Executive Summary / Key Takeaways

• Telecom Argentina ($TEO) is demonstrating remarkable resilience and strategic agility, achieving significant EBITDA margin expansion and net income growth in the first half of 2024 despite Argentina's high inflationary environment.
• The company's focused investments in next-generation technologies, particularly Fiber-to-the-Home (FTTH) and 5G, are enhancing its network capabilities and driving subscriber growth in key segments, while its digital wallet, Personal Pay, is rapidly capturing market share in the burgeoning fintech sector.
• Proactive and sophisticated liability management, including a recent $500 million international bond issuance and strategic debt waivers, has significantly improved TEO's maturity profile and reduced financing costs, bolstering its financial stability.
• Management's cautiously optimistic outlook anticipates a stabilization of inflation at milder levels (2-3%), which is expected to further normalize margin generation and enable stronger ARPU recovery in U.S. dollar terms.
• The core investment thesis hinges on TEO's ability to leverage its localized market leadership, technological upgrades, and diversified digital ecosystem to translate improving macroeconomic conditions into sustained revenue and profitability growth.

A Foundation of Connectivity: Telecom Argentina's Evolving Landscape

Telecom Argentina S.A. ($TEO) stands as a pivotal telecommunications provider in Argentina, offering a comprehensive suite of services including mobile, internet connectivity, programming and cable TV, fixed telephony, and a rapidly expanding B2B solutions portfolio. Founded in 1979 and rebranded in 2018, the company has consistently adapted its strategy to Argentina's dynamic economic realities, including the adoption of inflation accounting in 2018. This strategic evolution has been critical in maintaining its market position and driving growth.

The company's overarching strategy centers on convergence and digital transformation, aiming to provide integrated solutions that cater to both consumer and enterprise needs. This approach is foundational to its competitive stance in a market shared with global giants like Telefónica (Movistar) and América Móvil (Claro) , as well as regional players like Liberty Latin America (LILA). While these larger competitors often benefit from broader scale and diversified global portfolios, TEO leverages its deep local market understanding, established infrastructure, and customer loyalty to carve out a distinct advantage.

Technological Edge and Strategic Investments

A cornerstone of Telecom Argentina's strategy is its continuous investment in advanced network technologies, which serve as a critical differentiator in the competitive landscape. The company is aggressively expanding its Fiber-to-the-Home (FTTH) network, deploying over 4,300 new blocks in the first half of 2024, including overlays on its Hybrid Fiber-Coaxial (HFC) network. This initiative is crucial for migrating legacy xDSL customers and enhancing broadband speeds, with 85% of its subscribers already enjoying speeds of 100 Mbps or more. The tangible benefit for customers is superior internet performance, while for TEO, it translates into improved customer retention and the ability to command higher Average Revenue Per User (ARPU).

In mobile connectivity, TEO is at the forefront of 5G deployment in Argentina. Having acquired 100 MHz of spectrum in the 3.5 GHz band in 2023, the company now operates over 100 5G sites and targets 200 sites by the end of 2024. This rollout focuses on high-density urban centers, strategically adding 5G equipment to existing sites to maximize investment impact. While only a small percentage of its customer base currently uses 5G-ready devices, this proactive investment future-proofs its mobile business, attracts high-value customers, and reinforces its claim as having the fastest network in the country. These technological advancements are not merely operational upgrades; they are fundamental to TEO's competitive moat, enabling it to offer superior service quality, justify pricing power, and drive long-term growth.

Financial Performance and Operational Strength

Telecom Argentina's financial performance in the first half of 2024 underscores its operational effectiveness in a challenging macroeconomic climate. The company reported an EBITDA margin of 29.7% for the six-month period, marking a 1.3 percentage point improvement year-over-year. This expansion was primarily driven by effective cost management and a disciplined pricing strategy, which allowed TEO to improve margins despite a 13% year-over-year decrease in real revenues. Notably, the company achieved a net income profit of ARS 859 billion, largely attributed to real exchange differences gains from the peso's appreciation against its U.S. dollar-denominated debt.

The company's strategic pricing policy, involving monthly adjustments, has been instrumental in mitigating inflationary pressures. Service revenues, while nominally increasing by 235% year-over-year due to these adjustments, also showed a positive real growth of 5.6% quarter-over-quarter in the first half of 2024, improving the trend from the previous quarter. This indicates TEO's increasing ability to pass through inflation to its ARPUs, which have seen a significant recovery in U.S. dollar terms across most segments.

Operational highlights further demonstrate TEO's strategic execution. The mobile subscriber base grew by over 578,000 year-over-year to 21.2 million, primarily driven by strong performance in the prepaid segment. Broadband and Pay TV segments, while facing competitive pressures, maintained stable customer bases, with Flow's unique customers reaching almost 1.5 million, an 11% increase year-over-year. The B2B segment is also gaining traction, with data services in foreign currency contributing to an increased share of total revenues, reaching 20% when including subsidiaries.

Diversification into Fintech: Personal Pay's Rapid Ascent

Beyond its core telecommunications services, Telecom Argentina has successfully diversified into the burgeoning fintech sector with its digital wallet, Personal Pay. Launched in 2022, Personal Pay has rapidly scaled to almost 3 million onboarded clients by June 2024, establishing itself as the second most important player in the market in terms of clients' account balances. The platform's total payment volume multiplied by an astounding 61 times, and the total payment number by 21 times, compared to June 2023. This exponential growth, coupled with ARS 311 billion in client funds invested in mutual funds, highlights Personal Pay's strong value proposition and its significant contribution to TEO's strategic diversification and future revenue streams.

Robust Financial Management and Outlook

Telecom Argentina's financial management has been proactive and effective in navigating Argentina's volatile economic landscape. The company received a disbursement of RMB 530 million from the Bank of China (BACHY) in September 2025, maturing in September 2028, further strengthening its liquidity. In July 2024, TEO successfully issued $500 million in international notes due 2031, with investor offers exceeding $1.3 billion, underscoring strong market confidence. This issuance, combined with tender and exchange offers for its 2025 and 2026 notes, has significantly improved the company's maturity profile and reduced its overall cost of debt by approximately 25 basis points.

As of June 30, 2024, TEO's net debt-to-EBITDA ratio stood at a healthy 2.2x, aligning with pre-devaluation levels from December 2023. The company also proactively secured waivers from multilateral creditors in March 2024, adjusting its net debt-to-EBITDA maintenance ratio to 3.75x for 2024, a prudent measure against economic volatility.

Management anticipates a reduction in monthly inflation, potentially stabilizing at a floor of 2-3%, which is expected to normalize margin generation and allow for further ARPU increases above inflation. This cautiously optimistic outlook is supported by historically low delinquency rates and increased prepaid mobile usage.

Capital expenditure for 2024 is budgeted at around $500 million for essential maintenance, with a flexible approach that initially commits $350 million, allowing for the postponement of the remaining $150 million based on cash flow, inflation, and FX stability. This disciplined investment strategy ensures critical network upgrades continue while maintaining financial prudence.

Competitive Dynamics and Risk Considerations

Telecom Argentina operates in a highly competitive environment, primarily against Telefónica (Movistar) (TEF) and América Móvil (Claro) (AMX), which benefit from global scale and diversified operations. TEO's strength lies in its deep local market penetration, strong brand recognition, and a strategy focused on integrated service bundles and customer retention through tailored promotions. While TEO's network scale and technological sophistication may lag behind global giants, its aggressive FTTH and 5G deployments are strategic responses to close this gap and enhance its localized competitive edge.

The company's financial performance, particularly its profitability and growth rates, can be more vulnerable to regional instability compared to its globally diversified rivals. However, TEO's proactive debt management and strong free cash flow generation, consistently between $400 million and $500 million annually, provide a crucial buffer against these macroeconomic headwinds. A key ongoing challenge remains managing labor costs, which historically track inflation closely, though management has shown success in negotiating favorable terms. The company's P&L is naturally hedged, with a greater proportion of revenues tied to the U.S. dollar than expenses, offering some protection against currency fluctuations.

Conclusion

Telecom Argentina is demonstrating a compelling investment narrative, characterized by strategic resilience and a clear path to growth amidst a complex economic backdrop. Through disciplined cost management, aggressive pricing strategies, and targeted investments in next-generation technologies like FTTH and 5G, the company has not only maintained but expanded its operational profitability. The rapid ascent of Personal Pay further diversifies its revenue streams and positions TEO at the forefront of Argentina's digital transformation.

With a robust financial management approach, including successful liability management and proactive engagement with creditors, TEO has significantly de-risked its balance sheet and improved its financial flexibility. As Argentina's inflation is anticipated to moderate, Telecom Argentina is well-positioned to capitalize on improved purchasing power, translating its technological leadership and strong market presence into sustained revenue growth and enhanced shareholder value.