Good day everyone, welcome to the Telecom Argentina CEO Third Quarter 2018 Earnings Conference Call. Today's call is being recorded. Participating on today's call, we have Mr. Gabriel Blasi, Chief Financial Officer, and Ms. Solange Barthe Dennin, Investor Relations Manager. At this time, I'll turn the conference over to Ms. Solange Barthe Dennin. Please go ahead.
Thank you, Brian. Good morning. On behalf of Telecom Argentina, I'd like to thank everybody for participating in this conference call. As mentioned by our moderator, the participants of today's conference call are Gabriel Blasi, Chief Financial Officer, and myself, Solange Barthe Dennin, Manager of Investor Relations. The purpose of this call is to share with you the results of the nine-month period ended September 30 of 2018. We would like to remind all those that have not received our press release or presentation that they can call our investor relation office to request the documents or download them from the investor relations section of our website located at www.telecom.com.ar. This conference call and live presentation is being broadcasted through the webcast feature available in such section and can also be replayed through this same channel.
Before we continue with the conference call, I would like to go over some safe harbor information and other details of the call, as we usually do in this type of event. We would like to clarify that during the conference call and Q&A session, we may produce certain forward-looking statements about Telecom's future performance, plans, strategies, and targets. Such statements are subject to uncertainties that could cause Telecom's actual results and operations to differ materially. Such uncertainties include, but are not limited to the effects of ongoing industry and economic regulations, possible changes in the demand for Telecom's products and services, and the effect of more general factors, such as changes in general market or economic conditions, in legislation or in regulations.
Our press release dated November 7th, 2018, a copy of which was included in a Form 6-K report furnished to the SEC, described certain factors that may affect any forward-looking statements that we may produce during this session. We urge the audience of this conference call to read the disclaimer clause contained in slide one and two of the presentation. The agenda for today's conference call, as seen in slide three, is first to go over a general macro overview, then moving on to our industry trends and strategies, which will be followed by the discussion of our business highlights, and immediately after, we will go into the evolution of our financial figures. We will end the call with a Q&A session, as is customary in our quarterly calls with the financial community.
Having gone through these procedural matters, I will now go over a brief characterization of the macroeconomic context in which we operate. Please refer to slide five, where we included a summary of the current macro evolution in Argentina's external front, as well as domestic activity and inflation. During the third quarter of 2018, the macroeconomic environment has increased in complexity, strongly influenced by a second round of turmoil in the foreign exchange markets, which resulted in even further peso depreciation from the observed during the first half of 2018. Exchange rates experienced a depreciation that stood above 100% during the first nine months of 2018, with this impact strongly concentrated in the second and third quarters of the year. A second round of volatility in exchange markets was registered during August and September. The FX rate experienced a 42% increase during the third quarter of 2018.
A combination of external and local factors can be associated to this movement. In this context, the Central Bank exercised heavy intervention in an attempt to contain the foreign currency demand, thus affecting the international resource position, which suffered a decrease during the quarter of almost $13 billion, mostly associated to these interventions and also to the commitment of the Central Bank to reduce the cumbersome stock of its notes, known as LEBACs. The monetary authority applied a strong increase in interest rates in order to counter the disruptive dynamics coming from abnormal behavior of the exchange markets, which still prevails in high levels as of this day. Considering another perspective, it is worth noting that the real exchange rate is nowadays in a reasonable level above the long-term average. This situation has not been the case since 2010.
The current level of exchange rate should boost competitiveness, and therefore, it is expected that this will allow the recovery of the trade balance, which has already begun in September 2018. It should be mentioned that in October was announced a reformulation of the monetary policy scheme, which included a strict control of monetary aggregates and the introduction of a set of floating bands that define non-intervention zones for the monetary authority.
The combination of these measures, together with the modification of the standby agreement with the IMF to enlarge the amount involved by $7 billion and to advance the disbursement for 2018 and 2019, ultimately led to some relief from the turbulence experienced in the exchange market. As far as the internal front is concerned, regarding inflation, during the third quarter of 2018, the CPI measured by Buenos Aires City continued to experience further increase from the past quarters readings, reaching 39.5% year-over-year in September 2018. During the last three months period, inflation has been considerably impacted by transport and utility tariff increases, as well as rises in food and beverages prices, which were impacted by the FX evolution.
Inflation during September was particularly high, and it is expected to remain at high levels in October, while some levels of reduction in monthly figures should be feasible for the last month of 2018. In relation to the economic activity, aggregate output is decreasing due to the strong underperformance in agricultural activity, which was affected by climatic factors, while construction and commerce sectors reported downsides in their activity too. Industrial production also suffered a decrease, plunging deeper into a recessive cycle and accelerating the pace of contraction during the last month. Economic consensus published by the Central is expecting a contraction of the GDP in the order of 2.4% for 2018.
Lastly, higher volatility in economic variables and the rise in inflation have impacted overall household consumption, which is expected to remain depressed due to the adverse impact of inflation on real income and due to the high uncertainty captured by low consumer confidence readings, which in turn have fallen significantly. Turning to slide six, we would like to introduce a brief wrap-up over Argentina's long-term growth cycle. As shown, you can verify that Argentina will display the highest rate of recovery after recessions when compared with other South American peers. After the conclusion of the respective recessive process, it is foreseen that Argentina can return quickly to a sustainable growth path.
Furthermore, as of June 2018, unemployment rate shows slight increase as GDP decreased in the last quarter, but it still remains low and stable despite of the contraction in the economic activity, pointed out that the recessive cycle should be milder than other episodes in an historical comparison. Moving to slide seven, we can find a summary of the impact of the economic context of durable goods consumption. Taking quantities of durable goods into consideration, consumption remains slightly above 2017 as to June 2018. Probably, it will be heavily impacted during the remaining months of 2018 as a general slowdown in consumption is being observed. In contrast to this, household sales have decreased in the same period, mainly due to the economic context and also due to the fact that devices are dollarized, having this later effect a direct impact on prices.
As a summary, telecom industries are considered defensive in nature, although they are not immune to changes in the economic cycle. Notwithstanding the challenging macroeconomic context just described, Telecom Argentina has managed to generate a solid revenue growth and an operating profitability increase when compared to past years' figures. Having gone through this introduction of the macro environment, let me pass the call to Gabriel Blasi, who will go over the industry trends and strategy and the business highlight section.
Thank you, Solange. Hello to everyone. As mentioned in the prior call, remember that the merger between Telecom and Cablevisión was considered an inverse acquisition under IFRS 3 business combination, with Cablevisión being the surviving entity for accounting purposes. Thus, for the purposes of presenting the consolidated financial statements of Telecom Argentina as of September 30, 2018, first, the comparative figures as of December 31, 2017, and September 30, 2017, will respond to those that arise from the consolidated financial statements of Cablevisión at their respective dates. Second, the corresponding information of the nine-month period ending September 30, 2018, incorporates on the basis of figures corresponding to Cablevisión, the effect of application of Telecom Argentina's method of acquisition at its fair value in accordance with IFRS 3 guidelines and the operation of Telecom Argentina as of January 1st, 2018.
Additionally, in order to meet the understanding and analysis of the earnings evolution by its users, additional figures of the income statements are included, exposing on pro forma basis the comparative figures for nine months 2017, as if the merger between Telecom and Cablevisión had been effective during that period. The variations of results versus nine months 2017 identified in this presentation emanate from the comparison with the aforementioned pro forma information. Additionally, you may find a detailed pro forma comparison in financial tables six, seven, 10, 11, 14, and 15 included in our press release. Moving to slide nine, we can find some industry trends that we would like to share with you in order to clarify the strategic approach that the company currently has.
The goal of the company is to offer to its clients in the near future a convergent offer of all our services. As you can observe, the previous quadruple experiences in European countries registered a very positive effect, as the number of households with these services has been increasing rapidly during recent years. In this sense, we believe that the company will be able to follow a similar path and to be the first option for the customer through a high quality offer. Moreover, it is expected that there is going to be a strong and rapid increase in video OTT subscribers in the next years, almost doubling actual figures by 2022. This growth in subscribers will be accompanied by higher demand for fixed and mobile connection speeds. In addition, it is expected that consumption patterns to change towards a more intensive usage of mobile internet.
Additionally, it is worth to highlight the growing importance of IoT devices. In fact, in 2018, the number of devices connected in the world reached an estimated number of 9.1 billion, with a greater participation of consumer devices, such as electronics and smart home appliances. It is expected by 2035, the number of devices to increase 2.8 times to more than 25 billion, with a stronger presence of industrial devices, such as energy, manufacturing, and city transportation. Let's move to slide 10. We describe the challenges ahead for the company in order to address this industry trend. In this sense, we aspire to have the best fixed mobile network in the country according to the consumer needs as described, with superior quality and coverage.
This infrastructure will provide the technical platform in which the company will leverage to achieve its major objective: to be leaders in Net Promoter Score, and the first option of value for the customer. Working towards this aspiration, the company is focused on clear set of strategic avenues. First, we are taking a step further into content. We intend to transform Flow into an integrated platform, the Flow platform in the market. Furthermore, Flow will become an available platform for operators in as-a-service modality and a provider of IP video service. In addition, we are focusing on the relaunch of Personal Store as a marketplace of multiple video, gaming, and music apps. On the network front, we intend to develop higher quality and capacity for broadband through the development of DOCSIS 3.1 on the HFC network and the conversion of copper network on the XGS-PON.
Finally, it is important to remark that the company's mobile 4G network is already the fastest in Argentina, and we are going beyond this by improving the coverage in the south of the country. Sorry. Moving on our business highlights, we can see that we are positively positioned today. Please refer to slide 12, where we highlight some of our key achievements. In the first nine months of 2018, Telecom revenues totaled ARS 99.5 billion, increasing 29% year-over-year. Operating income before D&A totaled ARS 35.2 billion, implying a 35% margin over revenues achieved in a challenging economic context. In addition, fixed voice ARPU and broadband ARPU were up to ARS 247 and ARS 605 per month, respectively. Meanwhile, Pay TV ARPU reached ARS 675, and mobile ARPU reached ARS 130.
Moreover, and in relation with our subscribers, mobile subs in Argentina amounted to 18.9 million, of which 11.7 million subscribers were 4G clients. Pay TV subs remained stable, amounting to 3.5 million, and fixed broadband subs totaled 4.1 million. Fixed voice reached 3.6 million. Regarding the customer base, it remains stable in relative terms. This is due to the growing use of telecommunication services, which increasingly affect the daily life of our customers, thus allocating a relatively stable portion of their income for these services. As far as corporate matters, it is important to mention that on September 4, 2018, Telecom was informed that the merger with Cablevisión was registered in the Public Registry of Commerce under the responsibility of the Inspección General de Justicia. By this way, finalizing all formal and legal steps related to the merger.
Turning to slide 13, we can observe the revenue breakdown, where mobile service increases still holds the main participation over Telecom revenues, followed by broadband and Pay TV. We can highlight that the current revenue mix has a participation of mobile revenues of almost 75%, followed by broadband revenues that, apart from representing near 23%, show a fast growing rate, as well as Pay TV revenues, which accounted for almost 22% participation. In turn, fixed telephony and data represented around 13%, while devices achieved 8% of the total revenue. When compared with the nine months 2017 consolidated pro forma results, we can see that service revenues grew by 29% year-over-year, reaching ARS 91.9 billion. As we already mentioned, mobile and broadband are the segments that mostly contribute to the total revenues composition, generating revenues of ARS 34.5 billion and ARS 22.4 billion respectively.
In addition, the Pay TV revenues total ARS 21.4 billion, followed by fixed and data revenues in the aggregate amount of ARS 13.1 billion. To a lesser extent, we can highlight the contribution of handsets and others with ARS 7.6 billion and ARS 0.4 billion respectively. It should be observed that in general terms, the company revenues are still in the process of catching up with the acceleration in the inflationary context that we commented in our macro chapter. While the recovery in dollar terms should take a longer period of time related to the huge jump of the foreign exchange rate. We will go to some details of this in the following slides. In slide 14, we will go through the evolution of the company mobile business in Argentina.
As the intensity in data usage continues to increase, we can observe that there is a steady, sustained growth in post-paid subscribers, which represent our high-value mobile segment. As of September 2018, the post-paid subscribers accounted for 38% of the total customer base, up from 34% compared to the same period of 2017. In this sense, the intensity of mobile internet usage continues to increase, which as for the nine months of 2018, has reached an average of almost 3 GB per user per month, which is 52% higher than in the same period of 2017. When we focus on the evolution of our 4G rollout, we can highlight that there has been an important increase of 4G subscribers, which totaled 11.7 million as of September 2018. This rapid growth in subscribers that use the 4G network has been the driver of increasing data traffic since 2015.
Currently, the coverage of our 4G network reaches more than 1,500 locations, an increase of around 450 locations year-over-year. We can observe the differential in mobile internet usage as mobile internet connections still increase, at gigabytes per user per month for 4G users than at almost one gigabyte among 3G users. We start to slide 15, where we include a review of our internet and Pay TV services segment, which aims to differentiate and aims to an enhanced customer experience. Related to our broadband segment, we can point out that the number of subscribers grew more than 70,000 year-over-year, achieving 4.1 million users. The aforementioned increase in subscribers was supported by the offer of higher connection speeds. As a consequence, subscribers with speeds equal or above 20 MB have increased to 34% of the total client base versus 20% over a year ago.
The mentioned effect, alongside with price adjustment applied, contributed to the ARPU growth. In this sense, during the third quarter of 2018, the ARPU for broadband services increases by 35% to almost ARS 648 per month. Focusing on Pay TV services, during the first nine months of 2018, cable TV subscribers remained stable, while Flow boxes achieved 467,000 and almost 951,000 subscribers were using the Flow application as of September 2018, increasing notoriously from figures observed over a year ago. Moreover, cable TV ARPU increased to more than ARS 718 per month in the third quarter of 2018, up 37% from the same period last year, while churn stood at 1.3%, up from 1.2% in the third quarter of 2017. On slide 16, we present the consolidated CapEx figures, where we continued to focus our efforts to keep our competitive advantage in terms of connectivity.
During the first nine months of 2018, Telecom has invested more than ARS 24 billion, being this amount 50% higher than the same period of last year. The consolidated amount of capital expenditures represented 24% of our total revenues, increasing from 21% in the same period last year, highly outpaced our competitors in terms of investment size. Furthermore, we can verify that an important amount of the technical CapEx has allocated to the access network, of which mobile accesses represent 55%, followed by fixed accesses with 36%, and others accounted for the remaining 9%. The remaining of technical CapEx was mainly comprised of an upgrade of our IT infrastructure and the transport network, and of investment done on our international operations in Paraguay and Uruguay.
It is worth to highlight that during the nine-month period, Telecom continued with the efforts to improve both the fixed and mobile network. In order to achieve this goal, the company intensified the development of its network in the northern part of the country through the deployment of new sites and FTTH. Additionally, Telecom through Núcleo, passed the deployment of FTTH in Paraguay, reaching around 40,000 homes passed by September 2018. Having gone through these business highlights, now I will pass the call to Solange, who will go over the financial performance.
Thank you, Gabriel. We will go over the impact that these positive business trends have just described by Gabriel generate over our operative income. Please turn to slide 18, where we can analyze the consolidated revenues and EBITDA. For the first nine months of 2018, consolidated revenues amounted almost ARS 99.5 billion, reaching a growth of 29% year-on-year. In turn, service revenues grew 29% thanks to the strong performance of paid TV revenues and Internet revenues, followed by mobile service revenues and more specifically, mobile internet. Furthermore, EBITDA show a strong evolution grown by 36% year-on-year, as we have concentrated in improving our revenue quality and profitability. The EBITDA margin increased substantially by 180 basis points to 35% for the nine-month period of 2018.
It is important to highlight that the improvement of EBITDA margin is explained by a solid performance in cost management, as we will analyze in the following slide. Please refer to slide 19, where we show the performance of EBITDA and the behavior of the different components of revenue and cost. The company has taken actions to gain operational efficiency and manage its cost structure. These actions have positively impact our profitability as OpEx has grown below revenue growth and inflation levels. You can observe a positive evolution of labor costs, over which the company is focusing heavily, alongside with fee for services, maintenance and materials, which in turn were affected by lower network maintenance costs. Additionally, effective cost management has delivered good results in interconnection costs through better negotiation in international interconnection and also handset costs mainly affected by the lower sell-out.
This effect had been partially offset by increases in programming and content costs and other costs, which include bad debt expenses. Although these expenses have registered such an increase, they are in line with the non-performing ratios observed in the financial system. The final outcome was the 180 basis points expansion that described before. Let's turn to slide 20, where we can verify the company operating income totaling more than ARS 19.9 billion with a 44% increase year-on-year. EBIT growth that resulted higher than that of EBITDA can be explained by a slower growth in the increase of depreciation and amortization and disposal impairment of PP&E, which stood at 28% year-on-year.
This contributed to the expansion in operating margins to 20% of consolidated revenues, increasing 200 basis points when compared with the first nine months of 2017, showing that the company was able to achieve solid operating performance through the course of this year. On the other hand, Telecom registered a net loss attributable to the controlling company of almost ARS 18.6 billion. This net loss was mainly explained by higher net FX losses of approximately ARS 45.7 billion in the first nine months of 2018, which can be explained by the peso depreciation that impacted mainly our current net financial debt position denominated in U.S. dollars. It is important to highlight that as of September 13, 2018, the restatement criteria of the financial statements established in IAS 29 have not been applied.
These circumstances must be considered in the evaluation and interpretation of the financial situation and the results presented by the company. If the comprehensive adjustment for inflation is applied, an increase in the values of the non-monetary item is expected up to the limit of the recovery value, with its consequent effect on the results and an increase in the net equity of the company, including the contribution of the owners. Likewise, with respect to the results, an increase in depreciation and amortization due to the effect of the restatement of non-monetary assets is expected, mainly those from the former Cablevisión business, and an improvement in financial results due to the positive results from exposure to inflation, due to the excess of monetary liabilities over monetary assets, all of them with their consequent impact on the line of income tax.
It is worth to mention that inflation adjustment will be done following local guidelines. Turning to slide 21, we present some performance key figures for the last 12 months as of the first nine months of 2018 and the full year 2017. Company revenues achieved more than ARS 128.5 billion for the last 12-month period ending September 2018. Meanwhile, EBITDA amounted more than ARS 44 billion for the last 12-month period. Moreover, EBITDA margin reached almost 35%. Regarding our gross debt, as of September 2018, amounted almost ARS 90.9 billion, but as the company holds an important cash and equivalent and investment position, net debt reached almost ARS 68 billion. In fact, net debt to EBITDA ratio remains very reasonable and in line with levels considered sound within the telecom industry. Please move on to slide 22, where we can analyze our adjusted maturity schedule.
As we mentioned in our press release in October 2018, the company refinanced $500 million from the syndicated loan due 2019 through a new loan agreement due 2022. $100 million of the original syndicated loan was repaid using the cash position of the company, leaving a total outstanding amount of $400 million. In October 2018, Telecom Argentina has also accepted the proposal from the IFC for an amount up to $350 million, with the purpose of financing investment needs, working capital, and refinancing of liabilities. In November 2018, the company was notified of the acceptance of a loan offer by Deutsche Bank, London Branch, for an amount of up to $300 million.
As mentioned in previous call, we have a manageable debt profile and many other sources of funds such as vendor financing, local bank lines, and access to local and international capital markets for the coming years, and as we mentioned, a very reasonable debt to EBITDA ratio. The company holds a permanent optimization policy for the term, rate, and structure of its financial liabilities and is always analyzing possibilities on this front according to the evolution and the market conditions. Before our Q&A session, let me pass the call to Gabriel for final remarks.
As Solange has stated, it's important to address the issue that the company has refinanced almost completely the debt in a much better and comfortable debt profile. We've been able, during this very tough environment, to have a very significant improvement in costs. It's important to note the fact that this improvement in cost is starting because we are still in the process of deployment of all our new systems, especially on the back end and front end. Yet, significant additional effects are going to come from there. On the EBITDA evolution in page 19, where we saw the different components, which was very easily shown how we were able to go with a cost structure at a very lower pace than inflation pace, with only the exception of programming and content costs, which are dollar related.
All the rest of the cost of the company, they have been below inflation. Probably the only one that has been aligned to inflation have been the tax, as it is shown there. We've been able to quickly offset inflation effects on our revenue side. We continue to move ahead, going deeper on the effects of the merger regarding our cost structure and our different processes. In that event, next year will be very significant with the inclusion, as I already mentioned, of the new platforms related to back end and front end. With this, I will open the session to questions. Brian?
Thank you. If you would like to ask an audio question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask an audio question. We will pause for just a moment to allow everyone an opportunity for questions. Our first question will come from Fernando Pérez with AR Partners. Please go ahead.
Hi, Gabriel and Solange. Thanks for taking my question. Notably, I thought that this quarter, wireless ARPU was the one with the highest increase, unlike previous years, where wireless ARPU was the slower one. I would like to better understand how are you going to price your services going forward, considering the economic turmoil and the recent devaluation of the peso, and where do you feel more comfortable to increase those prices?
Well, I get you to some extent, if I didn't understand properly, please, Solange, clarify. You have seen that all the fixed business itself has been very able to receive the price increases. On the mobile, what you are observing is a very significant change in the fact that the company is able to grow, moving customers from prepaid to postpaid. This may, at the beginning of the process, to provide, I will say, some marginal effect in terms of to get that step done at the first stage , you need to provide a fixed service, not prepaid, at low prices. Once the customer begins to have the experience of the ability of the usage of more data, you get more space for additional increases in price.
The second aspect that I will mention regarding the behavior of the mobile is that at the beginning of all this movement in the market, some marginal effect also was related to the prepaid. In a way that when all the increases in the tariff mentioned by Solange, especially public services or utilities, affected the consumption ability of the customers, a significant part of the prepaid universe was that they just fixed their expense to a fixed amount in pesos, meaning that in the past, that type of customers would have gone to the company, let's say, once a week and make the recharge. Now, once he gets there, in terms of the total expense, he doesn't use it anymore. This is a temporary effect.
We think that, as it has happened in the past, this effect is going to recover once the initial hit of all these increases in prices gets milder. We are confident that the company is going to be able, as in the past, to offset inflation effects in terms of the revenues. Of course, having said this, the question is, depending on how deep of the process continue to deteriorate, it might take some time longer. What we cannot expect is that the company is going to be able to price immediately movements like an 80% impact of devaluation. That type of movement takes longer for us to recover.
When you look at the long-term pattern in the past in similar movements of both businesses, you will see that at the end, because of this aggregation constantly of adding services or adding additional capacity, the company is able to fully price that at revenue level.
Great. My second question was if you could please quantify the impact of the disconnection of prepaid lines that ENACOM is forcing you to do. Is there any revenue reduction or cost reduction? Do you believe that maybe the overall measure have improved your client mix, considering that some should have upgraded their plans?
I didn't get the last half of your question. If anybody can repeat it. On the interconnection cost, the reduction is really a synergy. We are getting there significant costs by putting really the two networks together. This is a process that it has only started. The reason is that we are yet far away from the optimum point of how we make all this infrastructure interact. As you may recall, we have hired Bell Labs from Nokia who are assisting us in developing this to the future. Additional savings also are going to come from the automation of the administration of the network. There are significant advances in that event, the company is looking at that very carefully and very closely together with Bell Labs in terms of automize the full administration of the network.
I am not sure if I complete your question or there is some part that I missed. I am not at the office. I am far away, and I get some part of the message not all.
Fernando, I believe that Fernando is responding to the nominativity of the lines. Right, Fernando?
Yes.
Okay. Related to that, are you aware Sorry? Okay, related to that.
No, go on.
Basically, as we know, there is on the market many prepaid lines that were not nominated, therefore there was a process started in order to have the identifications for such lines. The regulator established a process that led us to have the renomination of such lines for October 31st. After that, ENACOM has informed that the number of the lines that had been included in this process, and it was around 65% of the lines were nominated. Basically, related to the ones that were not, the processes that are suspended, and eventually the person that have a prepaid line and has a possibility to go to a commercial office and ask to reactivate it, giving the information requested. Point of the process that is, yes. Basically what I'm saying is, it's a Sorry.
My question is this measure positive? Is a net positive measure, or the amount of disconnections will kind of damage some part of the revenues or increase their cost?
No, of course it's going to be positive, because what we are going to have is the lines that are going to be, in a way, they're active, and eventually you're going to have, even you are going to be reflected in the levels of ARPU.
Okay. Thank you very much.
You're welcome.
Thank you. If you find that your question has been answered, you may remove yourself from the question in queue by pressing star two. We will take our next question from Alejandro Aranda with Itaú.
Hi. Good morning, Solange and Gabriel. Two questions, if I may. The first one on CapEx, if you could give us a little bit of clarity on what's left of CapEx for this year, and what can we expect in terms of CapEx in dollars for total 2018? What's the split plan of that $5 billion, going forward, or at least, for next year? When you were talking, Solange, about inflation adjustments, there was some noise in the line. Did you give any at least ballpark number on the amount that that adjustment could entail? That would be the two questions.
Well, going to your first question regarding the CapEx, we are thinking that, as far as most of the CapEx of the year has already been deployed, the final figure in U.S. dollars at the end of the year will be close to $1.2 billion. This is maybe slightly less than that. We have a combined effect in terms of why we didn't reach the $1.5 billion. Of course, the devaluation, has a marginal effect in here. Also, the impact, very relevant is that the construction of sites, getting all the approvals and all the bureaucracy related to the new sites, takes a very significant part of the time frame. The company is going to almost double the amount of sites that were built last year, and that is a very big challenge for us.
We see that probably, at CapEx level, the biggest challenge is to deploy, to physically deploy the money more than really to get the investment out. Regarding the future outlook that you asked for, we are just at present, we are discussing and establishing our CapEx for next year. Just to give you an initial color, because I will not be able to give you the details because we are in the process of establishing that, but the big picture is that the company has not thought in terms of not doing the $5 billion CapEx plan that we announced. We are moving in that direction. The discussion and the different uses or the different applications of that CapEx are, well, we have already disclosed.
There are no changes in that because most of that CapEx is really related to increase our coverage and to increase our level of service to our customers in terms that we are not changing that, and the strategy of the company is the same. Having said that, what we are discussing, and this is related to the general environment of the country and to the new size, let's put it that way, or the new speed of the economy in Argentina, it might bring up the decision to, instead of doing the CapEx in three years, taking one year and a half longer period for fulfilling it.
The reason is that if everything moves slowly, including our competitors, which are investing much less than we are at present, and at the same time, the economy as a whole moves or has slowed down in a way, there is no need or probably it's not the wisest decision to speed up the yearly of CapEx in an environment where the cost of capital has increased significantly. Having said that, as far as we are beginning to see some signs that the situation may not be so bad, and at the same time, that markets, especially on the external front, normalize, will allow us to finally define the annual size of the CapEx.
As I mentioned, for the time being, we have no thoughts in terms of stopping the process or the most likely scenario is that we may add a couple of years instead to the original three ones.
Thank you, Gabriel. On the inflation adjustments?
In terms of adjustment of what?
The inflation adjustment. If you had at least a ballpark number of how that will affect the balance sheet?
The inflation adjustment. We can comment on that. Thank you for the question. Maybe we were not very precise on this. This is a very important subject. As you probably know, it is mandatory for most of Argentinian corporations, because of the country having gone through an inflation process increasing 100% for a period of three years. According to IFRS international rules of accounting, it's mandatory to make an inflation-adjusted accounting. This rule was established as obligation for Argentine corporations. It was publicly established since June. There is a window until December to present a complete adjustment. That's why at present, you will find most of the corporate with a footnote in the balance sheet explaining the situation and explaining that the adjustment is to be done.
What I can tell you is that because of the very particular situation that our company has, and the answer is completely related to our hedging, is that we will see a very significant effect of the inflation accounting. The reason for that is that the company has a very significant amount of fixed assets. We own more than 5,000 pieces of real estate as part of our business, and this has a lot of implication in inflation environment, meaning that up to now, you have seen the mark to market of our liability side, and it is still pending the mark to market in inflation terms of our asset side.
We might say that the impact may not offset completely the impact of the revaluation, but it's going to be close to that, meaning that there are several aspects that are yet to be clear in terms of regulatory approach, in terms of taxation. The general picture, because of what I have already mentioned, is very significant and will have a very important effect on the final result of the balance sheet. That is important to clarify because it's not the typical situation for the corporates and the listed companies in Argentina. About 70% of the total companies, the accounting inflation doesn't provide additional results. These only one-third of the companies who are in that group that, because of its special balance sheet shape, have this positive effect.
Okay. Just to see if I understood correctly. With this inflation adjustment, you believe that you won't probably be able to reverse all the negatives that you have, but you will likely be close to that?
Yes. I want to be clear on this, and I don't want to be misleading. Imagine that this adjustment is a very complex calculation. It implies adjusting the value of almost all the assets and liabilities of the company. I'm referring to those that are not mark to market, and it's a very complex calculation. We have already done, of course, several trials on this. The information I'm giving to you now is not audited and so might have certain changes, but the answer is that the impact will be significant and will be very material compared to the valuation pace.
That's quite helpful. An additional question, if I may. Sorry, I'm taking a lot of time. Given that you have the IFC loan and what you announced this morning of that syndicate loan of $300 million, you won't need to tap the market, at least in the near term, right?
Thank you again for your question. The issue is that the company has been speaking with investors all over this year. As you mentioned, we have completed yesterday the final approval of this additional of $300 million, and we have the mandate with IFC, meaning that there is, let me put it this way, there is no refinancing risk at all at this moment for Telecom. Having said that, the market may always deliver additional opportunities in terms of cost structure. Some of the loans that we have at present have a taxation that is less favorable than the treatment that locally we give to the Obligaciones Negociables, to the bonds. That's something into consideration that any opportunity that we may have to improve not only our profile of maturity but also our cost, we are going to be there.
The reason why the company has not tapped the market again since February is very simple. It's that when you look at the current market value of our 2021 bond, the ARS 500 million note that was originally issued by Cablevisión. It has been trading on average 200 basis points inside the sovereign. Last week, this positive gap for us has reduced because of the improvement of the sovereign and not necessarily reflected in our bond. It takes longer because the bond is not so liquid in terms of daily trading. In the medium run picture, we can really assess that the type of maturity has been trading 100 basis points inside the sovereign at least. Having said that, the company understands that when we go to the market to look for funds, we might be requested additional spread or basis for new money. That's logical, and we can comply with that.
Because of the volatility of the market and because of the high burden established by the sovereign risk, and of course because of the general turmoil and the situation of the portfolios in Argentine risk, the impact was the requested amount was too big for the consideration of our credit. That's why we haven't been to the market. Our intention is to be in the capital market both locally and internationally, but we will be there at a price that makes justice to the credit profile of the company and to the ratios of the company that deserve really a very significant consideration. That's our perspective, at least.
Okay. Thank you so much, Gabriel and Solange, and have a good trip.
No, thank you for your call.
Thank you. Our next question will come from Andres Raggio with J.P. Morgan.
Hi. I would like to return to the point of the CapEx. This year, CapEx has been around the 70% of the EBITDA in a company whose growth it's more or less resembling inflation. When you look at the environment of Argentina had, what is a reasonable capital allocation for this company in terms of the opportunities that you see in terms for growth?
If I understood you properly, what you are requesting is how do we envision the future allocation of CapEx in the following year? Well, as I mentioned, we are now in the process of discussing this because the first consideration is that we need to have a clearer picture of what is our dollar EBITDA is going to be in the medium run, which is to some extent because of the high movement that we have. We still don't have a clear picture if our EBITDA is going to be the figure as of September. Imagine that considering only in September the comparison of that foreign exchange rate compared to the comparison of the foreign exchange rate today has a difference of ARS 7 billion in our final result.
Meaning that if we close the year today with the present foreign exchange rate, it would be higher by ARS 7 billion. That's only related to effects, no operational consideration, no consideration on the adjusted inflation accounting. Having said that, we would like to have a clearer picture to exactly make the same type of consideration that you have made in a way of what proportions of our cash flows are going to be devoted to the future investment. In terms of the mix of investment, as I mentioned, as we are regaining capacity in most cases and solving years of lack of investment on the mobile, it won't change significantly in terms of the shape, but it will change probably in the phase of investment.
We will very likely continue with access CapEx in the range of 40%, with 55% devoted to the mobile, with the 36% devoted to the fixed. In general terms, what might change is that we might decide to focus more on the use of the CapEx to grow the CapEx to provide additional service to our customers. That's the part of the discussion that we are having today. Unfortunately, because we are in the middle of that, we are going to have a clearer picture by mid-December when the process finalized. I cannot give you much more details on this at this present stage.
Okay. Perfect. Just one small clarification. In Argentina, it's absolutely impossible to think about investments in pesos. They all need to be negotiated with suppliers in dollars. Let's say using the peso plus inflation is not something that can be done in Argentina.
No, because, well, we can have a very long conversation on this. The first problem that you have is that you can't finance this in pesos, to give you some color, as you know probably better than we do, all the funding available in the financial market in Argentina, half demand deposits that can be withdrawn from the banks in 24 hours, and half is a 30- 40 days tenor deposits. Meaning that it is very costly for the banks because they are lending their own capital at the end to provide a sense of long-term financing. There is no funding available. When you move to capital market, it's similar. The company would consider, of course, a peso financing, but probably we cannot get tenors longer than, in a very good environment, two, three year, five year at most.
When you go to that, for instance, when you look at what is being lent now as mortgages in Argentina, meaning the UVA, which at the end is an inflation-related correction + 10 points, is too high in the medium run, it can be really costly. That's why all Argentine corporations, especially the ones that invest medium to long-term, switch to U.S. dollars. As I mentioned, although this might seem, in the instantaneous shot, a lot of risk in terms of cash flows, when you look in the medium term, the situation is not like that. Look at our case. In our case, we have our operational revenues and operational expenses in U.S. dollars are matched. The company is not unhedged on the operational side.
The only unhedged comes from the financial side, which is offset by the long-term investment that we are doing and mostly protected by our huge fixed asset base, as I've already mentioned, and for the CapEx, which by the way, is the same equation. At the end, as far as we tend to hedge our 12-month exposure in dollars, which is the valuation that we really pay, in the long run, the other is an accounting issue, and the exposure to inflation, so that when the movements are pretty strong.
Okay. [Non-English content].
Thank you. Our next question will come from Sameer Dhond with Wellington Management. Sam, if your phone is on mute, please unmute it now. Hearing no response from Sam's line, we'll move on to the next question, and that is from Julian Rios with Nomura Securities.
Good day. Thanks for taking my call. I have a couple of questions with respect to your recently announced financing transactions. I wanted to understand if the IFC loan will be fully drawn by year-end to the full $350 million, and if not, what is the length of the drawdown period? With respect to the Deutsche Bank loan, I wanted to ask you whether that will be expanded to $300 million and whether it will be fully drawn by year-end.
Okay. Thank you very much for your question. Regarding the Deutsche Bank, yes, the $200 million are for sure going to be withdrawn prior to year-end. Very likely, the second $100 million tranche too. Regarding IFC, it might be the case, but I cannot completely assure that. You know that like most agencies, IFC takes a longer time to make all the analysis. We already have an exposure to them that make us optimistic in terms that the process is not going to be too long. All the consideration that we have had and conversation that we had with them up to now, were clear that the drawdown of the loan should be prior to the maturity of the original bridge. This is at the end of January of next year.
As I mentioned, on the other hand, it is not a big issue as far as the company has a cash position of nearly $400 million. Although we are working towards that happens as soon as possible, we don't have any type of liquidity risk in this sense. With the withdraw of the funds of Deutsche Bank next week, the equation will be completely solved.
Understood. Thank you very much. You mentioned you have nearly $400 million in cash. Can you tell me what proportion of that cash position is held in hard currency, and whether it's held in Argentina or outside of Argentina?
Yes. Well, at present, the total, if I am not correct, Juan, please correct me, but I think that we are in the range of $380 million. Probably near $200 million are held outside Argentina, and 90% of the total consideration is held in dollar, as I mentioned, or near dollar assets. By the end of dollars, I mean that, for instance, we may have some short-term securities that are dollar-denominated, but they also have other type of consideration. The rest is peso and is related to our operational movement. This is a very important issue related to our trade working as the company tends to have a very significant liquid, not only low debt, but also very significant equity reserves. Regarding the consideration of having the dollars outside Argentina, it's more a cost issue than a risk issue at this time.
We haven't had any type of problem in terms of having ability to buy or sell dollars at all. We, of course, are very sensible to that type of environment. At present, it's more related to a cost equation as under certain circumstances, the transactions in dollars, of course, are cheaper abroad than inside Argentina itself.
Understood. Lastly, on the dividend front, what is your policy for dividend distribution, and what capacity do you have to distribute dividends early in 2019?
For this year, we have distributed a very significant dividend at the beginning of the year as many of the audience may know. The reason was that we wanted to finalize any type of consideration related to the market itself. At the same time, to get a more efficient capital structure because the company had extremely inefficient capital structure at that moment. With those considerations, we paid a very significant dividend at the beginning of the year in several installments until March. The total consideration was in the range of $1.2 billion. Having said that, we haven't yet disclosed our dividend policy, although there are considerations in that sense that have been publicly disclosed to the market by our controlling shareholders in terms of the intention.
The reason why we haven't done that is because we want to communicate it once the stabilization of the environment allows it to be completely accomplished or fully accomplished. To give you some color regarding that consideration, I will make a carve out for this year. Then we refer to that, the consideration that the policy that we aim in the medium run, but still, yes, it has to be confirmed, is $300 million per year or 50% of the free cash flow, which is the cash flow less the CapEx, as a general consideration.
For this year, we are in the middle, as I mentioned, of the discussion of the final figures of the year. We need to know what will be the final result of the inflation adjustment and other considerations because we need to have a positive result to be able to pay a significant dividend. Up to now, at present, the type of loss that we show in our balance sheet, the dividend can't go over $ 60 million. Once all this accounting adjustment is fulfilled, the figure will be different. It will not be appropriate to give more color on this as they are part of the equation that we still are tending to have a clearer view.
Understood. Thank you very much. Before I let you go, on CapEx, can you tell me what proportion. I know that you talked about the funding being dollar-based. That obviously, longer tenure funding can be had outside of Argentina. What proportion of the total, I think you said potentially $ 1.2 billion-$1.3 billion in CapEx for 2018 is actually local currency cost as opposed to cost of machinery or other types of things that would be dollar-denominated?
Okay. In general terms, our CapEx is 65% in U.S. dollar and 35% in ARS.
Perfect. Thank you very much for answering the questions.
You're welcome.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone keypad. We will take our next question from Gabriel Vaz with Bradesco BBI.
Hi, Solange and Gabriel. Thank you for taking my question. I have only one quick question. Do you have any expectations about when will Telecom Argentina be able to offer 4G plans?
Sorry, I couldn't get you. You have it?
If you have any expectations about when will Telecom Argentina?
When will what happen?
Expectations. If you have any ideas about when will Telecom Argentina be able to offer 4G plans?
If I haven't, I will repeat to be sure that I understood you properly. You're asking me if we have an expectation in terms of offering 4G next year? That was your question?
Yes, exactly.
Well, the company is working towards that, but we need to fulfill some regulatory issues. At present, we are able to do so, but on the legal side, that will be allowed at the beginning of the year. We are going to start to offer different type of bundling, but still we are discussing when we are going to do that because we need to have the implementation of our new front end to really provide the customer with a full play experience. This is a common platform that will allow you to manage the whole relationship with the company in any device in a single structure. That is going to be probably available in parts since March next year. I'm referring to the platform itself, to our new CRM. A different deployment alongside 2019.
We are going to have a small deployment prior to the year end just for testing purposes.
Okay. Thank you, Gabriel. Thank you very much.
Thank you. It appears there are no more questions at this time.
Okay. There are no more questions. I would like to thank all of you for your time, and we'll see you on our annual call.
Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect your phones and have a great day.