       |       | **and Internet** | ** ** | **Wireless**          |       |
|                                                                            |       | **(P$ millions)**           |       | **%**     |       | **(P$ millions)** |       |
| Agent’s commissions and commissions for the  distribution of prepaid cards |       | 769                              |       | 704       |       | 9                      |       | 65               |       | 14                    |       | 51 |   |
| Other commissions                                                               |       | 159                              |       | 130       |       | 22                     |       | 29               |       | 5                     |       | 24 |   |
| TLRD and Roaming                                                                |       | 941                              |       | 760       |       | 24                     |       | 181              |       | —                |       | 181 |   |
| Other operating expenses                                                        |       | 648                              |       | 494       |       | 31                     |       | 154              |       | 86                    |       | 68 |   |
| Depreciation of fixed assets and amortization of  intangible assets             |       | 1,289                            |       | 1,416     |       | (9                     | )          | (127             | )          | (6                    | )          | (121 | ) |
| **Total Cost of Services and  General, Administrative and Selling Expenses**    | ** ** | **8,567**                        | ** ** | **7,438** | ** ** | **15**                 | ** ** | **1,129**        | ** ** | **497**               | ** ** | **632** | ** ** |

 

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

 

 

----

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

 

*Salaries and Social Security*

 

During2008, salaries and social security charges were approximately P$1,217 million,representing a 27% increase from 2007. This was primarily due to the increasein salary levels, mainly for unionized personnel resulting from an adjustment intheir collective bargaining agreements.

 

*Taxes*

 

Expensesrelated to taxes increased 25% to P$832 million in 2008 from P$668 million in2007, mainly due to the impact of taxes that are calculated on the basis ofrevenues, reflecting an increase in total net sales during the year.

 

*Maintenance, Materials and Supplies*

 

Expensesrelated to maintenance, materials and supplies increased 21% to P$528 millionin 2008 from P$436 million in 2007. This increase was due to higher maintenancecosts across segments, particularly in the Voice, Data and Internet reportablesegment. The main reason for the change was an increased need for supplies as aresult of the

 

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largernumber of installed basic telephony and ADSL lines and an increase in theprices of certain supplies due to the effects of inflation.

 

*Fees for Services*

 

Ourfees for various services, including technical, commercial, legal, security,and auditing services, totaled P$400 million for 2008 and P$307 million for2007. 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 27%, to P$388 million in2008, mainly due to higher media advertising expenses for wireless and Internetservices as a result of efforts to retain and expand both customer bases, aswell as the sponsorship of the 2008 Beijing Olympic Games.

 

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

 

During2008, the cost of wireless handsets and Voice, Data and Internet equipmentincreased to P$1,028 million from P$897 million in 2007. The increase in costsincurred in the Wireless reportable segment was primarily attributable to anincrease in the cost of handsets resulting from the expansion of the subscriberbase. In addition, as a consequence of technological advances and new serviceofferings, more customers upgraded their mobile phone sets. That effect waspartially offset by a decrease in subsidies offered to agents and other thirdparty distributors.

 

*Agent’s Commissions and Commissions for the Distribution of PrepaidCards*

* *

Salescommissions increased by P$65 million to P$769 million in 2008 from P$704million in 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*

 

During2008, costs of TLRD and roaming increased 24% to P$941 million from P$760million in 2007. The change was due to an increase in wireless traffic amongwireless operators as a consequence of a strong growth in the total customerbase 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 31% to P$648million in 2008 from P$494 million in 2007 in both reportable segments as aresult of increased revenues and an increase in the customer base and theeffects of inflation.

 

*Depreciation of Fixed Assets and Amortization of Intangible Assets*

 

Depreciationof fixed assets and amortization of intangible assets decreased by P$127million, or 9%, to P$1,289 million during 2008 mainly as a consequence of theend of the amortization period for certain assets in the Wireless reportablesegment (among others, TDMA network equipment as a result of the migration toGSM technology).

 

**OperatingIncome**

 

Duringthe year ended December 31, 2008, consolidated operating income wasP$2,041 million, with an increase of P$405 million, or 25%, compared to 2007.Operating income represented 19% 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,

 

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Dataand Internet reportable segment, they were completely offset by an increase insalaries and social security costs, fees for services, maintenance, materialsand supplies and advertising expenses, among others.

 

**FinancialResults, Net**

 

Netfinancial results amounted to a loss of P$265 million for 2008, reflecting areduction in loss of 40% as compared to 2007. Financial results, net represent3% of consolidated sales in 2008, as compared to 5% in 2007.

 

Asa result of a P$1,090 million reduction in net financial debt, or 55% 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 U.S. dollar was 10% and 3%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 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 174% from 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 No. 72/03 implemented by theMinistry of Economy (see Note 2.g and 2.i to our Consolidated FinancialStatements).

 

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 contingency charges decreased at Telecom Argentina between 2007 and 2008due to lower costs in connection with labor and fiscal complaints. TelecomPersonal, conversely, experienced a slight increase in those charges between2007 and 2008.

 

**IncomeTax**

 

Aspreviously mentioned, the Company’s income tax charge includes the followingthree effects (See “—Years ended December 31, 2009, 2008 and 2007—IncomeTax”):

 

(i)    *Currentyear’s tax payable pursuant to fiscal legislation:*In 2007, as aresult of a determination of an accumulated loss carryforward, the Company wasnot required to pay taxes. In 2008, enough tax profit was generated to offsetthe entire accumulated loss carryforward and, accordingly, the Companydetermined a tax liability, which was offset against a tax credit for minimumpresumed income and other withholdings. With respect to Telecom Personal, in2007, enough tax profit was generated to offset the entire accumulated losscarryforward; therefore, a tax liability was determined. This tax liability wasoffset by a tax credit for minimum presumed income and other withholdings. Infiscal year 2008, Telecom Personal generated tax profits which yielded a tax liability.This tax liability was offset against a tax credit for minimum presumed incomeand other withholdings. In the years under review, Núcleo reported a tax profitand this tax liability was increased by an overcharge resulting from a dividenddistribution to its shareholders.

 

(ii)   *Tax effectof applying the deferred tax method:* In 2008, income yielded byTelecom Argentina was mainly generated as a result of the reduction in thedeferred tax liability on fixed assets and its adjustment for inflation andincreased credit on the deduction of bad debts and lawsuits and othercontingencies (P$119 million).  Thisincome was partially 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

 

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TelecomPersonal (P$163 million), partially offset by the income generated byvariations in the temporary differences (P$205 million in Telecom Argentina andP$76 million in Telecom Personal), including, among others, a reduction of thedeferred tax liability on fixed assets and its adjustment for inflation, andthe higher credit for the deduction of bad debts and lawsuits and othercontingencies.

 

(iii)  *Tax effectarising from the analysis of recoverability of deferred tax assets:*As of December 31, 2008, we recorded a P$2 million reduction of thedeferred tax asset allowance for Telecom Argentina. With respect to therecoverability of deferred tax loss carryforwards, the Telecom Grouprecognized, as of December 31, 2007, a P$130 million receivable for taxloss carryforwards, of which P$95 million expired in fiscal year 2007. For thatreason, as of December 31, 2007, the related allowance amounted to P$95million.

 

**NetIncome from Continuing Operations**

 

For2008, we recorded net income of approximately P$961 million. The Voice, Dataand Internet reportable segment accounted for a loss of P$309 million while theWireless reportable segment contributed a P$1,270 million gain to ourconsolidated net income in 2008.

 

**Incomefrom Discontinued Operations**

 

InApril 2007, Telecom Argentina sold its 99.99% shareholding in Publicom(the directory publishing company) to Yell Publicidad S.A. According toArgentine GAAP, net income from the operations of Publicom and from the sale ofPublicom was accounted for under “discontinued operations,” which was includedin a specific caption “Results from discontinued operations” in theconsolidated statement of income for the year ended December 2007. The netincome from discontinued operations for 2007 amounted to P$102 million, ofwhich P$101 million corresponded to the sale of Publicom, and P$1 million toPublicom’s net income prior to the date of sale.

 

**NetIncome**

 

For2008, we recorded a net income of P$961 million. Since there are no resultsfrom discontinued operations for 2008, see “Net Income from continuingoperations” for an explanation of net income for 2008.

 

**(B)  Results of Operations by Reportable Segment**

 

**(B.1)  Voice, Data andInternet Reportable Segment**

 

Resultsof operations for our Voice, Data and Internet reportable segment for 2009, 2008and 2007 are comprised as follows:

 
| ** **                                                         | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                         | ** ** | **2009**                         | ** ** | **2008**                | ** ** | **2007** | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
| ** **                                                         | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| Continuing operations                                              |       |                             |       |                    |       |   |   |   |   |   |   |
| Net sales                                                          |       | 4,157                            |       | 3,653                   |       | 3,302 |   | 14 |   | 11 |   |
| Cost of services and general, administrative and  selling expenses |       | (3,741                           | )          | (3,441                  | )          | (2,944 | ) | 9 |   | 17 |   |
| **Operating income**                                               | ** ** | **416**                          | ** ** | **212**                 | ** ** | **358** | ** ** | **96** | ** ** | **(41** | **)** |
| Financial result, net                                              |       | (172                             | )          | (166                    | )          | (262 | ) | 4 |   | (37 | ) |
| Other expenses, net                                                |       | (148                             | )          | (212                    | )          | (61 | ) | (30 | ) | 248 |   |
| Income tax                                                         |       | (271                             | )          | (143                    | )          | (60 | ) | 90 |   | 138 |   |
| **Net loss from continuing  operations**                           | ** ** | **(175**                         | **)**      | **(309**                | **)**      | **(25** | **)** | **(43** | **)** | **1,136** | ** ** |
| ** **                                                         | ** ** | ** **                       | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Discontinued operations                                            |       |                             |       |                    |       |   |   |   |   |   |   |
| Income from discontinued operations                                |       | —                           |       | —                  |       | 102 |   | — |   | (100 | ) |
| **Net (loss) income**                                              | ** ** | **(175**                         | **)**      | **(309**                | **)**      | **77** | ** ** | **(43** | **)** | **n/a** | ** ** |

 

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***Net Sales***

 

During2009, net sales from our Voice, Data and Internet reportable segment increasedby 14% to P$4,157 million from P$3,653 million in 2008. During 2008, net salesincreased by 11% to P$3,653 million from P$3,302 million in 2007. Regulatedvoice services are still affected by rate Pesification. The increase in eachyear was due to several factors, including an increase in the customer base,which increased the monthly consumption of the offered services. Particularly,in 2009, the Internet subscriber base grew by 15% compared to 2008, causing anincrease of P$322 million in net sales of Internet services. Anothercontributing factor to increases in net sales in the Voice, Data and Internetreportable segment was an increase in revenue from sales of Data services andthe increase in revenue from interconnection as a result of the generalexpansion in the wireless business.

 

Revenuesfrom our Voice, Data and Internet reportable segment for 2009, 2008 and 2007are comprised as follows:

 
| ** **                          | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|-------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **2009**                         | ** ** | **2008**                | ** ** | **2007** | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
| ** **                          | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| Measured service charges            |       | 981                              |       | 968                     |       | 960 |   | 1 |   | 1 |   |
| Monthly basic charges               |       | 842                              |       | 799                     |       | 746 |   | 5 |   | 7 |   |
| Internet revenues                   |       | 1,053                            |       | 731                     |       | 524 |   | 44 |   | 40 |   |
| Interconnection revenues            |       | 448                              |       | 400                     |       | 373 |   | 12 |   | 7 |   |
| International long-distance service |       | 294                              |       | 269                     |       | 270 |   | 9 |   | — |   |
| Public telephone service            |       | 70                               |       | 86                      |       | 117 |   | (19 | ) | (27 | ) |
| Data transmission                   |       | 268                              |       | 205                     |       | 172 |   | 31 |   | 19 |   |
| Installation charges                |       | 15                               |       | 19                      |       | 18 |   | (21 | ) | 6 |   |
| Equipment sales **(1)**             |       | 43                               |       | 41                      |       | 18 |   | 5 |   | 128 |   |
| Other national telephone services   |       | 143                              |       | 135                     |       | 104 |   | 6 |   | 30 |   |
| **Total Voice, Data and Internet**  | ** ** | **4,157**                        | ** ** | **3,653**               | ** ** | **3,302** | ** ** | **14** | ** ** | **11** | ** ** |

 

----

(1)          This item is composed of voice, data and Internetequipment in each year.

 

Thechart below shows net sales for 2009, 2008 and 2007 and their breakdown byservice type:

 

 

*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).

 

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Revenuesfrom measured service and monthly basic charges represented 44% of our totalsegment net sales for 2009 compared to 48% of our total segment net sales for2008 and 52% of the total segment net sales for 2007. Revenues from traffic andmonthly basic charges increased 3% to P$1,823 million in 2009 from P$1,767million in 2008 and increased 4% in 2008 from P$1,706 million in 2007. Measuredservice charges increased 1% each year. Such increases are largely due to anincrease in the number of lines in service. However, fixed telephony ratesremained unchanged since 2002 as a result of the Pesification and freeze onrates imposed by the Argentine government.

 

*Internet Revenues*

 

Revenuesfrom Internet subscription fees and Internet-related Value Added Servicesincreased 44% to P$1,053 million in 2009 compared to P$731 million in 2008, andincreased 40% in 2008 compared to P$524 million in 2007, mainly due to the increasein the ADSL customer base and to the increase in the average price of fixedcharge services as a result of the completion of promotions granted tocustomers in the first months of subscription.

 

Asof December 31, 2009, the number of ADSL subscribers reached approximately1,223,000, compared to 1,042,000 as of December 31, 2008, increasing by17%. During 2008, ADSL subscribers increased 33% from 783,000 as of December 31,2007. Nonetheless, dial-up minutes have fallen in the last years due to the steadymigration of customers to ADSL services.

 

*Interconnection Revenues*

 

During2009, revenues from interconnection services, which primarily include access,termination and long-distance transport of calls, increased 12% to P$448million from P$400 million in 2008 and increased 7% from P$373 million in 2007.The increase in each year was mainly due to the increase in wireless traffictransported 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 revenues from outbound phonecalls made by our customers.

 

During2009, international long-distance service revenues increased 9% to P$294million from P$269 million in 2008. The increase was the result of an increasein incoming traffic and lower discounts to customers, partially offset by lowertraffic of outgoing calls. During 2008, international long-distance servicerevenues slightly decreased mainly due to a decrease in prices, partiallyoffset by higher incoming and outgoing traffic.

 

*Public Telephone Service*

 

Revenuesfrom public telephone service decreased by 19% to P$70 million in 2009 fromP$86 million in 2008. Revenues from public telephone service decreased by 27%to P$86 million in 2008 from P$117 million in 2007. The decrease in each yearwas mainly due to reduced traffic on public telephones and decreased use oftelecommunication centers as a result of expanded cellular usage.

 

*Data Transmission*

 

Revenuesfrom data transmission services increased 31% to P$268 million in 2009 fromP$205 million in 2008. The change was mainly due to an increase in various datatransmission services, including an increase in virtual private networkservices, private data network services replacing the point-to-point service,and growth in data center services. The majority of our revenues from datatransmission services are denominated in US dollars and, consequently, in 2009,were affected by the fluctuations in the exchange rate between the peso and theU.S. dollar resulting in an increase in data transmission revenues. During2008, revenues from data transmission services increased 19% to P$205 millionfrom P$172 million in 2007. The change was mainly due to an increase in variousdata transmission services, including an increase in private virtual networkservices, leases of circuits, volumes of traffic for dedicated lines, and growthin data center services.

 

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*Installation Charges*

 

During2009, installation charges from new customers decreased by 21% to P$15 millionfrom P$19 million in 2008 due to a smaller number of new connected lines during2009 as compared to 2008. During 2008, installation charges from new customersincreased by 6% to P$19 million from P$18 million in 2007 due to an increase inthe amount of new connected lines during 2008.

 

*Equipment Sales*

 

During2009, revenues from equipment sales increased by 5%,****toP$43 million in 2009 from P$41 million in 2008. The increase in 2009 was mainlydue to higher sales of “Aladino” telephone sets, which permit SMS services orvideo calls on fixed lines depending on the model, and higher sales of modemsas a result of the expansion of our Internet services, partially offset bydecrease in sales of data equipment. Revenues from equipment sales increased by128%****to P$41 million in 2008 from P$18million in 2007. The increase in 2008 was mainly due to higher sales of “Aladino”telephone sets, modems and data equipment.

 

*Other National Telephone Services*

 

Revenuesfrom other national telephone services are derived mainly from dedicated lines,access charges and miscellaneous customer charges. During 2009, revenues fromother national telephone services increased 6% to P$143 million from P$135million in 2008 and increased 30% from P$104 million in 2007. The increase ineach year was mainly due to higher revenues related to billing and collectionservices charged to other operators.

 

***Cost of Services and General, Administrative andSelling Expenses***

 

During2009, total cost of services and general, administrative and selling expensesfor the Voice, Data and Internet reportable segment increased 9% to P$3,741million compared to P$3,441 million in 2008 and increased 17% in 2008 comparedto P$2,944 million in 2007. The increase in each year was mainly due toincreases in salaries and social security charges, taxes, maintenance,materials and supplies costs, interconnection costs, leases of lines andcircuits and fees for services. Nonetheless, depreciation decreased P$159million (a decrease of 19%) in 2009 and decreased P$6 million (a decrease of1%) in 2008.

 

Detailedbelow are the major components of our cost of services and general,administrative and selling expenses for the years ended December 31, 2009,2008 and 2007 related to our Voice, Data and Internet reportable segment:

 
| ** **                                                               | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                               | ** ** | **2009**                         | ** ** | **2008**                | ** ** | **2007** | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
| ** **                                                               | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| Salaries and social security                                             |       | 1,151                            |       | 931                     |       | 744 |   | 24 |   | 25 |   |
| Taxes                                                                    |       | 266                              |       | 230                     |       | 204 |   | 16 |   | 13 |   |
| Maintenance, materials and supplies                                      |       | 408                              |       | 371                     |       | 303 |   | 10 |   | 22 |   |
| Bad debt expense                                                         |       | 33                               |       | 10                      |       | 12 |   | 230 |   | (17 | ) |
| Interconnection costs                                                    |       | 180                              |       | 156                     |       | 151 |   | 15 |   | 3 |   |
| Costs of international outbound calls                                    |       | 152                              |       | 145                     |       | 138 |   | 5 |   | 5 |   |
| Fees for services                                                        |       | 214                              |       | 181                     |       | 140 |   | 18 |   | 29 |   |
| Advertising                                                              |       | 118                              |       | 137                     |       | 89 |   | (14 | ) | 54 |   |
| Commissions for the distribution of prepaid cards  and Other commissions |       | 105                              |       | 94                      |       | 75 |   | 12 |   | 25 |   |
| Cost of sales of equipment                                               |       | 46                               |       | 40                      |       | 22 |   | 15 |   | 82 |   |
| Others                                                                   |       | 405                              |       | 324                     |       | 238 |   | 25 |   | 36 |   |
| **Subtotal before depreciation  and amortization**                       | ** ** | **3,078**                        | ** ** | **2,619**               | ** ** | **2,116** | ** ** | **18** | ** ** | **24** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets      |       | 663                              |       | 822                     |       | 828 |   | (19 | ) | (1 | ) |
| **Total Voice, Data and Internet**                                       | ** ** | **3,741**                        | ** ** | **3,441**               | ** ** | **2,944** | ** ** | **9** | ** ** | **17** | ** ** |

 

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Themain operating costs and the changes in costs between 2009, 2008 and 2007 areillustrated below:

 

 

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**(1)**        Includes baddebt expense, commissions for the distribution of prepaid cards and othercommissions, cost of sales of equipment and other operating expenses.

 

*Salaries and Social Security*

 

During2009, salaries and social security charges were approximately P$1,151 million,representing a 24% increase from 2008. During 2008, salaries and socialsecurity charges were approximately P$931 million, representing a 25% increasefrom 2007. These increases were primarily due to salary increases, particularlyfor unionized personnel of Telecom Argentina (approximately 73% of itspersonnel) reflecting an adjustment in collective bargaining agreements,partially offset by a decrease in the number of employees in this reportablesegment.

 

*Taxes*

 

Expenses related to taxes increased 16% to P$266million in 2009 from P$230 million in 2008, and increased 13% in 2008 fromP$204 million in 2007, mainly due to charges of turnover tax (a P$22 millionincrease from 2008 to 2009 and a P$7 million increase from 2007 to 2008) andother taxes that are calculated on the basis of revenues (a P$4 million increasefrom 2008 to 2009 and no significant variation from 2007 to 2008), as a resultof the increase in total net sales during the years. Additionally, in 2009there was an increase of P$6 million in the tax on deposits to and withdrawalsfrom bank accounts, as a result of increased financial transactions, collectionof dividends and payment of income tax.

 

*Maintenance, Materials and Supplies*

 

During2009, maintenance, materials and supplies expenses increased 10% to P$408million from P$371 million in 2008. The expense for maintenance, materials andsupplies increased 22% to P$371 million in 2008 from P$303 million in 2007. Theincrease in each year was primarily due to higher maintenance costs for networkequipment, buildings and utility vehicles and the increase in the prices ofcertain supplies due to the effects of inflation.

 

*Bad Debt Expense*

 

In 2009, bad debt expense amounted to P$33 million, anincrease of 230% as compared to 2008, though it represents only 1% of theVoice, Data and Internet reportable segment net sales. The increase was mainlydue to a reduction in the collection of receivables caused by the economicslowdown. In 2008, bad debt expense decreased 17% to P$10 million from P$12million in 2007.

 

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*Interconnection Costs*

 

In 2009 interconnection costs amounted to P$180million, an increase of 15% as compared to 2008. The increase was mainly due tohigher traffic volume resulting from Telecom Argentina’s network and priceincreases as a result of inflation. In 2008 interconnection costs increasedslightly by 3% to P$156 million from P$151 million in 2007.

 

*Costs of International outbound calls*

 

Costs of international outbound calls reflect paymentsmade under bilateral agreements between Telecom Argentina and internationalcarriers in connection with outgoing calls made by our customers. During 2009,we recorded P$152 million in costs of international outbound calls comparedwith P$145 million recorded in 2008 and P$138 million recorded in 2007. The increase in 2009 is largely due to cost increases as a consequence ofthe devaluation of the peso against other foreign currencies, partially offsetby lower traffic of outgoing calls. The increase in 2008 wasmainly due to the increase in international call traffic originating in ournetwork and requiring fees to transport calls across international lines.

 

*Fees for Services*

 

Feesfor services totaled P$214 million for 2009, P$181 million for 2008 and P$140million for 2007. The increase in each year was mainly due to the renegotiationof most of the contracts as a result of the effects of inflation, and highercosts of services, especially those related to call centers (a P$14 millionincrease from 2008 to 2009), as a result of an increase in the commercialactivity, cleaning and security fees (a P$7 million increase from 2008 to 2009)and technical fees (a P$5 million increase from 2008 to 2009).

 

*Advertising*

 

During2009, we recorded P$118 million in costs of advertising compared with P$137million recorded in 2008 and P$89 million in 2007. Telecom Argentina continuedits advertising campaigns as a result of competition in the Internet servicesmarket.  Advertising costs in 2008reflect advertising costs incurred by the Company in connection with itssponsorship of the 2008 Beijing Games.

 

*Commissions for the Distribution of Prepaid Cards and Other Commissions*

 

During2009, we recorded P$105 million in costs relating to commissions for thedistribution of prepaid cards and other commissions, compared with P$94 millionin 2008 and P$75 million in 2007. The increase in 2009 was mainly due to highercommissions for collections as a result of increased sales and higher unit costfor collection services. The increase in 2008 was mainly due to an increase incommissions for collections as a result of increased sales, partially offset bylower sales of prepaid cards.

 

*Cost of Sales of Equipment*

 

During2009, 2008 and 2007, we recorded P$46 million, P$40 million and P$22 million incost of sales of equipment. The increase in costs incurred in each year****was primarily attributable to increasedsales of “Aladino” telephone sets and modems, as a result of the growth in theInternet business, partially offset by a decrease in sales of data equipment.

 

*Other Operating Expenses*

 

Otheroperating expenses include accrued expenses such as transportation costs,insurance, energy and rentals. During 2009, our other operating expenses amountedto P$405 million compared to P$324 million in 2008 and P$238 million in 2007. The increase in 2009 was primarily due to the increase in prices of fueland electricity used to provide Telecom Argentina’s services. The increase in2008 was related to increased revenues and higher prices due to the effects ofinflation.

 

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*Depreciation of Fixed Assets and Amortization of Intangible Assets*

 

Depreciationexpenses were P$663 million in 2009, P$822 million in 2008 and P$828 million in2007. The decrease was mainly due to the end of the amortization period forcertain assets partially offset by depreciation of assets acquired in eachyear. Particularly, in 2009, there was a change in the useful lives of certainof Telecom Argentina’s technical assets (seeNote 12 to our Consolidated Financial Statements).

 

***Operating Income***

 

In2009, the operating income from our Voice, Data and Internet reportable segmentincreased 96% to P$416 million from P$212 million in 2008, which represents 10%and 6% of net sales for this reportable segment in 2009 and 2008, respectively.The increase was mainly due to the fact that the annual increase in net salesexceeded the annual increase in operating costs, which reflected a decrease of19% in the segment’s depreciation and amortization in 2009. In 2007, the Voice,Data and Internet reportable segment generated operating income of P$358 million,which represented 11% of net sales for the reportable segment for that year.

 

Thefollowing table shows our operating income from the Voice, Data and Internetreportable segment in 2009, 2008 and 2007 and its percentage of net sales ineach year.

 
| ** **                                             | ** ** | **Year Ended December 31,** | ** ** | ** **                | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|---------------------------|------------|------------|------------|
| ** **                                             | ** ** | **2009**                         | ** ** | **2008**                  | ** ** | **2007**   | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
| ** **                                             | ** ** | **(P$ million / %)**        | ** ** | **Increase / (Decrease)** | ** ** |
| Operating income before depreciation and  amortization |       | 1,079                            |       | 1,034                     |       | 1,186      |       | 4 | % | (13 | %) |
| *As % of net sales*                                    |       | 26                               | %          | 28                        | %          | 36         | %          | * * | * * | * * | * * |
| Depreciation and amortization                          |       | (663                             | )          | (822                      | )          | (828       | )          | (19 | %) | (1 | %) |
| *As % of net sales*                                    |       | (16                              | %)         | (23                       | %)         | (25        | %)         | * * | * * | * * | * * |
| **Operating income**                                   | ** ** | **416**                          | ** ** | **212**                   | ** ** | **358**    | ** ** | **96** | **%** | **(41** | **%)** |
| *As % of net sales*                                    |       | 10                               | %          | 6                         | %          | 11         | %          | * * | * * | * * | * * |

 

Ouroperating income before depreciation and amortization from the Voice, Data andInternet reportable segment was P$1,079 million, P$1,034 million and P$1,186million, representing 26% of net sales in 2009, 28% of net sales in 2008 and36% of net sales in 2007, respectively. 

 

***Financial Results, Net***

 

During2009, we recorded a net financial loss of approximately P$172 million comparedto a net financial loss of approximately P$166 million in 2008, representing a4% increase as compared to the previous year.

 

In 2009, the devaluationof the peso against the U.S. dollar was 10% and 14% against the euro. This situationgenerated a net foreign currency exchange loss in 2009 of $199 million (includingthe effect of derivative financial instruments entered into to hedge foreignexchange exposure) which represents an increase of P$92 million compared to the net foreigncurrency exchange loss of P$107 million reported in 2008. In addition, interest from currentinvestments increased by P$24 million, interest on financial debt decreasedP$41 million and charges for the present value effect of loans were P$44million lower as compared to 2008.

 

During2008, we recorded a net financial loss of approximately P$166 million comparedto a net financial loss of approximately P$262 million in 2007, reflecting a37% reduction as compared to 2007. The difference was mainly due to lower netfinancial interest of P$86 million, partially offset by an increase of P$12 million in the net foreigncurrency exchange loss compared to 2007.

 

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***Other expenses, Net***

 

Otherexpenses, net mainly includes severance payments and provisions for lawsuitsand other contingencies.

 

In2009, other expenses, net decreased by P$64 million to P$148 million comparedto 2008. This reduction is mainly due to severance payments decreasing by P$70million, partially offset by a P$12 million increase in lawsuits and othercontingencies.

 

For2008, other expenses, net increased by P$151 million to P$212 million ascompared to 2007. Other expenses, net in 2008 mainly consisted of higherprovisions for lawsuits and other contingencies and severance payments andtermination 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.

 

***Income Tax***

 

Aspreviously mentioned, the income tax charge includes three effects (See “—Yearsended December 31, 2009, 2008 and 2007—Income Tax”):

 

During2009, our Voice, Data and Internet reportable segment recorded an income taxexpense of P$271 million compared to P$143 million in 2008. The income taxexpense in 2009 was mainly attributable to the provision for current income tax(amounting to P$301 million), partially offset by income generated by adeferred tax on temporary differences arising out of the asset and liabilityvaluations according to fiscal vs. accounting criteria (amounting to P$30million). No changes were recorded in the allowance for net deferred taxassets.

 

During2008, our Voice, Data and Internet reportable segment recorded an income taxexpense of P$143 million compared to P$60 million in 2007. The income taxexpense in 2008 was mainly attributable to the provision for current income tax(amounting to P$238 million), partially offset by income generated by adeferred tax on the temporary differences arising out of the asset andliability valuations according to fiscal vs. accounting criteria (amounting toP$93 million) and a reduction in the allowance for net deferred tax assets(amounting to P$2 million).

 

During2007, we recorded an income tax expense of P$60 million in this segmentcompared to an income tax benefit of P$33 million in 2006. The income taxexpense in 2007 was mainly attributable to a reduction of Telecom Argentina’stax loss carryforwards (which were reduced by P$364 million), partially offsetby income generated by other temporary differences (amounting to P$205 million)including, among others, a reduction of the deferred tax liability on fixedassets and its adjustment for inflation, and an increase in the allowance fordoubtful accounts, provisions for lawsuits and other contingencies. As ofDecember 31, 2007, a valuation allowance for deferred tax assets of P$95million was recorded in Telecom Argentina.

 

***Net Loss from continuing operations***

 

For2009, the Voice, Data and Internet reportable segment recorded a net loss ofapproximately P$175 million in comparison with a net loss of approximatelyP$309 million in 2008. The decreased net loss in 2009 was mainly due to higheroperating income and lower other expenses, net, partially offset by higherincome tax expense, as discussed above.

 

For2008, the Voice, Data and Internet reportable segment recorded a net loss ofapproximately P$309 million in comparison with a net loss of approximately P$25million in 2007. The higher net loss in 2008 was mainly due to lower operatingincome, higher other expenses, net and higher income tax expense, partiallyoffset by lower financial loss, net as discussed above.

 

***Income from Discontinued Operations***

 

InApril 2007, Telecom Argentina sold its 99.99% shareholding in Publicom(the directory publishing company) to Yell Publicidad S.A. According toArgentine GAAP, net income from the operations of Publicom and from the sale ofPublicom has been accounted for under “discontinued operations,” which wasincluded in a specific caption “Results from discontinued operations” in theconsolidated statements of income for the year ended December 2007. Thenet income from discontinued operations for 2007 amounted to P$102 million, ofwhich P$101 million corresponded to the sale of Publicom, and P$1 million toPublicom’s net income prior to the date of sale.

 

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***Net (Loss) Income***

 

For2009 and 2008, the Voice, Data and Internet reportable segment recorded a netloss of approximately P$175 million and P$309 million, respectively. Sincethere were no results from discontinued operations for these years, see “—NetLoss from continuing operations” for an explanation of net losses for 2009 and2008.

 

For2007, the Voice, Data and Internet reportable segment recorded a net income ofapproximately P$77 million mainly due to the net income of P$102 millionreflecting discontinued operations of Publicom, partially offset by a P$25million loss from continuing operations.

 

**(B.2)  Wireless ReportableSegment**

 

Resultsof operations from our Wireless reportable segment for 2009, 2008 and 2007 arecomprised as follows:

 
| ** **                                                         | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                         | ** ** | **2009**                         | ** ** | **2008**                | ** ** | **2007** | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
| ** **                                                         | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| Net sales                                                          |       | 8,069                            |       | 6,955                   |       | 5,772 |   | 16 |   | 21 |   |
| Cost of services and general, administrative and  selling expenses |       | (5,723                           | )          | (5,126                  | )          | (4,494 | ) | 12 |   | 14 |   |
| **Operating income**                                               | ** ** | **2,346**                        | ** ** | **1,829**               | ** ** | **1,278** | ** ** | **28** | ** ** | **43** | ** ** |
| Financial results, net                                             |       | (157                             | )          | (99                     | )          | (179 | ) | 59 |   | (45 | ) |
| Other, net (1)                                                     |       | (83                              | )          | (68                     | )          | (60 | ) | 22 |   | 13 |   |
| Income tax                                                         |       | (526                             | )          | (392                    | )          | (232 | ) | 34 |   | 69 |   |
| **Net income**                                                     | ** ** | **1,580**                        | ** ** | **1,270**               | ** ** | **807** | ** ** | **24** | ** ** | **57** | ** ** |

 

----

(1)          Other, net includes gain on equity investees, otherexpenses, net and minority interest.

 

***Net Sales***

 

Weprovide wireless telephone service throughout Argentina and Paraguay throughTelecom Personal and Núcleo, respectively. Net sales from Argentina andParaguay were approximately 95%and 5%, respectively, of totalsegment net sales in 2009, 94% and 6%, respectively, in 2008 and 92% and 8%,respectively, in 2007.

 
| ** **                                                 | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                 | ** ** | **2009**                         | ** ** | **2008**                | ** ** | **2007** | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
| ** **                                                 | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| **Argentina**                                              |       |                             |       |                    |       |   |   |   |   |   |   |
| Service revenues (1)                                       |       | 6,832                            |       | 5,853                   |       | 4,756 |   | 17 |   | 23 |   |
| Handset sales                                              |       | 796                              |       | 712                     |       | 583 |   | 12 |   | 22 |   |
| **Total net sales in Argentina**                           | ** ** | **7,628**                        | ** ** | **6,565**               | ** ** | **5,339** | ** ** | **16** | ** ** | **23** | ** ** |
| Average number of subscribers during the year  (thousands) |       | 13,563                           |       | 11,513                  |       | 9,718 |   | 18 |   | 19 |   |
| **Paraguay**                                               |       |                             |       |                    |       |   |   |   |   |   |   |
| Service revenues                                           |       | 435                              |       | 382                     |       | 426 |   | 14 |   | (10 | ) |
| Handset sales                                              |       | 6                                |       | 8                       |       | 7 |   | (25 | ) | 14 |   |
| **Total net sales in Paraguay**                            | ** ** | **441**                          | ** ** | **390**                 | ** ** | **433** | ** ** | **13** | ** ** | **(10** | **)** |

 

----

(1) Certain components of service revenues arenot 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

 

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segment.The following table shows the reconciliation of total service revenues inArgentina to such revenues included in the ARPU calculations:

 
| ** **                                                                         | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                         | ** ** | **(P$ millions)**           | ** ** |
| **Total service revenues in  Argentina**                                           | ** ** | **6,832**                        | ** ** | **5,853** | ** ** | **4,756** | ** ** |
| Components of service revenues not included in the  ARPU calculation:              |       |                             |       |   |   |   |   |
| Outcollect wholesale roaming                                                       |       | (216                             | )          | (229 | ) | (207 | ) |
| Cell sites rental                                                                  |       | (14                              | )          | (8 | ) | (7 | ) |
| Activation fees                                                                    |       | (31                              | )          | (35 | ) | (32 | ) |
| Intercompany wireless sales                                                        |       | 38                               |       | 25 |   | 13 |   |
| **Adjusted total service revenues  in Argentina included in the ARPU calculation** | ** ** | **6,609**                        | ** ** | **5,606** | ** ** | **4,523** | ** ** |

 

***Net Sales in Argentina***

 

During 2009, Telecom Personal’s net salesin Argentina increased 16% to P$7,628million from P$6,565 millionin 2008, mainly due to increases in the number of subscribers. ARPU in Argentina during 2009 and 2008 remained stable at about P$41per customer per month and was approximately P$39 per customer per monthin 2007.

 

The total number of Telecom Personal’ssubscribers in Argentina was approximately 14,475,000as of December 31, 2009, representing an increase ofapproximately 1,911,000 or 15% ascompared to 2008. The increase was fueled by increased penetration in thecellular services market in Argentina. As of December 31,2009, the subscriber base in Argentina amounted to approximately 10,051,000prepaid subscribers, or 69% of the total subscriber base, approximately1,715,000 post-paid subscribers, or 12% of the total subscriber base andapproximately 2,709,000 “cuentas claras” plan subscribers, or 19% of the totalsubscriber base. Total wireless trafficincreased 16% during 2009 as compared to 2008.

 

During2008, Telecom Personal’s net sales in Argentina increased 23% to P$6,565million from P$5,339 million in 2007, mainly due to increases in the number ofsubscribers.

 

Thetotal number of Telecom Personal’s subscribers in Argentina was approximately12,564,000 as of December 31, 2008, representing an increase ofapproximately 1,898,000, or 18%, as compared to 2007. As of December 31,2008, the subscriber base in Argentina amounted to approximately 8,303,000prepaid subscribers (66% of the total subscriber base), 1,454,000 post-paidsubscribers (12% of the total subscriber base) and 2,807,000 “cuentas claras”plan subscribers (22% of the total subscriber base). Total wireless trafficincreased 17% during 2008 as compared to 2007.

 

***Net Sales in Paraguay***

 

Núcleo,which provides wireless telephone services in Paraguay, generated P$441 millionin net sales during 2009, a 13% increase from P$390 million in 2008. Thisincrease was mainly due to the 15% appreciation of the guaraní (the legalcurrency in Paraguay) as compared to the Argentine peso, partially offset bythe decrease in prepaid services as a result of the impact of the internationaleconomic crisis on the Paraguayan economy and the effect of strong competitionamong operators.  Núcleo hadapproximately 1,794,000 wireless subscribers as of December 31, 2009 whichrepresented a decrease of approximately 17,000 customers, or 1%, as compared tothe level at December 31, 2008. As of December 31, 2009, Núcleo hadapproximately 1,605,000 prepaid subscribers, representing 89% of Núcleo’s totalwireless subscriber base.

 

During2008, Núcleo generated P$390 million in net sales, a 10% decrease from theP$433 million in 2007. The decrease in revenues was mainly due to lower trafficvolumes and the effect of the international crisis which affected the exchangerates, especially in the second half of 2008. Núcleo had approximately 1,811,000 wireless subscribers, whichrepresented an increase of approximately 200,000 customers, or 12%, as comparedto the level at December

 

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31,2007. As of December 31, 2008, Núcleo had approximately 1,647,000 prepaidsubscribers, representing 91% of Núcleo’s total wireless subscriber base.

 

***General***

 

During2009, total net sales from our Wireless reportable segment, consisting ofservice revenues and handset sales, increased 16% to P$8,069million from P$6,955 million in 2008. During 2008, total net sales increased21% to P$6,955 million from P$5,772 million in 2007.

 

Revenuesfrom our Wireless reportable segment for 2009, 2008 and 2007 are comprised asfollows:

 
| ** **                                      | ** ** | **Year Ended December 31,** | ** ** | **% of Change** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|-----------------|------------|
| ** **                                      | ** ** | **2009**                         | ** ** | **2008**        | ** ** | **2007** | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
| ** **                                      | ** ** | **(P$ millions)**           | ** ** | **Increase**    | ** ** |
| Prepaid services                                |       | 1,245                            |       | 1,089           |       | 986 |   | 14 |   | 10 |   |
| Monthly basic charges and airtime usage charges |       | 1,709                            |       | 1,457           |       | 1,244 |   | 17 |   | 17 |   |
| Calling Party Pays, TLRD and Roaming services   |       | 1,694                            |       | 1,723           |       | 1,514 |   | (2 | ) | 14 |   |
| Value added services                            |       | 2,470                            |       | 1,831           |       | 1,326 |   | 35 |   | 38 |   |
| Other service sales                             |       | 149                              |       | 135             |       | 112 |   | 10 |   | 21 |   |
| **Subtotal Service Revenues**                   | ** ** | **7,267**                        | ** ** | **6,235**       | ** ** | **5,182** | ** ** | **17** | ** ** | **20** | ** ** |
| Handset sales                                   |       | 802                              |       | 720             |       | 590 |   | 11 |   | 22 |   |
| **Total Wireless**                              | ** ** | **8,069**                        | ** ** | **6,955**       | ** ** | **5,772** | ** ** | **16** | ** ** | **21** | ** ** |

 

 

***Service Revenues***

 

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 and charges for Value Added Services.

 

As a result of the growth in the customer base in Argentina, generallyall types of service revenues have grown considerably during the yearspresented. Revenues from post-paid services (including monthly basic chargesand air time usage charges), prepaid services and Value Added Services grew by24% in 2009 as compared to 2008 (an increase of 24% in Argentina and 22% inParaguay).

 

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Servicerevenues were approximately 90%of total reportable segment net sales in each year of the period reported.

 

*Prepaid Services*

 

Prepaidservices sales increased 14% toP$1,245 million in 2009 fromP$1,089 million in 2008. The variation was primarily due to a 17% increase inthe number of prepaid subscribers to approximately 11,656,000 as of December 31, 2009.

 

Prepaidservices sales increased 10% toP$1,089 million in 2008 fromP$986 million in 2007. The variation was primarily due to an increase in thenumber of subscribers to approximately 9,950,000as of December 31, 2008, which represents an increase of approximately 1,432,000 customers or 17% as compared to December 31,2007.

 

*Monthly Basic Charges and Airtime Usage Charges*

 

During2009, monthly basic charges and airtime usage charges increased 17% to P$1,709 million from P$1,457million in 2008. Monthly basic charges and airtime usage chargesincreased 17% in 2008 from P$1,244 million in 2007. The increase in each yearwas mainly due to an increase in the subscriber base and an increase in thevolume of total traffic.

 

*Calling Party Pays, TLRD and Roaming Services*

 

During2009, Calling Party Pays, TLRD and roaming services revenue was P$1,694million, representing a 2% decrease from P$1,723 million in 2008. The decreasewas primarily due to a smaller traffic volume in Paraguay and the effect ofconverting guaraníes into Argentine pesos, partially offset by a slightincrease in the volume of traffic in Argentina. Calling Party Pays, TLRD androaming services revenue increased 14% in 2008 from P$1,514 million in 2007.

 

*Value Added Services*

 

ValueAdded Services which include Short Message Service (SMS), Multimedia MessagingSystem (MMS) and General Packet Radio Service (GPRS), among others, increased35% to P$2,470 million in 2009 from P$1,831 million in 2008, and increased 38% in 2008 from P$1,326 million in 2007.The increase in each year was largely due to Telecom Personal’s efforts tocreate Value Added Services which featured technological innovation.

 

*Other Service Sales*

 

During2009, other service sales was P$149 million, representing an increase of 10%from P$135 million in 2008. During 2008, other service sales increased 21% fromP$112 million in 2007.

 

*Handset sales*

 

Handsetsales consist primarily 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 expenses arerecognized 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 at below cost tocustomers, agents and other third party distributors.

 

Thisdiscount as a percentage of handsets costs decreased in the period between 2007and 2008 and increased slightly between 2008 and 2009. It was approximatelyP$289 million or 27% of total cost of handsets in 2009, P$268 million or 27% oftotal cost of handsets in 2008 and P$285 million or 33% of total cost ofhandsets in 2007, respectively.

 

During2009, handset sales increased to P$802 million from P$720 million in 2008,while they increased to P$720 million in 2008 from P$590 million in 2007. The11% increase in 2009 was primarily due to a higher selling price of handsetssold. The increase in 2008 was mainly due to the expansion of the subscriberbase. Additionally, as

 

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aresult of technological advances and our provision of state-of-the-artservices, more customers upgraded their mobile handsets.

 

***Cost of Services and General, Administrative andSelling Expenses***

 

Totalcost of services and general, administrative and selling expenses in ourWireless reportable segment increased 12%to P$5,723 million in 2009 fromP$5,126 million in 2008. During 2008, these costs increased 14% from P$4,494million in 2007. In line with our increases in revenue, during 2009, all itemsin the cost structure of the wireless segment experienced material increases,except for advertising and costs of roaming and TLRD. This trend reflectsincreases in the cost of acquiring and retaining customers, taxes, commissionsdirectly associated with sales and expansions of the customer service staff.

 

Detailedbelow are the major components of the cost of services and general,administrative and selling expenses for the years ended December 31, 2009,2008 and 2007 in the Wireless reportable segment:

 
| ** **                                                                                    | ** ** | **Year Ended December 31,** | ** ** | **% of Change**         | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                                                    | ** ** | **2009**                         | ** ** | **2008**                | ** ** | **2007** | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
| ** **                                                                                    | ** ** | **(P$ millions)**           | ** ** | **Increase/(Decrease)** | ** ** |
| Salaries and social security                                                                  |       | 353                              |       | 286                     |       | 216 |   | 23 |   | 32 |   |
| Taxes                                                                                         |       | 733                              |       | 602                     |       | 464 |   | 22 |   | 30 |   |
| Maintenance, materials and supplies                                                           |       | 189                              |       | 157                     |       | 133 |   | 20 |   | 18 |   |
| Bad debt expense                                                                              |       | 98                               |       | 57                      |       | 59 |   | 72 |   | (3 | ) |
| Fees for services                                                                             |       | 286                              |       | 219                     |       | 167 |   | 31 |   | 31 |   |
| Advertising                                                                                   |       | 242                              |       | 251                     |       | 217 |   | (4 | ) | 16 |   |
| Cost of wireless handsets                                                                     |       | 1,091                            |       | 988                     |       | 875 |   | 10 |   | 13 |   |
| Agent’s commissions and commissions for the  distribution of prepaid cards               |       | 828                              |       | 726                     |       | 675 |   | 14 |   | 8 |   |
| Other commissions                                                                             |       | 135                              |       | 108                     |       | 84 |   | 25 |   | 29 |   |
| TLRD and roaming                                                                              |       | 898                              |       | 941                     |       | 760 |   | (5 | ) | 24 |   |
| Other operating expenses                                                                      |       | 395                              |       | 324                     |       | 256 |   | 22 |   | 27 |   |
| **Subtotal costs before  depreciation of fixed assets and amortization of intangible assets** | ** ** | **5,248**                        | ** ** | **4,659**               | ** ** | **3,906** | ** ** | **13** | ** ** | **19** | ** ** |
| Depreciation of fixed assets and amortization of  intangible assets                           |       | 475                              |       | 467                     |       | 588 |   | 2 |   | (21 | ) |
| **Total wireless**                                                                            | ** ** | **5,723**                        | ** ** | **5,126**               | ** ** | **4,494** | ** ** | **12** | ** ** | **14** | ** ** |
|                                                                                          |       |                             |       |                    |       |   |   |   |   |   |   |
| **Argentina**                                                                                 | ** ** | ** **                       | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Costs before depreciation of fixed assets and  amortization of intangible assets              |       | 4,962                            |       | 4,404                   |       | 3,647 |   | 13 |   | (21 | ) |
| Depreciation of fixed assets and amortization of  intangible assets                           |       | 381                              |       | 375                     |       | 510 |   | 2 |   | (27 | ) |
| **Total costs in Argentina**                                                                  | ** ** | **5,343**                        | ** ** | **4,779**               | ** ** | **4,157** | ** ** | **12** | ** ** | **15** | ** ** |
| ** **                                                                                    | ** ** | ** **                       | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Paraguay**                                                                                  |       |                             |       |                    |       |   |   |   |   |   |   |
| Costs before depreciation of fixed assets and  amortization of intangible assets              |       | 286                              |       | 255                     |       | 259 |   | 12 |   | (2 | ) |
| Depreciation of fixed assets and amortization of  intangible assets                           |       | 94                               |       | 92                      |       | 78 |   | 2 |   | 18 |   |
| **Total costs in Paraguay**                                                                   | ** ** | **380**                          | ** ** | **347**                 | ** ** | **337** | ** ** | **10** | ** ** | **3** | ** ** |

 

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----

(1)               Includes maintenance, materials and supplies,bad debt expense, other commissions and other operating expenses.

 

*Salaries and Social Security*

 

During2009, salaries and social security charges increased 23% to P$353million from P$286 million in 2008. During 2008, salaries and social securitycharges increased 32% to P$286 million from P$216 million in2007. The increase in each year was mainly due to the salary increases that theCompany implemented and the increase in the number of full time employees. TheWireless reportable segment had 4,221employees as of December 31, 2009, 4,109as of December 31, 2008, and 3,919as of December 31, 2007, respectively.

 

*Taxes*

 

During2009, taxes increased 22% to P$733 million from P$602 million in 2008. During2008, taxes increased 30% to P$602 million from P$464 million in 2007. Theincrease in each year was attributable to the increase in total segment netsales.

 

*Maintenance, Materials and Supplies*

 

During2009, maintenance, materials and supplies expenses increased 20% to P$189million from P$157 million in 2008. During 2008, such costs increased 18% toP$157 million from P$133 million in 2007. The increase in each year was mainlydue to an increase in maintenance costs of radio base systems related to thedevelopment of the GSM network and increasedcosts of building maintenance. Additionally, in 2008 the costs ofmaintenance of BlackBerry equipment increased as compared to 2007. The increasewas also due to higher prices of certain supplies caused by the effects ofinflation.

 

*Fees for Services*

 

During2009, fees for services totaled P$286 million, representing an increase of 31%from P$219 million in 2008. During 2008, fees for services increased 31% fromP$167 million in 2007.  The increase ineach year was mainly due to an increase in the rates for the principal servicesreceived caused by the effects of inflation, higher service costs related tocall centers (a P$43 million increase from 2008 to 2009) and higher softwareand hardware fees (a P$17 million increase from 2008 to 2009).

 

*Advertising*

 

During2009, advertising expenses including media, promotional and institutionalcampaigns, amounted to P$242 million, representing a decrease of 4% from P$251million in 2008. During 2008, these expenses increased 16% from P$217 millionin 2007. This variation was mainly due to higher media advertising expenses asa result of efforts to retain and expand the wireless customer base.

 

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*Cost of Wireless Handsets*

 

During2009, the cost of wireless handsets sold increased to P$1,091 million fromP$988 million in 2008. In 2008 the cost of wireless handsets sold increased toP$988 million from P$875 million in 2007. The increase in both years was mainlydue to an expansion of the subscriber base and increased customer upgrade ofmobile phone sets as a result of technological advances and new serviceofferings. That effect was partially offset by lower subsidies offered to agentsand other third party distributors.

 

*Agent’s Commissions and Commissions for the Distribution of PrepaidCards*

 

During2009, agent’s commissions and commissions for the distribution of prepaid cardsincreased to P$828 million fromP$726 million in 2008, representing an increase of 14%. During 2008, agent’s commissions and commissions for thedistribution of prepaid cards increased to P$726 million from P$675 million in 2007, representing an increaseof 8%. The increase in agent’scommissions and commissions for the distribution of prepaid cards in each yearwas mainly due to the increase in the prepaid subscriber base.

 

*Other Commissions*

 

During2009, other commissions, such as the commission paid for the invoice andcollection process, increased 25%to P$135 million from P$108million in 2008. During 2008, other commissions increased 29% to P$108 million from P$84 million in 2007. The increases were mainlydue to the increase in the subscriber base.

 

*TLRD and Roaming*

 

During2009, costs of TLRD and roaming decreased 5% to P$898 millionfrom P$941 million in 2008. The decrease wasprimarily due to a decrease in wireless traffic on otherwireless operators’ networks. During 2008,costs of TLRD and roaming increased 24%to P$941 million from P$760million in 2007. The increase was due to an increase in wireless traffic amongwireless operators as a consequence of a strong growth in the total customerbase and to an increase in the volume of total traffic.

 

*Other Operating Expenses*

 

Otheroperating expenses increased 22%to approximately P$395 millionin 2009 from P$324 million in 2008. Other operating expenses increased 27% to approximately P$324 million in 2008 from P$256 millionin 2007. The increase was largely due to the increase incosts associated with the provision of value added services to Telecom Personalcustomers, increased use of the public network, cost increases in transport andfreight and higher costs of site leases.

 

*Depreciation of Fixed Assets and Amortization of Intangible Assets*

 

During 2009depreciation of fixed assets and amortization of intangible assets increased 2%to P$475 million from P$467 million in 2008. Theincrease was the result of higher investment in fixed assets, partially offsetby a reduction in the level of depreciation due to the end of the amortization period for certainassets and the change in the useful lives of certaintechnical assets (see Note 12 to our Consolidated Financial Statements). During 2008 depreciation of fixed assets andamortization of intangible assets decreased 21% to P$467 million from P$588million in 2007. The decrease was mainly a consequence of the end ofamortization period for certain assets (among others, the TDMA networkequipment as a result of the migration to GSM technology).

 

***Operating Income***

 

In2009, our operating income from the Wireless reportable segment was P$2,346million, representing an increase of 28% from P$1,829 million in 2008. Theincrease was mainly due to growth in service revenues, partially offset byincreases in costs, such as salaries and social security, taxes, maintenance,materials and supplies costs, fees for services, costs for subscriberacquisition and other operating expenses.

 

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Thefollowing table shows our operating income from the Wireless reportable segmentin 2009 and 2008, the percentage of net sales in each year and changes betweenyears and by geographic area.

 
|                                                                                                                       |       | **Year Ended December 31,** |       |      |       |             |       | **Change by geographic area** |       |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|------------------|------------|-------------------------------|------------|
|                                                                                                                       |       | **2009**                         | ** ** | **2008**  | ** ** | **Total Change** | ** ** | **Argentina**                 | ** ** | **Paraguay** |   |
|                                                                                                                       |       | **(P$ millions / %)**       |       | **%**     |       |             |       | **(P$ millions)**        |       |   |   |
| Operating income before SAC and SRC and  depreciation of fixed assets and amortization of intangible assets  (non-GAAP)(1) |       | 3,914                            |       | 3,308     |       | 18               |       | 606                           |       | 587 |   | 19 |   |
| *As % of net sales*                                                                                                        | * *   | *49*                             | *%*        | *48*      | *%*        | * *         | * *   | * *                      | * *   | * * | * * | * * | * * |
| SAC and SRC (non-GAAP)(2)                                                                                                  |       | (1,093                           | )          | (1,012    | )          | 8                |       | (81                           | )          | (82 | ) | 1 |   |
| *As % of net sales*                                                                                                        | * *   | *(14*                            | *%)*       | *(15*     | *%)*       | * *         | * *   | * *                      | * *   | * * | * * | * * | * * |
| **Operating income before  depreciation of fixed assets and amortization of intangible assets**                            | ** ** | **2,821**                        | ** ** | **2,296** | ** ** | **23**           | ** ** | **525**                       | ** ** | **505** | ** ** | **20** | ** ** |
| *As % of net sales*                                                                                                        | * *   | *35*                             | *%*        | *33*      | *%*        | * *         | * *   | * *                      | * *   | * * | * * | * * | * * |
| Depreciation of fixed assets and amortization of  intangible assets                                                        |       | (475                             | )          | (467      | )          | 2                |       | (8                            | )          | (6 | ) | (2 | ) |
| *As % of net sales*                                                                                                        | * *   | *(6*                             | *%)*       | *(7*      | *%)*       | * *         | * *   | * *                      | * *   | * * | * * | * * | * * |
| **Operating income**                                                                                                       | ** ** | **2,346**                        | ** ** | **1,829** | ** ** | **28**           | ** ** | **517**                       | ** ** | **499** | ** ** | **18** | ** ** |
| *As % of net sales*                                                                                                        | * *   | *29*                             | *%*        | *26*      | *%*        | * *         | * *   | * *                      | * *   | * * | * * | * * | * * |

 

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(1)          Operating income before SAC and SRC 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 GAAP. This measure may not be calculatedin the same manner as similarly-titled measures used by other companies. Inaddition to the GAAP measure operating income, management uses this non-GAAPmeasure to assess operating results. Operating income before SAC and SRC anddepreciation and amortization provides information about the operationalperformance excluding the effect of significant “one time” commercial costs(Subscriber Acquisition Costs, or “SAC”), the effect of Subscriber RetentionCosts, or “SRC” and the effect of non-cash depreciation and amortizationcharges (i.e. amortization and depreciation of fixed and intangible assets).Management believes that this measure is especially relevant in assessingsegment performance during periods of significant subscriber growth or in ahighly competitive market, as is currently the case in Argentina, and as such,provides investors with meaningful information concerning development of thewireless 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 and SRC charges, each as shown in the table above.

 

(2)          The components of wireless SAC and SRC that arisefrom the accounting records are as follows:

 
|                            |       | **Year  Ended December 31,** |       |       |   |             |       | **Change  by geographic area** |       |
|---------------------------------|------------|-----------------------------------|------------|------------|--------|------------------|------------|--------------------------------|------------|
|                            |       | **2009**                          | ** ** | **2008**   |   | **Total Change** |       | **Argentina**                  | ** ** | **Paraguay** |   |
|                            |       | **(P$ millions)**            |       | **%**      |   |             |       | **(P$ millions)**         |       |   |   |
| Handset net sales               |       | 802                               |       | 720        |   | 11               |       | 82                             |       | 84 |   | (2 | ) |
| Cost of handsets                |       | (1,091                            | )          | (988       | )      | 10               |       | (103                           | )          | (104 | ) | 1 |   |
| **Gross loss on handset sales** | ** ** | **(289**                          | **)**      | **(268**   | **)**  | **8**            | ** ** | **(21**                        | **)**      | **(20** | **)** | **(1** | **)** |
| Advertising                     |       | (242                              | )          | (251       | )      | (4               | )          | 9                              |       | 8 |   | 1 |   |
| Agent’s commissions        |       | (562                              | )          | (493       | )      | 14               |       | (69                            | )          | (70 | ) | 1 |   |
| **Total SAC and SRC**           | ** ** | **(1,093**                        | **)**      | **(1,012** | **)**  | **8**            | ** ** | **(81**                        | **)**      | **(82** | **)** | **1** | ** ** |

 

In2009, our operating income before SAC and SRC and depreciation of fixed assetsand amortization of intangible assets from the Wireless reportable segment wasP$3,914 million representing an increase of 18% from P$3,308 million in 2008.It represents 49% of total segment net sales in 2009, and 48% of total segmentnet sales in 2008. The increase was mainly due to a 17% increase in servicerevenues, partially offset by a higher level of operating costs, including a23% increase in salaries and social security costs, a 20% increase inmaintenance, materials and supplies, a 22% increase in taxes and a 31% increasein fees for services.

 

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Thefollowing table shows our operating income from the Wireless reportable segmentin 2008 and 2007, the percentage of net sales in each year and changes betweenyears 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 SRC and  depreciation of fixed assets and amortization of intangible assets  (non-GAAP)(1) |       | 3,308                             |       | 2,825     |       | 17               |       | 483                            |       | 533 |   | (50 | ) |
| *As % of net sales*                                                                                                        |       | 48                                | *%*        | *49*      | *%*        | * *         | * *   | * *                       | * *   | * * | * * | * * | * * |
| SAC and SRC (non-GAAP)(2)                                                                                                  |       | (1,012                            | )          | (959      | )          | 6                |       | (53                            | )          | (64 | ) | 11 |   |
| *As % of net sales*                                                                                                        | * *   | *(15*                             | *%)*       | *(17*     | *%)*       | * *         | * *   | * *                       | * *   | * * | * * | * * | * * |
| **Operating income before  depreciation of fixed assets and amortization of intangible assets**                            | ** ** | **2,296**                         | ** ** | **1,866** | ** ** | **23**           | ** ** | **430**                        | ** ** | **469** | ** ** | **(39** | **)** |
| *As % of net sales*                                                                                                        | * *   | *33*                              | *%*        | *32*      | *%*        | * *         | * *   | * *                       | * *   | * * | * * | * * | * * |
| Depreciation of fixed assets and amortization of  intangible assets                                                        |       | (467                              | )          | (588      | )          | (21              | )          | 121                            |       | 135 |   | (14 | ) |
| *As % of net sales*                                                                                                        | * *   | *(7*                              | *%)*       | *(10*     | *%)*       | * *         | * *   | * *                       | * *   | * * | * * | * * | * * |
| **Operating income**                                                                                                       | ** ** | **1,829**                         | ** ** | **1,278** | ** ** | **43**           | ** ** | **551**                        | ** ** | **604** | ** ** | **(53** | **)** |
| *As % of net sales*                                                                                                        | * *   | *26*                              | *%*        | *22*      | *%*        | * *         | * *   | * *                       | * *   | * * | * * | * * | * * |

 

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(1)      Operating income before SAC and SRC 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 GAAP. This measure may not be calculatedin the same manner as similarly-titled measures used by other companies. Inaddition to the GAAP measure operating income, management uses this non-GAAPmeasure to assess operating results. Operating income before SAC and SRC anddepreciation and amortization provides information about the operationalperformance excluding the effect of significant “one time” commercial costs(SAC), plus the effect of SRC and the effect of non-cash depreciation andamortization charges (i.e. amortization and depreciation of fixed andintangible assets). Management believes that this measure is especiallyrelevant in assessing segment performance during periods of significantsubscriber growth or in a highly competitive market as is currently the case inArgentina, and as such provides investors with meaningful informationconcerning development of the wireless business. See Note 13 to ourConsolidated Financial Statements for more information regarding segmentperformance. This measure is reconciled to the GAAP measure operating income byadding back depreciation and amortization charges and wireless SAC and SRCcharges, each as shown in the table above.

 

(2)          The components of wireless SAC and SRC that arisefrom the accounting records are as follows:

 
|                            |       | **Year  Ended December 31,** |       |     |   |             |       | **Change  by geographic area** |       |
|---------------------------------|------------|-----------------------------------|------------|----------|--------|------------------|------------|--------------------------------|------------|
|                            |       | **2008**                          | ** ** | **2007** |   | **Total Change** |       | **Argentina**                  | ** ** | **Paraguay** |   |
|                            |       | **(P$ millions)**            |       | **%**    |   |             |       | **(P$ millions)**         |       |   |   |
| Handset net sales               |       | 720                               |       | 590      |   | 22               |       | 130                            |       | 129 |   | 1 |   |
| Cost of handsets                |       | (988                              | )          | (875     | )      | 13               |       | (113                           | )          | (111 | ) | (2 | ) |
| **Gross loss on handset sales** | ** ** | **(268**                          | **)**      | **(285** | **)**  | **(6**           | **)**      | **17**                         | ** ** | **18** | ** ** | **(1** | **)** |
| Advertising                     |       | (251                              | )          | (217     | )      | 16               |       | (34                            | )          | (29 | ) | (5 | ) |
| Agent’s commissions        |       | (493                              | )          | (457     | )      | 8                |       | (36                            | )          | (53 | ) | 17 |   |
| **Total SAC and SRC**           | ** ** | **(1,012**                        | **)**      | **(959** | **)**  | **6**            | ** ** | **(53**                        | **)**      | **(64** | **)** | **11** | ** ** |

 

In2008, our operating income before SAC and SRC and depreciation of fixed assetsand amortization of intangible assets from the Wireless reportable segment wasP$3,308 million representing an increase of 17% from P$2,825 million in 2007.It represents 48% of total segment net sales in 2008, and 49% of total segmentnet sales in 2007. The increase was mainly due to a 20% increase in servicerevenues, partially offset by a higher level of 

 

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operatingcosts, including a 32% increase in salaries and social security costs, a 18%increase in maintenance, materials and supplies, a 30% increase in taxes, a 24%increase in cost of TLRD and roaming, a 31% increase in fees for services and a27% increase in other operating expenses.

 

***Financial Results, Net***

 

During2009, the Wireless reportable segment recorded a net financial loss of P$157million compared to a net financial loss of P$99 million in 2008.The increase in net financial loss was mainly attributed to higher losses in the amount of P$52 million arising from net currencyexchange differences and derivative financial instruments and to P$11 millionof holding losses on inventories andother financial results, partially offset by an increase of P$9 million ininterest income.

 

During2008, the Wireless reportable segment recorded a net financial loss of P$99million compared to a net financial loss of P$179 million in 2007. The decreasein net financial loss can be mainly attributed to P$61 million in lower holdinglosses on inventories and a P$30 million reduction in interest expense,partially offset by P$20 million higher losses in net currency exchangedifferences.

 

***Other, Net***

 

Mainvariations of Other, Net are related to Gain on equity investees and Otherexpenses, net.

 

*Gain on equity investees*

 

In2009, Núcleo underwent a voluntary capital reduction which yielded areimbursement of capital to its shareholders. As a result, the Company recordeda P$13 million foreign currency translation adjustment realized as aresult of the capital reimbursement by Núcleo.

 

*Other Expenses, Net*

 

Otherexpenses, net include severance payments for termination benefits, provisionsfor lawsuits and other contingencies and income from sales of fixed assets.During 2009, other expenses, net increased by 45% to P$81 million from P$56million in 2008. This increase was primarilya result of increased charges for lawsuits and other contingencies of P$10million and increases in the allowance for obsolescence of materials and otherassets totaling P$14 million.

 

During2008, other expenses, net increased by 51% to P$56 million from P$37 million in2007. The increase was mainly due to higher provisions for lawsuits and othercontingencies in the amount of P$17 million and increases in the allowance forobsolescence of materials and other assets totaling P$7 million.

 

***Income Tax***

 

Aspreviously mentioned, the income tax charge includes three effects (See “—Yearsended December 31, 2009, 2008 and 2007—Income Tax”).

 

During2009, our Wireless reportable segment recorded an income tax expense of P$526million compared to P$392 million in 2008 and P$232 million in 2007. The incometax expense in 2009 was mainly attributable to the provision for current incometax amounting to P$517 million, the loss generated by the deferred tax on thetemporary differences arising out of the asset and liability valuationsaccording to fiscal vs. accounting criteria amounting to P$7 million and P$2million increase in the allowance for net deferred tax assets.

 

Infiscal year 2008, tax profits generated in this reportable segment gave rise totax liabilities. This tax liability was offset against a tax credit for minimumpresumed income and other withholdings. With respect to the deferred tax, in2008, a benefit was generated as a result of the reduction of the deferred taxliability on fixed assets and its adjustment for inflation, and the highercredit on the deduction of bad debts and lawsuits and other contingencies. Thetotal deferred tax benefit in the Wireless reportable segment was P$5 millionin 2008 as compared to P$88 million expense in 2007.

 

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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. Additionally, Telecom Personal established a P$11 millionvaluation allowance during 2007 for certain deferred tax assets.

 

In2007 and 2008, Núcleo reported a tax profit and the charge was increased by theovercharge originated from the payment of dividends to shareholders.

 

***Net Income***

 

During2009, our Wireless reportable segment reported net income of P$1,580 million ascompared to P$1,270 million during 2008 and to P$807 million during 2007. Theincrease in net income in each year was mainly due to higher operating incomein the year offset by higher financial loss and income tax expense, asexplained above.

 

**Foreign Currency Fluctuations**

 

*Exchange Rate Exposure*

 

Weestimate, based on the composition of our balance sheet as of December 31,2009, that each P$0.10 variation in the exchange rate against the U.S. dollarand proportional variations for the guaraní and Uruguayan peso against theArgentine peso, plus or minus, would result in a variation of approximatelyP$10 million of our consolidated financial indebtedness and approximately P$12million of our consolidated financial investment. These analyses are based onthe assumption that the Argentine peso fluctuated against all other currenciesat the same time. See “Item 11—Quantitative and Qualitative Disclosures AboutMarket Risk.”

 

**US GAAPReconciliation**

 

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, 2009, 2008 and 2007 and the amount of totalequity as of December 31, 2009, 2008 and 2007. For more details see Note15 to our Consolidated Financial Statements.

 

Asof and for the year ended December 31, 2009, the principal differencesbetween Argentine GAAP and US GAAP are the following:

 

·                  the accounting for capitalization of foreigncurrency exchange differences;

 

·                  the presentation of noncontrolling interestwithin total equity and net income;

 

·                  other adjustments such as inventories,present-value accounting, fixed assets held for sale and the adjustment forforeign currency translation realized as a result of the reimbursement due toNúcleo’s voluntary capital reduction; and

 

·                  the tax effects on US GAAP adjustmentsdescribed above, as applicable.

 

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, 2009 and 2008was P$1,405 million and P$961 million, respectively, as compared to a netincome of P$1,241 million and P$1,121 million, respectively, under US GAAP.Total shareholders’ equity under Argentine GAAP as of December 31, 2009was P$5,436 million, as compared to total equity of P$5,475 million under USGAAP.

 

Additionally,net income under Argentine GAAP for the years ended December 31, 2008 and2007 was P$961 million and P$884 million, respectively, as compared to a netincome of P$1,121 million and P$1,169 million, respectively, under US GAAP.Total shareholders’ equity under Argentine GAAP as of December 31, 2008was P$4,020 million as compared to total equity of P$4,214 million under USGAAP.

 

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**RecentlyIssued US GAAP Accounting Pronouncements**

 

InOctober 2009, the FASB issued Accounting Standards Update 2009-13 (ASU2009-13). The objective of this update is to address amendments to theaccounting for multiple-deliverable arrangements. This ASU is effectiveprospectively for revenue arrangements entered into or materially modified infiscal years beginning on or after June 15, 2010. Early adoption ispermitted. The Company is currently analyzing the impact that the adoption ofthe ASU will have on the Company’s financial position and its results ofoperations.

 

InJanuary 2010, the FASB issued Accounting Standards Update 2010-06 (ASU2010-06), which modifies ASC 820-10 requiring new disclosures for assets andliabilities that are measured at fair value. ASU 2010-06 is effective forinterim and annual reporting periods beginning after December 15, 2009,except for certain disclosures in Level 3 fair value measurements. Thosedisclosures are effective for fiscal years beginning after December 15,2010, and for interim periods within those fiscal years. The Company iscurrently analyzing the impact that the adoption of the ASU will have on theCompany’s financial position and its results of operations.

 

**Liquidityand Capital Resources**

 

***Sources and Uses of Funds***

 

Historically,our sources of liquidity have been cash flows from operations and short andlong-term borrowings. However, our limited financing alternatives werecurtailed after December 2001 when the Argentine government defaulted onmost of its financial obligations. In addition to Argentina’s debt crisis,beginning in late 2001, our ability to access the capital and bank loan marketswas effectively 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.

 

Asa consequence 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 in August 2005, whileTelecom Personal completed its debt restructuring in November 2004.Subsequently, Telecom Personal refinanced its financial indebtedness in December 2005in order to secure more favorable terms. Since completing its debt restructuring, the Company has significantlyreduced its consolidated financial indebtedness by applying cash generated fromoperations to make mandatory and voluntary principal prepayments on itsoutstanding indebtedness.  On October 15,2009 Telecom Argentina fully paid its remaining financial debt issued inconnection with the 2005 restructuring.

 

Weexpect that the principal source of Telecom Argentina’s liquidity in the nearterm will be cash flows from Telecom Argentina’s operations and the dividendsthat Telecom Personal may pay to it. Telecom Argentina’s principal uses of cashflows are expected to be for capital expenditures and dividend payments.Telecom Argentina expects working capital and funds generated from operationsto be sufficient for its present requirements. For information on the dividend paid by Telecom Personal and Telecom Argentinaduring 2010 see “Item 4—Information on the Company—Introduction—RecentDevelopments.”

 

Onthe other hand, we expect that the principal source of Telecom Personal’sliquidity in the near term will be cash flows from Telecom Personal’soperations. Telecom Personal’s principal uses of cash flows are expected to befor debt service requirements, capital expenditures and dividend payments toTelecom Argentina.

 

Asof December 31, 2009, we had approximately P$1,273 million in cash andcash equivalents. As of December 31, 2008 and 2007, cash and cashequivalents amounted to P$902 million and P$458 million, respectively.

 

During2009, our consolidated net cash flow from operating activities wasapproximately P$3,288 million, our consolidated net cash flow used in investingactivities was approximately P$1,231 million and our consolidated net cash flowused in financial activities was approximately P$1,686 million. During 2008,our consolidated net cash 

 

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flowfrom operating activities was approximately P$3,319 million, our consolidatednet cash flow used in investing activities was approximately P$1,317 millionand our consolidated net cash flow used in financial activities wasapproximately P$1,558 million. During 2007, our consolidated net cash flowprovided by operating activities from continuing operations was approximatelyP$2,946 million, our consolidated net cash flow used in investing activitiesfrom continuing operations was approximately P$1,755 million and ourconsolidated cash flow used in financial activities from continuing operationswas approximately P$1,576 million. Additionally, in 2007, the cash flowprovided by investing activities from discontinued operations was P$182million.

 

*Voice, Data and Internet reportable segment.* As of December 31,2009, the Voice, Data and Internet reportable segment had approximately P$579million in cash and cash equivalents.

 

During2009, the Voice, Data and Internet reportable segment’s net cash flow fromoperating activities was approximately P$1,607 million, its net cash flow usedin investing activities was approximately P$584 million and P$796 million netcash flow was used in financial activities. During 2008, the Voice, Data andInternet reportable segment’s net cash flow from operating activities wasapproximately P$1,781 million, its net cash flow used in investing activitieswas approximately P$577 million and P$1,075 million of net cash flow was usedin financial activities. During 2007, the Voice, Data and Internet reportablesegment’s net cash flow provided by operating activities from continuingoperations was approximately P$1,738 million, its net cash flow used ininvesting activities from continuing operations was approximately P$1,111million and P$1,071 million of net cash flow from operating activities was usedin financial activities. Additionally, in 2007, the cash flow provided byinvesting activities from discontinued operations was P$182 million.

 

Theoperating activities of the Voice, Data and Internet reportable segmentgenerated approximately P$174 million less in net cash flow for 2009 comparedto 2008 mainly due to higher salaries and social security payments, higherpayments for the acquisition of goods and services and lower collections ofsettlements of non-deliverable forward contracts, partially offset by highercollection of accounts receivable. Net cash flow used in investing activities increasedslightly from P$577 million in 2008 to P$584 million in 2009 primarily due toan increase in acquisition of fixed assets and intangible assets and areduction in the cash flows generated by investments not considered cash andcash equivalents, partially offset by P$97 million used for the acquisition ofCubecorp in 2008. During 2009, net cash flow used in financing activitiesdecreased by P$279 million as compared to 2008 mainly due to an increase in theamount of Telecom Personal’s dividend payment, partially offset by higher debtpayments.

 

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$1,111million 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 financingactivities remained approximately the same as net cash flow used in financingactivities in 2007.

 

*Wireless reportable segment.* As of December 31,2009, the Wireless reportable segment had approximately P$694 million in cashand cash equivalents.

 

During2009, the Wireless reportable segment’s net cash flow from operating activitieswas approximately P$1,681 million, net cash flow used in investing activitieswas approximately P$647 million and net cash flow used in financing activitieswas P$890 million. During 2008, the Wireless reportable segment’s net cash flowfrom operating activities was approximately P$1,538 million, net cash flow usedin investing activities was approximately P$740 million and net cash flow usedin financing activities was P$483 million. During 2007, the Wireless reportablesegment’s net cash flow from operating activities was approximately P$1,208million, its net cash flow used in investing activities was approximately P$644million and its net cash flow used in financing activities was approximatelyP$505 million.

 

During2009, net cash inflow from operating activities increased by P$143 million from2008. The increase was mainly due to higher collection of accounts receivable,partially offset by higher payments for the acquisition of goods and servicesand higher income tax payments. Net cash flow used in investing activitiesdecreased by P$93 million from 2008. The decrease was mainly due to a decreasein the acquisition of fixed assets and intangible 

 

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assets.During 2009, net cash flow used in financing activities increased by P$407million as compared to 2008, mainly due to higher dividend payments to TelecomArgentina and higher debt payments, partially offset by increased borrowing.

 

During2008, net cash inflow from operating activities increased by P$330 million from2007. The increase was mainly due to the higher cash collections of receivablesresulting from increased net sales. Net cash flow used in investing activitiesincreased by P$96 million from 2007. The increase was mainly due to higherpayments for the acquisition of fixed assets and intangible assets in 2008 comparedto 2007. During 2008, net cash flow used in financing activities decreased byP$22 million as compared to 2007 mainly due to Telecom Personal’s lower debtpayment, partially offset by higher dividend payments to Telecom Argentina.

 

***Debt Obligations and Debt Service Requirements***

 

*Telecom Argentina*

 

*Series A and B Notes Issued Pursuant to the APE.*In August 2005,Telecom Argentina completed the restructuring of its outstanding financialindebtedness on a stand-alone basis by issuing debt with new payment terms andby paying cash consideration and making cash interest payments.  In connection with its restructuring, TelecomArgentina issued Series A notes denominated in pesos, dollars, euro andyen having an original aggregate principal amount equivalent to P$2,576 million(US$885 million), and issued US$999 million of Series B Notes.

 

OnOctober 15, 2009 Telecom Argentina paid off the remaining portion of itsoutstanding debt under the APE Notes together with accrued interest for a totalamount of P$1,442 million. This payment was made five years in advance of therepayment schedule originally established with Telecom Argentina’s creditors.Under the terms and conditions of such Notes, Telecom Argentina was allowed toprepay the Notes at any time.

 

*Non-Deliverable Forward (“NDF”) Contracts to Purchase US Dollars atFixed Rates*

 

During2009, Telecom Personal entered into several NDF contracts under Argentinelegislation to purchase U.S. Dollars at a fixed rate in order to hedge itsexposure to foreign currency fluctuations with respect to its U.S.dollar-denominated financial debt.  Thecontracts were to purchase a total amount of US$25.2 million for a fixedforward average price of 4.384 P$/U.S. dollar maturing in June and December 2010and to purchase a total amount of US$90.0 million for a fixed forward averageprice of 4.344 P$/U.S. dollar maturing in December 2010. Since the principalterms (amounts and due dates) of the NDF were substantially similar to theterms of the foreign currency-denominated obligations, these hedges wereregarded as effective cash flow hedges.

 

Similarly,during 2009, Telecom Personal entered into several NDF contracts amounting toUS$23.5 million, maturing between September 2009 and August 2010, inorder to hedge its exposure to exchange rate fluctuations in connection withU.S. dollar-denominated accounts payable. However, since the terms of these NDF contracts did not perfectly matchthe terms of the foreign currency-denominated obligations, these hedges wereregarded as ineffective. Therefore, the changes in the fair value of these NDFcontracts until the cancellation date are recognized as a gain (loss) in theitem line “Financial results, net”. As of December 31, 2009, US$8.5million of such contracts were outstanding, maturing between July and August 2010.

 

DuringJanuary 2010, under its hedging policy, Telecom Personal entered intoseveral NDF contracts to purchase US dollars at fixed rates amounting to US$72million. Telecom Personal entered into these contracts in order to hedge itsexposure to U.S. dollar fluctuations with respect to its financial debt whichmatures in December 2010. Telecom Personal designated these NDF contractsas effective cash flow hedges.

 

Also,during January 2010, Telecom Personal entered into several NDF contractsamounting to US$30.2 million (maturing January through December 2010),in order to hedge its exposure to U.S. dollar fluctuations related to theacquisition of  licenses and hardware and software service contractsrequiring payments in U.S. dollars. At inception, Telecom Personal designatedthese NDF contracts as effective cash flow hedges. Subsequently, TelecomPersonal decided to pay the hedge transaction in advance and, as a result, theNDF contracts were no longer designated as effective cash flow hedges. The netderivative equity loss was reclassified into earnings.

 

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*Indebtedness of Subsidiaries*

 

*Telecom Personal.*Telecom Argentina’s 99.99%owned subsidiary, Telecom Personal, originally restructured its outstandingfinancial indebtedness, including intercompany obligations, in November 2004,pursuant to an out-of-court restructuring agreement approved by 100% of theaffected creditors. On December 22, 2005, Telecom Personal concluded therefinancing of all of its debt instruments issued pursuant to its November 2004financial restructuring. The main objective of the refinancing was to improveits debt profile by modifying its interest rates and eliminating certainrestrictive covenants. In particular, Telecom Personal’s new indebtednesscontains standard market conditions and covenants but does not restrict TelecomPersonal’s ability to make capital expenditures.

 

Asof December 31, 2009, Telecom Personal’s stand-alone financialindebtedness comprised approximately US$180 million aggregate principal amountof Series 3 Medium Term Notes due in December 2010. The Series 3notes are issued in dollars, bear interest at 9.25% and pay interestsemi-annually. In 2009 and in the first quarter of 2010, Telecom Personalpurchased, respectively, US$19.5 million and US$5.85 million aggregateprincipal amount of Series 3 notes in market purchase transactions, whichwere subsequently cancelled according to the terms and conditions of therelated 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 andaffiliates and 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.*As of December 31, 2009, Núcleo’soutstanding debt amounted to an equivalent amount of US$34 million.  Additional information is set forth inNote 8.3.b) to our Consolidated Financial Statements.

 

***Liquidity***

 

Theliquidity position for each of Telecom Argentina, Telecom Personal and Núcleois and will be significantly dependent on each individual company’s operatingperformance and its debt service commitments and receipt of dividends, if any,from its subsidiaries, if any.

 

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 3.00to 1 or less. As of December 31, 2009, Telecom Personal was qualified toincur additional indebtedness under this ratio.

 

Inaddition, the terms and conditions of Nortel’s Class A and Class BPreferred Shares contain covenants which require Nortel to restrict TelecomArgentina’s ability to borrow if the ratio of Telecom Argentina’s totalliabilities (as calculated pursuant to Section 9 of the terms andconditions of Nortel’s Class A and Class B Preferred Shares) toshareholders’ equity is 1.75 or higher. If Nortel does not satisfy thesecovenants, Nortel’s Class A and Class B Preferred Shares will acquirecertain voting rights which will enable Nortel’s preferred shareholders toelect one director and one alternate director of Nortel.  From March 2002 until December 31,2006, Telecom Argentina’s ratio of total liabilities to shareholders’ equityexceeded the limit and Nortel’s preferred shareholders acquired the votingrights.

 

Weexpect that our cash flow from operations will be sufficient to permit TelecomArgentina and its subsidiaries to satisfy their respective debt servicecommitments and other cash requirements in the near to medium term. 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-termfunding to cover occasional negative operational cash flows.

 

Ourability to generate sufficient cash from our operations in order to satisfy ourdebt service obligations and capital expenditure needs may be affected by macroeconomicfactors influencing our business, including, without 

 

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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.

 

Asof December 31, 2009, the Company reported positive retained earningsamounting to P$1,405 million. Before the Company may pay any dividend it mustfirst reconstitute the legal reserve which was absorbed on April 27, 2006(P$277 million).

 

AtTelecom Argentina’s shareholders’ meeting held on April 28, 2010, theshareholders approved the allocation of Company retained earnings, whichincluded an amount to fully reconstitute the Company’s legal reserve and a cashdividend distribution in the amount of P$1,053 million. The payment of the cashdividend was scheduled to be made in two installments—the first in the amountof P$689 million was paid on May 5, 2010, and a second installment in theamount of P$364 million is scheduled for December 20, 2010.

 

Asof December 31, 2009, Telecom Argentina and its consolidated subsidiarieshad approximately P$1,273 million in cash and cash equivalents. Of this amount,approximately P$578 million of cash and cash equivalents was held by TelecomArgentina on a stand-alone basis. Telecom Group has approximately P$34 millionof restricted cash in connection with legal proceedings. Such restricted cashhas been classified as “Other Receivables” on our balance sheet.

 

***Capital Expenditures***

 

Weestimate that our capital expenditures will be approximately P$2.2 to P$2.4billion for 2010 (including materials). We expect that Telecom Argentina willinvest primarily to sustain the growth in broadband services, to continuedeveloping the NGN, to supply mobile operators with the necessaryinfrastructure and to continue with the updating of commercial and supportsystems. Regarding Telecom Personal, the expansion of its networkinfrastructure will continue, and special effort will be made to extend 3Gtechnology coverage and bandwidth for mobile data transmission. See “Item 3—KeyInformation—Risk Factors—We operate in a competitive environment which mayresult in a reduction of our market share in the future.” We expect to financeour capital expenditures through cash generated through operations; therefore,our ability to fund these expenditures is dependent on, among other factors,our ability to generate sufficient funds internally. Telecom Argentina’sability to generate sufficient funds for capital expenditures is also dependenton its ability to increase its regulated rates, since the cost of importedmaterials has increased in peso terms (as a result of the decline in thepeso/U.S. dollar exchange rate).

 

**Related Party Transactions**

 

During2009, we have entered into certain transactions with our indirect shareholdersTelecom Italia and W de Argentina—Inversiones or their affiliates in theordinary course of business. For a description of these transactions see “Item7—Major Shareholders and Related Party Transactions.”

 

**Taxes**

 

*Turnover Tax*

 

UnderArgentine tax law, Telecom is subject to a tax levied on gross revenues. Ratesdiffer depending on the jurisdiction where revenues are earned for taxpurposes. Rates ranged from 2% to 6.5% for the years ended December 31,2009, 2008 and 2007.

 

*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 

 

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FinancialStatements under Argentine GAAP. The differences between the methodology ofcomputing income under the tax regulations and under Argentine GAAP make itdifficult to determine the taxable net income from our income statements. Forinstance, some deductions from income normally accepted for accounting purposesare non deductible and accordingly, must be added back to income for taxpurposes. Moreover, the tax regulations do not currently provide for therestatement of figures to reflect inflation as is required in certain periodsby Argentine GAAP.

 

Dividendsof cash, property or capital stock of Telecom Argentina are, in general, exemptfrom Argentine withholding tax and other taxes. Nevertheless, under ArgentineIncome Tax Law, a corporation that makes a distribution of dividends to itsshareholders in excess of the amount of its accumulated taxable net income atthe close of the previous taxable year, as determined by application of theArgentine Income Tax Law, shall have to withhold a 35% tax from such excess.This withholding income tax is known as the “equalization tax.” See “Item 10—AdditionalInformation—Taxation—Argentine Taxes—Taxation of Dividends.”

 

Taxon cash 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 with Income 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 the Argentinetaxes, the lenders have received the contractual interest rate. Withholdingrates on interest payments to foreign beneficiaries are currently 15.05%(17.7163% with gross up) if the lenders are banks or financial entities locatedin jurisdictions that are neither tax-free nor subject to taxation according toArgentine income tax rulings or have entered into treaties with Argentinaproviding for exchange of information upon request by the respective authority.Furthermore, unless their internal rulings provide otherwise, requests forbanking, stock exchange or other secret information cannot be challenged. Inorder to be eligible for the 15.05% withholding rate, the financial entity mustbe under the supervision of a respective central bank or equivalent authority.If the Lender did not meet the aforementioned requirements, the withholdingrate would be 35% (53.8462% with gross up). Interest payments on notes (*obligacionesnegociables*) that meet the requirements of Section 36 of theNegotiable Obligations Law and were held by foreign beneficiaries remain incometax exempt.

 

*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 2009, 2008 and 2007,Telecom’s deduction of interest expenses was not limited because Telecom wasable to satisfy the conditions required for such deduction.

 

*Tax on Minimum Presumed Income*

 

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 

 

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yeardoes not exceed income tax payable for such future year. Shares and otherequity 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 2007 for Telecom Argentina.

 

*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.

 

Theimport of 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 and Withdrawals 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 LawNo. 21,526, or any transaction deemed to be used in lieu of a deposit toor withdrawal from a bank account, is subject to the tax on deposits andwithdrawals unless a particular exemption is applicable. The tax rate in effectsince August 1, 2001 has been 0.6% of the transaction volume.

 

During2009, 2008 and 2007, we charged to our income statement P$107 million, P$88million and P$73 million, respectively, of this tax*.*

 

OnFebruary 6, 2003, the Ministry of Economy, through General Resolution No. 72/03,authorized us to increase the Basic telephone services rates 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 shownin detail on the customers’ bills. The amounts charged before GeneralResolution No. 72/03 were approximately P$23 million. This amount wassubsequently corroborated by CNC audits, resulting in a receivable for theCompany for P$23 million which was recorded under “Other receivables” during2007. That receivable can be offset with existing and/or future regulatoryduties. See “Item 4—Information on the Company—Regulatory Framework—RegulatoryEnvironment—Rate Regulations—Tax on deposit to and withdrawals from bankaccounts (“IDC”).”

 

DecreeNo. 534/2004 provides that owners of bank accounts subject to the generaltax rate of 0.6% may take into account as a tax credit 34% of the taxoriginated in credits on such bank accounts. This amount may be computed as acredit for the Income Tax and Tax on Minimum Presumed Income. The amountcomputed as a credit is 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 sharesof stock corporations, such as Telecom Argentina’s ADSs and the Class A, Band C Shares. See “Item 10—Additional information—Taxation—Argentine Taxes—Taxon Personal Property.”

 

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 theright to obtain reimbursement of the amounts paid from its shareholders, evenif this requires holding and/or foreclosing the property on which the tax isdue. As a result, until shareholders reimburse Telecom Argentina for theamounts paid on their behalf, the payment of this tax constitutes a receivablefor Telecom Argentina.

 

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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, 2009, wasapproximately P$21 million and an allowance was recorded for such amount.  Whenever applicable, a tax on personalproperty of approximately P$5 million paid on behalf of Telecom Argentina’sshareholders for the year 2009, was deducted from the first installment of thecash dividend payment made to shareholders in May of 2010.

 

*Other Taxes and Levies*

 

Weare subject 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.”

 

LawNo. 25,239 imposes a tax on Telecom Personal of 4% (tax on wireless andsatellite services) of amounts invoiced excluding VAT but including the excisetax, which results in an effective tax rate of up to 4.167%.

 

Congresspassed law N° 26,539 which amends the excise tax and establishes that theimportation and sale of technological and computer goods, including mobilephones, will be subject to the excise tax at a rate of 17%, resulting in aneffective tax rate of up to 20.48%, applicable beginning December 1, 2009.

 

Sincethe beginning of 2001, telecommunication services companies have been requiredto pay a Universal Service tax to fund Universal Service requirements. TheUniversal 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 “Item 4—Information on theCompany—Regulatory Framework—Decree No. 764/00.”

 

See“Item 4—Information on the Company—Regulatory Framework—Regulatory Environment—DecreeNo. 764/00.”

 

**Research and Development, Patents and Licenses, etc.**

 

None.

 

**Trend Information**

 

In2009, Telecom strengthened its position in each of its business segments. Inparticular, we highlight the following:

 

·                  The Telecom Group expanded its customer baseto 4.4 million fixed lines in service, 1.3 million Internet customers and 16.3million wireless subscribers. As a result, our consolidated net sales increasedby 15% and reached P$12,226 million.

 

·                  Capital expenditures rose by 8% from theprevious year, totaling P$1,821 million in 2009,  equivalent to 15% of consolidated netsales.  These investments were allocatedequally among the fixed and wireless segments.

 

·                  The TelecomGroup experienced improvements in its operating and net income and improved inkey performance metrics.  For the firsttime since fiscal year 2002, Telecom Argentina is able to resume distributingdividends to shareholders. On a financial level, an increase in working capitalallowed the Company to make a larger income tax payment of P$448 million ascompared to 2008, make significant investments in fixed assets, and cancelTelecom Argentina’s net financial debt issued pursuant to the APE. The TelecomGroup reported consolidated net financial assets (comprising cash and banks,current and non-current investments, current and non-current financial debt andderivatives) of P$469 million as of December 31, 2009 (as compared to anet financial liability of P$903 million as of December 31, 2008).

 

·                  Telecom’s market capitalization was US$3,311million as of December 31, 2009 based on the price of its stock listed onthe NYSE, representing a 121% increase from December 31, 2008.

 

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·                  Regarding the provision of services, theTelecom Group companies have launched offerings of message packages andwireless broadband.

 

·                  Despite the effects of the internationalfinancial crisis on Argentina, our customers’ consumption continued at a similarlevel as compared to the previous year and even increased in the case of someproducts.  The consequences of theeconomic slowdown are reflected in the levels of collection of receivables.  Bad debt expense rose 96%, though itrepresents only 1% of consolidated net sales.

 

·                  These elements provide the Telecom Groupcompanies with a strong base which, coupled with adequate management measures,are expected to lead Telecom to a promising 2010.

 

Cashfrom operating activities allowed the Company to increase capital expendituresand to reach, for the first time in the Group history, a net financial assetposition.  In 2010, we intend to increaseour customer base and sales revenues in all business segments through majorinvestments in our network focused on providing improved services to ourcustomers.

 

Thegrowth prospects for fixed line services will continue in line with theevolution experienced in recent years as a result of the market maturity andinternational industry trends. We continue to have great expectations for growthin the broadband business and are concentrating on seizing market opportunitiesto increase both individual and corporate customers. We believe that ourcomplete offering of fixed, mobile and data services and data center serviceswill facilitate our ability to become a strategic provider oftelecommunications and related services to corporate customers.

 

Inthe Voice, Data and Internet segment, the implementation of the Letter ofUnderstanding executed with the National Government on March 6, 2006 is stillpending.  Additionally, the rateadjustment for regulated services, which would allow Telecom Argentina tointroduce the technological innovations required in the nationalinfrastructure, has also yet to be implemented. Another issue pending in the regulatory authority’s agenda is theimplementation of the Universal Service Fund to offset incumbent operators forlosses incurred in services rendered since 2001 and which would give access tobasic services to low-income individuals and those in areas not currentlycovered by fixed and mobile telecommunication services.

 

Thewireless customer base is expected to continue expanding in 2010, albeit atmore moderate rates than those of recent years. The Company will seek to obtainhigh-value customers and encourage consumption by launching new products andservices. In this manner, the Company aims to achieve brand loyalty andposition Telecom Personal as the preferred brand in the Argentine mobileindustry.  Value Added Services areexpected to continue to be one of the key sources of sales growth (in 2009,Value Added Services accounted for about 34% of Telecom Personal servicerevenues). We also expect that our wireless Internet services will drive growthof the wireless business, since the deployment of the third generation networkwill increase data transmission speeds and the number of locations whereservices can be provided.

 

Toprovide customers with newer and better services, the Telecom Group willimplement investment plans that are expected to require expenditures ofapproximately P$2.2 to P$2.4 billion for 2010 (including materials).  Telecom Argentina’s investments will focus ongrowth of Broadband, development of our new generation network (NGN), provisionof infrastructure to mobile operators and streamlining of commercial andcustomer service systems. Telecom Personal will enhance its networkinfrastructure by expanding coverage of its 3G technology and bandwidth formobile data transmissions.

 

Webelieve that the Telecom Group’s financial position is strong, particularlysince we expect that all financial commitments for 2010 will be paid from theCompany’s operating cash flows.

 

Thestrategy implemented by the Company’s management and described in this AnnualReport sets forth the basic standards that management believes will enable theTelecom Group to reach its objectives of improving quality in service,strengthening its market position and increasing operating efficiency to meetthe growing demands of the dynamic telecommunication market in which itoperates.

 

Thestatements expressed in the preceding paragraphs constitute forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995 and involve risks and uncertainties, including those described 

 

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inthis Annual Report in “Item 3—Key Information—Risk Factors.” Actual results maydiffer materially from our expectations described above as a result of variousfactors.

 

**ContractualObligations**

 

Ourconsolidated contractual obligations and purchase commitments as ofDecember 31, 2009 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)            |       | 833                                  |       | 61            |       | —        |       | —                 |       | 894       |       |
| Operating lease obligations     |       | 95                                   |       | 82            |       | 14            |       | 4                      |       | 195       |       |
| Purchase obligations            |       | 858                                  |       | 28            |       | 14            |       | 93                     |       | 993       |       |
| Other long-term liabilities (2) |       | 51                                   |       | 106           |       | 51            |       | 112                    |       | 320       |       |
| **Total**                       | ** ** | **1,837**                            | ** ** | **277**       | ** ** | **79**        | ** ** | **209**                | ** ** | **2,402** | ** ** |

 

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(1)          Includes P$73 million of future interest.

 

(2)          Includes special termination benefits, retirementbenefits, asset retirement obligations, court fees and other long-termpayables.

 

**Off-BalanceSheet Arrangements**

 

None.

 

**SafeHarbor**

 

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, SENIORMANAGEMENT AND EMPLOYEES**

 

**TheBoard of Directors**

 

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. According to Telecom Argentina’s bylaws, theChairman has a double vote in the case of a tie. Under CNV regulation, in orderto be independent, a director must neither be employed by, nor affiliated with,Telecom Argentina, Nortel, Sofora, the Telecom Italia Group or the W deArgentina—Inversiones. Directors and alternate directors are normally electedat annual ordinary general meetings of the shareholders and serve renewableone-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.

 

TelecomArgentina’s annual shareholders’ meetings called for April 28, 2009 and September 9,2009 were suspended by certain legal proceedings.  In addition, on April 20, 2010 aprecautionary measure was issued ordering the suspension of the election ofdirectors and alternate directors for fiscal year 2010 at Telecom Argentina’sannual shareholders’ meeting held on April 28, 2010.  As a result, as of the date of this AnnualReport, the members and alternate members of Telecom Argentina’s Board ofDirectors appointed at the annual shareholders’ meeting of April 29, 2008continue to hold their positions.

 

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Furthermore,in August 2009 an Argentine court provisionally suspended members of theBoard of Directors of Sofora, Nortel, Telecom Argentina and Telecom Personalappointed at the request of Telecom Italia S.p.A. and/or Telecom ItaliaInternational N.V from exercising their respective duties until a final rulingis issued in the underlying proceeding. This suspension prohibits suchdirectors from participating, deliberating and voting at meetings of the Boardof Directors, though it does not suspend their right to information, theexercise of their duties as Audit Committee members or their right to attendSteering Committee meetings.  This orderwas not enforced until March 2010, upon issuance of a new resolution bysaid Argentine court.

 

Regardinglegal and administrative proceedings affecting shareholders’ meetings, meetingsof the Board of Directors of Telecom Argentina, as well as other corporategovernance matters, see “Item 8—Financial Information—Legal Proceedings—LegalProceedings Related to Share Ownership—Resolutions of the CNDC, SC and SCI andrelated court rulings.”

 

See“Item 7—Major Shareholders and Related Party Transactions—Shareholders’Agreements” for a description of certain agreements relating to the appointmentof members of the Board of Directors.

 

Thefollowing table lists the directors and alternate directors of TelecomArgentina as of December 31, 2009 and as of the date of this AnnualReport.

 
| **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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*                 Appointed as analternate director at the annual shareholders’ meeting held April 29,2008. He became a director on August 5, 2008, replacing Mr. FrancoBertone, who resigned due to his appointment as General Director of Operations.

 

**          Appointed bythe****Supervisory Committee pursuant to Article 258,2nd paragraph of the Law of CommercialAssociations.

 

*** Suspended, as of the date of this Annual Report,from exercising their duties as members of the Board of Directors under theterms of a precautionary measure issued by the National Court of First Instancefor Federal Administrative, Litigious Matters N° 6 on August 26, 2009,executed in March 2010. See “Item 8—Financial Information—LegalProceedings—Legal Proceedings Related to Share Ownership—Resolutions of theCNDC, SC and SCI and related court rulings.”

 

*Enrique Garrido* is a lawyer. He served as a director ofTelecom Argentina during fiscal year 2007 and was elected Chairman of the Boardof Directors of Telecom Argentina on April 29, 2008.  He is an activemember of the Supervisory Committees of Aeropuertos Argentina 2000 S.A. and LaEstrella S.A. Compañía de Seguros de Retiro and an alternate member of theSupervisory Committee of Kubic S.A. He is the father of Gustavo EnriqueGarrido. He was born on June 7, 1937.

 

*Gerardo Werthein* is a veterinarian. He is also a director ofSofora and Telecom Personal. Heis Chairman of Holding W-S de Inversiones S.A., Caja de Seguros S.A., La Cajade Seguros de Retiro S.A., Instituto del Seguro de Misiones S.A., Le Mer S.A.and Haras El Capricho S.A. He is Vice Chairman of La Caja Aseguradora deRiesgos de Trabajo ART S.A., W de Inversiones S.A and La Estrella S.A. Compañiade Seguros de Retiro. He is a director 

 

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of Gregorio, Numo y Noel Werthein S.A., Los WS.A.,  and Caja de Ahorro y Seguro S.A. He is adistant cousin of Adrián Werthein. He was born on December 3,1955.

 

*Jorge Luis Pérez Alati*is a lawyer. He is Chairmanof the Board of Directors of Telecom Personal, In Store MediaArgentina S.A., Inversiones Alumine S.A., Inversiones LosAlpes S.A., Inversiones Meliquina S.A., ISDINArgentina S.A., La Papelera del Plata S.A., Nogal Central S.A.,Pilar del Este S.A., Alpe S.A.C.I.F.I.A. and Solcan S.A. He isVice Chairman of Puig Argentina S.A., Lan Argentina S.A. andInversora Cordillera S.A. He is a director of Telecom Argentina, Sofora,Aluflex S.A., CMPC Inversiones de Argentina S.A., Comercial eInversiones Coiron S.A., Corandes S.A., Cork SupplyArgentina S.A., Fabi Bolsas Industriales S.A., Honda Motor deArgentina S.A., Inversiones Los Andes S.A., IvaxArgentina S.A., Media Planning S.A., Motorola Argentina S.A.,Naschel S.A., World Management Advisors Argentina S.A. and LDCArgentina S.A. and an alternate director of Arbumasa S.A., BodegasCaro S.A., Cerámica San Lorenzo I.C.S.A., Proximia HavasArgentina S.A., Sociedad Alpe S.A., Salfa ConstruccionesTrasandinas S.A., Havas Sports Argentina S.A., Marina Holding S.A.and Navieras Americanas, S.A. He is a member of the Supervisory Committeesof América Latina Tecnología S.A., Banco Santander Río S.A., BRSInvestment S.A., Distrilec Inversora S.A., Edesur S.A.,Santander Río Servicios S.A., Portal Universia Argentina S.A.,Perevent Empresa de Servicios Eventuales S.A., Prestamos deConsumo S.A., Santander Río Seguros S.A., Santander RíoTrust S.A., Santander Merchant S.A. and Santander Sociedad deBolsa S.A. He was born on September 14, 1954.

 

*Domingo Jorge Messuti* holds a PhD in Economicsand an MBA from Columbia University, New York, USA. He was appointed directorof Telecom Argentina on April 29, 2008. He was born on May 17, 1938.

 

*Esteban Gabriel Macek* is a public accountant. Heis Chairman of Fiduciaria Internacional Argentina. He is a director ofInmobiliaria Madero S.A. He is also an alternate member of the SupervisoryCommittees of Visa Argentina S.A. and Prisma S.A. He was born on November 8,1960.

 

*Jorge Alberto Firpo* is an electrical engineerand a graduate of the Universidad Tecnológica Nacional. He is Chairman ofCubecorp and a director of Sofora and Telecom Personal. He is also an alternatedirector of Nortel. Previously, he was head of purchases and logistics at TelecomItalia America Latina, S.A. He was born on April 17, 1954.

 

*Eduardo Federico Bauer*is a lawyer. He is ViceChairman of the Board of Directors of Micro Sistemas S.A. He is a director ofSofora, Nortel and Cubecorp and an alternate director of Telecom Personal andNúcleo. He is also an alternate director of Caja de Seguros S.A., La CajaAseguradora de Riesgos del Trabajo ART S.A., Instituto del Seguro deMisiones S.A., La Caja de Seguros de Retiro S.A., La Estrella S.A. Cía deSeguros de Retiro, Ritenere S.A. and Pluria Productores de Seguros S.A. He wasborn on January 14, 1950.

 

*Adrian Werthein*is a public accountant. He is Vice Chairmanof Sofora and Telecom Personal. He is Chairman of Caja de Ahorro y Seguro S.A.,Haras El Roblecito S.A., W de Inversiones S.A. and Grupo Dracma S.A. He is alsoVice Chairman of Caja de Seguros S.A., Gregorio, Numo y Noel Werthein S.A., InversitasS.A., Las Manadas Agropecuaria S.A. and Los W S.A. He is a director of La Cajade Seguros de Retiro S.A., Instituto del Seguro de Misiones S.A. and LaEstrella S.A. Cía de Seguros de Retiro. He is a distant cousin of GerardoWerthein. He was born on January 18, 1952.

 

*Gustavo Enrique Garrido*is a lawyer. He is Chairmanof Agsa Argentina S.A., Integratíon Consultoría Empresarial S.A., SalixS.A. and Yahoo S.R.L. and Vice Chairman of Bariloche Cinco S.A., Bariloche UnoS.A. and Circuito Chico Desarrollos S.A.  He is also a director ofForestal Norteña S.A., Huishang S.A., Jardin de Pilar S.A., Tann ArgentinaS.A., Compañía de Talentos S.A. and Stratton Argentina S.A. and a member of theSupervisory Committees 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.

 

*Francesco Armato* is an executive. In 2009, he wasappointed CEO of Telecom Italia Sparkle S.p.A and he is also head of TelecomItalia International Operations. He has been Chairman and CEO of Lan Ltd LatinAmerican Nautilus Group since 2006.  He has been Executive Vice Presidentof TI Sparkle Central & South America since 2002, having carried outvarious roles in this company since 1990.  He has been appointed Directorto several subsidiaries of the Telecom Italia Group.  He was born on August 25,1957.

 

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*Esteban Pedro Villar* is a public accountant. Heholds a PhD in Economics and an MBA from Columbia University, New York, USA. Heis a member of the Supervisory Committees of Carboclor S.A., Petrolera delConosur S.A., Petrouruguay S.A., Ferrosur Roca S.A., Holdtotal S.A., ReycombS.A., Cofesur S.A., Betel S.A., Escofer S.A., Compañía Argentina de CementoPortland S.A., and Compañía de Servicios de la Construcción S.A. Mr. Villaris an alternate member of the Supervisory Committees of Francés Administradorade Inversiones S.A., Loma Negra Sociedad Industrial Argentina S.A. andConsultatio Asset Management S.A. He was born on July 3, 1938.

 

*Luis Miguel Incera* is a lawyer. He is a memberof the Advisory Committee of Alpargatas S.A.I.C. and a member of theSupervisory Committees of Alpargatas Textil S.A., Alpargatas Calzados S.A.,Alpargatas Textil Exportadora S.A., Calzado Catamarca S.A., Textil CatamarcaS.A., Confecciones Textiles S.A., Alpaline S.A., and Fiduciaria del Sur S.A. Heis a director and Chairman of the Board of Directors of Viñas Don Martín S.A.and an alternate director of Arbumasa S.A., Telecom Personal, TelecomArgentina, Cubecorp and Sofora. He was born on March 16, 1957.

 

**SeniorManagement**

 

Asof December 31, 2009, the Telecom Group’s senior management team includesthe individuals listed below.  Unlessotherwise noted, these individuals are members of the Telecom Group’s seniormanagement as of the date of this Annual Report.

 
| **Name**                                       | ** ** | **Position****(1)**                       | ** ** | **Date of Designation** |
|------------------------------------------------|------------|-------------------------------------------|------------|-------------------------|
| Franco  Bertone                                |       | Chief  Executive Officer (2)              |       | March 2009         |
| Edmundo  Silvio Poggio                         |       | Director  of Regulatory Affairs           |       | May 2007           |
| Federico  Rossi (4)                            |       | Director  of Wireless Telephony           |       | April 2008         |
| Marcelo  Eugenio Villegas                      |       | Director  of Human Capital                |       | August 2008        |
| Adrián  Calaza                            |       | Chief  Financial Officer                  |       | August 2009        |
| 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         |
| (3)                                            |       | Director  of Large Accounts and Wholesale |       | —                  |
| Mario  Fernando Capalbo                        |       | Director  of Network                      |       | March 2006         |
| Simone  Battiferri (5)                         |       | Director  of Fixed Telephony              |       | 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 theofficers mentioned above are members of the Board of Directors of TelecomArgentina, which is composed of the persons stated in the “—Directors, SeniorManagement and Employees—The Board of Directors” above.  The terms of office of Telecom’s SeniorManagement are contractual in nature. Such contracts do not include a specified expiration date.

 

(2)          In March 2009, Telecom Argentina’s Board ofDirectors resolved to unify the position of General Director of CorporateMatters and the position of General Director of Operations into a single ChiefExecutive Officer position filled by Mr. Franco Bertone.

 

(3)          Open position as of December 31, 2009 and dateof this Annual Report.

 

(4)          Position occupied by Guillermo O. Rivaben since May 2010.

 

(5)          Position occupied by Stefano Core since March 2010.

 

*Franco Bertone*is an electronic engineer. He has beenDirector of Operations of Telecom Italia in Argentina, Director of ShareholderRelations of Telecom Italia Latin America, CEO and Chairman of the Board ofDirectors of Entel (Bolivia) and Vice Chairman of Telecom Argentina. He hasalso served as Chairman of Nortel Inversora, Deputy Chairman of Entel (Chile)and non-executive director of Digitel (Venezuela), Tim Perú and Tim

 

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Participações,and director of Telecom Argentina S.A. from April to August of2008.  He is currently an alternatedirector of Cubecorp and Chief Executive Officer of the Telecom Group. He was born on April 9, 1952.

 

*Edmundo Silvio Poggio* is an engineer. He joinedTelecom Argentina in 1990 as a member of the Advisory Committee that handledthe company take-over. Since 1991 he has been responsible for different areasas Marketing Manager, Director of Wholesale Services Strategy and GeneralManager of the Wireline Business Unit. In 2007 he was appointed Director ofRegulatory Affairs. Prior to joining Telecom Argentina, Mr. Poggio workedat the SADE Group, where he led different telecommunications projects until1986, when he was appointed as General Manager of Micro Sistemas S.A. Mr. Poggiobegan his career in 1972 after graduating as a telecommunications engineer atthe University of La Plata, Argentina. Between 1972 and 1976 he performedseveral activities as a scientific researcher in hardware and software design.He was born on February 6, 1949.

 

*Federico Rossi* is an accountant specialized in administration and finance. He has heldseveral administrative and finance positions at STET,****includingDirector of Financial Services. In 1995 he became Vice Chairman of Finance atTIM in Italy. During his time at TIM, he assumed responsibility for the area ofInternational Finance and served as a member of the Board of Directors ofvarious companies. He was also involved in the creation and launch of theComprehensive Pension Fund for the telecommunications sector in Italy. In 2002he became Executive Director of DIGITEL TIM in Venezuela and in August ofthe same year he was named Chairman andCEO. He left DIGITEL TIM at the end of 2006 and became a consultant focused onthe telecommunications sector. Between April 2008 and April 2010, hewas General Director of Telecom Personal. He is a director of Núcleo. He wasborn on March 24, 1956.

 

*Marcelo Eugenio Villegas* is a lawyer. He joinedTelecom Argentina in May 2008 as the Human Capital Director. He graduatedfrom Universidad Nacional de Buenos Aires. Previously, he worked in the humanresources department of the following companies: Wal-Mart Stores (InternationalDivision) for Wal-Mart Argentina, the Cencosud group (Jumbo Retail Division)for the brands Jumbo, Disco and Vea, Hewitt & Aso (as head of talentmanagement and organizational change), the Perez Companc group; Sade S.A., theDivision of Exploration and Production of Gas and Oil in Latin America, theSuez Group, Aguas Provinciales de Santa Fe, Aguas Argentinas, Latin AmericaRegion and Ondeo de Puerto Rico Inc. He was born on March 13, 1963.

 

*Adrián Calaza*holds a degreein Business Administration from the Universidad de Belgrano and an MBA from theUniversidad del CEMA.  He was appointedTelecom Argentina’s Chief Financial Officer in August 2009. Mr. Calazajoined the Telecom Italia Group in January 1999, where he held variouspositions such as Chief Financial Officer of Entel Bolivia, a subsidiary of theTI Group and, and as Corporate Chief Financial Officer of Telecom Italia Latamin Brazil. Mr. Calaza returned to Argentina in 2007 as Manager of theCorporate Administrative Services Department of the Telecom Group. He was bornon March 8, 1967.

 

*José María Peña Fernández* is an engineer. He beganworking for Telecom on October 15, 2003. He was previously General Managerof Tel3 S.A. He was born on October 18, 1951.

 

*María Delia Carrera Sala* is a lawyer. She began working forTelecom in 1992. Previously, she was the Manager of Legal Affairs of CompañíaArgentina de Teléfonos S.A. She is a director of  Springville S.A. She was born on August 27,1948.

 

*Carlos Augusto Zubiaur* is a lawyer. He joinedTelecom in June 2005 and is currently the Director of Legal Affairs. Priorto that time, he was a partner at Estudio O’Farrell and Chief of Staff atTelefónica. He was born on December 26, 1964.

 

*Ricardo Luttini* is an accountant. He joined Telecom in June 2005.He had previously served as Manager of Business Controls and Auditing for LaCaja de 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.

 

*Mario Fernando Capalbo* is a mechanical engineer.He was formerly General Manager of Pirelli Cables & Systems SouthAmerica in São Paulo, Brazil. He was born on May 7, 1952.

 

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*Simone Battiferri* is an electrical engineer and graduated fromthe University of Rome “La Sapienza.” He first joined Telecom Argentina in 2006as the Marketing Vice Chairman and then, following the Telecom Groupreorganization in 2007, became Director of Fixed Telephony. Before joiningTelecom Argentina, he worked at Telecom Italia since 2001, where he served asthe Marketing Vice Chairman (Datacom eBusiness Solutions Unit), Telecom ItaliaWeb Services Marketing Director and Business Opportunity Evaluations Director(International Operations). Before joining Telecom Italia, he worked forEtnoteam for approximately six years, where he was Vice Chairman of Telecom andMedia Market and Strategy. He was born in Rome on September 20, 1967.

 

*Mariano Cornejo* holds a degree in advertising. He joinedTelecom in June 2007. Previously, he served for twelve years as GeneralManager in Marketing at La Caja de Ahorro y Seguro S.A. He was also Director ofBrands for the Werthein Group for the same period. He was born on December 20,1963.

 

*Guillermo Pedro Desimoni* holds a bachelor’s degreein systems engineering, a master’s degree in management (MBA- IAE) and hascompleted postgraduate studies in finance (UDESA). He joined Telecom in February 2005.He was formerly a Manager of Operations and Administration at Banco Galicia,and prior to that, a Vice Chairman at COELSA. He previously worked atArgencard, where he held the position of Manager of Technology and Systems andat Posnet, where he was General Manager. He also served as Senior Manager inConsulting at Accenture. He was born on August 20, 1960.

 

*María Paola Levati* is an accountant.  She joined Telecom in August 2008, as Directorof Real Estate. She completed her studies at the Universidad Nacional de BuenosAires.  Prior to her employment atTelecom and since 2000, Ms. Levati worked at La Caja de Ahorro y SeguroS.A. where she held several positions, the most recent of which was Manager ofAdministration.  Prior to 2000, sheworked at several financial entities such as JPMorgan, Bank of America andContinental Illinois National Bank with responsibilities in various areas offinance. She began her career at Price Waterhouse and Co. She was born inBuenos Aires on August 15, 1962.

 

*Guillermo O. Rivaben*holdsa degree in electronic engineering from Universidad de BuenosAires and has over 19 years experience as senior manager and consultant in theLatin America telecommunications market with strong expertise in wirelessservices, integrated broadband corporate services, international businessrelationships and strategic planning. He joined Telecom Personal in 1995 asMarketing Manager and left in 2000 to launch AT&T Latinamerica in Argentinaand then became Executive Vice Chairman of Regional Marketing(Brazil-Argentina). He rejoined Telecom Personal in 2004 as Executive Directorof Marketing and Strategic Planning. He became Director of Wireless Telephonyin May 2010.  He has international experience dealing with corporateclients, regulatory agencies, worldwide telecommunications operators andmultiple technology vendors.  He is alsoDirector of Núcleo S.A. and Vice Chairman of Springville S.A.  He was born on April 5, 1966.

 

*Stefano Core*****is an economist.  He obtained his MBA from Cattolica del SacroCuore University. He has extensive experience in management consulting andcommercial/marketing management, developed through a broad geographic spectrum(Italy, UK, Germany, Latin America, Far east) and various industries(telecommunications, automotive, durable goods). He was recently appointed asDirector of Fixed Telephony at Telecom. Before joining Telecom, he worked forTelecom Italia as Marketing Vice President of the Consumer Division. Between1998 and 2008, he worked in Value Partners Management Consulting, evaluatingmany European, Asian and Latin American telecommunications companies. Beforejoining Value Partners, he worked from 2000 to 2001 in SAPIENT & Co.as Director of the E-Business Strategy Group, where he was responsible forclients operating in telecommunications. Between 1995 and 1997, he worked in the Corporate Finance Division ofthe London office of PriceWaterhouse & Coopers. He was born on December 23,1971.

 

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**SupervisoryCommittee**

 

Argentinelaw requires any corporation with share capital in excess of P$10,000,000 or whichprovides 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 a report on the accuracy of the financial informationpresented to the shareholders by the Board of Directors at the annual ordinaryshareholders’ meeting. The members of the Supervisory Committee are alsoauthorized:

 

·                  to call ordinary or extraordinaryshareholders’ meetings;

 

·                  to place items on the agenda for meetings ofshareholders;

 

·                  to attend meetings of shareholders; and

 

·                  generally to monitor the affairs of TelecomArgentina.

 

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.

 

Telecom Argentina’s annual shareholders’ meetings called for April 28,2009 and September 9, 2009 were suspended by certain legalproceedings.  In addition, on April 20,2010 a precautionary measure was issued ordering the suspension of the electionof members and alternate members of the Supervisory Committee for fiscal year2010 at Telecom Argentina’s annual shareholders’ meeting held on April 28,2010.  As a result, as of the date ofthis Annual Report, the members and alternate members of Telecom Argentina’sSupervisory Committee appointed at the annual shareholders’ meeting of April 29,2008 remain in their positions.

 

Asof December 31, 2009, and as of the date of this Annual Report the membersand alternate members of the Supervisory Committee are:

 
| **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     |

 

*Diego Serrano Redonnet*is a lawyer. He holds a lawdegree from the Argentine Catholic University and a Master of Laws from HarvardLaw School.  He is a member of theSupervisory Committees of Telecom Personal, Sofora, Nortel Inversora S.A.,Banco Santander Río S.A., BJ Services S.R.L., BRS Investment S.A., AmericaLatina Tecnología S.A., Santander Río Servicios S.A., Perevent Empresa deServicios Eventuales S.A., Prestamos de Consumo S.A., Santander Río Trust S.A.,Santander Sociedad de Bolsa S.A., Gas Argentino S.A. and Metrogas S.A. He isalso an alternate member of the Supervisory Committee of Cubecorp. He was bornon September 18, 1966.

 

*Gerardo Prieto*is an accountant. He has been a member of theSupervisory Committee since 2004.  He isalso a member of the Supervisory Committees of Sofora, Nortel, TelecomPersonal, Cubecorp and Micro Sistemas S.A. He is Chairman of Campofin S.A., Polifin S.A., Pluria Productores deSeguros S.A. and Cabaña Doble G del Litoral S.A. He is a director ofStandard Bank Argentina S.A., Caja de Seguros S.A., Instituto del Segurosde Misiones S.A. and  Ritenere 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.  He was born on March 3,1951.

 

*Jacqueline Berzón*is a lawyer. She has been analternate member of the Supervisory Committee of Telecom Argentina since April 2005.She was appointed as member of the Supervisory Committee on May 8, 2008.She is an alternate member of the Supervisory Committees of Telecom Personal,Sofora, Cubecorp, Bariloche Seis S.R.L. and Chairwoman of Hungry Man ArgentinaS.R.L. She was born on October 9, 1975.

 

*Guillermo Eduardo Quiñoa*is a lawyer. He is a directorof Pilar del Este S.A., Estancia Celina S.A., Las Misiones S.A., Forestal delRío S.A. and Inversiones Los Alpes S.A. He is also an alternate director ofComercial e Inversiones Coiron S.A., Inversiones Los AndesS.A., Navieras Americanas S.A. and Fabi Bolsas IndustrialesS.A., member of the Supervisory Committees of Cubecorp, AGCO ArgentinaS.A., Calyx Siembra S.A., Calyx Tierra S.A., CMPC Inversiones deArgentina S.A., CMR Falabella S.A., Forestal Bosques Del Plata S.A. and LaPapelera Del Plata S.A., and an alternate member of the Supervisory Committeesof América Latina Tecnología S.A., Perevent Empresa de ServiciosEventuales S.A., Portal Universia S.A., Préstamos de ConsumoS.A., Santander Merchant S.A., Santander Río Seguros S.A., Santander RíoServicios S.A., Santander Río Sociedad 

 

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deBolsa S.A., Santander Río Trust S.A., Banco Santander Río S.A., BRSInvestment S.A., Corandes S.A., Virginia Surety Compañía de Seguros S.A.,Wintershall Energía S.A., Telecom Personal, Telecom Argentina, Nortel, andSofora. He was born on October 28, 1966.

 

*Guillermo Feldberg* is a publicaccountant.  He has been an alternatemember of the Supervisory Committee since 2004. He is also an alternate memberof the Supervisory Committees of Telecom Personal, Micro Sistemas S.A.,Cubecorp, Nortel and Sofora. He is Chairman of Agropecuaria La Victoria S.A.,Seed Capital Educación S.A., Dav Satelital S.A., Caroline EstablecimientosAgropecuarios S.A., Seed Capital Comunicaciones S.A., Ineba S.A., IzzaliniTrade S.A., GWF. S.A. and Pintarko S.A. He is Vice Chairman of Doble “G” del Litoral S.A., Fundación Ineba (Instituto de NeurocienciasBuenos Aires) and Cachay S.A.  He wasborn on February 20, 1951.

 

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.

 

**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 by Telecom Argentina and its subsidiaries to themembers of Telecom Argentina’s Board of Directors, the members of TelecomArgentina’s Supervisory Committee and the executive officers described under “SeniorManagement” above, was approximately P$23.3 million during the year endedDecember 31, 2009. During the year ended December 31, 2009, TelecomArgentina was not required to set aside or accrue any amounts to providepension, 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, 2009,a total of P$2.1 million. The members of the Supervisory Committee of TelecomArgentina during the year ended December 31, 2009 received as advancedpayment a total of P$0.5 million.

 

Accruedcompensation for fiscal 2009 for the members of the Board of Directors andSupervisory Committee was approximately P$5.6 million and approximately P$1.0million, respectively.

 

Compensationfor the executive officers described under “Senior Management” above, amountedto approximately P$34.1 million during the year ended December 31, 2009(including fixed and variable compensation, retention plan benefits, paymentsowed to the Operator for services provided by highly qualified personnel and,in some cases, severance payments and non-compete agreements), of which P$13.4million remained unpaid as of December 31, 2009.

 

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 2009, Telecom continued the “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 the period from 2008 to2010.

 

Telecomhas no stock option plans for its personnel, nor for its members of the Boardof Directors or the Supervisory Committee.

 

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**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.

 

OnMay 22, 2001 the Argentine government issued Decree No. 677/01,entitled “Regulation of Transparency of the Public Offering,” or the “TransparencyDecree.” The intention of this decree was to move towards the creation of anadequate legal framework that may strengthen the level of protection ofinvestors in the market. Main objectives of the Transparency Decree were topromote the development, liquidity, stability, solvency and transparency of themarket, generating procedures to guarantee the efficient reallocation fromsavings to investments and good practices in the administration ofcorporations.

 

TheTransparency Decree has vested in members of the Board of Directors:

 

·                  the duty to disclose certain events, such as any fact or situation which iscapable of affecting the value of the securities or the course of negotiation;

 

·                  the duty of loyalty and diligence;

 

·                  the duty of confidentiality; and

 

·                  the duty to consider the general interests of all shareholders over theinterest 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 provided furtherthat this liability does not result from a violation of the law or the bylawsor 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.

 

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InMay 2004, the Board of Telecom Argentina resolved to create the “Consejode Dirección,” or Steering Committee, which served as an internal body of theBoard of Directors and was comprised of four members of the Board of Directors.The regulations of the Steering Committee provided for, among other functions:

 

·                  involvement in the approval of certain significant operations;

 

·                  evaluating and recommending the approval of the annual budget, annualstrategic plan, long-term strategic plan, and the annual investment plan to theBoard of Directors, and to oversee the implementation of these plans;

 

·                  defining guidelines for realizing financial operations;

 

·                  supervising the management of subsidiaries;

 

·                  involvement in all investment initiatives;

 

·                  proposing to the Board of Directors the general remuneration policy;

 

·                  establishing remuneration, incentives and other benefits for seniormanagement and evaluating their performance; and

 

·                  ensuring that existing plans are adequate for individualization anddevelopment of highly qualified personnel and fixing guidelines forcompensating, motivating and retaining highly qualified personnel.

 

InMarch 2009, the Board of Directors of Telecom Argentina resolved todissolve the Steering Committee. However, on April 7, 2010, the Board ofDirectors of Telecom Argentina resolved to reestablish this committee,maintaining the same pre-dissolution structure. See “Item 8—Financial Information—Legal Proceedings—Legal ProceedingsRelated to Share Ownership—Resolutions of the CNDC, SC and SCI and relatedcourt rulings.”

 

*Audit**Committee*

 

TheTransparency Decree also provides that companies with publicly-listed sharesshall appoint an audit committee, or the “Audit Committee,” to be formed bythree or more members of the Board of Directors. The majority of the members ofthe Audit Committee must be independent under CNV rules. 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 qualify as an independent directorif 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 information on transactions with whichthere might be a conflict of interest with the members of the corporate bodiesor controlling shareholders;

 

·                  giving an opinion on the fulfillment of legal requirements and reasonablenessof the conditions for the issuance of shares or securities convertible intoshares, in the case of capital increases where preemptive rights have beenexcluded or limited;

 

·                  giving an opinion regarding transactions with related parties in certaincases;

 

·                  supervising internal control systems and verifying norms of conduct; and

 

·                  reviewing the plans of external auditors and evaluating their performanceand 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.

 

Atthe Board of Directors meeting held on April 29, 2004, the Board ofDirectors resolved the final composition of the Audit Committee, and the AuditCommittee came into effect.

 

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Accordingto the “Normativa de Implementación del Comité de Auditoría,” (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 Audit Committee,the Board of Directors shall immediately appoint a replacement, who shallremain in such position until the following annual shareholders meeting.

 

Atits meeting 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.

 

Telecom Argentina’s annual shareholders’ meetings called for April 28,2009 and September 9, 2009 were suspended by certain legalproceedings.  In addition, on April 20,2010 a precautionary measure was issued ordering the suspension of the electionof directors and alternate directors for fiscal year 2010 at Telecom Argentina’sannual shareholders’ meeting held on April 28, 2010.  As a result, as of the date of this AnnualReport, the members of the Audit Committee appointed at the annual shareholders’meeting of April 29, 2008 and at the meeting of the Board of Directors ofthe same date remain in their positions.

 

Pursuant to the Argentine government’s Decree No. 677/01, theAudit Committee may seek the advice of lawyers and other outside professionalsat Telecom Argentina’s expense, so long as the shareholders have approvedexpenditures for the services of such professionals. The shareholders set abudget of P$700,000 for fiscal year 2007 and P$1,000,000 for fiscal year 2008.At Telecom Argentina’s annual shareholders’ meeting of April 28, 2010, anamount of P$271,950 was reported as allocated to cover the expenditures of theAudit Committee for 2009. In addition, for fiscal year 2010, a budget ofP$750,000 was approved for Audit Committee expenditures.

 

*Disclosure Committee*

 

TelecomArgentina has also established a Disclosure Committee, which is responsible formonitoring the gathering, processing and submission to the CEO and CFO ofconsolidated financial and non-financial information that is required to beincluded in disclosure reports in order to ensure timely and accuratedisclosure of material information. The duties of the Disclosure Committeeinclude the following:

 

·                  assisting the CEO and the CFO in evaluating the effectiveness of TelecomArgentina’s disclosure controls and procedures prior to the filing of AnnualReports both in Argentina and the US;

 

·                  suggesting any improvements in disclosure procedures as a result of thisevaluation;

 

·                  verifying that Telecom Argentina’s processes for information collection,processing and control are in compliance with its disclosure procedures suchthat the accuracy of its disclosures can be verified; and

 

·                  providing assistance in determining what information may be consideredmaterial to Telecom Argentina.

 

**Employeesand Labor Relations**

 

Asof December 31, 2009, our total number of employees was 15,300, of whichapproximately 65% belonged to unions. All management and senior positions areheld by non-union employees.

 

TelecomArgentina and Telecom Personal have approximately 8,061 and 1,940 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 4,492 Telecom Argentinaemployees.  In 2008 FATEL was officiallyrecognized as the union representative of its members. Telecom Personal hasapproximately 1,932 employees represented by the Argentine Federation ofCommercial and Service Employees and 8 employees represented by the SingleArgentine Federation of Travelers (“FUVA”). The Argentine Federation of Telephone Workers and Employees (“FOEESITRA”)represents approximately 2,190 employees. Two remaining unions, the Technical and Supervisory Telephone PersonnelFederation (“FOPSTTA”) and the Telecommunications Union (“UPJET”), representapproximately 1,379 middle management employees.

 

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In June 2009, TelecomArgentina signed agreements with all the relevant union organizations includingunions within FATEL (Buenos Aires, Rosario, Santa Fé, Chaco, Luján andTucumán), FOEESITRA, FOPSTTA and UPJET. These agreements contemplated implemented salary increases andmodifications to other labor conditions. The provisions in these agreementsreflect market standards, and the related negotiations did not result in anyconflict or materially affect the Group’s operations.

 

During 2009, negotiationscontinued with the Ministry of Labor, Employment and Social Security to reach acollective bargaining agreement for the telephone industry as a whole.

 

With respect to Telecom Personal, although itspersonnel covered by union agreements continues to be represented by theArgentine Federation of Commercial and Service Employees (“FAECyS”), andtherefore the salary agreements entered into by this Federation apply, laborauthorities continued to press for the creation of a negotiating committee thatincludes FOETRA Sindicato Buenos Aires and to require certain reports to besubmitted to this committee in order to facilitate discussions for a unionagreement. Recently, in January 2010, FOETRA Sindicato Buenos Airesobtained a ministerial resolution amending its status to include mobiletelephone employees within the scope of its representation.  This resolutions will also have a similarimpact on the other union organizations in the telephone industry. TelecomPersonal’s position at all times has been to involve the rest of its peercellular telephony operators in any regulatory change that might occur inworking conditions, in order to avoid any regulatory asymmetry that could erodeTelecom Personal’s competitive advantages and undermine the viability of itsbusiness.

 

Additionally,the Center for Professionals of Telecommunications Companies (“CEPETEL”) hasexpanded its claims against Telecom Argentina and is attempting to attractadditional members from the employees not already covered by union agreements.During 2009, we managed several claims filed with administrative authoritiesand courts associated with the validity of the union agreement, which thisunion seeks to restore, and the scope of their representation.

 

See“Item 8—Financial Information—Legal Proceedings—Civil, tax, commercial, labor and regulatory proceedings—Labor Claims”for more detail on labor claims filed against Telecom Argentina and TelecomPersonal.

 

*Employees by Reportable Segment*

 

Thetable below shows the number of our employees as of December 31, 2009,2008 and 2007 by reportable segment:

 
| ** **               | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|--------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Voice, Data and Internet |       | 11,079                      |       | 11,252                      |       | 11,473                      |       |
| Wireless                 |       | 4,221                       |       | 4,109                       |       | 3,919                       |       |
| Total                    |       | 15,300                      |       | 15,361                      |       | 15,392                      |       |

 

**ShareOwnership**

 

*Share Ownership by directors, executive officers, and SupervisoryCommittee 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.

 

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*Share Ownership Plan*

 

Atthe time of the privatization of ENTel in 1990, the Argentine governmentcreated a Share Ownership Plan, or SOP, for the employees of ENTel and CATacquired by Telecom Argentina, Telintar, and Startel.  Pursuant to the Privatization Regulations,10% of Telecom Argentina’s then-outstanding shares, consisting of 98,438,098 Class CShares, was transferred by the Argentine government to Telecom Argentina,Telintar, and Startel 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.  Accordingto applicable law, to be eligible to continue to participate in the SOP, theemployees had to remain employed by Telecom Argentina, Telintar, and Startel.Employees who terminated their employment with Telecom Argentina, Telintar, andStartel before the deferred purchase price was fully paid were required to selltheir Class C Shares to another employee under the SOP or, if no otheremployee was available to purchase these shares, to a guaranty and repurchasefund, (the “the Guaranty and Repurchase Fund”), at a price calculated accordingto a formula provided in the General Transfer Agreement.

 

OnDecember 9, 1999, Decree No. 1623/99 was issued, authorizing theaccelerated repayment of the outstanding balance of the deferred purchase pricefor all Class C Shares, and lifting the transfer restrictions on the Class CShares upon the satisfaction of certain conditions precedent. However, theshares held in the Guaranty and Repurchase Fund are still subject to transferrestrictions until an injunction prohibiting trading or selling of these sharesis lifted. The decree provides that once the injunction is lifted, the sale ofan amount of shares in the Guaranty and Repurchase Fund, will take place inorder to cancel the debt owed to the former employees for the acquisition ofshares transferred to the Guaranty and Repurchase Fund. The remaining sharesheld in the Guaranty and Repurchase Fund will then be distributed in accordancewith the decision of the majority of the employees taken in a special meeting ofthe SOP.

 

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 (the trusteeof the SOP) of the number of Class C Shares that are eligible forconversion. Of this amount only 4,496,971 Class C Shares have beenconverted into Class B.

 

Asof the date of this Annual Report, 41,418,562 Class C Shares are held bythe SOP Guaranty and Repurchase Fund and are currently subject to a judicialinjunction that limits conversion, while 17,205 Class C Shares are held byindividual holders.

 

InOctober 2009, the liquidator of the SOP Guaranty and Repurchase Funddesignated by the National Court of First Instance for Civil and FederalCommercial Matters N° 10 notified Telecom Argentina of his intention to liftthe injunction which affects a portion of the shares currently held in theGuaranty and Repurchase Fund. This action would be taken in order to cancel thedebt owed to certain of Telecom Argentina’s former employees for theacquisition of shares transferred to the Guaranty and Repurchase Fund.

 

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 

 

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liquidatorof the 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.** | **MAJOR SHAREHOLDERS AND RELATED PARTY  TRANSACTIONS** |
|--------------|--------------------------------------------------------|

 

**Major Shareholders**

 

Ourprincipal shareholder is Nortel. As of December 31, 2009 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.

 

Inthe event of certain payment defaults or breaches of covenants, holders ofNortel’s preferred stock collectively have the right to elect one director ofNortel and obtain voting rights.

 

Nortel’soffices are located at Alicia Moreau de Justo 50, 11th floor, Buenos Aires, Argentina.

 

**Shareholders of Nortel**

 

Allof Nortel’s ordinary shares are owned by Sofora. Sofora’ s shares are owned bythe Telecom Italia Group (50%) and W de Argentina — Inversiones S.L. (50%).

 

Nortel’scapital stock is represented by ordinary shares (67.79% of the capitalstock),  Preferred Class A shares(13.51% of the capital stock) and Preferred Class B shares (18.70% of thecapital stock). As of the date of this Annual Report, the Preferred Class AShares have the right to vote. The valuation of the Preferred Class AShares, in accordance with the terms of issuance, is approximately P$1,156million as of December 31, 2009 (P$751 million of capital and P$405million of accrued and unpaid dividends).

 

Wde Argentina - 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.  See “— Shareholders’Agreements” below.

 

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.”

 

Wde Argentina—Inversiones, a company of the Werthein Group, is a company ownedby Daniel 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:

 

·                  *Farming Operations*. Gregorio, Numo y NoelWerthein S.A.A.G.C. e I. (“GNNW”) is the name of the company that handles thebusinesses of the Werthein Group, mainly related to agribusiness activities andfood products.  The company owns morethan 217,576 acres in the primary farming areas of Argentina, harvesting morethan 41,375 tons of different crops and with more than 30,651 heads of cattlededicated to meat production.  It is alsoinvolved in the manufacturing of processed fruits as well as teas and otherinfusions.  Most of its products areaimed to the international markets with important exports worldwide.

 

·                  *Insurance Activities*. The Werthein Groupcontrols Los W S.A., which has an interest in Caja de Ahorro y Seguro S.A., orCAYSSA, a leading insurance company in Argentina. CAYSSA controls, directly orindirectly, several subsidiaries that offer general, personal, life, accident,work risk insurance products and

 

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retirement insurance and life insurance products that complementretirement insurance. CAYSSA also has shareholdings in companies that providemarketing services and travelers assistance services.

 

·                  *FinancialActivities:* The Werthein Group controls Holding W-S deInversiones S.A., which has a minority interest in Standard Bank Argentina S.A.(an argentine commercial bank), Standard Investments S.A. Sociedad Gerente deFondos Comunes de Inversión (a mutual fund management company) and InversoraDiagonal S.A. (which provides cash and collection management services).

 

·                  *RealEstate Activities*. The Werthein Group conducts real estate,construction, consulting, public works and other real-estate related activitiesthrough its interests in other companies.

 

Ourprincipal shareholders are party to a number of legal and administrativeproceedings which may affect our Board of Directors, matters of corporategovernance and indirect ownership in Telecom Argentina.  See “Item 8— Financial Information—LegalProceedings—Legal Proceedings Relating to Share Ownership.”

 

**Calloptions in favor of Telecom 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.’s entireinterest in Sofora (jointly, “the Telecom Italia Options”). The Telecom ItaliaOptions are: a call option for the purchase of 48% of Sofora’s share capital,which can be exercised since December 31, 2008, and a call option on 2% ofSofora’s share capital, which can be exercised between December 31, 2008and December 31, 2013.

 

The exercise of theTelecom Italia Options is subject to the prior approval of the SC (according toSC Note No. 1,004/08, dated June 26, 2008 and SC Note 2,573/08, datedDecember 30, 2008) and is subject to legal proceedings described in thisAnnual Report.  See “Item 8—FinancialInformation—Legal Proceedings—LegalProceeding Relating to Share Ownership—Resolutions of the CNDC, SCand SCI and related court rulings—c. Proceedings Relating to the Telecom Italia Group’s Ownership in Sofora—i.Proceedings Relating to the Telecom Italia Options.”

 

*Ownership of Telecom Argentina Common Stock*

 

Thefollowing table sets forth, as of May 31, 2010, 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)                                       |       | 205,021,896                 |       | 46.5                  | %          | 5.0                                    | %          |
| Nortel                                          |       | 36,832,408                  |       | 8.4                   | %          | 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)          Represents percentage of total of all our ordinaryshares, regardless of class.

 

(2)          Pursuant to Article 76(f) of Law No. 24,241,the overall voting rights of ANSES are limited to 5% of Telecom Argentina’scapital stock.

 

Asof May 31, 2010, there were approximately 30.8 million American DepositaryShares outstanding (representing 154.1 million Class B Shares, or 34.9% oftotal Class B Shares outstanding). Moreover, as of that date, there wereapproximately 100 registered holders of Class B Shares represented byAmerican Depositary Shares in the United States and approximately 21,000depositaries of Class B Shares in Argentina. Because some Class BShares are held by representatives, the number and domicile of registeredshareholders may not exactly reflect the number and domicile of beneficialshareholders.

 

Allshares have equal voting rights.

 

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TheTelecom Group is aware of two arrangements that could potentially result in achange of control of the Telecom Group: (i) the Telecom Italia Options and(ii) an order issued by the CNDC which, if carried out, would require theTelecom Italia Group to divest its direct and indirect ownership interests inSofora.  See “Item 8—FinancialInformation—Legal Proceedings—Legal Proceedings Relating to Share Ownership.”  The Telecom Group is not aware of any otherarrangements that would result in a change of control of Telecom Group.

 

**Shareholders’Agreements**

 

InDecember 2003, we were informed that a shareholders’ agreement came intoeffect between W de Argentina—Inversiones and Telecom Italia and Telecom ItaliaInternational, N.V., members of the Telecom Italia Group, in order to regulatetheir relationship 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. Due to the Class APreferred Shareholders’ voting right, as a result of Nortel’s non-payment ofdividends, the sixth director of Nortel’s Board for fiscal years 2008 and 2009was appointed at the Class A Preferred Shareholders’ meeting.

 

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 prior meetings, at which decisions willbe made by majority vote of those members present, except for certain mattersfor which W de Argentina—Inversiones will have the right to veto. These mattersinclude:

 

·                  the approval of any amendments to the bylaws;

 

·                  dividend policy;

 

·                  any increase or reduction of capital, exceptfor increases or reductions in capital in connection with any possible debtrestructuring;

 

·                  any change in the location of headquarters;

 

·                  any acquisition of subsidiaries and/or toestablish new subsidiaries;

 

·                  the sale, transfer, granting, assignment orany other disposition of all or substantially all the assets or of any of itssubsidiaries;

 

·                  decisions to establish new joint ventures;

 

·                  creating any lien, charge, encumbrance,pledge or mortgage of its assets, that exceeds in the aggregate US$20 million;

 

·                  any change of external auditors, which mustbe chosen among auditors of international reputation;

 

·                  any transaction between related parties thatis not carried out at arms-length, and that exceeds the amount of US$5 million,with certain exceptions;

 

·                  any extraordinary transaction involvingTelecom that exceeds the amount of US$30 million, except for any transaction inconnection with the restructuring of Telecom’s debt; and

 

·                  the approval of Telecom’s financialstatements.

 

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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, and other corporategovernance matters, see “Item 8—Financial Information—Legal Proceedings—LegalProceedings Related to Share Ownership—Resolutions of the CNDC, SC and SCI andrelated court rulings.”

 

**RelatedParty Transactions**

 

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-listed 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 Telecom Personal’s financial debt, transactions with any holder of10% or more of its Shares and/or with any affiliate (any person that, directlyor indirectly, controls or is controlled by or under common control with thecompany) must be made with terms no less favorable than those than would beobtained in a similar transaction between independent parties. Telecom Personalhas adopted measures to adequately ensure compliance with this requirement.

 

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$159 million for the year ended December 31, 2009. Of thatamount, P$139 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$20 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$7 million in fiscal year 2009 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. with respect to its fixedline and wireless services. We do not believe that our affiliation with EtecS.A. is material to our results of operations or financial condition.

 

Transactionswith related parties of Sofora resulted in income for services rendered by usof approximately P$40 million for the year ended December 31, 2009,corresponding to payments from Telecom Italia and its affiliates of P$29million and from W de Argentina—Inversiones of P$11 million fortelecommunications services provided by Telecom. See Note 7 to our ConsolidatedFinancial Statements for more detail.

 

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Transactionswith related parties of Sofora for the year 2009 resulted in a P$2 million gainin financial results corresponding to transactions with Telecom Italia and itsaffiliates and a net loss in financial results of P$6 million corresponding totransactions with W de Argentina — Inversiones.

 

Atthe beginning of 2009, Telecom Argentina and Telecom Personal entered into newtechnical services agreements with Telecom Italia for the term of oneyear.  These agreements were submittedfor prior approval in accordance with the procedure established by Decree No. 677/01for 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 and Telecom Personal incurredP$11 million and P$9 million for the year ended December 31, 2009,respectively, which are included in the total amount of expenses mentionedabove.

 

Inmid 2010, Telecom Argentina and Telecom Personal entered into new technicalservices agreements with Telecom Italia which expire in September 2010.  Under these agreements, Telecom Argentina andTelecom Personal will incur costs of €1.0 million and €0.6 million,respectively, for the duration of the contract.

 

Asof December 31, 2009, we had no loans outstanding to executive officers ofTelecom Argentina.

 

**Interestsof Experts and Counsel**

 

Notapplicable.

 

**ITEM 8.          FINANCIALINFORMATION**

 

**ConsolidatedStatements and 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.”

 

**LegalProceedings**

 

**Legal Proceedings Relating to Share Ownership**

 

In2007, certain parties holding an indirect interest in Telecom Italia S.p.A, oneof our indirect controlling shareholders, entered into a transaction whichresulted in a change in the indirect ownership in Telecom Italia.  Following announcement of the transaction,various legal and administrative proceedings were initiated in Argentina,including challenges brought by W de Argentina - Inversiones S.L. and Messrs. Adrián,Gerardo, Daniel and Darío Werthein with respect to corporate governance mattersand resolutions of the meetings of the Board of Directors and shareholders ofSofora, Nortel, Telecom Argentina and Telecom Personal (jointly the “TelecomArgentina Group Companies”), actions brought by Telecom Italia S.p.A. andTelecom Italia International N.V., lawsuits initiated by Jorge Luis Pérez Alatiand other directors appointed at the request of the Telecom Italia Group,various resolutions of the CNDC, SC and SCI and related court rulings withrespect to exercise of certain shareholder and director voting rights and othergovernance matters, and proceedings relating to the Telecom Italia Options anda divestment order issued by the CNDC.

 

*Background—Description of the Transaction*

 

OnOctober 25, 2007, Telefónica, S.A. (of Spain) issued the following publicstatement: “Telefónica, S.A., Assicurazioni Generali S.p.A, Intesa SanPaolo S.p.A, Mediobanca S.p.A and Sintonia S.A. (Benetton) have bought today, October 25,2007, Olimpia S.p.A.’s entire stock through the Italian company Telco S.p.A.,which holds approximately 23.6% of Telecom Italia S.p.A.’s voting shares.” Werefer to this transaction as the “Transaction”. Pursuant to Telecom Italia’slast publicly-filed report (Telecom Italia S.p.A.’s financial statements as of December 31,2009), Telco S.p.A. currently owns approximately 22.45% of Telecom ItaliaS.p.A.’s voting shares.

 

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*Actions Taken by Telecom Argentina’s Board of Directors With Respect tothe Transaction*

 

BecauseTelefónica de Argentina S.A., a subsidiary of Telefónica, S.A. (of Spain), isTelecom Argentina’s main competitor, before the Transaction closed, TelecomArgentina’s Board of Directors analyzed the possible implications that theTransaction could have for Telecom Argentina, especially under the ArgentineAntitrust Act, resulting in the existence of divided opinions within the Boardof Directors based on reports prepared by experts.

 

Consequently,Telecom Argentina and its directors and alternate directors filed notes withthe Regulatory Authorities, expressing their personal opinions regarding theTransaction. These notes are available at the CNV website (www.cnv.gov.ar).

 

OnNovember 8, 2007, Telecom Argentina’s Board of Directors resolved toundertake the following actions:

 

·                  Submit a note to the CNDC, the SC andthe CNC in connection with the applicable administrative proceeding declaringthat Telecom Argentina had not taken any part whatsoever in the Transaction.Additionally, and specifically since 46% of Telecom Argentina’s capital stockis either listed on the BCBA, the NYSE or the Mexican Stock Exchange orpertains to shares under the Share Ownership Plan, the Board resolved torequest that any measure taken by the Regulatory Authorities with respect tothe Transaction should not affect Telecom Argentina, as it was not a party toit.

 

·                  Notify Telefónica, S.A. (of Spain) andTelefónica de Argentina S.A. that, if as a result of the Transaction, TelecomArgentina were to suffer any damage or loss of any nature, it reserved theright to bring any and all legal actions deemed appropriate to obtain full andcomplete compensation for its losses.

 

Allof the above-mentioned notes were submitted on November 20, 2007.

 

OnDecember 7, 2007 Telefónica, S.A. (of Spain) responded by stating that “tothe extent it has no participation whatsoever in Telecom Argentina’smanagement, it could hardly cause Telecom Argentina any damage, either directlyor indirectly” as it had previously declared before the relevant authorities.

 

*Proceedings brought by W de Argentina-Inversiones S.L. and Messrs. Werthein*

 

Withrespect to the complaint “Werthein, Gerardo y Otros c/ Telecom Italia S.p.A yOtros s/ ordinario”, W de Argentina - Inversiones S.L. and Messrs. Adrián,Gerardo, Daniel and Darío Werthein filed a request for a precautionary measurebefore the National Court of First Instance for Federal Commercial Matters N°16 (the “Court N°16”), declaring that the Telecom Italia Group and directorsappointed to the Telecom Argentina Group Companies at the request of theTelecom Italia Group have a conflict of interest with the Telecom ArgentinaGroup Companies. Court N°16, in accordance with article 204 of the Code ofCivil and Commercial Procedure (“CPCCN”), rejected the request for theprecautionary measure but designated an Observer to monitor the TelecomArgentina Group Companies (the “Reporting Observer”). The companies affected bythe precautionary measure filed an appeal against such measure but the NationalCourt of Appeals for Commercial Matters affirmed the resolution.

 

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TheReporting Observer was appointed to assist Court N°16 in its evaluation ofwhether a real risk of conflict of interest in the decision-making of theTelecom Argentina Group Companies existed, as a result of Telefónica, S.A. (ofSpain)’s participation in Telco S.p.A. Court N°16 extended the Reporting Observer’s original two-month perioduntil September 19, 2008.  TheReporting Observer submitted its reports regarding the original term ofappointment on May 14, 2008 and delivered its final report to the Court inSeptember 2008.  This report was thesubject of objections on one hand and requests for expansion on the other handby the parties involved in the trial.

 

Theplaintiffs in the above-mentioned proceeding requested that a declaratoryjudgment be issued stating that, as long as Telefónica, S.A. (of Spain)continues to hold stock in the Telecom Italia Group:  a) Telecom Italia S.p.A. and its subsidiaryTelecom Italia International N.V. have a conflict of interest with the TelecomArgentina Group Companies pursuant to Article 248 of Law No. 19,550and b) directors appointed to the above-mentioned companies at Telecom ItaliaS.p.A.’s request have a conflict of interest with the Telecom Argentina GroupCompanies pursuant to Article 272 of Law No. 19,550. The TelecomArgentina Group Companies and directors who are defendants in this action havechallenged the filed complaint. On February 15, 2010, the presiding judgerejected an appeal filed by certain co-defendants alleging lack ofjurisdiction. As of the date of this Annual Report, the case has not yetentered the discovery phase.

 

OnFebruary 15, 2010, Telecom Argentina and Telecom Personal were notified ofa mediation session which would focus on three aspects of a separate case named“W de Argentina Inversiones S.L. and Adrián Werthein c/Telefónica, S.A. (ofSpain), Telecom Italia S.p.A., Sofora Telecomunicaciones S.A., TelecomArgentina S.A., Nortel Inversora S.A. and Telecom Personal S.A.” dealing with: (i) piercingof the companies’ corporate veil; (ii) the assignment of responsibility toTelefónica, S.A. (of Spain) and Telecom Italia S.p.A. for actions carried outby Sofora and its subsidiaries, as vehicles and instruments used to violateArgentine public policy laws and (iii) compensation for damagescaused.  The mediation process wasterminated as (i) one of the claimants was not present at the mediationsession and (ii) the mediator recused himself from the case.

 

*Resolutions of the CNDC, SC and SCI and related court rulings*

 

TheTransaction has generated differing opinions regarding its impact on Argentina’stelecommunications market in light of the Argentine Antitrust Act and theexisting regulatory framework. Consequently, the CNDC, the SC and the SCI haveintervened in order to examine such effects. Actions taken by these bodies include, among other things, the followingmatters: (i) the suspension of the Telecom Italia Group’s voting rights andthe voting rights of directors appointed at the request of the Telecom ItaliaGroup; (ii) certain resolutions regarding governance matters affecting theCompany; (iii) legal proceedings relating to the Telecom Italia Group’sownership in Sofora, including its ability to exercise the Telecom ItaliaOption and an order for the divestment by the Telecom Italia Group of itsownership in Sofora.

 

TheTelecom Italia Group and, when party to the proceedings, the Telecom ArgentinaGroup Companies, have filed a series of appeals objecting to certain ordersissued in connection with these proceedings, as described below.

 

*a. Proceedings affecting certain members of the Board of Directors andshareholder voting rights*

 

OnJanuary 9, 2009, the CNDC issued Resolution No. 4/09, in which itruled, among other things:

 

i)                 that theTransaction is subject to the prior analysis set forth in the ArgentineAntitrust Act, and therefore, that the companies involved in the Transactionmust comply with the provisions of such Act;

 

ii)              that, until the CNDC issues a resolution pursuant tosection 8 of the Argentine Antitrust Act with respect to the Transaction, thepurchasers shall abstain from exercising — directly or indirectly — theirvoting rights as direct or indirect shareholders of Telecom Italia S.p.A.,Telco S.p.A., Olimpia S.p.A., Telecom Italia International N.V., Sofora,Nortel, Telecom Argentina and its controlled companies.

 

TheCompany has been informed that Resolution No. 4/09 was appealed and on June 17,2010, Chamber A of the Criminal Economic Court of Appeals (“CNAPE”) ruled thatthe appeal against the order cited in above item (i) had been wronglyadmitted and annulled the decision regarding voting rights cited in item ii)above.

 

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OnMarch 30, 2009, the CNDC issued Resolution No. 43/09, designating twoObservers for a term ending on April 30, 2009, responsible forverifying that directors and members of the Supervisory Committee appointed byTelecom Italia S.p.A. or Telecom Italia International N.V. to the TelecomArgentina Group Companies comply with terms of Resolution No. 04/09.Subsequently, the CNDC extended the Observers’ term of appointment untilJune 22, 2009.

 

Additionally,on April 3, 2009, the CNDC issued Resolution No. 44/09, through whichit resolved the following:

 

·                  Telecom Italia S.p.A. and TelecomItalia International N.V., their attorneys-in-fact, officers and directors, andthe attorneys-in-fact, officers and directors of their direct and indirectshareholders and the directors and members of the Supervisory Committeeappointed at the request of Telecom Italia S.p.A. or Telecom ItaliaInternacional N.V. at Sofora, Nortel, Telecom Argentina, Personal,Microsistemas and Cubecorp should have refrained and shall refrain from takingany actions which involved or may involve in the future, directly orindirectly, the exercise of the voting rights, exclusively, or from deciding orgiving instructions for the exercise of voting rights, and

 

·                  Sofora, Nortel, Telecom Argentina, Personal,Microsistemas and Cubecorp must revoke and retract all decisions passed by theBoard of Directors, Committees, Supervisory Committees, Attorneys-in-fact orManagers, or those holding similar positions, which implied the exercise ofvoting rights since January 9, 2009, the date on which the CNDC passedResolution No. 4/09.

 

CNDCResolution No. 44/09 was appealed, but the CNDC rejected said appeal.Therefore, the Telecom Argentina Group Companies, among others, filed a requestfor review with the Civil and Commercial Federal Court of Appeals (“CNACCF”)seeking to overturn this rejection. The CNACCF accepted the request for reviewand on April 24, 2009, it suspended Telecom Argentina’s Ordinary andExtraordinary Shareholders’ Meeting scheduled for April 28, 2009.(1)

 

OnJuly 27, 2009, Chamber II of the CNACCF sustained a request for aprecautionary measure filed by Telecom Italia Group suspending the effects ofCNDC Resolution No. 44/09.

 

OnJune 17, 2010, Chamber A of the CNAPE annulled CNDC Resolution No. 44/09.

 

OnMay 27, 2009, the CNDC issued Resolution No. 64/09, ordering TelecomArgentina’s Board of Directors to carry out the following actions: (i) toimmediately reestablish the previously-dissolved Steering Committee; (ii) torevoke the previous unification of the roles of the General Directors (ofCorporate Matters and of Operations) into a single Chief Executive Officerposition, thereby restoring the roles prior to this unification and (iii) torevoke the changes made to the internal authorization regime and any otherdecision adopted (which implies the exercise of voting rights) since theissuance of Resolution No. 4/09 on January 9, 2009 (which calls forthe suspension of the exercise of voting rights). On October 21, 2009, theCNAPE, Chamber A, resolved the appeal against this Resolution which had beenfiled, by Telecom Argentina and certain of its directors, among others. Thecourt declared said resolution null, holding that the CNDC was not entitled toissue precautionary measures such as those contained in Resolution No. 64/09.

 

OnAugust 26, 2009, the National Court of First Instance for FederalAdministrative, Litigious Matters N° 6 (“Court No. 6”) issued aprecautionary measure ruling as follows: *i) Telecom ItaliaInternational N.V., as part of the call option agreement, shall abstain fromexecuting any legal act related to said agreement, including the exercise,assignment, or disposal of rights arising from the call option agreement; ii)the voting rights of Telecom Italia S.p.A and Telecom Italia InternationalN.V., as direct shareholders of Sofora and indirect shareholders of Nortel,Telecom Argentina, Telecom Personal and their respective subsidiaries inArgentina, including those arising from*

 

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(1) The Telecom Italia Group and the Telecom Argentina Group Companies consideredthat the CNACCF was competent to hear the appeals relating to the antitrustmatters. However, the CNDC considered that the CNAPE was competent to hear suchappeals. Since both appellate courts considered themselves competent to hearthe appeals, this created a conflict between the CNACCF and the CNAPE. TheArgentine Supreme Court resolved the conflict on April 16, 2010 by rulingthat all antitrust issues related to the Transaction were to be resolved by theCNAPE. Hence, all the case files held by the CNACCF were transferred to theCNAPE.

 

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*theshareholders’ agreement entered into with W of Argentina Inversiones S.L. shallbe suspended and iii) the members of the Board of Directors of Sofora, Nortel,Telecom Argentina and Telecom Personal appointed to carry out such duties atthe request of Telecom Italia SpA and/or Telecom Italia International N.V shallbe suspended. The latter suspension implies a prohibition to participate,deliberate and vote at meetings of the Board of Directors but does not entailthe suspension of the directors’ information rights, nor the suspension of theexercise of their duties as members of the Audit Committee or their attendanceat the meetings of Telecom Argentina’s Steering Committee.* Court N° 6issued a resolution on August 28, 2009, further clarifying theabove-mentioned precautionary measure by stating that said suspension of theperformance of certain directors’ duties “...also implies that they shall notcount towards a quorum in Board meetings...”

 

TheTelecom Argentina Group Companies filed a motion for reconsideration or, in thealternative, request for appeal against the decision mentioned in the precedingparagraph. Court No. 6 denied the motion for reconsideration and grantedthe appeal, though the grant of this appeal did not suspend the precautionarymeasure’s effects. On November 6, 2009, the National Federal Court ofAppeals in Contentious Administrative Federal Matters, Chamber III upheld theabove-mentioned precautionary measure.

 

OnNovember 24, 2009, Telecom Argentina and certain other parties filed anextraordinary appeal against this measure. As of the date of this Annual Report, a decision of the ArgentineSupreme Court has not yet been reached regarding this federal extraordinaryappeal.

 

OnMarch 8, 2010, in order to enforce the precautionary measure issued on August 26,2009 which suspended the directors of the Telecom Argentina Group Companiesappointed at the request of Telecom Italia Group, Court No. 6: (i) orderedthe immediate suspension of all calls to board meetings and/or shareholders’meetings made by the directors included in the precautionary measure,(ii) transferred, via a court order, all corporate books to theVice-Chairman in exercise of the Chairman position and appointed him legalrepresentative in each of the Telecom Argentina Group Companies, and(iii) notified other officers of Nortel, Telecom Argentina and TelecomPersonal of the suspension of the directors appointed at the request of TelecomItalia S.p.A. Telecom was notified about this decision and the respective orderson March 9, 2010. On March 11, 2010, Chamber II of the CNACCF issueda resolution which denied a precautionary measure requested by Telecom ItaliaS.p.A. to suspend the precautionary measures issued by Court No. 6.

 

*b. Judicial Resolutions suspending Board of Directors and Shareholders’Meetings of the Telecom Argentina Group Companies*

 

Asmentioned before, on April 24, 2009, the CNACCF provisionally suspendedTelecom Argentina ́s Ordinary and Extraordinary Shareholders’ Meeting scheduledfor April 28, 2009. On July 27, 2009, Chamber II of the CNACCFsustained a request for a precautionary measure filed by Telecom Italia Groupsuspending the effects of CNDC Resolution No. 44/09, which allowed TelecomArgentina to call a new Ordinary and Extraordinary Shareholders’ Meeting for September 9,2009.

 

OnSeptember 3, 2009, Chamber II of the CNACCF notified Telecom of a newresolution issued in the case named “Telecom Italia S.p.A. y Otro s/Recurso deQueja por Recurso Directo Denegado” *(Telecom Italia S.p.A. andothers s/Appeal regarding Direct Rejected Appeal)*. The court decidedto suspend Telecom Argentina’s Ordinary and Extraordinary Annual Shareholders’Meeting scheduled for September 9, 2009 and the meeting of the Board ofDirectors scheduled to take place immediately thereafter.

 

Additionally,on September 3, 2009, Telecom Argentina was notified of the complementaryresolution issued by Chamber II of the CNACCF through which the court suspendedthe meeting of the Board of Directors convened by Telecom Argentina’s ViceChairman for September 3, 2009. On November 6, 2009, Chamber II ofCNACCF again suspended a meeting of Telecom Argentina’s Board of Directorsconvened by a director to be held on November 9, 2009.

 

Asa result of the enforcement order issued by Court No. 6 on March 8,2010 and, given that Chamber II of the CNACCF issued a resolution on March 11,2010 denying a precautionary measure requested by Telecom Italia S.p.A. tosuspend the precautionary measures issued by Court No. 6, TelecomArgentina’s shareholders’ meetings for fiscal years 2008 and 2009 could beheld, subject to certain limitations described below.

 

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Considerationof certain items in the agendas for the annual shareholders meetings of TelecomArgentina and Telecom Personal was suspended by precautionary measures issuedby the Commercial Court of First Instance No. 26.  On April 20, 2010, the Commercial Courtof First Instance No. 26 (“Court N° 26”), Secretariat No. 51 notifiedTelecom Argentina that it had sustained the precautionary measure requested bycertain suspended directors in the case named “Pérez Alati Jorge Luis y otro c/Telecom Personal S.A. s/ Ordinario”, thus suspending consideration of items 7,11, 12, 13 and 21 of the agenda at Telecom Argentina’s Annual ShareholdersMeeting scheduled for April 28, 2010. The suspended items from TelecomArgentina’s agenda are as follows:

 

*7) Consideration of Board of Directors’ and Supervisory Committee’sperformance from April 29, 2008 to the date of the Shareholders’ Meeting.*

 

*11) Determination of the number of directors and alternate directorsfor the twenty-second fiscal year (“Fiscal Year 2010”).*

 

*12) Election of directors and alternate directors for Fiscal Year 2010.*

 

*13) Determination of the number of members and alternate members of theSupervisory Committee for Fiscal Year 2010 and their election.*

 

*21) Modification of the disapproval of Gerardo Werthein’s performanceduring the nineteenth fiscal year.*

 

CourtN° 26 also suspended similar matters from Telecom Personal’s agenda for itsAnnual Shareholders’ Meeting scheduled for April 20, 2010. The AnnualShareholders’ Meeting of Telecom Argentina and Telecom Personal were held andthe provisions of the aforementioned precautionary measure were complied with.Telecom Argentina and Telecom Personal have appealed the precautionary measuresissued by Court No. 26.

 

*c. Proceedings Relating to the Telecom Italia Group’s Ownership inSofora*

 

*i. Proceedings Relating to the Telecom Italia Options*

 

OnDecember 30, 2008, the Telecom Italia Group requested authorization fromthe SC to exercise the Telecom Italia Options and transfer the shares theywould acquire.  This request was deniedby SC Resolution No. 1/09 dated January 9, 2009.

 

OnDecember 29, 2008, the CNDC issued Resolution No. 123/08 resolvingthat, until the CNDC issues its decision in the matter of Telecom ItaliaOptions, as provided by Law No. 25,156 (the “Argentine Antitrust Act”),the Telecom Italia Group Companies *“must refrain fromexercising, assigning, transferring or taking any other action with respect tothose purchase options.”* The Telecom Italia Group filed an appealagainst Resolution No. 123/08. On January 28, 2009, the CNDC, throughResolution No. 6/09, rejected the appeal. Given the rejection of theappeal, the Telecom Italia Group filed a complaint with the CNACCF, requestingits review. The CNACCF declared itself competent to review the appeal, grantedthe appeal and served the Argentine government with notice of said appeal. On April 16,2010, the Argentine Supreme Court assigned the appeals related to the Transactionfiled against the CNDC and SCI resolutions relating to the Argentine AntitrustAct to the CNAPE, Chamber A.  On June 17,2010, Chamber A of the CNAPE annulled CNDC Resolution No. 123/08.

 

OnMarch 26, 2009, the Chamber I of the Federal Court of Appeals forAdministrative Litigious Matters issued a precautionary measure at the requestof Grupo Dracma S.A. and W de Argentina- Inversiones S.L, declaring thesuspension of the exercise of the Telecom Italia International N.V.’s rightsset forth in the purchase option contract. This suspension will be effectiveuntil the SC renders a final decision regarding the validity of the possiblelegal effects of the Transaction in Argentina or, alternatively, when a finaldecision is rendered regarding the underlying matter for which theprecautionary measure was issued, whichever occurs first. Telecom ItaliaInternational N.V. filed an extraordinary federal appeal against saidprecautionary measure, and upon rejection of said appeal, filed a request forreview with the Argentine Supreme Court. The matter is still pending before theArgentine Supreme Court.

 

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Asmentioned above in “Proceedings affecting certain members of the Board ofDirectors and shareholder voting rights,” Court N° 6 issued a precautionarymeasure on August 26, 2009 decreeing that Telecom Italia internationalN.V., as part of the shareholders’ agreement and the call option agreement,abstain from executing any legal act related to said agreements, including theexercise, assignment, or disposal of rights arising from the call optionagreement.

 

TelecomArgentina has also been informed that W de Argentina — Inversiones S.L. filed acomplaint against Telecom Italia International N.V., before the NationalCommercial Court of First Instance N° 8, Secretariat N° 15 of the City ofBuenos Aires, with the purpose of obtaining a decree of nullity on the TelecomItalia Options. As of the date of this Annual Report, resolution of thecomplaint is still pending.

 

*ii. Order to divest Telecom Italia’s S.p.A.’s Ownership in Sofora*

 

OnJuly 23, 2009, in accordance with the provisions of Section 16 of theArgentine Antitrust Act, the SC issued its report and reasoned opinion to theCNDC, concluding that the Transaction, to which Telecom is not a party, “violatesthe regulatory framework for telecommunications”. This report can be reviewedat www.secom.gov.ar.

 

OnSeptember 1, 2009, the CNDC notified Telecom of the SCI’s Resolution No. 483/09which encompasses the conclusions of CNDC Opinion No. 744.  This resolution:

 

(i)       orders that theeffectiveness of the Transaction shall be subordinated to the extent necessaryto permit the effective and irrevocable compliance with an order for divestmentall of the shares that Telecom Italia S.p.A. possesses, either directly orindirectly, in Sofora. The resolution also orders Telecom Italia S.p.A. todivest all assets and rights it could have in Sofora and its controlledcompanies, including the Telecom Italia Options;

 

(ii)      grants the CNDC powersto establish guidelines for divestment, within a maximum period of sixty days,and advises that said divestment be carried out within a maximum period of oneyear; and

 

(iii)     requires that, once thedivestment process has been completed, the CNDC shall submit an opinion to theSCI, so that the SCI may issue a final resolution about the Transaction.

 

OnJanuary 6, 2010, the SCI issued Resolution No. 3/10, which approvedthe divestment guidelines set by the CNDC in its Resolution No. 1/10.  Telecom Argentina and Telecom Personal, amongothers, filed appeals against SCI Resolution No. 3/10 and CNDC Resolution No. 1/10and requested the issuance of a precautionary measure suspending theirrespective effects. The CNACCF granted the requested precautionary measure.

 

OnFebruary 1, 2010, Chamber A of the CNAPE annulled SCI Resolution No. 483/09in a case to which the Telecom Argentina Group Companies are not party, andordered “*that a new resolution be issued through theappropriate authority after a new proceeding*.” Given this decision,the Ministry of Economy and Public Finance issued Resolution No. 82/10,instructing the Ministry’s Secretary of Economic Policy to resolve the casepending before the CNDC which analyzes the Transaction. In turn, the Secretaryof Economic Policy, via Resolution No. 14/10, resolved to: (i) confirmthat the Transaction is subject to its prior review pursuant to Article 8of Law No. 25,156, (ii) render ineffective SCI resolutions No. 483/09and 3/10, and (iii) instruct the CNDC to take the necessary steps underthe aforementioned case in order to redirect the procedure.

 

OnFebruary 25, 2010, the CNDC issued resolution No. 30/10 taking intoaccount the above-mentioned Resolutions 82/10 and 14/10 as well as thepotential decisions that could be adopted according to the Argentine AntitrustAct, ruling as follows: i) granting a hearing to Telecom Italia S.p.A. andTelecom Italia International N.V. so that they could challenge the resolutionsand exercise their right to a legal defense within a 15-day period allotted forsaid challenge, in the case “Pirelli & C S.p.A. y Otros s/Notificación Artículo 8° Ley 25.156.” (*Pirelli &C S.p.A. and Others s/Notification Article 8 Law 25,156*) andii) notifying Telefónica S.A. (of Spain), Assicurazioni Generali S.p.A.,Sintonía S.A., Intesa Sanpaolo S.p.A., Mediobanca S.p.A., Telco S.p.A.,Pirelli & C S.p.A., Sintonía S.p.A., Sofora Telecomunicaciones S.A.,Nortel Inversora S.A., Telecom Argentina S.A. and Telecom Personal S.A. oftheir standing to object to said resolutions.

 

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OnMarch 18, 2010, the CNDC issued Resolution No. 38/10, deciding interalia, to grant the appeals filed against CNDC Resolution No. 30/10 (thoughthe grant of this appeal did not suspend the effects of Resolution N° 30/10),to form an ancillary appeal and elevate this case to Chamber A of the CNAPE.

 

OnMay 6, 2010, Chamber A of the CNAPE resolved that the above-mentionedResolutions No. 82/10, 14/10 and 30/10 are not subject to appeal.

 

*Vote for non-approval of Mr. Gerardo Werthein’s performance asRegular Director and challenges to the decision of Telecom Argentina’s Board ofDirectors*

 

a)   At the Annual Shareholders’ Meeting held on April 29,2008, Telecom Argentina’s shareholders decided, upon a majority vote, not toapprove Mr. Gerardo Werthein’s performance as Regular Director duringfiscal year 2007.  Mr. Wertheinbrought a claim before the courts requesting the annulment of this decision.Nortel was cited as a third party in this claim pursuant Article 94 of theCPCCN. Telecom filed an answer to this complaint seeking that it be rejected.Subsequently, the plaintiffs alleged the existence of additional facts and thecase is currently under review.

 

b)   On November 5, 2008, Mr. GerardoWerthein initiated legal action against Telecom Argentina in order to havecertain decisions that had been adopted at meetings of Telecom Argentina’sBoard of Directors held on August 5, 2008 and September 10, 2008declared null and void. Specifically, this legal action seeks to annul thedecision to appoint Mr. Franco Bertone as Telecom’s Chief OperatingOfficer and the decision to reject several motions proposed by Mr. GerardoWerthein, which he claimed were designed to adequately protect the bestinterests of the corporation. Telecom Argentina filed an answer to thecomplaint on May 27, 2009 requesting rejection of this complaint. Ahearing was scheduled for April 29, 2010 pursuant to the terms of Article 360of CPCCN.  This hearing was not heldgiven that both the hearing and the case were stayed at the plaintiff’srequest.

 

c)   Telecom was notified of a mediation sessionin August 2009 in connection with a separate case also identified as “Werthein,Gerardo c/ Telecom Argentina S.A. s / Nullity of Resolutions of the Board ofDirectors”. On August 24, 2009 the mediation ended as the parties had notarrived at any agreement. As of the date of this Annual Report, TelecomArgentina has not been notified of the commencement of a formal judicialproceeding in this case.

 

d)   In the case, “Pérez Alati, Jorge Luis andother c/o Telecom Personal S.A. and others,” certain suspended directors seek adeclaratory judgment nullifying certain decisions adopted by Telecom Argentina’sand Telecom Personal’s Board of Directors at each of their meetings on March 16,2010.  Said decisions consisted of the non- approval of transactions withTelecom Italia S.p.A. and related parties of the Telecom Italia Group.  OnMay 31, 2010, the mediation ended as the parties had not arrived at anyagreement.

 

Acourt has yet to issue a decision regarding these matters.

 

*Other Information*

 

BothTelecom Argentina and Telecom Personal have filed, in accordance with Argentineand SEC rules on publication of information regarding material events,several notices and information regarding the above matters.  This information is available in Spanish atthe CNV website:  www.cnv.gov.ar (section“Autopista Financiera”) and in English at the SEC website: www.sec.gov.

 

Asof the date of this Annual Report, we cannot predict if additional measureswill be taken by the CNDC, the SC, the SCI, or other relevant authorities orcourts, and whether and how, if taken, these could affect Telecom’s operations.

 

**Civil, tax, commercial,labor and regulatory proceedings**

 

Weare parties to several civil, tax, commercial, labor and regulatory proceedingsand claims that have arisen in the ordinary course of business. As ofDecember 31, 2009, Telecom has established reserves in an aggregate amountof P$526 million to cover potential losses related to these claims andcontingencies in its Consolidated Financial

 

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Statements(P$79 million for regulatory contingencies deducted from assets and P$447million included under liabilities).

 

***Labor Claims***

 

*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.

 

Asof December 31, 2009, the total amount of these labor claims filed againstTelecom Argentina, including accrued interest and expenses, was approximatelyP$9 million. Interest and expenses will continue to accrue on any pendingamount until it is paid in full. Telecom Argentina believes that the pendingclaims will not have a significant effect on our results of operations orfinancial position for two reasons: (1) under the Transfer Agreement,ENTel has expressly agreed to indemnify Telecom Argentina in respect of theseclaims and (2) the Argentine government has agreed to be jointly andseverally liable with ENTel in respect of these indemnity obligations and hasauthorized Telecom Argentina to debit an account of the Argentine government at*Banco Nación* for any amounts payable bythe Argentine government under this indemnity. Under the Debt ConsolidationAct, ENTel and the Argentine government may discharge their above-describedobligations to Telecom Argentina by issuing 16-year bonds to Telecom Argentina.In its ruling, the Supreme Court recognized the right of licensees to demandthat the Argentine government comply with its Transfer Agreement 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.

 

*Section 15 of the Collective Bargaining Agreement (“CBA”) 201/92*

 

Duringfiscal year 2005, legal claims were received regarding the salary provision 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 underlying causeof the legal claims has been rendered moot, therefore it is unlikely thatTelecom Argentina will receive new claims for periods after January 2006.  As of the date of this Annual Report, most ofthese claims have been settled and paid.

 

*Profit Sharing Bonds*

 

Variouslegal actions were brought, mainly by former employees of Telecom Argentina,against the Argentine government and Telecom Argentina, requesting that Decree No. 395/92— which expressly exempts Telecom Argentina from issuing the profit sharingbonds provided in Law No. 23,696 —be struck down as unconstitutional.  The plaintiffs also claimed compensation fordamages they had suffered because such bonds had not been issued.  In August 2008, the Argentine SupremeCourt of Justice found Decree No. 395/92 unconstitutional when resolving asimilar case against Telefónica and ordered that the proceedings be remandedback to the court of origin so that said court could decide which defendant wascompelled to pay —the licensee and/or the Argentine government- and theparameters that were to be taken into account in order to quantify the remediesrequested (percent of profit sharing, dismissals of claims due to expiration ofthe applicable statute of limitations, and distribution method between theprogram beneficiaries).

 

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Inthe suits against Telecom Argentina for which judgment has already beenrendered, the trial court judges hearing the matter resolved to dismiss theactions brought — relying on arguments made by the prosecutor in charge of eachcase.  The trial court judges noted thatDecree No. 395/92 was valid and constitutional. However, based on thejudgment of the Argentine Supreme Court of Justice in this matter, the threeDivisions of the Courts of Appeal ruled that Decree No. 395/92 wasunconstitutional.

 

Inorder to defend its rights, Telecom Argentina filed various appeals againstthese unfavorable decisions, and although these decisions have not beenreviewed by the Argentine Supreme Court of Justice, it should be noted that theabovementioned ruling of the Argentine Supreme Court of Justice on the case againstTelefónica has created a legal precedent that, in the opinion of TelecomArgentina’s legal counsel, increases the probability that it would have toconfront certain contingencies caused by an adverse ruling, notwithstandingTelecom Argentina’s right of reimbursement from the Argentine government.  As of the date of this Annual Report, TelecomArgentina’s Management, based on the advice of its legal counsel, has recordedprovisions for contingencies that it estimates are adequate to hedge the risksassociated with these claims.

 

*Union Clains*

 

ResolutionNo. 444/04 of the Ministry of Labor, Employment and Social Security (the “Ministryof Labor”) recognized FOETRA Buenos Aires Union as the representative ofTelecom 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’s employees with theArgentine Federation of Commercial and Service Employees under the CollectiveLabor Agreement No. 130/75.  Hence,the Resolution would conflict with a prior agreement between the Ministry ofLabor and Movicom employees (the original operator of cellular telephoneservice), which applies to the Collective Labor Agreement No. 130/75 andto Telecom Personal’s principal business. Telecom Personal has pursued various avenues for recourse, includingseeking administrative review, and judicial review of its claims.  However, to date, all administrative andjudicial recourse has been exhausted, including an appeal to the ArgentineSupreme Court of Justice.

 

AlthoughTelecom Personal’s personnel covered by union agreements continues to berepresented by the Argentine Federation of Commercial and Service Employees (“FAECyS”),and therefore the salary agreements entered into by this Federation apply,labor authorities continued to press for the creation of a negotiatingcommittee that includes FOETRA Sindicato Buenos Aires and to require certainreports to be submitted to this committee in order to facilitate discussionsfor a union agreement. Recently, in January 2010, FOETRA Sindicato BuenosAires obtained a ministerial resolution amending its status to include mobiletelephone employees within the scope of its representation.  This resolution will also have a similarimpact on the other union organizations in the telephone industry. TelecomPersonal’s position at all times has been to involve the rest of its peercellular telephony operators in any regulatory change that might occur in workingconditions, in order to avoid any regulatory asymmetry that could erode TelecomPersonal’s competitive advantages and undermine the viability of its business.

 

Additionally,the Center for Professionals of Telecommunications Companies (“CEPETEL”) hasexpanded its claims against Telecom Argentina and is attempting to attractadditional members out of all the employees not governed by union agreements.During 2009, we managed several claims filed with administrative authoritiesand courts associated with the validity of the union agreement, which thisunion seeks to restore, and the scope of their representation.

 

*Other*

 

Inrecent years, certain labor organizations such as trade unions, OSTEL (SocialWork Association of Telephone Workers and Employees of Argentina) and theCompensation Fund have filed complaints against Telecom Argentina objecting tothe differences in the calculation of social contributions made by TelecomArgentina to the Fund and have obtained favorable rulings for theseclaims.  Despite Telecom Argentina havingappealed these decisions, the appellate courts have affirmed the rulings inmany cases.  As a result, TelecomArgentina, based on the advice of legal counsel, has recorded provisions for contingenciesto cover the increased risk associated with this type of litigation.

 

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Formersales representatives of Telecom Personal have brought legal actions foralleged untimely termination of their contracts and have submitted claims forpayment of different items such as commission differences, seniority bonusesand lost profit. While decisions on some of these claims are still pending,most of the claims have been settled by the parties, while others have obtaineda favorable partial judgment.

 

***Tax Matters***

 

*Tax Matters Relating to Telecom Argentina*

 

InDecember 2008, the National Congress approved Law N 26,476, the “Law onTax Regularization and Repatriation of Capital” establishing a regime for theregularization of tax liabilities, the repatriation of funds and theregistration of employees.  Title I ofthe law provides taxpayers with a complete exemption for penal responsibilitiesin tax matters, for fines and a partial exemption for interest arising out oftax or social security liabilities 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 from itsdisagreement with Telecom Argentina’s calculation of the depreciation of itsfiber optic network.

 

b)AFIP’s claims for income tax for fiscal years 1997 to 2000 challenging TelecomArgentina’s certain deductions it made for bad debt expenses.

 

c)AFIP’s claims regarding invoices for certain kinds of services.

 

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. The settlement for the above-mentioned taxclaims was complete except for item b) which was partially settled.

 

Inorder to qualify for the Regularization Regime, Telecom Argentina had tovoluntarily dismiss legal proceedings previously initiated against AFIP’sclaims. As a result of the Regularization Regime, regarding the mattermentioned in c) above, Telecom Argentina has requested the Court to suspend thepenal proceedings and dismiss the claims against officers and employees who hadbeen called to give testimony, since the law provides for the suspension ofpenal proceedings upon adoption of the Regularization Regime, and completeextinguishment of a penal case upon cancellation of all amounts due under thepayment 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$38million (nominal value), (P$2 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 set forth under the captions “TaxesPayable” and “Other Liabilities” classified by the nature and due date of eachliability.  The corresponding offsettingentries have been made to the income statement for the first quarter of 2009.

 

InDecember 2001, the AFIP asserted an additional income tax claim regardingthe amortization period utilized by Telintar to depreciate its fiber opticnetwork in submarine cables. Subsequently, Telintar was dissolved and merged inequal parts into Telecom Internacional S.A. and Telefónica Larga Distancia deArgentina S.A., entities controlled by Telecom Argentina and Telefónica,respectively. Telecom Internacional S.A. was subsequently merged with and intoTelecom Argentina in September 1999. In July 2005, the National Fiscal Court decided against TelecomArgentina by ratifying the tax assessment relating to additional taxes,although it did not require Telecom Argentina to pay interest or penalties. Onthe same grounds as described in the above paragraph, during the third quarterof 2005, Telecom Argentina recorded a current tax liability amounting to P$0.5million against income taxes in its income statement. Telecom Argentina andTelefónica have appealed this judgment before the corresponding Federal Court.  In June 2009, this Federal Courtrejected the National Fiscal Tribunal Resolution and

 

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AFIP’sclaim.  AFIP has appealed this judgmentbefore the Argentine Supreme Court of Justice. Telecom Argentina believes that the final outcome of these cases willnot result in an incremental adverse impact on Telecom Argentina’s results ofoperations and financial condition.

 

*Tax Matters Relating to Telecom Personal*

 

InDecember 2006, the AFIP assessed an additional income tax and tax onminimum presumed income for the 2000 and 2001 tax years claiming that TelecomPersonal incorrectly deducted certain uncollectible receivables. Telecom Personalappealed this assessment before the National Fiscal Tribunal. The AFIP’s claimis contrary to certain legal precedents issued by the National Fiscal Tribunal.Consequently, Telecom Personal and its legal counsel believe that the matterwill be resolved in its favor when the appeal process is finalized.

 

*Tax Matters Relating to Micro Sistemas*

 

OnDecember 4, 2000, our subsidiary, Micro Sistemas S.A., received a noticefrom the Secretary of Treasury Resolution No. 468/00 requesting MicroSistemas to pay P$1.1 million (approximately P$5.7 million as ofMarch 31, 2010) in fines with respect to its failure to comply, priorto its acquisition by Telecom Soluciones, with the terms and conditions of aspecial tax regulation applicable to Micro Sistemas and requesting payment ofthe claimed tax compounded with interest. Having exhausted the administrativeappeals, on October 3, 2007, Micro Sistemas filed an appeal before theFederal Court of Appeals for Administrative Matters.  This appeal is still pending.  Because the administrative ruling is beingappealed before a judicial court, the Argentine government cannot requirepayment of a disputed fine or tax until a final decision has been issued,therefore, this matter will be clarified when the court reaches a decision onthe merits of the appeal.

 

MicroSistemas’ legal counsel for this claim believes that the defense presentedstrong arguments and should have persuaded the court to reject the resolutionadopted by the Secretary of the Treasury. Furthermore, if Micro Sistemas wereto be required 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 forobtaining the rejection of the Secretary of Treasury’s resolution and theexistence of these indemnification provisions, Telecom Argentina’s managementconsiders that the possibility that Micro Sistemas will be forced to complywith the Secretary of the Treasury’s demand for payment of fines is remote.

 

*Municipal Fees*

 

Since2005, the Company has seen a noticeable increase in legal and extrajudicialclaims seeking the collection of various municipal fees in the City of BuenosAires and various municipalities. As of December 31, 2009, the Company hasa reserve of approximately P$60.8 million for such claims.

 

Fora description of certain tax matters, see “Item 5—Operating and Financial Reviewand Prospects—Taxes.”

 

***General Proceedings***

 

*Regulatory Proceedings*

 

Thereare several proceedings that have been initiated against us with respect toalleged regulatory violations between 2000 and May 2010. If the outcomesof these proceedings are unfavorable to us, they could result in fines ofapproximately P$11.3 million. For each of these proceedings, we are challengingthe CNC’s imposition of fines before administrative authorities and/or thecourts. The most significant of these proceedings relates to damage claims, theprinting of telephone directories in small font sizes which were allegedly notlegible enough and the non-compliance with certain terms for remedying this, aswell as certain problems in several cases relating to failures with the processof presubscribing for directories, and theft of telephone cables.

 

Fora description of certain administrative appeals filed by the Telecom Group withrespect to certain regulatory actions, see “Item 4—Information on theCompany—Regulatory Framework.”

 

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*Environmental Proceedings*

 

In1999, the Argentine national environmental agency (*Secretaríade Medio Ambiente y Desarrollo Sustentable*) initiated anadministrative proceeding against us in connection with our wastemanagement.  This agency alleged problemswith our liquid drainage at an underground chamber in violation of Argentineenvironmental law. The agency sought to require Telecom Argentina’sregistration with the National Register of Generators and Operators ofHazardous Waste. This registration would require Telecom Argentina to pay anannual fee calculated in accordance with a formula that takes into considerationthe hazard’s extent and the waste quantity. Telecom Argentina believes that itsactivities did not generate this waste, and that the waste in the undergroundchamber was generated by other parties. Telecom Argentina nonetheless removedthe liquid drainage in accordance with environmental law. We have filed therequisite official responses and we believe that we will not have to registerwith any environmental agency as a result of this liquid drainage. In February 2009,Telecom Argentina received a notification from the environmental agency onceagain requesting that Telecom Argentina be registered in the National Registryof Generators and Operators of Hazardous Waste. In March 2009, TelecomArgentina filed a request for administrative review seeking to obtain rejectionof the environmental agency’s ordinance. As of the date hereof, there has yetto be a resolution on the matter.

 

*Consumer Trade Union Proceedings*

 

InNovember 1995, Telecom Argentina was served with notice of a complaintfiled by a consumer trade union, “*Consumidores LibresCooperativa Limitada de Provisión de Servicios Comunitarios*,”against Telecom Argentina, Telefónica, Telintar and the Argentine government.The suit seeks to declare null, illegal and unconstitutional all rate rules andagreements related to the Transfer Agreement and to reduce the rates of thelicensees so as to obtain a rate of return not in excess of an annual 16% onfixed assets as described in the List of Conditions.  Furthermore, the complaint seeks reimbursementof sums allegedly received in excess of the 16% rate of return as well as sumsresulting from the reduction in the rate of turnover tax for the city of BuenosAires. The case is currently in the discovery phase.

 

InOctober 2001, the Federal Court of Appeals for Contentious andAdministrative Matters issued a precautionary measure suspending the ability oftelecommunications companies to increase rates by reference to the U.S.consumer price index. However, the Public Emergency Law and the reformation ofthe exchange regime have had an analogous result to that proposed by theprecautionary measure, since they have prohibited, as of January 6, 2002,contracts with the public administration, including public works and servicescontracts, from being adjusted to dollars or other foreign currencies. ThePublic Emergency Law was subsequently extended through December 31, 2011.See “Item 4—Information on the Company—Regulatory Framework—RegulatoryEnvironment—Rates—Public Emergency Law.”

 

Althoughwe cannot guarantee the outcome of these proceedings, in our opinion, based onthe information available to us and the opinion of our legal counsel, thepossibility that they will have a significant impact on our financial positionis 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 discovery.

 

OnAugust 14, 2003, Telecom Argentina was served notice of a legal actionbrought by the “Union of Users and Consumers” against Telecom Argentina,Telefónica and the SC before the Federal Court in Administrative LitigationMatters No. 8.  The plaintiffsrequest reimbursement of certain additional charges included in monthlyfixed-line service fees billed by Telecom Argentina. On August 22, 2003,Telecom Argentina opposed this claim on the grounds that the charges are validsince they were expressly provided for under applicable administrative rules andregulations. As of the date of this Annual Report, a decision on this claim isstill pending. Although we cannot guarantee the outcome of this proceeding, inthe opinion of our management and internal legal counsel, the final outcome ofthis proceeding will not have a material effect on our financial position andresults of operations.

 

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InDecember 2005, the entity *Asociación ProtecciónConsumidores Del Mercado Común Del Sur—Proconsumer* brought an actionagainst the cellular companies, including Telecom Personal. The plaintiffs seekto obtain reimbursement for any amounts billed to Telecom Personal customers inconnection with an investment contribution to the Universal Service FiduciaryFund.  They estimated their claim forreimbursement based on charges made to Telecom Personal customers for totalbilled amounts, plus compensatory interest on any awarded damages.  The interest was estimated at the latepayment rate applied by each company to its customers. In its answer to thecomplaint, one of Telecom Personal’s main arguments relied on the fact that thecomplaint should be dismissed, since Telecom Personal’s reimbursements to itscustomers had already begun. The full reimbursement of the amounts received byTelecom Personal in connection with the investment contribution andcorresponding interest were listed separately in customer bills and furnishedin accordance with the CNC’s report dated December 2006.  The report also specified the applicableinterest rate. The total reimbursement amounts that Telecom Personal has yet tomake are still undetermined and are subject to an accounting expert’sreport.  As of the date of this AnnualReport, a decision on this claim is still pending.

 

**DividendPolicy**

 

Thedeclaration, amount and payment of dividends are determined by a majority voteof all holders of Telecom Argentina’s capital stock. Under the ArgentineCorporations Law, dividends may only be declared out of liquid and realizedprofits determined 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).

 

Underthe above-described restrictions, the legal ability of shareholders at anyannual meeting of Telecom Argentina to vote to distribute dividends depends on:(i) the reconstitution of Telecom Argentina’s legal reserve, used topartially absorb Telecom Argentina’s accumulated deficit (P$277 millionabsorbed on April 27, 2006 which has been fully reconstituted as of thedate of this Annual Report); (ii) the existence of liquid and realizedprofits in excess of (i); and (iii) satisfaction of the financialconditions necessary to distribute dividends without negatively affecting theinterests of Telecom Argentina.

 

Inpreparing the Annual Report in compliance with Argentine requirements, at theend of each fiscal year, the Board of Directors analyzes Telecom Argentina’seconomic and 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 the TelecomArgentina’s shareholders at the Shareholders Meeting.

 

TelecomArgentina’s shareholders, at their meeting of April 29, 2008, approved thetransfer of the accumulated deficit at December 31, 2007, in its entirety,to the next fiscal year.  Following thisaction, Telecom’s accumulated deficit amounted to P$708 million and nodividends were permitted for fiscal year 2007. Until it absorbed the remainingaccumulated deficit and fully reconstituted its legal reserve to an amount ofP$277 million, Telecom Argentina was prohibited from making any distributions.Net income for the 2008 was P$961 million, while retained earnings as of December 31,2008 showed a positive balance of P$253 million. The Board of Directorssubmitted for consideration at the annual shareholders’ meeting, the allocationof retained earnings in the amount of P$253 million for the partialreconstitution of the legal reserve which had previously been absorbed on April 27,2006. However, Telecom Argentina’s shareholders meetings were provisionallysuspended by precautionary measures. See “—Legal Proceedings Relating to ShareOwnership—Resolutions of the CNDC, SC and SCI and related court rulings”.  This measure was approved at the TelecomArgentina’s shareholders’ meeting of April 28, 2010.

 

Atthis same meeting, Telecom Argentina’s shareholders approved the distributionof a cash dividend in two installments. Telecom Argentina paid its shareholdersP$689,066,685 on May 5, 2010, subject to a deduction for the tax onpersonal property payable by shareholders in 2009, and is scheduled to pay itssecond installment of dividends in the amount of P$364,220,961 on December 20,2010.

 

**SignificantChanges**

 

Noundisclosed significant changes have occurred since the date of theConsolidated Financial Statements.

 

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| **ITEM  9.** | **THE  OFFER 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.

 

Asof December 31, 2009, the number of shares authorized and outstanding wasas follows:

 
| Class A Shares |   | 502,034,299 |   |
|---------------------|--------|-------------|--------|
| Class B Shares |   | 440,910,912 |   |
| Class C Shares |   | 41,435,767  |   |
| Total               |   | 984,380,978 |   |

 

TheClass B Shares are currently listed on the Buenos Aires Stock Exchange.The ADSs representing Class B Shares are currently listed on the New YorkStock Exchange under the symbol TEO. Each ADS currently represents 5 Class BShares.

 

Thetable below shows the high and low closing prices of the Class B Shares inpesos for the 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*                               |       |                                         |       |   |   |
| 2005                                   |       | 8.65                                         |       | 6.00 |   |
| 2006                                   |       | 11.95                                        |       | 6.10 |   |
| 2007                                   |       | 17.25                                        |       | 11.75 |   |
| 2008                                   |       | 15.20                                        |       | 3.70 |   |
| 2009                                   |       | 13.65                                        |       | 4.90 |   |
|                                   |       |                                         |       |   |   |
| *Quarterly*                            |       |                                         |       |   |   |
| **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 |   |
| **2009**                               |       |                                         |       |   |   |
| First Quarter                          |       | 6.40                                         |       | 4.90 |   |
| Second Quarter                         |       | 10.00                                        |       | 5.63 |   |
| Third Quarter                          |       | 12.20                                        |       | 9.59 |   |
| Fourth Quarter                         |       | 13.65                                        |       | 11.80 |   |
|                                   |       |                                         |       |   |   |
| *Monthly*                              |       |                                         |       |   |   |
| **2009**                               |       |                                         |       |   |   |
| December                               |       | 12.70                                        |       | 12.25 |   |
| **2010**                               |       |                                         |       |   |   |
| January                                |       | 14.15                                        |       | 12.55 |   |
| February                               |       | 13.90                                        |       | 12.65 |   |
| March                                  |       | 14.65                                        |       | 12.85 |   |
| April                                  |       | 16.45                                        |       | 14.60 |   |
| May                                    |       | 15.80                                        |       | 11.90 |   |
| June (through June 25, 2010) |       | 14.60                                        |       | 13.00 |   |

 

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(1)          Reflects peso nominal amounts as of that date.

*Source: Bolsa de Comercio de Buenos Aires.*

 

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TheClass B Shares trade on the New York Stock Exchange in the form of ADSsissued by the Depositary under the Deposit Agreement dated as of November 8,1994, among Telecom Argentina, the Depositary and the registered Holders fromtime to time of the ADSs issued thereunder (the “Deposit Agreement”). Each ADSrepresents 5 Class B Shares.

 

Thetable below shows the high and low closing prices of the ADSs in U.S. dollarson the New York Stock Exchange for the periods indicated.

 
| ** **                             | ** ** | **US$ per ADS** | ** ** |
|----------------------------------------|------------|----------------------|------------|
| ** **                             | ** ** | **High**             | ** ** | **Low** | ** ** |
| *Annual*                               |       |                 |       |   |   |
| 2005                                   |       | 14.63                |       | 10.20 |   |
| 2006                                   |       | 21.64                |       | 9.76 |   |
| 2007                                   |       | 28.36                |       | 19.52 |   |
| 2008                                   |       | 23.97                |       | 5.12 |   |
| 2009                                   |       | 18.05                |       | 6.55 |   |
|                                   |       |                 |       |   |   |
| *Quarterly*                            |       |                 |       |   |   |
| **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 |   |
| **2009**                               |       |                 |       |   |   |
| First Quarter                          |       | 9.38                 |       | 6.55 |   |
| Second Quarter                         |       | 12.83                |       | 7.29 |   |
| Third Quarter                          |       | 15.99                |       | 12.21 |   |
| Fourth Quarter                         |       | 18.05                |       | 15.29 |   |
|                                   |       |                 |       |   |   |
| *Monthly*                              |       |                 |       |   |   |
| **2009**                               |       |                 |       |   |   |
| December                               |       | 16.82                |       | 16.03 |   |
| **2010**                               |       |                 |       |   |   |
| January                                |       | 18.43                |       | 16.31 |   |
| February                               |       | 18.04                |       | 15.87 |   |
| March                                  |       | 18.79                |       | 16.11 |   |
| April                                  |       | 21.22                |       | 18.84 |   |
| May                                    |       | 20.18                |       | 15.02 |   |
| June (through June 25, 2010) |       | 18.29                |       | 16.41 |   |

 

OnJune 25, 2010, the reported last sale price of the ADSs on the New YorkStock Exchange was US$17.56.

 

Class BShares also quote in the Mexican Stock Exchange through the InternationalQuotation System (“SIC”).

 

**Plan ofDistribution**

 

Notapplicable.

 

**TheArgentine Securities Market**

 

Thereare twelve securities exchanges in Argentina, of which six (including theBuenos Aires Stock Exchange) have affiliated stock markets and are authorizedto quote publicly-offered securities. The oldest and largest of these exchangesis the Buenos Aires Stock Exchange, founded in 1854, on which approximately 90%of all equity trades

 

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areexecuted. For the year ended December 31, 2009, the ten most activelytraded equity issues represented approximately 85% of the total volume ofequity traded on the market. Trading in securities listed on an exchange isconducted through a Mercado de Valores (“Stock Market”) affiliated with suchexchange.

 

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.

 

OnMay 22, 2001, the Argentine government issued the Transparency Decree,which provided a legal framework to strengthen the level of protection of theinvestor in the market and promotes the development, liquidity, stability, solvency and transparency of themarket by generating procedures to guarantee the efficient distribution ofsavings and good practices in the administration of corporations.  The Transparency Decree applies toindividuals and entities that participate in the public offering of securities,as well as to stock exchanges. Among its key provisions, the decree broadensthe 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.

 

**The Buenos 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 132 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.each business day. The Buenos Aires Stock Market also operates an electroniccontinuous market system each business day, on which privately arranged tradesare registered and made public.

 

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

 

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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.

 
| ** **                                         | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Market capitalization (P$ billions)(1)        |       | 2,175    |       | 1,234    |       | 1,773    |       | 1,229    |       | 771      |       |
| As percent of GDP(1)                               |       | 190      |       | 119      |       | 218      |       | 188      |       | 163      |       |
| Volume (P$ millions)(1)                       |       | 133,207  |       | 237,790  |       | 209,905  |       | 131,984  |       | 145,523  |       |
| Average daily trading volume (P$ millions)(1) |       | 546      |       | 963      |       | 850      |       | 532      |       | 576      |       |
| Number of traded companies (including Cedears)     |       | 254      |       | 267      |       | 278      |       | 268      |       | 259      |       |

 

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(1)          End-of-period figures for trading on the BuenosAires Stock Exchange.

*Sources: Instituto Argentino de Mercado de Capitales.*

 

**SellingShareholders**

 

Notapplicable.

 

**Dilution**

 

Notapplicable.

 

**Expensesof the Issue**

 

Notapplicable.

 

**ITEM 10.       ADDITIONAL INFORMATION**

 

**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.

 

**Objectsand 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.

 

OnMarch 1, 2001, the SC authorized Telecom Argentina to expand its corporatepurpose, to include the marketing of equipment, infrastructure and goods of anytype related or complementary to telecommunications, and the performance ofworks and provision of all types of services, including consulting and securityrelated to telecommunications, as well as the development of telecommunicationstechnology and information processing systems. This expansion of the corporatepurpose has been approved by the CNV. As a result, the bylaws which reflectthis change have been approved and registered in their final form.

 

OnApril 30, 2003 Telecom Argentina’s shareholders voted not to adhere to theregime established by Decree 677/01 (the Statutory Regime of Public Offer ofMandatory Acquisition) and approved the consequent modification of Article 1°of Telecom Argentina’s bylaws. On February 18, 2004, Telecom Argentina’sshareholders voted to change the company’s name to “Telecom Argentina S.A.”

 

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**TelecomArgentina’s capital 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 has obtainedopinions of counsel concerning the compliance of the actions with Argentine lawand our bylaws (or regulations, if any). We currently intend to obtain similaropinions in the future. Although the issue is not free from doubt, based onadvice of counsel, we believe that a court in Argentina in which a case hasbeen properly presented would hold that a noncontrolling shareholder voting ingood faith and without a conflict of interest in favor of such a resolutionbased on the advice of counsel that such resolution is not contrary toArgentine law or our bylaws or regulations, would not be liable under thisprovision.

 

*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 exceeding 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 the ArgentineCorporations Law, Article 72 of Law No. 17,811 (as amended by theTransparency Decree) and CNV rules, including but not limited to:

 

·                  approval of Telecom Argentina’s financialstatements and general performance of the directors and members of theSupervisory Committee for the preceding fiscal year;

 

·                  election, removal and remuneration ofdirectors and members of the Supervisory Committee;

 

·                  allocation of profits; and

 

·                  appointment of external auditors.

 

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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 ofDirectors or the members of the Supervisory Committee. The Board of Directorsor the members of the Supervisory Committee are also required to conveneshareholders’ meetings upon the request of any shareholder or group ofshareholders holding at least 5% in the aggregate of Telecom Argentina’scapital stock. If the Board of Directors or the members of the SupervisoryCommittee fail to do so, the meeting 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 the shareholderspresent. The quorum for extraordinary meetings is 60% of the stock entitled tovote. However, if a quorum is not present at the first meeting, the quorumrequirement for the second meeting will be 30% of the stock entitled to vote.In both cases, decisions are adopted by a majority of valid votes, except forcertain fundamental matters such as:

 

·                  mergers and spin-offs, when Telecom Argentinais not the surviving entity and the surviving entity is not listed on any stockexchange;

 

·                  anticipated liquidation;

 

·                  change of our domicile to outside Argentina;

 

·                  total or partial repayment of capital; or

 

·                  a substantial change in the corporatepurpose.

 

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.

 

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

 

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reserve,until the amount of this reserve equals 20% of our capital stock. The legalreserve is not available for distribution. The remainder of net profits may bepaid as dividends 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 the Board of Directors of certain companies (such as TelecomArgentina) to approve the distribution of anticipated dividends on the basis ofa quarter balance or a balance sheet especially prepared for the purpose ofpaying such dividends, provided that both the external auditors and theSupervisory Committee have issued an opinion report. The actual payment ofthese dividends, and the perfection of the obligation to pay them remainssubject to the availability of sufficient disposable income as determined inthe financial statements 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 of Commerce.Capital reductions may be voluntary or mandatory. Shares issued in connectionwith any increase in capital must be divided among the various classes inproportion to the number of shares of each class outstanding at the date of theissuance, provided that the number of shares of each class actually issued mayvary 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.

 

Atthe shareholders’ annual meeting held on April 27, 2006**,** Telecom Argentina’s shareholders approved the financialstatements for the year ended December 31, 2005 and approved the decisionto apply all of the legal reserves of Telecom Argentina and a certain portionof the capital adjustment account to absorb the accumulated losses. As aresult, Telecom Argentina reduced its losses and regularized its situationunder Article 206, and was not, and currently is not required to reduceits 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.

 

In the event of an increase in capital, shareholders of TelecomArgentina of any given class have a preemptive right to purchase any issue ofshares of such class in an amount sufficient to maintain their proportionateownership of Telecom Argentina’s capital stock. For any shares of a class notpreempted by any holder of that class, the remaining holders of the class willassume pro rata the non-preempting shareholders’ preemptive rights. Pursuant tothe bylaws, if any Class B or Class C Shares are not preempted by theexisting holders of each such class, the other classes may preempt such class.However, if any shares of Class A are not preempted by the existingholders of such class, holders of Class B or Class C Shares shallhave no preemptive rights with respect to such shares of Class A unlessotherwise approved by the regulatory authorities. Preemptive rights must beexercised 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.

 

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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—Risks 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 shareholder ratification)or in connection with a merger or acquisition. In addition, Telecom Argentinacan purchase up to 10% of its capital stock in the Buenos Aires stock exchangepursuant to the Transparency Decree complying with the requirements andprocedures stated therein. If the purchase is made pursuant to the TransparencyDecree, Telecom Argentina must resell the repurchased shares within three yearsand must give shareholders a preemptive right to purchase the shares. If thepurchase is made according to the Argentine Corporations Law, the repurchasedshares must be sold within one year, unless the shareholders extend 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.

 

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.

 

Inthe event 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.

 

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*Acquisitions of 5% or More of the Voting Stock of a Public 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.

 

**Powersof 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 themarkets where the shares of the company are listed. If the Audit Committee orthe independent evaluation firms have not determined the terms of thetransaction to be “reasonably acceptable to the market,” then the contract inquestion must be 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.

 

**Limitationson Foreign Investment 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.

 

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**Changeof 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.”

 

**MATERIAL CONTRACTS**

 

Forinformation regarding the *Acuerdo PreventivoExtrajudicial* (“APE”) agreement and a summary description of thenotes issued pursuant to the APE, see “Item 5—Operating and Financial Reviewand Prospects—Liquidity and Capital Resources.” For information regarding the shareholders’agreements, see “Item 7—Major Shareholders and Related PartyTransactions—Shareholders’ Agreements.” We are not a party to the shareholders’agreements.

 

**FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN ARGENTINA**

 

Dueto the 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 for transfersrelated to foreign trade and certain other transfers subject to the priorauthorization of the BCRA.

 

OnFebruary 8, 2002, the BCRA issued tight restrictions on the transfer offunds abroad in order to make payments of principal and/or interest by requiringprior authorization 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.

 

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)                                      subject to certainexceptions, the acquisition of foreign currency as an investment or to apply itto foreign portfolio investments is limited, on a monthly basis, to US$2million, *provided* that as of the date ofacquisition, Telecom Argentina does not hold due and unpaid principal orinterest foreign debt;

 

(ii)                                   the acquisition of foreigncurrency to pay principal maturities on foreign debt obligations can be made onthe day of such maturities or:

 

1.                                         within the 30days preceding the maturity date, provided that the acquirer complies with theminimum applicable holding term;

 

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2.                                         within acertain 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.                                         prior to the30-day period immediately preceding the maturity date *provided*that (a) prepayment is not part of a restructuring process and (b) theforeign currency amount to be used to prepay non-Argentine debt must not behigher than the present value of the portion of the debt being canceled *or* prepayment shall be 100% offset with new externalfinancing, the present value of which (as determined using a discount ratefixed by the BCRA) shall not exceed the value of the canceled debt. If theprepayment is made as part of a restructuring process with foreign creditors,the new debt terms and conditions and the prepayment being made must not implyan increase in the present value of the outstanding debt *providedfurther* that (a) the foreign debt obligations are registeredwith the BCRA and (b) funds disbursed under the debt obligations so repaidhave entered Argentina prior to no less than 365 days from the date of payment.

 

InJune 2005, the Argentine government imposed certain restrictions oninflows and outflows of foreign currency to the local foreign exchange marketthat remain in effect. New indebtedness entered into the foreign exchangemarket and debt renewals with non-Argentine residents from the private sectorentered in the local foreign exchange market shall be agreed upon and canceledin terms not shorter than 365 calendar days, whatever the form of cancellationthereof. The following transactions, among others, are exempted from thisrestriction: (i) foreign trade financings (i.e., exports advance payments,pre-financing of exports and imports financing); (ii) balances of foreignexchange transactions with correspondent exchange entities (which are notcredit lines); and (iii) primary debt security issuances with a publicoffering 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 securities issued by thepublic sector (except for securities issued by the BCRA); and (ii) directinvestments, including capital contributions to local companies of directinvestment (namely, a company set up or not as legal entity in which theforeign direct investor holds at least 10% of ordinary shares or voting rightsor its equivalent), and foreign funds transferred into Argentina bynon-Argentine residents for the purpose of purchasing local assets that qualifyas direct investment (such as real estate located in Argentina); and (e) foreignfinancial indebtedness provided: (i) the proceeds from the exchangesettlement, net of taxes and expenses, to the purchase of foreign currencies tocancel foreign debt principal and/or to the creation of long term foreignassets; or (ii) they are incurred and canceled in an average life of notless than two years, including payments of principal and interest in thecalculation, and to the extent they are applied to investments in “nonfinancial assets.” In this context, “non financial assets” investments means,among others, investments of assets capable of being registered in thefinancial statements of the borrower either as fixed assets or as inventory.

 

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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**

 

**ArgentineTaxes**

 

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 taxable net income at the close of the previous taxable year, asdetermined by application of the Argentine Income Tax Law (the “Income Tax Law”),must 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 and (2) adding the dividends andprofits not subject to tax received as distributions from other corporations.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*

 

ArgentineLaw No. 25,585, as amended by Law No. 26,317, imposes a Tax onPersonal Property. According to this tax, the following persons are subject toan annual tax on certain assets, which is levied at rates ranging from 0.50% to1.25% depending on the value of such assets as of December 31 of eachyear: (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.

 

Althoughthe Tax on Personal Property does not explicitly apply to individuals orentities domiciled outside Argentina, pursuant to Argentine Law No. 25,585,shares of stock corporations or other equity interests in companies regulatedby Argentine Corporations Law 19,550, as amended, such as the ADSs (held inbook entry form or evidenced by ADRs) and Class A, B and C Shares, andwhose holders are individuals and/or undivided estates domiciled in Argentinaor in a foreign country, shall be subject to the Tax on Personal Property.

 

Thetax rate to be applied is 0.50% and the taxable base is the value of theshareholders’ equity as stated in the most recent balance sheet of the companyas of December 31 of each year. Such tax shall be assessed on and paid bythe corresponding Argentine company issuer of the shares, such as TelecomArgentina. The tax so paid shall be considered as a definite 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 and trusts, domiciled, settled or located in a foreign country,belong indirectly to individuals or individual estates domiciled in a foreigncountry.

 

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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, 2009,Telecom Argentina has recorded an allowance of P$21 million for the amountspending collection. Whenever applicable, a tax on personal property ofapproximately P$5 million paid on behalf of Telecom Argentina’s shareholdersfor the year 2009, was deducted from the first installment of the cash dividendpayment made to shareholders in May of 2010.

 

*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 in Exchange 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.

 

**UnitedStates Federal Income 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 U.S. Holders (asdefined below) that hold ADSs or Class B Shares as capital assets for U.S.federal income tax purposes and does not address the tax consequencesapplicable to all categories of investors, some of which may be subject tospecial rules, such as:

 

·                  certain financial institutions;

 

·                  dealers and traders in securities who use amark-to-market method of tax accounting;

 

·                  persons holding ADSs or Class B Sharesas part of a hedging transaction, straddle, wash sale, conversion transactionor integrated transaction or persons entering into a constructive sale with respectto the ADSs or Class B Shares;

 

·                  persons whose functional currency for U.S.federal income tax purposes is not the U.S. dollar;

 

·                  persons liable for the alternative minimumtax;

 

·                  tax-exempt entities, including an “individualretirement account” or “Roth IRA”;

 

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·                  entities classified as partnerships for U.S.federal income tax purposes;

 

·                  persons that own or are deemed to own 10% ormore of any class of Telecom Argentina stock;

 

·                  persons who acquired our ADSs or Class BShares pursuant to the exercise of an employee stock option or otherwise ascompensation; or

 

·                  persons holding shares in connection with atrade or business conducted outside of the United States.

 

Ifan entity that is classified as a partnership for U.S. federal income taxpurposes holds ADSs or Class B Shares, the U.S. federal income taxtreatment of a partner will generally depend on the status of the partner andthe activities of the partnership. Partnerships holding ADSs or Class B Shares and partners in suchpartnerships should consult their tax advisers as to the particular U.S.federal income tax consequences of holding and disposing of the ADSs or Class BShares.

 

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 ofwhich may affect the tax consequences described herein, possibly withretroactive effect. As mentioned above, there is currently no income tax treatyor convention 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:

 

·                  an individual citizen or resident of theUnited States;

 

·                  a corporation, or other entity taxable as acorporation, created or organized in or under the laws of the United States,any state therein or the District of Columbia; or

 

·                  an estate or trust the income of which issubject to U.S. federal income taxation regardless 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 B Sharesrepresented by those ADSs.

 

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 with claimingthe reduced rate of tax, described below, applicable to dividends received bycertain non-corporate holders. Accordingly, the analysis of the creditabilityof Argentine taxes, and the availability of the reduced rate of tax fordividends received by certain non-corporate holders described below, could beaffected 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*

 

Tothe extent 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

 

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ourearnings and profits under U.S. federal income tax principles, it is expectedthat distributions will generally be reported to U.S. Holders as dividends.Subject to applicable limitations and the discussion above regarding concernsexpressed by the U.S. Treasury, under current law, dividends paid to certainnon-corporate U.S. Holders in taxable years beginning before January 1,2011 will be taxable at a maximum rate of 15% if the dividends represent “qualifieddividend income.” “Qualified dividend income” means dividends received fromqualified foreign corporations, and a foreign corporation is generally treatedas a qualified foreign corporation with respect to dividends paid on stockwhich is readily tradable on a securities market in the United States, such asthe New York Stock Exchange where our ADSs are traded. U.S. Holders shouldconsult their tax advisors regarding the availability of the reduced dividendtax rate in light of their particular circumstances. The amount of thisdividend will include any amounts withheld by us or our paying agent in respectof Argentine taxes. Dividends will generally be treated as foreign sourcedividend income to U.S. Holders 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.  See “Taxation—Argentine Taxes.”The amount of the distribution will equal the U.S. dollar value of the pesosreceived, calculated by reference to the exchange rate in effect on the datesuch distribution is received (which, for holders of ADSs, will be the datesuch distribution is received by the Depositary), whether or not the Depositaryor U.S. Holder in fact converts any pesos received into U.S. dollars. If thedistribution is converted into U.S. dollars on the date of receipt, U.S.Holders should not be required to recognize foreign currency gain or loss inrespect of the dividend income. Any gains or losses resulting from theconversion of pesos into U.S. dollars after the date on which the distributionis received will be treated as ordinary income or loss, as the case may be, ofthe U.S. Holder and will be U.S. source income or loss.

 

Subjectto applicable limitations and conditions that may vary depending upon circumstancesand subject to the discussion above regarding concerns expressed by the U.S.Treasury, Argentine income taxes withheld from dividends on ADSs or Class BShares will be creditable against a U.S. Holder’s U.S. federal income taxliability. However, amounts paid on account of the Tax on Personal Propertywill not be eligible for credit against a U.S. Holder’s federal income taxliability. See “Taxation—Argentine Taxes.” The rules governing foreign taxcredits are complex, and U.S. Holders should consult their tax advisorsregarding the creditability of foreign taxes in their particular circumstancesand to determine the tax consequences applicable to them as a result of amountspaid on account of the Argentine Tax on Personal Property, including whethersuch amounts are includible in income or deductible for U.S. federal income taxpurposes. Instead of claiming a credit, U.S. Holders may elect to deductotherwise creditable Argentine taxes in computing taxable income, subject togenerally applicable limitations under U.S. law.  An election to deduct foreign taxes insteadof claiming foreign tax credits applies to all taxes paid or accrued in thetaxable year to foreign countries and possessions of the United States.

 

*Sale, Exchange or Other Disposition of ADSs or Class B Shares*

 

Gainor loss realized by a U.S. Holder on the sale, exchange or other disposition ofADSs 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. source gain or loss for foreigntax credit purposes. U.S. Holders should consult their tax advisors regardingthe U.S. federal tax treatment of capital gains, which may be taxed at lowerrates than ordinary income for individuals, and capital losses, thedeductibility of which is subject 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 2009. 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.

 

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IfTelecom Argentina were a PFIC for any taxable year during which a U.S. Holderheld an ADS 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 B Shareswould be allocated ratably over the U.S. Holder’s holding period for the ADSsor Class B Shares sold, exchanged or disposed of. The amounts allocated to thetaxable year of the sale or other disposition and to any year before TelecomArgentina became a PFIC would be taxed as ordinary income. The amount allocatedto each other taxable year would be subject to tax at the highest rate ineffect for individuals or corporations, as appropriate, for that taxable year,and an interest charge would be imposed on the amount allocated to such taxableyear. Further, any distribution in respect of ADSs or Class B Shares to theextent in excess of 125 percent of the average of the annual distributions onADSs or Class B Shares received by the U.S. Holder during the preceding threeyears or the U.S. Holder’s holding period, whichever is shorter, would besubject to taxation in the same manner as gain, described immediately above.Certain elections may be available that would result in alternative treatments(such as mark-to-market treatment) of the ADSs or Class B Shares.  U.S. Holders should consult their taxadvisers to determine whether any of these elections would be available and, ifso, what the consequences of the alternative treatments would be in theirparticular 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 PFIC withrespect to that holder for all succeeding years during which the U.S. Holderheld ADSs or Class B Shares, even if Telecom Argentina 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 an exempt recipient or (ii) in the case of backup withholding, you providea correct taxpayer identification number and certify that you are not subjectto 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 containsreports and other information regarding issuers that file electronically withthe SEC.

 

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.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Summarizedbelow are the financial instruments we held as of December 31, 2009 that aresensitive to changes in interest rates and foreign exchange rates. As a matterof policy, we may enter into forward exchange contracts, foreign currency swapsor other derivatives to manage the exposure attributed to foreign exchange rateand interest

 

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ratefluctuations associated with the principal amount of our borrowings in foreigncurrencies. We use these instruments to reduce risk by creating offsettingmarket exposures. The instruments we hold are not held for financial tradingpurposes. No foreign exchange forward or other derivatives for speculativepurposes were outstanding during the reporting periods covered by this AnnualReport.

 

Wedo not have any other material market risk exposure.

 

(a)   Foreign Exchange 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. InJanuary 2002, the Argentine government devalued the Argentine peso andcurrently the peso/U.S. dollar exchange rate is determined by a free marketwith certain controls. See “Item 10—Additional information—Foreign Investmentand Exchange Controls in Argentina.”

 

Ourresults of operations are very sensitive to changes in the peso/dollar exchangerates because our primary assets and revenues are denominated in pesos whilesubstantially all of our liabilities are denominated in U.S. dollars. As ofDecember 31, 2009, Telecom Argentina has no financial debt outstanding.  However, all Telecom Personal’s debtobligations are denominated in U.S. dollars, and all of Núcleo’s debtobligations are denominated in guaraníes, Paraguay’s local currency.

 

Additionallythe Company has investments denominated in U.S. dollars (approximately 40% oftotal investments) that are also sensitive to changes in peso/dollar exchangerates.

 

During2009 and in January 2010, Telecom Personal entered into several NDF contractsunder Argentine legislation to purchase U.S. dollars at fixed rate in order tohedge its exposure to foreign currency fluctuations with respect to its foreigncurrency-denominated notes.  Similarly,during 2009 and 2010, Telecom Personal entered into several NDF contracts inorder to hedge its exposure to U.S. dollar fluctuations in connection with tradingpayables.  See “Item 5—Operating andFinancial Review and Prospects—Liquidity and Capital Resources—Debt Obligationsand Debt Service Requirements”.

 

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.

 

Actionstaken by the Argentine government could cause future exchange rates to varysignificantly from current or historical exchange rates. Fluctuations inexchange rates may adversely affect the value, translated or converted intoU.S. dollars, of our net assets, earnings and any declared dividends. We cannotgive any assurance that any future movements in the exchange rate of theArgentine peso against the U.S. dollar and other foreign currencies will notadversely affect our results of operations and financial condition. However, webelieve that significant depreciation in the Argentine peso against majorforeign currencies may have a material adverse impact on our capitalexpenditure program.

 

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(b)   Interest Rate Risk

 

Asof December 31, 2009 the Company had no 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 as of December 31, 2009. We conduct our businessprimarily in Argentine peso, which is also our functional and reportingcurrency. For debt obligations, the table presents cash flows by expectedmaturity dates based on the amortization schedules set forth in the relevantdebt instruments and related weighted average rates.

 
| ** **                       | ** ** | **Consolidated Debt as of December 31, 2009  (P$ millions)** | ** ** |
|----------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                       | ** ** | **Total  Outstanding  2009**                                      | ** ** | **2010** | ** ** | **2011** | ** ** | **Fair  Market  Value (1)** | ** ** |
| **U.S. Dollars**                 |       | 685                                                               |       | 685 |   | — | ** ** | **717** | ** ** |
| Fixed rate                       |       | 685                                                               |       | 685 |   | — | ** ** | **717** | ** ** |
| Average interest fixed rate      |       | 9.25                                                              | %          |   |   |   | ** ** | ** ** | ** ** |
| **Guaraníes**               |       | 130                                                               |       | 72 |   | 58 | ** ** | **130** | ** ** |
| Fixed rate                       |       | 130                                                               |       | 72 |   | 58 | ** ** | **130** | ** ** |
| Average interest fixed rate      |       | 9.64                                                              | %          |   |   |   | ** ** | ** ** | ** ** |
| **Total Group Debt (principal)** | ** ** | **815**                                                           | ** ** | **757** | ** ** | **58** | ** ** | **847** | ** ** |
| Accrued interest                 |       | 3                                                                 |       | 3 |   | — | ** ** | **3** | ** ** |
| Derivatives                      |       | 3                                                                 |       | 3 |   | — | ** ** | **3** | ** ** |
| **Total Group Debt**             | ** ** | **821**                                                           | ** ** | **763** | ** ** | **58** | ** ** | **853** | ** ** |

 

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(1)          The fair value of the Company’s debt as of December31, 2009 was estimated based on the purchase price of notes bought by TelecomPersonal or, if the purchase price was not available, on average quoted marketprices provided by major financial institutions.

 

(c)   Sensitivity to Exchange Rates

 

Weestimate, based on composition of our balance sheet as of December 31,2009, that every variation in the exchange rate of P$0.10 against the U.S.dollar and proportional variations for guaraníes against the Argentine peso,plus or minus, would result in a variation of approximately P$10 million of ourconsolidated financial indebtedness. These analyses are based on the assumptionthat this variation of the Argentine peso occurred at the same time against allother currencies.

 

Additionallywe estimate, based on the composition of our balance sheet as ofDecember 31, 2009, that every variation in the exchange rate of P$0.10against the U.S. dollar and proportional variations for the guaraní and Uruguayanpeso against the Argentine peso, plus or minus, would result in a variation ofapproximately P$12 million of our consolidated financial investments. Theseanalyses are based on the assumption that this variation of the Argentine pesooccurred at the same time against all other currencies.

 

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 changes on our financial instruments may differsignificantly from the impact shown in the sensitivity analysis.

 

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**ITEM 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES**

 

**D.3  Depositary Fees and Charges**

 

JPMorganChase Bank, N.A. (formerly Morgan Guaranty Trust Company of New York), asdepositary for the ADSs (the “depositary”) collects its fees for deliverydirectly from investors depositing shares or surrendering ADSs for the purposeof withdrawal.  The depositary alsocollects taxes and governmental charges from the holders of ADSs.  The depositary collects these fees andcharges by deducting those fees from the amounts distributed or by selling aportion of distributable property to pay the fees (after attempting byreasonable means to notify the holder prior to such sale).

 

Personsdepositing or withdrawing shares must pay U.S.$5.00 for each 100 ADSs orportion thereof for issuances of ADSs, including issuances resulting from adistribution, sale or exercise of shares or rights or other property.  Investors depositing shares or holderswithdrawing deposited securities are charged fees and expenses in connectionwith stock transfers, taxes and other governmental charges, cable, telex andfacsimile transmission and delivery charges imposed at such person’s request,transfer or registration fees for the registration of transfer of ADSs on anyapplicable register in connection with the deposit or withdrawal of ADSs andthe depositary’s expenses in connection with the conversion of foreigncurrency.

 

Additionally,pursuant to a contractual arrangement, the depository reimburses TelecomArgentina for certain marketing expenses related to its listing on the NYSE.

 

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**PART II**

 

**ITEM 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**

 

NeitherTelecom Argentina, Telecom Personal or Núcleo are currently in default on anyoutstanding indebtedness.

 

**ITEM 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USEOF PROCEEDS**

 

None.

 

**ITEM 15.       CONTROLS AND PROCEDURES**

 

**Evaluationof disclosure controls 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) and 15d-15(e)) as ofDecember 31, 2009 (the “Evaluation Date”). Based upon that evaluation, ourchief executive and financial officers have concluded that as of the EvaluationDate, the Company’s disclosure controls and procedures were effective.

 

**Management’sReport on Internal Control Over Financial Reporting**

 

Telecom’smanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting for Telecom as defined in Exchange Act Rule13a-15(f) and 15d-15(f). Our internal control over financial reporting wasdesigned to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with Argentine generally accepted accounting principles (ArgentineGAAP) and reconciling 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 9, 2010, and included in Item 18, management concluded thatTelecom’s internal control over financial reporting was effective as ofDecember 31, 2009. The effectiveness of Telecom’s internal control overfinancial reporting as of December 31, 2009 has been audited by PriceWaterhouse & Co. S.R.L., an independent registered publicaccounting firm, as stated in their report which is included herein. See thecomplete Management’s Report on Internal Control Over Financial Reporting inItem 18.

 

**Changesin Internal Control 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 that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

**ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT**

 

OnApril 29, 2008, the Board of Directors of Telecom Argentina appointed themembers of the Audit Committee for fiscal year 2008 and determined that DomingoJorge Messuti qualified as an Audit Committee financial expert. In conductingthis evaluation, the Board took into account that Mr. Messuti holds a PhD inEconomics from Universidad de Buenos Aires and an MBA from Columbia University(New York); he has lectured 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 2008 that he meets thecriteria for an Audit Committee financial expert. Mr. Messuti is an independentdirector under CNV and SEC rules and under the New York Stock Exchange listingstandards.

 

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Asa result of certain legal proceedings, there have been no changes to themembers of the Audit Committee of Telecom Argentina. Therefore, as of the dateof this Annual Report , the members of the Audit Committee appointed at theannual shareholders’ meeting held on April 29, 2008 remain in their positions.See “Item 8—Financial Information—Legal Proceedings—Legal Proceedings Relatedto Share Ownership—Resolutions of the CNDC, SC and SCI and related courtrulings” for a discussion of legal proceedings affecting Telecom Argentina’sannual shareholders’ meeting.

 

**ITEM 16B.    CODE OF ETHICS**

 

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 anyprovision of the Code. See Exhibits 11.1 and 11.2 to our Annual Report on Form20-F for 2004 dated June 29, 2005. The Code of Business Conduct and Ethics isalso available on our website at www.telecom.com.ar.

 

**ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

Thefollowing table provides information on the aggregate fees for servicesrendered by our principal accountants (in millions of pesos) for the yearsended December 31, 2009 and 2008.

 
| **Services  Rendered** | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit Fees (1)         |       | 5.4      |       | 5.0      |       |
| Audit-Related Fees (2) |       | 0.5      |       | 1.2      |       |
| Tax Fees (3)           |       | 0.4      |       | 0.3      |       |
| All Other Fees (4)     |       | 0.1      |       | 0.1      |       |
| **Total**              | ** ** | **6.4**  | ** ** | **6.6**  | ** ** |

 

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(1)          Includes fees related to the integrated audit of theConsolidated Financial Statements as of December 31, 2009 and 2008,limited reviews of interim financial statements presented during 2009 and 2008,SEC filing reviews and other attestation services.

 

(2)          Includes fees for permitted internal control advice.

 

(3)          Includes fees for permitted tax compliance and taxadvisory services.

 

(4)          Includes fees for subscription to businesspublications.

 

***Audit Committee Pre-Approval Policies andProcedures***

 

OnMarch 22, 2004, Telecom Argentina’s Board of Directors approved policies andprocedures relating to the pre-approval of auditors’ services and otherpermitted services (collectively, “Pre-Approval Procedures”) for the engagementof any service provided by external auditors to Telecom Argentina and itssubsidiaries. Telecom Argentina’s Board performed Pre-Approval Procedures untilApril 2004 (the date on which the Audit Committee came into effect), afterwhich Pre-Approval Procedures were performed by the Audit Committee.Consequently, since that date, all auditors’ services were pre-approved by theAudit Committee.

 

ThePre-Approval Procedures provide for services that require:

 

·                  specific pre-approval - to be approved on acase-by-case basis; and

 

·                  general pre-approval - any category orgeneral kind of service that come within the guidelines established tosafeguard auditor independence and come within the maximum amounts set by theAudit Committee.

 

ThePre-Approval Procedures also provide for the following categorization ofservices:

 

“Prohibitedservices” are those services that external auditors are not allowed to providebased on prohibitions contained in the statutory rules of Argentina and theUnited States (*i.e.*bookkeeping; financialinformation system design and implementation; appraisal or valuation services,fairness opinions or contribution-in-kind reports;

 

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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:

 

·                  Annual audit and quarterly reviews of Telecom’sfinancial statements: the Audit Committee is required to approve the terms forthe engagement and remuneration of such services.

 

·                  Other “Audit Services”: the Audit Committeeis required to define the services that will be subject to general pre-approvalon an annual basis, setting the annual service fee amount, or the annual amountallocated to each individual service category, or to each service, within whichfee caps the provision shall receive general pre-approval.

 

·                  “Audit-related Services” and “Tax Services”:the Audit Committee is required to define the categories or types of servicesthat will receive general pre-approval, provided that they fall within theannual fee cap set for that service, and establish the guidelines for priorengagement of these services.

 

·                  Other Permitted Services: are not subject togeneral pre-approval, and any other services require specific pre-approval bythe Audit Committee for each service.

 

·                  Delegation: the Audit Committee may solelydelegate the specific pre-approval of services with any of its members thatqualify as an “Independent Director.” An Independent Director must immediatelyreport to the Audit Committee after engaging any service by delegation. Underno circumstances may the authority to either approve or pre-approve services bedelegated to Telecom’s management.

 

·                  Disclosure of overall billed fees: externalauditors shall include in their audit reports the information about therelationship between the overall fees paid in respect of Audit Services and ofservices other than audit services. In addition, the Audit Committee shall, ona yearly basis, prepare a report to the Board which will be included in Form20-F, providing a detailed account of all fees invoiced by external auditors toTelecom Argentina and to its subsidiaries, grouped into four categories, namely,audit fees, audit related fees, tax consultation fees and all other feesdescribed in the first three bullet points above.

 

·                  Additional Requirements: the Audit Committeeis required to adopt additional measures to fulfill its supervisory obligationsrelated to external auditors’ duties, in order to ensure the independence fromTelecom, such as the review of a formal written statement by the externalauditors outlining all relations existing between them and Telecom, inaccordance with Rule No. 1 of the Independence Standards Board, and discussionswith the external auditors and the methods and procedures that have been designedto ensure their independence.

 

·                  Amendments: the Audit Committee has authorityto amend the Pre-Approval Procedures, rendering an account of any suchamendment to the Board of Directors during the first meeting of the Board ofDirectors 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 relating toexternal 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.

 

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

 

Notapplicable.

 

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**ITEM 16E.     PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATEDPURCHASERS**

 

NeitherTelecom nor, to Telecom’s knowledge, any “affiliated purchaser” (as defined inRule 10b-18(a)(3)) repurchased any of Telecom Argentina’s Class B OrdinaryShares (including American Depositary Shares, or American Depositary Receiptsevidencing such shares) during fiscal year 2009.

 

**ITEM 16F.     CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT**

 

Notapplicable.

 

**ITEM 16G.    CORPORATE GOVERNANCE**

 

Telecom Argentina’scorporate governance practices differ from corporate governance practices ofU.S. companies.  Telecom Argentinamaintains a detailed description of the significant differences in corporategovernance practices on its website at www.telecom.com.ar, last updated inNovember 2009.

 

The following is asummary of the material aspects in which Telecom Argentina’s corporategovernance policies differ from those followed by U.S. companies under New YorkStock Exchange listing standards.

 

·                  Composition of the Board of Directors: TheNYSE 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 arefunctioning effectively.  Under Argentinelaw, the board’s performance is evaluated at the Annual Ordinary ShareholdersMeeting.

 

·                  Nominating/Corporate Governance Committee:NYSE listed companies are required to have a nominating/corporate governancecommittee.  Neither Argentine law norTelecom Argentina’s Bylaws require the creation of a nominating/corporategovernance committee.  In Argentina, itis unusual (though possible) for the Board to nominate new directors and theBoard of Directors of Telecom Argentina refrains from making suchproposals.  The right to nominate andappoint directors is vested in the shareholders who nominate and appointregular and alternate directors at the Shareholders’ meetings.  On certain occasions, the ArgentineCorporations Law delegates the right to designate directors to the SupervisoryCommittee.

 

·                  Compensation Committee: NYSE listed companiesare required to have a compensation committee composed entirely of independentdirectors. Neither Argentine law nor Telecom Argentina’s Bylaws require thecreation of a “compensation committee.” Telecom Argentina’s executivecompensation matters are undertaken by the Board of Directors.  The compensation of the members of TelecomArgentina’s Board of Directors is determined by the shareholders at the AnnualShareholders’ meeting.

 

·                  Audit Committee Hiring Policies: The NYSErequires listed companies to have an audit committee which sets clear hiringpolicies for employees or former employees of the independent auditors.  There is no such provision regarding thehiring of external auditors’ employees contained in Argentine law or TelecomArgentina’s bylaws.

 

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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. Telecom Argentina’s 2009 CorporateGovernance Report was submitted to the CNV as part of the Statutory AnnualReport on March 12, 2010. Those reports can be accessed through the CNV’s website,  www.cnv.gov.ar and Telecom’sweb site, www.telecom.com.ar.

 

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**PART III**

 

**ITEM 17.       FINANCIAL STATEMENTS**

 

TheRegistrant has responded to Item 18 in lieu of responding to this Item.

 

**ITEM 18.       FINANCIAL STATEMENTS**

 

Referenceis made to pages F-1 through F-72.

 

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,  2009 and 2008                                                         | F-3      |
| Consolidated Statements of Income for the years ended  December 31, 2009, 2008 and 2007                               | F-4      |
| Consolidated Statements of Changes in Shareholders’  Equity for the years ended December 31, 2009, 2008 and 2007 | F-5      |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2009, 2008 and 2007                           | F-6      |
| Index to the Notes to the Consolidated Financial  Statements                                                               | F-7      |
| Notes to the Consolidated Financial Statements                                                                             | F-8      |

 

**ITEM 19.       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.                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

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| 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 Adrián Calaza of Telecom Argentina S.A. pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                    |
|   |   |                                                                                                                                                                                                                                          |
| 13.1   |   | Certification  of Franco Bertone and Adrián Calaza 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). |

 

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*                 Pursuant toInstruction 1(b)(i) to Item 19 of Form 20-F, we undertake to furnish thisdocument 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 to signthis Annual Report on its behalf.

 
|   | Telecom  Argentina S.A. |
|--------|-------------------------|
|   |                    |
|   |                    |
|   | By:                     | /s/ Adrián Calaza |
|   |                    | Name: | Adrián  Calaza |
|   |                    | Title: | Chief  Financial Officer |

 

Date:   June29, 2010

 

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**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 Adrián Calaza of Telecom Argentina S.A. pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                               |
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 13.1   |     | Certification  of Franco Bertone and Adrián Calaza 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).                                                                                                                                                                                                            |

 

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*                 Pursuant toInstruction 1(b)(i) to Item 19 of Form 20-F, we undertake to furnish thisdocument upon request of the Commission.

 

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**Consolidated Financial Statementsas of December 31, 2009 and December 31, 2008 and for the years endedDecember 31, 2009, 2008 and 2007**

 

**$  : Argentine peso**

**US$  : US dollar**

**$3.80 = US$1****as of December 31,2009**

 

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**Report of Independent RegisteredPublic Accounting Firm**

 

To the Board of Directors and Shareholders of TelecomArgentina S.A.

 

In our opinion, the accompanying consolidated balancesheets and the related consolidated statements of income, shareholders’ equityand cash flows present fairly, in all material respects, the financial positionof Telecom Argentina S.A. and its subsidiaries at December 31, 2009 and2008, and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2009 in conformity with accounting principles generally accepted inArgentina. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31,2009, based on criteria established in *Internal Control -Integrated Framework* issued by the Committee of Sponsoring Organizationsof the Treadway Commission (COSO). The Company’s management is responsible forthese financial statements, for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in Management’s Report on InternalControl Over Financial Reporting appearing under Item 18. Our responsibility isto express opinions on these financial statements and on the Company’s internalcontrol over financial reporting based on 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 that we plan and perform the audits toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement and whether effective internal control over financialreporting was maintained in all material respects. 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 controlover financial reporting included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed 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.

 

Accounting principles generally accepted in Argentinavary in certain significant respects from accounting principles generallyaccepted in the United States of America. Information relating to the natureand effect of such differences is presented in Note 15 to the consolidatedfinancial statements.

 

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, inreasonable 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.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent 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/ Alejandro P. Frechou (Partner) |   |
|   |                                   | Alejandro  P. Frechou              |   |

 

 

Buenos Aires, Argentina

March 9, 2010

 

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**Management’s Report on Internal Control Over FinancialReporting**

 

TelecomGroup’s management is responsible for establishing and maintaining adequateinternal control over financial reporting for Telecom Group as defined inExchange Act Rule 13a-15(f) and 15d-15(f). Our internal control overfinancial reporting was designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with Argentine generally acceptedaccounting principles (Argentine GAAP) andreconciling the Argentine GAAP figures to US GAAP. Internal control overfinancial reporting includes those policies and procedures that:

 

·                  pertainto the maintenance of records that in reasonable detail accurately and fairlyreflect the 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.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Managementconducted an evaluation of the effectiveness of Telecom Group’s****internal control over financial reportingbased on the framework in Internal Control — Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (“COSO”). Basedon our evaluation, management concluded that the Telecom Group’s internalcontrol over financial reporting was effective as of December 31, 2009.The effectiveness of Telecom Group’s internal control over financial reportingas of December 31, 2009 has been audited by Price Waterhouse & CoS.R.L., an independent registered public accounting firm, as stated in theirreport which is included herein.

 

 

| /s/ Franco Bertone      |   | /s/ Adrián Calaza  |
|-------------------------|--------|-------------------------|
| Chief Executive Officer |   | Chief Financial Officer |

 

 

BuenosAires, Argentina

March 9th, 2010

 

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**Consolidated Balance Sheets as ofDecember 31, 2009 and 2008**

(In millions of Argentine pesos - see Note 3.c)

 
| ** **                                                                    | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                    | ** ** | **2009**                    | ** ** | **2008** | ** ** |
| **ASSETS**                                                                    |       |                        |       |   |   |
| **Current  Assets**                                                           |       |                        |       |   |   |
| Cash and banks                                                                |       | $                           | 62         |   | $ | 36 |   |
| Investments                                                                   |       | 1,227                       |       | 1,089 |   |
| Accounts receivable, net                                                      |       | 1,163                       |       | 1,009 |   |
| Other receivables, net                                                        |       | 241                         |       | 209 |   |
| Inventories, net                                                              |       | 243                         |       | 251 |   |
| Other assets, net                                                             |       | 7                           |       | 6 |   |
| **Total  current assets**                                                     | ** ** | **2,943**                   | ** ** | **2,600** | ** ** |
| **Non-Current  Assets**                                                       |       |                        |       |   |   |
| Other receivables, net                                                        |       | 74                          |       | 87 |   |
| Investments                                                                   |       | 1                           |       | 7 |   |
| Fixed assets, net                                                             |       | 6,839                       |       | 6,188 |   |
| Intangible assets, net                                                        |       | 773                         |       | 772 |   |
| Other assets, net                                                             |       | 3                           |       | 3 |   |
| **Total  non-current assets**                                                 | ** ** | **7,690**                   | ** ** | **7,057** | ** ** |
| **TOTAL  ASSETS**                                                             | ** ** | **$**                       | **10,633** | ** ** | **$** | **9,657** | ** ** |
| **LIABILITIES**                                                               |       |                        |       |   |   |
| **Current  Liabilities**                                                      |       |                        |       |   |   |
| Accounts payable                                                              |       | $                           | 2,212      |   | $ | 1,769 |   |
| Debt                                                                          |       | 763                         |       | 1,355 |   |
| Salaries and social  security payable                                         |       | 300                         |       | 237 |   |
| Taxes payable                                                                 |       | 769                         |       | 626 |   |
| Other liabilities                                                             |       | 52                          |       | 46 |   |
| Contingencies                                                                 |       | 73                          |       | 36 |   |
| **Total  current liabilities**                                                | ** ** | **4,169**                   | ** ** | **4,069** | ** ** |
| **Non-Current  Liabilities**                                                  |       |                        |       |   |   |
| Accounts payable                                                              |       | 24                          |       | 27 |   |
| Debt                                                                          |       | 58                          |       | 688 |   |
| Salaries and social  security payable                                         |       | 82                          |       | 83 |   |
| Taxes payable                                                                 |       | 212                         |       | 224 |   |
| Other liabilities                                                             |       | 186                         |       | 146 |   |
| Contingencies                                                                 |       | 374                         |       | 319 |   |
| **Total  non-current liabilities**                                            | ** ** | **936**                     | ** ** | **1,487** | ** ** |
| **TOTAL  LIABILITIES**                                                        | ** ** | **$**                       | **5,105**  | ** ** | **$** | **5,556** | ** ** |
| Noncontrolling interest                                                       | ** ** | **92**                      | ** ** | **81** | ** ** |
| **SHAREHOLDERS’  EQUITY**                                                | ** ** | **$**                       | **5,436**  | ** ** | **$** | **4,020** | ** ** |
| **TOTAL  LIABILITIES, NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY** | ** ** | **$**                       | **10,633** | ** ** | **$** | **9,657** | ** ** |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

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**Consolidated Statements of Incomefor the years ended December 31, 2009, 2008 and 2007**

(In millions of Argentine pesos, except pershare data in Argentine pesos - see Note 3.c)

 
| ** **                                                    | ** ** | **For the years ended  December 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                    | ** ** | **2009**                                   | ** ** | **2008** | ** ** | **2007** | ** ** |
| ***Continuing  operations***                                  |       |                                       |       |   |   |   |   |
| Net sales                                                     |       | $                                          | 12,226     |   | $ | 10,608 |   | $ | 9,074 |   |
| Cost of services                                              |       | (6,099                                     | )          | (5,712 | ) | (5,022 | ) |
| **Gross  profit**                                             | ** ** | **6,127**                                  | ** ** | **4,896** | ** ** | **4,052** | ** ** |
| General and administrative  expenses                          |       | (449                                       | )          | (364 | ) | (310 | ) |
| Selling expenses                                              |       | (2,916                                     | )          | (2,491 | ) | (2,106 | ) |
| **Operating  income**                                         | ** ** | **2,762**                                  | ** ** | **2,041** | ** ** | **1,636** | ** ** |
| Gain on equity investees                                      |       | 13                                         |       | — |   | — |   |
| Financial results, net                                        |       | (329                                       | )          | (265 | ) | (441 | ) |
| Other expenses, net                                           |       | (229                                       | )          | (268 | ) | (98 | ) |
| **Net  income before income tax and noncontrolling interest** | ** ** | **2,217**                                  | ** ** | **1,508** | ** ** | **1,097** | ** ** |
| Income tax expense, net                                       |       | (797                                       | )          | (535 | ) | (292 | ) |
| Noncontrolling interest                                       |       | (15                                        | )          | (12 | ) | (23 | ) |
| **Net  income from continuing operations**                    | ** ** | **1,405**                                  | ** ** | **961** | ** ** | **782** | ** ** |
| ***Discontinued  operations***                                | ** ** | ** **                                 | ** ** | ** ** | *** *** | *** *** | *** *** |
| Income from the operations                                    |       | —                                     |       | — |   | 1 |   |
| Income from assets  disposal                                  |       | —                                     |       | — |   | 101 |   |
| **Net  income from discontinued operations**                  | ** ** | **—**                                 | ** ** | **—** | ** ** | **102** | ** ** |
| **Net  income**                                               | ** ** | **$**                                      | **1,405**  | ** ** | **$** | **961** | ** ** | **$** | **884** | ** ** |
| **Net  income per share**                                     | ** ** | **$**                                      | **1.43**   | ** ** | **$** | **0.98** | ** ** | **$** | **0.90** | ** ** |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-4

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Table ofContents

 

**ConsolidatedStatements of Changes in Shareholders’ Equity**

**for theyears ended December 31, 2009, 2008 and 2007**

(In millions ofArgentine 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, 2007**                   | ** ** | **$**                                | **984**    | ** **                                  | **2,688**  | ** ** | **3,672**  | ** ** | **—** | ** ** | **49** | ** ** | **(1,592** | **)** | **(1,543** | **)** | **$** | **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** | ** ** |
| Foreign currency translation adjustments (i)               |       | —                               |       | —                                      |       | —     |       | — |   | 19 |   | — |   | 19 | ** ** | **19** | ** ** |
| Changes in the fair value of cash flow hedges, net  of tax |       | —                               |       | —                                      |       | —     |       | — |   | (8 | ) | — |   | (8 | ) | **(8** | **)** |
| Net income for the year                                    |       | —                               |       | —                                      |       | —     |       | — |   | — |   | 1,405 |   | 1,405 | ** ** | **1,405** | ** ** |
| **Balances as of  December 31, 2009**                 | ** ** | **$**                                | **984**    | ** **                                  | **2,688**  | ** ** | **3,672**  | ** ** | **—** | ** ** | **(ii)    106** | ** ** | **1,658** | ** ** | **1,764** | ** ** | **$** | **5,436** | ** ** |

 

----

(i)           Includes(13) corresponding to the foreign currency translation adjustment realized oncapital reimbursement of Núcleo (Notes 5.m and 7.h).

(ii)        Thebalance corresponds to foreign currency translation adjustments.

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-5

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Table ofContents

 

**Consolidated Statements of CashFlows for the years ended December 31, 2009, 2008 and 2007**

(In millions of Argentine pesos - see Note 3.c)

 
| ** **                                                                                   | ** ** | **For the years ended  December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2009**                                   | ** ** | **2008** | ** ** | **2007** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS**                         | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income for the year from continuing operations                                           |       | $                                          | 1,405      |   | $ | 961 |   | $ | 782 |   |
| **Adjustments  to reconcile net income to net cash flows provided by continuing operations** |       |                                       |       |   |   |   |   |
| Allowance for doubtful accounts and other  allowances                                        |       | 182                                        |       | 108 |   | 124 |   |
| Depreciation of fixed  assets                                                                |       | 1,119                                      |       | 1,267 |   | 1,377 |   |
| Amortization of intangible  assets                                                           |       | 19                                         |       | 22 |   | 39 |   |
| Gain on equity investees                                                                     |       | (13                                        | )          | — |   | — |   |
| Consumption of materials                                                                     |       | 109                                        |       | 109 |   | 80 |   |
| Gain on sale/disposal of  fixed assets and other assets                                      |       | (10                                        | )          | (8 | ) | (19 | ) |
| Provision for lawsuits and  contingencies                                                    |       | 122                                        |       | 100 |   | 79 |   |
| Holdings (gain) loss on  inventories                                                         |       | 7                                          |       | (2 | ) | 59 |   |
| Interest and other  financial losses on loans                                                |       | 371                                        |       | 563 |   | 498 |   |
| Income tax                                                                                   |       | 167                                        |       | 353 |   | 245 |   |
| Noncontrolling interest                                                                      |       | 15                                         |       | 12 |   | 23 |   |
| Net increase in assets                                                                       |       | (391                                       | )          | (494 | ) | (366 | ) |
| Net increase in  liabilities                                                                 |       | 186                                        |       | 328 |   | 25 |   |
| **Total  cash flows provided by operating activities from continuing operations**            | ** ** | **3,288**                                  | ** ** | **3,319** | ** ** | **2,946** | ** ** |
| **CASH  FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS**                         |       |                                       |       |   |   |   |   |
| Fixed asset acquisitions                                                                     |       | (1,474                                     | )          | (1,546 | ) | (1,208 | ) |
| Intangible asset  acquisitions                                                               |       | (17                                        | )          | (15 | ) | (35 | ) |
| Equity investees  acquisitions                                                               |       | —                                     |       | (97 | ) | — |   |
| Proceeds for the sale of  fixed assets and other assets                                      |       | 15                                         |       | 12 |   | 21 |   |
| Decrease (increase) in  investments not considered as cash and cash equivalents              |       | 245                                        |       | 329 |   | (533 | ) |
| **Total  cash flows used in investing activities from continuing operations**                | ** ** | **(1,231**                                 | **)**      | **(1,317** | **)** | **(1,755** | **)** |
| **CASH  FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS**                         |       |                                       |       |   |   |   |   |
| Debt proceeds                                                                                |       | 361                                        |       | 91 |   | 45 |   |
| Payment of debt                                                                              |       | (1,852                                     | )          | (1,444 | ) | (1,290 | ) |
| Payment of interest and  debt-related expenses                                               |       | (168                                       | )          | (185 | ) | (293 | ) |
| Cash dividends paid                                                                          |       | (19                                        | )          | (20 | ) | (38 | ) |
| Payment of capital  reimbursement of Núcleo                                             |       | (8                                         | )          | — |   | — |   |
| **Total  cash flows used in financing activities from continuing operations**                | ** ** | **(1,686**                                 | **)**      | **(1,558** | **)** | **(1,576** | **)** |
| **CASH  FLOWS FROM INVESTING ACTIVITIES FROM DISCONTINUED OPERATIONS**                       |       |                                       |       |   |   |   |   |
| Proceeds for the sale of  equity investees                                                   |       | —                                     |       | — |   | 182 |   |
| **Total  cash flows provided by investing activities from discontinued operations**          | ** ** | **—**                                 | ** ** | **—** | ** ** | **182** | ** ** |
| ** **                                                                                   | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  increase (decrease) in cash and cash equivalents from continuing operations**         | ** ** | **371**                                    | ** ** | **444** | ** ** | **(385** | **)** |
| **Net  increase in cash and cash equivalents from discontinued operations**                  | ** ** | **—**                                 | ** ** | **—** | ** ** | **182** | ** ** |
| **INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS**                                        | ** ** | **371**                                    | ** ** | **444** | ** ** | **(203** | **)** |
| **CASH  AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR**                                      | ** ** | **902**                                    | ** ** | **458** | ** ** | **661** | ** ** |
| **CASH  AND CASH EQUIVALENTS AT THE END OF THE YEAR**                                        | ** ** | **$**                                      | **1,273**  | ** ** | **$** | **902** | ** ** | **$** | **458** | ** ** |

 

See Note 6 for supplementary cash flowinformation.

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-6

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Tableof Contents

 

**Index to the Notes to theConsolidated 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-32**   |
| ** ** | ** ** |                                                          | ** ** |
| **8**      | ** ** | Debt                                                          | **F-36**   |
| ** ** | ** ** |                                                          | ** ** |
| **9**      | ** ** | Shareholders’  equity                                    | **F-39**   |
| ** ** | ** ** |                                                          | ** ** |
| **10**     | ** ** | Income  tax                                                   | **F-40**   |
| ** ** | ** ** |                                                          | ** ** |
| **11**     | ** ** | Commitments and  contingencies                                | **F-41**   |
| ** ** | ** ** |                                                          | ** ** |
| **12**     | ** ** | Changes in  useful lives of fixed assets in the Telecom Group | **F-45**   |
| ** ** | ** ** |                                                          | ** ** |
| **13**     | ** ** | Segment information                                           | **F-46**   |
| ** ** | ** ** |                                                          | ** ** |
| **14**     | ** ** | Unconsolidated  information                                   | **F-50**   |
| ** ** | ** ** |                                                          | ** ** |
| **15**     | ** ** | Differences  between Argentine GAAP and US GAAP               | **F-51**   |
| ** ** | ** ** |                                                          | ** ** |
| **16**     | ** ** | Adoption  of IFRS                                             | **F-64**   |
| ** ** | ** ** |                                                          | ** ** |
| **17**     | ** ** | Other  financial statement information                        | **F-65**   |
| ** ** | ** ** |                                                          | ** ** |
| **18**     | ** ** | Subsequent  events                                            | **F-72**   |

 

F-7

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Table of Contents

 

**Notes to the ConsolidatedFinancial Statements**

 

**1.****                                     ****The Company and its operations**

 

Telecom Argentina S.A. (“TelecomArgentina” or “Telecom” and together with its subsidiaries, the “Company” orthe “Telecom Group”, indistinctively) wascreated by a decree of the Argentine Government in January 1990 andorganized as a *sociedad anónima* under the name “SociedadLicenciataria Norte S.A.” in April 1990.

 

Telecom Argentina commenced operations on November 8,1990 (the “Transfer Date”), upon the transfer to the Company of thetelecommunications network of the northern region of Argentina previously ownedand operated by the state-owned company, Empresa Nacional de Telecomunicaciones(“ENTel”).

 

Telecom Argentina’s license, asoriginally granted, was exclusive to provide telephone services in the northernregion of Argentina through October 10,1999. As from such date, the Company began providing telephone services in thesouthern region of Argentina and competing in the previously exclusive northernregion.

 

The Company providesfixed-line public telecommunication services, international long-distanceservice, data transmission and Internet services in Argentina. Accordingly, theCompany had amended its by-laws in accordance with the prior approval obtainedfrom the Department of Communications (“SC”, the “Regulatory Authority”) andthe *Comisión Nacional de Valores (“CNV*”),the National Securities Commission in Argentina.

 

A description of the subsidiaries with theirrespective percentage of capital stock owned as of December 31, 2009, ispresented 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. (“Telecom USA”)              |       | 100.00                                                          | %          |                           |       | 09.12.00                 |       |
|                          |       | Micro Sistemas Sociedad  Anonima (“Micro Sistemas”) (ii) |       | 99.99                                                           | %          |                           |       | 12.31.97                 |       |
|                          |       |                                                               |       |                                                            |       |                           |       |                     |       |
| **Wireless**                  |       | Telecom Personal S.A.  (“Personal”)                      |       | 99.99                                                           | %          |                           |       | 07.06.94                 |       |
|                          |       | Núcleo S.A. (“Núcleo”)                         |       | 67.50                                                           | %          | Personal                       |       | 02.03.98                 |       |
|                          |       | Springville S.A. (“Springville”) (ii)                    |       | 100.00                                                          | %          | Personal                       |       | 04.07.09                 |       |

 

----

(i)                                     Percentage of equity interest owned has been rounded.

(ii)                                  Dormant entity at December 31, 2009.

 

**2.****                                     ****Regulatory framework**

 

**(a) Regulatorybodies and general legal framework**

 

Telecom Argentina and Personaloperate in a regulated industry. Regulationnot only covers rates and service terms, but also the terms on which various licensing and technical requirements areimposed.

 

The provision oftelecommunication services is regulated by the SC and supervised by the *Comisión Nacional de Comunicaciones*, the NationalCommunications Commission (“CNC”). The CNC is in charge of general oversightand supervision of telecommunications services. The SC has the power todevelop, suggest and implement policies which are applicable totelecommunications services; to ensure that these policies are applied; toreview the applicable legal regulatory framework; to act as the enforcingauthority with respect to the laws governing the relevant activities; toapprove major technical plans and to resolve administrative appeals filedagainst CNC resolutions.

 

The principal features of theregulatory framework in Argentina have been created by:

 

·                  The Privatization Regulations, including the List ofConditions;

·                  The Transfer Agreement;

·                  The Licenses granted to Telecom Argentina and itssubsidiaries;

·                  The Tariff Agreements; and

·                  Various governmental decrees, including Decree No. 764/00,establishing the regulatory framework for licenses, interconnection, universalservice and radio spectrum management.

 

Núcleo, Personal’s Paraguayancontrolled company, is supervised by the *Comisión Nacional deTelecomunicaciones de Paraguay*,**the NationalCommunications Commission of Paraguay (“CONATEL”). Telecom USA, Telecom’ssubsidiary, is supervised by the Federal Communications Commission (the “FCC”).

 

F-8

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Table ofContents

 

**2.****                                     ****Regulatory framework (continued)**

 

**(b) Licensesgranted as of December 31, 2009**

 

As of December 31, 2009,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-distance telephony;

·                  Domestic and international point-to-point linkservices;

·                  Domestic and international telex services;

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

·                  Internet access.

 

As of December 31, 2009,the Company’s subsidiaries have been granted the following licenses:

 

·                  Personal has been granted a non-exclusive,non-expiring license to provide mobile telecommunication services in thenorthern region of Argentina and data transmission and value added servicesthroughout the country. In addition, Personal owns licenses to provide mobileradio communication services in the Federal District and Greater Buenos Airesareas, as well as a non-expiring license to provide PCS services throughout thecountry and it is registered to provide national and internationallong-distance telephone services; and

·                  Núcleo has been granted a renewable five-year periodlicense to provide mobile telecommunication services in Paraguay as well as PCSservices, data transmission and videoconferences services and Internet accessin certain areas of that country.

 

**(c) Revocationof the license**

 

Telecom Argentina’s license isrevocable in the case of non-compliance with certain obligations, including butnot limited to:

 

·                  an interruption of all or a substantial portion ofservice;

·                  a modification of its corporate purpose or change ofdomicile to a jurisdiction outside Argentina;

·                  a sale or transfer of the license to third partieswithout prior approval of the Regulatory Bodies;

·                  any sale, encumbrance or transfer of assets which hasthe effect of reducing services provided, without the prior approval of theRegulatory Bodies;

·                  a reduction of Nortel Inversora S.A.’s (“Nortel”, theparent company of the Company) interest in Telecom Argentina to less than 51%,or the reduction of Nortel’s common shareholders’ interest in Nortel to lessthan 51%, in either case without prior approval of the Regulatory Bodies;

·                  any transfer of shares resulting in a direct orindirect loss of control in Telecom without prior approval of the RegulatoryBodies;

·                  an assignment or delegation of Telecom Italia S.p.A.’s(“Telecom Italia” or “the Operator”) functions without the prior approval ofthe Regulatory Bodies;

·                  the Company’s bankruptcy.

 

Personal’s licenses arerevocable in the case of non-compliance with certain obligations, including butnot limited to:

 

·                  repeated interruptions of the services;

·                  any transfer of the license and/or the related rightsand obligations, without the prior approval of the Regulatory Authority;

·                  any encumbrance of the license;

·                  any voluntary insolvency proceedings or bankruptcy ofPersonal;

·                  a liquidation or dissolution of Personal, without theprior approval of the Regulatory Authority.

 

Núcleo’s licenses are revocablemainly in the case of:

 

·                  repeated interruptions of the services;

·                  any voluntary insolvency proceedings or bankruptcy ofNúcleo;

·                  non-compliance with certain obligations.

 

F-9

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Table of Contents

 

**2.****                                     ****Regulatory framework (continued)**

 

**(d) DecreeNo. 764/00**

 

Decree No. 764/00substantially modified three regulations:

 

·                  **General Regulation of Licenses**

 

This regulation establishes asingle nationwide license for the provision of all telecommunication servicesto the public, 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. Broadcasting service companies mayalso apply for a license to provide telecommunications services. The regulationfurther authorizes the resale of telecommunications services subject to thereceipt of a license, and there are no restrictions on participation by foreigncompanies.

 

·                  **Argentine InterconnectionRegulation**

 

This regulation provides for animportant reduction 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 SCissued Resolution No. 8/09 through which it created a Working Commissioncomposed by members of the SC and the CNC to prepare a draft of the NumberPortability 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 any contributions accrued since the issuance of suchResolution into a special individual account held in their name at the Banco dela Nación Argentina. CNC Resolution No. 2,713/07, issued in August 2007,established how these contributions are to be calculated.

 

**New SU Regulation**

 

Decree No. 558/08,published on April 4, 2008, recently caused certain changes to the SUregime.

 

The Decree establishedthat the SC will assess the value of service providers’ direct programcontributions in compliance with obligations promulgated by Decree No. 764/00.It will also determine the level of funding required in the SU Fund forprograms 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.

 

The new regulationestablished two SU categories: a) areas with uncovered or unsatisfied needs; andb) customer groups with unsatisfied needs. It also determined that the SC wouldhave exclusive responsibility for the issuance of general and specificresolutions regarding the new regulation, as well as for its interpretation andapplication.

 

It also established thatthe SC will review SU programs which were established under the previousregulation, guaranteeing the continuity of those already being administered andimplementing those that had been under review.

 

F-10

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Table of Contents

 

**2.****                                     ****Regulatory framework (continued)**

 

The Decree requiresTelecom and Telefonica de Argentina S.A. (“Telefonica”) to extend the coverageof their fixed line networks, within their respective original region ofactivity, within 60 months from the effective date of publication of theDecree. The SC will determine on a case by case basis if the providers will becompensated with funds from the SU Fund.

 

The level of financing ofSU ongoing programs established under the previous regulation will bedetermined by the SC, whereas telecommunications providers appointed toparticipate in future SU Programs will be selected by competitive bidding.

 

The Decree requirestelecommunications service providers to contribute 1% of their revenues (fromtelecommunication services, net of taxes) to the SU Fund and keeps the “pay orplay” mechanism for compliance with the mandatory monthly contribution to theSU Fund or, to claim the correspondent receivable, as the case may be.

 

Decree No. 558/08also mandates the creation of the SU Fund and orders that it must beestablished 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 — two of which shall be appointed by Telecom and Telefonicaand one by the rest of the providers — and another member will be appointed byindependent local operators). This Technical Committee will be informed by theSC of the programs that will be financed and will be responsible for managingand controlling 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 by the SC.

 

The Decree also requirestelecommunications service providers to create, subject to the SC approval, aprocedure to select the Fiduciary institution and to provide a proposedFiduciary agreement, within 60 days from its effective date of publication. Atthe date of issuance of these consolidated financial statements, the TechnicalCommittee had been created and had begun to analyze the operative proceduresassociated to the functions derived from its responsibilities. Additionally,telecommunications service providers had already selected the Fiduciaryinstitution and had sent the proposed Fiduciary agreement to the SC. The SCapproved it in January 2009 through Resolution No. 7/09, but there isstill pending resolution certain administrative and operative matters.

 

On December 9, 2008, the SC issued Resolution No. 405/08which requires telecommunication service providers to deposit into specialaccounts the 1% of their revenues as defined in Decree No. 558/08, withoutpassing on any costs incurred for the provision of their services.

 

On January 12, 2009,the Company and Personal, filed claims before the SC objecting to theprovisions of SC Resolution No. 405/08, based on the illegality of thisrule, arguing that it contradicts Decree No. 558/08 because it violatesthe rights of both licensees to factor their compensation for the provision ofthe SU programs in the calculation of their investment contribution, inaccordance with the “pay or play” mechanism stated in the Decree No. 558/08.

 

The management of theGroup, with the opinion of its legal counsel, considers it has meritoriouslegal arguments for the claims filed against Resolution No. 405/08.

 

At the date of issuanceof these consolidated financial statements, the SU programs are still pendingapproval by the SC.

 

On April 4, 2009, bymeans of SC Resolution No. 88/09, the SC created a new program denominated“Telephony and Internet for towns without provision of basic Telephone services”that will be subsidized with funds from the SU Fund. The new program seeks toprovide local telephony, domestic long distance, international long distanceand Internet in towns that currently do not provide basic telephone services.SC Resolution No. 88/09 specifies the methodology that licensees will haveto follow for proposals to render these services in several of the 1,491 townsand 1,496 schools identified in the Annex of the Resolution. The proposedprojects approved by the SC will be sent to the Technical Committee of the SUFund so that availability of funds can be evaluated and they can be included ina bidding process provided for in Decree No. 558/08.

 

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**2.****                                     ****Regulatory framework (continued)**

 

***In Telecom***

 

By the end of 2002, the SC formed a working groupresponsible for analyzing the method to be applied for measuring the net costsof SU performance —particularly, the application of the Hybrid Cost Proxy Model(the “HCPM Model”), based on the incremental cost of a theoretical network. Theworking group was also tasked with defining “non-monetary benefits” anddetermining the methodology for its calculation, in order to assess the coststhat would be offset due to performance of SU obligations. The working groupdecided that, given the complexity of this methodology, efforts should be madeto continue the initial programs independently from application of the HCPMModel, and that there was a need to carry out a comprehensive review of thepresent general regulations relating to SU to ensure that these regulationswere operative in the near term considering the existing social needs.

 

Several years after the market’s liberalization andthe effectiveness of the first SU regulations, these regulations have yet to beimplemented. Therefore, service providers affected by these regulations havenot received set-offs for providing services as required by the SU regime.

 

In compliance with SC Resolution No. 80/07 andCNC Resolution No. 2,713 /07, Telecom Argentina has estimated a receivableof $656 (unaudited) for the period initiated in July 2007 and filed itscalculations for review by the regulatory authority. This receivable has notyet been recorded since it is subject to the approval of the SU programs, thereview of the SC and the availability of funds in the SU Trust.

 

***In Personal***

 

Since January 2001, Personal has been recording aprovision related to its obligation to make contributions to the SU fund. As of December 31, 2009, thisprovision amounts to $155. In addition, since July 2007 and in compliancewith SC Resolution No. 80/07 and CNC Resolution No. 2,713/07,Personal has deposited the correspondent contributions on their respectivematurity date (amounting to $66 as of December 31, 2009) into a specialindividual account held under their name at the Banco de la Nación Argentina;these contributions were recorded as a receivable in the caption “Otherreceivables” of the consolidated balance sheets.

 

Asof January 2001, Personal, as well as the other wireless providers, hadcharged SU fund amounts to customers.

 

SCResolution No. 99/05 required entities that derived revenues fromtelecommunications services to contribute 1% of these revenues to the SU fund,and prohibited billing to customers any SU amounts.

 

As a result, the CNC, through CNC Note No. 726/05,requested that Personal discontinue billing SU amounts to customers andreimburse all collected SU amounts plus interest (applying the same rate usedfor overdue invoices from customers).

 

Although the SC resolutions were appealed, managementdecided to reimburse the SU amounts which had been billed to post-paidcustomers from January 1, 2001 through June 28, 2005, the date onwhich Personal ceased billing SU amounts.

 

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

 

During the first quarter of 2006, Personal fullyreimbursed all previously billed SU amounts plus interest to its activepost-paid customers (amounting to $15, calculated using the Banco NacionArgentina interest rate collected by banks). In addition, as of May 2006,Personal had reimbursed the SU amounts billed to its former customers and formerpost-paid customers that have changed into prepaid customers (amounting to $4)and still remains pending an amount of $6 that is available for collecting.

 

In December 2006, the CNC issued a preliminaryreport regarding verification of Personal’s SU reimbursement, which indicatedthat Personal completed the requirement of reimbursement of the SU amountsincluding interest. However, the report stated that the interest rate applieddiffered from the rate required by the CNC; finally, on August 7, 2008, theCNC ordered Personal to adjust the reimbursement applying the same rate usedfor overdue invoices from customers (that is, one and a half of the BancoNacion Argentina interest rate collected by banks).

 

In September 2008, Personal has rejected this claimexplaining its grounds for justification of the applied interest rate. However,the management of Personal has considered the reimbursement of the interestsclaimed by the CNC. As a result, Personal had recorded a provision of $10.During the third quarter of 2009, Personal has begun the reimbursement to itscustomers (amounting to $5 as of December 31, 2009).

 

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**2.****                                     ****Regulatory framework (continued)**

 

**(e) Regulationfor the call by call selection of the providers of long-distance services**

 

On December 28,2001, the former Ministry of Infrastructure and Housing issued GeneralResolution No. 613/01 which approved a system that allows callers toselect their preferred long-distance provider for each call. This call by callselection 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. 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**

 

Asstated by Decree No. 690/06, in August 2007, the SC issued ResolutionNo. 155/07, where it approves the “Regulation for Communications that areinitiated in Penal Institutions”, establishing technical requirements for thesystem and the telephone lines installed in penal institutions, so that allcommunications 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 become available.

 

Atthe date of issuance of these consolidated financial statements, the Companywas evaluating feasible technical alternatives to implement in order to complywith this new rule.

 

**(g) “Tax Stability”principle: impact of variations in Social Security contributions**

 

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.

 

Subsequentto November 8, 1990, there were several increases in the rates of SocialSecurity Contributions, which were duly paid by Telecom. At the same time, andunder the framework of the argentina@internet.todos Program, the Company paid,mostly during fiscal year 2000, reduced social security contribution rates.

 

Pursuantto Resolution No. 41/07, Telecom Argentina may offset the impact of costsborne as a result of increases in Social security contribution rates.

 

TheCompany made the required presentations to the SC of the net receivable underResolution No. 41/07, which were subject to audits by the RegulatoryAuthority.

 

Duringthe third quarter of 2007, the CNC performed the audits on the informationgiven by the Company. The Company had access to documentation of the CNC’saudits, which resulted in no significant differences from the net amounts ithad determined. Consequently, the Company recorded a receivable from increasesin social security contributions and cancelled payables from reduction insocial security contribution rates and other fines due by the Company.

 

At December 31,2009, the Company has a net receivable of $68 which, in addition with thereceivable of $23 corresponding to the tax on deposits to and withdrawals frombank accounts (“IDC”), is included in the caption “Other receivables” ($4 ascurrent receivables and $87 as non-current receivables).

 

Since the resolutionallows the Company to offset the receivables with existing and/or futureregulatory duties and the intention of the Company is to exercise itsoffsetting rights, the receivable was recorded net of reserves. At December 31,2009, the reserves corresponding to these regulatory duties amounted to $79.

 

Since 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.

 

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**2.****                                     ****Regulatory framework (continued)**

 

**(h) Rendering of fixedtelephony through mobile telephony infrastructure**

 

By SC Resolution No. 151/07,fixed telephony was granted access to particular frequency bands, with thepurpose of enabling basic telephone services in rural and suburban areas to berendered through the wireless infrastructure used for the provision of mobiletelephony service. Licensees will provide such service within their respectivefixed telephony service original regions. The Company has started to install fixedlines based on this technology in order to satisfy service demand in rural andsuburban areas.

 

**(i) Tariff structure of thenational and international 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, by means of SC Resolution No. 4,269/99.

 

In December 2007,the Regulatory Authority notified the Company that it will offset 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. In April 2009, the CNC notified theoffsetting of the $9.5 Rate Rebalancing amount with the Resolution No. 41/07receivables. So, the Company has reduced the receivable with the correspondingreserve.

 

**Price Cap**

 

The Price Cap was aregulation mechanism applied in order to calculate changes in Telecom tariffs,based on changes in the U.S. Consumer Price Index (“U.S. C.P.I.”) and anefficiency factor.

 

In August 2009, theRegulatory Bodies finalized the 1999 Price Cap audit resulting in a payable bythe Company of $3.1 plus interest. The Company has offset this balance with thecredit resulting from SC Resolution No. 41/07, described in (g) above.

 

On April 6, 2000,the Argentine Government, Telefonica and Telecom Argentina signed an agreement(“Price Cap 2000”) that set the price cap efficiency factor at 6.75% (6% set bythe SC and 0.75% set by Telecom Argentina and Telefonica) for the period from 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 Note 11.d— Other claims.

 

**Tax on deposits to and withdrawals from bank accounts (“IDC”) chargedto customers**

 

On February 6, 2003,the Ministry of Economy, through Resolution No. 72/03, defined themechanism to allow, going forward, tariff increases on basic telephony servicesreflecting the impact of the IDC. The amount of tax charged must be shownseparately in customers’ bills. The Company has determined the existence of aremaining unrecovered amount of approximately $23 that arose before theissuance of Resolution No. 72/03, which will be claimed within the tariffrenegotiation process (see (j) below).

 

In April 2007, theCompany provided the CNC with supporting documentation on this amount for itsaudit. The Company hadaccess to documentation of theRegulatory Authority’s audits that corroborates the amounts claimed by theCompany and the application of a similar offsetting mechanism pursuant toResolution No. 41/07. Therefore, as of December 31, 2009 and 2008,the Company recorded as “Other receivable” a total of $23.

 

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**2.****                                     ****Regulatory framework (continued)**

 

**(j) Renegotiationof 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 lawthat was effective until January 2002, the applicable exchange rate was $1to US$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 de Emergencia Pública y Reforma del RégimenCambiario*(the “Public Emergency Law”), which provided, among other aspects, for the following:

 

·                  The pesification of tariffs;

·                  The elimination of dollar or other foreign-currencyadjustments and indexing provisions for tariffs;

·                  The establishment of an exchange rate fordollar-denominated prices and rates of $1 =US$1; and

·                  The renegotiation of the conditions of thecontractual agreements entered into between privatized companies and theArgentine Government.

 

The Argentine Government isentitled to renegotiate these agreements based on the following criteria:

 

·                  The overall impact of tariffs for public services onthe economy and income levels;

·                  Service quality and investment plans, ascontractually agreed;

·                  The customers’ interests and access to the services;

·                  The security of the systems; and

·                  The profitability of the service providers.

 

Decree No. 293/02, dated February 12, 2002,entrusted the Ministry of Economy with the renegotiation of the agreements.Initially, the contractual renegotiation proposals were to be submitted to theArgentine Government within 120 days after the effective date of the Decree,although this term was further extended for an additional 180-day period.Telecom Argentina filed all information as required by the Argentine Government,which included information on the impact caused by the economic crisis on theCompany’s financial position and its revenues, the pre-existing mechanisms fortariff adjustments, operating costs, indebtedness, payment commitments with theArgentine Government and future and on-going investment commitments.

 

Furthermore, in July 2003,Decree No. 311/03 created the Unidad de Renegociación y Análisis deContratos de Servicios Públicos (“UNIREN”), (Division for the Renegotiation andAnalysis of Contracts of Public Utilities Services), a “special division”within the Ministry of Economy and the Ministry of Federal Planning, PublicInvestments and Services, pursuant to which the contractual relationshipsbetween the Argentine Government and the service providers were to be revisedand renegotiated. In October 2003, the Argentine Government enacted Law No. 25,790pursuant to which the original term to renegotiate the contracts was extendedthrough December 31, 2004. As from that date, the Argentine Governmentenacted subsequent laws pursuant to which this term was extended through December 31,2011.

 

In May 2004, the Company signed a Letter ofUnderstanding (“LOU”) with the Argentine Government pursuant to which theCompany committed not to modify the current tariff structure through December 31,2004 and to continue with the tariff renegotiation process, which the Companyexpected to have concluded before December 31, 2004. The Company alsocommitted to offer phone services to beneficiaries of governmental welfare programsand to extend internet services in the interior of the country at reducedprices.

 

Even though the Companyfulfilled its commitments under the LOU, the Argentine Government did not makea specific offer related to the renegotiation of the tariffs at the date set inthe LOU.

 

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**2.****                                     ****Regulatory framework (continued)**

 

**New Letter of Understanding with the UNIREN**

 

On March 6, 2006,Telecom Argentina signed a new LOU (the “Letter”) with the UNIREN. Upon thefulfillment of the procedures set forth in the rules and regulationspresently in effect, the Letter will provide the framework for the signing ofthe *Acta Acuerdo de Renegociación del Contrato deTransferencia de Acciones* or Minutes of Agreement of theRenegotiation of the Transfer Agreement (the “Minutes of Agreement of theRenegotiation”) approved by Decree No. 2,332/90, as stated in Section 9of the Public Emergency Law.

 

The main terms and conditions of the Letter include:

 

·             The CNC and UNIREN have determined that Telecom Argentina satisfactorilycomplied with most of the requirements contemplated in the Transfer Agreementand by the regulatory framework. Isolated violations were satisfactorilyremedied through fines and/or sanctions. Other matters arising in the normalcourse of business are still pending resolution, which was originally expectedby June 30, 2006 (some of these matters are described below). Despite suchexpectation, the Regulatory Authority continues to analyze such open issues,the outcome of which will be disclosed when the analysis is completed;

·             Telecom Argentina’s commitments to invest in the technological developmentand updating of its network;

·             Telecom Argentina’s commitment to the achievement of its long-term servicequality goals;

·             The signing parties’ commitment to comply with and maintain the terms setforth in the Transfer Agreement, and in the regulatory framework in effect;

·             The Argentine Government’s commitment to create an appropriate andstandardized regulatory framework for telecommunications services and to giveTelecom Argentina fair and equivalent treatment to that given to othertelecommunications providers that shall take part in the process;

·             Telecom Argentina’s commitment and the commitment of its indirectshareholders Telecom Italia S.p.A. and W de Argentina - Inversiones S.L., tosuspend for a period of 210 working days any and all claims, appeals andpetitions already filed or in the process of being filed, in administrative,arbitral or judicial offices, in Argentina or in any other country, that arefounded in or related to any act or measure taken after the issuance of thePublic Emergency Law with respect to the Transfer Agreement and the License.The suspension will take effect after the 30th day from the end of the public hearingconvened to deal with the Letter. Once the Minutes of Agreement of theRenegotiation is ratified, any and all claims, appeals and/or proceedings willbe disregarded;

·             An adjustment shall be made to increase the termination charge ofinternational incoming calls to a local area to be equivalent to internationalvalues, which are at present strongly depreciated;

·             Off-peak telephone hours corresponding to reduced tariffs shall be unifiedwith regards to local calls, long distance domestic and international calls.

 

On May 18, 2006, the Letter was subject to apublic hearing procedure, with the purpose of encouraging the participation ofthe users and the community in general, taking into consideration that theLetter’s terms and conditions will provide the framework for the signing of theMinutes of Agreement of the Renegotiation. These Minutes of Agreement ofRenegotiation shall be in effect once all the requirements stipulated in theregulatory framework are complied with, which among other things, requires thata Telecom Argentina Stockholders’ Meeting be held to approve said Minutes. BothTelecom Argentina and its indirect stockholders Telecom Italia S.p.A. and W deArgentina - Inversiones S.L. have timely fulfilled the Agreement’s commitments.

 

At the date of issuance of these financial statements,the Company continues to await completion of the administrative steps requiredfor the National Executive to submit to the National Congress a proposedMemorandum of Agreement for Renegotiation.

 

Although there can be no assurance as to the ultimateoutcome of these matters, it is the opinion of the Management of the Companythat the renegotiation agreement process will be satisfactorily completed.

 

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**2.****                                     ****Regulatory framework (continued)**

 

**(k) “BuyArgentine” Act**

 

In December 2001, the Argentine Government passedPublic Law No. 25,551 (“Compre Trabajo Argentino” or the “Buy Argentine”Act) and in August 2002, passed Decree No. 1,600/02 which approvedand brought into effect the Compre Trabajo Argentino. The law requires TelecomArgentina to give preference to national goods and services, as defined inPublic Laws No. 25,551 and No. 18,875, in any procurement related tothe rendering of public telephony services (sect.1 & 2).

 

Preference must be given so long as the price of suchgoods is 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) (sect.3).

 

Compre Trabajo Argentino also mandates that TelecomArgentina publish any bid for services in the Official Bulletin in order toprovide any and all prospective offerors with the information necessary forthem to participate. This mandatory publication requires considerable lead-timeprior to the issuance of the purchase order and has had the result of extendingthe period needed to complete certain purchases. Non-compliance with CompreTrabajo Argentino is subject to criminal sanctions.

 

Public Law No. 18,875 establishes the obligationto exclusively contract services with local companies and professionals, asdefined in such law. Any exception must receive the prior approval of therelevant Ministry.

 

In August 2004, CNC Resolution No. 2,350/04enacted the “Procedure for the fulfillment of the Buy Argentine Act”, includingthe obligation for the Company to present half-year affidavits addressing thefulfillment of these rules. Non-compliance with this obligation is subject toadministrative sanctions.

 

This regulation, thus, reduces the operatingflexibility of the Company due to the time required to request bids forservices and/or to obtain an approval of the relevant authority when necessary,and the higher administrative expenses derived from the obligation to presenthalf-year affidavits.

 

**3.****                                     ****Preparation of financialstatements**

 

**(a) Basisof presentation**

 

The consolidated financial statements of theCompany have been prepared in accordance with generally accepted accountingprinciples used in Argentina (“Argentine GAAP”), considering the regulations ofthe CNV, which differ in certain significant respects from generally acceptedaccounting principles in the United States of America (“US GAAP”). Suchdifferences involve methods of measuring the amounts shown in the financialstatements, as well as additional disclosures required by US GAAP andRegulation S-X of the Securities and Exchange Commission (“SEC”).

 

However, certain reclassifications andaccommodations have been made to conform more closely to the form and contentrequired by the SEC.

 

In March 2009, the Argentine Federation of Professional Boards of Economic Sciences (the “FACPCE”)approved Technical Resolution (“RT”) 26 “Adoptionof International Financial Reporting Standards”, which will be fully effective for companies making publicoffering of securities (such as the Company) as from January 1, 2011. In June 2009, the FACPCE approved RT27which provides for amendments to the existing RT for those companies notadopting IFRS. On December 30, 2009, the CNV issued Resolution No. 562/09adopting RT26 with a few differences related to the companies obliged to adoptIFRS and the date of adoption. FACPCE is revising RT26 in order to align RT26and CNV Resolution No. 562/09. Additional information is given inNote 16.

 

**(b) Basisof consolidation**

 

These consolidated financial statements include theaccounts of Telecom Argentina and its subsidiaries over which it has effectivecontrol (Personal, Núcleo, Springville, Micro Sistemas and Telecom USA).

 

All significant intercompany accounts and transactionshave been eliminated in preparation of the consolidated financial statements.

 

In accordance with Argentine GAAP, the presentation ofthe parent company’s individual financial statements is mandatory. Consolidatedfinancial statements are to be included as supplementary information to theindividual financial statements. For the purpose of these financial statements,individual financial statements have been omitted since they are not requiredfor SEC reporting purposes (see Note 14 for a description of certain condensedunconsolidated information).

 

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**3.****        ****Preparation of financialstatements (continued)**

 

**(c) Presentationof financial statements in constant Argentine Pesos**

 

As required by the Argentine Government Decree No. 1,269/02and CNV Resolution No. 415/02, the Company’s consolidated financialstatements have been restated in constant Argentine pesos until February 28,2003, following the method established by RT 6 of the *ConsejoProfesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires*(“CPCECABA”).

 

However, on March 25, 2003, the ArgentineGovernment reinstructed the CNV to preclude companies from presentingprice-level restated financial statements. Therefore, CNV Resolution No. 441/03resolved discontinuing inflation accounting as of March 1, 2003. TheCompany complied with the CNV resolution and accordingly recorded the effectsof inflation until February 28, 2003. Comparative figures were alsorestated until that date.

 

In October 2003, theCPCECABA 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 for the periods indicated were asfollows:

 

| **Periods**                              | ** ** | **% change** | ** ** |
|------------------------------------------|------------|--------------|------------|
| January 2002 -  February 2003  |       | 119.73       |       |
| January 2002 -  September 2003 |       | 115.03       |       |

 

As recommended by Argentine GAAP, the followingtable presents a comparison between certain condensed balance sheet and incomestatement information for the year ended December 31, 2009, as restatedfor the effects of inflation through September 30, 2003, and thecorresponding reported amounts which included restatement only through February 28,2003:

 
| ** **                    | ** ** | **As  reported (*)  (I)** | ** ** | **As  restated through  September 30, 2003 (**)  (II)** | ** ** | **Effect  (II) - (I)** | ** ** |
|-------------------------------|------------|---------------------------|------------|--------------------------------------------------------------|------------|-----------------------------|------------|
| **Total assets**              |       | 10,633                    |       | 10,590                                                       | ** ** | **(43**                     | **)**      |
| **Total liabilities**         |       | 5,105                     |       | 5,089                                                        | ** ** | **(16**                     | **)**      |
| **Noncontrolling interest**   |       | 92                        |       | 92                                                           | ** ** | **—**                  | ** ** |
| **Shareholders’ equity** |       | 5,436                     |       | 5,409                                                        | ** ** | **(27**                     | **)**      |
| ** **                    | ** ** | ** **                | ** ** | ** **                                                   | ** ** | ** **                  | ** ** |
| **Net income**                |       | 1,405                     |       | 1,410                                                        | ** ** | **5**                       | ** ** |

 

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(*)   As required by CNV resolution.

(**) As required by Argentine GAAP.

 

**(d) Useof estimates**

 

The preparation of the consolidated financialstatements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

 

**(e) Reclassifications**

 

Certain reclassifications of prior year informationhave been made to conform to the current year presentation.

 

**(f) Statementof cash flows**

 

The Company considers all highly liquid temporaryinvestments with an original maturity of three months or less at the time ofpurchase to be cash equivalents.

 

The statement of cash flows has been prepared usingthe indirect method.

 

**(g) Concentrationof credit risk**

 

The Company’s cash equivalents and investments includemoney market mutual funds placed with various major financial institutions withhigh credit ratings. The Company’s investment policy limits its credit exposureto any one issuer/obligor.

 

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**3.****                                     ****Preparation of financial statements(continued)**

 

The Company’s customers include numerouscorporations. The Company serves a wide range of customers, includingresidential customers, businesses and governmental agencies. As such, theCompany’s account receivables are not subject to significant concentration ofcredit risk. While receivables for sales to these various customers aregenerally unsecured, the financial condition and creditworthiness of customersare routinely evaluated. Fixed customer lines were 3,991,000 (unaudited) at December 31,2009, 3,937,000 (unaudited) at December 31, 2008 and 3,849,000 (unaudited)at December 31, 2007 and wireless customer lines, excluding prepaid linesand Internet subscribers (Argentina and Paraguay combined) were 4,613,000(unaudited) at December 31, 2009, 4,425,000 (unaudited) at December 31,2008 and 3,767,000 (unaudited) at December 31, 2007.

 

The Company provides for losses relating to accountsreceivable. The allowance for losses is based on management’s evaluation ofvarious factors, including the credit risk of customers and other information.While management uses the information available to make evaluations, futureadjustments to the allowance may be necessary if future economic conditionsdiffer substantially from the assumptions used in making the evaluations.Management has considered all significant events and/or transactions that aresubject to reasonable and normal methods of estimation, and the accompanyingconsolidated financial statements reflect that consideration.

 

**(h) Earningsper share**

 

The Company computes net income per commonshare by dividing net income for the year by the weighted average number ofcommon shares outstanding.

 

**4.****                                     ****Summary of significant accounting policies**

 

The following is a summary of significant accountingpolicies followed by the Companyin the preparation of the financial statements.

 

**(a) Foreigncurrency translation**

 

The financial statements of the Company’s foreignsubsidiaries are translated in accordance with RT 18, “Specific Considerationsfor the Preparation of Financial Statements”. RT 18 establishes guidelines toclassify 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 and organizationallyautonomous. Accordingly, and pursuant to RT 18, financial statements of foreignentities are translated using year-end exchange rates for assets, liabilitiesand results of operations. Adjustments resulting from these translations are accumulatedand reported as “Foreign currency translation adjustments”, a separate captionin the equity section.

 

**(b) Revenuerecognition**

 

The Company’s principal sources of revenues byreportable segments are:

 

Voice, data and Internet services

 

**·*********** Fixed telephone services:***

 

Domestic services revenues consist of monthly basicfees, measured service, long-distance calls and monthly fees for additionalservices, including call forwarding, call waiting, three-way calling, itemizedbilling and voicemail.

 

Revenues are recognized when earned. Unbilled revenuesfrom the billing cycle dating to the end of each month are calculated based ontraffic and are accrued at the end of the month.

 

Basic fees are generally billed monthly in advance andare recognized when services are provided. Billed basic fees for which therelated service has not yet been provided are deducted from correspondingaccounts receivable. Revenues derived from other telecommunications services,principally network access, long distance and airtime usage, are recognizedmonthly as services are provided.

 

Revenues from the sale of prepaid calling cards arerecognized in the month in which the traffic is used or in which the cardexpires, whichever happens first. Remaining unused traffic for unexpiredcalling cards is shown as “Deferred revenue” in accounts payable.

 

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**4.****                                     ****Summary of significant accounting policies (continued)**

 

Revenues from installations consist primarily ofamounts charged for the installation of local access lines. Installation feesare recognized at the time of installation or activation. The directincremental cost related to installations and activations are expensed asincurred. Installation and activation costs exceed installation revenues forall periods presented. Reconnection fees charged to customers when resumingservice after suspension are deferred and recognized ratably over the averagelife for those customers who are assessed a reconnection fee. Associated directexpenses are also deferred over the estimated customer relationship period inan amount equal to or less than the amount of deferred revenues. Reconnectionrevenues are higher than its associated direct expenses.

 

Interconnection charges represent amounts received bythe Company from other local service providers and long-distance carriers forcalls that are originated on their networks and transit and/or terminate on theCompany’s network. Revenue is recognized as services are provided.

 

The revenues and related expenses associated with thesale of equipment are recognized when the products are delivered and acceptedby the customers.

 

**·*********** International long-distance services:***

 

The Company providesinternational telecommunications service in Argentina including voice and dataservices and international point-to-point leased circuits.

 

Revenues from internationallong-distance service reflect payments under bilateral agreements between theCompany and foreign telecommunications carriers, covering inbound internationallong-distance calls.

 

Revenues are recognized asservices are provided.

 

·*** Data transmission and Internet services:***

 

Data and Internet revenues mainly consist of fixedmonthly fees received from residential and corporate customers for datatransmission (including private networks, dedicated lines, broadcasting signaltransport and videoconferencing services) and Internet connectivity services(dial-up and broadband). These revenues are recognized as services arerendered.

 

Revenues from the sale of modems and the related saleexpenses (which are generally higher than the connection fees charged tocustomers) are recognized when the products are delivered and accepted by thecustomers.

 

Wireless telecommunicationservices

 

The Company provides wireless telephone servicethroughout Argentina via cellular and PCS networks. Cellular and PCS feesconsist of monthly basic fees, airtime usage charges, roaming, charges fortermination of calls coming from other cellular operators (“TLRD”), callingparty pays charges (“CPP”) and additional charges for value-added services,including call waiting, call forwarding, three-way calling, voicemail, shortmessage systems (“SMS”), and for other miscellaneous cellular and PCS services.These revenues are recognized as services are rendered.

 

Basic fees are generally billed monthly in advance andare recognized when services are provided. Billed basic fees for which therelated service has not yet been provided are deducted from correspondingaccounts receivable.

 

Equipment sales consist principally of revenues fromthe sale of wireless handsets to new and existing customers and to agents andother third-party distributors. The revenues and related expenses associatedwith the sale of wireless handsets, which are generally higher than the pricespaid by the customers, are recognized when the products are delivered andaccepted by them.

 

Revenues from the sale of prepaid calling cards arerecognized in the month in which the traffic is used or in which the cardexpires, whatever happens first. Remaining unused traffic for unexpired callingcards is shown as deferred revenue in current liabilities.

 

**(c) Foreigncurrency transaction gains/losses**

 

Foreign currency transaction gains and losses areincluded in the determination of net income or loss.

 

However, CNVResolution No.398 allowed the application of CPCECABA Resolution MD No.3/02,issued in March 2002, which provides that foreign currency transactiongains or losses on or after January 6, 2002, related to foreign-currencydenominated debts as of such date must be allocated to the cost of assetsacquired or constructed with such financing, as long as a series of conditionsand requirements established in such standard are fulfilled. The Companyadopted these resolutions and allocated the costs to fixed assets accordingly.

 

F-20

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Table of Contents

 

**4.****                                     ****Summary of significant accounting policies (continued)**

 

In July 2003,the CPCECABA suspended such accounting treatment and therefore required foreigncurrency transaction gains and losses to be included in the determination ofnet income as from July 28, 2003.

 

The net carrying value of these capitalized costs was$57 as of December 31, 2009 and $67 as of December 31, 2008, both inthe Voice, data and Internet segment.

 

**(d) Cashand banks**

 

Cash and banks are stated atface value.

 

**(e) Tradeaccounts, other receivables and payables, in currency, arising from the sale orpurchase of goods and services and financial transactions**

 

Certainreceivables and payables on the sale or purchase of goods and services,respectively, and those arising from financial transactions, are measured 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.

 

As mentioned in Note 3.g, the Company provides forlosses relating to doubtful accounts based on management’s evaluation ofvarious factors.

 

**(f) Otherreceivables and payables in currency not included in (e) and (g)**

 

Othernon-current receivables and non-current payables not included in (e) aboveand (g) below, are measured based on thecalculation of their discounted value using the internal rate of return of such assets or liabilities at year-end.

 

Other current receivables and current payables arestated at face value.

 

**(g) Deferredtax assets and liabilities and credits on minimum presumed income tax**

 

Deferred tax assets andliabilities and minimum presumed income taxcredits are stated at face value.

 

Since 2002, the TelecomGroup, following the guidelines of the FACPCE, has treated the differencesbetween the tax basis and book basis of non-monetary items for deferred incometax calculation purposes as temporary differences. Additional information onthe impact of this treatment in the Company’s financial position is given inNote 10.

 

**(h) Investments**

 

Time deposits are valued at their cost plus accruedinterest at year-end.

 

The Company has investments in certain governmentbonds. The Company has classified these securities as held-to-maturity asmanagement has the intent and ability to hold those securities to maturity.

 

Mutual funds are carried at market value. Unrealizedgains and losses are included in financial results, net, in the consolidatedstatements of income.

 

The 2003 Telecommunications Fund is recorded at thelower of cost or net realizable value.

 

**(i) Inventories,net**

 

Inventories are stated at replacement cost, which doesnot exceed the net realizable value. Where necessary, provision is made forobsolete, slow moving or defective inventory.

 

From time to time, the Management of Personal andNúcleo decide to sell wireless handsets at prices lower than their respectivereplacement costs. This strategy is aimed at achieving higher marketpenetration by reducing customer access costs while maintaining the companies’overall wireless business profitability. As this policy is the result ofmanagement’s decision, promotional prices are not used to calculate the netrealizable value of such inventories.

 

**(j) Otherassets, net**

 

Fixed assets held for sale arestated at cost, less accumulated depreciation at the time of transfer to theheld-for-sale category. All amounts have been restated for inflation asmentioned in Note 3.c. which does not exceed the estimated realizable value ofsuch assets. Where necessary, aprovision was made for the adjustment of the restated cost at realizable value.

 

**(k) Fixedassets, net**

 

Fixedassets received from “ENTel” have been valued at their transfer price.Subsequent additions have been valued at cost less accumulated depreciation.All amounts have been restated for inflation as mentioned in Note 3.c.

 

F-21

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Table of Contents

 

**4.****                                     ****Summary of significant accounting policies (continued)**

 

As of the date of thesefinancial statements, the Company has received the transfer of title pertainingto substantially all of the fixed assets received from ENTel, other than 14.7%of the total transferred buildings, representing $10 of net carrying value asof December 31, 2009. Nevertheless, the Company is in complete possessionof these fixed assets and operates them normally.

 

For fixed assets whoseoperating condition warrants replacement earlier than the end of the usefullife assigned by the Company to its fixed asset category, the Companycalculates the depreciation charge based on the adjusted remaining useful lifeassigned in accordance with the related asset replacement.

 

The cost of maintenance andrepairs is charged to expense as incurred. The cost of significant renewals andimprovements is added to the carrying amount of the respective assets. Whenassets are retired or otherwise disposed of, the cost and related accumulateddepreciation are removed from the accounts, and any resulting gain or loss isreflected in the statements of income.

 

Until the date of cancellationof its financial debt (see Note 8.2), the Company has capitalized interest onlong-term construction projects. Additional information is given in Note 5.n.

 

Depreciation expense iscalculated using the straight-line method over the estimated useful lives ofthe related assets, based on the rates specified below (additional informationis given in Note 12):

 

| **Asset**                            | ** ** | **Estimated useful  life (years)** | ** ** |
|--------------------------------------|------------|------------------------------------|------------|
| Buildings received from  ENTel       |       | 35                                 |       |
| Buildings                            |       | 50                                 |       |
| Tower and pole                       |       | 15                                 |       |
| Transmission equipment               |       | 3-20                               |       |
| Wireless network access              |       | 5-10                               |       |
| Switching equipment                  |       | 5-13                               |       |
| Power equipment                      |       | 7-15                               |       |
| External wiring                      |       | 10-20                              |       |
| Computer equipment                   |       | 3-5                                |       |
| Telephony equipment and  instruments |       | 5-10                               |       |
| Installations                        |       | 3-10                               |       |

 

TheCompany is subject to asset retirement obligations (“ARO”) associated with itscell and switch site operating leases. The Company, in most cases, has theright to renew the initial lease term. Accordingly, the Company records aliability for an ARO. When the liability is initially recorded, the entitycapitalizes a cost by increasing the carrying amount of the related long-livedasset. The capitalized cost is depreciated over the estimated useful life ofthe related asset. Subsequent to the initial measurement, an entity shouldrecognize changes in the ARO that result from (1) the passage of time and (2) revisionsmade to either the timing or amount of estimated cash flows. Changes resultingfrom revisions in the timing or amount of estimated cash flows should berecognized as increases or decreases in the carrying amount of the ARO and theassociated capitalized retirement cost. Increases in the ARO as a result ofupward revisions in undiscounted cash flow estimates should be considered newobligations and initially measured using current credit-adjusted risk-freeinterest rates. Any decreases in the ARO as a result of downward revisions incash flow estimates should be treated as modifications of an existing ARO, andshould be measured at the historical interest rate used to measure the initialARO.

 

Fixedassets as a whole does not exceed the estimated realizable value (See 4.mbelow).

 

**(l) Intangibleassets, net**

 

Intangible assets are stated atcost, less accumulated amortization. All amounts have been restated forinflation as mentioned in Note 3.c.

 

Intangible assets comprise the following:

 

·* Softwareobtained or developed for internal use*

 

The Company has capitalized certain costs associatedwith the development of computer software for internal use. These costs arebeing amortized on a straight-line basis over a period ranging between 5 yearsand 7.5 years.

 

·* Debt issue costs*

 

Expenses incurred in connection with the issuance ofdebt are deferred and are being amortized under the interest method over thelife of the related issuances.

 

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**4.****                                     ****Summary of significant accounting policies (continued)**

 

·* PCS license*

 

The Company adopted RT 17, “Overall considerations 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*

 

Núcleo’s PCS and Band B licenses were amortized underthe straight-line method over 10 years through fiscal year 2007. Renovationcosts are being amortized in 5 years.

 

·* Rights of use*

 

The Company purchases networkcapacity under agreements which grant the exclusive right to use a specifiedamount of capacity for a period of time. Acquisition costs are capitalized andamortized over the terms of the respective capacity agreements, generally 15years.

 

·* Exclusivity agreements*

 

Exclusivity agreements were entered into with certainretailers and third parties relating to the promotion of the Company’s servicesand products. Amounts capitalized are being amortized over the life of theagreements, which range from fiscal year 2009 to fiscal year 2028.

 

·* Customer relationships*

 

Acquired in the purchase of shares of Cubecorp, it isamortized over the terms of permanence of the customers which was estimated in15 years.

 

Intangible assets as a whole does not exceed theestimated realizable value (See 4.m below).

 

**(m) Impairmentof long-lived assets**

 

The Company periodically evaluates the carrying valueof its long-lived assets and certain intangible assets for impairment whenevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. The carrying value of a long-lived asset is consideredimpaired by the Company when the expected cash flows, discounted and withoutinterest cost, from such an asset, is less than its carrying value. In thatevent, a loss would be recognized based on the amount by which the carryingvalue exceeds the fair market value of the long-lived asset. Fair market valueis determined primarily using the anticipated cash flows discounted at a ratecommensurate with the risk involved.

 

The devaluation of the Argentine peso, which occurredin January 2002, and the “pesification” of Telecom Argentina’s tariffsmaterially affected the Company’s financial position and results of operations,and changed the rules under which the Company operated. However, as indicated in Note 2.j., Law No. 25,561authorized the Argentine Government to renegotiate the conditions of thecontracts with the privatized companies, taking into account theirprofitability, among other criteria.

 

In this regard, the Company hasmade certain assumptions in the determination of its estimated cash flows toevaluate a potential impairment of its long-lived assets in relation to eachoperating segment. In the preparation of such estimates and in connection withthe fixed-line business, the Company has considered different scenarios, someof which contemplate the modification of the current level of Telecom Argentina’sregulated tariffs which would enable Telecom Argentina to finance thetechnological renovation of its fixed-line network in the next years.

 

Based on the foregoing,the Company considered an impairment charge not to be necessary for itslong-lived assets.

 

**(n) Capitalleases**

 

Fixed asset acquisitionsfinanced by leases are recorded at the estimated price which would have beenpaid on a cash basis, with the unpaid amount discounted using the internal rateof return at the moment of the initial measurement (including the purchaseprice option), recorded as a liability.

 

At December 31, 2009the Company has cancelled all its capital leases and in January 2010 hasexercised the purchase price options in the amount of $0.1. A summary by majorclass of fixed assets covered by capital leases at December 31, 2009 is asfollows:

 
| ** **               | ** ** | **Book value** | ** ** | **Lease terms** | ** ** | **Amortization period** | ** ** |
|--------------------------|------------|----------------|------------|-----------------|------------|-------------------------|------------|
| Computer equipment       |       | 19             |       | 3 years         |       | 5 years                 |       |
| Accumulated depreciation |       | (10            | )          |            |       |                    |       |
| **Net  value**           | ** ** | **9**          | ** ** | ** **      | ** ** | ** **              | ** ** |

 

**(o) Severanceindemnities**

 

Severance payments made to employees are expensed asincurred.

 

F-23

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Tableof Contents

 

**4.****                                     ****Summary of significant accounting policies (continued)**

 

**(p) Taxespayable**

 

·*Income taxes*

 

As per Argentinean Tax Law, the provisions for incometaxes have been computed on a separate return basis (i.e., the Company does notprepare a consolidated income tax return). All income tax payments are made bythe subsidiaries as required by the tax laws of the countries in which theyrespectively operate. The Company records income taxes using the methodrequired by RT 17.

 

Accordingly, deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts and their respective tax bases. RT 17also requires companies to record a valuation allowance for that component ofnet deferred tax assets which are not recoverable. The statutory income taxrate in Argentina was 35% for all years presented.

 

Cash dividends received from a foreign subsidiary arecomputed on the statutory income tax rate. As per Argentinean Tax Law, incometaxes paid abroad may be recognized as tax credits.

 

The statutory income tax rate in Paraguay was 10% forall years presented. As per Paraguayan Tax Law, dividends paid are computedwith an additional income tax rate of 5%. Additionally, when dividends are paidto foreign shareholders, there is an additional income tax rate of 15%, whichis deducted from the amounts paid to the shareholders.

 

·*Tax on minimum presumedincome*

 

The Company is subject to a tax on minimum presumedincome. This tax is supplementary to income tax. The tax is calculated byapplying the effective tax rate of 1% on the tax basis of certain assets. TheCompany’s tax liabilities will be the higher of income tax or minimum presumedincome tax. However, if the tax on minimum presumed income exceeds income taxduring any fiscal year, such excess may be computed as a prepayment of anyincome tax excess over the tax on minimum presumed income that may arise in thenext ten fiscal years.

 

For the year ended December 31, 2009, Telecom hasestimated a provision for income taxes.

 

·*Turnover tax*

 

Under Argentine tax law, the Company is subject to atax levied on gross revenues. Rates differ depending on the jurisdiction whererevenues are earned for tax purposes. Average rates were approximately 4.0% forthe years ended December 31, 2009, 2008 and 2007.

 

**(q) Otherliabilities**

 

·                  **Pension benefits**

 

Argentine laws provide for pension benefits to be paidto retired employees from government pension plans and/or privately managedfund plans to which employees may elect to contribute. Amounts payable to suchplans are accounted for on an accrual basis. The Company does not sponsor anystock option plan.

 

Retirement liabilities shownunder other liabilities represent benefits under collective bargainingagreements for employees who retire upon reaching normal retirement age, orearlier due to disability. Benefits consist of thepayment of a single lump sum equal to the salary of one month for each fiveyears of service. There is no vested benefit obligation until the occurrence ofthose conditions. The collective bargaining agreements do not provide for otherpost-retirement benefits such as life insurance, health care, and other welfarebenefits. The net periodic pension costs are recognizedas employees render the services necessary to earn pension benefits. Actuarialassumptions and demographic data, as applicable, were used to measure thebenefit obligation as required by RT 23. TheCompany does not make plan contributions or maintain separate assets to fundthe benefits at retirement.

 

The following tables summarize benefit costsfor the years ended December 31, 2009, 2008 and 2007, as well as thebenefit obligations associated with postretirement benefit plans as of December 31,2009 and 2008:

 
| ** **                               | ** ** | **As of December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **2009**                    | ** ** | **2008** | ** ** |
| Accumulated benefit  obligation          |       | $                           | 6          |   | $ | 5 |   |
| Effect of future  compensation increases |       | 5                           |       | 4 |   |
| **Projected  benefit obligation**        | ** ** | **$**                       | **11**     | ** ** | **$** | **9** | ** ** |

 
| ** **              | ** ** | **Years ended  December 31,** | ** ** |
|-------------------------|------------|------------------------------------|------------|
| ** **              | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service cost            |       | $                                  | 1          |   | $ | 1 |   | $ | 1 |   |
| Interest cost           |       | 3                                  |       | 3 |   | 3 |   |
| **Total  benefit cost** | ** ** | **$**                              | **4**      | ** ** | **$** | **4** | ** ** | **$** | **4** | ** ** |

 

F-24

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**4.****             ****Summary of significant accounting policies (continued)**

 

The actuarial assumptions used are based onmarket interest rates, past experience and management’s best estimate of futureeconomic conditions. Changes in these assumptions may impact future benefitcosts and obligations. The main assumptions used in determining expense andbenefit obligations are as follows:

 
| ** **                                   | ** ** | **2009**  | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Discount rate (1)                            |       | 10.3-12.3 | %          | 10.5     | %          | 10.5     | %          |
| Projected increase rate in  compensation (2) |       | 12.6-16.7 | %          | 10-16    | %          | 10.5-14  | %          |

 

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(1) Representsestimates of real rate of interest rather than nominal rate in $.

(2) Inline with an estimated inflationary environment for the next three fiscalyears.

 

·                  **Deferred revenue on sale of capacity**

 

Under certain network capacity purchaseagreements, the Company sells excess purchased capacity to other carriers.Revenues are deferred and recognized as services are provided.

 

·                  **Court fee**

 

Under the out-of-court restructuring agreement (“AcuerdoPreventivo Extrajudicial” or APE), the Company was subject to a court fee of0.25% levied on the total amount finally approved as restructured by the court.The fee is paid in up to one hundred and ten monthly installments with anannual interest rate of 6% through September 2014.

 

·                  **Legal fee**

 

Pursuant to Law No. 26,476 - Tax RegularizationRegime (“Régimen de Regularización Impositiva Ley No 26,476” - see Note 11.d.2-), the Company is subject to a legal fee which shall be paid in twelve monthlyconsecutive installments without interest as from final judgment.

 

**(r) Exchangeof debt instruments**

 

Argentine GAAP requires that an exchange of debt instruments with substantially different terms beconsidered 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 debtextinguishment gain or loss to be recognized. Fair value should be determinedby the present value of the future cash flows to be paid under the terms of thenew debt instrument discounted at a rate commensurate with the risks of thedebt instrument and time value of money. This criterion was used by TelecomArgentina to account for its respective debt restructuring which was finishedin August 2005 and fully cancelled on October 15, 2009 as describedin Note 8.

 

The new debt was initially recorded at fair value. Fairvalue was determined as the present value of the future cash flows to be paidunder the terms of the new debt instruments discounted at a rate commensuratewith the risks of the debt instrument and time value of money at the time ofthe debt restructuring (August 2005). Based on the opinion of an externalfinancial expert, the estimated payments of the restructured debt have beendiscounted to its present value (at each measurement 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 nominatednotes (all tax-free rates for the noteholders, as applicable).

 

**(s) Litigation**

 

The Company, in the ordinary course ofbusiness, is subject to various legal proceedings. The reserve forcontingencies was established considering the potential outcome of thesematters and the legal counsel’s opinion.

 

**(t) Derivativesto hedge the Company’s exposure to foreign currency and/or interest ratefluctuations**

 

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 of effective cash flow hedgesare recognized as a separate component of Shareholders’ equity of the balancesheet (in the item line “Foreign currencytranslation adjustments”) and subsequentlyreclassified to earnings when the hedged items affect earnings. Gains andlosses from fair value hedges are recognized in earnings in the period of anychanges in the fair value of the related recognized asset or liability.

 

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**4.****                                     ****Summary of significant accounting policies (continued)**

 

Derivatives not designated or qualifying as a hedginginstrument or ineffective derivatives are adjusted to fair value throughearnings, being recorded in the item line “Gain(loss) on derivatives” of the statement of income’s caption “Financial results,net”.

 

These instruments were negotiated with institutionsand corporations with significant financial capacity; therefore, the Companyconsidered that the risk of non-compliance with the obligations agreed to bysuch counterparties to be minimal.

 

The Company does not enter into derivative contracts forspeculative purposes.

 

As part of its hedging policy, the Telecom Group hasentered into the following derivatives:

 

**1.Foreign currency swap contracts related to Notes**

 

During fiscal year 2005, theCompany entered into foreign exchange currency swap contracts to hedge itsexposure to the Euro and Japanese yen-denominated Notes fluctuations withrespect to the US dollar. 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. These swap agreements expired in October 2008.

 

**2.Non-Deliverable Forward (“NDF”) contracts to purchase foreign currency andother derivatives**

 

Between October 2008 and January 2009,the Company entered into several contracts to purchase a total amount of US$108.5 million and Yen 5,120 million, to hedge its exposure to foreign currencyfluctuations with respect to its Notes. Additionally, in January 2009, theCompany entered into a derivative contract (an Euro “Zero Cost Collar”) assupplementary of those contracts, to hedge its exposure to foreign currencyfluctuations with respect to the Euro-denominated Notes. These contracts haveexpired in April 2009 and wereregarded as ineffective.

 

The Company also enteredinto several NDF contracts amounting to US$185 million in order to hedge itsexposure to US dollar fluctuations with respect to its Notes, which wereliquidated in October 2009 jointly with Telecom’s Notes. The Companydesignated these NDF contracts as ineffective cash flow hedges. For the yearended December 31, 2009, the changes in the fair value of these hedgeswere recognized as a loss in the financial results as “Gain (loss) onderivatives” in an amount of $39.

 

Personal entered intoseveral NDF contracts amounting to US$159 million in order to hedge itsexposure to US dollar fluctuations with respect to its Notes, which were liquidatedduring fiscal year 2009. Personal designated these NDF contracts as ineffectivecash flow hedges. For the year ended December 31, 2009, the changes in thefair value of these hedges were recognized as a loss in the financial resultsas “Gain (loss) on derivatives” in an amount of $42.

 

**3. NDFcontracts to purchase foreign currency for Notes and accounts payable**

 

Personal entered into several contracts to purchase foreign currency which maincharacteristics at December 31, 2009, are the following:

 

***a) For Notes***

 
| ** ** | ** ** | **Currency** | ** ** | **Amount  (in  million)** | ** ** | **Average  exchange  rate** | ** ** | **Date**                  | ** ** | **Expiring  date**                       | ** ** | **Book value at  December 31,  2009 assets  (liabilities)** | ** ** |
|------------|------------|--------------|------------|---------------------------|------------|-----------------------------|------------|---------------------------|------------|------------------------------------------|------------|------------------------------------------------------------------|------------|
| Personal   |       | US$          |       | 25.2                      |       | 4.384 $/US$                 |       | August/December 2009 |       | June 2010 — December 2010 |       | (3                                                               | )          |
|       |       | US$          |       | 90.0                      |       | 4.344 $/US$                 |       | December 2009        |       | December 2010                       |       | 1                                                                |       |
|       |       |         |       | 115.2                     |       |                        |       |                      |       |                                     |       | (*)       (2                  | )          |

 

----

(*) Includes $1 in Othercurrent receivables and $(3) in Current debt (which corresponds to relatedparties, see Note 7.e).

 

When entering into these NDFcontracts, the management objective was to reduce its exposure to foreigncurrency fluctuations and denominate its Notes in Argentine pesos. Atinception, as the main terms of the NDF were substantially similar to the termsof the foreign currency-denominated obligations, these hedges were designatedas effective cash flow hedges. In accordance with Argentine GAAP changes in thefair value of these hedges were recognized in equity under “Foreign currencytranslation adjustments” and subsequently reclassified to earnings when thehedge items affect earnings.

 

For the year ended December 31,2009 a loss of $2 was reclassified to financial results under “Gain (loss) onderivatives”.

 

During January 2010,and continuing with its Notes’ hedging policy, Personal entered into severalNDF contracts amounting to US$72 million in order to hedge its exposure to USdollar fluctuations with respect to its Notes, maturing December 2010.Personal designated these NDF contracts as effective cash flow hedges.

 

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**4.****                                     ****Summary of significant accounting policies (continued)**

 

***b) For accounts payable***

 

During fiscal year 2009,Personal entered into several NDF contracts amounting to US$23.5 million,maturing between September 2009 and August 2010, in order to hedgeits exposure to US dollar fluctuations related to accounts payable.

 

However, as the terms of theNDF do not perfectly match the terms of the foreign currency-denominatedobligations, these hedges were regarded as ineffective. Therefore, the changes in the fair value of these NDF until the cancellation date and thesubsequent changes were recognized as a gain (loss) inthe item line “Financial results, net”. At December 31, 2009, US$8.5million are outstanding, maturing July and August 2010.

 

For the year ended December 31,2009, the changes in the fair value of these hedges were recognized as a lossin the financial results as “Gain (loss) on derivatives” in an amount of $6with counterpart in the item line “Accounts payable”.

 

During January 2010,Personal entered into several NDF contracts amounting to US$30.2 million(maturing January through December 2010), in order to hedge itsexposure to US dollar fluctuations related to accounts payable. The Companydesignated these NDF contracts as effective cash flow hedges.

 

**(u) Vacationexpenses**

 

Vacation expenses are fully accrued in theperiod the employee renders services to earn such vacation.

 

**(v) Advertisingcosts**

 

Advertising costs are expensed as incurred.Advertising costs for the years ended December 31, 2009, 2008 and 2007 areshown in Note 17.h. under the caption “Advertising”.

 

**(w) Results fromdiscontinued 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. Therefore, the Company has separated the cash and cashequivalents provided by investing activities from discontinued operations inthe consolidated statements of cash flows.

 

**5.****                                     ****Breakdown of the main accounts**

 

**(a)****         ****Cash and banks**

 

Cash and banks consist of the following:

 
| ** ** | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|------------|------------|------------------------------|------------|------------------------------|------------|
| Cash       |       | $                            | 12         |                         | $          | 9 |   |
| Banks      |       | 50                           |       | 27                           |       |
|       | ** ** | **$**                        | **62**     | ** **                   | **$**      | **36** | ** ** |

 

**(b)****         ****Investments**

 

Investments consist of the following:

 
| ** **                    | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|-------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Current**                   |       |                         |       |                         |       |
| Time deposits (Note 17.d)     |       | $                            | 1,075      |                         | $          | 718 |   |
| Mutual funds (Note 17.c)      |       | 120                          |       | 144                          |       |
| Related parties (Note 7.e)    |       | 32                           |       | 4                            |       |
| Government bonds (Note  17.c) |       | —                       |       | 223                          |       |
|                          | ** ** | **$**                        | **1,227**  | ** **                   | **$**      | **1,089** | ** ** |
| **Non  current**              |       |                         |       |                         |       |
| Related parties (Note 7.e)    |       | $                            | —     |                         | $          | 6 |   |
| 2003 Telecommunications  Fund |       | 1                            |       | 1                            |       |
|                          | ** ** | **$**                        | **1**      | ** **                   | **$**      | **7** | ** ** |

 

F-27

----

Tableof Contents

 

**5.****                                     ****Breakdown of the main accounts (continued)**

 

**(c)****         ****Accounts receivable**

 

Accounts receivable consist of the following:

 
| ** **                                   | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Current**                                  | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Voice, data and Internet                     |       | $                            | 621        |                         | $          | 538 |   |
| Wireless (i)                                 |       | 676                          |       | 602                          |       |
| Wireless — related parties  (Note 7.e)  |       | 10                           |       | 5                            |       |
| Subtotal                                     | ** ** | **1,307**                    | ** ** | **1,145**                    | ** ** |
| Allowance for doubtful  accounts (Note 17.e) |       | (144                         | )          | (136                         | )          |
|                                         | ** ** | **$**                        | **1,163**  | ** **                   | **$**      | **1,009** | ** ** |
| **Non  current**                             | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Voice, data and Internet                     | ** ** | **$**                        | **—** | ** **                   | **$**      | 1 | ** ** |
| Allowance for doubtful  accounts (Note 17.e) |       | —                       |       | (1                           | )          |
|                                         | ** ** | **$**                        | **—** | ** **                   | **$**      | **—** | ** ** |

 

----

(i) Includes $19 as of December 31, 2009 and$20 as of December 31, 2008 corresponding to Núcleo’s receivables.

 

**(d) Other receivables**

 

Other receivables consist of the following:

 
| ** **                                                       | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Current**                                                      | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Prepaid expenses                                                 |       | $                            | 80         |                         | $          | 65 |   |
| SU credits (Note 2.d)                                            |       | 66                           |       | 36                           |       |
| Tax credits                                                      |       | 60                           |       | 48                           |       |
| Restricted funds                                                 |       | 10                           |       | 9                            |       |
| Credit on SC Resolution  No. 41/07 and IDC (Note 2.g and i) |       | 4                            |       | 11                           |       |
| Derivatives (Note 4.t)                                           |       | 1                            |       | 22                           |       |
| Other                                                            |       | 36                           |       | 41                           |       |
| Subtotal                                                         | ** ** | **257**                      | ** ** | **232**                      | ** ** |
| Regulatory contingencies  (Notes 2 g and i and 17.e)             |       | (4                           | )          | (11                          | )          |
| Allowance for doubtful  accounts (Note 17.e)                     |       | (12                          | )          | (12                          | )          |
|                                                             | ** ** | **$**                        | **241**    | ** **                   | **$**      | **209** | ** ** |
| **Non  current**                                                 | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Credit on SC Resolution  No. 41/07 and IDC (Note 2.g and i) |       | $                            | 87         |                         | $          | 93 |   |
| Restricted funds                                                 |       | 24                           |       | 15                           |       |
| Other tax credits                                                |       | 21                           |       | 17                           |       |
| Prepaid expenses                                                 |       | 19                           |       | 21                           |       |
| Credit on minimum presumed  income tax                           |       | 7                            |       | 20                           |       |
| Other                                                            |       | 12                           |       | 13                           |       |
| Subtotal                                                         | ** ** | **170**                      | ** ** | **179**                      | ** ** |
| Regulatory contingencies  (Notes 2 g and i and 17.e)             |       | (75                          | )          | (75                          | )          |
| Allowance for doubtful  accounts (Note 17.e)                     |       | (21                          | )          | (17                          | )          |
|                                                             | ** ** | **$**                        | **74**     | ** **                   | **$**      | **87** | ** ** |

 

**(e)****         ****Inventories**

 

Inventories consist of the following:

 
| ** **                                   | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| Wireless handsets and  equipment (Note 17.f) |       | $                            | 264        |                         | $          | 267 |   |
| Allowance for obsolescence  (Note 17.e)      |       | (21                          | )          | (16                          | )          |
|                                         | ** ** | **$**                        | **243**    | ** **                   | **$**      | **251** | ** ** |

 

**(f) Other assets**

 

Other assets consist of the following:

 
| ** **                              | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Current**                             | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Fixed assets held for sale              |       | $                            | 8          |                         | $          | 7 |   |
| Allowance for other assets  (Note 17.e) |       | (1                           | )          | (1                           | )          |
|                                    | ** ** | **$**                        | **7**      | ** **                   | **$**      | **6** | ** ** |
| **Non  current**                        | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Fixed assets held for sale              |       | $                            | 6          |                         | $          | 6 |   |
| Allowance for other assets  (Note 17.e) |       | (3                           | )          | (3                           | )          |
|                                    | ** ** | **$**                        | **3**      | ** **                   | **$**      | **3** | ** ** |

 

F-28

----

Table ofContents

 

**5.****                                     ****Breakdown of the main accounts (continued)**

 

**(g) Fixed assets**

 

Fixed assets consist of the following:

 
| ** **                          | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|-------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Non  current**                    | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Net carrying value (Note  17.a)     |       | $                            | 6,864      |                         | $          | 6,207 |   |
| Write-off of materials  (Note 17.e) |       | (25                          | )          | (19                          | )          |
|                                | ** ** | **$**                        | **6,839**  | ** **                   | **$**      | **6,188** | ** ** |

 

**(h) Accounts payable**

 

Accounts payable consist of the following:

 
| ** **                                                | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Current**                                               | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Fixed assets suppliers                                    |       | $                            | 1.053      |                         | $          | 773 |   |
| Other assets and services  suppliers                      |       | 690                          |       | 607                          |       |
| Inventories suppliers                                     |       | 246                          |       | 157                          |       |
| **Subtotal**                                              | ** ** | **1,989**                    | ** ** | **1,537**                    | ** ** |
| Deferred revenues                                         |       | 135                          |       | 134                          |       |
| Agent commissions                                         |       | 45                           |       | 21                           |       |
| Related parties (Note 7.e)                                |       | 32                           |       | 62                           |       |
| SU reimbursement (Note  2.d)                              |       | 11                           |       | 15                           |       |
|                                                      | ** ** | **$**                        | **2,212**  | ** **                   | **$**      | **1,769** | ** ** |
| **Non  current**                                          | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Fixed assets suppliers —  Related parties (Note 7.e) | ** ** | **$**                        | **24**     | ** **                   | **$**      | **27** | ** ** |

 

**(i) Salaries and socialsecurity payable**

 

Salaries and social security payable consist ofthe following:

 
| ** **                                     | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Current**                                    | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Vacation, bonuses and  social security payable |       | $                            | 264        |                         | $          | 193 |   |
| Termination benefits                           |       | 36                           |       | 44                           |       |
|                                           | ** ** | **$**                        | **300**    | ** **                   | **$**      | **237** | ** ** |
| **Non  current**                               | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Termination benefits                           | ** ** | **$**                        | **82**     | ** **                   | **$**      | **83** | ** ** |

 

**(j) Taxes payable**

 

Taxes payable consist of the following:

 
| ** **                                     | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Current**                                    | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Income tax, net (Note 10)                      |       | $                            | 431        |                         | $          | 290 |   |
| Tax on SU (Note 2.d)                           |       | 155                          |       | 122                          |       |
| Internal taxes                                 |       | 43                           |       | 25                           |       |
| VAT, net                                       |       | 33                           |       | 67                           |       |
| Turnover tax                                   |       | 25                           |       | 47                           |       |
| Regulatory fees                                |       | 24                           |       | 22                           |       |
| Municipal taxes                                |       | 12                           |       | 8                            |       |
| Other                                          |       | 46                           |       | 45                           |       |
|                                           | ** ** | **$**                        | **769**    | ** **                   | **$**      | **626** | ** ** |
| **Non  current (Note 10)**                     | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Deferred tax liabilities                       |       | $                            | 199        |                         | $          | 224 |   |
| Law No. 26,476 Tax  Regularization Regime |       | 13                           |       | —                       |       |
|                                           | ** ** | **$**                        | **212**    | ** **                   | **$**      | **224** | ** ** |

 

**(k) Other liabilities**

 

Other liabilities consist of the following:

 
| ** **                                                 | ** ** | **As of December  31, 2009** | ** ** | **As of December  31, 2008** | ** ** |
|------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Current**                                                | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Guarantees received                                        |       | $                            | 16         |                         | $          | 16 |   |
| Deferred revenue on sale  of capacity and related services |       | 12                           |       | 10                           |       |
| Customer loyalty programs                                  |       | 5                            |       | 5                            |       |
| Court fee                                                  |       | 3                            |       | 3                            |       |
| Other                                                      |       | 16                           |       | 12                           |       |
|                                                       | ** ** | **$**                        | **52**     | ** **                   | **$**      | **46** | ** ** |
| **Non  current**                                           | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Deferred revenue on sale  of capacity and related services |       | $                            | 112        |                         | $          | 86 |   |
| Asset retirement  obligations                              |       | 44                           |       | 37                           |       |
| Retirement benefits                                        |       | 11                           |       | 9                            |       |
| Legal fee (Note 11.d.2)                                    |       | 11                           |       | —                       |       |
| Court fee                                                  |       | 7                            |       | 11                           |       |
| Customer loyalty programs                                  |       | 1                            |       | 2                            |       |
| Other                                                      |       | —                       |       | 1                            |       |
|                                                       | ** ** | **$**                        | **186**    | ** **                   | **$**      | **146** | ** ** |

 

F-29

----

Tableof Contents

 

**5.****                                     ****Breakdown of the main accounts (continued)**

 

**(l) Net sales**

 

Net sales consist of the following:

 
| ** **                    | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|
| ** **                    | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Voice                         |       | $                                 | 2,825      |   | $ | 2,701 |   | $ | 2,601 |   |
| Internet                      |       | 1,058                             |       | 735 |   | 528 |   |
| Data                          |       | 274                               |       | 217 |   | 173 |   |
| **Voice,  data and Internet** | ** ** | **4,157**                         | ** ** | **3,653** | ** ** | **3,302** | ** ** |
| Prepaid and post-paid         |       | 2,754                             |       | 2,362 |   | 1,988 |   |
| Roaming, TLRD and CPP         |       | 1,633                             |       | 1,645 |   | 1,412 |   |
| Value added services          |       | 2,331                             |       | 1,736 |   | 1,264 |   |
| Sale of handsets              |       | 796                               |       | 712 |   | 583 |   |
| Other                         |       | 114                               |       | 110 |   | 92 |   |
| **Wireless  in Argentina**    | ** ** | **7,628**                         | ** ** | **6,565** | ** ** | **5,339** | ** ** |
| Prepaid and post-paid         |       | 200                               |       | 184 |   | 242 |   |
| Roaming, TLRD and CPP         |       | 61                                |       | 78 |   | 102 |   |
| Value added services          |       | 139                               |       | 95 |   | 62 |   |
| Sale of handsets              |       | 6                                 |       | 8 |   | 7 |   |
| Internet                      |       | 19                                |       | 13 |   | 5 |   |
| Other                         |       | 16                                |       | 12 |   | 15 |   |
| **Wireless  in Paraguay**     | ** ** | **441**                           | ** ** | **390** | ** ** | **433** | ** ** |
| **Total  net sales**          | ** ** | **$**                             | **12,226** | ** ** | **$** | **10,608** | ** ** | **$** | **9,074** | ** ** |

 

**(m) Gain on equity investees**

 

Gain on equity investees consist of thefollowing:

 
| ** **                                                                                | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Foreign currency  translation adjustment realized on capital reimbursement of Núcleo | ** ** | **$**                             | **13**     | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** |
|                                                                                           |            |                                   |            |  |  |  |  |  |  |  |

 

**(n) Financial results, net**

 

Financial results, net consist of thefollowing:

 
| ** **                                                | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Generated  by assets**                                  | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income                                           |       | $                                 | 125        |   | $ | 89 |   | $ | 95 |   |
| Related parties (Note 7.e)                                |       | 5                                 |       | 1 |   | 1 |   |
| Foreign currency exchange  gain                           |       | 103                               |       | 104 |   | 26 |   |
| Holding (gain) loss on  inventories (Note 17.f)           |       | (7                                | )          | 2 |   | (59 | ) |
| Other                                                     |       | —                            |       | 3 |   | (1 | ) |
| **Total  generated by assets**                            | ** ** | **$**                             | **226**    | ** ** | **$** | **199** | ** ** | **$** | **62** | ** ** |
| **Generated  by liabilities**                             | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense                                          |       | $                                 | (173       | ) | $ | (203 | ) | $ | (294 | ) |
| Less capitalized interest  on fixed assets                |       | 15                                |       | 20 |   | 23 |   |
| Gain (loss) on discounting  of debt and other liabilities |       | 12                                |       | (53 | ) | (84 | ) |
| Foreign currency exchange  loss                           |       | (310                              | )          | (233 | ) | (293 | ) |
| Gain (loss) on derivatives                                |       | (94                               | )          | (29 | ) | 141 |   |
| Loss on derivatives —  related parties (Note 7.e)    |       | (9                                | )          | — |   | — |   |
| Gain (loss) on purchase of  Notes                         |       | (2                                | )          | 34 |   | — |   |
| Other                                                     |       | 6                                 |       | — |   | 4 |   |
| **Total  generated by liabilities**                       | ** ** | **$**                             | **(555**   | **)** | **$** | **(464** | **)** | **$** | **(503** | **)** |
| ** **                                                | ** ** | **$**                             | **(329**   | **)** | **$** | **(265** | **)** | **$** | **(441** | **)** |

 

**(o) Other expenses, net**

 

Other expenses, net consist of the following:

 
| ** **                                                                                         | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                         | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net reversal of provisions  related to Law No. 26,476 Tax Regularization Regime (Note 11.d.2) |       | $                                 | 36         |   | $ | — |   | $ | — |   |
| Provision for  contingencies (Note 17.e)                                                           |       | (158                              | )          | (100 | ) | (79 | ) |
| Severance payments and  termination benefits                                                       |       | (73                               | )          | (144 | ) | (84 | ) |
| Allowance for obsolescence  of inventories (Note 17.e)                                             |       | (25                               | )          | (12 | ) | (7 | ) |
| Allowance for doubtful  accounts and other assets                                                  |       | (4                                | )          | (6 | ) | (4 | ) |
| Provision for regulatory  contingencies (Note 17.e)                                                |       | (6                                | )          | (12 | ) | (42 | ) |
| Allowance for obsolescence  of materials (Note 17.e)                                               |       | (16                               | )          | (11 | ) | — |   |
| Gain on sale of fixed  assets and other assets                                                     |       | 13                                |       | 9 |   | 19 |   |
| Gain on SC Resolution  No. 41/07 and IDC (Note 2.g and i)                                     |       | —                            |       | — |   | 92 |   |
| Other, net                                                                                         |       | 4                                 |       | 8 |   | 7 |   |
| ** **                                                                                         | ** ** | **$**                             | **(229**   | **)** | **$** | **(268** | **)** | **$** | **(98** | **)** |

 

F-30

----

Tableof Contents

 

**6.****                                     ****Supplementary cash flow information**

 

The statement of cash flows has been prepared usingthe indirect method.

 

The following table reconcilesthe balances included as cash and banks and current investments in the balancesheet to the total amounts of cash and cash equivalents at the beginning andend of the years shown in the statements of cash flows:

 
| ** **                                                                   | ** ** | **As of December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                   | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Cash and banks                                                               |       | $                           | 62         |   | $ | 36 |   | $ | 45 |   | $ | 30 |   |
| Current investments                                                          |       | 1,227                       |       | 1,089 |   | 947 |   | 631 |   |
| **Total  as per balance sheet**                                              | ** ** | **$**                       | **1,289**  | ** ** | **$** | **1,125** | ** ** | **$** | **992** | ** ** | **$** | **661** | ** ** |
| Less:                                                                        |       |                        |       |   |   |   |   |   |   |
| Items not considered cash  and cash equivalents                              |       |                        |       |   |   |   |   |   |   |
| - Related parties                                                            |       | (16                         | )          | — |   | — |   | — |   |
| - Time deposits with  maturities of more than three months                   |       | —                      |       | — |   | (534 | ) | — |   |
| - Government bonds                                                           |       | —                      |       | (223 | ) | — |   | — |   |
| **Total  cash and cash equivalents as shown in the statement of cash flows** | ** ** | **$**                       | **1,273**  | ** ** | **$** | **902** | ** ** | **$** | **458** | ** ** | **$** | **661** | ** ** |

 

The cash flows provided by operating activities (originated infinancial transactions) are as follows:

 
| ** **                                                   | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                   | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Foreign currency exchange  gain on cash and cash equivalents |       | $                                 | 61         |   | $ | 70 |   | $ | 17 |   |
| Interest income generated  by current investments            |       | 76                                |       | 44 |   | 52 |   |
| Interest income generated  by accounts receivable            |       | 49                                |       | 46 |   | 42 |   |
| Interest income generated  by related parties                |       | 3                                 |       | — |   | — |   |
| Collection (payment) on  swap settlement                     |       | (84                               | )          | 170 |   | 12 |   |
| **Subtotal  (originated in financial transactions)**         | ** ** | **105**                           | ** ** | **330** | ** ** | **123** | ** ** |
| Income tax paid                                              |       | (630                              | )          | (182 | ) | (47 | ) |
| Other cash flows provided  by operating activities           |       | 3,813                             |       | 3,171 |   | 2,870 |   |
| **Total  cash flows provided by operating activities**       | ** ** | **$**                             | **3,288**  | ** ** | **$** | **3,319** | ** ** | **$** | **2,946** | ** ** |

 

Income taxes eliminated from operating activities components:

 
| ** **                                                   | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                   | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Reversal of income tax  included in the statement of income  |       | $                                 | 797        |   | $ | 535 |   | $ | 292 |   |
| Income taxes paid (includes payments in advance)             |       | (630                              | )          | (182 | ) | (47 | ) |
| **Total  income taxes eliminated from operating activities** | ** ** | **$**                             | **167**    | ** ** | **$** | **353** | ** ** | **$** | **245** | ** ** |

 

Changes in assets/liabilities components:

 
| ** **                                              | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                              | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Increase  in assets**                                 |       |                              |       |   |   |   |   |
| Investments not considered  as cash or cash equivalents |       | $                                 | (33        | ) | $ | (23 | ) | $ | (2 | ) |
| Trade accounts receivable                               |       | (281                              | )          | (175 | ) | (221 | ) |
| Other receivables                                       |       | (38                               | )          | (188 | ) | (92 | ) |
| Inventories                                             |       | (38                               | )          | (107 | ) | (51 | ) |
| Other assets                                            |       | (1                                | )          | (1 | ) | — |   |
| ** **                                              | ** ** | **$**                             | **(391**   | **)** | **$** | **(494** | **)** | **$** | **(366** | **)** |
| **Net  (decrease) increase in liabilities**             | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accounts payable                                        |       | $                                 | 131        |   | $ | 52 |   | $ | (22 | ) |
| Salaries and social  benefits payable                   |       | 63                                |       | 112 |   | 44 |   |
| Taxes payable                                           |       | (17                               | )          | 194 |   | 44 |   |
| Other liabilities                                       |       | 25                                |       | 8 |   | 9 |   |
| Contingencies                                           |       | (16                               | )          | (38 | ) | (50 | ) |
|                                                    | ** ** | **$**                             | **186**    | ** ** | **$** | **328** | ** ** | **$** | **25** | ** ** |

 

·                   ***Main non-cash operating transactions:***

 
| ** **                                                          | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                          | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Credit on minimum presumed  income tax offset with income taxes     |       | $                                 | 7          |   | $ | 285 |   | $ | 162 |   |
| Derivatives                                                         |       | 8                                 |       | 200 |   | 129 |   |
| Credit on income tax from  cash dividends paid by foreign companies |       | —                            |       | 5 |   | 7 |   |
| Legal fee from Tax  Regularization Regime                           |       | 14                                |       | — |   | — |   |
| Foreign currency  translation adjustments in assets                 |       | 92                                |       | 47 |   | 56 |   |
| Foreign currency  translation adjustments in liabilities            |       | 36                                |       | 8 |   | 30 |   |
|                                                                     |            |                                   |            |  |  |  |  |  |  |  |

 

F-31

----

Tableof Contents

 

**6.****                                     ****Supplementary cash flow information (continued)**

 

·                   ***Most significant investing activities:***

 

Fixed assets acquisitions include:

 
| ** **                                                          | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                          | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Acquisition of fixed  assets (Note 17.a)                            |       | $                                 | (1,801     | ) | $ | (1,656 | ) | $ | (1,416 | ) |
| Plus:                                                               |       |                              |       |   |   |   |   |
| Cancellation of accounts  payable used in prior years acquisitions  |       | (652                              | )          | (626 | ) | (445 | ) |
| Less:                                                               |       |                              |       |   |   |   |   |
| Acquisition of fixed  assets through incurrence of accounts payable |       | 945                               |       | 703 |   | 623 |   |
| Capitalized interest on  fixed assets                               |       | 15                                |       | 20 |   | 23 |   |
| Wireless handsets lent to customers  at no cost (i)                 |       | 16                                |       | 3 |   | 5 |   |
| Asset retirement  obligations                                       |       | 3                                 |       | 10 |   | 2 |   |
| ** **                                                          | ** ** | **$**                             | **(1,474** | **)** | **$** | **(1,546** | **)** | **$** | **(1,208** | **)** |

 

----

(i)            Under certain circumstances, the Company lends handsets to customers at nocost pursuant to term agreements. Handsets remain the property of the Companyand customers are generally obligated to return them at the end of therespective agreements.

 

Intangible assets acquisitions include:

 
| ** **                                                               | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                               | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Acquisition of intangible  assets (Note 17.b)                            |       | $                                 | (23        | ) | $ | (41 | ) | $ | (27 | ) |
| Plus:                                                                    |       |                              |       |   |   |   |   |
| Cancellation of accounts  payable used in prior years acquisitions       |       | (7                                | )          | (5 | ) | (14 | ) |
| Less:                                                                    |       |                              |       |   |   |   |   |
| Acquisition of intangible  assets through incurrence of accounts payable |       | 13                                |       | 31 |   | 6 |   |
| ** **                                                               | ** ** | **$**                             | **(17**    | **)** | **$** | **(15** | **)** | **$** | **(35** | **)** |

 

Equity investee acquisitions include:

 
| ** **                                                         | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                         | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| 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 table presents the cash flows frompurchases, sales and maturities of securities which were not considered cashequivalents in the statement of cash flows:

 
| ** **                                                                             | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                             | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Collection of (investment  in) time deposits with maturities of more than three months |       | $                                 | —     |   | $ | 534 |   | $ | (532 | ) |
| Loan to Nortel                                                                         |       | (8                                | )          | (5 | ) | (1 | ) |
| Collection (acquisition)  of Government bonds                                          |       | 253                               |       | (200 | ) | — |   |
| **Total  cash flows from investments not considered as cash equivalents**              | ** ** | **$**                             | **245**    | ** ** | **$** | **329** | ** ** | **$** | **(533** | **)** |

 

·                   ***Financing activities components:***

 
| ** **                                       | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                       | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Bank overdrafts                                  |       | $                                 | 218        |   | $ | 16 |   | $ | — |   |
| Debt proceeds                                    |       | 143                               |       | 75 |   | 45 |   |
| Payment of Notes                                 |       | (1,409                            | )          | (1,119 | ) | (932 | ) |
| Purchase of Notes                                |       | (108                              | )          | (237 | ) | — |   |
| Payment of bank overdrafts                       |       | (218                              | )          | (16 | ) | — |   |
| Payment of bank loans                            |       | (117                              | )          | (72 | ) | (358 | ) |
| Payment of interest on  Notes                    |       | (149                              | )          | (180 | ) | (264 | ) |
| Payment of interest on  bank loans               |       | (13                               | )          | (5 | ) | (29 | ) |
| Payment of interest on  bank overdrafts          |       | (6                                | )          | — |   | — |   |
| Payment of capital  reimbursement of Núcleo |       | (8                                | )          | — |   | — |   |
| Cash dividends paid                              |       | (19                               | )          | (20 | ) | (38 | ) |
| **Total  financing activities components**       | ** ** | **$**                             | **(1,686** | **)** | **$** | **(1,558** | **)** | **$** | **(1,576** | **)** |

 

During the second quarter of 2007,the Companycollected $182 corresponding to the sale of the equity investee in Publicom,separated as cash flow from investing activities from discontinued operations.

 

**7 - Related party transactions**

 

**(a) Controlling group**

 

As of December 31, 2009, Nortel is thecontrolling shareholder of Telecom Argentina. Nortel owns all of the outstandingClass A shares and 36,832,408 Class B shares of Telecom Argentina,representing 54.74% of the total common stock of Telecom Argentina.

 

Nortel’s ordinary shares (67.79% of the capital stock)are owned by Sofora Telecomunicaciones S.A. (“Sofora”). As of December 31,2009, Sofora’ s shares are owned by the Telecom Italia Group (50%) and by W deArgentina — Inversiones S.L. (50%).

 

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**7 - Related party transactions (continued)**

 

In connection with these transactions, a Shareholders’Agreement between W de Argentina - Inversiones S.L., Telecom Italia S.p.A. andTelecom Italia International N.V. for the joint management of Sofora, Nortel,Telecom and its subsidiaries was executed.

 

The Telecom Italia Group is the operator of TelecomArgentina.

 

**(b) Call options acquired byTelecom Italia International N.V.**

 

In September 2003, Telecom Italia InternationalN.V. acquired, for an aggregate purchase price of US$60 million, two calloptions on W de Argentina — Inversiones S.L.’ entire interest in Sofora(jointly, “the Telecom Italia International N.V. Options”). The Telecom ItaliaInternational N.V. Options are: (i) a call option for the purchase 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.

 

According to SC Note No. 1,004/08, dated June 26,2008 and to SC Note No. 2,573/08, dated December 30, 2008, theexercise of the Telecom Italia International N.V. Options is subject to theprior approval of the SC.

 

Additionally, the Argentine Antitrust Commission (or the “CNDC”) Resolution No. 123/08 resolved that until the CNDC 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 Telecom ItaliaGroup filed an appeal against CNDC Resolution No. 123/08. On January 28,2009, the CNDC, through Resolution No. 6/09, rejected the appeal on thegrounds that the parties did not lose their rights, because CNDC Resolution No. 123/08only*“implies a suspension of the terms provided in theOptions purchase contract until the Regulatory Authority mentioned in Law No. 25.156”*issues a decision regarding the Transaction, as mentioned in d)below. Given the rejection of the appeal, Telecom Italia Group filed acomplaint with the Second National Court of Appeals for Federal Civil andCommercial Matters (“the CNACCF”), requesting its review. The CNACCF declareditself competent to review the appeal, granted the appeal and served theNational Government with notice of said appeal. A decision regarding saidappeal is currently pending.

 

On March 26, 2009, the First National Court ofAppeals for Federal Administrative Litigious Matters issued a precautionarymeasure declaring the suspension of the exercise of Telecom ItaliaInternational N.V.’s rights set forth in the purchase option contract, uponrequest of the company Grupo Dracma S.A., presided by Mr. Adrián Werthein,and W de Argentina- Inversiones S.L. This suspension will be effective untilthe SC renders a final decision regarding the validity of the legal effects inArgentina of the Transaction described in d) below, or, alternatively, when afinal decision is rendered regarding the underlying matter for which theprecautionary measure was issued, whichever occurs first. Telecom ItaliaInternational N.V. filed a special federal appeal against said precautionarymeasure, and upon its rejection, filed an appeal with Argentina’s Supreme Courtof Justice. The matter is still pending before Argentina’s Supreme Court ofJustice.

 

Telecom Argentina has been informed that W deArgentina — 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 stock ledger, pursuant to the terms of section 229 of the NationalCivil and Commercial Code of Procedure. As of the date of issuance of theseconsolidated financial statements, resolution of the complaint is stillpending.

 

With respect to Resolutions No. 483/2009 and No. 3/2010issued by the Secretary of Internal Commerce (“SCI”) and the precautionarymeasure issued on August 31, 2009, by the First Instance Federal Court inContentious Administrative Matters No. 6 dated August 31, 2009, in favorof Telecom Italia International N.V. regarding the Telecom Italia InternationalN.V. Options, it is noted the following: (i) the administrativeresolutions have been repealed; and (ii) the above-mentioned precautionarymeasure has been affirmed by the National Federal Court of Appeals inContentious Administrative Federal Matters, Chamber III. A special federalappeal has been filed against this decision. At the time of issuance of thesefinancial statements, the special federal appeal remains under review.

 

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**7 - Related party transactions (continued)**

 

**(c) Related parties**

 

Related parties (as described in FACPCE RT 21) arethose legal entities or individuals which are related to the indirectshareholders of the Company.

 

**(d) Changes in the equitystocks of the indirect shareholders of Telecom Italia**

 

On October 25, 2007, a consortium made up ofAssicurazioni Generali S.p.A., Intesa San Paolo S.p.A., Mediobanca S.p.A.,Sintonia S.A. (Benetton) and Telefonica, S.A. (of Spain) bought Olimpia S.p.A.’sentire stock through the Italian company Telco S.p.A., which held approximately23.6% of Telecom Italia S.p.A.’s voting shares (the “Transaction”)”. Inaccordance with the last public statement available (Telecom Italia S.p.A.’sfinancial statements as of September 30, 2009), Telco S.p.A. currentlyowns approximately 22.4% of Telecom Italia S.p.A.’s voting shares.

 

After the Transaction, since October 2007,Pirelli & C. S.p.A., its controlled subsidiaries and its relatedparties have ceased to be related parties of Telecom and its subsidiaries.

 

The Transaction has generated different opinions withrespect to its impact on Argentina’s telecommunications market in light of theLaw for Defense of the Competition (Ley de Defensa de la Competencia or “LDC”)and the existing regulatory framework.

 

Consequently, the Transaction required theintervention of various administrative bodies whose decisions have been subjectto various presentations and complaints before administrative and judicialcourts. Consequently, as of the date of issuance of these consolidatedfinancial statements, those decisions are still pending.

 

Additional information on the Transaction and itsconsequences can be reviewed at www.cnv.gov.ar (section “Autopista deInformación Financiera”) and at www.sec.gov.

 

**(e) Balances andtransactions with related parties**

 

The Company has transactions in the normal course ofbusiness with certain related parties. For the years presented, the Company hasnot conducted any transactions with executive officers and/or persons relatedto them. Those balances and transactions are less than $1; therefore they arenot shown due to rounding.

 

The following is a summary of the balances andtransactions with related parties as of December 31, 2009 and 2008 and forthe years ended December 31, 2009, 2008 and 2007:

 
| ** **                                              | ** ** | **As of December** | ** ** | **As of December** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                              | ** ** | **31, 2009**       | ** ** | **31, 2008**       | ** ** |
| **Investments**                                         | ** ** | ** **         | ** ** | ** **         | ** ** |
| Nortel (Note 17.d)                                      |       | $                  | 16         |               | $          | — |   |
| Standard Bank S.A. (Note  17.c) (a)                     |       | 16                 |       | 4                  |       |
| ** **                                              | ** ** | **$**              | **32**     | ** **         | **$**      | **4** | ** ** |
| **Accounts  receivable**                                | ** ** | ** **         | ** ** | ** **         | ** ** |
| TIM Celular S.A. (b)                                    |       | $                  | 3          |               | $          | 2 |   |
| Telecom Italia S.p.A. (b)                               |       | 2                  |       | 3                  |       |
| Standard Bank S.A. (a)                                  |       | 5                  |       | $                  | —     |   |
| ** **                                              | ** ** | **$**              | **10**     | ** **         | **$**      | **5** | ** ** |
| **Non-current  investments**                            | ** ** | ** **         | ** ** | ** **         | ** ** |
| Nortel (Note 17.d)                                      |       | $                  | —     |               | $          | 6 |   |
| ** **                                              | ** ** | **$**              | **—** | ** **         | **$**      | **6** | ** ** |
| **Current  accounts payable:**                          | ** ** | ** **         | ** ** | ** **         | ** ** |
| Telecom Italia Sparkle  S.p.A. (b)                      |       | $                  | 18         |               | $          | 12 |   |
| Latin American Nautilus USA Inc. (b)                    |       | 5                  |       | 1                  |       |
| Telecom Italia S.p.A. (b)                               |       | 3                  |       | 2                  |       |
| Latin American Nautilus Argentina S.A. (b)              |       | 2                  |       | 4                  |       |
| Etec S.A. (b)                                           |       | 2                  |       | 1                  |       |
| Latin American Nautilus  Ltd. (b)                       |       | —             |       | 3                  |       |
| TIM Celular S.A. (b)                                    |       | —             |       | 1                  |       |
| Italtel Argentina S.A. (b) (c)                     |       | —             |       | 37                 |       |
| La Caja Aseguradora de Riesgos del Trabajo ART S.A. (a) |       | 2                  |       | 1                  |       |
| ** **                                              | ** ** | **$**              | **32**     | ** **         | **$**      | **62** | ** ** |
| **Current  debt**                                       | ** ** | ** **         | ** ** | ** **         | ** ** |
| Standard Bank S.A. (a)                                  |       | $                  | 3          |               | $          | — |   |
| ** **                                              | ** ** | **$**              | **3**      | ** **         | **$**      | **—** | ** ** |
| **Non-current accounts payable:**                       | ** ** | ** **         | ** ** | ** **         | ** ** |
| Telecom Italia Sparkle  S.p.A. (b)                      |       | $                  | 22         |               | $          | 24 |   |
| Latin American Nautilus Argentina S.A. (b)              |       | 2                  |       | 2                  |       |
| Latin American Nautilus USA Inc. (b)                    |       | —             |       | 1                  |       |
| ** **                                              | ** ** | **$**              | **24**     | ** **         | **$**      | **27** | ** ** |

 

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**7 - Related party transactions(continued)**

** **
| ** **                                              | ** ** | ** **                                      | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                              | ** ** | **Transaction description**                     | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Services  rendered:**                                 | ** ** | ** **                                      | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| TIM Celular S.A. (b)                                    |       | Roaming                                         |       | $                                 | 12         |   | $ | 14 |   | $ | 12 |   |
| Telecom Italia Sparkle  S.p.A. (b)                      |       | International inbound calls                     |       | 9                                 |       | 7 |   | 6 |   |
| Telecom Italia S.p.A. (b)                               |       | Roaming                                         |       | 7                                 |       | 6 |   | 7 |   |
| Latin American Nautilus Argentina S.A. (b)              |       | International inbound calls                     |       | 1                                 |       | 1 |   | 2 |   |
| Entel S.A. (Bolivia) (b) (d)                       |       | International inbound calls                     |       | —                            |       | — |   | 3 |   |
| Caja de Seguros S.A. (a)                                |       | Others                                          |       | 2                                 |       | — |   | — |   |
| Standard Bank (a)                                       |       | Usage of fixed telephony                        |       | 9                                 |       | 5 |   | 5 |   |
| Standard Bank (a)                                       |       | Interest                                        |       | 3                                 |       | — |   | 1 |   |
| Standard Bank (a)                                       |       | Loss on derivatives                             |       | (9                                | )          | — |   | — |   |
| Nortel S.A                                              |       | Interest                                        |       | 2                                 |       | 1 |   | — |   |
| **Total  services rendered**                            | ** ** | ** **                                      | ** ** | **$**                             | **36**     | ** ** | **$** | **34** | ** ** | **$** | **36** | ** ** |
| **Services  received:**                                 | ** ** | ** **                                      | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Telecom Italia Sparkle  S.p.A. (b)                      |       | International outbound calls and data           |       | $                                 | (75        | ) | $ | (41 | ) | $ | (17 | ) |
| Telecom Italia S.p.A. (b)                               |       | Fees for services and roaming                   |       | (27                               | )          | (14 | ) | (28 | ) |
| TIM Celular S.A. (b)                                    |       | Roaming and Maintenance, materials and supplies |       | (7                                | )          | (5 | ) | (6 | ) |
| Etec S.A. (b)                                           |       | International outbound calls                    |       | (7                                | )          | (4 | ) | (4 | ) |
| Latin American Nautilus USA Inc. (b)                    |       | International outbound calls                    |       | (6                                | )          | (2 | ) | (1 | ) |
| Latin American Nautilus Argentina S.A. (b)              |       | International outbound calls                    |       | (4                                | )          | (4 | ) | (1 | ) |
| Entel S.A. (Bolivia) (b) (d)                       |       | International outbound calls                    |       | —                            |       | (1 | ) | (5 | ) |
| Italtel Argentina S.A. (b) (c)                     |       | Maintenance, materials and supplies             |       | —                            |       | (6 | ) | (3 | ) |
| La Caja Aseguradora de Riesgos del Trabajo ART S.A. (a) |       | Salaries and social security                    |       | (13                               | )          | (10 | ) | (8 | ) |
| Caja de Seguros S.A. (a)                                |       | Insurance                                       |       | (5                                | )          | (3 | ) | (2 | ) |
| La Estrella Cía de Seguros de retiro S.A. (a)      |       | Insurance                                       |       | (2                                | )          | (1 | ) | (1 | ) |
| Caja de Ahorro y Seguro S.A. (a)                        |       | Insurance                                       |       | —                            |       | — |   | (1 | ) |
| Haras El Capricho S.A. (a)                              |       | Advertising                                     |       | —                            |       | — |   | (1 | ) |
| **Total  services received**                            | ** ** | ** **                                      | ** ** | **$**                             | **(146**   | **)** | **$** | **(91** | **)** | **$** | **(78** | **)** |
| **Purchases  of fixed assets/intangible assets:**       | ** ** | ** **                                      |       |                              |       |   |   |   |   |
| Latin American Nautilus  Ltd.(b)                        |       |                                            |       | $                                 | 11         |   | $ | 4 |   | $ | — |   |
| Telecom Italia S.p.A. (b)                               |       |                                            |       | 1                                 |       | 1 |   | 2 |   |
| Latin American Nautilus Argentina S.A. (b)              |       |                                            |       | 1                                 |       | 2 |   | 1 |   |
| Latin American Nautilus USA Inc. (b)                    |       |                                            |       | —                            |       | 1 |   | — |   |
| Telecom Italia Sparkle  S.p.A. (b)                      |       |                                            |       | —                            |       | 33 |   | 26 |   |
| Italtel Argentina S.A. (b) (c)                     |       |                                            |       | —                            |       | 111 |   | 85 |   |
| **Total  fixed assets and intangible assets**           | ** ** | ** **                                      | ** ** | **$**                             | **13**     | ** ** | **$** | **152** | ** ** | **$** | **114** | ** ** |

 

----

(a)          Suchcompanies relate to W de Argentina - Inversiones S.L.

(b)         Suchcompanies relate to Telecom Italia Group.

(c)          Thiscompany is no longer related party at December 2008.

(d)         Thisentity is no longer related party at April 2008.

 

The transactions discussed above were made onterms no less favorable to the Company than would have been obtained fromunaffiliated third parties. The Board of Directors approved transactionsrepresenting more than 1% of the total shareholders equity of the Company,after being approved by the Audit Committee in compliance with Decree No. 677/01.

 

**(f) Merger of Cubecorp**

 

In July 2008, Telecom Argentina acquired 100% ofthe shares of Cubecorp for approximately $98. With this acquisition, Telecomstrengthens its Data Center services, as the Data Center acquired is equippedwith world class infrastructure, which permits to offer clients with highreliability, availability and scalability customized to their needs.

 

The Board of Directors of Telecom and Cubecorp held onSeptember 10, 2008, and October 7, 2008, respectively, approved aPreliminary Agreement of Merger, by which Telecom would merge Cubecorp,effective January 1st, 2009.

 

In March 2009, the Board of Directors of Cubecorpand Telecom approved the Merger Agreement, by which both companies would merge(subject to the approval of the CNV and to the approval of the Shareholders’Meetings of Cubecorp and the Company), being the Company the continuing companyand Cubecorp the dissolved without liquidation company. The CNV determined nolegal or accounting observations for the merger and ordered the publication ofthe Merger Agreement in the Buenos Aires Stock Exchange’s (“the BCBA”) DailyBulletin and in the CNV’s website (www.cnv.gov.ar, section “Autopista deInformación Financiera”).

 

The Shareholders’ Meeting of Cubecorp held on March 19,2009, approved the merger, the corresponding financial statements and thedissolution without liquidation of Cubecorp as provided by Law No. 19,550section 94 art. 7. The merger had effect since January 1st, 2009, when the Company assumed the rendering of Cubecorp’s services.

 

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**7 - Related party transactions (continued)**

 

The Shareholders’ Meeting of Telecom, which in itsAgenda was to consider all the documents of the merger, was first dated April 28,2009 and subsequently dated September 9, 2009, but both times wasprovisionally suspended by resolutions of the Court of Appeals in CommercialMatters No. 2 in the file recorded as “Telecom Italia S.p.A. y Otros/Recurso de Queja por Rec. Denegado”, as described in d) above.

 

The relevance of the merger in the shareholders’equity, in accordance with the results of the Merger Special ConsolidatedBalance Sheet of Cubecorp and Telecom prepared as of December 31, 2008,with effect as from the first hour of January 1st,2009, was the following:

 
| ** **                                           | ** ** | **Telecom** | ** ** | **Cubecorp** | ** ** | **Elimination** | ** ** | **Merged  balance sheet** | ** ** |
|------------------------------------------------------|------------|-------------|------------|--------------|------------|-----------------|------------|---------------------------|------------|
| Current assets                                       |       | 1,141       |       | 10           |       | (6              | )          | **1,145**                 | ** ** |
| Non-current investments —  Cubecorp             |       | 64          |       | —       |       | (64             | )          | **—**                | ** ** |
| Other non-current assets                             |       | 5,888       |       | 69           |       | —          | ** ** | **5,957**                 | ** ** |
| **Total  assets**                                    | ** ** | **7,093**   | ** ** | **79**       | ** ** | **(70**         | **)**      | **7,102**                 | ** ** |
| Current liabilities                                  |       | 2,391       |       | 5            |       | (6              | )          | **2,390**                 | ** ** |
| Non-current liabilities                              |       | 682         |       | 10           |       | —          | ** ** | **692**                   | ** ** |
| **Total  liabilities**                               | ** ** | **3,073**   | ** ** | **15**       | ** ** | **(6**          | **)**      | **3,082**                 | ** ** |
| **Shareholders’  equity**                       | ** ** | **4,020**   | ** ** | **64**       | ** ** | **(64**         | **)**      | **4,020**                 | ** ** |
| **Total  liabilities and shareholders’ equity** | ** ** | **7,093**   | ** ** | **79**       | ** ** | **(70**         | **)**      | **7,102**                 | ** ** |

 

**(g) Acquisition ofSpringville**

 

On April 7, 2009, Personal acquired the shares ofthe Uruguayan company Springville for an amount of Uruguayan peso 237,180,equivalent to US$9,892. It was acquired for the purposes of rendering resaleservices relating to telecommunications in Uruguay and currently, it isrequesting the permits required by the Uruguayan authorities to offer this typeof services. At the date of issuance of these consolidated financialstatements, Springville has not carried out any operations.

 

**(h) Núcleo’s voluntarycapital reduction**

 

On June 5, 2009, Núcleo’s General ExtraordinaryShareholders’ Meeting approved the voluntary capital reduction in an amount ofGuaraníes 24,800 million (equivalent to $21), which was reimbursed to theshareholders in October 2009, cancelling 2,480 ordinary shares (1,674corresponding to Personal, equivalent to $13). This reduction resulted in again of $13 included in the item line “Gain on equity investees” correspondingto the realization of the foreign currency translation adjustments originallyincluded in the item line “Foreign currency translation adjustments” in theShareholders’ equity.

 

**8- Debt**

 

**8.1. Short-term and long-termdebt**

 

As of December 31, 2009and 2008, the Company’s short-term and long-term debt comprises the following:

 
| ** **                            | ** ** | **As of December** | ** ** | **As of December** | ** ** |
|---------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                            | ** ** | **31, 2009**       | ** ** | **31, 2008**       | ** ** |
| **Short-term  debt:**                 | ** ** | ** **         | ** ** | ** **         | ** ** |
| - Principal:                          |       |               |       |               |       |
| Notes                                 |       | $                  | 686        |               | $          | 1,255 |   |
| Issue  discount and underwriting fees |       | (1                 | )          | —             |       |
| Bank loans                            |       | 72                 |       | 89                 |       |
| Subtotal                              |       | 757                |       | 1,344              |       |
| - Accrued interest                    |       | 3                  |       | 20                 |       |
| - Derivatives                         |       | 3                  |       | —             |       |
| - Effect on discounting of  debt      |       | —             |       | (9                 | )          |
| **Total  short-term debt**            | ** ** | **$**              | **763**    | ** **         | **$**      | **1,355** | ** ** |
| **Long-term  debt:**                  | ** ** | ** **         | ** ** | ** **         | ** ** |
| - Principal:                          |       |               |       |               |       |
| Notes                                 |       | $                  | —     |               | $          | 690 |   |
| Issue  discount and underwriting fees |       | —             |       | (2                 | )          |
| Bank loans                            |       | 58                 |       | —             |       |
| **Total  long-term debt**             | ** ** | **$**              | **58**     | ** **         | **$**      | **688** | ** ** |
| **Total  debt**                       | ** ** | **$**              | **821**    | ** **         | **$**      | **2,043** | ** ** |

 

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**8- Debt (continued)**

 

The following table segregates the Telecom Group’sdebt by company as of December 31, 2009:

 
| ** **                                                                      | ** ** | **Personal** | ** ** | **Núcleo** | ** ** | **Consolidated as  of December 31,  2009** | ** ** | **Consolidated as  of December 31,  2008** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------|------------|-----------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ·    **Principal**                                     |       | 685          |       | 130             | ** ** | **815**                                         | ** ** | **2,032**                                       | ** ** |
| ·    **Accrued interest**                              |       | 1            |       | 2               | ** ** | **3**                                           | ** ** | **20**                                          | ** ** |
| **Subtotal**                                                                    | ** ** | **686**      | ** ** | **132**         | ** ** | **818**                                         | ** ** | **2,052**                                       | ** ** |
| ·    **Derivatives**                                   |       | 3            |       | —          | ** ** | **3**                                           | ** ** | **—**                                      | ** ** |
| ·    **Effect on discounting of  debt**                |       | —       |       | —          | ** ** | **—**                                      | ** ** | **(9**                                          | **)**      |
| **Total  debt**                                                                 | ** ** | **689**      | ** ** | **132**         | ** ** | **821**                                         | ** ** | **2,043**                                       | ** ** |
|      ·    **Short-term debt** |       | 689          |       | 74              | ** ** | **763**                                         | ** ** | **1,355**                                       | ** ** |
|      ·    **Long-term debt**  |       | —       |       | 58              | ** ** | **58**                                          | ** ** | **688**                                         | ** ** |

 

**8.2. Debt of Telecom Argentina**

 

In August 2005, TelecomArgentina issued Notes in compliance with the terms of the debt restructuringAPE. On October 15, 2009, and together with the payment of interest,Telecom Argentina fully cancelled its financialdebt. The debt was prepaid 5 years inadvance of the repayment schedule originally agreed upon the financialcreditors. By means of this, at December 31, 2009, Telecom Argentina hasno financial debt.

 

**8.3. Restructured debt of thesubsidiaries**

 

***(a) Personal***

 

**1. Notes**

 

On December 22, 2005,Personal used the proceeds of the issuance of new notes (as further describedbelow) and bank loans together with available cash to fully settle theoutstanding indebtedness which had been restructured back in November 2004.Personal’s objective was to improve its debt profile, by modifying its interestrates.

 

The Shareholders Meeting ofPersonal authorized the Board of Directors to determine the terms andconditions of the issue, including but not limited to, amount, price, interestrate and denomination of the notes.

 

**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- |
| **December 31, 2009** |       | B-                                                                                |       | AA      |   | B  |   | AA-  |

 

During 2009, Personal purchasedNotes pursuant to market purchase transactions, acquiring an aggregateprincipal nominal amount of US$ 19.5 million of Series 3 Medium Term Notesdue 2010. The Notes acquired were cancelled according with the terms andconditions of the respective Indentures. Additional information is given inNote 18.

 

The following table shows the outstanding series ofNotes as of December 31, 2009:

 
| ** ** | ** ** | ** **             | ** ** | **Outstanding**        | ** ** | ** **   | ** ** | ** **   | ** ** | ** **         | ** ** | **Book value as of  December 31, 2009 (in millions of $)** | ** ** | **Fair****value as** | ** ** |
|------------|------------|------------------------|------------|------------------------|------------|--------------|------------|--------------|------------|--------------------|------------|-----------------------------------------------------------------|------------|----------------------|------------|
| ** ** | ** ** | **Nominal  value (in** | ** ** | **nominal  value (in** | ** ** | **Term  in** | ** ** | **Maturity** | ** ** | **Annual**         | ** ** | ** **                                                      | ** ** | **Accrued**          | ** ** | **Issue discount  and underwriting** | ** ** | ** ** | ** ** | **of  December** | ** ** |
| **Series** | ** ** | **millions)**          | ** ** | **millions)**          | ** ** | **years**    | ** ** | **date**     | ** ** | **rate %**         | ** ** | **Principal**                                                   | ** ** | **interest**         | ** ** | **fees** | ** ** | **Total** | ** ** | **31, 2009** | ** ** |
| 3          |       | US$                    | 240        |                   | US$        | 180          |       | 5            |       | December 2010 |       | 9.25                                                            |       | 686                  |       | 1 |   | (1 | ) | 686 |   | 721 |   |
|       |       |                   |       |                   |       |         |       |         | ** ** | **Total**          | ** ** | **686**                                                         | ** ** | **1**                | ** ** | **(1** | **)** | **686** | ** ** | **721** | ** ** |
|            |            |                        |            |                        |            |              |            |              |            |                    |            |                                                                 |            |                      |            |  |  |  |  |  |  |  |  |

 

**2. Covenants**

 

The terms and conditions of Personal’s Notes requirethat Personal comply with various covenants, including:

 

·                  inthe case of a change of control, Personal shall make an offer to redeem alloutstanding notes, as described in the Indenture;

 

·                  if at any time the Leverage Ratio (total outstandingindebtedness / consolidated EBITDA for the most recently completed period offour consecutive fiscal quarters) is in excess of 3.00 to 1.00 and Personalmakes any payment of dividends, the rate of interest accruing on the notesshall increase by 0.5% per annum.

 

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**8 -Debt (continued)**

 

**3. Negative covenants**

 

The terms and conditions of Personal’s Notes requirethat Personal comply with various negative covenants, including limitations on:

 

a)             Incurrence and/or assumption of, and/or permitting to exist in Personal orits subsidiaries (as defined in the relevant debt instruments), any liens onthe respective properties, assets or income for the purpose of securing anyindebtedness of any person, except for certain permitted liens;

b)            Incurrence of and/or permitting any restricted subsidiaries to incur anyindebtedness unless on the date of the incurrence of such indebtedness, after givingeffect to such incurrence and the receipt and application of the proceedstherefrom, the Leverage Ratio does not exceed 3.00 to 1.00;

c)             Permitting any of its subsidiaries to, directlyor indirectly, enter into, renew or extend any transaction or arrangementincluding the purchase, sale, lease or exchange of property or assets, or therendering of any service, with any holder of 10% or more of the capital stockof Personal, except upon terms not less favorable to Personal or suchsubsidiary than those that could be obtained in a comparable arm’s-lengthtransaction with a person that is not an affiliate of Personal;

d)            The sale of certain assets with some exceptions, i.e. a minimum 75% ofconsideration received should be in cash or cash equivalents;

e)             Sale and leaseback transactions;

f)               Personal will not merge into or consolidate with any person or sell,assign, transfer or otherwise convey or dispose of all or substantially all ofits assets, except for certain permitted conditions.

 

**4. Events of default**

 

The terms and conditions of Personal’s Notes providefor certain events of default as follows:

 

a)             Failure to pay principal or interest;

b)            Cross-default provisions, such as failure to pay principal or interest onany other outstanding indebtedness of Personal or its subsidiaries, whichequals or exceeds an aggregate amount of US$ 20 million and shall continueafter the grace period;

c)             Any final judgment against Personal or its subsidiaries providing for thepayment of an aggregate amount exceeding US$ 20 million;

d)            Any voluntary petition for bankruptcy by Personal or its subsidiaries,special bankruptcy proceedings or out-of-court reorganization agreements and,

e)             Any event or condition which results in the revocation or loss of thelicenses held by either Personal and/or any of its subsidiaries which wouldmaterially affect the entities ́ business operations, their financial conditionand results of operations.

 

Provided any of the events of default occurs, thecreditors are entitled, at their option, to declare the principal amount of therelevant debt instrument to be due and payable.

 

***(b) Núcleo***

 

***Debt in foreign currency (US$)***

 

During fiscalyear 2006, Núcleo entered into new loans with banks with operations in Paraguayfor a total amount of US$ 9.5 million. During fiscal year 2009, Núcleo has cancelledthe remaining US$ 1.6 million (equivalent to$5).

 

***Debt in local currency(Guaraníes)***

 

The following table shows the outstanding loans withbanks with operations in Paraguay and the main terms as of December 31,2009:

 
| **Nominal  value  (in million of** | ** ** | **Amortization** | ** ** | **Book  value (in million of $)** | ** ** |
|------------------------------------|------------|------------------|------------|-----------------------------------|------------|
| **Guaraníes)**                | ** ** | **term**         | ** ** | **Current**                       | ** ** | **Non-current** | ** ** |
| **67,180**                         | ** ** | **2 years**      | ** ** | **26**                            | ** ** | **29** | ** ** |
| **36,800**                         | ** ** | **1 year**       | ** ** | **30**                            | ** ** | **—** | ** ** |
| **32,000**                         | ** ** | **2 years**      | ** ** | **10**                            | ** ** | **16** | ** ** |
| **15,400**                         | ** ** | **2 years**      | ** ** | **4**                             | ** ** | **9** | ** ** |
| **7,000**                          | ** ** | **2 years**      | ** ** | **2**                             | ** ** | **4** | ** ** |
| **158,380**                        | ** ** | ** **       | ** ** | **72**                            | ** ** | **58** | ** ** |

 

The average annual rate of these loans is 9.64% inGuaraníes.

 

The terms andconditions of Núcleo’s loans provide for certain events of default which areconsidered standard for these kind of operations.

 

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**9 -Shareholders’ equity**

 

**(a) Common stock**

 

At December 31, 2009, theCompany had 502,034,299 authorized, issued and outstanding shares of $1 parvalue Class A Common Stock (51% of the total capital stock), 440,910,912shares of $1 par value Class B Common Stock (44.79% of the total capitalstock) and 41,435,767 shares of $1 par value Class C Common Stock (4.21%of the total capital stock - see c below). Common stockholders are entitled toone vote for each share held of record on all matters submitted to a vote ofshareholders.

 

The Company’s shares areauthorized by the CNV, the BCBA and the New York Stock Exchange (“NYSE”) forpublic trading. Only 404,078,504 of Class B shares are traded since Nortelowns all of the outstanding Class A shares and 36,832,408 Class Bshares; and Class C shares are dedicated to the employee stock ownershipprogram, as described below.

 

Each ADS represents 5 Class Bshares and are traded on the NYSE under the ticker symbol TEO. Class Balso began trading on the Mexican Stock Exchange on July 15, 1997.

 

**(b) Restrictions ondistribution of profits**

 

The Company is subject to certain restrictionson the distribution of profits. Under the Argentine Corporations Law, theby-laws of the Company and rules and regulations of the CNV, a minimum of5% of net income for the year calculated in accordance with Argentine GAAP,plus/less previous years adjustments and, if any, considering the absorption ofaccumulated losses, must be appropriated by resolution of the shareholders to alegal reserve until such reserve reaches 20% of the outstanding capital (commonstock plus inflation adjustment of common stock). Accordingly, TelecomArgentina has absorbed the legal reserve in its entirety during fiscal year2006 ($277). Telecom Argentina will not be able to distribute dividends untilthe Company absorbs the total amount of accumulated losses and restores thelegal reserve.

 

**(c) Share ownership program**

 

In 1992, a decree from the Argentine Government, whichprovided for the creation of the Company upon the privatization of ENTel,established that 10% of the capital stock then represented by 98,438,098 Class Cshares was to be included in the*“Programa de PropiedadParticipada* or PPP” (an employee share ownership program sponsoredby the Argentine Government). Pursuant to the PPP, the Class C shares wereheld by a trustee for the benefit of former employees of the state-ownedcompany who remained employed by the Company and who elected to participate inthe plan.

 

In 1999, Decree No. 1,623/99 of the ArgentineGovernment eliminated the restrictions on some of the Class C shares heldby the PPP, although it excluded Class C shares of the Fund of Guaranteeand Repurchase subject to an injunction against their use. In March 2000,the shareholders’ 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).

 

The Annual General and Extraordinary Meetings held on April 27,2006, approved that the power for the conversion of up to 41,339,464 Class “C”ordinary shares into the same amount of Class “B” ordinary shares, bedelegated to the Board of Directors. The conversion will take place based on:a) what is determined by Banco de la Ciudad de Buenos Aires (Fiduciary agent ofPPP) as the case may be; and b) the amount of Class “C” shares eligiblefor conversion. As granted by the Meetings, the Board transferred the powers toconvert the shares to some of the Board’s members and/or the Company’sexecutive officers. From the total shares eligible for conversion approved bythe Shareholders’ Meetings, 4,496,971 Class “C” ordinary shares wereconverted into Class “B” ordinary shares.

 

Class “C” shares of the Fund of Guarantee andRepurchase which were affected by an injunction measure recorded in file *“Garcías de Vicchi, Amerinda y otros c/ Sindicación de AccionistasClase C del Programa de Propiedad Participada*” were not eligible forconversion. As of the date of these consolidated financial statements, theinjunction was not released, although it is limited to the amount of 4,593,274shares.

 

41,418,562 Class “C” shares are still part of the Fund of Guaranteeand Repurchase and are subject to the injunction described above.

 

In October 2009, the comptroller of the PPP, whowas timely appointed by the National Court of Federal Civil and CommercialNo.10, informed to Telecom that he intends to obtain the release of the injunctionsaffecting part of the shares included in the Fund of Guarantee and Repurchase,for the purpose of allowing the cancellation of the balance belonging to formeremployees who had transferred their shares to the Fund.

 

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**10.****                              ****Income tax**

 

As describe in Note 4.p, the Company accounts for income taxes in accordance with theguidelines of RT 17.

 

Income tax payable as of December 31, 2009 and2008 consists of the following:

 
| ** **                                                   | ** ** | **As of December 31, 2009** | ** ** | **As of**    | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|--------------|------------|
| ** **                                                   | ** ** | **Telecom**                      | ** ** | **Personal** | ** ** | **Núcleo** | ** ** | **Telecom  USA** | ** ** | **Total** | ** ** | **December 31,  2008** | ** ** |
| ** **                                                   | ** ** | ** **                       | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income tax provision                                         |       | $                                | 286        |         | $          | 503 |   | $ | 8 |   | $ | — |   | $ | 797 |   | $ | 635 |   |
| Credit on minimum presumed  income tax                       |       | (23                              | )          | —       |       | — |   | — |   | (23 | ) | (235 | ) |
| Payments in advance of  income taxes                         |       | (41                              | )          | (296         | )          | (9 | ) | — |   | (346 | ) | (110 | ) |
| Law No. 26,476 Tax  Regularization Regime (Note 11.d.2) |       | 3                                |       | —       |       | — |   | — |   | 3 |   | — |   |
| **Current  Income tax payable (receivable)**                 | ** ** | **225**                          | ** ** | **207**      | ** ** | **(1** | **)** | **—** | ** ** | **431** | ** ** | **290** | ** ** |
| Law No. 26,476 Tax  Regularization Regime (Note 11.d.2) |       | 13                               |       | —       |       | — |   | — |   | 13 |   | — |   |
| Non current net deferred  tax liabilities                    |       | 187                              |       | 10           |       | — |   | 2 |   | 199 |   | 224 |   |
| **Non-current Income tax payable**                           | ** ** | **200**                          | ** ** | **10**       | ** ** | **—** | ** ** | **2** | ** ** | **212** | ** ** | **224** | ** ** |
| **Total  Income tax liabilities (assets)**                   | ** ** | **$**                            | **425**    | ** **   | **$**      | **217** | ** ** | **$** | **(1** | **)** | **$** | **2** | ** ** | **$** | **643** | ** ** | **$** | **514** | ** ** |

 

The tax effects of temporary differences thatgive rise to significant portions of the Company’s deferred tax assets andliabilities are presented below:

 
| ** **                                                              | ** ** | **As of December 31, 2009** | ** ** | **As of**    | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|--------------|------------|
| ** **                                                              | ** ** | **Telecom**                      | ** ** | **Personal** | ** ** | **Núcleo** | ** ** | **Telecom  USA** | ** ** | **Total** | ** ** | **December  31, 2008** | ** ** |
| Tax loss carryforwards                                                  |       | $                                | —     |         | $          | 1 |   | $ | — |   | $ | — |   | $ | 1 |   | $ | 2 |   |
| Allowance for doubtful  accounts                                        |       | 21                               |       | 33           |       | 1 |   | — |   | 55 |   | 75 |   |
| Provision for  contingencies                                            |       | 141                              |       | 43           |       | — |   | — |   | 184 |   | 155 |   |
| Inventories                                                             |       | —                           |       | 20           |       | — |   | — |   | 20 |   | 4 |   |
| Other deferred tax assets                                               |       | 69                               |       | 4            |       | — |   | — |   | 73 |   | 109 |   |
| **Total  deferred tax assets**                                          | ** ** | **231**                          | ** ** | **101**      | ** ** | **1** | ** ** | **—** | ** ** | **333** | ** ** | **345** | ** ** |
| Fixed assets                                                            |       | (62                              | )          | (85          | )          | 7 |   | (2 | ) | (142 | ) | (108 | ) |
| Inflation adjustments (i)                                               |       | (356                             | )          | (13          | )          | (8 | ) | — |   | (377 | ) | (416 | ) |
| Purchase price allocation of Cubecorp’s fixed assets               |       | —                           |       | —       |       | — |   | — |   | — |   | (23 | ) |
| Derivatives (ii)                                                        |       | —                           |       | —       |       | — |   | — |   | — |   | (5 | ) |
| Estimated cash dividends receivable from foreign companies              |       | —                           |       | —       |       | — |   | — |   | — |   | (5 | ) |
| **Total  deferred tax liabilities**                                     | ** ** | **(418**                         | **)**      | **(98**      | **)**      | **(1** | **)** | **(2** | **)** | **(519** | **)** | **(557** | **)** |
| **Subtotal  deferred tax (liabilities) assets**                         | ** ** | **(187**                         | **)**      | **3**        | ** ** | **—** | ** ** | **(2** | **)** | **(186** | **)** | **(212** | **)** |
| - Valuation allowance  (Note 17.e)                                      |       | —                           |       | (13          | )          | — |   | — |   | (13 | ) | (12 | ) |
| **Net  deferred tax liabilities as of December 31, 2009**          | ** ** | **$**                            | **(187**   | **)**        | **$**      | **(10** | **)** | **$** | **—** | ** ** | **$** | **(2** | **)** | **$** | **(199** | **)** | ** ** | ** ** |
| **Net  deferred tax (liabilities) assets as of December 31, 2008** | ** ** | **(iii)  $ (219**           | **)**      | **$**        | **(6**     | **)** | **$** | **1** | ** ** | **$** | **—** | ** ** | ** ** | ** ** | **$** | **(224** | **)** |

 

----

(i)   Mainly related to inflation adjustment onfixed assets, intangibles and other assets for financial reporting purposes.

(ii)  This deferred taxliability was generated by the effect of changes in the fair value of cash flowhedges.

(iii) Includes $(9) ofnet deferred tax liabilities incorporated on January 1st, 2009, from themerger with Cubecorp.

 

Income tax benefit (expense) for the years ended December 31,2009, 2008 and 2007 consists of the following:

 
| ** **                       | ** ** | **Year ended December 31,  2009** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|
| ** **                       | ** ** | **Telecom**                            | ** ** | **Personal** | ** ** | **Núcleo** | ** ** | **Telecom USA** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current tax expense              |       | $                                      | (301       | ) | $ | (511 | ) | $ | (6 | ) | $ | — |   | $ | (818 | ) |
| Deferred tax benefit  (expense)  |       | 31                                     |       | (6 | ) | (1 | ) | (1 | ) | 23 |   |
| Valuation allowance (Note  17.e) |       | —                                 |       | (2 | ) | — |   | — |   | (2 | ) |
| **Income  tax expense**          | ** ** | **$**                                  | **(270**   | **)** | **$** | **(519** | **)** | **$** | **(7** | **)** | **$** | **(1** | **)** | **$** | **(797** | **)** |

 
| ** **                       | ** ** | **Year ended December 31,  2008** | ** **        |
|----------------------------------|------------|----------------------------------------|-------------------|
| ** **                       | ** ** | **Telecom**                            | ** **        | **Personal** | ** ** | **Núcleo** | ** ** | **Telecom  USA** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | ** **                             | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current tax expense              |       | $                                      | (238              | ) | $ | (390 | ) | $ | (7 | ) | $ | — |   | $ | (635 | ) |
| Deferred tax benefit             |       | 93                                     |              | 2 |   | 3 |   | — |   | 98 |   |
| Valuation allowance (Note  17.e) |       | 2                                      |              | — |   | — |   | — |   | 2 |   |
| **Income  tax expense**          | ** ** | **$**                                  | **(a) (143** | **)** | **$** | **(388** | **)** | **$** | **(4** | **)** | **$** | **—** | ** ** | **$** | **(535** | **)** |

 
| ** **                                        | ** ** | **Year ended December 31,  2007** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                        | ** ** | **Telecom**                            | ** ** | **Personal** | ** ** | **Núcleo** | ** ** | **Telecom  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** | **)** |

 

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(a)          Includes$(2) corresponding to Cubecorp, entity that was merged in January 1st, 2009.

 

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Table of Contents

 

**10.****                              ****Income tax (continued)**

 

Income tax benefit (expense) for the years ended December 31,2009, 2008 and 2007 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                           |       | $             | 3,130      |              | $          | 53        |       | $ | 3,183 |   |
| Non taxable items — Gain  on equity investees                   |       | (978          | )          | —            |       | (978      | )          |
| Non taxable items — Other                                       |       | 24            |       | 20                |       | 44        |       |
| Subtotal                                                             |       | 2,176         |       | 73                |       | 2,249     |       |
| Statutory income tax rate                                            |       | 35            | %          | (*                | )          |      |       |
| **Income  tax expense at statutory tax rate**                        | ** ** | **(762**      | **)**      | **(8**            | **)**      | **(770**  | **)**      |
| Change in deferred assets  and liabilities                           |       | (6            | )          | —            |       | (6        | )          |
| Law No. 26,476 Tax  Regularization Regime (Note 11.d.2)         |       | (19           | )          | —            |       | (19       | )          |
| Change in valuation  allowance (Note 17.e)                           |       | (2            | )          | —            |       | (2        | )          |
| **Income  tax expense as of December 31, 2009**                 | ** ** | **$**         | **(789**   | **)**             | **$**      | **(8**    | **)**      | **$** | **(797** | **)** |
|                                                                 |       |          |       |              |       |      |       |
| 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            | %          | (*                | )          |      |       |
| **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 (Note 17.e)                           |       | 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** | **)** |

 

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(*)         The statutory tax rate in Paraguay was 10% and in theUSA the effective tax rate was 33.5%, 20.5% and 39.5% in 2009, 2008 and 2007,respectively.

 

**11.****                              ****Commitments and contingencies**

 

**(a) Purchase commitments**

 

The Company has entered into various purchaseorders amounting in the aggregate to approximately $1,111 as of December 31,2009, primarily related to the supply of switching equipment, external wiring,infrastructure agreements, inventory and other service agreements. This amountalso includes the commitments mentioned in c) below.

 

**(b) Investment commitments**

 

In August 2003, Telecom Argentina wasnotified by the SC 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 the inception of the Fund. In addition, management announced that it isthe Company’s intention to promote agreements with local suppliers which wouldfacilitate their access to financing.

 

**(c) Commitments andcontingencies assumed by Telecom from the sale of Publicom**

 

On March 29, 2007, Telecom’s Board of Directorsapproved the sale of its equity interest in Publicom to Yell Publicidad S.A. (acompany incorporated in Spain, member of the Yell Group- *Grupo Yell*),which was executed on April 12, 2007 (the “Closing Date”).

 

A series of declarations and guarantees, standard forthis type of transactions, assumed by Telecom towards the buyer with respect toPublicom and to itself and others assumed by the buyer towards Telecom andtowards itself are included in the contract. Reciprocal obligations andcommitments are also set forth, between Telecom and the buyer.

 

It has been ruled that Telecom shall indemnify andshall hold the buyer harmless from any and all damages that might result from:

 

(i) Any claim addressed to the buyer by thirdparties in which the owner’s equity, entitlement to inherent rights and /orunrestricted disposal of shares is successfully objected;

 

(ii) Damages and losses of equity derived fromincorrectness or inaccuracy of the declarations and guarantees;

 

(iii) Damages and losses of equity derived fromthe non-fulfillment of the obligations and commitments undertaken by Telecom.

 

These indemnities granted by Telecom have time as wellas economic limits.

 

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**11. Commitmentsand contingencies (continued)**

 

On Closing Date and after the stock transfer wasactually performed, Publicom accepted a proposal from Telecom. According tosaid proposal, Telecom:

 

·             engagesPublicom to publish Telecom’s directories (“white pages”) for a 5-year period,which may be extended upon expiry date;

 

·             engagesPublicom to distribute Telecom’s white pages for a 20-year period, whichmay be extended upon expiry date;

 

·             engagesPublicom to maintain the Internet portal, which allows to access the white pages throughthe web, for a 20-year period, term which may be extended upon expiry date;

 

·             grantsPublicom the right to lease advertising spaces on the white pages for a20-year period, which may be extended upon expiry date; and

 

·             authorizesthe use of certain trademarks for the distribution and/or consultation on theInternet and/or advertising spaces agreements for the same specified period.

 

Telecom reserves the right to supervise certainmatters associated with white pages publishing and distribution activitiesthat allow Telecom to assure the fulfillment of its regulatory obligationsduring the term of the proposal. The terms and conditions of the proposalinclude usual provisions that allow Telecom to apply economic sanctions in thecase of non-compliance, and in the case of serious non-compliance, allowTelecom to require an early termination. In the latter case, the Company couldenter into an agreement with other providers.

 

The proposal set prices for the publishing, printingand distribution of the 2007 directories, and provided clauses for thesubsequent editions in order to ensure Telecom that said services will becontracted at market price.

 

Telecom shall continue to include in its own invoicesthe amounts to be paid by its customers to Publicom for the contracted servicesor those that may be contracted in the future, and subsequently collect theamounts for said services on behalf and to the order of Publicom, withoutabsorbing any delinquency.

 

**(d) Contingencies**

 

TheCompany is a party to several civil, tax, commercial, labor and regulatoryproceedings and claims that have arisen in the ordinary course of business. Inorder to determine the proper level of reserves relating to thesecontingencies, the Management of the Company, based on the opinion of itsinternal and external legal counsel, assesses the likelihood of any adversejudgments or outcomes related to these matters as well as the range of probablelosses that may result from the potential outcomes. A determination of theamount of reserves required, if any, for these contingencies is made aftercareful analysis of each individual case. The determination of the requiredreserves may change in the future due to new developments or changes as amatter of law or legal interpretation. Consequently, as of December 31,2009, the Company has established reserves in an aggregate amount of $526 tocover potential losses under these claims ($79 for regulatory contingenciesdeducted from assets and $447 included under 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, 2009, these restricted fundstotaled $34 (included in the caption “Other receivables”).

 

Below is a summary of the most significant claims andlegal actions for which reserves have been established:

 

*1.**             **Profit sharing bonds*

 

In August 2008, the Supreme Court of Justice,when resolving a case against Telefonica, found the Decree No. 395/92unconstitutional. Different legal actions were brought, mainly by formeremployees of the Company against the National Government and the Company,requesting that Decree No. 395/92 — which expressly exempted the Companyfrom issuing the profit sharing bonds provided in Law No. 23,696 — bestruck down as unconstitutional and, therefore, claiming compensation for thedamages they had suffered because such bonds had not been issued.

 

In those suits for which judgment has already beenrendered, the trial court judges hearing the matter resolved to dismiss theactions brought — relying on arguments made by each case’s respectiveprosecutors — pointing that such rule was valid and constitutional.However, and based on the National Supreme Court of Justice’s judgment on thismatter, the three Divisions of the Courts of Appeal ruled that Decree No. 395/92was unconstitutional.

 

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**11. Commitmentsand contingencies (continued)**

 

In order to defend its rights, the Company filedvarious appeals against these unfavorable decisions, and although saiddecisions have not been reviewed by the National Supreme Court of Justice, itshould be noted that the abovementioned ruling of the Supreme Court on the caseagainst Telefonica has created a judicial precedent that, in the opinion of thelegal counsel of the Company, increases the probability that the Company has toface certain contingencies as a result of an adverse ruling, notwithstandingthe right of reimbursement that attends Telecom against the National State.

 

Said Court decision found the abovementioned decreeunconstitutional and ordered to send the proceedings back to the court oforigin so that said court could decide on which was the subject compelled topay —licensee and/or National Government- and the parameters that were to betaken into account in order to quantify the complaints set forth therein(percentage of profit sharing, statue of limitation, distribution methodbetween the beneficiaries of the program).

 

As of December 31, 2009, the management of theCompany, with the aid of its legal counsel, has recorded provisions forcontingencies that it estimates are sufficient to cover the risks associatedwith these claims, having considered the legal background up to the date ofissuance of these consolidated financial statements.

 

*2.**             **Tax matters included in the Law No. 26,476 “Tax RegularizationRegime”*

 

In December 2008, the National Congress approvedLaw No. 26,476, the “Law on Tax Regularization and Repatriation of Capital”establishing a regime for the regularization of tax liabilities, therepatriation of funds and the registration of employees. Title I of the lawprovides taxpayers with a complete exemption for penal responsibilities in taxmatters, for fines and a partial exemption for interest arising out of tax orsocial security liabilities prior to December 31, 2007.

 

As discussed in previous financial statements, Telecomwas party to various legal proceedings arising from claims by AFIP (theArgentine Federal Tax Authority) with regards to:

 

(i)  AFIP’s claim for income tax for fiscal years1993 to 1999 arising from disagreements in the calculation of depreciation ofits fiber optic network.

 

(ii) AFIP’s claims for income tax for fiscalyears 1997 to 2000 challenging certain deductions for bad debt expenses ofTelecom Argentina.

 

Upon detailed analysis of the Regularization Regime,the Company decided to settle the AFIP’s claims in the time-frame establishedby Title I of the above-mentioned law.

 

The Company’s compliance with the RegularizationRegime resulted in a reversion of reserves and recognition of a new debt owedto AFIP in the amount of $38 (nominal value), $2 payable upon Telecom Argentina’sjoining the Regime and the balance payable in 120 monthly installments at anannual interest rate of 9%. The Company has also recognized a liability forlegal fees in connection with these regularized processes estimated at $14(nominal value). The value of both liabilities has been estimated at netpresent value according to Argentine GAAP and has been set forth under thesection “Taxes payable” and “Other liabilities” in the consolidated balancesheet, classified by each liability’s nature and due date. The correspondingentries to the Income statement were classified under “Financial results, net -generated by liabilities”, “Other expenses, net,” and “Income taxes -currentand deferred-” as appropriate.

 

In addition, the Company is subject to other claimsand legal actions that have arisen in the ordinary course of business. Althoughthere can be no assurance as to the ultimate disposition of these matters, itis the opinion of the Management of the Company, based upon the informationavailable at this time and consultation with external and internal legalcounsel, that the expected outcome of these other claims and legal actions,individually or in the aggregate, will not have a material effect on theCompany’s financial position or results of operations. Accordingly, no reserveshave been established for the outcome of these actions.

 

Below is a summary of the most significant otherclaims and legal actions for which reserves have not been established:

 

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**11. Commitmentsand contingencies (continued)**

 

*Labor proceedings*

 

Based on a legal theory of successor companyliability, Telecom Argentina has been named as a co-defendant with ENTel inseveral labor lawsuits brought by former employees of ENTel against thestate-owned company. The Transfer Agreement provided that ENTel and the ArgentineGovernment, and not the Company, are liable for all amounts owed in connectionwith claims brought by former ENTelemployees, whether or not such claims were made prior to the TransferDate, if the events giving rise to such claims occurred prior to the TransferDate.

 

ENTel and the Argentine Government have agreed toindemnify and hold the Company harmless in respect of such claims. Undercurrent Argentine legislation, the Argentine Government may settle any amountspayable to the Company for these claims through the issuance of treasury bonds.As of December 31, 2009, total claims in these labor lawsuits amounted to$9.

 

*Tax matters*

 

In December 2001, the AFIP made an additionalincome tax claim on the amortization period utilized by Telintar to depreciateits optic fiber network in submarine cables. Telintar was dissolved and mergedin equal parts into Telecom Argentina Internacional S.A. and Telefonica LargaDistancia de Argentina S.A., entities controlled by Telecom Argentina andTelefonica, respectively. Telecom Argentina Internacional S.A. was subsequentlymerged with and into Telecom Argentina in September 1999.

 

In July 2005, the National Fiscal Court resolvedagainst Telecom Argentina ratifying the tax assessment relating to additionaltaxes, although it excluded interest and penalties. On the same grounds asdescribed in the above paragraph, during the third quarter of 2005, TelecomArgentina recorded a current tax liability amounting to $0.5 against incometaxes in the statement of income. Telecom Argentina and Telefonica appealedthis judgment before the corresponding Federal Court. In June 2009, theCourt revoked the ruling of the Fiscal Court and nullified the tax assessmentthat had been appealed.

 

The management of the Company together with its legalcounsel believes it has meritorious legal defenses to these unfavorablejudgments and that the ultimate outcome of these cases will not result in anincremental adverse impact on Telecom Argentina’s results of operations andfinancial condition.

 

In December 2006, the AFIP assessed additionalincome tax and tax on minimum presumed income for the 2000 and 2001 tax yearsclaiming that Personal incorrectly deducted certain uncollectible receivables.Personal appealed this assessment with the National Fiscal Tribunal. The AFIP’sclaim is contrary to certain jurisprudential precedents by the National FiscalTribunal. Consequently, Personal and its legal counsel believe that the matterwill be resolved in its favor when the appeal process is completed.

 

*Other claims*

 

*Consumer Trade Union Proceedings*

 

In November 1995, Telecom Argentina was servedwith notice of a complaint filed by a consumer trade union, “ConsumidoresLibres Cooperativa Limitada de Provisión de Servicios Comunitarios,” againstTelecom Argentina, Telefónica, Telintar and the Argentine Government. The suitseeks to declare null, illegal and unconstitutional all tariff rules andagreements as of the Transfer Agreement and to reduce the tariffs of thelicensees so as to obtain a return rate not in excess of an annual 16% on fixedassets as described in the List of Conditions. Furthermore, the complaint seeksreimbursement of sums allegedly received in excess of the 16% return rate aswell as sums resulting from the reduction in the rate of turnover tax for thecity of Buenos Aires.

 

In October 2001, the Federal Court of Appeals forContentious and Administrative Matters issued a precautionary measuresuspending the ability of telecommunications companies to increase tariffs byreference to the U.S. consumer price index. However, the Public Emergency Lawand the reformation of the exchange regime have had an analogous result to thatproposed by the precautionary measure, by prohibiting, as of January 6,2002, contracts held with the public administration, including public work andservices contracts, from being adjusted to dollars or other foreign currencies.A decision of the Court of Appeals is still pending.

 

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**11. Commitmentsand contingencies (continued)**

 

Additionally, upon the extension of the exclusivityperiod for the provision of telecommunication services, the same consumer groupfiled a new lawsuit in Argentine federal courts against the service providersand the Argentine Government. Plaintiffs are seeking damages, an injunctionrevoking the licenses granted to telecommunication service providers andtermination of the exclusivity period. This case is currently in a preliminarystage.

 

*Users and Consumer Trade Union Proceedings*

 

In August 2003, anotherconsumer group filed suit against Telecom Argentina in Argentine federal courtalleging the unconstitutionality of certain resolutions issued by the SC. Theseresolutions had amended a prior resolution which prescribed the way serviceproviders had to refund customers for additional charges included in monthlyfixed-line service fees. The amendment was intended to establish another methodof refunding customers due to practical reasons. Telecom Argentina compliedwith the amended resolution and provided refunds to customers. The case isready for sentence, but Telecom Argentina does not believe it has merit andwill contest it vigorously. Telecom Argentina is unable, however, to predictthe outcome of this proceeding, or reasonably estimate a range of possible lossgiven the current status of the litigation.

 

**12- Changes in useful lives of fixed assets in the Telecom Group**

 

The Telecom Group performed an integral review of theuseful lives of the fixed assets taking into account the rapid evolution of thetelecommunications industry.

 

During the second quarter of 2009, the Company engagedindependent appraisals (*“Organización Levín deArgentina S.A.”*) to reassess the appropriateness of the remaininguseful lives of their fixed assets and certain intangible assets as from January 1st,2009. As a result of the work, the independent appraisals confirmed theappropriateness of the existing useful lives of Telecom Argentina and Personal’sfixed assets with some exceptions as follows:

 

·                 ***Telecom Argentina***

 

**External access copper cables** based on the analysis of the materials used for the deployment of thecopper network, its state of maintenance, the replacement plans, the extensivedevelopment of Broadband over copper networks and the depreciation policiesapplied by other operators, the independent appraisals recommended to extendthe current useful life as of December 31, 2008, from a total of 15 yearsto a total of 18 years.

 

**TDM Switches** based on the Company plans for improvement and maintenance of the existingswitches which will allow at least their continuous use until late 2014, theindependent appraisals recommended to extend their remaining useful life until December 31,2014. They also recommended that TDM additions that may occur as from fiscalyear 2009 shall be depreciated considering the mentioned time limit.

 

**Customer premises transmissionequipment** the dynamism oftelecommunications, the incremental bandwidth required by customers as well astechnological advances, significantly reduce the possibility to reuse thesetypes of equipment once the first stage of contracts with customers is over.Considering these facts, the independent appraisals recommended to shorten theuseful life of the existing customer premises equipment from the current 5years to 3 years. They also suggested that new additions as from January 1st,2009 shall be depreciated in 3 years.

 

·                 ***Personal***

 

**2GGSM technology equipment**balances are included within fixed asset item lines categorized as “Wirelessnetwork access” and “Switching”. The independent report states that 2G GSMtechnology in Argentina may be seriously affected by new replacement technologyduring the year 2017. The specialist recommended:

 

(i)                      to extend only the remaining useful life of the 2007-2008 acquisitions by 2years;

 

(ii)                   tomaintain the current useful life (7 years) for the 2009-2010 acquisitions; and

 

(iii)                toperform a new reassessment by the end of fiscal year 2011.

 

**Softwareobtained or developed for internal use**comprises different system modules which will be gradually replaced. New usefullives were estimated to accommodate the planned replacement dates, resulting ina general extension of the useful life of the related assets.

 

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**12 - Changes in useful lives offixed assets in the Telecom Group (continued)**

 

Accordingly, the Telecom Group adopted therecommendations of the independent appraisals affecting the charge fordepreciation as from January 1st, 2009. This change resulted in a $129decrease in depreciation expense ($84 net of tax effect) for the year ended December 31,2009 ($113 in the Voice, data and Internet segment and $16 in the Wirelesssegment).

 

**13.****                              ****Segment information**

 

Operating segments are revenue-producing components ofthe enterprise for which separate financial information is produced internallyfor management. Under this definition, the Company conducts its businessthrough five legal entities which represent five operating segments. UnderArgentine GAAP, these operating segments have been aggregated into reportablesegments according to the nature of the products and services provided. TheCompany manages its segments to the netincome (loss) level of reporting.

 

TelecomArgentina and its subsidiaries conform the following reportable segments:

 
| **Reportable segment**       | ** ** | **Consolidated company/ Operating  segment** |
|------------------------------|------------|----------------------------------------------|
| **Voice, data and Internet** |       | Telecom Argentina                            |
|                         |       | Telecom USA                                  |
|                         |       | Micro Sistemas (i)                           |
| **Wireless**                 |       | Personal                                     |
|                         |       | Núcleo                                  |
|                         |       | Springville (i)                              |

 

----

(i)                                       Dormant entity at December 31, 2009, 2008 and 2007.

 

The accounting policies of the operating segments arethe same as those described in Note 4. Intercompany sales have been eliminated.

 

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**13.         ****Segment information(continued)**

 

For the years endedDecember 31, 2009, 2008 and 2007, more than 95% of the Company’s revenueswere from sales generated in Argentina. More than 93% of the Company’s fixedassets are in Argentina. Segment financial information was as follows:

 

***For the year ended December 31,2009***

 

·             ***Income statement information***

 
| ** **                                                          | ** ** | **Voice, data  and  Internet** | ** ** | **Wireless** | ** ** | ** **      | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------|------------|--------------|------------|-----------------|------------|
| ** **                                                          | ** ** | **(a)**                        | ** ** | **Personal** | ** ** | **Núcleo** | ** ** | **Subtotal** | ** ** | **Total** | ** ** |
| Services                                                            |       | 4,114                          |       | 6,832        |       | 435             | ** ** | **7,267** | ** ** | **11,381** | ** ** |
| Equipment sales                                                     |       | 43                             |       | 796          |       | 6               | ** ** | **802** | ** ** | **845** | ** ** |
| **Net  sales**                                                      | ** ** | **4,157**                      | ** ** | **7,628**    | ** ** | **441**         | ** ** | **8,069** | ** ** | **12,226** | ** ** |
| Salaries and social  security                                       |       | (1,151                         | )          | (314         | )          | (39             | )          | **(353** | **)** | **(1,504** | **)** |
| Taxes                                                               |       | (266                           | )          | (716         | )          | (17             | )          | **(733** | **)** | **(999** | **)** |
| Maintenance, materials and  supplies                                |       | (408                           | )          | (165         | )          | (24             | )          | **(189** | **)** | **(597** | **)** |
| Bad debt expense                                                    |       | (33                            | )          | (96          | )          | (2              | )          | **(98** | **)** | **(131** | **)** |
| Interconnection costs                                               |       | (180                           | )          | —       |       | —          | ** ** | **—** | ** ** | **(180** | **)** |
| Cost of international  outbound calls                               |       | (152                           | )          | —       |       | —          | ** ** | **—** | ** ** | **(152** | **)** |
| Lease of circuits                                                   |       | (83                            | )          | (34          | )          | (25             | )          | **(59** | **)** | **(142** | **)** |
| Fees for services                                                   |       | (214                           | )          | (270         | )          | (16             | )          | **(286** | **)** | **(500** | **)** |
| Advertising                                                         |       | (118                           | )          | (216         | )          | (26             | )          | **(242** | **)** | **(360** | **)** |
| Agent commissions and  distribution of prepaid cards commissions    |       | (50                            | )          | (794         | )          | (34             | )          | **(828** | **)** | **(878** | **)** |
| Other commissions                                                   |       | (55                            | )          | (128         | )          | (7              | )          | **(135** | **)** | **(190** | **)** |
| Roaming                                                             |       | —                         |       | (164         | )          | (4              | )          | **(168** | **)** | **(168** | **)** |
| Charges for TLRD                                                    |       | —                         |       | (675         | )          | (55             | )          | **(730** | **)** | **(730** | **)** |
| Cost of sales                                                       |       | (46                            | )          | (1,082       | )          | (9              | )          | **(1,091** | **)** | **(1,137** | **)** |
| Others                                                              |       | (322                           | )          | (308         | )          | (28             | )          | **(336** | **)** | **(658** | **)** |
| **Operating  income before depreciation and amortization**          | ** ** | **1,079**                      | ** ** | **2,666**    | ** ** | **155**         | ** ** | **2,821** | ** ** | **3,900** | ** ** |
| Depreciation of fixed  assets and amortization of intangible assets |       | (663                           | )          | (381         | )          | (94             | )          | **(475** | **)** | **(1,138** | **)** |
| **Operating  income**                                               | ** ** | **416**                        | ** ** | **2,285**    | ** ** | **61**          | ** ** | **2,346** | ** ** | **2,762** | ** ** |
| Gain on equity investees                                            |       | —                         |       | 13           |       | —          | ** ** | **13** | ** ** | **13** | ** ** |
| Financial results, net                                              |       | (172                           | )          | (150         | )          | (7              | )          | **(157** | **)** | **(329** | **)** |
| Other expenses, net                                                 |       | (148                           | )          | (79          | )          | (2              | )          | **(81** | **)** | **(229** | **)** |
| **Net  income before income tax and noncontrolling interest**       | ** ** | **96**                         | ** ** | **2,069**    | ** ** | **52**          | ** ** | **2,121** | ** ** | **2,217** | ** ** |
| Income tax expense, net                                             |       | (271                           | )          | (519         | )          | (7              | )          | **(526** | **)** | **(797** | **)** |
| Noncontrolling interest                                             |       | —                         |       | —       |       | (15             | )          | **(15** | **)** | **(15** | **)** |
| **Net  (loss) income**                                              | ** ** | **(175**                       | **)**      | **1,550**    | ** ** | **30**          | ** ** | **1,580** | ** ** | **1,405** | ** ** |

 

----

(a)          Includesnet sales of $42, operating income before depreciation of $15, operating profitof $11 and net income of $10 corresponding to Telecom USA.

 

·             ***Balance sheet information***

 
| **Fixed  assets, net**                                            | ** ** | 4,176 |   | (b)    | 2,192 |   | 471    |       | **2,663** | ** ** | **6,839**  |       |
|-------------------------------------------------------------------|------------|-------|--------|--------|-------|--------|--------|------------|-----------|------------|------------|------------|
| **Intangible  assets, net**                                       |       | 176   |   |   | 594   |   | 3      | ** ** | **597**   | ** ** | **773**    | ** ** |
| **Capital  expenditures (without ARO and debt issue costs)**      |       | 915   |   | (b)    | 790   |   | 116    | ** ** | **906**   | ** ** | **1,821**  | ** ** |
| **Depreciation  of fixed assets**                                 |       | (646  | )      |   | (379  | )      | (94    | )          | **(473**  | **)**      | **(1,119** | **)**      |
| **Amortization  of intangible assets (without debt issue costs)** |       | (17   | )      |   | (2    | )      | — | ** ** | **(2**    | **)**      | **(19**    | **)**      |
| **Net  financial asset (debt)**                                   |       | 579   |   | (b)    | 4     |   | (114   | )          | **(110**  | **)**      | **469**    | ** ** |

 

----

(b)         InFixed assets, net and Capital expenditures, includes $1 from Springville; inNet financial asset, includes $2 of Cash and banks from Springville.

 

·             ***Cash flow information***

 
| **Cash  flows provided by operating activities**                                          | ** ** | **1,607**  | ** ** | **1,549**  | ** ** | **132**    | ** ** | **1,681**  | ** ** | **3,288**  | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **Cash  flows from investing activities**                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition of fixed  assets and intangible assets                                        |       | (852       | )          | (566       | )          | (73        | )          | **(639**   | **)**      | **(1,491** | **)**      |
| Decrease (increase) in  investments not considered as cash and cash equivalents and other |       | 268        |       | (8         | )          | —     | ** ** | **(8**     | **)**      | **260**    | ** ** |
| **Total  cash flows used in investing activities**                                        | ** ** | **(584**   | **)**      | **(574**   | **)**      | **(73**    | **)**      | **(647**   | **)**      | **(1,231** | **)**      |
| **Cash  flows from financing activities**                                                 | ** ** | ** ** | ** ** | ** ** |       |       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Debt proceeds                                                                             |       | —     |       | 218        |       | 143        | ** ** | **361**    | ** ** | **361**    | ** ** |
| Payment of debt                                                                           |       | (1,442     | )          | (293       | )          | (117       | )          | **(410**   | **)**      | **(1,852** | **)**      |
| Payment of interest and  debt-related expenses                                            |       | (84        | )          | (71        | )          | (13        | )          | **(84**    | **)**      | **(168**   | **)**      |
| Cash dividends paid                                                                       |       | —     |       | —     |       | (19        | )          | **(19**    | **)**      | **(19**    | **)**      |
| Payment of capital  reimbursement of Núcleo                                          |       | —     |       | —     |       | (8         | )          | **(8**     | **)**      | **(8**     | **)**      |
| Inter-segment transfers of  cash                                                          |       | 730        |       | (697       | )          | (33        | )          | **(730**   | **)**      | **—** | ** ** |
| **Total  cash flows used in financing activities**                                        | ** ** | **(796**   | **)**      | **(843**   | **)**      | **(47**    | **)**      | **(890**   | **)**      | **(1,686** | **)**      |
| **Increase  in cash and cash equivalents**                                                |       | 227        |       | 132        |       | 12         | ** ** | **144**    | ** ** | **371**    | ** ** |
| **Cash  and cash equivalents at the beginning of the year**                               |       | 352        |       | 544        |       | 6          | ** ** | **550**    | ** ** | **902**    | ** ** |
| **Cash  and cash equivalents at year end**                                                | ** ** | **579**    | ** ** | **(b)**    | **676**    | ** ** | **18**     | ** ** | **694**    | ** ** | **1,273**  | ** ** |
|                                                                                           |            |            |            |            |            |            |            |            |            |            |            |  |

 

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**13.         ****Segment information(continued)**

 

***For the year ended December 31,2008***

 

·             ***Income statement information***

 
| ** **                                                           | ** ** | **Voice, data  and  Internet** | ** ** | **Wireless** | ** ** | ** **      | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------|------------|--------------|------------|-----------------|------------|
| ** **                                                           | ** ** | **(a)**                        | ** ** | **Personal** | ** ** | **Núcleo** | ** ** | **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                                                                |       | (230                           | )          | (590         | )          | (12             | )          | **(602** | **)** | **(832** | **)** |
| Maintenance, materials and  supplies                                 |       | (371                           | )          | (137         | )          | (20             | )          | **(157** | **)** | **(528** | **)** |
| 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                           | )          | (208         | )          | (11             | )          | **(219** | **)** | **(400** | **)** |
| 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                                                        |       | (40                            | )          | (978         | )          | (10             | )          | **(988** | **)** | **(1,028** | **)** |
| Others                                                               |       | (257                           | )          | (242         | )          | (25             | )          | **(267** | **)** | **(524** | **)** |
| **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 noncontrolling interest** | ** ** | **(166**                       | **)**      | **1,628**    | ** ** | **46**          | ** ** | **1,674** | ** ** | **1,508** | ** ** |
| Income tax, net                                                      |       | (143                           | )          | (388         | )          | (4              | )          | **(392** | **)** | **(535** | **)** |
| Noncontrolling interest                                              |       | —                         |       | —       |       | (12             | )          | **(12** | **)** | **(12** | **)** |
| **Net  (loss) income**                                               | ** ** | **(309**                       | **)**      | **1,240**    | ** ** | **30**          | ** ** | **1,270** | ** ** | **961** | ** ** |

 

----

(a)          Includesnet sales of $40, operating income before depreciation of $10, operating profitof $8 and net income of $8 corresponding to Telecom USA. It also includes netsales of $6, operating loss before depreciation of $(1), operating loss of $(3) andnet loss of $(4) corresponding to Cubecorp.

 

·             ***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**    | **)**      |
| Inter-segment transfers of  cash                                                          |       | 231        |       | (194       | )          | (37        | )          | **(231**   | **)**      | **—** | ** ** |
| **Total  cash flows used in financing activities**                                        | ** ** | **(1,075** | **)**      | **(471**   | **)**      | **(12**    | **)**      | **(483**   | **)**      | **(1,558** | **)**      |
| **Increase  (decrease) in cash and cash equivalents**                                     |       | 129        |       | 323        |       | (8         | )          | **315**    | ** ** | **444**    | ** ** |
| **Cash  and cash equivalents at the beginning of the year**                               |       | 223        |       | 221        |       | 14         | ** ** | **235**    | ** ** | **458**    | ** ** |
| **Cash  and cash equivalents at year end**                                                | ** ** | **352**    | ** ** | **544**    | ** ** | **6**      | ** ** | **550**    | ** ** | **902**    | ** ** |

 

F-48

----

Table ofContents

 

**13.         ****Segment information(continued)**

 

***For the year ended December 31,2007***

 

·             ***Income statement information***

 
| ** **                                                          | ** ** | **Voice, data  and  Internet** | ** ** | **Wireless** | ** ** | ** **      | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------|------------|--------------|------------|-----------------|------------|
| ** **                                                          | ** ** | **(a)**                        | ** ** | **Personal** | ** ** | **Núcleo** | ** ** | **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                                                               |       | (204                           | )          | (453         | )          | (11             | )          | **(464** | **)** | **(668** | **)** |
| Maintenance, materials and  supplies                                |       | (303                           | )          | (115         | )          | (18             | )          | **(133** | **)** | **(436** | **)** |
| Bad debt expense                                                    |       | (12                            | )          | (57          | )          | (2              | )          | **(59** | **)** | **(71** | **)** |
| Interconnection costs                                               |       | (151                           | )          | —       |       | —          | ** ** | **—** | ** ** | **(151** | **)** |
| Cost of international  outbound calls                               |       | (138                           | )          | —       |       | —          | ** ** | **—** | ** ** | **(138** | **)** |
| Lease of circuits                                                   |       | (58                            | )          | (31          | )          | (18             | )          | **(49** | **)** | **(107** | **)** |
| Fees for services                                                   |       | (140                           | )          | (158         | )          | (9              | )          | **(167** | **)** | **(307** | **)** |
| 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                                                       |       | (22                            | )          | (867         | )          | (8              | )          | **(875** | **)** | **(897** | **)** |
| Others                                                              |       | (180                           | )          | (178         | )          | (29             | )          | **(207** | **)** | **(387** | **)** |
| **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 noncontrolling interest**       | ** ** | **35**                         | ** ** | **962**      | ** ** | **100**         | ** ** | **1,062** | ** ** | **1,097** | ** ** |
| Income tax, net                                                     |       | (60                            | )          | (214         | )          | (18             | )          | **(232** | **)** | **(292** | **)** |
| Noncontrolling 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)          Includesnet sales of $40, operating income before depreciation of $9, operating profitof $8 and net income of $7 corresponding to Telecom 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 from continuing operations**         | ** ** | **1,738**  | ** ** | **1,052**  | ** ** | **156**    | ** ** | **1,208**  | ** ** | **2,946**  | ** ** |
|-------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **Cash  flows from investing activities from continuing operations**                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition of fixed  assets and intangible assets                                  |       | (600       | )          | (547       | )          | (96        | )          | **(643**   | **)**      | **(1,243** | **)**      |
| Increase in investments  not considered as cash and cash equivalents and other      |       | (511       | )          | (1         | )          | —     | ** ** | **(1**     | **)**      | **(512**   | **)**      |
| **Total  cash flows used in investing activities from continuing operations**       | ** ** | **(1,111** | **)**      | **(548**   | **)**      | **(96**    | **)**      | **(644**   | **)**      | **(1,755** | **)**      |
| **Cash  flows from financing activities from continuing operations**                | ** ** | ** ** | ** ** | ** ** |       |       | ** ** | ** ** | ** ** | ** ** | ** ** |
| 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**    | **)**      |
| Inter-segment transfers of  cash                                                    |       |       |       | 43         |       | (43        | )          | **—** | ** ** | **—** | ** ** |
| **Total  cash flows used in financing activities from continuing operations**       | ** ** | **(1,071** | **)**      | **(436**   | **)**      | **(69**    | **)**      | **(505**   | **)**      | **(1,576** | **)**      |
| **Cash  flows from investing activities from discontinued operations**              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds for the sale of equity  investees                                          |       | 182        |       | —     |       | —     | ** ** | **—** | ** ** | **182**    | ** ** |
| **Total  cash flows provided by investing activities from discontinued operations** | ** ** | **182**    | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **182**    | ** ** |
| ** **                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(Decrease)  increase in cash and cash equivalents from continuing operations**    |       | (444       | )          | 68         |       | (9         | )          | **59**     | ** ** | **(385**   | **)**      |
| **Increase  in cash and cash equivalents from discontinued operations**             |       | 182        |       | —     |       | —     | ** ** | **—** | ** ** | **182**    | ** ** |
| **(Decrease)  increase in cash and cash equivalents**                               |       | (262       | )          | 68         |       | (9         | )          | **59**     | ** ** | **(203**   | **)**      |
| **Cash  and cash equivalents at the beginning of the year**                         |       | 485        |       | 153        |       | 23         | ** ** | **176**    | ** ** | **661**    | ** ** |
| **Cash  and cash equivalents at year end**                                          | ** ** | **223**    | ** ** | **221**    | ** ** | **14**     | ** ** | **235**    | ** ** | **458**    | ** ** |

 

F-49

----

Table ofContents

 

**14.          Unconsolidated information**

 

In accordance with ArgentineGAAP, the presentation of the parent company’s individual financial statementsis mandatory. Consolidated financial statements are to be included assupplementary information. For the purpose of these financial statements,individual financial statements have been omitted since they are not requiredfor SEC reporting purposes. The tables below present unconsolidated financialstatement information, as follows:

 

*Balance sheets:*

 
| ** **                                           | ** ** | **As of  December** | ** ** | **As of  December** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                                           | ** ** | **31, 2009**        | ** ** | **31, 2008**        | ** ** |
| **ASSETS**                                           |       |                |       |                |       |
| **Current  Assets**                                  |       |                |       |                |       |
| Cash and banks                                       |       | $                   | 26         |                | $          | 19 |   |
| Investments                                          |       | 552                 |       | 552                 |       |
| Accounts receivable, net                             |       | 724                 |       | 487                 |       |
| Other receivables, net                               |       | 79                  |       | 77                  |       |
| Other assets, net                                    |       | 6                   |       | 6                   |       |
| **Total  current assets**                            | ** ** | **1,387**           | ** ** | **1,141**           | ** ** |
| **Non-Current  Assets**                              |       |                |       |                |       |
| Other receivables, net                               |       | 46                  |       | 55                  |       |
| Investments (i)                                      |       | 1,915               |       | 1,825               |       |
| Fixed assets, net                                    |       | 4,170               |       | 3,898               |       |
| Intangible assets, net                               |       | 176                 |       | 171                 |       |
| Other assets, net                                    |       | 3                   |       | 3                   |       |
| **Total  non-current assets**                        | ** ** | **6,310**           | ** ** | **5,952**           | ** ** |
| **TOTAL  ASSETS**                                    | ** ** | **$**               | **7,697**  | ** **          | **$**      | **7,093** | ** ** |
| **LIABILITIES**                                      |       |                |       |                |       |
| **Current  Liabilities**                             |       |                |       |                |       |
| Accounts payable                                     |       | $                   | 931        |                | $          | 813 |   |
| Debt                                                 |       | —              |       | 1,263               |       |
| Salaries and social  security payable                |       | 244                 |       | 195                 |       |
| Taxes payable                                        |       | 263                 |       | 59                  |       |
| Other liabilities                                    |       | 39                  |       | 36                  |       |
| Contingencies                                        |       | 57                  |       | 25                  |       |
| **Total  current liabilities**                       | ** ** | **1,534**           | ** ** | **2,391**           | ** ** |
| **Non-Current  Liabilities**                         |       |                |       |                |       |
| Accounts payable                                     |       | 24                  |       | 27                  |       |
| Salaries and social  security payable                |       | 81                  |       | 82                  |       |
| Taxes payable                                        |       | 202                 |       | 212                 |       |
| Other liabilities                                    |       | 153                 |       | 116                 |       |
| Contingencies                                        |       | 267                 |       | 245                 |       |
| **Total  non-current liabilities**                   | ** ** | **727**             | ** ** | **682**             | ** ** |
| **TOTAL  LIABILITIES**                               | ** ** | **$**               | **2,261**  | ** **          | **$**      | **3,073** | ** ** |
| **SHAREHOLDERS’  EQUITY**                       | ** ** | **$**               | **5,436**  | ** **          | **$**      | **4,020** | ** ** |
| **TOTAL  LIABILITIES AND SHAREHOLDERS’ EQUITY** | ** ** | **$**               | **7,697**  | ** **          | **$**      | **7,093** | ** ** |

 

----

(i) Includes $1,914 and $1,824 as of December 31,2009 and 2008, respectively, corresponding to Telecom Argentina’s equityinterests in its consolidated subsidiaries. As of December 31, 2009,includes $1,909 and $5, corresponding to Personal and Telecom USA,respectively. As of December 31, 2008, includes $1,691, $129 and $4,corresponding to Personal, Cubecorp and Telecom USA, respectively.

 

*Statements of income:*

 
| ** **                                 | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------------------|------------|
| ** **                                 | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Results  from continuing operations**    | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                  |       | $                                 | 4,816      |   | $ | 4,226 |   | $ | 3,772 |   |
| Cost of services                           |       | (2,498                            | )          | (2,355 | ) | (2,076 | ) |
| **Gross  profit**                          | ** ** | **2,318**                         | ** ** | **1,871** | ** ** | **1,696** | ** ** |
| General and administrative  expenses       |       | (285                              | )          | (233 | ) | (189 | ) |
| Selling expenses                           |       | (981                              | )          | (856 | ) | (681 | ) |
| **Operating  income**                      | ** ** | **1,052**                         | ** ** | **782** | ** ** | **826** | ** ** |
| Gain on equity investees  (i)              |       | 937                               |       | 694 |   | 328 |   |
| Financial results, net                     |       | (171                              | )          | (162 | ) | (260 | ) |
| Other expenses, net                        |       | (143                              | )          | (210 | ) | (51 | ) |
| **Net  income before income tax**          | ** ** | **1,675**                         | ** ** | **1,104** | ** ** | **843** | ** ** |
| Income tax (expense)  benefit, net         |       | (270                              | )          | (143 | ) | (59 | ) |
| **Net  income from continuing operations** | ** ** | **1,405**                         | ** ** | **961** | ** ** | **784** | ** ** |
| **Income  from discontinued operations**   |       | —                            |       | — |   | 100 |   |
| **Net  income**                            | ** ** | **$**                             | **1,405**  | ** ** | **$** | **961** | ** ** | **$** | **884** | ** ** |

 

----

(i) The **gain onequity investees** includes:

 
| ** **            | ** ** | **Years ended December 31,** | ** ** |
|-----------------------|------------|-----------------------------------|------------|
| ** **            | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Personal              |       | $                                 | 936        |   | $ | 694 |   | $ | 328 |   |
| Telecom Argentina USA |       | 1                                 |       | 2 |   | — |   |
| Cubecorp              |       | —                            |       | (2 | ) | — |   |
| **Total**             | ** ** | **$**                             | **937**    | ** ** | **$** | **694** | ** ** | **$** | **328** | ** ** |

 

F-50

----

Tableof Contents

 

**14.****         ****Unconsolidated information (continued)**

 

*Condensed statements of cash flows:*

 
| ** **                                                                                         | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                         | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Cash  flows provided by operating activities from continuing operations**                        | ** ** | **$**                             | **1,603**  | ** ** | **$** | **1,774** | ** ** | **$** | **1,732** | ** ** |
| **Cash  flows from investing activities from continuing operations**                               | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition of fixed and  intangible assets                                                        |       | (847                              | )          | (818 | ) | (595 | ) |
| Dividends received                                                                                 |       | 730                               |       | 220 |   | — |   |
| Acquisition of Cubecorp  and paid in capital                                                       |       | 2                                 |       | (109 | ) | — |   |
| Decrease (increase) in  investments not considered as cash and cash equivalents and other concepts |       | 268                               |       | 357 |   | (511 | ) |
| **Total  cash flows provided by (used in) investing activities from continuing  operations**       | ** ** | **153**                           | ** ** | **(350** | **)** | **(1,106** | **)** |
| **Cash  flows from financing activities from continuing operations**                               | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payment of debt                                                                                    |       | (1,442                            | )          | (1,188 | ) | (889 | ) |
| Payment of interest and  debt-related expenses                                                     |       | (84                               | )          | (109 | ) | (182 | ) |
| **Total  cash flows used in investing activities from continuing operations**                      | ** ** | **(1,526**                        | **)**      | **(1,297** | **)** | **(1,071** | **)** |
| **Cash  flows from investing activities from discontinued operations**                             | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from the sale of  equity investments                                                      |       | —                            |       | — |   | 182 |   |
| **Total  cash flows provided by investing activities from discontinued operations**                | ** ** | **—**                        | ** ** | **—** | ** ** | **182** | ** ** |
| ** **                                                                                         | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Increase  (decrease) in cash and cash equivalents from continuing operations**                   | ** ** | **230**                           | ** ** | **127** | ** ** | **(445** | **)** |
| **Increase  in cash and cash equivalents from discontinued operations**                            | ** ** | **—**                        | ** ** | **—** | ** ** | **182** | ** ** |
| **Increase  (decrease) in cash and cash equivalents**                                              | ** ** | **230**                           | ** ** | **127** | ** ** | **(263** | **)** |
| **Cash  and cash equivalents at the beginning of year**                                            | ** ** | **348**                           | ** ** | **221** | ** ** | **484** | ** ** |
| **Cash  and cash equivalents at the end of the year**                                              | ** ** | **$**                             | **578**    | ** ** | **$** | **348** | ** ** | **$** | **221** | ** ** |

 

**15.****         ****D****ifferences between ArgentineGAAP 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.Differences in 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 prepared ona 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, otherthan inflation accounting, between Argentine GAAP and US GAAP are describedbelow, together with an explanation, where appropriate, of the method used inthe determination of the necessary adjustments.

 
| ** **                                                   | ** ** | **Years ended  December 31,** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                   | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Reconciliation  of net income:**                           |       |                               |       |   |   |   |   |
| **Total net  income under Argentine GAAP**                   | ** ** | **$**                              | **1,405**  | ** ** | **$** | **961** | ** ** | **$** | **884** | ** ** |
| **US GAAP  adjustments:**                                    | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Foreign currency translation (a)                             |       | —                             |       | — |   | (2 | ) |
| Depreciation of foreign currency exchange  differences (b.2) |       | 10                                 |       | 39 |   | 104 |   |
| Telecom Argentina’s Debt Restructurings (c)             |       | —                             |       | — |   | 296 |   |
| Fair value option for Notes of Telecom Argentina  (d)        |       | (253                               | )          | 205 |   | — |   |
| Other adjustments (e)                                        |       | (25                                | )          | (16 | ) | 9 |   |
| Tax effects on US GAAP adjustments (f)                       |       | 89                                 |       | (80 | ) | (143 | ) |
| Noncontrolling interest (g)                                  |       | 15                                 |       | 12 |   | 21 |   |
| **Net  income under US GAAP**                                | ** ** | **$**                              | **1,241**  | ** ** | **$** | **1,121** | ** ** | **$** | **1,169** | ** ** |

 
| ** **                                                               | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                               | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Reconciliation  of total equity:**                                     |       |                        |       |   |   |   |   |
| **Total  equity under Argentine GAAP**                                   | ** ** | **$**                       | **5,436**  | ** ** | **$** | **4,020** | ** ** | **$** | **3,030** | ** ** |
| **US GAAP  adjustments:**                                                | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Foreign currency translation (a)                                         |       | —                      |       | — |   | (49 | ) |
| Capitalization of foreign currency exchange  differences (b.1)           |       | (784                        | )          | (784 | ) | (784 | ) |
| Accumulated depreciation of foreign currency  exchange differences (b.2) |       | 727                         |       | 717 |   | 678 |   |
| Telecom Argentina’s Debt Restructurings (c)                         |       | —                      |       | — |   | (579 | ) |
| Fair value option for Notes of Telecom Argentina  (d)                    |       | —                      |       | 253 |   | — |   |
| Other adjustments (e)                                                    |       | (24                         | )          | (12 | ) | 3 |   |
| Tax effects on US GAAP adjustments (f)                                   |       | 28                          |       | (61 | ) | 239 |   |
| Noncontrolling interest (g)                                              |       | 92                          |       | 81 |   | 56 |   |
| **Total  equity under US GAAP**                                          | ** ** | **$**                       | **5,475**  | ** ** | **$** | **4,214** | ** ** | **$** | **2,594** | ** ** |

 

F-51

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**15.****         ****D****ifferences between ArgentineGAAP and US GAAP (continued)**

 
| ** **                                                                                                                         | ** ** | **Years ended  December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                                         | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Description  of changes in total equity under US GAAP:**                                                                         |       |                               |       |   |   |   |   |
| **Total  equity as of the beginning of the year**                                                                                  | ** ** | **$**                              | **4,214**  | ** ** | **$** | **2,594** | ** ** | **$** | **1,443** | ** ** |
| Cumulative-effect adjustment to retained earnings  of the fair value option for Notes of Telecom Argentina, net of tax effect  (*) |       | —                             |       | 408 |   | — |   |
| Other comprehensive income                                                                                                         |       | 24                                 |       | 78 |   | 3 |   |
| Noncontrolling  interest variation                                                                                                 |       | (4                                 | )          | 13 |   | (21 | ) |
| Net income under US GAAP                                                                                                           |       | 1,241                              |       | 1,121 |   | 1,169 |   |
| **Total  equity as of the end of the year**                                                                                        | ** ** | **$**                              | **5,475**  | ** ** | **$** | **4,214** | ** ** | **$** | **2,594** | ** ** |

 

----

(*) Cumulative-effect adjustment to retained earningsof the fair value option for Notes of Telecom Argentina is comprised asfollows:

 
| ** **                                                              | ** ** | **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  issue costs under Argentine GAAP            |       | 8                      |       |            |       |
| US GAAP adjustment for the  restructured debt issue 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 currencytranslation**

 

As indicated in Note 4.a, underArgentine GAAP, the financial statements of the Company’s foreign subsidiariesare translated using the year-end exchange rate in accordance with RT 18.Translation adjustments are accumulated and reported as a separate component ofshareholders’ equity.

 

Under US GAAP, AccountingStandards Codification (“ASC”) 830 requires determination of the functional currencyrelated to foreign subsidiaries. In the case of foreign subsidiaries whoselocal currency is not the functional currency, the remeasurement of assets andliabilities to the functional currency is required prior to translation ofassets and liabilities using the year-end exchange rate to the reportingcurrency.

 

Until December 31, 2007,the functional currency of Núcleo, a Paraguayan subsidiary, was the US dollar.Therefore, following the guidelines established in ASC 830, 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 changes inthe economic facts and circumstances affecting the operations of Núcleo, suchas the generation of a substantial portion of its service revenues in guaraníesand the changes on the currency of its financial indebtedness from US dollar toguaraní, management has concluded that, as from year 2008, the Paraguayancurrency, the guaraní, is the functional currency of such subsidiary.

 

Consequently, since January 1st,2008, the functional currency of Núcleo has been changed from the US dollar tothe guaraní.

 

The effects of such change wereapplied prospectively since the beginning of the year 2008. As the changeresulted in the elimination of the reconciling item between Argentine GAAP andUS GAAP, as from January 1st, 2008 there is no reconciling item thataffects net income and total equity for the years 2009 and 2008.

 

**b) Capitalization of foreigncurrency exchange differences**

 

**b.1)** Under Argentine GAAP, foreign currencyexchange differences (gains or losses) generated on or after January 6,2002 through July 28, 2003, in connection with foreign-currencydenominated debts as of such dates were allocated to the cost of assetsacquired or constructed with such financing, as long as a series of conditionsand requirements were met. Under US GAAP, foreign currency exchange differencescannot be capitalized, and were expensed as incurred. Therefore, suchcapitalization and its depreciation were reversed.

 

**b.2)**This adjustment represents the effect ondepreciation for the years ended December 31, 2009, 2008 and 2007 and theaccumulated depreciation at each year-end, ofthe adjustment described in b.1) above.

 

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**15.****         ****D****ifferences between ArgentineGAAP and US GAAP (continued)**

 

**c) Telecom Argentina’s DebtRestructurings**

 

As discussed in Note 8.2 in year2005 Telecom Argentina issued Notes in connection with the restructuring of itsoutstanding indebtedness (“Debt Restructuring”). The Debt Restructuringinvolved (i) the full settlement of certain outstanding loans of theCompany and (ii) the combination of a partial debt settlement and arefinancing of the remaining outstanding loans of the Company with modifiedterms. In connection with (ii), the Company issued new debt instruments.

 

Under Argentine GAAP, the newdebt instruments issued by Telecom Argentina were recorded at estimated netpresent value at restructuring date.

 

Under US GAAP, the Companyconcluded under ASC 470-60 that the Debt Restructuring represented a “troubleddebt restructuring”. Accordingly, under US GAAP, the Debt Restructuring wasaccounted for as (i) a full settlement of certain outstanding loans withcash and (ii) a combination of a partial debt settlement and acontinuation of debt with modified terms.

 

US GAAP reconciling item of netincome for the year ended December 31, 2007 reflects the (i) reversalof the loss on accretion recognized under Argentine GAAP, (ii) reversal ofinterest expense of new debt instruments computed under Argentine GAAP, (iii) gainarising under US GAAP from principal prepayments and (iv) computation ofinterest expense under US GAAP.

 

This measurement criterion underUS GAAP detailed above has been applied to the restructured debts of TelecomArgentina until December 31, 2007, the moment in which the Company adoptedthe amendments made to ASC 825 as described in d) below.

 

**d) Fair value option for Notesof Telecom Argentina**

 

On January 1, 2008, theCompany adopted the provisions of ASC 825 regarding fair value option forvaluation of financial assets and liabilities. The fair value option can beelected on an instrument by instrument basis. The Company elected to fair valueall series of the Notes of Telecom Argentina at the adoption date. Such Notes wereoriginated from a troubled debt restructuring and were accounted for under USGAAP as described in c) above. Management of the Company believed that the fairvalue option better reflected the current value of the debt and approximatedsuch debt value to that recorded under Argentine GAAP. Moreover, the adoptionof the fair value for Notes of Telecom Argentina is consistent with thevaluation criterion followed for the derivative contracts entered into inconnection with this debt, which were 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 the election tofair value all series of the Notes of Telecom Argentina, the Company reversedthe associated debt issuance costs previously capitalized.

 

The adjustment under US GAAP,net of tax effect, at the adoption date was $408 ($0.41 peso per share), whichwas recorded as a cumulative-effect adjustment to retained earnings as of January 1,2008, while the subsequent effects of the fair value measurement were shown asa reconciliation item in the reconciliation between Argentine GAAP and US GAAPfor each year.

 

On October 15, 2009,Telecom has cancelled the outstanding debt issued in accordance with the termsand conditions of the APE. As a result, the Company reversed the fair valueadjustment made as of December 31, 2008 by $253, which was shown as anadjustment between net income under Argentine GAAP and US GAAP for the year2009.

 

**e) Other adjustments**

 

The US GAAP reconciling itemsincluded under “other adjustments” were as follows for all years presented:

 

***Included in the reconciliation of net income:***

 
| ** **                                                                                | ** ** | **Years ended  December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Inventories                                                                               |       | $                                  | 9          |   | $ | (16 | ) | $ | 8 |   |
| Present-value accounting                                                                  |       | (21                                | )          | — |   | 1 |   |
| Foreign currency  translation adjustment realized on Capital reimbursement of Núcleo |       | (13                                | )          | — |   | — |   |
| Fixed assets held for sale                                                                |       | —                             |       | — |   | (1 | ) |
| Cost related to certain amendments of restructured  debt terms                            |       | —                             |       | — |   | 1 |   |
| **Total  other adjustments (e)**                                                          | ** ** | **$**                              | **(25**    | **)** | **$** | **(16** | **)** | **$** | **9** | ** ** |

 

F-53

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Table of Contents

 

**15.****         ****D****ifferences between ArgentineGAAP and US GAAP (continued)**

 

***Included in thereconciliation of total equity:***

 
| ** **                                                     | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                     | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** |
| Inventories                                                    |       | $                           | 1          |   | $ | (8 | ) | $ | 8 |   |
| Present-value accounting                                       |       | (23                         | )          | (2 | ) | (2 | ) |
| Fixed assets held for sale                                     |       | (2                          | )          | (2 | ) | (2 | ) |
| Cost related to certain amendments of restructured  debt terms |       | —                      |       | — |   | (1 | ) |
| **Total  other adjustments (e)**                               | ** ** | **$**                       | **(24**    | **)** | **$** | **(12** | **)** | **$** | **3** | ** ** |

 

·*  **Inventories*

 

As indicated in Note 4.i., underArgentine GAAP, inventories are stated at replacement cost. Under US GAAP,inventories are stated at the lower of cost or market.

 

The adjustment corresponds tothe difference between inventories at replacement cost and inventories at costusing the “First in first out” method (“FIFO”).

 

·*  **Present-value accounting*

 

As indicated in Note 4.f., underArgentine GAAP, certain monetary liabilities are measured based on thecalculation of their discounted value. Under US GAAP, discounting of theseliabilities is precluded.

 

·*  **Foreign currency translation adjustment realized onCapital reimbursement of Núcleo*

 

Under Argentine GAAP, RT 18requires translation adjustments to be disclosed and accumulated in a separatecategory of equity until the sale of the investment or until total or partialcapital reimbursement takes place. Under US GAAP, ASC 830, requires translationadjustments to be disclosed and accumulated in a separate component of theconsolidated equity until sale or until complete or substantially completeliquidation of the net investment in the foreign entity takes place.Consequently, the foreign currency translation gain adjustment realized onCapital reimbursement of $13 booked under Argentine GAAP must be reversed underUS GAAP.

 

·  *Fixedassets held for sale*

 

Under Argentine GAAP, theCompany classified certain fixed assets as held for sale which are stated atthe lower of cost less accumulated depreciation at the time of transfer to theheld-for-sale category, or market. However, under US GAAP, a long-lived assetto be sold is classified as held for sale only if all of the conditions of ASC360 are met. As some of these conditions are not met under US GAAP, theseassets have to be classified as held and used and depreciated. The US GAAPadjustment for the years presented represents the higher depreciation of suchassets held and used under US GAAP as of each year-end.

 

·  *Costsrelated to certain amendments of restructured debt terms*

 

During 2006, Telecom Argentinaagreed with certain financial creditors to amend its restructured debt terms tomodify certain covenants.

 

Under Argentine GAAP, costsrelated to such amendment were deferred and amortized under the interest methodover the remaining life of the related debt.

 

However, under US GAAP, theCompany followed the guidance in ASC 470-50 which provides more specific rules toaddress how to account for costs related to the modification of debt terms.Under ASC 470-50, 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 with thirdparties during 2006 were expensed as incurred under US GAAP.

 

However, since the adoption offair value measurement for Notes of Telecom Argentina as described in d) above,this US GAAP reconciliation item related to debt issuance costs of the Companyhas been eliminated.

 

**f) Tax effects on US GAAP adjustments**

 

The adjustment represents theeffect on deferred income taxes of the foregoing reconciling items, asappropriate.

 

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**15.****         ****D****ifferences between ArgentineGAAP and US GAAP (continued)**

 

**g) Noncontrolling interest**

 

The Company adopted in year2009, the provisions of ASC 810 regarding accounting and reporting standardsfor the noncontrolling interest in a subsidiary and for the deconsolidation ofa subsidiary requiring that: a) noncontrolling interest to be presented in theconsolidated statement of financial position within equity; and b) consolidatednet income attributable to the noncontrolling interest to be presented on theface of the consolidated statement of income. As a result of the adoption ofthese standards, a reconciling item for the Noncontrolling interest wasincluded within the Total equity and Net income under US GAAP and,additionally, the adjustment included until December 31, 2008 for theeffect of Noncontrolling interest on the US GAAP adjustments was eliminated.

 

Net income under US GAAP foreach year presented and Total equity under US GAAP as of each year-end arecomprised as follows:

 

**Net income under US GAAP**

 
| ** **                                                        | ** ** | **Years ended  December 31,** |       |
|-------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                        | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** |   |
| Net  Income under US GAAP attributable to Telecom Argentina       | ** ** | **$**                              | 1,226      | ** ** | **$** | 1,109 | ** ** | **$** | 1,148 |   |
| Net  Income under US GAAP attributable to Noncontrolling Interest |       | 15                                 |       | 12 |   | 21 |   |
| **Net  income under US GAAP**                                     | ** ** | **$**                              | **1,241**  | ** ** | **$** | **1,121** | ** ** | **$** | **1,169** |   |

 

**Total equity under US GAAP**

 
| ** **                                                       | ** ** | **As of December 31,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                       | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** |
| Total  Telecom Argentina Shareholders’ equity under US GAAP | ** ** | **$**                       | 5,383      | ** ** | **$** | 4,133 | ** ** | **$** | 2,538 | ** ** |
| Noncontrolling  Interest under US GAAP                           |       | 92                          |       | 81 |   | 56 |   |
| **Total  equity under US GAAP**                                  | ** ** | **$**                       | **5,475**  | ** ** | **$** | **4,214** | ** ** | **$** | **2,594** | ** ** |

 

Changes in Noncontrollinginterest under US GAAP for each year presented are comprised as follows:

 

**Description of Changes in Noncontrolling Interest under US GAAP**

 
| ** **                                                                                | ** ** | **Years ended  December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Noncontrolling  Interest as of the beginning of the year**                              | ** ** | **$**                              | **81**     | ** ** |   | **56** | ** ** | **$** | **56** | ** ** |
| Dividends                                                                                 |       | (12                                | )          | (20 | ) | (24 | ) |
| Noncontrolling interest’s  foreign currency translation adjustments                  |       | 14                                 |       | 33 |   | 3 |   |
| Foreign currency  translation adjustment realized on Capital reimbursement of Núcleo |       | (6                                 | )          | — |   | — |   |
| Net income under US GAAP                                                                  |       | 15                                 |       | 12 |   | 21 |   |
| **Noncontrolling  Interest as of the end of the year**                                    | ** ** | **$**                              | **92**     | ** ** | **$** | **81** | ** ** | **$** | **56** | ** ** |

 

**h) Accounting for stocktransferred by the Argentine government to employees**

 

Under Argentine GAAP, there areno specific rules governing the accounting to be followed by employerswhen a principal shareholder transfers shares to a company’s employees.

 

The Argentine government agreedto establish a Share Ownership Plan, principally for the benefit of the formeremployees of ENTel transferred to the Company. Under the terms of the plan,employees eligible to participate acquired the shares of the Company previouslyheld by the Government for an amount significantly less than the then marketvalue of the shares as of the Transfer Date.

 

Had the Company been required bySEC regulations to include a reconciliation between Argentine GAAP and US GAAPfor the fiscal year 1991, it would have included as a reconciling item a chargeamounting to $465 in the statement of income. However, this charge representeda reclassification between equity accounts, and consequently, it had no impacton total equity determined under US GAAP. The charge was calculated based uponthe difference between the estimated total price per share paid by Nortel as ofthe Transfer Date and the purchase price to be paid by eligible employees.

 

**i) Other Derivatives**

 

As discussed in Note 8, theCompany entered into several financing arrangements as part of the DebtRestructurings and the issuance of Personal’s new debt. These financialinstruments contained derivative instruments that were “embedded” in thefinancial instruments, i.e. optional redemption and/or mandatory prepaymentfeatures. The Company assessed whether the economic characteristics of theseembedded derivatives were clearly and closely related to the economiccharacteristics of the remaining component of the financial instruments (i.e.,the host contract), according to the requirements of ASC 815. Since it wasdetermined that the embedded derivative possessed economic characteristics thatwere clearly and closely related to the economic characteristics of the hostcontract, the embedded derivative were not separated from the host contract.

 

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**15.****         ****D****ifferences between ArgentineGAAP and US GAAP (continued)**

 

**j) Impairment of long-lived assets,except for indefinite-life PCS license**

 

As indicated in Note 4.m., underArgentine GAAP, the carrying value of a long-lived asset is considered impairedby the Company when the expected discounted cash flows from such an asset, isless than its carrying value. In that event, a loss would be recognized basedon the amount 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.

 

Under US GAAP, as a first step,the carrying value of a long-lived asset is considered impaired by the Companywhen the expected cash flows, undiscounted, from such an asset, is less thanits 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 Argentine GAAP andUS GAAP assessments, there was no impairment identified for long-lived assets.

 

**k) Accounting for Uncertainty inIncome Taxes**

 

Since January 1st, 2007,the Company has adopted the provisions of ASC 740-10 in relation with the accountingfor uncertainty in Income Taxes. The adoption did not have any impact on theCompany’s results of operations or on its Shareholders’ equity. Disclosuresrequired under ASC 740-10 are not included because uncertain tax positions areimmaterial.

 

**II.Additional disclosure requirements**

 

**a)****  ****Disclosure of lease information**

 

Under US GAAP, additionaldisclosures are required as per ASC 840, as follows:

 

*Operatingleases*

 

In the normal course ofbusiness, the Company leases cell sites, switch sites, satellite capacity andcircuits under various noncancelable operating leases that expire on variousdates through 2019. Rental expense is recognized ratably over the lease terms.Future minimum lease payments as of December 31, 2009, are as follows:

 
| Year ending  December 31, 2010 |       | 95    |    |
|-------------------------------------|------------|-------|---------|
| Year ending December 31, 2011  |       | 62    |    |
| Year ending December 31, 2012  |       | 20    |    |
| Year ending December 31, 2013  |       | 9     |    |
| Thereafter                          |       | 9     |    |
| **Total**                           | ** ** | **$** | **195** | ** ** |
|                                     |            |       |         |  |

 

Rental expense and lease ofcircuits for the years ended December 31, 2009, 2008 and 2007 are includedin Note 17 h) under Lease of circuits and Rental expense accounts.

 

Information related to financialleases as of December 31, 2009 is described in Note 4.n.

 

**b)****  ****Additional disclosure related to financial assets andliabilities recognized at “fair value”.**

 

Since 2008, the Company adoptedprovisions of ASC 820 regarding the definition of the fair value of assets andliabilities and the framework to measure it. Its implementation had no impacton the valuation of assets and liabilities which were already recognized atfair value. However, ASC 820 establishes requirements for additionalinformation disclosed in this section.

 

Among other things, ASC 820establishes a hierarchy of fair value, based on the information used to measurethe financial assets and liabilities and also establishes different valuationtechniques (market approach, income approach and cost approach). According toASC 820, valuation techniques used to measure fair value shall maximize the useof observable inputs.

 

Thelevels of hierarchy of “fair value” under ASC 820 are:

 

·      Level 1: Fairvalue determined by observable inputs in active markets for the same assets orliabilities.

·      Level 2: Fairvalue determined based on observable inputs that can result in prices ofsimilar assets or liabilities in active markets, prices for identical assets orliabilities in inactive markets or from observable market correlation or othermeans.

 

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**15.****         ****D****ifferences between ArgentineGAAP and US GAAP (continued)**

 

·      Level 3: Fairvalue determined by unobservable inputs where the reporting entity is requiredto develop its own assumptions.

 

Financial assets and liabilitiesrecognized at fair value as of December 31, 2009 and 2008, their inputs,valuation techniques and the level of hierarchy, are listed below:

 

**Derivative financial instruments(Forward contracts to purchase US dollars at fixed exchange rates):**These derivative financial instruments are included in other currentreceivables and in current debt by $1 and $3, respectively, as of December 31,2009. Their fair value arises from quoted market prices provided by majorfinancial institutions, therefore their valuation is classified as Level 2.

 

Comparatively, derivative financial instrumentsincluded in other current receivables amounted $22 as of December 31,2008. Their fair value was determined by information obtained in the “OpenElectronic Market” (the MAE), the most representative market for this type ofinstruments in Argentina. As the MAE determines the values based on actualtransactions and calculations regarding the volatility of the currency, thederivative financial instruments’ valuation was classified as Level 2.

 

**Mutual Funds:**These funds are included in current investments. The amount as of December 31,2009 and 2008, is $ 136 and $148, respectively. The fair value is based oninformation obtained from active markets and corresponds to quoted marketprices as of year end; therefore its valuation is classified as Level 1.

 

**Telecom Argentina notes:**As detailed in I.d) above, Telecom Argentina Notes were recognized atfair value under US GAAP as of December 31, 2008. The fair value of these notes,which are included in current and non - current debt, was $ 1,009 as of December 31,2008. The fair value of these notes was based on the purchase price of notesbought by the Company in the last quarter of 2008 or, if the purchase price wasnot available, on the average quoted market prices provided by financialagencies. Therefore its valuation is classified as Level 2. As detailed in I.d)above, these notes were cancelled during 2009.

 

**c)****  ****Disclosures about fair value of financial instruments**

 

Under Argentine GAAP, there areno specific rules regarding disclosure of fair value of financialinstruments. Under US GAAP, it is required to disclose fair value informationabout financial instruments whether or not recognized in the balance sheet, forwhich it is practicable to estimate fair value. Additionally it is required thedisclosure of credit risk concentrations. See Note 3.g. for details ofconcentration of credit risk. The financial instruments which are discussed inthis section include, among others, cash and cash equivalents, accountsreceivable, accounts payable and other instruments.

 

Derived fair value estimatescannot be substantiated by comparison to independent markets and, in manycases, could not be realized in an immediate sale of the instrument. Also,because of differences in methodologies and assumptions used to estimate fairvalue, the Company’s fair values should not be compared to those of othercompanies.

 

The methods and assumptions usedto estimate the fair values of each class of financial instrument as of December 31,2009 and 2008 are as follows:

 

*Cash and cash equivalents*

 

The Company considers all highlyliquid investments with original maturities of three months or less, to be cashand cash equivalents. The carrying amount reported in the balance sheetapproximates fair value.

 

*Accounts receivable, net*

 

Carrying amounts are consideredto approximate fair value due to the short term nature of these accountsreceivables and no significant changes in interest rates. All amounts that areassumed to be uncollectible within a reasonable time are written off and/orreserved.

 

*Accounts payable*

 

The carrying amount of accountspayable reported in the balance sheet approximates its fair value due to theshort term nature of these accounts payable and no significant changes ininterest rates.

 

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**15.          D****ifferences between Argentine GAAP and US GAAP (continued)**

 

*Debt*

 

The fair value of the Company’sdebt as of December 31, 2009 and 2008 is based on the purchase price ofnotes bought by the Company or, if purchase price is not available, on theaverage quoted market prices. As of December 31, 2009, the fair value ofthe Company’s debt was $853 and the related carrying amount was $818 underArgentine GAAP. 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.

 

*Other receivables and otherliabilities*

 

The carrying amount of otherreceivables and other liabilities reported in the balance sheet approximatesfair value due to their short-term nature.

 

**d)****             ****Risks and uncertainties**

 

The Company’s customers aremostly concentrated in Argentina. Historically, social, political and economicconditions in Argentina are volatile and may impair the Company’s operations.Furthermore, Argentine economy was affected in year 2009 by the internationalfinancial crisis as well as many other countries worldwide. This volatilitycould make it difficult for the Company to develop its business, generate revenuesor achieve or sustain profitability. In the past, volatility has been causedby: currency devaluation, significant governmental influence over many aspectsof local economies, political and economic instability, unexpected changes inregulatory requirements, social unrest or violence, slow or negative economicgrowth, imposition of trade barriers, and monetary and currency exchange andprice controls. Most of all of these factors occurred at various times in thepast few years and still occur today in the Company’s core target market inArgentina. The Company has no control over these matters.

 

The Company’s future results ofoperations and financial condition could be impacted by the following factors,among others:

 

·                  the ability to finance and manage expected growth;

·                  customer churn-rates;

·                  impact of competitive services, products and pricing;

·                  dependence on key personnel;

·                  legal proceedings;

·                  government regulation; and

·                  level of economic activity in Argentina.

 

**e)****        ****Asset retirement obligations**

 

The balance of the Company’sasset retirement obligations as of December 31, 2009 and 2008 was $44 and$37, respectively and is included in other long-term liabilities on theconsolidated balance sheets. Accretion expense and settlements during 2009 and 2008were not significant.

 

**f)****          ****Segment Information**

 

As discussed in Note 13, theCompany has identified its operating segments to be the six legal entitiesthrough which it conducts business. The identification of these segments isconsistent with the requirements of ASC 280-10.

 

Under Argentine GAAP, theCompany has combined these operating segments into two reportable segmentsbased on the nature of products and services provided by the entities. The tworeportable segments under Argentine GAAP are: Voice, data and Internet servicesand Wireless services.

 

ASC 280-10 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 whetherthe operating segments combined to create the “Wireless services” reportablesegment have similar economic characteristics. As such, the Company determinedthat Núcleo (the subsidiary which provides wireless services in Paraguay) doesnot show similar long-term average gross margins with those of Personal.Accordingly, following the guidance in ASC 280-10, Núcleo would not beaggregated together with Personal to create one reportable segment, but ratherit would be shown as a separate operating segment.

 

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**15.          D****ifferences between Argentine GAAP and US GAAP (continued)**

 

Even though Núcleo and Personalhave been combined into one reportable segment under Argentine GAAP, Note 13 tothe consolidated financial statements discloses information for both Personaland Núcleo separately and a column totaling both entities to report thewireless reportable segment.

 

Considering that separateinformation for Núcleo is already disclosed in Note 13, the effect of theapplication of ASC 280-10 would only be the (i) elimination of the columntotaling Personal and Núcleo and (ii) labeling Núcleo as a separateWireless segment.

 

**g)****       ****Sale of equity interest in Publicom**

 

As discussed in Note 4.w) underArgentine GAAP, the sale of equity interest in Publicom has been accounted foras “Discontinued operation”.

 

Additionally, the Company hasassessed whether this transaction shall be accounted for as a “Discontinuedoperation” under US GAAP in accordance with ASC 360.

 

The Company has concluded thatthe disposal of Publicom meets the conditions stated under US GAAP to bereported as discontinued operations. Although this disposal transaction isexpected to be generated continuing cash flows by Telecom Argentina as resultof its continuing involvement, the Company has considered that such continuingcash flows are not significant compared to those that would have been generatedby Publicom 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)****       ****Balance sheet classification differences**

 

*Deferred income taxes*

 

Under Argentine GAAP, the netdeferred tax asset or liability has been classified as a non-current taxreceivable or payable as of each year end.

 

Under US GAAP, theclassification of the deferred tax for a temporary difference is determined bythe classification of the asset or liability for financial reporting to whichthe temporary difference is related. A temporary difference is related to anasset or liability if reduction of the asset or liability causes the temporarydifference to reverse. For temporary differences not related to an asset orliability for financial reporting or for loss carryforwards, the deferred taxshould be classified according to the expected reversal date of the temporarydifference or carryforward.

 

As of December 31, 2009,the net current deferred tax asset was $128 and the net non-current deferredtax liability was $299 under US GAAP. As of December 31, 2008, the netcurrent and non-current deferred tax liability was $273 and $12, respectivelyunder US GAAP.

 

*Restricted cash*

 

Under Argentine GAAP, asdescribed in Note 11, the Company has classified restricted cash amounting to$34 as other receivables, as of December 31, 2009. Under US GAAP,restricted cash may be shown as a separate line item on the face of the balancesheet or classified as cash or investments, as appropriate, but identified inthe notes to the financial statements. The restricted cash was $24 as of December 31,2008.

 

*Revenue recognition*

 

As indicated in Note 4.b, underArgentine GAAP, installation fees are recognized at the time of installation oractivation. Associated direct expenses are expensed as incurred. These costsexceed installation revenues for all years presented.

 

For US GAAP purposes,non-refundable installation fees are deferred and recognized over the estimatedcustomer relationship period. Associated direct expenses are also deferred overthe estimated customer relationship period in an amount equal to the amount ofdeferred revenues. Since installation costs exceed installation revenues forall years presented and considering that this excess is recognized immediately,there is no measurement difference between Argentine GAAP and US GAAP in thisregard. However, the amount of assets and liabilities under US GAAP woulddiffer as a result of the deferral of revenues and related costs. This effectfor US GAAP purposes of recording the related deferred asset and liability isnot significant for the years presented.

 

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**15.          D****ifferences between Argentine GAAP and US GAAP (continued)**

 

*Classification of TelecomArgentina’s restructured debt*

 

Under Argentine GAAP, TelecomArgentina has classified the outstanding balance of its restructured debt as ofDecember 31, 2008 as current and non-current based on the contractualmaturity of the new debt instruments adjusted to reflect Telecom Argentina’sintent and ability to apply estimated cash flows to make prepayments. Asdescribed in Note 8 in making the classification, Telecom Argentina used itsbest estimates of generating cash flows during the following years.

 

Under US GAAP, currentrestructured debt included amounts due within the next twelve months at thebalance sheet date. All other amounts were classified as non-current. Therefore,as of December 31, 2008, current and non current debt under US GAAP wouldhave been $218 and $1,571, respectively.

 

**i)****          ****Indefeasible rights of use**

 

*Acquisition of indefeasiblerights of use*

 

In the ordinary course ofbusiness, the Company enters into certain capacity agreements (the “IRUContracts”) pursuant to which the Company purchases the rights to use of fiberoptic capacity for a period of 10 - 15 years. The rights of use purchased in2009 amounted to $23 of which $18 is still outstanding as of December 31,2009. The Company is also committed to pay operation and maintenance costs(O&M) over the life of the IRU contracts. In relationship to the rights ofuse purchased in 2008, $22 is still outstanding as of December 31, 2009.

 

Under Argentine GAAP, theCompany recognized the up-front cash payment and the remaining payable relatedto the IRU Contracts as an intangible asset. The intangible asset is beingamortized under the straight-line method over the term of the Contracts.Amortization expense is included under intangible amortization in the statementof income.

 

Under US GAAP, the Companydetermined that these contracts do not contain a lease element, rather they areservice contracts. In addition, under US GAAP, neither the cash up-front paymentsnor the remaining amount payables under the contracts qualify for recognitionas intangible assets. Rather the prepayment would be recognized as a prepaidasset. The Company would recognize service expense on a straight-line basisover the term of the IRU contracts. Accordingly, amortization expense wouldhave been reduced by $11, $10 and $7 for the years ended December 31,2009, 2008 and 2007, respectively, and service expense would have beenincreased by same amounts for those years.

 

*Sale of indefeasible rightsof use*

 

In the ordinary course ofbusiness, the Company entered into certain capacity agreements, pursuant towhich the Company provides the right to use capacity. As of December 31,2009, $26 related to the capacity agreements is still uncollected.

 

Under Argentine GAAP, theCompany recognized this uncollected receivable and liability (deferred revenue)related to these agreements. The Company will recognize revenue under thestraight-line method over the term of the agreement.

 

Under US GAAP, the remainingamount under the contracts do not qualify for recognition as liability(deferred revenue), and therefore receivable and liability recognized underArgentine GAAP should be reversed under US GAAP.

 

**j)****          ****Income statement classification differences**

 

The following table reconcilesthe operating income as shown in the statement of income under Argentine GAAPto the operating income that would be reported under US GAAP, which contemplateclassification differences under US GAAP:

 
| ** **                                                                         | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Operating  income under Argentine GAAP**                                         | ** ** | **$**                             | **2,762**  | ** ** | **$** | **2,041** | ** ** | **$** | **1,636** | ** ** |
| Depreciation of foreign  currency exchange differences                             |       | 10                                |       | 39 |   | 104 |   |
| Other expenses, net  classified as operating loss under US GAAP                    |       | (175                              | )          | (202 | ) | (62 | ) |
| Inventories                                                                        |       | 2                                 |       | (14 | ) | (51 | ) |
| Amortization of debt  issuance cost of Telecom                                     |       | 1                                 |       | 7 |   | — |   |
| Interests related to asset  retirement obligations as operating loss under US GAAP |       | (4                                | )          | — |   | — |   |
| Foreign currency  translation                                                      |       | —                            |       | — |   | 2 |   |
| Other                                                                              |       | —                            |       | — |   | (1 | ) |
| **Operating  income under US GAAP**                                                | ** ** | **$**                             | **2,596**  | ** ** | **$** | **1,871** | ** ** | **$** | **1,628** | ** ** |

 

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**15.          D****ifferences between Argentine GAAP and US GAAP (continued)**

 

**k)****      ****Earnings per share**

 

Under Argentine GAAP, theCompany computes net income per common share and dividends per share bydividing the net income for the period by the weighted average number of commonshares outstanding.

 

Under US GAAP, basic and dilutednet income per share is presented in conformity with ASC 260 for all yearspresented.

 

Basic net income per share iscomputed by dividing the net income available to common shareholders for theyear by the weighted average shares of common stock outstanding during theyear. Diluted net income per share is computed by dividing the net income forthe year by the weighted average number of common and dilutive potential commonshares then outstanding during the year. Since the Company has no dilutivepotential common stock outstanding, there are no dilutive earnings per shareamounts as described in ASC 260.

 

The following tables set forththe computation of basic and diluted net income per share (for continuing anddiscontinued operations) for the years indicated:

 
| ** **                                                                           | ** ** | **Years  ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                           | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Numerator: (Net income under US GAAP attributable to Telecom Argentina)              |       |                               |       |   |   |   |   |
| from continuing operations                                                           |       | 1,226                              |       | 1,109 |   | 1,046 |   |
| from discontinued  operations                                                        |       | —                             |       | — |   | 102 |   |
| **Net  income under US GAAP**                                                        | ** ** | **1,226**                          | ** ** | **1,109** | ** ** | **1,148** | ** ** |
| Denominator:                                                                         |       |                               |       |   |   |   |   |
| Number of shares  outstanding                                                        |       | 984,380,978                        |       | 984,380,978 |   | 984,380,978 |   |
|                                                                                 |       |                               |       |   |   |   |   |
| **Basic  and diluted net income per common share attributable to Telecom Argentina** | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| from continuing operations                                                           |       | 1.25                               |       | 1.13 |   | 1.06 |   |
| from discontinued  operations                                                        |       | —                             |       | — |   | 0.11 |   |
| **Net  income per common share, attributable to Telecom Argentina**                  | ** ** | **1.25**                           | ** ** | **1.13** | ** ** | **1.17** | ** ** |

 

**l)****          ****Cash flows statement 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.

 

Under Argentine GAAP, paymentsto creditors for interest and withholding tax payments were reported asfinancing 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 $17, $15 and $31 for fiscal years 2009, 2008 and 2007,respectively, were reported as investing activities. Under US GAAP, thesetransactions would be classified as cash outflows from operating activities.

 

Under US GAAP, the total amountsof cash and cash equivalents at the beginning and end of the years shown in theconsolidated statements of cash flows are required to be the same amounts assimilarly titled line items shown in the balance sheets, as of those dates. Atable 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 GAAP and US GAAP (continued)**

 

The following tables set forththe condensed statements of cash flows prepared in accordance with US GAAP:

 
| ** **                                                                        | ** ** | **Years ended  December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                        | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Cash  flows provided by operating activities from continuing operations**       | ** ** | **$**                              | **3,042**  | ** ** | **$** | **3,049** | ** ** | **$** | **2,605** | ** ** |
| ** **                                                                        | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from investing activities from continuing operations**              | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition of fixed  assets and intangible assets                                |       | (1,474                             | )          | (1,546 | ) | (1,212 | ) |
| Acquisition of Cubecorp                                                           |       | —                             |       | (97 | ) | — |   |
| Investments not considered  as cash and cash equivalents and others               |       | 260                                |       | 341 |   | (512 | ) |
| **Total  cash flows used in investing activities from continuing operations**     | ** ** | **(1,214**                         | **)**      | **(1,302** | **)** | **(1,724** | **)** |
| ** **                                                                        | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from financing activities from continuing operations**              | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Debt proceeds                                                                     |       | 361                                |       | 91 |   | 45 |   |
| Payment of debt                                                                   |       | (1,852                             | )          | (1,444 | ) | (1,290 | ) |
| Payment of capital  reimbursement of Núcleo                                  |       | (8                                 | )          | — |   | — |   |
| Dividends paid                                                                    |       | (19                                | )          | (20 | ) | (38 | ) |
| **Total  cash flows used in financing activities from continuing operations**     | ** ** | **(1,518**                         | **)**      | **(1,373** | **)** | **(1,283** | **)** |
| ** **                                                                        | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from investing activities from discontinued operations**            | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds for the sale of  equity investees                                        |       | —                             |       | — |   | 182 |   |
| **Total  cash flows provided by investing activities from continuing operations** | ** ** | **—**                         | ** ** | **—** | ** ** | **182** | ** ** |
| ** **                                                                        | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Increase  (Decrease) in cash and cash equivalents from continuing operations**  | ** ** | **310**                            | ** ** | **374** | ** ** | **(402** | **)** |
| **Increase  in cash and cash equivalents from discontinued operations**           | ** ** | **—**                         | ** ** | **—** | ** ** | **182** | ** ** |
| **Effect  of exchange rate changes on cash and cash equivalents**                 | ** ** | **61**                             | ** ** | **70** | ** ** | **17** | ** ** |
| **Increase  (Decrease) in cash and cash equivalents**                             | ** ** | **371**                            | ** ** | **444** | ** ** | **(203** | **)** |
| **Cash and  cash equivalents at the beginning of year**                           | ** ** | **902**                            | ** ** | **458** | ** ** | **661** | ** ** |
| **Cash and  cash equivalents at year end**                                        | ** ** | **$**                              | **1,273**  | ** ** | **$** | **902** | ** ** | **$** | **458** | ** ** |

 

**m)****    ****Changes in useful lives of fixed assets**

 

As indicated in Note 12, duringthe second quarter of 2009 the Company performed an integral review of theuseful lives of the fixed assets and certain intangible assets as from January 1st,2009, based on the work of independent appraisals (“Organización Levín deArgentina S.A.”).

 

As a result of this review,independent appraisals confirmed the appropriateness of the existing usefullives of Telecom Argentina and Personal’s fixed assets, with certain exceptionsrelating to the External access copper cables, TDM Switches, Customer premisestransmission equipment, 2G GSM technology equipment and Software obtained ordeveloped for internal use.

 

The Company has adopted therecommendations made by the independent appraisals on the items above-mentionedand, as provided for in current accounting standards, adjusted the charge fordepreciation for the year, prospectively since January 1, 2009. Thischange resulted in a $129 decrease in depreciation expense ($84 net of taxeffect, representing a net gain of $ 0.09 peso per share) for the year ended December 31,2009 ($113 in the Voice, data and Internet segment and $16 in the Wirelesssegment).

 

**n)****       ****Severance payments**

 

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. US GAAP requires the accrual of severance costs if theyrelate to services already rendered, are related to rights that accumulate orvest, are probable of payment and are reasonably estimable. While the Company expectsto make severance payments in the future, it is impossible to estimate thenumber of employees that will be dismissed without proper cause in the future,if any, and accordingly the Company has not recorded such liability under USGAAP.

 

**o)****        ****Investments in debt securities**

 

Note 17.c) to the financial statements presents theadditional disclosure requirements in accordance with ASC 320, related to the accounting for Certain Investments in Debt and EquitySecurities.

 

**p)****        ****Software developed or obtained for internal use**

 

Under US GAAP, ASC 350-40requires that certain internal and external costs associated with the purchaseand/or development of internal use software be capitalized rather thanexpensed. The adoption of this standard under US GAAP had no impact on theCompany’s financial position or results of operations since the Company’spolicy in capitalizing/expensing software costs is aligned to ASC 350-40.

 

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**15.          D****ifferences between Argentine GAAP and US GAAP (continued)**

 

**q)****        ****Other comprehensive income**

 

Under US GAAP, ASC 220establishes guidelines for the reporting and display of comprehensive incomeand its components (revenues, expenses, gains and losses) in a full set ofgeneral-purpose financial statements. This ASC requires that all items that arerequired 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,** |       |
|------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                             | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** |   |
| **Net  income under US GAAP**                                          | ** ** | **$**                              | **1,241**  | ** ** | **$** | **1,121** | ** ** | **$** | **1,169** |   |
| Other comprehensive  income:                                           |       |                               |       |   |   |   |   |
| - Foreign currency  translation adjustments                            |       | 32                                 |       | 70 |   | 3 |   |
| - Derivative instruments                                               |       | (13                                | )          | 13 |   | — |   |
| - Noncontrolling interest  in foreign currency translation adjustments |       | 14                                 |       | 33 |   | 3 |   |
| Tax benefit (expense)                                                  |       | 5                                  |       | (5 | ) | — |   |
| **Total  Other Comprehensive income**                                  | ** ** | **$**                              | **38**     | ** ** | **$** | **111** | ** ** | **$** | **6** |   |
| **Comprehensive  income**                                              | ** ** | **$**                              | **1,279**  | ** ** | **$** | **1,232** | ** ** | **$** | **1,175** |   |

 
| ** **                                  | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** |
| Foreign currency  translation adjustments   |       | 186                         |       | 140 |   | 37 |   |
| Gain for derivative instruments             |       | —                      |       | 13 |   | — |   |
| Tax income                                  |       | —                      |       | (5 | ) | — |   |
| **Accumulated  other comprehensive income** | ** ** | **$**                       | **186**    | ** ** | **$** | **148** | ** ** | **$** | **37** | ** ** |
|                                             |            |                             |            |  |  |  |  |  |  |  |

 

**r)****        ****Valuation and qualifying accounts**

 

Under the Regulation S-X of theSEC, the Company is required to file Schedule II “Valuation and qualifyingaccounts”. This schedule is designed to present an analysis of valuationreserves, such as the allowance for doubtful accounts. Note 17.e) to theArgentine GAAP financial statements presents this information for the yearsindicated. The Company considers this information is similar in format andcontent to that required by the SEC.

 

**s)****        ****Recently issued accounting pronouncements**

 

In June 2009, the FASB included amendmentsto ASC 860-10 to improve the relevance,representational faithfulness, and comparability of the information that areporting entity provides in its financial statements about a transfer offinancial assets; the effects of a transfer on its financial position,financial performance and cash flows; and a transferor’s continuinginvolvement, if any, in transferred financial assets. The amendments areeffective as of the beginning of each reporting entity’s first annual reportingperiod that begins after November 15, 2009, for interim periods withinthat first annual reporting period, and for interim and annual reportingperiods thereafter. The adoption of the amendments will not have any impact onthe Company’s current financial position nor results of operations.

 

In June 2009, the FASB included amendmentsto ASC 810-10 with the objective of improvingfinancial reporting by enterprises involved with variable interest entities,and to provide more relevant and reliable information to users of financialstatements. These amendments are effective as of the beginning of eachreporting entity’s first annual reporting period that begins after November 15,2009, for interim periods within that first annual reporting period, and forinterim and annual reporting periods thereafter. The adoption of the amendmentswill not have any impact on the Company’s current financial position norresults of operations.

 

In August 2009, the FASB issued AccountingStandards Update 2009-05 (ASU 2009-05), which includes modifications to ASC 820-10. This update provides additional guidance in circumstances in whicha quoted price in an active market for the identical liability is notavailable. This ASU is effective for the first reporting period (includinginterim periods) beginning after its issuance. The adoption of this ASU did nothave any impact on the Company’s current financial position nor results ofoperations.

 

In October 2009, theFASB issued Accounting Standards Update 2009-13 (ASU 2009-13). The objective ofthis Update is to address amendments to the accounting for multiple-deliverablearrangements. This ASU is effective prospectively for revenue arrangementsentered into or materially modified in fiscal years beginning on or after June 15,2010. Early adoption is permitted. The Company is currently analyzing theimpact that the adoption of the ASU will have on the Company’s financialposition and results of operations.

 

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Table of Contents

 

**15.          D****ifferences between Argentine GAAP and US GAAP (continued)**

 

In January 2010, theFASB issued Accounting Standards Update 2010-06 (ASU 2010-06), which modifiesASC 820-10 requiring new disclosures for assets and liabilities that aremeasured at fair value. ASU 2010-06 is effective for interim and annual reportingperiods beginning after December 15, 2009, except for certain disclosuresabout Level 3 fair value measurements. Those disclosures are effective forfiscal years beginning after December 15, 2010, and for interim periodswithin those fiscal years. The adoption of this ASU will not have any impact onthe Company’s current financial position nor results of operations.

 

**16.****                    ****Adoptionof IFRS**

 

On December 30, 2009, the CNV issued Resolution No. 562/09(“RG 562/09”) adopting RT26 of the FACPCE for certain public companies (asdefined by Law No. 17,811 - Regime for Public Offering). RT26 adopts IFRSas issued by the International Accounting Standards Board (“IASB”). RG 562/09requires public companies to prepare financial statements according with RT 26for fiscal years beginning January 1, 2012, while early adoption ispermitted for fiscal year beginning January 1, 2011. RG 562/09 alsoprovides for the preparation of financial statements in accordance with IFRS assupplementary information of the statutory financial statements for the fiscalyear beginning January 1, 2010.

 

RG 562/09 also establishes that the Board of Directorsof the companies that are required to prepare its financial statementsaccording with RT26 - i.e. the Company and Personal- should make a publicrelease to the market (the latter April 30, 2010) to inform the approvalof an specific implementation plan (“the Implementation Plan”) as “Relevantevent” through the CNV and the BCBA.

 

At the date of issuance of these consolidatedfinancial statements, the Company has prepared an Implementation Plan followingthe guidance of RG 562/09 to be approved by the Board of Directors, consideringthe adoption dates established in RG 562/09.

 

It is noted that since RT26 was issued, the Companyhas made progress in the diagnostic of the main measurement and disclosuresdifferences between Argentine GAAP and IFRS in the Telecom Group.

 

The main *valuation differences*between Argentine GAAP and IFRS which have been identified as of the date ofthese financial statements are as follows:

 

a)            *Inventories:* Under Argentine GAAPinventories are stated at replacement cost. Under IFRS inventories are valuedat cost, while “last in first out” method is not allowed.

b)           *Capitalization of foreign currency exchange differences:*Under Argentine GAAP, foreign currency exchange differences (gains orlosses) generated on or after January 6, 2002 through July 28, 2003,in connection 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 IFRS,capitalization of foreign currency exchange differences is permitted withincertain limits. Therefore, the amounts capitalized under Argentine GAAP inexcess of those allowed by IFRS and its reductions, net of accumulateddepreciation, should be reversed.

c)            *Fixed assets held for sale:*UnderArgentine GAAP the Company classifies certain fixed assets as held for salewhich are included under the caption “Other assets”. Under IFRS a long-livedasset to be sold is classified as held for sale only if certain conditions aremet. As some of these conditions are not met under IFRS, these assets have tobe included under Fixed assets and be depreciated.

d)           *Customer loyalty programs:*Personaloffers to its customers an incentive program. Under Argentine GAAP such programis accounted for based on actuarial calculations considering the cost of thepoints expected to be exchanged by the customers. Such cost is recorded asoperating expenses. Under IFRS the obligations related to such program shouldbe accounted for accounted for based on actuarial calculations considering thefair value of the points expected to be exchanged by the customers and shouldbe accounted for in the item “Net sales”.

e)            *Noncontrolling Interest:*Under IFRS noncontrolling interest in a subsidiary should be presented as acaption of the consolidated statement of changes in Shareholders’ equityinstead of being presented as a separate caption between total liabilities andequity as required by Argentine GAAP. Moreover, consolidated net income,consolidated comprehensive income and the related amounts of each attributableto the parent and the noncontrolling interest, should be disclosed separatelyon the face of the consolidated statement of income.

 

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**16.****                    ****Adoptionof IFRS (continued)**

 

Additionally, other typical differences oftelecommunications industry have been identified, such as:

 

f)              *Revenue recognition*:IFRS establish specific rules for revenue recognition for bundlingtransactions (i.e. handsets and service contracts).Those rules differ incertain aspects with Argentine GAAP.

g)           *Intangible assets*: Under IFRS certaindirectly attributable subscriber acquisition costs regarding contracts with aminimum contractual period and an enforced termination penalty can becapitalized only if certain conditions are met (as is the case for postpaid and“cuentas claras” customers in the mobile business). There are no similarprovisions for the treatment of subscriber acquisition costs under ArgentineGAAP.

 

Moreover, the main *disclosure differences*that have been identified as of the date of issuance of these consolidatedfinancial statements are the following:

 

a)            IFRS allows presentation of assets and liabilities in increasing ordecreasing order of liquidity in the statement of financial position, howeverArgentine GAAP requires following a decreasing order of liquidity.

b)           Thereare no specific rules under IFRS in the form to present the incomestatement of a company. Presentation of income and expenses by nature or byactivity is allowed (cost of services provided, administration and sellingexpenses).

c)            The items that are included under Other expenses under Argentine GAAPshould be classified as operating expenses or financial results under IFRS, asthe case may be.

d)           IFRScontemplate the preparation of condensed Interim financial statements whichresult in an easier set of information than the annual financial statementsand, in certain aspects, differ from the present consolidated financialstatements.

 

On the other hand, IFRS establish more disclosurerequirements than those actually required under Argentine GAAP (for annualreports), basically related to credit, liquidity and market risks, relatedparties, financial instruments and fair value of assets and liabilities, amongothers.

 

It should be noted that the abovementioned differencesresult from the differences between Argentine GAAP and IFRS that are effectiveas of the date of issuance of these consolidated financial statements.

 

Finally, it is important to point out that valuationdifferences mentioned in a), b), c) y e) above are the same than those thathave been identified for the preparation of the reconciliation betweenArgentine GAAP and US GAAP. Consequently, their accumulated impact as of December 31,2009 and 2008 is disclosed in Note 15 to these consolidated financialstatements.

 

Once the Board of Directors approves theImplementation Plan, the Company and its subsidiaries would advance on itsimplementation.

 

**17.****                    ****Otherfinancial statement information**

 

The following tables present additionalconsolidated financial statement disclosures required under Argentine GAAP:

 

a.    Fixedassets, net

b.          Intangibleassets, net

c.           Securitiesand equity investments

d.          Currentinvestments

e.           Allowancesand provisions

f.             Costof services

g.          Foreigncurrency assets and liabilities

h.          Expenses

i.              Agingof assets and liabilities

 

F-65

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Table of Contents

** **

**17.****                    ****Other financial statement information (continued)**

 

**(a) Fixed assets, net**

 
| ** **                              | ** ** | **Original value**                | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|
| **Principal  account**                  | ** ** | **As of the  beginning of  year** | ** ** | **Additions** | ** ** | **Foreign  currency  translation  adjustments** | ** ** | **Transfers** | ** ** | **Decreases** | ** ** | **As of the  end of the  year** | ** ** |
| Land                                    |       | 124                               |       | — |   | 1 |   | 2 |   | — |   | 127 |   |
| Building                                |       | 1,541                             |       | — |   | — |   | 9 |   | (5 | ) | 1,545 |   |
| Tower and pole                          |       | 416                               |       | — |   | 8 |   | 23 |   | — |   | 447 |   |
| Transmission equipment                  |       | 4,532                             |       | 19 |   | 56 |   | 221 |   | (16 | ) | 4,812 |   |
| Wireless network access                 |       | 1,707                             |       | — |   | 17 |   | 186 |   | (15 | ) | 1,895 |   |
| Switching equipment                     |       | 4,489                             |       | 2 |   | 20 |   | 166 |   | — |   | 4,677 |   |
| Power equipment                         |       | 658                               |       | — |   | 11 |   | 75 |   | — |   | 744 |   |
| External wiring                         |       | 6,366                             |       | — |   | — |   | 237 |   | (1 | ) | 6,602 |   |
| Computer equipment                      |       | 3,756                             |       | 31 |   | 43 |   | 504 |   | — |   | 4,334 |   |
| Telephony equipment and instruments     |       | 891                               |       | 1 |   | 32 |   | 8 |   | — |   | 932 |   |
| Equipment lent to customers at no cost  |       | 165                               |       | 48 |   | 27 |   | 1 |   | (27 | ) | 214 |   |
| Vehicles                                |       | 158                               |       | 22 |   | 2 |   | — |   | (13 | ) | 169 |   |
| Furniture                               |       | 84                                |       | 2 |   | 2 |   | 3 |   | — |   | 91 |   |
| Installations                           |       | 377                               |       | 2 |   | 5 |   | 14 |   | — |   | 398 |   |
| Improvements in third parties buildings |       | 117                               |       | 1 |   | — |   | 12 |   | — |   | 130 |   |
| Work in progress                        |       | 632                               |       | 1,543 |   | 10 |   | (1,452 | ) | — |   | 733 |   |
| **Subtotal**                            | ** ** | **26,013**                        | ** ** | **(a)** | **1,671** | ** ** | **234** | ** ** | **9** | ** ** | **(77** | **)** | **27,850** | ** ** |
| Asset retirement obligations            |       | 37                                |       | 3 |   | 1 |   | — |   | — |   | 41 |   |
| Advances to suppliers                   |       | 19                                |       | — |   | — |   | (4 | ) | — |   | 15 |   |
| Materials                               |       | 212                               |       | (b) | 127 |   | 9 |   | (5 | ) | (109 | ) | 234 |   |
| **Total as of  December 31, 2009** | ** ** | **26,281**                        | ** ** | **1,801** | ** ** | **244** | ** ** | **—** | ** ** | **(186** | **)** | **28,140** | ** ** |
| ** **                              | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total as of  December 31, 2008** | ** ** | **24,778**                        | ** ** | **(c)** | **1,822** | ** ** | **110** | ** ** | **—** | ** ** | **(429** | **)** | **26,281** | ** ** |

 
| ** **                              | ** ** | ** **                | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                   | ** ** | ** **         | ** ** | ** **           | ** **  | **Net**                | ** ** | **Net**                | ** ** |
|-----------------------------------------|------------|---------------------------|------------|----------------------|------------|--------------|------------|------------------------------|------------|--------------------|------------|----------------------|-------------|------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **Depreciation**          | ** ** | **carrying**         | ** ** | **carrying** | ** ** |
| ** **                              | ** ** | **Accumulated**           | ** ** | ** **           | ** ** | ** **   | ** ** | **Foreign**                  | ** ** | ** **         | ** ** | **Accumulated**      | ** **  | **value**              | ** ** | **value**              | ** ** |
| ** **                              | ** ** | **as of the**             | ** ** | ** **           | ** ** | ** **   | ** ** | **currency**                 | ** ** | **Decreases**      | ** ** | **as of the**        | ** **  | **as of**              | ** ** | **as of**              | ** ** |
| **Principal  account**                  | ** ** | **beginning of the year** | ** ** | **Annual  rate (%)** | ** ** | **Amount**   | ** ** | **translation  adjustments** | ** ** | **and  transfers** | ** ** | **end of the  year** | ** **  | **December  31, 2009** | ** ** | **December  31, 2008** | ** ** |
| Land                                    |       | —                    |       | —               |       | —       |       | —                       |       | —             |       | —               | ** **  | **127**                | ** ** | **124**                | ** ** |
| Building                                |       | (890                      | )          | 2 - 7                |       | (34          | )          | —                       |       | 4                  |       | (920                 | )           | **625**                | ** ** | **651**                | ** ** |
| Tower and pole                          |       | (287                      | )          | 5 - 7                |       | (20          | )          | (5                           | )          | —             |       | (312                 | )           | **135**                | ** ** | **129**                | ** ** |
| Transmission equipment                  |       | (3,746                    | )          | 10 - 13              |       | (201         | )          | (29                          | )          | 16                 |       | (3,960               | )           | **852**                | ** ** | **786**                | ** ** |
| Wireless network access                 |       | (1,250                    | )          | 10 - 12              |       | (110         | )          | (9                           | )          | 12                 |       | (1,357               | )           | **538**                | ** ** | **457**                | ** ** |
| Switching equipment                     |       | (3,890                    | )          | 10 - 15              |       | (123         | )          | (15                          | )          | —             |       | (4,028               | )           | **649**                | ** ** | **599**                | ** ** |
| Power equipment                         |       | (534                      | )          | 7 - 10               |       | (35          | )          | (9                           | )          | (1                 | )          | (579                 | )           | **165**                | ** ** | **124**                | ** ** |
| External wiring                         |       | (5,007                    | )          | 6                    |       | (184         | )          | —                       |       | 4                  |       | (5,187               | )           | **1,415**              | ** ** | **1,359**              | ** ** |
| Computer equipment                      |       | (2,960                    | )          | 18 - 20              |       | (291         | )          | (30                          | )          | —             |       | (3,281               | )           | **1,053**              | ** ** | **796**                | ** ** |
| Telephony equipment and instruments     |       | (848                      | )          | 13 - 20              |       | (12          | )          | (28                          | )          | —             |       | (888                 | )           | **44**                 | ** ** | **43**                 | ** ** |
| Equipment lent to customers at no cost  |       | (128                      | )          | 50                   |       | (48          | )          | (25                          | )          | 27                 |       | (174                 | )           | **40**                 | ** ** | **37**                 | ** ** |
| Vehicles                                |       | (92                       | )          | 20                   |       | (24          | )          | (2                           | )          | 13                 |       | (105                 | )           | **64**                 | ** ** | **66**                 | ** ** |
| Furniture                               |       | (70                       | )          | 9 - 11               |       | (5           | )          | (2                           | )          | —             |       | (77                  | )           | **14**                 | ** ** | **14**                 | ** ** |
| Installations                           |       | (267                      | )          | 7 - 10               |       | (18          | )          | (4                           | )          | 2                  |       | (287                 | )           | **111**                | ** ** | **110**                | ** ** |
| Improvements in third parties buildings |       | (80                       | )          | 3                    |       | (12          | )          | —                       |       | (1                 | )          | (93                  | )           | **37**                 | ** ** | **37**                 | ** ** |
| Work in progress                        |       | —                    |       | —               |       | —       |       | —                       |       | —             |       | —               | ** **  | **733**                | ** ** | **632**                | ** ** |
| **Subtotal**                            | ** ** | **(20,049**               | **)**      | ** **           | ** ** | **(1,117**   | **)**      | **(158**                     | **)**      | **76**             | ** ** | **(21,248**          | **)**       | **6,602**              | ** ** | **5,964**              | ** ** |
| Asset retirement obligations            |       | (25                       | )          | 10 - 14              |       | (2           | )          | (1                           | )          | —             |       | (28                  | )           | **13**                 | ** ** | **12**                 | ** ** |
| Advances to suppliers                   |       | —                    |       | —               |       | —       |       | —                       |       | —             |       | —               | ** **  | **15**                 | ** ** | **19**                 | ** ** |
| Materials                               |       | —                    |       | —               |       | —       |       | —                       |       | —             |       | —               | ** **  | **234**                | ** ** | **212**                | ** ** |
| **Total as of  December 31, 2009** | ** ** | **(20,074**               | **)**      | ** **           | ** ** | **(d)**      | **(1,119** | **)**                        | **(159**   | **)**              | **76**     | ** **           | **(21,276** | **)**                  | **6,864**  | ** **             | **6,207**  | ** ** |
| ** **                              | ** ** | ** **                | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                   | ** ** | ** **         | ** ** | ** **           | ** **  | ** **             | ** ** | ** **             | ** ** |
| **Total as of  December 31, 2008** | ** ** | **(19,020**               | **)**      | ** **           | ** ** | **(d)**      | **(1,303** | **)**                        | **(68**    | **)**              | **317**    | ** **           | **(20,074** | **)**                  | **6,207**  | ** **             | ** ** | ** ** |

 

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(a)          Includes$17 in Transmission equipment, $48 in Equipment lent to customers at no costand $125 in Work in progress, transferred from materials.

(b)         Netof $190 transferred to fixed assets.

(c)          Includes$166 corresponding to additions incorporated through the acquisition ofCubecorp.

(d)         Includes$(10) and $(39) in December 2009 and 2008, respectively,corresponding to the depreciation of capitalized foreign currency exchangedifferences (Note 4.c). In December 2008, includes $(36) corresponding tothe accumulated depreciation from the additions incorporated through theacquisition of Cubecorp.

 

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**17.****                    ****Other financial statement information (continued)**

 

**(b) Intangible assets, net**

 
| ** **                                       | ** ** | **Original value**          | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **As of the**               | ** ** | ** ** | ** ** | **Foreign** | ** ** | ** ** | ** ** |
| **Principal account**                            | ** ** | **beginning  of the  year** | ** ** | **Additions** | ** ** | **currency  translation  adjustments** | ** ** | **As of the  end of the  year** | ** ** |
| Software obtained or  developed for internal use |       | 450                         |       | — |   | 10 |   | 460 |   |
| Debt issue costs                                 |       | 37                          |       | — |   | — |   | 37 |   |
| PCS license                                      |       | 658                         |       | — |   | — |   | 658 |   |
| Band B license and PCS  license (Paraguay)       |       | 240                         |       | — |   | 54 |   | 294 |   |
| Rights of use                                    |       | 204                         |       | 23 |   | — |   | 227 |   |
| Exclusivity agreements                           |       | 54                          |       | — |   | — |   | 54 |   |
| Customer relationship                            |       | 2                           |       | — |   | — |   | 2 |   |
| **Total  as of December 31, 2009**          | ** ** | **1,645**                   | ** ** | **23** | ** ** | **64** | ** ** | **1,732** | ** ** |
|                                             | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total  as of December 31, 2008**          | ** ** | **1,570**                   | ** ** | **(a)** | **43** | ** ** | **32** | ** ** | **1,645** | ** ** |
|                                                  |            |                             |            |  |  |  |  |  |  |  |

 
| ** **                                       | ** ** | ** **                                          | ** ** | **Net**      | ** ** | **Net**                                         | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------|------------|--------------|------------|-------------------------------------------------|------------|
| ** **                                       | ** ** | **Amortization**                                    | ** ** | **carrying** | ** ** | **carrying**                                    | ** ** |
| **Principal account**                            | ** ** | **Accumulated   as of the  beginning  of the year** | ** ** | **Amount**   | ** ** | **Foreign  currency  translation  adjustments** | ** ** | **Accumulated  as of the  end of the  year** | ** ** | **value as  of  December  31, 2009** | ** ** | **value as  of  December  31, 2008** | ** ** |
| Software obtained or  developed for internal use |       | (447                                                | )          | (2           | )          | (10                                             | )          | (459 | ) | **1** | ** ** | **3** | ** ** |
| Debt issue costs                                 |       | (32                                                 | )          | (3           | )          | —                                          |       | (35 | ) | **2** | ** ** | **5** | ** ** |
| PCS license                                      |       | (70                                                 | )          | —       |       | —                                          |       | (70 | ) | **588** | ** ** | **588** | ** ** |
| Band B license and PCS  license (Paraguay)       |       | (239                                                | )          | —       |       | (54                                             | )          | (293 | ) | **1** | ** ** | **1** | ** ** |
| Rights of use                                    |       | (57                                                 | )          | (14          | )          | —                                          |       | (71 | ) | **156** | ** ** | **147** | ** ** |
| Exclusivity agreements                           |       | (28                                                 | )          | (3           | )          | —                                          |       | (31 | ) | **23** | ** ** | **26** | ** ** |
| Customer relationship                            |       | —                                              |       | —       |       | —                                          |       | — | ** ** | **2** | ** ** | **2** | ** ** |
| **Total  as of December 31, 2009**          | ** ** | **(873**                                            | **)**      | **(b)**      | **(22**    | **)**                                           | **(64**    | **)** | **(959** | **)** | **773** | ** ** | **772** | ** ** |
|                                             | ** ** | ** **                                          | ** ** | ** **   | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total  as of December 31, 2008**          | ** ** | **(810**                                            | **)**      | **(c)**      | **(32**    | **)**                                           | **(31**    | **)** | **(873** | **)** | **772** | ** ** | ** ** | ** ** |

 

----

(a)     Includes$2 corresponding to additions incorporated through the acquisition of Cubecorp.

(b)    An amountof $(16) is included in cost of services, $(3) in selling expenses and $(3) infinancial results, net.

(c)     Anamount of $(16) is included in cost of services, $(1) in administrativeexpenses, $(5) in selling expenses and $(10) in financial results, net.

 

**(c) Securities and equityinvestments**

 
| **Issuer and characteristic  of the securities** | ** ** | **Market  value** | ** ** | **Number of  securities** | ** ** | **Net  realizable  value as of  December  31, 2009** | ** ** | **Cost value  as of  December  31, 2009** | ** ** | **Book value  as of  December  31, 2009** | ** ** | **Book value  as of  December  31, 2008** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|---------------------------|------------|------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| **CURRENT  INVESTMENTS**                         | ** ** | ** **        | ** ** | ** **                | ** ** | ** **                                           | ** ** | ** **                                | ** ** | ** **                                | ** ** | ** **                                | ** ** |
| **Mutual  funds**                                |       |              |       |                      |       |                                                 |       |                                      |       |                                      |       |                                      |       |
| FBA Renta $ Banco Frances                   |       | $                 | 2.59       |                      | 22,508,828 |                                                 | 58         |                                      | 58         |                                      | 58         |                                      | —     |   |
| Fima Premium Clase B Banco Galicia               |       | $                 | 1.30       |                      | 36,993,516 |                                                 | 48         |                                      | 48         |                                      | 48         |                                      | 52         |   |
| Optimun CDB$ Clase B BNP                    |       | $                 | 1.97       |                      | 7,064,900  |                                                 | 14         |                                      | 14         |                                      | 14         |                                      | 27         |   |
| Other mutual funds                               |       |              |       |                      |       | —                                               |       | —                                    |       | —                                    |       | 65                                        |       |
| **Total  mutual funds**                          |       |              |       |                      | ** ** | **120**                                              | ** ** | **120**                                   | ** ** | **120**                                   | ** ** | **144**                                   | ** ** |
| **Government  bonds**                            |       |              |       |                      |       |                                                 |       |                                      |       |                                      |       |                                      |       |
| Germany Government bonds                         |       |              |       |                      |       | —                                               |       | —                                    |       | —                                    |       | (i)                                       | 223        |   |
| **Total  government bonds**                      |       |              |       |                      | ** ** | **—**                                           | ** ** | **—**                                | ** ** | **—**                                | ** ** | **223**                                   | ** ** |
| **Related  parties - Mutual funds**              |       |              |       |                      |       |                                                 |       |                                      |       |                                      |       |                                      |       |
| Alpha $ Clase A Standard  Bank              |       | $                 | 1.32       |                      | 11,974,913 |                                                 | 16         |                                      | 16         |                                      | 16         |                                      | 4          |   |
| **Total  related parties**                       |       |              |       |                      | ** ** | **16**                                               | ** ** | **16**                                    | ** ** | **16**                                    | ** ** | **4**                                     | ** ** |
| **Total  current investments**                   |       |              |       |                      | ** ** | **136**                                              | ** ** | **136**                                   | ** ** | **136**                                   | ** ** | **371**                                   | ** ** |
|                                                  |            |                   |            |                           |            |                                                      |            |                                           |            |                                           |            |                                           |            |  |  |

 

----

(i) The Company had classified thesesecurities as held-to-maturity as management had the intent and ability to holdthem to maturity (March 2009).

 

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Table of Contents

 

**17.****                    ****Other financial statement information (continued)**

 

**(d) Current investments**

 
| ** **                                               | ** ** | **Cost as of**         | ** ** | **Book value as of**   | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                               | ** ** | **December 31,  2009** | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** |
| ** **                                               | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** |
| **CURRENT  INVESTMENTS**                                 | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** |
| **Time  deposits**                                       | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** |
| **With an  original maturity of three months or less**   | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** |
| In foreign currency (Note  17.g)                         |       | $                      | 418        |                   | $          | 418 |   | $ | 611 |   |
| In Argentine pesos                                       |       | 653                    |       | 657                    |       | 107 |   |
| **Total  cash and cash equivalents**                     | ** ** | **$**                  | **1,071**  | ** **             | **$**      | **1,075** | ** ** | **$** | **718** | ** ** |
| **With an  original maturity of more than three months** | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** |
| In Argentine pesos -  Related parties                    |       | $                      | 16         |                   | $          | 16 |   | $ | — |   |
| **Total  related parties**                               | ** ** | **$**                  | **16**     | ** **             | **$**      | **16** | ** ** | **$** | **—** | ** ** |
| **Total  current investments**                           | ** ** | **$**                  | **1,087**  | ** **             | **$**      | **1,091** | ** ** | **$** | **718** | ** ** |
| **NON-CURRENT  INVESTMENTS**                             | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** |
| In Argentine pesos -  Related parties                    |       | $                      | —     |                   | $          | — |   | $ | 6 |   |
| **Total  related parties**                               | ** ** | **$**                  | **—** | ** **             | **$**      | **—** | ** ** | **$** | **6** | ** ** |
| **Total  non-current investments**                       | ** ** | **$**                  | **—** | ** **             | **$**      | **—** | ** ** | **$** | **6** | ** ** |

 

**(e) Allowances andprovisions**

 
| **Items**                                           | ** ** | **Opening  balances** | ** ** | **Additions** | ** ** | **Reclassifications** | ** ** | **Deductions** | ** ** | **As of  December  31, 2009** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|---------------|------------|-----------------------|------------|----------------|------------|-------------------------------|------------|
| **Deducted  from current assets**                   |       |                  |       |          |       |                  |       |           |       |                          |       |
| Allowance for doubtful  accounts receivables        | ** ** | **136**               |       | 131           |       | 1                     |       | (124           | )          | **144**                       | ** ** |
| Allowance for doubtful  accounts and other assets   | ** ** | **13**                |       | —        |       | —                |       | —         | ** ** | **13**                        | ** ** |
| Regulatory contingencies                            | ** ** | **11**                |       | —        |       | 6                     |       | (13            | )          | **4**                         | ** ** |
| Allowance for obsolescence  of inventories          | ** ** | **16**                |       | 25            |       | —                |       | (20            | )          | **21**                        | ** ** |
| **Total  deducted from current assets**             | ** ** | **176**               | ** ** | **156**       | ** ** | **7**                 | ** ** | **(157**       | **)**      | **182**                       | ** ** |
| **Deducted  from non-current assets**               | ** ** | ** **            |       |          |       |                  |       |           | ** ** | ** **                    | ** ** |
| Allowance for doubtful  accounts receivables        | ** ** | **1**                 |       | —        |       | (1                    | )          | —         | ** ** | **—**                    | ** ** |
| Valuation allowance of net  deferred tax assets (a) | ** ** | **12**                |       | 2             |       | —                |       | (1             | )          | **13**                        | ** ** |
| Regulatory contingencies                            | ** ** | **75**                |       | 6             |       | (6                    | )          | —         | ** ** | **75**                        | ** ** |
| Allowance for doubtful  accounts and other assets   | ** ** | **20**                |       | 4             |       | —                |       | —         | ** ** | **24**                        | ** ** |
| Write-off of materials                              | ** ** | **19**                |       | 16            |       | —                |       | (10            | )          | **25**                        | ** ** |
| **Total  deducted from non-current assets**         | ** ** | **127**               | ** ** | **28**        | ** ** | **(7**                | **)**      | **(11**        | **)**      | **137**                       | ** ** |
| **Total  deducted from assets**                     | ** ** | **303**               | ** ** | **(b)**       | **184**    | ** **            | **—** | ** **     | **(168**   | **)**                         | **319**    | ** ** |
| ** **                                          | ** ** | ** **            | ** ** | ** **    | ** ** | ** **            | ** ** | ** **     | ** ** | ** **                    | ** ** |
| **Included  under current liabilities**             | ** ** | ** **            |       |          |       |                  |       |           | ** ** | ** **                    | ** ** |
| Provision for  contingencies                        | ** ** | **36**                |       | 26            |       | 41                    |       | (30            | )          | **73**                        | ** ** |
| **Total  included under current liabilities**       | ** ** | **36**                | ** ** | **26**        | ** ** | **41**                | ** ** | **(30**        | **)**      | **73**                        | ** ** |
| **Included  under non-current liabilities**         | ** ** | ** **            |       |          |       |                  |       |           | ** ** | ** **                    | ** ** |
| Provision for  contingencies                        | ** ** | **319**               |       | 96            |       | (41                   | )          | —         | ** ** | **374**                       | ** ** |
| **Total  included under non-current liabilities**   | ** ** | **319**               | ** ** | **96**        | ** ** | **(41**               | **)**      | **—**     | ** ** | **374**                       | ** ** |
| **Total  included under liabilities**               | ** ** | **355**               | ** ** | **(c)**       | **122**    | ** **            | **—** | ** **     | **(30**    | **)**                         | **447**    | ** ** |

 

----

(a)          This allowance is included inTaxes payable non-current.

(b)         Includes $131 in sellingexpenses, $51 in other expenses, net and $2 in income tax.

(c)          Includes $(36) and $158 inother expenses, net.

(d)         Includes $(14) correspondingto legal fees for compliance with the Tax Regularization Regime, reclassifiedto Other liabilities.

 
| **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**                |       | 11            |       | —                |       | (12            | )          | **19**                        | ** ** |
| **Total  deducted from non-current assets**         | ** ** | **207**               | ** ** | **25**        | ** ** | **(1**                | **)**      | **(104**       | **)**      | **127**                       | ** ** |
| **Total  deducted from assets**                     | ** ** | **374**               | ** ** | **(e)**       | **106**    | ** **            | **—** | ** **     | **(177**   | **)**                         | **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**               | ** ** | **(f)**       | **101**    | ** **            | **—** | ** **     | **(38**    | **)**                         | **355**    | ** ** |

 

----

(e)          Includes $67 in sellingexpenses, $41 in other expenses, net and $(2) in income tax.

(f)            Includes $100 in otherexpenses, net and $1 corresponds to the acquisition of Cubecorp.

 

F-68

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Table of Contents

 

**17.****                    ****Other financial statement information (continued)**

 

**(f) Cost of services**

 
| ** **                                                 | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                 | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Inventory balance at the  beginning of the year            |       | $                                 | 267        |   | $ | 175 |   | $ | 188 |   |
| Plus:                                                      |       |                              |       |   |   |   |   |
| Purchases                                                  |       | 1,134                             |       | 1,101 |   | 928 |   |
| Holding results on  inventories                            |       | (7                                | )          | 2 |   | (59 | ) |
| Deductions from allowance  for obsolescence of inventories |       | (20                               | )          | (14 | ) | (1 | ) |
| Wireless handsets lent to  customers at no cost (a)        |       | (16                               | )          | (3 | ) | (5 | ) |
| Replacements                                               |       | (5                                | )          | (5 | ) | (2 | ) |
| Foreign currency  translation adjustments in inventory     |       | 2                                 |       | (1 | ) | 1 |   |
| Cost of services (Note  17.h)                              |       | 5,008                             |       | 4,724 |   | 4,147 |   |
| Less:                                                      |       |                              |       |   |   |   |   |
| Inventory balance at year  end                             |       | (264                              | )          | (267 | ) | (175 | ) |
| **COST OF  SERVICES**                                      | ** ** | **$**                             | **6,099**  | ** ** | **$** | **5,712** | ** ** | **$** | **5,022** | ** ** |

 

----

(a)               Under certain circumstances, the Company lends handsets to customers at nocost pursuant to term agreements. Handsets remain the property of the Companyand customers are generally obligated to return them at the end of therespective agreements.

 
| ** **                                                | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Services**                                              | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                 |       | $                                 | 11,381     |   | $ | 9,847 |   | $ | 8,466 |   |
| Cost of sales                                             |       | (4,962                            | )          | (4,684 | ) | (4,125 | ) |
| **Gross  profit from services**                           | ** ** | **$**                             | **6,419**  | ** ** | **$** | **5,163** | ** ** | **$** | **4,341** | ** ** |
| **Handsets**                                              | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                 |       | $                                 | 802        |   | $ | 720 |   | $ | 590 |   |
| Cost of sales                                             |       | (1,091                            | )          | (988 | ) | (875 | ) |
| **Gross  loss from handsets**                             | ** ** | **$**                             | **(289**   | **)** | **$** | **(268** | **)** | **$** | **(285** | **)** |
| **Voice,  data and Internet equipment**                   | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                 |       | $                                 | 43         |   | $ | 41 |   | $ | 18 |   |
| Cost of sales                                             |       | (46                               | )          | (40 | ) | (22 | ) |
| **Gross  profit from voice, data and Internet equipment** | ** ** | **$**                             | **(3**     | **)** | **$** | **1** | ** ** | **$** | **(4** | **)** |
| **TOTAL  GROSS PROFIT**                                   | ** ** | **$**                             | **6,127**  | ** ** | **$** | **4,896** | ** ** | **$** | **4,052** | ** ** |

 

F-69

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Tableof Contents

 

**17.****                    ****Other financial statement information (continued)**

 

**(g) Foreign currency assetsand liabilities**

 
| ** **                                     | ** ** | **As of December 31, 2009**           | ** **   | **As of December  31, 2008** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|--------------|------------------------------|------------|
| **Items**                                      | ** ** | **Amount of foreign  currency********(i)** | ** **   | **Current  exchange  rate**  | ** ** | **Amount in  local  currency** | ** ** | **Amount in  local currency** | ** ** |
| **Current  assets**                            |       |                                       |         |                         |       |   |   |   |   |
| **Cash  and banks**                            |       |                                       |         |                         |       |   |   |   |   |   |
| Cash                                           |       | US$                                        | 1            |                         | 3.800      |   | $ | 2 |   | $ | — |   |
|                                           |       | EURO                                       | —       |                         | 5.453      |   | 1 |   | — |   |
| ** **                                     |       | G                                          | 4,910        |                         | 0.000821   |   | 4 |   | 4 |   |
| Bank accounts                                  |       | US$                                        | 5            |                         | 3.800      |   | 18 |   | 5 |   |
| ** **                                     |       | G                                          | 16,376       |                         | 0.000821   |   | 13 |   | — |   |
| ** **                                     |       | $U                                         | 11           |                         | 0.1935     |   | 2 |   | — |   |
| **Investments**                                |       |                                       |         |                         |       |   |   |   |   |   |
| Time deposits                                  |       | US$                                        | 110          |                         | 3.800      |   | 418 |   | 307 |   |
|                                           |       | EURO                                       | —       |                         | —     |   | — |   | 304 |   |
| Government bonds                               |       | EURO                                       | —       |                         | —     |   | — |   | 223 |   |
| Related parties                                |       | US$                                        | 4            |                         | 3.800      |   | 16 |   | — |   |
| **Accounts  receivable**                       |       |                                       |         |                         |       |   |   |   |   |   |
|                                           |       | US$                                        | 29           |                         | 3.800      |   | 110 |   | 87 |   |
|                                           |       | SDR                                        | 2            |                         | 5.9572     |   | 9 |   | 5 |   |
|                                           |       | G                                          | 17,836       |                         | 0.000821   |   | 16 |   | 17 |   |
|                                           |       | GBP                                        |  — |                         | 6.149      |   | 1 |   | — |   |
| Related parties                                |       | US$                                        | 1            |                         | 3.8000     |   | 5 |   | 5 |   |
| **Other  receivables**                         |       |                                       |         |                         |       |   |   |   |   |   |
| Prepaid expenses                               |       | US$                                        | 4            |                         | 3.800      |   | 17 |   | 10 |   |
| ** **                                     |       | EURO                                       |  — |                         | 5.453      |   | 1 |   | — |   |
|                                           |       | G                                          |  3,751  |                         | 0.000821   |   | 3 |   | 2 |   |
| Others                                         |       | US$                                        | 4            |                         | 3.800      |   | 16 |   | 20 |   |
|                                           |       | G                                          | 2,139        |                         | 0.000821   |   | 3 |   | 1 |   |
| **Non-current  assets**                        |       |                                       |         |                         |       |   |   |   |   |   |
| **Other  receivables**                         |       |                                       |         |                         |       |   |   |   |   |   |
| Others                                         |       | US$                                        | 1            |                         | 3.800      |   | 3 |   | 8 |   |
|                                           |       | G                                          |  1,025  |                         | 0.000821   |   | 1 |   | 1 |   |
| **Total  assets**                              | ** ** | ** **                                 | ** **   | ** **                   | ** ** | ** ** | **$** | **659** | ** ** | **$** | **999** | ** ** |
| **Current  liabilities**                       |       |                                       |         |                         |       |   |   |   |   |   |
| **Accounts  payable**                          |       |                                       |         |                         |       |   |   |   |   |   |
| Suppliers                                      |       | US$                                        | 258          |                         | 3.800      |   | $ | 982 |   | $ | 784 |   |
|                                           |       | G                                          | 29,119       |                         | 0.000821   |   | 24 |   | 18 |   |
| ** **                                     |       | EURO                                       | 11           |                         | 5.453      |   | 59 |   | 42 |   |
| Deferred revenues                              |       | G                                          | 5,096        |                         | 0.000821   |   | 4 |   | 7 |   |
| Related parties                                |       | US$                                        | 6            |                         | 3.8000     |   | 23 |   | 18 |   |
| ** **                                     |       | EURO                                       | 1            |                         | 5.453      |   | 5 |   | — |   |
|                                           |       | SDR                                        |  — |                         | 5.9572     |   | 2 |   | — |   |
| **Debt**                                       |       |                                       |         |                         |       |   |   |   |   |   |
| Notes — Principal                         |       | US$                                        | 180          |                         | 3.800      |   | 685 |   | 150 |   |
| ** **                                     |       | EURO                                       | —       |                         | —     |   | — |   | 897 |   |
|                                           |       | ¥                                     | —       |                         | —     |   | — |   | 193 |   |
| Banks loans and others —  Principal       |       | US$                                        | —       |                         | —     |   | — |   | 5 |   |
|                                           |       | G                                          |  88,040 |                         | 0.000821   |   | 72 |   | 84 |   |
| Accrued interest                               |       | US$                                        | —       |                         | 3.800      |   | 1 |   | 3 |   |
|                                           |       | EURO                                       |  — |                         | —     |   | — |   | 13 |   |
|                                           |       | ¥                                     | —       |                         | —     |   | — |   | 2 |   |
|                                           |       | G                                          |  2,661  |                         | 0.000821   |   | 2 |   | 2 |   |
| Gain on discounting of  debt                   |       | US$                                        | —       |                         | —     |   | — |   | (1 | ) |
| ** **                                     |       | EURO                                       |  — |                         | —     |   | — |   | (6 | ) |
| ** **                                     |       | ¥                                     | —       |                         | —     |   | — |   | (2 | ) |
| **Salaries  and social security payable**      |       |                                       |         |                         |       |   |   |   |   |   |
| Vacation, bonuses and social  security payable |       | G                                          |  1,017  |                         | 0.000821   |   | 1 |   | 1 |   |
| **Taxes  payable**                             |       |                                       |         |                         |       |   |   |   |   |   |
| Deferred tax liabilities  (assets)             |       | G                                          |  (1,482 | )                            | 0.000821   |   | (1 | ) | — |   |
| VAT                                            |       | G                                          |  434    |                         | 0.000821   |   | 1 |   | — |   |
| **Other  liabilities**                         |       |                                       |         |                         |       |   |   |   |   |   |
| Deferred revenue on sale  of capacity          |       | US$                                        | 3            |                         | 3.800      |   | 12 |   | 10 |   |
| ** **                                     |       | US$                                        | 2            |                         | 3.800      |   | 8 |   | — |   |
| Others                                         |       | G                                          |  332    |                         | 0.000821   |   | 1 |   | — |   |
| **Non-current  liabilities**                   |       |                                       |         |                         |       |   |   |   |   |   |
| **Accounts  payable**                          |       |                                       |         |                         |       |   |   |   |   |   |
| Related parties                                |       | US$                                        | 6            |                         | 3.800      |   | 24 |   | 27 |   |
| **Debt**                                       |       |                                       |         |                         |       |   |   |   |   |   |
| Notes — Principal                         |       | US$                                        | —       |                         | —     |   | — |   | 688 |   |
| Banks loans and others —  Principal       |       | G                                          |  70,340 |                         | 0.000821   |   | 58 |   | — |   |
| **Taxes  payable**                             |       |                                       |         |                         |       |   |   |   |   |   |
| Deferred tax liabilities  (assets)             |       | G                                          |  — |                         | —     |   | — |   | (1 | ) |
| ** **                                     |       | US$                                        | 1            |                         | 3.800      |   | 2 |   | — |   |
| **Other  liabilities**                         |       |                                       |         |                         |       |   |   |   |   |   |
| Deferred revenue on sale  of capacity          |       | US$                                        | 29           |                         | 3.800      |   | 112 |   | 86 |   |
| Others                                         |       | US$                                        | 1            |                         | 3.800      |   | 2 |   | 2 |   |
| **Total  liabilities**                         |       |                                       |         |                         |       | ** ** | **$** | **2,079** | ** ** | **$** | **3,022** | ** ** |

 

----

(i) US$ = United States dollar; G= Guaraníes; ¥ =Japanese Yen; SDR= Special Drawing Rights; $U= Uruguayan peso; GBP= GreatBritain Pound.

 

F-70

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Table of Contents

 

**17.****                    ****Other financial statement information (continued)**

 

**(h)****        ****Expenses**

** **
| ** **                                                       | ** ** | **Expenses**          | ** ** | ** **                      | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **Cost of  services** | ** ** | **General and  administrative** | ** ** | **Selling** | ** ** | **Year ended  December 31, 2009** | ** ** |
| Salaries and social  security                                    |       | $                     | 676        |                            | $          | 248 |   | $ | 594 |   | $ | **1,518** |   |
| Recoverable costs                                                |       | (6                    | )          | (2                              | )          | (3 | ) | **(11** | **)** |
| Capitalized costs                                                |       | —                |       | (3                              | )          | — | ** ** | **(3** | **)** |
| Depreciation of fixed  assets                                    |       | 957                   |       | 40                              |       | 122 | ** ** | **1,119** | ** ** |
| Amortization of intangible  assets                               |       | 16                    |       | —                          |       | 3 | ** ** | **19** | ** ** |
| Turnover tax                                                     |       | 519                   |       | —                          |       | — | ** ** | **519** | ** ** |
| Taxes with the Regulatory  Authority                             |       | 260                   |       | —                          |       | — | ** ** | **260** | ** ** |
| Other taxes                                                      |       | 211                   |       | 2                               |       | 7 | ** ** | **220** | ** ** |
| Maintenance, materials and  supplies                             |       | 479                   |       | 35                              |       | 83 | ** ** | **597** | ** ** |
| Bad debt expense                                                 |       | —                |       | —                          |       | 131 | ** ** | **131** | ** ** |
| Interconnection costs                                            |       | 180                   |       | —                          |       | — | ** ** | **180** | ** ** |
| Cost of international  outbound calls                            |       | 152                   |       | —                          |       | — | ** ** | **152** | ** ** |
| Lease of circuits                                                |       | 142                   |       | —                          |       | — | ** ** | **142** | ** ** |
| Fees for services (a)                                            |       | 95                    |       | 84                              |       | 321 | ** ** | **500** | ** ** |
| Advertising                                                      |       | —                |       | —                          |       | 360 | ** ** | **360** | ** ** |
| Agent commissions and  distribution of prepaid cards commissions |       | —                |       | —                          |       | 878 | ** ** | **878** | ** ** |
| Other commissions                                                |       | —                |       | —                          |       | 190 | ** ** | **190** | ** ** |
| Roaming                                                          |       | 168                   |       | —                          |       | — | ** ** | **168** | ** ** |
| Charges for TLRD                                                 |       | 730                   |       | —                          |       | — | ** ** | **730** | ** ** |
| Cost of  voice, Internet and data equipment sales           |       | 46                    |       | —                          |       | — | ** ** | **46** | ** ** |
| Transportation, freight  and travel expenses                     |       | 29                    |       | 8                               |       | 177 | ** ** | **214** | ** ** |
| Energy, water and others                                         |       | 91                    |       | 8                               |       | 12 | ** ** | **111** | ** ** |
| Rental expense                                                   |       | 55                    |       | 25                              |       | 31 | ** ** | **111** | ** ** |
| International and  satellite connectivity                        |       | 81                    |       | —                          |       | — | ** ** | **81** | ** ** |
| Others                                                           |       | 127                   |       | 4                               |       | 10 | ** ** | **141** | ** ** |
| **Total**                                                        | ** ** | **$**                 | **5,008**  | ** **                      | **$**      | **449** | ** ** | **$** | **2,916** | ** ** | **$** | **8,373** | ** ** |

 
| ** **                                                       | ** ** | **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** | ** ** |
| Turnover tax                                                     |       | 435                   |       | —                          |       | — | ** ** | **435** | ** ** |
| Taxes with the Regulatory  Authority                             |       | 217                   |       | —                          |       | — | ** ** | **217** | ** ** |
| Other taxes                                                      |       | 170                   |       | 5                               |       | 5 | ** ** | **180** | ** ** |
| Maintenance, materials and  supplies                             |       | 436                   |       | 17                              |       | 75 | ** ** | **528** | ** ** |
| 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                              |       | 249 | ** ** | **400** | ** ** |
| 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           |       | 40                    |       | —                          |       | — | ** ** | **40** | ** ** |
| Transportation, freight  and travel expenses                     |       | 22                    |       | 15                              |       | 138 | ** ** | **175** | ** ** |
| Energy, water and others                                         |       | 59                    |       | 7                               |       | 13 | ** ** | **79** | ** ** |
| Rental expense                                                   |       | 44                    |       | 16                              |       | 24 | ** ** | **84** | ** ** |
| International and satellite  connectivity                        |       | 48                    |       | —                          |       | — | ** ** | **48** | ** ** |
| Others                                                           |       | 123                   |       | 5                               |       | 10 | ** ** | **138** | ** ** |
| **Total**                                                        | ** ** | **$**                 | **4,724**  | ** **                      | **$**      | **364** | ** ** | **$** | **2,491** | ** ** | **$** | **7,579** | ** ** |

 

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(a) Includes $8 in General and administrativeexpenses corresponding to Directors and Supervisory Committee’s fees.

 

F-71

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Table of Contents

 

**17.****                    ****Other financial statement information (continued)**

 
| ** **                                                       | ** ** | **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** | ** ** |
| Turnover tax                                                     |       | 370                   |       | —                          |       | — | ** ** | **370** | ** ** |
| Taxes with the Regulatory  Authority                             |       | 162                   |       | —                          |       | — | ** ** | **162** | ** ** |
| Other taxes                                                      |       | 132                   |       | 1                               |       | 3 | ** ** | **136** | ** ** |
| Maintenance, materials and  supplies                             |       | 357                   |       | 16                              |       | 63 | ** ** | **436** | ** ** |
| Bad debt expense                                                 |       | —                |       | —                          |       | 71 | ** ** | **71** | ** ** |
| Interconnection costs                                            |       | 151                   |       | —                          |       | — | ** ** | **151** | ** ** |
| Cost of international  outbound calls                            |       | 138                   |       | —                          |       | — | ** ** | **138** | ** ** |
| Lease of circuits                                                |       | 107                   |       | —                          |       | — | ** ** | **107** | ** ** |
| Fees for services                                                |       | 59                    |       | 73                              |       | 175 | ** ** | **307** | ** ** |
| 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           |       | 22                    |       | —                          |       | — | ** ** | **22** | ** ** |
| Transportation, freight  and travel expenses                     |       | 16                    |       | 9                               |       | 117 | ** ** | **142** | ** ** |
| Energy, water and others                                         |       | 49                    |       | 6                               |       | 7 | ** ** | **62** | ** ** |
| Rental expense                                                   |       | 37                    |       | 13                              |       | 16 | ** ** | **66** | ** ** |
| International and  satellite connectivity                        |       | 26                    |       | —                          |       | — | ** ** | **26** | ** ** |
| Others                                                           |       | 73                    |       | 6                               |       | 12 | ** ** | **91** | ** ** |
| **Total**                                                        | ** ** | **$**                 | **4,147**  | ** **                      | **$**      | **310** | ** ** | **$** | **2,106** | ** ** | **$** | **6,563** | ** ** |

 

**(i) Aging of assets andliabilities**

** **
| **Date  due**                              | ** ** | **Investments** | ** ** | **Accounts  receivable** | ** ** | **Other  receivables** | ** ** | **Accounts  payable** | ** ** | **Debt**   | ** ** | **Salaries  and social  security  payable** | ** ** | **Taxes  payable** | ** ** | **Other  liabilities** | ** ** |
|--------------------------------------------|------------|-----------------|------------|--------------------------|------------|------------------------|------------|-----------------------|------------|------------|------------|---------------------------------------------|------------|--------------------|------------|------------------------|------------|
| **Total due**                              | ** ** | **—**      | ** ** | **356**                  | ** ** | **—**             | ** ** | **(a)**               | **75**     | ** ** | **—** | ** **                                  | **—** | ** **         | **—** | ** **             | **—** | ** ** |
| **Not due**                                | ** ** | ** **      |       |                     |       |                   |       |                  |       |       |       |                                        |       |               |       |                   |       |
| First  quarter 2010                        |       | 1,213           |       | 807                      |       | 193                    |       | 2,119                 |       | 11         |       | 197                                         |       | 333                |       | 30                     |       |
| Second  quarter 2010                       |       | 11              |       | —                   |       | 20                     |       | 11                    |       | 43         |       | 89                                          |       | 434                |       | 12                     |       |
| Third  quarter 2010                        |       | 2               |       | —                   |       | 14                     |       | 5                     |       | 12         |       | 8                                           |       | 1                  |       | 5                      |       |
| Fourth  quarter 2010                       |       | 1               |       | —                   |       | 14                     |       | 2                     |       | 697        |       | 6                                           |       | 1                  |       | 5                      |       |
| January 2011  thru December 2011 |       | —          |       |                     |       | 56                     |       | 24                    |       | 58         |       | 23                                          |       | 3                  |       | 26                     |       |
| January 2012  thru December 2012 |       | —          |       | —                   |       | 6                      |       | —                |       | —     |       | 18                                          |       | 2                  |       | 14                     |       |
| January 2013  and thereafter          |       | —          |       | —                   |       | 12                     |       | —                |       | —     |       | 41                                          |       | 8                  |       | 102                    |       |
| No date due established                    |       | 1               |       | —                   |       | —                 |       | —                |       | —     |       | —                                      |       | 199                |       | 44                     |       |
| **Total not due**                          | ** ** | **1,228**       | ** ** | **807**                  | ** ** | **315**                | ** ** | **2,161**             | ** ** | **821**    | ** ** | **382**                                     | ** ** | **981**            | ** ** | **238**                | ** ** |
| **Total as of  December 31, 2009**    | ** ** | **1,228**       | ** ** | **1,163**                | ** ** | **315**                | ** ** | **2,236**             | ** ** | **821**    | ** ** | **382**                                     | ** ** | **981**            | ** ** | **238**                | ** ** |
|                                       |       |            |       |                     |       |                   |       |                  |       |       |       |                                        |       |               |       |                   |       |
| **Balances bearing interest**              |       | 1,227           |       | 353                      |       | —                 |       | —                |       | 821        |       | —                                      |       | 34                 |       | 13                     |       |
| **Balances not bearing  interest**         |       | 1               |       | 810                      |       | 315                    |       | 2,236                 |       | —     |       | 382                                         |       | 947                |       | 225                    |       |
| **Total**                                  | ** ** | **1,228**       | ** ** | **1,163**                | ** ** | **315**                | ** ** | **2,236**             | ** ** | **821**    | ** ** | **382**                                     | ** ** | **981**            | ** ** | **238**                | ** ** |
|                                       |       |            |       |                     |       |                   |       |                  |       |       |       |                                        |       |               |       |                   |       |
| **Average annual interest rate  (%)**      | ** ** | **5.91**        | ** ** | **(b**                   | **)**      | **—**             | ** ** | **—**            | ** ** | **(c**     | **)**      | **—**                                  | ** ** | **9.00**           | ** ** | **6.00**               | ** ** |
|                                            |            |                 |            |                          |            |                        |            |                       |            |            |            |                                             |            |                    |            |                        |            |  |

 

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(a)          Atthe date of issuance of these consolidated financial statements, $43 has beencancelled.

(b)         $42bear 50% over the Banco Nación Argentina 30-day interest rate paid by banks,$165 bear 50% over the Banco Nación Argentina notes payable discount rate and$146 bear 28.49%.

(c)          SeeNote 8.

 

**18.****                    ****Subsequentevents**

 

·                  ***Purchase of Notes***

 

In January and February of2010, Personal purchased Notes pursuant to market purchase transactionsamounting to $23, acquiring an aggregate principal nominal amount of US$ 5.85million of Series 3 Medium Term Notes due 2010. The Notes acquired werecancelled according with the terms and conditions of the respective Indentures.

 

F-72

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