Telefonica de Argentina 

Company Background

Originally founded as the Sociedad Licenciataria Sur SA on April 23, 1990, Telefonica de Argentina is based in Buenos Aires. From its beginning, the company's sole objective has been to provide public telecommunication services with the exception of radio. Many of these services are provided in association with other private companies. Today, Telefonica de Argentina is one of only two companies licensed to provide basic phone services in the country, the other being Telecom Argentina.  The Argentine government has granted Telefonica de Argentina exclusive rights  to provide public phone services to the Southern part Argentina. The company has subsequently purchased the rights to offer phone service in the Mendoza and San Juan provinces.
 
Objectives

In its annual report, Telefonica de Argentina states that its principal goal is to achieve a state-of-the-art, fully digital telecommunications network.
 
Products and Services

 The company's services can be divided broadly into the following categories: residential customers, the public telephone system, international communications and telephone directories,

Technology is of central importance to Telefonica's new product development efforts.

Subsidiaries and Ventures

Telefonica de Argentina has spawned a number new ventures to support its telecommunications activities.

1.    It has 50% ownership in Telintar and Startel, through which it offers international data transmission and telecommunication services.

2.    Telefonica, together with Telecom Argentina, formed the joint venture Movistar in 1993 for the purposes of supporting mobile cellular radio communications.

3.    It has also formed Telefonica Comunicaciones Personales for running a mobile telephone service in the south part of the country. The new company is expected to begin operations in 1999.

4.    Telefonica has also recently created the company Telecomunicaciones y Sistemas, which will provide telecommunications engineering and customer support services.
 
Financial Summary

With revenues on the order of 3 billion Pesos. Net income is on the order of 456.2 Pesos annually.

Financial Highlights (All figures in millions of Pesos, 1 Peso = 1 $US.)
Annual Measure
9/98
9/97
9/96
9/95
Capital Sales Expenditure
874.49
845.30
1088.90
1212.40
Net Sales Revenues
3434.63
2995.70
2751.80
2732.10
Operating Income
917.58
905.80
742.30
717.00
Net Income
510.93
474.30
385.10
457.80
Debt Ratio
1.06
0.70
0.66
0.60
Cash Flow (Net Income plus Depreciation)
1216.07
1154.32
1029.80
1006.80

 

Capital Stock

Telefonica stock has been sold on the Buenos Aires Stock Exchange since 1991. From 1994 on, the company's ADSs, consisting of  10 class B shares each, have been traded on the New York Stock Exchange under the symbol TAR..

Stock Ownership
Class
 Percent of Total Outstanding Stock Shareholders
A 51% COINTEL (investment corporation)
B 48% COINTEL ADSs, 12,800 holders (29%) 
Shareholders, 20,700 on BASE (13%) 
CEI Citicorp Holdings (3%) 
Telefonica International Holding (2%) 
Telefonica International de Espana (1%)
C 
 		 1% Company employees and 
Fideicomiso BCBA Telefonica
 The class A shares, which  are all owned by Compania Internacional de Telecomunicaciones (COINTEL), can only be transferred with the permission of Argentina's regulatory authority. During the fiscal year ending September 1998,
 
Stock Price and Trade Volume over Time
 

Measures of Stock Performance
 Annual Measure
9/98
9/97
9/96
9/95
Shares Outstanding
2,140,876,802
2,357,514,750
2,357,514,750
2,357,514,750
Earnings Per Share (Pesos/shr.)
0.22
0.20
0.16
0.19
Price-Earnings Ratio
13.30
18.4
15.6
12.6
Dividend per Share (Pesos/shr.)
 0.1275
0.1059
0.1030
0.0995
Pay-Out Ratio (%)
56
53
63
51
 

 Competition

Argentina Telecom.

Recent Events and Trends

In Q4, 1998, Telefonica acquired >$242,253 class C shares for 847,886 Pesos. This was part of a larger buy-back totaling 216,637,948 Class C shares, amounting to a total of $758.2 million Pesos. This change is reflected in the lower shares outstanding number for 1998, as listed in the "Measures of Stock Performance" table. Furthermore, as of September 30, 1998, 110,485,354 shares of class A shares were converted to class B shares.
 
Charges: Trial in the courts regarding rate restructuring.
 
Performance Analysis

For the fiscal year ended September 1998, net income was 510.9 million Pesos. This figure represents a 7.7% increase over last year's earnings of 474.3 million.  For 1998, total revenue was 3,434.6 million Pesos, up 14.7% from the 2,995.7 million figure in 1997. The increase in total revenue is due to a number of factors, the most significant of which are summarized in the table below:

Sources of Increase in Total Revenue 1997-1998
Service
Percent Change in Revenue for Service
Driver
Cellular service - Area III
135.1%
Higher access charges 
Cellular service -Area II
70.2%
Higher access charges
Advanced voice services and intelligent network
39.8%
An increase in digital trunk access lines
Telephone directories
29.4%
(Telinver subsidiary)
Supplementary services
26.8%
Growth of voice mail sales
Data transmission
24.7%
(Startel and Advance subsidiaries)
Monthly Basic Charges
(basic telephone service)
22.2%
Rate increase (by government decree)

 
Of the services Telefonica provides, "installation charges" accounted for the biggest decrease in revenues over the past year. This 47% drop was due to a 43.3% reduction in the number of new lines put into service for the year. "Domestic long distance", the next most significant decrease, experienced a 3.6% revenue decrease due to a government-initiated rate decrease.