Financial Statements - Entel

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EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor Transalation Purposes Onlyincluding handsets for postpaid customers up to September 30, 2012. There wasalso an increase arising from higher investment in fixed-term deposits (CLP $36billion) to maximize the return on cash surpluses.Investments in Property, Plant and Equipment were mainly focused on the serviceswith greatest development, specifically mobile services, which received 64% ofinvestment. The remainder corresponds to investment in platforms andinfrastructure, mostly for wireline networks.In terms of investment in mobile services, 52% of investment corresponded toterminals for postpaid customers up to September 30, 2012 (see Note 22 to theFinancial Statements), and the remainder to network infrastructure.Investments made during the last twelve months include CLP $15 billion in realestate for advanced payments for Group’s new headquarters in one of the towerblocks at the Parque Titanium development. As of December 31, 2012, this projecthad received a total investment of CLP $35,607 million.Current inventories are mainly composed of mobile handsets for the users of theseservices. Their level, activity and turnover are determined based on the growthprojections for the portfolio, as well as requirements for the renewal of equipment,technology developments, and campaigns to retain customers.Market AnalysisThe Entel Group operates in a highly competitive market for the various services itprovides.A number of changes have happened over the last year in terms of the largenumber of competitors active in the telecommunications market. In terms of mobileservices, the initiation of operations by VTR and Nextel, the two new operatorsassigned spectrum for 3G telephony by the authorities last year, as well as theprogressive incorporation of Mobile Virtual Network Operators (MVNOs) hasresulted in increased competition.The Entel Group signed a domestic “roaming” agreement with Nextel at the end oflast year, which will provide the operator with access to its mobile networks inregions where it has no coverage on its own network. Furthermore, at the end of2012, the Company signed an agreement with Falabella to provide the virtualmobile operator with network infrastructure services.It is hard to predict the effects of increased competition, given the requirement fornew operators to ensure the profitability of any resources deployed (both their ownand subcontracted). Their networks are required to compete with current operatorsin terms of scale and coverage and they will need to undertake significantmarketing activities to capture and retain customers.- 76 -
EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor Transalation Purposes OnlyAt an industry level, there has been a tendency to provide users with increasinglysophisticated and more costly handsets. Providing this level of equipment hasmade it possible to expand the range of services offered, particularly in the area ofmobile data.One year after taking effect, number portability for mobile phones has had alimited impact on the industry and the company. The uptake of number portabilitywas approximately 3% of the total industry. The net impact on the company, as ofDecember 31, 2012, was a net loss of 52,000 subscribers, 0.5% of the subscriber base.However, it is important to note that the number of customers with highest averagerevenue (postpaid customers) increased by 75,000, whereas the number of prepaidcustomers fell by 127,000.The company has continued to make progress with its strategy of expanding theuse of mobile data and has made significant investments to increase the penetrationof smart phones. At present, approximately 42% of postpaid customers now have adata or multimedia plan.The company has continued to consolidate its leadership in the enterprise market,in mobile services, integrated voice, data and Internet services, and IT outsourcing.The strong position of the Entel Group constitutes a specific strength in thetransition towards the market changes it must face. In terms of mobile services,which represent almost 80% of revenue for the current year, the Entel brand hasmaintained a strong position, with high levels of customer preference. To date,these factors have been decisive in determining policies related to market share andthe composition of the customer portfolio (the balance of postpaid and prepaidcustomers).It should be noted that in mobile services, Entel has been ranked first for tenconsecutive years in the Mobile Services Customer Satisfaction index, awarded bythe organization Procalidad and Revista Capital in August.Entel has also been recognized as Cisco Service Partner of the Year for the SouthernCone of Latin America as a result of the leadership that has secured its position asthe leading supplier and systems integrator in Chile.The company has improved its leadership in the National Innovation Ranking forthe third consecutive year, with the ranking paying tribute to its organizationalstructure and the dynamic of value creation for customers. The study wasundertaken by the ESE Business School at the Los Andes University.The marketing strategies used have been successful in providing differentiatedservice to postpaid customers with higher minutes of use (MOU) and averagerevenue per unit (ARPU) than prepaid customers.- 77 -
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