Good day, everyone, and welcome to the Telecom Argentina TEO second 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 Denin, Investor Relations Manager. At this time, I'll turn the call over to Ms. Solange Barthe Denin, Investor Relations Manager. Please go ahead, ma'am.
Thank you, Kevin. Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. As mentioned by our moderator, the participants to the conference call are Gabriel Blasi, Chief Financial Officer, and myself, Solange Barthe Denin, Manager of Investor Relations. The purpose of this call is to share with you the results of the first half 2018, ending June 30, 2018. We would like to remind all those that have not received our press release or presentation that they can call our Investor Relations office to request these documents, or download them from the Investor Relations section of our website located at www.telecom.com.ar. Additionally, this conference call and slide 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 might 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 effect of ongoing industry and economic regulation, possible changes in the demand for Telecom's products and services, and the effects of more general factors such as changes in general markets or economic conditions, in legislation or in regulation.
Our press release dated August 8th, 2018, a copy of which was included in a Form 6-K report furnished to the SEC, describes certain factors that may affect any forward-looking statements that we may produce during this session. Furthermore, 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 and industry overview, moving on to our vision and strategy, which will be followed by the discussion of our business highlights. Immediately after, we will go into the evolution of our financial figures. Finally, 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. The second quarter of 2018 was particularly tough when looking at the macroeconomic environment, as the economic activity moved away from the stable growth rate observed during previous quarters, strongly influenced by the underperformance in the agricultural sector and by the turmoil that was registered in the foreign exchange markets that resulted in a strong peso depreciation. In turn, inflation rates pick up, impacted by the effect increase as well as the transport and utility tariff hikes. In this context, private consumption decreased during the second quarter of 2018 and is expected to maintain a very cautious stance for the quarters ahead, depending on the evolution of real income for this year.
Please refer to slide five, where we include a summary of the current external front situation and exchange rate evolution in Argentina. Exchange rate experienced a depreciation of approximately 55% during the first semester of 2018, while this impact was strongly concentrated in the second quarter. The movement in the peso to dollar exchange parity can be associated to a combination of external factors. From one side, related with flight to quality and capital outflows from emerging markets, and also to local factors as the systems of twin external and fiscal imbalances amplified the initial effect. During the months of April and May, the central bank exercised heavy intervention in an attempt to contain the foreign currency demand, thus selling more than $8.1 billion. Finally, during June, the pace of interventions slowed down, leaving most of the adjustment to be done via the exchange rate.
In addition, the monetary authority exercised an important increase in interest rates in order to counter the disruptive dynamics coming from abnormal behavior of the exchange markets, which still prevail in high levels as of these days. The combination of these measures, together with the approval of a standby agreement with the IMF, ultimately led to some relief from the turbulence experienced in the external front. Meanwhile, the international reserve position finally showed some marginal increase from the previous quarter due to the fact that the loss of reserves from the aforementioned FX market interventions was offset by inflows from the first disbursement of the IMF standby agreement for $15 billion during June.
Finally, trade balance accumulated a deficit of $5.1 billion during the first half of 2018, mostly due to the growth in imports of intermediate goods, capital goods, accessories, and fuel, combined with a mild evolution of exports, which were strongly affected by the slowdown in the agriculture export. Turning to slide six, we follow with an overview of the domestic macroeconomic situation and inflation. During the second quarter of 2018, the CPI measured by the Buenos Aires City experienced an increase as of the past quarter, as well as from 2017 year-end readings, reaching 29.8% year-over-year in June 2018. During the last three months period, it has turned evident that inflation has reached a turning point in which the trend is moving to higher rates for the whole year. In fact, this view is reinforced by the main economic consensus published by the Central Bank.
In particular, during the second quarter, transport and utility tariffs have suffered increases, and food and beverage adjustments were also relevant. An inflation decline should be observed during the last month of the year in order to achieve the target of 17% for 2019, which was established jointly with the International Monetary Fund. As for the economic activity, growth has reduced significantly during the second quarter of 2018 as the wheat and soybean harvest had been importantly affected by climatic factors, while construction and commerce sectors reported downside in their activity too. Industrial production also observed reductions in the first semester of the year, abandoning its recovery phase and entering into a recessive cycle. Although still with a low pace of contraction and sustained mostly by cars and steel production, which are still outperforming according to the accumulated figures for 2018.
As far as fiscal figures published during the first semester of 2018 are concerned, it can be noted that government efforts are centered on the achievement of the fiscal target of 2.7% for this year. Primary deficit turned to 0.9%, overachieving the expected target set of 1.1% for the first six months of 2018. Lastly, although overall household consumption has grown solidly during the last quarters of 2017, it was affected during the second quarter, and it is expected that it will continue to be impacted during the following months due to the uncertainty coming from higher volatility in economic variables and the rise in inflation. As of June, consumer confidence readings have fallen significantly and are actually on a low historical level.
In the challenging macroeconomic context described during the quarter, Telecom Argentina has managed to generate a solid revenue growth and an operating profitable increase when compared to past year figures. We deem important to remark that the current macroeconomic context still remains with an important degree of uncertainty in the evolution of economic variables. Having gone through this introduction of the macro environment, let me pass the call to Gabriel Blasi, who will go over the vision strategy and the business highlights session.
Thank you, Solange. Hello to everyone. As mentioned in the previous call, remember that the merger between Telecom and Cablevisión was considered an inverse acquisition under IFRS 3, Business Combinations, with Cablevisión being the surviving entity for accounting purposes. Thus, for the purposes of preparing the consolidated financial statements of Telecom Argentina as of June 30, 2018, first, the comparative figures as of December 31, 2017, and June 30, 2017, correspond to those that arise from the consolidated financial statements of Cablevisión at the respective dates. Two, the corresponding information for the six-month period ending June 30, 2018, incorporates on the basis of figures corresponding to Cablevisión, the effect of the application of Telecom Argentina method of acquisition at its fair value, in accordance with IFRS 3 guidelines and the operations of Telecom Argentina as of January 1st, 2018.
On the other hand, in order to ease 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 first half 2017, as if the merger between Telecom and Cablevisión had been effective during that period. The variations of result versus first half 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 eight, we can find some industry trends that we would like to share with you in order to clarify the strategic approach that the company actually has.
This situation can be pictured by taking a look over the on-demand content growth with the youth segment, which represent 54% of the total consumption. In fact, certain projections highlight that it is expected that 80% of all internet traffic will be video in 2021. Moreover, it is expected that there is going to be a strong and rapid increase in fixed and mobile data traffic by 2021, which will pose a challenge for the telecom industry as a whole, as average speeds in mobile internet are projected to grow to 20 Mbps, while average broadband speeds are expected to increase to 53 Mbps. In order to face this pent-up demand for higher speed and better connectivity experience, the company is undergoing a process of transformation in order to lead the new era of telecommunications industry in our country.
Let's move to slide nine to illustrate this fact. The major objective of the company is to become a convergent quad play provider, as well as a Net Promoter Score leader, being this indicator a proxy of the overall client satisfaction with the service. To achieve this goal, Telecom is focused on three main pillars: the increase of coverage and the capacity of the network, the convergence of systems, and the transformation of its culture. In this sense, we have reached some important milestones as of today. Over the coverage and network capacity front, the deployment of mobile sites has more than doubled in comparisons with the same period last year. Related to our convergence systems and services pillar, we have achieved an important goal as we complete the first step towards the convergence of systems with implementation of central finance SAP integration.
As far as our culture, not only defines who we are but who we want to be. For this, the company is focusing on the personal and professional development of its collaborators, on enhancing of their soft and hard skills, on fostering leadership abilities, and promoting integration of diverse teams across the organization. Moving to our business highlights, we can see where we have positioned today. Please refer to slide 11, where we highlight some of the key achievements. During the first half 2018, Telecom's revenues totaled ARS 64.2 billion, increasing 29% year-over-year. Operating income before D&A totaled ARS 23.3 billion, implying a 36% margin over revenues. In addition, fixed voice ARPU and broadband ARPU were up to ARS 205 and ARS 585 per month, respectively. Meanwhile, Pay TV ARPU reaches ARS 653, and mobile ARPU reaches ARS 165.
Moreover, in relation with our subscribers, mobile subs in Argentina amounting 19.1 million, of which 11.1 million were 4G clients. Pay TV subs remain stable, amounting 3.5 million, and fixed broadband subs total 4.1 million. Finally, regarding corporate matters, it is important to mention that on June 21, 2018, CVH has promoted and formulated a mandatory tender offer for Class B shares of Telecom Argentina due to having effectively obtained a controlling interest in the company. In addition, on June 21, 2018, the antitrust regulator approved the merger between Telecom Argentina and Cablevisión. Turning to slide 12, we can observe the revenues breakdown, where mobile services business 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 35%, followed by broadband revenues that, apart from representing nearly 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 revenues. When compared with the first half 2017 consolidated pro forma results, we can see that the revenues grew by 21% year-over-year, reaching ARS 64.2 billion. As we already mentioned, mobile and broadband are the segments that mostly contribute to the total revenues composition, generating revenue for ARS 22.4 billion and ARS 14.4 billion, respectively. In addition, the Pay TV revenues totaled ARS 13.9 billion, followed by fixed and data revenues, with the aggregate amount of ARS 8.2 billion.
To a lesser extent, we can highlight the contribution of handsets and other with ARS 5 billion and ARS 0.2 billion respectively. We will go in some details of this in the following slides. In slide 13, 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 been a substantial growth in postpaid subscribers, which represent our high-value mobile segment. As of June 2018, postpaid subscribers grew as a percentage of the total, achieving 37% of the total customer base, up from 33% compared with the same period of 2017. In this sense, the intensity of mobile internet usage continues to increase, which as of the first half of 2018, has reached an average of almost 2.5 gigabytes per user per month, which is 58% higher than the first half 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 total 11.1 million as of June 2018. This rapid growth in subscribers that use the 4G network has been the driver of increase in data traffic since 2015, as 4G traffic represents 72% of the total data traffic, with an average consumption of 2.7 gigabytes versus 2 gigabytes for non-4G users. Please turn to Slide 14, where we conclude a review, sorry, of our internet and Pay TV services segments, which aim to differentiate and upscale through an enhanced customer experience. Related to our broadband segment, we can point out that the numbers of subscribers grew more than 100,000 year-over-year, achieving 4.1 million users. The aforementioned increases in subscribers were supported by the offer of higher connection speeds.
As a result, subscribers with speeds equal or above 20 Mbps have increased to 21%, 29%, sorry, of total client base, versus 10% over a year ago. The mentioned effect, alongside with price adjustment applied, contributed to the ARPU growth. In that sense, during the first half of 2018, the ARPU of our broadband services increased by 42% to more than ARS 585 per month. Looking over paid TV services during the first half of 2018, cable TV subscribers remained stable while Flow boxes achieved 390,000 and almost 890,000 subscribers were using the Flow application as of June 2018, increasing notably from figures observed a year ago.
Moreover, cable TV ARPU increased to more than ARS 680 per month in the second quarter of 2018, up to 41% for the same period last year, while churn stood at 1.1%, down from 1.2% in second quarter 2017, evidencing the good level of quality that paid TV services have. Moving to Slide 15, we can find the perfect evidence of growth in connectivity demand and usage of multi-screen display through the performance of the Flow platform during the World Cup. Related to this fact, it is noticeable that the quantity of views through Flow application and Flow box of the World Cup event since its open ceremony increased by 6.5 million, and total usage of Flow application during the entire event increased by 20%, being mobile the most attractive device to watch the matches using the application.
35% of total views were made through mobile phones, while personal postpaid clients did not consume the data packs due to strategic offer that was released for the duration of the World Cup. On Slide 16, we present the consolidated CapEx figures, where we continue to focus our efforts to give our competitive advantage in terms of connectivity. During the first half of 2018, Telecom has invested more than ARS 14 billion, being this amount 35% higher than the same period of last year. The consolidated amount of CapEx represented 22% of total revenues, increasing from 21% in the same period last year. Furthermore, we can verify that an important amount of the technical CapEx was allocated to the access network, of which mobile access represented 55%, followed by fixed access by 36%, and other accounted for the remaining 9%.
The remaining of technical CapEx was mainly comprised of investment done on our international operations in Paraguay and Uruguay, and of upgrades of the transport network. If it were to highlight that during the first semester, Telecom continued with its effort to improve both the fixed and mobile network. In order to achieve this goal, the company continued with the upgrades of copper networks into fiber and HFC networks and deployed around 3,000 new mobile sites. Additionally, Telecom acquired a 700 MHz band license in Paraguay that will allow the company's subsidiary to offer better quality to mobile services. Having gone through these business highlights, now I will pass the call to Solange, who will go over our financial performance.
Thank you, Gabriel. We'll go over the impact that this positive business trends as described by Gabriel generated over our operating income. Please turn to Slide 18, where we can analyze the consolidated revenues and EBITDA. For the first half of 2018, consolidated revenues amounted almost ARS 64.2 billion, reaching a growth of 29% year-on-year. Service revenues grew 28% thanks to the strong performance of pay TV revenues and internet revenues, followed by mobile service revenues, and more specifically, mobile internet. EBITDA showed a strong evolution, growing by 37% year-on-year, as we have concentrated in improving our revenue quality and profitability. EBITDA margin increased substantially by 200 basis points to 36% for first half 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 revenues and costs. The company has taken actions to gain operational efficiencies and manage its cost structure. These actions have positively impacted our profitability, as OpEx has grown below inflation levels of revenue growth. We can observe positive evolution of labor costs, over which the company is focusing heavily, alongside with commission and advertising, both of which were impacted by some temporary saving and one-off. Effective cost management has delivered good results in interconnection costs and fees for services, maintenance, and materials. Handset costs were affected by lower additions. These effects have been partially offset by increases in programming and content costs and taxes. The final outcome was the 200 basis point expansion just described before.
Let's turn to slide 20, where we can verify the company operating income total ARS 13.7 billion, with a 50% increase year-on-year. EBIT growth that resulted higher than that of EBITDA can be explained by slower growth in the increase of depreciation and amortization, which stood at 22% year-on-year. This contributed to the expansion in operating margins to 21% of consolidated revenues, increasing 700 basis points when compared with the first half of 2017. Telecom registered a net loss attributable to Telecom Argentina of almost ARS 4.9 billion. This net loss was mainly explained by higher effect losses linked to the peso depreciation mentioned at our macroeconomic evolution chapter, which affected mainly our current net financial debt position denominated in US dollars.
It is important to highlight that as of June 30, 2018, the restatement criteria of the financial statements established in IAS 29 have not been applied. This circumstance 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 recoverable value, with its consequent effect on the deferred tax 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 asset is expected, mainly those from the former Cablevisión business, and an improvement in financial results due to the positive result from exposure to inflation due to the excess of monetary liabilities over monetary assets, all of them with a consequent impact on the line of income tax. Turning to slide 21, we present some pro forma key figures for the last 12 months as of the first semester and the full year 2017. Company's revenues achieved more than ARS 120 billion for the last 12-month period ending June 2018, showing an increase of 14% versus the 12 months ending December 2017. Meanwhile, EBITDA amounted more than ARS 41 billion for the last 12-month period, increasing 18% from the 12-month period of 2017. Moreover, EBITDA margin reached 34%.
Regarding our gross debt, as of the first half of 2018, amounted around ARS 64 billion, but thanks to the solid cash and equivalent and investment position of the company, net debt reached ARS 49 billion. In fact, net debt to EBITDA ratio remains very reasonable and in line with levels considered sound with the telecom industry. Please move on to slide 22, where we can analyze our maturity schedule. We have a manageable debt profile and many other sources of funds, such as vendor financing, local bank lines, and access to local international capital markets for the coming years, as we mentioned, a low debt to EBITDA. The company is looking to extend the tenure of its debt, analyzing several possibilities on this front according to the evolution on market conditions. Having concluded with the presentation, we are more than pleased to answer any question you may have.
Thank you very much.