Vivir mejor - Entel
Vivir mejor - Entel
Vivir mejor - Entel
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Company IdentificationChairman’s Letter11Company Information51Market Segments95Subsidiaries12Profile52Industry96Americatel Perú14History56Regulatory Framework100<strong>Entel</strong> Call Center1620LandmarksCorporate Governance5864Consumers SegmentEnterprise Segment105Company Information22Board of Directors68Corporate Segment108Constituting documents24Management72Wholesale Segment108Company Ownership2832Structure ChartTop Level ExecutivesWorkforceHuman ResourcesCorporate Image77788082Corporate Social ResponsibilityPolicy and ActionsTodo Chile Comunicado ProjectARTEnas for Chile114115117118119Company StructureDividend policyInvestment PolicyFinancing PolicyDistributable Profits37384246Strategic FoundationsInfrastructureCustomer ServiceInnovation8586889091ResultsConsolidated ResultsMobile ServicesWireline ServicesWireline Revenue by Segment119120121122125Dividends per ShareSummary of TransactionsFinancial ActivitiesRisk FactorsComparative Share Price Performance125Shareholder Comments
126Material Events and Essential Information131Insurance Commitments133Declaration of Responsibility135137138144219221222Subsidiary and Associate CompaniesIndependent Auditor ReportConsolidated Financial StatementsNotes to the Consolidated Financial StatementsCertificate of Accounts InspectorsSubsidiary and Associate CompaniesConsolidated Balance Sheets for Subsidiariescontents_
Juan José Hurtado VicuñaChairmanChairman’sLetter__Dear shareholdersAs you will be able to see in this Annual Report, on behalf of the<strong>Entel</strong> Board, I have the pleasure to present excellent results for2011, a year that marked the beginning of a new stage in ourcompany’s history.Our Ability to Adapt to ChangesFixed-mobile convergence, the exponential growth in connectivity,the development of new IT and cloud services, the enormouspenetration of services, and the fast and strong adoptionof technologies across all customer categories made the timeright to restructure our business around an integrated vision oftechnologies and markets.We needed an increasingly agile and flexible organization toservice different types of increasingly demanding customerswith ever more complex and specific requirements.
Connectivity is no longer a luxury; today it is essential. Today’smarket is dominated by data connectivity: customers now needaccess to voice and Internet services on multiple devices (includingtelephones, computers, tablets and cameras), servicesthat must be appropriately tailored to the capabilities of each,delivering a network experience that provides access to mobile,fixed, and wireless services, and allows users to switch betweenthem almost imperceptibly, without any interruption to servicesor applications.It is a world in which applications can be used on many devices,and both applications and data are stored “in the cloud,” on sharedinfrastructure housed in large data centers.In this context, it was necessary to make a number of changesin order to continue carrying out our mission. From an organizationstructured around two business units (wireline and mobile),we have transformed into one based around business units foreach market: Consumers, Entreprises, Corporations, and Wholesale.Each unit has a holistic vision of its customer and is responsiblefor the commercialization and sale of products, as wellas setting prices, and customer service. Cross-cutting units,such as Technology and Operations, IT Services, Strategy andInnovation, Human Resources, and Administration were establishedto support the core business focus on market segments.This also presented the opportunity to complement the restructuringof our organization with a new slogan: “Live betterconnected.” The concept was launched in 2011 and we are convincedit reflects <strong>Entel</strong>’s spirit and role when it comes to currentuses of technology in people’s lives and day-to-day businessactivities.Strong Commercial PerformanceThe restructuring and changes made this year an enormouslychallenging one. However, <strong>Entel</strong> rose to the occasion, delivering astrong performance across all areas. The mobile area saw a goodcombination of factors. Mobile broadband (MBB) and the use ofmobile Internet from smartphones were two of the most significantdrivers of growth in the industry, reaching 23.6 million customersin Chile during 2011, a market penetration of around 137%.In light of this change in the market, one of <strong>Entel</strong>’s main achievementsin this area was the significant growth in the number ofMBB customers (including data cards for business applications),reaching 945,429 users in December (72% more than in 2010).Furthermore, the number of contract customers with mobile Internetenabled smartphones rose from 17% to 28% of the customerbase during 2011.Together with strong results in the traditional mobile voice business,this allowed <strong>Entel</strong> to increase the total mobile customerbase to 9,347,434 (as of December 2011), a 24% increase withrespect to the end of 2010, gaining almost three additional percentagepoints of market share to reach around 39% of active customers,2.8 million of which have a contract (around 30%).The wireline business also delivered solid performance. <strong>Entel</strong> iscurrently a market leader in the enterprise segment for wirelineservices, providing integrated voice, data, Internet, and IT outsourcingservices focused on data center and cloud/on-demand services.Total revenue from the wireline business rose by 9% in 2011, increasingby 7% for the aforementioned business services (excludinglong distance).Similarly, the Americatel Perú and <strong>Entel</strong> Call Center subsidiariesboth displayed solid results, in alignment with the company strategy.Americatel strengthened its focus on business services, whosecontribution increased to 48% of its total revenue. On the otherhand, with three new centers in Chile and the country’s first COPCcertification, <strong>Entel</strong> Call Center has consolidated its excellent ContactCenter and technical support platform, both in Chile and Peru,providing the market with an excellent quality of service. The businessrepresents an important contribution to the Group in termsof its strategy of providing its customers with first class service.5Report 2011
CONSOLIDATED REVENUEValues calculated under IFRSIn CLP$ million1,400,0001,300,0001,200,0001,100,000994,6711,086,40514%1,240,914DISTRIBUTION OF CONSOLIDATED REVENUE BY BUSINESS19%WIRELINEBUSINESS1%INTERNATIONALOPERATIONS2%OTHER1,000,000900,000800,00065%78%MOBILEBUSINESS6700,00020092010 2011Report 2011ResultsCustomer FocusStrong management across all areas of the business resulted inconsolidated revenue of CLP $1,240,914 million, a 14% increasefrom 2010.Together with the focus on services with higher profit margins,this increase represents a rise of 16% and 14% in EBIT-DA and Operating Income, reaching CLP $515,200 million andCLP $238,227 million, respectively.<strong>Entel</strong>’s final profit for 2011 was CLP $180,767 million, representingan increase of 5% on 2010 levels. This figure is a productof increased non-operating costs, principally associated withcharges in the valuation of derivative instruments, together withgreater tax expenditure as a result of an increase in corporationtax and the absence of the extraordinary tax credit included inthe previous year’s accounts.<strong>Entel</strong> is committed to providing first class service and continuousimprovement. Its efforts in this area have been recognizedby the market in the results of two prestigious surveys: theNational Customer Satisfaction Survey, run by the organizationProCalidad, which ranked <strong>Entel</strong> first among mobile telephoneservice providers for the ninth year in a row, and the Best CustomerExperience award for 2011, run by the Ibero-AmericanAssociation for Company-Customer Relations following anexhaustive study of 32 mobile telephone service providers incountries including Spain, Mexico and Brazil.Customer behavior after the introduction of number portabilityfor mobile telephone services on January 16, 2012, also affirmedour company’s excellent standing. According to official statistics,one month after the launch, 39% of customers who hadswitched companies chose <strong>Entel</strong> as their new supplier. Perhapsmore significantly, 51% of contract customers who switchedsuppliers moved to <strong>Entel</strong>.
Ebitda2009 to 2011 reported under IFRSIn CLP$ million600,000515,200In addition to this, USD $230 million was invested in mobileequipment for contract customers in 2011. This is closelyrelated to the company’s drive to promote the use of mobileInternet on smartphones, a strategy that requires greater investmentin devices that will in turn translate into increasesin revenue further down the line.500,000400,000401,358446,01816%Corporate Social Responsibility300,000200,000100,000065%2009Investments2010 2011At <strong>Entel</strong>, we believe our services are differentiated by our networkand technology infrastructure, which are both resilientand deliver national coverage. This priority is reflected in ourchallenging and significant investment plan.In order to provide our customers with the best experiencesin the services they use, we have the best possible network,data center, and technology infrastructure, a fundamental aspectof our strategy. We continue to make significant investmentsin our infrastructure, with investments for 2011 totalingUSD $502 million (not including handsets for postpaidcustomers). Of this, USD $300 million (equivalent to 60%) wasspent on development for mobile services and the remainderon projects for corporate and wholesale customers, platforms,infrastructure, and fiber optic networks to provide advancedconnectivity, alongside expanding our data centers and cloudservice platforms.Our corporate social responsibility policy forms part of ourbusiness strategy. It covers all our investments in connectivity,such as the Todo Chile Comunicado project, and our supportto rural schools through the provision of technology.The Todo Chile Comunicado project, a large-scale publicprivateinitiative launched in 2010, meets our fundamentalcommitment to connect Chile, in this case helping to close thedigital gap that exists between urban and rural areas in orderto facilitate new economic and social development, and ultimatelyimprove the quality of life of the country’s inhabitants.Another important CSR initiative involves making our towerand antennae infrastructure more appealing in terms of itspresence in the city. Our networks form an integral part ofthe urban environment and in response to this responsibility,we have anticipated the requirements to be introduced by thenew ruling legislation to better integrate our mobile telephoneantennae with the city.Our first efforts in this area will see the participation of distinguishedarchitects and artists who will transform a numberof antennae throughout the country into works of art that willcontribute to the urban environment.We plan to invest USD $45 million in this and other initiativesthat will run throughout 2012.7Report 2011A significant part of this investment is related to the Todo ChileComunicado project, delivered through the TelecommunicationsDevelopment Fund. We began work on the project in 2010and it will see Internet access provided to 1,474 rural areas. Bythe end of 2011, the project was 91% complete, thanks to theenormous feats of technology and engineering in which morethan 630 people have taken part and in which <strong>Entel</strong>’s technologypartner, Ericsson, has played a significant role.The consistency between the CSR policy and the company’sactions was once again recognized by its high ranking amongthe most distinguished companies in this area in the MORICRS survey for 2011.
CONSOLIDATED OPERATING INCOMEValues reported under IFRSIn CLP$ millionANNUAL PROFITValues reported under IFRSIn CLP$ million300,000250,000200,000184,580208,13014%238,227200,000180,000160,000140,000120,000142,260172,9715%180,767150,000100,00080,000100,00060,00050,000065%20092010 201140,00020,000020092010 20118Report 2011InnovationInnovation plays a central role in <strong>Entel</strong>’s growth, not only inthe development of products and services, but in the creationof channels, service models, and business models. In 2011 wecreated a Strategy and Innovation Department to consolidateand manage the process of innovation distributed throughoutthe company, generating management information andpromoting a culture of innovation.<strong>Entel</strong> was recognized as the most innovative business in thetelecommunications industry in a study carried out by theBusiness School at Universidad de los Andes (ESE) in 2011.The ranking shows that the company has systematicallymanaged to establish innovation as part of its culture.<strong>Entel</strong> has an “innovation factory” to take ideas and transformthem into valuable products and services. In 2011 it released65 innovations onto the market. Part of this innovative spiritand culture is reflected in the <strong>Entel</strong> Visa credit card developedjointly with Banco de Chile, having a long-term strategicpartnership that will ensure the credit card achieves asignificant market position.FinancingIn December, <strong>Entel</strong> signed an international bank loan forUSD $200 million with the Bank of Tokio-Mitsubishi and Scotiabank.The loan consists in the payment of a single amortizationin December 2014 and an annual variable interest ratebased on the Libor rate with a 0.95% annual spread, payablequarterly or half-yearly. The entirety of the loan is for the advancedpayment of the first installment of an existing syndicatedloan whose first capital payment is due in June 2012.This will allow the company to improve its liquidity.The company’s gross debt only increased by 10%, largely asa result of the 11% fluctuation in the CLP–USD exchange rate,although this was partially offset by regular payments of bankdebt and leasing.The risk ratings from the international agencies Standard &Poors and Moody’s remained at BBB+ and BAA1, respectively.It is notable that the company has succeeded in maintainingits high level of solvency and liquidity in a year in which,in addition to the highly significant investments that weremade, CLP $140 billion was paid out in dividends, equivalentto CLP $595 per share or a dividend yield of 6.12%. This givesa clear indication of the company’s ability to generate operationalcash.
Challenges Going ForwardIn 2012, two new mobile companies with their own 3G networks,VTR and Nextel, will enter the market, causing supply and competitionto increase in the industry. Similarly, virtual mobile operators(companies who use the networks of other operators todeliver their services) will also enter the market. The Departmentof Telecommunications has awarded 22 virtual mobileoperator licenses and Virgin Mobile and Falabella Móvil havepublicly announced their intention to enter the market.Our focus remains in our customers: by understanding them,building close relationships, and providing first class service, weseek to ensure an integrated, world-class experience from endto end. All company activities are focused on this goal and weare convinced it remains the best way to meet the challenges ofcompetitive markets like the one in which we operate.In addition to the above, we have also considered the requirementto strengthen our wholesale networks provision, in thiscase by providing roaming mobile and mobile virtual networkoperator (MVNO) services. We believe a strategy correctly focusedon wholesale services can ensure part of the competitivevalue of other operators can be delivered and capturedthrough our network.In closing, I would like to offer my sincerest gratitude for theimportant support of our shareholders and the financial markets,the loyalty of our customers, and the commitment shownby <strong>Entel</strong> staff.Facing these challenges requires the firm commitment andcapability of people satisfied with their role in a company thatcreates opportunities. I dare to say our organization is wellequipped for the future. The new <strong>Entel</strong>, a business made up ofmore than 7,000 people, is a vehicle to allow us to transformour dreams of leading the market, of exploring and taking advantageof new business opportunities, of providing servicesof the highest quality, and of ensuring our customers believeand trust us, of feeling fulfilled and passionate in our work, ofbeing able to take pride in all of this and, in doing so, makingChile live better connected.9Report 2011Another challenge for 2012 will be the introduction of LTEnetworks, recently announced as 4G. Last December, the Departmentof Telecommunications launched the public tenderprocess for 2600 MHz spectrum that will allow the new technologyto be deployed, resulting in a considerable increase inbrowsing speeds on mobile devices.<strong>Entel</strong> is in a strong position to face these changes. In 2011, webecame the first operator in Latin America to implement HSPA+Dual Carrier, a new technological landmark in the evolutionof our network, providing our users with maximum downloadspeeds of up to 24 Mbps, almost double the existing speed. Thistechnology is in fact a step to pave the way for 4G networks,which we will being hearing more about in the near future.Juan José Hurtado VicuñaChairman of the Board
Chapter 1CompanyinfOrmation_
(* )profile_12Report 2011<strong>Entel</strong> provides integrated telecommunications and IT servicesfor Consumers, Enterprises and Corporates segments, as wellas the leasing of network services for wholesalers. The companyoperates in Chile, where it leads the industry, and Peruthrough its subsidiaries Americatel Perú and Servicios de CallCenter del Perú.The company provides call center services, remote contactservices, and technical support desks in both countries.Backed by the best network and data center infrastructure inChile, <strong>Entel</strong> offers integrated solutions with high standards ofservice.NET REVENUE:CLP $1,241,000 millionEBITDA: CLP $515,000 millionCONSUMERS SEGMENT*(58% of total)ENTERPRISE SEGMENT*(21% of total)CORPORATE SEGMENT*(13% of total)WHOLESALE(4% of total)AMERICATEL*(2% of total)CALL CENTER*(2% of total)*Distribution of gross revenue by Segment
KEY FIGURES 2011In CLP$ million 2009 2010 2011Change2010-2011 %Revenue 994,671 1,086,405 1,240,914 14%EBITDA 401,358 446,018 515,200 16%Operating Profit 184,580 208,130 238,227 14%Annual Profit 142,260 172,971 180,767 5%Total Assets 1,365,390 1,489,274 1,558,014 5%Total Liabilities 704,538 767,900 784,937 2%Minority Stock 0 0 0Total Equity 660,852 721,375 773,077 7%Total Liabilities and Net Equity 1,365,390 1,489,275 1,558,014 5%13With a market capitalization of USD $4,428 million at the endof 2011 (equivalent to 3% of Chile’s IPSA national share index)<strong>Entel</strong> Chile S.A. is one of the largest public limited companiesin the country. Its stock is distributed among 2,134 shareholdersand its controller, which holds a 54.8% share, is Altel InversionesLtda., a subsidiary of Almendral S.A., an investmentcompany owned by six business groups.Report 2011AT DECEMBER 31, 201133,5%11,7%54,8%ALTEL INVERSIONES LTDA. 129,530,284 54,8%PENSION FUNDS 27,605,905 11,7%FOREIGN/RETAIL FUNDS 79,387,506 33,5%236,523,695
landmArks_161964196819741977Report 2011CREATIONEmpresa Nacional de Telecomunicaciones(<strong>Entel</strong>) was founded onDecember 30 by a treasury decreein order to provide long-distancenational and international telephonyand telegraph services tobusinesses.FIRST SATELLITE STATION<strong>Entel</strong> installs Latin America’s firstsatellite station In LongoviloCOMMISSIONING OF THE ENTELTOWERStructure with a height of 127 mand operates the National TelecommunicationsCenter.SATELLITE EXPANSIONConstruction of new satellite stationsto provide coverage throughoutmainland Chile, completed in1985.1987199019921993DIGITIZATION OF NETWORKFIBER OPTIC NETWORKPRIVATIZATIONINTERNATIONAL EXPANSION<strong>Entel</strong> consolidates its technologicalleadership with the digitizationof its long-distance nationaland international network.Start of the development of the fiberoptic network which currentlyprovides coverage from Arica toPuerto Montt.Completion of the transfer of<strong>Entel</strong> to private ownership, whichwas started in 1986.<strong>Entel</strong> begins its expansion abroadwith the creation of AmericatelCorp for the provision of longdistanceservices in the UnitedStates. The following year it takesover Americatel Centroamerica.Both were sold in 2006.199419951996MULTICARRIER SYSTEMWith multicarrier code 123, <strong>Entel</strong>begins to compete with otheroperators in its original businessarea, long-distance telephoneservices.INTERNET SERVICES<strong>Entel</strong> starts to provide Internetconnection services.LOCAL TELEPHONE SERVICEThe company begins its operationsin this area through the subsidiary<strong>Entel</strong> Telefonía Local.ANALOG CELL TELEPHONESERVICE<strong>Entel</strong> takes over Telecom CelularS.A., a company providing analogcell telephone services with coveragethroughout various regions ofthe country.
1997199820002001PCS MOBILE TELEPHONE SERVICEDIGITAL MOBILE TELEPHONE SERVICECALL CENTEREXPANSION IN PERUAfter being awarded two PCS(Personal Communication Service)licenses, <strong>Entel</strong> begins tooffer a mobile telephone servicethroughout the entire country.<strong>Entel</strong> begins to offer digital mobiletelephone services on the 1900MHz spectrum.In order to provide its customers withbetter service through the promotion ofremote channels, the company createsthe <strong>Entel</strong> Call Center subsidiary. Servicesare subsequently expanded into Peru.<strong>Entel</strong> creates Americatel Perú toprovide long-distance and traffictermination services in the country.20012003200517MOBILE BROADBAND<strong>Entel</strong> PCS launches the first MobileBroadband service in LatinAmerica, with the implementationof the first 1900 MHz GPRS platform,providing Internet accessfrom mobile handsets.ENTEL WILL<strong>Entel</strong>Phone obtains WILL licenseon the 3,500 MHz frequency bandfor the provision of wireless fixedtelephone services, and twolicenses with a total capacityof 100 MHz for the provision ofbroadband for Internet and localtelephone access (<strong>Entel</strong> Will).NEW SERVICES: MMS AND HOMEAUTOMATION<strong>Entel</strong> adds the following to its rangeof mobile value added services:MMS (Multimedia MessagingServices), Mobile Office, and IntelligentHome (remote monitoringof houses over a mobile phone).IT SERVICES<strong>Entel</strong> expands the areas in whichit operates in order to offer ITservices.Memoria 2011200520062008LAUNCH OF BLACKBERRYLAUNCH OF 3.5 GPARTNERSHIP WITH VODAFONEPURCHASE OF CIENTEC<strong>Entel</strong> PCS becomes the first companyto offer BlackBerry technology,providing access to emailand web-browsing from a mobilehandset.<strong>Entel</strong> becomes the first LatinAmerican operator to launch acommercial mobile network basedon 3.5G technology.Creation of a strategic partnershipwith Vodafone, the world’s leadingmobile telephone operator.<strong>Entel</strong> takes over Cientec ComputaciónS.A., consolidating its strategyin the IT market.20092010FIRST COMMERCIAL HSPA+ NET-WORKWith the operation of the firstcommercial HSPA+ network inLatin America, <strong>Entel</strong> PCS is ableto offer the fastest broadband accesson the market.TODO CHILE COMUNICADOCompletion of the first phase ofthe Bicentenary project, TodoChile Comunicado, a public-privateinitiative involving nationaland regional government, and<strong>Entel</strong>, to roll out mobile broadband(MBB) to 1,474 rural areasthroughout the country.NEW DATA CENTER<strong>Entel</strong> launches the first phase ofthe largest and most modern datacenter in Chile in Ciudad de LosValles.PURCHASE OF TRANSAM AND WILL<strong>Entel</strong> acquires all shares in Transam,which provides intermediarytelecommunications servicesand operates a long-distanceservice, and Will, which provideslocal wireless telephony and datatransmission.
NovemberDecemberENTEL VISACARD ISSUEDAs part of a long-termpartnership with Bancode Chile saw the companylaunch the <strong>Entel</strong> VisaCredit Card, attracting10,000 customers inthe first month. Thenew <strong>Entel</strong> Visa includestelecommunications relatedbenefits, such as discountson handsets, increasedtop ups, the ability toaccumulate <strong>Entel</strong> Zonepoints, and the extensionof the features of Bancode Chile credit cards.Both companies have setthemselves the challenge ofmaking this the leading cardon the telecommunicationsmarket.TENDER FOR4G SERVICESThe Department ofTelecommunicationslaunched the publictender process for2600 MHz spectrum,which will permit thedeployment of 4Gnetworks throughoutthe country, providinga considerable boostin browsing speeds formobile devices.LAUNCH OFNUMBERPORTABILITYStarting in Arica, androlled out graduallyacross the country, thefixed number portabilityprogram was launchedin line with Act 20,471,giving users the right toretain their number whenswitching companies.Mobile numberportability will be rolledout simultaneouslythroughout the countryfrom January 2012.IBERO-AMERICANPRIZE FOR BESTCUSTOMEREXPERIENCEThe Ibero-AmericanAssociation for Company-Customer Relations awarded<strong>Entel</strong> the prize for BestCustomer Experience for2011 in the mobile telephoneservices category. The BestCustomer Experience surveyinvolves more than 13,000customers in differentparts of Brazil, Chile,Colombia, Spain, Mexico,and Venezuela, who areasked about their experienceof factors such as brand,products and services, andcommunication channels.BESTFINANCIALCONTENT IN2010 REPORTFor 16 years, PwC andthe business newspaperEstrategia have beenawarding the effortsmade in the preparationof annual reports.Chile’s most prestigiouscompanies took part in thecompetition and on thisoccasion <strong>Entel</strong> received theaward for the report withthe best financial contentfor 2010.INTERNATIONALCREDIT<strong>Entel</strong> signed an internationalbank loan for USD $200 millionwith the Bank of Tokio-Mitsubishi and Scotiabank.The loan entails the paymentof quarterly or half-yearlyinterest, with a singleamortization in December2014 and an annual dollarinterest rate of 1.65% forthe initial period, includingspread, commissions andtransaction costs. The fundsare wholly destined for theadvanced payment of the firstinstallment of a syndicatedloan, allowing the company toimprove its liquidity.19Report 2011
Since 2009, <strong>Entel</strong> has had a Code of Conductand Ethics in place that covers both the companyitself as well as its partners and contractors.The document guides the link betweenthe company and its shareholders, founded onthe principles of preventing discrimination andthe acceptance of pressure from one group ofshareholders over another.cOrporategoveRnance_20Report 2011The aim of <strong>Entel</strong>’s CorporateGovernance system is to create valuefor its shareholders and the companyby making a relevant contribution to thedevelopment of telecommunications inChile. The values of excellence, integrityand responsibility are essential indelivering on this commitment.PrinciplesThe principles of <strong>Entel</strong>’s Corporate Governance are: protectingthe rights of shareholders, ensuring all receive equaltreatment; the timely and accurate disclosure of any relevantinformation regarding the company; and the responsibilityof the Board of Directors in approving strategic directives,executive management control, and matters related toits interest groups (shareholders, employees, customers,suppliers, and the community).Structure<strong>Entel</strong>’s Corporate Governance is led by a Board of Directorscomposed of nine members who do not hold executive positionsin the company and are appointed terms of two years, with thepossibility of being re-elected for another term. The currentboard was elected in 2010 and will be renewed in 2012. Threeof its members make up the Committee of Directors.The Committee of Directors is composed by: Luis FelipeGazitúa Achondo (Chairman of the Committee), AlejandroJadresic Marinovic (Independent), Alejandro Pérez Rodríguez(Independent).The main roles of the committee are: to examine the reportsprepared by the external auditors, the balance sheet, and anyother financial statements; to propose the external auditorsand private ratings agencies to the Board of Directors; and toreview transactions between related parties.The Board of Directors nominates a Chief Executive Officer,who has all the powers and responsibilities correspondingto the position. In line with legal requirements, this positionis incompatible with being a Chairman, Director, Auditor, orAccountant at the company.Additionally, <strong>Entel</strong> has an Internal Audit division that checksthe Internal Control System operates effectively and efficiently,identifying potential risks and recommending actions for theirmitigation in a timely manner.
oard of dirEctors_22Report 2011Juan José HurtadoVicuñaChairmanCivil EngineeringUniversidad de ChileTax ID No: 5.715.251-6Luis Felipe GazitúaAchondoVice-ChairmanBusiness EngineeringUniversidad de ChileTax ID No: 6.069.087-1Juan BilbaoHormaecheDirectorBusiness EngineeringUniversidad Católica de ChileMasters in BusinessAdministrationThe University of ChicagoTax ID No: 6.348.511-KJuan José ClaroGonzálezDirectorEntrepreneur with degree inCivil Engineeringand a Masters in PhysicsUniversidad Católica de ChileTax ID No: 5.663.828-8
23Report 2011Raúl AlcaínoLihnDirectorCivil IndustrialEngineeringUniversidad de ChileTax ID No: 6.067.858-8Juan José Mac-AuliffeGranelloDirectorBusiness EngineeringUniversidad Católica de ChileTax ID No: 5.543.624-KAlejandro PérezRodríguezDirectorCivil Industrial EngineeringUniversidad de ChileMasters in EconomicsThe University of ChicagoTax ID No: 5.169.389-2Andrés EcheverríaSalasDirectorBusiness EngineeringUniversidad Católica de ChileMasters in BusinessAdministrationThe Anderson School (UCLA)Tax ID No: 9.669.081-9Alejandro JadresicMarinovicDirectorIndustrial EngineeringUniversidad de ChilePhD in EconomicsHarvard UniversityTax ID No: 7.746.199-K
managEment_24Report 2011<strong>Entel</strong>’s mobile and wireline businesseswere integrated in June 2011. Thecompany adapted its organization andbusiness processes to successfullymeet growing competition in themarkets in which it operates, bothin terms of customer requirementsand the technologies present in thetelecommunications market and theassociated IT services.<strong>Entel</strong> was restructuredto reach new levels ofinnovation and service, anddeliver closer relationshipswith our customers
New StructureIn its current organizational structure, <strong>Entel</strong>’s operations arebased around market segments: Consumers, Enterprises, andCorporations. Each of these units has its own teams for innovationand product development, prices, marketing, sales, andcustomer service.Traditional technology activities (networks, internal systems,and operations), together with wholesale services, are groupedunder a convergent Technology and Operations area.IT services is responsible for managing, operating and runningprocessing, transaction, and connectivity technology platforms(cloud services, data center, outsourcing).Organizational ChangeOn March 1, 2011, Richard Buchi Buc resigned from the roleof Corporate CEO to take up the position of Executive Vice-Chairman of the <strong>Entel</strong> Group. On the same date, Antonio Büchiassumed the position of CEO for both the wireline (<strong>Entel</strong> S.A.)and mobile (<strong>Entel</strong> PCS) businesses. Both positions will be mergedon completion of the integration program.Antonio Büchi, who holds a degree in Civil Engineering fromUniversidad Católica and a Masters in Economics from theUniversity of Chicago, has worked for <strong>Entel</strong> for the last 12years. He joined the company in 2000 as Planning and NewBusiness Executive.All cross-cutting units operate under a single leadership. Thestructure was designed in line with international best practices,envisaging close integration among different areas as aresult of increasing technological synergies.25Report 2011Structure Chart_RICHARD BÜCHI B.Executive Vice-ChairmanANTONIO BÜCHI B.Chief Executive OfficerFELIPE URETA P.Corporate Finance andFinancial PlanningJUAN BARAQUI A.Management ExecutiveRAFAEL LE-BERT M.Corporate Human ResourcesCRISTIÁN MATURANA M.Legal ExecutiveMANUEL ARAYA A.Regulatory and CorporateAffairs ExecutiveLuis Cerón P.Internal Auditing ExecutiveJosé luis poch P.Vice-Chairman ConsumersMarketmario núñez P.Vice-Chairman EnterprisesMarketJuLIÁN san martín A.Vice-Chairman Corporate MarketAlfredo parot D.Vice-Chairman Technology andOperationsVíctor HUGO muñoz A.IT Services ExecutiveSebastián domínguez P.Strategy and Innovation Executive
Richard Büchi BucExecutive Vice-ChairmanCivil EngineeringUniversidad de ChileMBA, Wharton School of Business,University of Pennsylvania.ID No. 6.149.585-1_Top LevelExecutivesAntonio Büchi BucChief Executive OfficerCivil Industrial EngineeringUniversidad Católica de ChileMasters in Economics,The University of Chicago.ID No. 9.989.661-226Memoria 2011Felipe Ureta PrietoCorporate Finance andFinancial PlanningBusiness EngineeringUniversidad Católicade ChileID No. 7.052.775-8Juan Baraqui AnaníaManagement ExecutiveBusiness EngineeringUniversidad de Santiagode ChileID No. 7.629.477-1Rafael Le-Bert Montaldo*Corporate HumanResources ExecutiveCivil EngineeringUniversidad de ChileID No. 6.245.545-4Cristián Maturana MiquelLegal ExecutiveLawUniversidad de ChileID No. 6.061.194-7Manuel Araya ArroyoRegulatory and CorporateAffairs ExecutiveCivil Industrial EngineeringUniversidad Católica de ChileID No. 10.767.214-1Luis Cerón PuelmaInternal Auditing ExecutiveAccountancyUniversidad Católicade ChileID No. 6.271.430-1José Luis Poch PirettaVice-Chairman ConsumersMarketBusiness EngineeringUniversidad Católicade ChileID No. 7,010,335-4Mario Núñez PopperVice-Chairman EnterprisesMarketCivil Industrial EngineeringUniversidad Católica deChileID No. 8.165.795-5Julián San Martin ArjonaVice-Chairman CorporateMarketCivil Industrial EngineeringUniversidad de lasAméricasSoftware EngineeringUniversidad de ChileID No. 7.005.576-7Alfredo Parot DonosoVice-Chairman Technologyand OperationsCivil Industrial EngineeringUniversidad Católica deChileID No. 7.003.573-1Víctor Hugo Muñoz ÁlvarezIT Services ExecutiveCivil Industrial EngineeringUniversidad TécnicaFederico Santa MaríaID No. 7.479.024-0Sebastián Domínguez PhilippiStrategy and InnovationExecutiveCivil Industrial EngineeringUniversidad Católica de ChileMasters in Economics,University of Cambridge.ID No. 10.864.289-0Álvaro García LeivaCEO <strong>Entel</strong> Call CenterBusiness Engineering,Universidad Católica de ChileID No. 6.920.404-4Eduardo Bobenrieth GiglioCEO Americatel Perú S.A.Civil Engineering,Universidad de Chile.Executive MBA, LondonBusiness School, U.K.ID No. 5.801.691-8*Stop exercising office in November 2011.
“workForce*_27ParentCompanyMobileCall CenterOther SubsidiariesTransam–WillCall CenterPerúAmericatelPerúTotalExecutive 47 55 7 2 1 1 7 120Professional and technicians 1,515 1,002 138 66 - 143 45 2,909Memoria 2011Employees 685 886 648 373 20 1,158 210 3,980Total 2,247 1,943 793 441 21 1,302 262 7,009*Workforce in equivalent hours“
huManresOurces_28Report 2011The company’s integration andcultural transformation determined itsactivities in terms of human resourcemanagement for 2011. Consolidatinga new organization focused on variousmarket segments implies technicalchallenges and adaptation.Integration StrategyThe new stage embarked upon by <strong>Entel</strong> with the restructuringof the organization in 2011 made it necessary to develop a humanresources strategy specifically focused on creating an environmentto make the cultural change required by this transformationpossible. This implied strengthening the area withthe creation of an Integration and Cultural Change Departmentto provide cross-cutting support to this process through specificactions, such as a complete communications plan thatinvolved more than 25 meetings between the CEO and executivesand managers from all areas of the business, and the
72 projectswere undertaken by HumanResources Management to facilitatethe integration process.design and application of integration surveys throughout theyear to measure and analyze the evolution of the areas interms of different aspects related to the integration. One of themost significant achievements in this respect was the creationof a portal on the company Intranet to allow management torespond to concerns and receive suggestions. The integrationprocess will continue with a number of initiatives scheduledfor 2012.Organizational DevelopmentThe organizational development areas were vitally importantin transforming the corporate culture. A central objectiveof this area was to stimulate the working environment tocreate motivated and high performing teams. This saw thedevelopment of the Integrated Competencies ManagementModel (corporate and functional) to facilitate the evolutionof the new corporate identity in line with the businessrequirements and the company’s strategic objectives. Anintegrated performance evaluation system was designedbased on this model, with a progressive implementationaligned with the cultural impact process.To strengthen trust, close relationships, knowledge, andcommitment in new teams, 32 integration activities tookplace, independently designed for each group in line with theirspecific requirements. However, the majority of these werebased on three stages: getting to know each other outsidethe workplace; revising the historical contributions of eachsubgroup; and aligning the group with future challenges. TheGreat Place to Work survey was used to gather informationabout the working environment in the new organization inorder to provide a basis on which to measure progress from2012 onwards.TrainingOut of a workforce of 4,764 employees (excluding subsidiaries),79% took part in training and educational activitiesthroughout the year. This represents a total of 134,000 manhours of training and an investment of CLP $1,000 million.The training programs provided included:Integrated Induction, to provide new-starts with a general*overview of the company.Management, a successful program that has been running*for five years in partnership with Universidad de Chile. In 2011,440 employees participated.Leadership, a program to promote the capacities and beliefsthat facilitate the process of integrating teams and business*areas among <strong>Entel</strong>’s leaders.Postgraduate Scholarships, to promote the development*of specific skills. In 2011, 47 employees received this benefit.Academic Certification Program, delivered in partnership*with Uniacc, the program offers e-learning diplomas everyyear, targeting employees who have contact with customers inthe Consumers Market. Upon completion, employees obtain ahigher technical qualification in marketing and sales.General Training, in partnership with Universidad Adolfo*Ibáñez, this 88-hour program aims to provide employees, managers,directors, and executives with a global and integratedvision of the business, as well as an understanding of the importanceof its people in obtaining results.29Report 2011
30Report 2011SelectionIn 2011, the company consolidated new recruitment channelsthat provide it with more direct access to potential candidates,taking advantage of the use of social networking platforms.In parallel to this, it continued to take part in careers fairs toensure <strong>Entel</strong> is regarded as an attractive company, especiallyamong young professionals. Furthermore, the focus was ondelivering projects that facilitate the company’s integration,paying particular attention to the definition of the internal recruitmentpolicy and the implementation of a single portal forjob applications in order to promote personal development opportunitieswithin <strong>Entel</strong>.Staff ManagementOne of the largest human resources management challengesfor 2011 was the integration of systems required to ensure thecorrect management of policies and procedures throughoutthe integrated company, guaranteeing that labour legislationwas respected, together with employment contracts, collectivebargaining agreements, and the efficient and timely payment ofsalaries. To deliver this, the human resources platforms wereintegrated and unified on a SAP-based system. Improvementswere made to this platform, implementing the SAP electronicmedical license process and initiating the project for theelectronic signing of contracts and addendums.Occupational Health and SafetySalaries<strong>Entel</strong> has a salary management model that integrates processesfor the analysis and description of internal positionsand the determination of salary and incentive structures inline with market rates as part of the company’s plan for excellence.Similarly, the company has created a structured compensationsystem based on management by targets, whichapplies to directors, executives and area managers and seeksto align compliance with the objectives set at these levelswith those of the company, helping to maintain a coherentvision.For 2011, the main challenges were related to the creationof the integrated structure of the new company, the developmentof new job descriptions aligned with the new <strong>Entel</strong>, aswell as variable salary consultants and salary scales.Belonging<strong>Entel</strong> has supported its workers in a number of aspectsoutside the workplace, fostering a strong sense of belonging,motivation, and commitment. In 2011, various activities andevents took place for <strong>Entel</strong> employees and their families,such as the National Independence Celebrations for all staffin Santiago, the Family Christmas Party, the Male and FemaleFootball Championship, and the delivery of gifts for Children’s’Day and Christmas.The accident rate at <strong>Entel</strong> was 1.47% in 2001. In line withinformation recorded by the Chilean Health and SafetyAssociation (ACHS), this figure was far below the average forthe telecommunications industry (4.84%) and the Transportand Telecommunications sector (7.88%).This strong result is complemented by the Annual SafetyDistinction awarded by ACHS to the subsidiary <strong>Entel</strong> ServiciosTelefónicos S.A. and the “Acción Pariraria Prize” awarded bythis institution to the General Mackenna facility Committee.<strong>Entel</strong> has a permanent goal to achieve high standards ofexcellence in risk prevention and occupational health andsafety. In addition to optimizing its operations and promotingproductivity, it seeks to contribute to the quality of wellbeingof its employees and contracted workers, understanding thatthe concern for their life and physical integrity is the mostsignificant sign of respect towards them.Integration Party, July, 29. More than4,000 people from the <strong>Entel</strong> Teamthroughout the country attended theIntegration Party, which took place inSantiago to involve workers in progressat various stages of this corporate projectin a positive way. This was one of themost important and symbolic events.
31Report 2011
:)corpOrateimAge_32Report 2011Trust, leadership, and a strong corporatereputation make the <strong>Entel</strong> brand one ofthe company’s main assets.“Live better connected”Based on our customers’ requirements and usage patterns, in2011, <strong>Entel</strong> launched its new tagline “Live better connected”.This tagline retains the promise of “Being the first to live thefuture,” but is also an invitation to enjoy not only voice connectivitybut data connectivity.The quality of <strong>Entel</strong>’s infrastructure, its ability to innovate, andits first class service stand behind this concept.CommunicationDuring 2011, in the Consumers Market, the company focusedits effort on communicating its range of contract and prepaidplans, especially for mobile Internet and smartphones, focusingattention on improvements to the browsing experienceusing mobile broadband.The marketing strategy also focused on providing benefits valuedby users through the <strong>Entel</strong> Zone, the program that allows<strong>Entel</strong> users to accumulate points and exchange them forpacks of minutes, top ups, technical support, and equipment.In this respect, a landmark for 2011 was the incorporation ofour own points program, since up to 2010 customers accumulatedpoints through the Cencosud Nectar system.
<strong>Entel</strong> sponsored the Sensation and Creamfieldsfestivals, and the U2 concert, which drewlandmark crowds to Chile’s National Stadium.As part of the benefits of the <strong>Entel</strong> Zone, <strong>Entel</strong>offered its customers a 20% discount on ticketsto 33 concerts in 2011. Its traditional New Yearcelebration on the <strong>Entel</strong> Tower attracted acrowd of over 450,000.33Report 2011The change allowed <strong>Entel</strong> Zone users to combine points andmoney.The Zone also offers discounts, mainly for cinema tickets,football matches, pubs, restaurants, festivals, and concerts.In 2011, some of the most exciting shows for which we offeredour customers cut-price tickets included the U2 concert,and the Sensation, Creamfields, and Mystery land festivals,reinforcing our brand leadership at these events. As part ofour efforts to strengthen ties with customers, the <strong>Entel</strong> Visacredit card was launched in partnership with Banco de Chile,becoming the card of the <strong>Entel</strong> Zone.In the Businesses and Corporate Market, we focused onconsolidating the company’s position as an integrated supplierof solutions that help build on the success of our customers’businesses.<strong>Entel</strong> reinforced the association of its brand with the conceptsof innovation and supporting the competitiveness of itscustomers, holding the fourth <strong>Entel</strong> Summit in partnershipwith its technology partners. The event brought Gary Hamel,recognized by Fortune magazine as one of the world’s leadingexperts in business strategy, to Chile and was attended bymore than 1,700 people.To support sport and the family life of the company’scustomers, <strong>Entel</strong> ran its successful <strong>Entel</strong> Mountain BikeChallenge for the third time. The competition took place atLago Peñuelas in the Fifth Region, and brought together morethan 3,000 participants.<strong>Entel</strong> carried out a tour in nine regions to promoteentrepreneurship, beginning in Antofagasta, with a presentationby Raúl Bustos, a survivor from the collapse of the San Josémine, discussing how to survive in adverse situations, the roleof leaders, and the importance of communication in thesechallenges.
Corporate ReputationAwarded Campaigns34Climbing eight points with respect to its ranking in 2010, <strong>Entel</strong>was among the group of companies with a “robust reputation” inChile, according to the VI Corporate Reputation Pulse Study runby the Communications Faculty at Universidad Católica and theReputation Institute.In 2011, <strong>Entel</strong> received 12 awards for communications and advertising.Effie AwardsACHAP FestivalIAB AwardsReport 2011The 2011 ranking was led by Apple, with 78 points. <strong>Entel</strong> is theonly telecommunications company in the group of high reputationcompanies, with 71 points.The study defines reputation as the level of attraction peoplefeel for an organization, taking into account its message, directexperience when interacting with the company or its employees,and what third parties say about it, as well as communicationmethods.Ninth Place in Merco Ranking<strong>Entel</strong> once again stood out from the country’s companies withthe best corporate reputations, coming ninth in the MercoRanking during the second year it has been run in Chile.The study is carried out by means of surveys sent to 5,200senior managers of companies with a revenue of more thanUSD $30 million.The evaluation process was run by financial analysts,consumer associations, non-profit organizations, unions, andmedia organizations.Festival awarding great ideasgiving rise to marketingstrategies with outstandingcreativity and whose resultsare successful in practice.Gold Award for category-Launch of Services IMultimedia Plans CampaignAMRO ChilePrize awarded by theChilean Association ofMarketing and PromotionalAgencies that analyzes andgives awards for the beststrategies, creative insight,and measurable objectivesfor sales, branding, andcustomer loyalty.Annual competition thatawards creativity in advertisingin ChileSilver | Viral Marketing |<strong>Entel</strong> - New Year TweetSilver | Mobile Marketing |<strong>Entel</strong> - IkwestBronze | Technological Innovation| <strong>Entel</strong> - IkwestSilver | Best Use of SocialMedia |<strong>Entel</strong> - New Year TweetGran Ego 2011Best Mass-Market, Cultural,or Sports EventGold Ego I<strong>Entel</strong> Regional TourIAB Chile award, anassociation that bringstogether the leading web,on-line, and creativeagencies, for Internetmedia, awarding the bestwork in this area.Advisor of the Year |<strong>Entel</strong>Best Innovation of theYear | <strong>Entel</strong> - IkwestBest Use of Technology |<strong>Entel</strong> - IkwestBest Viral |New Year TweetBest Mobile Initiative ofthe Year in Geolocalization|<strong>Entel</strong> Ikwest
“Live better connected” CampaignScan QR code to see the advert.Top of Mind Awareness and Brand PreferenceIn 2011, <strong>Entel</strong> consolidated its position as the top of mind andfavorite mobile telephony brand.TOMFirst mobile telephone brand that comes to mind.100%80%Chile vs ChileThe Copa América took place in 2011, and as the countrywas gripped by football fever, <strong>Entel</strong>, in its capacity as officialsponsor of the national team, made the dreams of its fansreality through Chile vs Chile. The promotion invited <strong>Entel</strong>customers to send one or more text messages to win one of22 places in a match with the historical Chilean side, joiningidols such as Iván Zamorano, Elías Figueroa, and PatricioYañez on the pitch. It was an unforgettable experience.Professionals and fans played in a full stadium and werewatched live throughout the country on public television.The results exceeded all expectations. The campaigngenerated 106,000 text messages, 353% more thanexpected.The activity attracted the attention of media organizationswith free publications, exceeding the total invested in theactivity by 65%.In addition to this, visits to the website www.elhincha.cl,through which <strong>Entel</strong> maintains a permanent relationshipwith fans, increased by 81% during the campaign.60%40%20%0%40entel4137BRAND PREFERENCEFirst brand mentioned spontaneously to the intervieweras a preference100%80%60%40%20%0%entelCompany BThese measurements were taken throughout the year by meansof a semi-structured questionnaire completed by 1,400 people ona monthly basis (16,850 people each year).38Company B23Company C21Company C35Report 2011Source: Kronos Chile Markets Research, 2011
36Report 2011
Chapter 2StrategicfouNdations_
infrastructurE_38Report 2011<strong>Entel</strong>’s growth and support to thecountry’s development is based onthe deployment and operation ofthe best telecommunications and ITinfrastructure.With annual infrastructure investmentin the region of USD $500 million overthe last three years, the company hasled Latin America in the introductionof new network technologies andthe mass-market adoption oftelecommunications services in Chilethrough the expansion of its coverage.
<strong>Entel</strong> spentUSD $502 millionon the development of its technologyand support infrastructure and customerprojects in 2011.One of <strong>Entel</strong>’s main strategicobjectives is to ensure its infrastructureis of the highest quality,capacity and coverage as it formsan essential part of providingcustomers with the best serviceexperience.<strong>Entel</strong> in 2011**As of December 2011, as part of the Todo Chile Comunicadoproject, broadband and mobile telephony coverage hadbeen provided to 1,342 rural areas representing 91% of thefull project. This network consists of a series of base stationsdistributed in cell configuration and operating on the1,900 MHz frequency band, providing continuous coveragein rural areas designated as Compulsory Service Zones. Thenetwork is fully digital and uses Wideband Code DivisionMultiple Access (WCDMA) technology.The introduction of HSPA+ Dual Carrier technology, the mostadvanced in Latin America, to the country’s biggest 20 cities.Of this investment, 60% or USD $300 million was destined formobile communication technology. Most notably, USD $270 millionwas spent on network infrastructure, with emphasis onthe 3G network, expanding coverage, and the TelecommunicationsDevelopment Fund project. <strong>Entel</strong> also invested USD $20million in improving its systems, focusing on the changes requiredfor portability. Investments in business services, includingIT and wholesale services, totaled USD $160 million. Inaddition to this, approximately USD $20 million was investedin the new corporate headquarters. Investment in handsets increasedas a result of a shift in the mix towards smartphones,totaling USD $232 million at the end of December.39Report 2011*The deployment of 600 new mobile points of presence, consolidatingour 7,600 base stations with 2G and 3G technology,and giving our network the best coverage and capacityin Chile.ENTEL GROUP INVESTMENTS 2011****Continuation of the deployment of the GPON network, providinga fiber optic service to customers in the Business Marketthroughout 12 districts of the country.Incorporation of an optical MPLS/ROADM grid transmissionand switching system in Santiago, with dynamic restoration.Deployment of the 900 MHz Transam network across morethan 1,000 points of presence.Increase in the capacity of our short messaging service(SMS) in the event of catastrophes, improvement in theenergy redundancy of critical mobile network sites, and implementationof the alert messaging system, among otheractions related to commitments required following the earthquakeon February 27, 2010.3.4%2.1%16.6%DATA,INTERNET& IT0.5%americatel perúNetwork INFRASTRUCTURE& othersLOCAL TELEPHONY& NGNTotal USD$733.5 million0.6%LD & Call Center4.2%CORPORATE SUPPORT41.0%MOBILEINFRASTRUCTURE31.6%MOBILE TERMINALS
entelnEtworks_SatelliteNetwork with 30 land-based stations distributedthroughout Chile, including in isolatedareas. The network uses the capacity of theIntelsat and Telesat satellite systems to providedata and telephone services, in additionto the transportation of television and digitalaudio signals.<strong>Entel</strong> also operates a VSAT platform fortraffic from private LAN/IP and Internetnetworks.In 2011, the company modernized and expandedits VSAT platform to support growthin traffic and services, allowing point ofpresence connectivity for 2G and 3G mobile3G Mobile Network<strong>Entel</strong> has the most advanced 3G network inthe country. It supports voice and data traffic,with Full IP and HSPA+ technology at all pointsof presence and Dual Carrier technology in thecountry’s main cities. This technology allowsfor theoretical peak data transmission speedsof 42 Mbps for downloading and 5.7 Mbps foruploading.In terms of data, the 3G network supports themobile broadband and Internet access servicefor smartphone users.In 2011, more than 500 new sites were addedto existing points of presence on the network.Furthermore, around 1,000 3G sites wereadded on the 900 MHz frequency band forTransam using existing points of presence.Important increases in capacity were made tomeet the continually growing customer baseand traffic demand, making our network thebest in the country in terms of quality.Fiber Optic BackboneThe trunk network extends from Arica toPuerto Montt with 3,450 km of fiber opticbackbone, using DWDM technology that canreach transport speeds of up to 400 Gbps.In the Metropolitan Region, the backbone has2,126 km of fiber optic cable deployed in themain districts of Santiago, with a grid topologythat can reach up to 400 Gbps, basedon ROADM optic nodes with 1 and 10 Gbps.Metro Ethernet ring connections.This transportation network, which is mainlyused for the IP/MPLS network, moves around190 Gbps originating from access and mobileand fixed service aggregation networks, inaddition to interconnecting our various datacenters.2G Mobile NetworkThe 2G network is implemented using GSM/GPRS/EDGE technology at all points of presence.It is designed and configured to supportvoice and data services to meet the highestinternational quality standards, allowing dataconnection speeds of up to 100 kbps.In 2011, the company added almost 570 newpoints of presence. This investment providedcoverage to previously isolated rural areasand strengthened the signal in urban areas.Furthermore, it provided around 100 new2G sites on the 900 MHz frequency band forTransam using existing points of presence.This network increases coverage in touristareas and on major routes.transportnetworks_MicrowavesThis technology is used for the trafficbranching and aggregation network, madeup of more than 3,500 links that make itpossible to connect many rural and isolatedareas to the fiber optic trunk network. Thenetwork is primarily used nationally forregional transmission and as an accessnetwork for mobile telephone and wirelessdata services. The migration process fromSDH to IP/Ethernet technology capable ofreaching speeds of up to 1 Gbps is currentlyunder way.accessnetworks_IP/MPLSThe network is made up of 864 nodes spreadacross 331 points of presence for the aggregationof access traffic. It has evolved to GigabitEthernet connections throughout the nationalterritory, making it possible to provide dedicatedand high-availability services for voice anddata for the fixed and mobile businesses.GPON NetworkIn 2010, <strong>Entel</strong> launched an urban fiber opticnetwork based on GPON technology in order toconnect businesses to data, Internet and telephoneservices. In 2011, 459 km of fiber opticcable was deployed, representing an investmentof around USD $10 million, with coverage in ninedistricts throughout the country.41Report 2011
custOmerserVice_42Report 2011The management of service qualityas a continuous and cross-cuttingprocess is one of the main focusesof <strong>Entel</strong>’s strategy. The companyhas an integrated approach to qualitythat makes use of various analysisand management methods,from customer perception all theway to the execution and support ofservice channels.<strong>Entel</strong> in 2011******Once again, the company led the ProCalidad National ConsumerSatisfaction Survey in the mobile telephony category.It was distinguished in an Ibero-American study (AIAREC) forachieving the “Best Customer Experience.”<strong>Entel</strong> became the first Latin American company to implementMobile Supportware, an innovative customer servicetechnology.It began the implementation of the most modern technologyfor managing interactions between customers and contactcenters.It reformulated its Contact Center strategy to achieve worldclassperformance levels.The company created closer customer relationships throughincreased connectivity and innovation at service centers.
The formation of teams dedicatedto redesigning service experiencehas led to significant progress inself-service capacities throughIVR (Interactive Voice Recognition)and Internet channels.First in National RankingFor the ninth year in a row, <strong>Entel</strong> came first in the Mobile Telephonycategory of the National Customer Satisfaction Survey,carried out by ProCalidad, a non-profit organization with theparticipation of Adimark GFK, Praxis, and Universidad AdolfoIbáñez.In 2011, <strong>Entel</strong> also received the Award for Consistence in ServiceExcellence, for being the only company that consistentlyranked among the top-performing companies during the lastfive years.Improved Customer ExperienceNew Service Technology<strong>Entel</strong> signed an agreement with the Danish company World-Manuals, a specialist in mobile supportware solutions that willallow us to provide a world-class standard of online supporttools for use on mobile equipment. Using this technology, <strong>Entel</strong>customers will be able to access self-services to help themoperate their mobile phones, allowing them to quickly clearup problems, concerns and doubts regarding the operation oftheir equipment.This will see <strong>Entel</strong> become the first Latin American companyto implement mobile supportware, a technology currently inuse by large world-class operators such as Vodafone.43Report 2011<strong>Entel</strong> came first among 32 Ibero-American companies for providingthe Best Customer Experience for 2011 in the mobile telephonycategory.The company was recognized by the Ibero-American Associationfor Company-Customer Relations (AIAREC), on account ofthe Best Customer Experience (BCX) study carried out by theconsultancy firm IZO for telecommunications companies in Brazil,Colombia, Spain, Mexico, Venezuela and Chile. The distinctionis the result of research that gathered more than 13,000 customeropinions on around 130 companies in different areas, consideringexperiences in terms of brand, products and services,and interaction with distribution channels.Contact Center ModernizationIn 2011, the company implemented a new Contact Center technologythat provides it with greater control over calls andrecords all calls so as to be able to analyze them at a laterdate and make the required corrections to processes and peoplethrough specific coaching. This new technology also providesgreater flexibility for the development of new centers andskills.
Consultancy, good practices and theinternational contact network provided byVodafone through the renewal of itsstrategic partnership with <strong>Entel</strong> in 2011allowed the Chilean company to facethe challenges of efficiently deliveringexcellent customer service.44Report 2011New Service Strategy<strong>Entel</strong> reformulated its Contact Center strategy to strengthenits leadership in service quality through the incorporation ofworld-class best practices in handling telephone service. Thisincludes demand analysis and forecasting processes, humanresources and selection, having suitable profiles and in the requiredquantity, and supervision and coaching to ensure thequality of service and continuous improvement. This will resultin greater accessibility and higher quality solutions that will inturn deliver high levels of customer satisfaction.Increased Market PresenceIn order to bring the company closer to its customers and increaseits presence in commercial affairs, <strong>Entel</strong> periodicallyheld the successful Agent Fairs throughout the country in thebusiest streets of cities with the highest population densities.These activities were geared around providing an informal andintimate format to showcase smartphone equipment beingpromoted, as well as its ease of use and convenience.Similarly, and in order to create closer relationships throughour stores and the express channel, <strong>Entel</strong> held “E-days”, a serviceand sales initiative similar to the best practice in the retailindustry, whereby special solutions and promotions are offeredto customers once a month.
Customer SatisfactionUnderstanding our customers and increasing their satisfactionare structural priorities of <strong>Entel</strong>’s management. Organizingthe business by market segment (Consumers, Enterprises, andCorporations) has made it possible to build closer customer relationshipsand hence better meet their needs. One of the managementindicators that measures performance across the companyis the degree of customer satisfaction, whose monitoringis undertaken on a monthly basis and which forms the basis ofcontinuous improvement in all areas that contribute to deliveringglobal service to our customers.In the Corporate Market, service quality is evaluated by meansof periodical satisfaction surveys covering the full value chainof the various services provided by <strong>Entel</strong>, from the process fordetecting new business opportunities all the way through to theoperation and maintenance of products. In order to achieve evaluationsthat genuinely represent the perception of service quality,the company has a number of formats and levels of depthfor obtaining information from customers. These include telephonesurveys and focus groups to study service experience.A number of initiatives were implemented to consolidate the gapbetween customer satisfaction levels at <strong>Entel</strong> and those of ourcompetitors, including those designed to redesign the customerexperience for the most important processes throughout the lifecycle, such as Technical Service and the Theft/Loss of equipment.These redesign seek to optimize customer experience aspart of a multichannel vision, given that today customers makecomplementary use of all available channels when interactingwith the company: telephone (Contact Center and IVR), <strong>Entel</strong> andExpress stores, the web, department stores, account managers,and agents.45NET CUSTOMER SERVICE SATISFACTIONPostpaid voice customers for consumers market.70%68Report 201160%591850%5849494540%23 3430%322920%2625Customers recognize gap between<strong>Entel</strong> and its competitors in service.10%0%1716<strong>Entel</strong>Nearest competitorgap65%DEC ‘09JUL ‘10DEC ‘10JUL ‘11DEC ‘11Source: Internal study, tracking consumer satisfaction - Adimark GFC.
innovAtion_46Report 2011Innovation has been fundamental to thebusiness since its inception. In 2011, thecompany reinforced this essential aspectwith a structure that consolidates innovationas an activity inherent to all processes andassumed by the whole organization.<strong>Entel</strong> in 2011Creation of a Strategy and Innovation Department to institutionalizeinnovation and consolidate it as part of the corpo-*rate culture.**First place in the telecommunications category in the annualranking of Innovative Companies carried out by Universidadde Los Andes.Winner of the “Technology Excellence Partners of the YearAward for Virtualization” for the Southern Cone of LatinAmerica, awarded by the multinational Cisco. This awardhighlights the company’s innovative vision and its status asa leader in the regional industry for Cloud Computing services.How <strong>Entel</strong> Innovates<strong>Entel</strong> has settled seven key principles to ensure innovation is manageable and systematic,establishing how value is to be created through this activity.At <strong>Entel</strong>, innovation:*Is undertaken as part of a team and is a collaborative activity.Efforts are focused.*Begins with problems and challenges.*Is a discipline that requires knowledge, practice and determination.*Is continuous.*Conceives of errors as part of the process (Fail Fast, Fail Cheap, Fail Often).*Is incentivized and recognized.*
65 newproducts and serviceswere launched by <strong>Entel</strong> in 2011.Innovators EcosystemIn addition to the formal structure of its Innovation system,<strong>Entel</strong> is promoting the creation of an ecosystem of innovatorsgrouped around tackling a specific challenge.The company believes all workers have the potential to innovateand, as such, it is necessary to create organizational conditionsthat promote and facilitate this activity.There are two programs to achieve this: participative innovationand managed innovation.To strengthen and expand its innovations,<strong>Entel</strong> maintains strategicpartnerships with Vodafone,Samsung, and Ericsson, whichhave provided it with access toinformation on the best practicesat world-class companies.For <strong>Entel</strong>, innovation is all aboutcreation, change, and improvementsthat create value throughthe use of knowledge, regardlessof whether it is supported bytechnology.Innovation SystemIn 2011, and for the second year running, <strong>Entel</strong> was recognizedas the most innovative company in the Telecommunicationsindustry, according to a study carried out by Universidadde Los Andes, ESE. The ranking shows that the company hassystematically managed to establish innovation as part of itsculture.In 2011, <strong>Entel</strong> took another step in this area, with the creationof a Strategy and Innovation Department reporting directly tothe CEO. The department coordinates the activities of professionalsthat developed products in different commercial areasfor Consumers, Enterprise and Corporate segments based onspecific customer requirements. It also organizes teams activitiesthat research trends and evaluate advances in technology.The Innovation Department supports the execution of projectsby providing workshops and clear methodologies to facilitatecreativity and discipline, two key factors in achieving innovation.It also contributes to the <strong>Entel</strong> Innovation Center, whichhas been in operation since 2010. Designed under the LivingLab concept, it has spaces designed to facilitate the processesof innovation and knowledge/technology transfer in a collaborativeenvironment.The former identifies the main challenges facing the variousareas of the company and invites all workers to propose ideasfor solutions. The innovation teams are then formed based onproposals and include the workers who proposed the ideas.All those who participate in an innovation process obtain thee-Maker distinction, which denotes an innovative person ableto replicate this experience in their day-to-day work.The second innovation program for managed innovation seeksto support previously established teams within the organization,providing the methodologies and tools required forinnovation. This program begins with the identification of projectsand teams upon which innovation may have a significantimpact. The activity is then promoted through workshops andinnovative methodologies.47Report 2011
48Report 2011I-factory<strong>Entel</strong> has created the i-Factory (Innovation Factory) to transformideas into valuable products and services. The i-Factoryis a team of around 30 professionals responsible for the design,development, implementation, and release of innovations ontothe market.The i-Factory includes professionals from various specialtiesand different areas of the company in a matrix organizationdesigned in 2011 as part of the corporate restructure. The departmenthas offices covering all the specialist technical areas(equipment, networks, systems, operations, IT), as well as managersfor each segment (Consumers, Enterprises and Corporations).This allows the company to ensure the products thatare developed are the best technological and economical fit fora given requirement detected in the market.Strategic Partnership and InnovationThe Strategic Partnerships that have driven <strong>Entel</strong> in recentyears are a key aspect of the ecosystem of innovation. Themost important of these are our partnerships with Vodafone,Ericsson, and Samsung, which allows the continuous transferof knowledge and best practices.As an example, this year <strong>Entel</strong> renewed its partnership withVodafone for the next four years. This allowed the company totake advantage of the innovative capability of this world-classleader in technological advances and the development of productsand services. In 2011, various projects were undertakenwith different areas of the company, such as:*Data Transformation Start of the program that seeks totransform operator capacity into a data company. This entailsthe complete transformation from network to systems, theservices offered by the company, through the profitability ofthe different plans and services, all the way to the preparationof the company’s human resources.*Portability Project Supports and contributes to the portabilitystrategy.*Online Strategy To transform <strong>Entel</strong> into a leader in digitalmarketing and the use of online tools in Chile.*Customer Value Management (CVM) Administration andsupply to customers throughout the life cycle, understandingthe various stages and the value that must be provided at eachof these.*Best Network Use of the most advanced tools available tosupport and ensure the service quality of our network for customers.*LTE & Technical Evolution Participation of our technologyteams in the state of the art evolution of the future network,including LTE.*Workshops Various workshops and activities for customercare, network, consumer forum, business forum, roaming etc.The various projects and activities carried out with Vodafonesupports the company’s strategic and tactical objectives, providingaccess and visibility to the cutting edge of the industryat a global level.
49Report 2011
MarketSegments_Chapter 3
industrY_52Report 2011The dynamic nature of the marketand recent regulatory changes aredriving the reconfiguration of thetelecommunications industry, whichis progressively tending towardsconsolidation and fixed-mobileconvergence to meet the needs ofincreasingly complex, informed, anddemanding customers. Connectivity isno longer a luxury; today it is essential.ProfileIn line with the figures available for 2010, sales in the telecommunicationsindustry in Chile totaled CLP $3,968,000 million.Mobile telephony represented around 51% of this value,followed by IT services (outsourcing) at 12%, and fixed localtelephony at 11%.At the end of 2011, there were four mobile companies operatingcellular networks in Chile: Movistar (a subsidiary of Telefónica,Spain), Claro (a subsidiary of América Móvil, Mexico),Nextel, and <strong>Entel</strong>.In 2012, the industry will see the entry of a new mobile operator,VTR, and the expansion of Nextel’s 3G services.As of 2011, the Department for Telecommunications hasauthorized 22 licenses for virtual mobile operators (companieswho use the networks of other operators to deliver theirservices). These include Virgin Mobile, Falabella Móvil, and GTDMobile, who have all publicly announced their intention to enterthe market.In terms of local telephony, there are 18 companies operating,present in various regions throughout the country, such as VTRand GTD.
REVENUE FOR CHILEAN TELECOMMUNICATIONS INDUSTRY(distribution by business area, December 2010)11%LOCALTEL.3%LD6%OTHER8%INTERNET12%10%PAY TVITTotalTh. CLP$ 3,968millionGDP OF COMMUNICATIONS AND %GDP(in CLP$ million, 2003)51%MOBILETELEPHONYSource: Pukará and internal estimatesThe Growth of Communications GDPWith an annual compound growth of 9.9% between 2003 and2010, the telecommunications industry represents an increasinglysignificant part of the country’s GDP.EvolutionThe trends observed in 2011 confirm the industry’s status asone of the economy’s most dynamic sectors. However, withoutdoubt, the area that best reflects the changes of the industryin Chile is mobile telephony, which has seen high growth incustomer numbers, the progressive adoption of data services,the entry of new operators, the start of the 4G tender process,and the implementation of number portability.A highly competitive marketplace has led to the adoption ofthe most advanced technology and the strengthening of theChilean market with technical quality standards, penetration,and coverage for mobile communications being similar tolevels in developed countries.Mobile broadband (MBB) and the use of mobile Internethave been the main drivers of growth in the industry, whichreached an estimated total of 23,573,041 subscribers in 2011,representing a market penetration of 137%.It is estimated that there are around 1.6 million MBBconnections in the industry, with an approximate annualgrowth rate of 67% and a market penetration of 9%, practicallyreaching the level for fixed broadband connections.53Report 201125,00020,00015,0002.3% 2.4% 2.4%CAGR* 9.9%2.4% 2.6%2.8%3.2%3.4%The expansion of MBB throughout the country will permitthe provision of Internet access in areas with low populationdensity, the aim of the Telecommunications Development Fundpublic-private partnership project being undertaken by <strong>Entel</strong>.1,000500020032004 2005 2006 2007 2008 2009 2010In line with the global trend, mobile broadband is expectedto reach the same level of subscribers as fixed broadband in2012. In addition to this, the progressive expansion of mobileInternet and the increasing penetration of smartphones is alsohighly significant both in Chile and beyond.Source: Central Bank*Compound annual growth rate.
Service Trends in ChileSimilar to the rest of the world, mobile broadband leads growthin the sector in Chile, together with fixed broadband and television.Mobile voice continues to grow, but at a slower rate.Information TechnologyAccording to IDC estimates, the IT services industry reachedtotal sales of USD $1,137 million in 2011, representing an increaseof 12.2% with respect to the previous year.SERVICE TRENDS IN CHILE(in millions of subscribers)2520151050200020012002200320042005200620072008200920102011An annual average growth rate of above 10% has been forecastfor the IT industry for the period 2011–2014.<strong>Entel</strong> has been involved in the industry since 2008, focusingon IT outsourcing services, providing data center and IT operations,on-demand solutions,and technology platforms, offeringan integrated service related to communications and information.54Report 2011MOBILE VOICE* CAGR: Compound annual growth rate.penet 2010cagr*08-11116% 12%FIXED VOICE70% 0%MBB6% 93%FBB 39% 13%tv 39% 13%GLOBAL SERVICE TRENDS(in millions of subscribers)Source: Subtel and operator’s report, December 2011Global TrendsThe first great milestone in telecommunications historywas connecting people by means of a voice service; thesecond step will entail the mass-adoption of data services.Data connectivity dominates the outlook today: customersrequire data connectivity across various devices (includingsmartphones, tablets, computers, and cameras). The next trendwill be connecting things, or rather using existing technology,to establish communication between devices, allowing them tointeract with and complement each other.7.0006.0005.0004.0003.000GLOBAL PENETRATION AND SALES OF SMARTPHONES(2008 – 2014)2.0001.000020002001MOBILE T.PAY TV200220032004200520062007762008penet 2010%67200920102011Smartphone sales (in millions)60050040030020010002008 2009 2010 2011 2012 2013 201440%35%30%25%20%15%10%5%0%Smartphones/total units soldFIXED T.70FBBMBB288SmartphonesSource: Forester and IDC, March 2010.Source: Ericsson, Merril Lynch, first quarter 2011.
Connectivity Breaking Down Barriers BetweenIndustriesThe superimposition of products and collaboration between thetelecommunications industry and other industries such as finance,health, advertising, entertainment, IT, transport, and safety,was notable in 2011. Major operators shifted their strategicfocus from connection and traditional services to vertical operationsencompassing these industries. Health is a good exampleof this trend: even if, at a mass-market level, the trend has beencentered around being able to download health applications onsmartphones and tablet devices that make it possible to monitorpulse or different stages of sleep, the trend is advancingtowards the interconnection of machinery and measurementdevices with central monitoring sites. It is a type of communicationthat will make it possible to offer alert and patient-hospitalinteraction services, representing a considerable benefit thatcan provide peace of mind to patients suffering from chronicillnesses that need to be continuously monitored.Furthermore, this type of connectivity will make it possible tostore and manage data from medical facilities with greater precision,facilitating access to patient files and histories.Connected CarsMarket leaders in the automotive industry have already developedconnectivity solutions and applications for the dashboardsof some of their models. In 2011 a number of brands made useof this technology to offer customers remote safety serviceswhich, in the event of a vehicle being stolen, made it possible toblock the car and indicate its location.The idea is that in the near future, cars will be able to connect toeach other and interact with sensors located on roads.The Phone as a Payment MethodThe high penetration of mobile telephony and the growing useof smartphones throughout the world have created a potentialnew use for these devices. In 2011, industry world leaderssuch as Vodafone came together to launch the use of phones anew payment method.In doing so, it was promoted the acceleration of the developmentand entry of Near Field Communication (NFC), a shortrange,high-frequency, wireless communication technologythat makes it possible to exchange data between devices atdistances of less than 10 cm using compatible phones andreaders at sales points.Following this trend, another major technology player developeda product that does not require a SIM card and, as such,fits with the direct management model of banks or cards overterminals. Mobile payments are expected to be launched in Europeand the United States in 2012.Growth of Multi-Screen ServicesThis year took place the merger of content delivery in homesand over mobile devices, with major international telecommunicationsproviders incorporating multi-screen video servicesinto the range of services they offer, in addition to a series ofinnovations designed to maintain customers within their packagesin the home.Online Information as a Reference for MakingDecisions OfflineThe vision of the mobile platform as a marketing method thatallows companies direct access to customers was consolidatedin 2011. The use of social networks by users to report theirsatisfaction or dissatisfaction with the products they haveused and their favorite brands illustrated how the online platformcan be an efficient and direct shop window. This makes iteasier for businesses to segment customers and be aware oftheir customers using direct sources.Customers were willing to share their content online, toreward products that were environmentally responsible whilepunishing others that were not, and to pay for the real valuethey perceive even when items are available freely on the web.Conscious of this change in customer behavior, <strong>Entel</strong> developeda strategy to allow it to secure its position among the mostfollowed brands on social networking platforms, according tothe Soy Digital study for 2011, carried out by the consultancyfirm Ayer Viernes.55Report 2011
...regulatoRyfraMework_AuthoritiesThe Department of Telecommunications is the authorityresponsible for establishing and enforcing technical regulations,promoting the development of the sector, and allocatingconcessions for the use of the radio electric spectrum throughpublic tenders when there are limitations on the quantity offrequencies. Responsibility for the respective tariff decrees fallsjointly to the Ministry for the Economy, Growth and Reconstruction,and the Ministry of Transport and Telecommunications. TheTribunal for the Defense of Free Competition must ensure thecompetitiveness of the sector, identify monopoly situationsthat require the establishment of tariffs for legally mandatedservices, issue judgments on company mergers in the sector,and prevent or sanction behavior that harms free competition.Termination Rates56Report 2011Telecommunications services in Chile are governed by theGeneral Telecommunications Act (Act 18,168), and its complementaryregulations. The legislation establishes the generalprinciple of free competition with concessions being awardedbased on pre-established and objective regulations, without limitson quantity, service type, and geographic location.Public and intermediate telecommunications services thatneed radio electric spectrum and which for technical reasonsonly allow for participation of a limited number of companiesare subject to a public tender process in line with the termsset out in the specific technical regulations. However, the conditionsfor awarding concessions are essentially related to theduration and coverage of the service to be provided.The interconnection of public and intermediate telecommunicationsservices is mandatory and public tariffs are freelyfixed by the service provider, except where the Tribunal for theDefense of Free Competition intervenes, such as in situationswhere market conditions do not make it possible to guaranteea free pricing regime. In the past, the tribunal has only subjectedfixed telephony companies classified as dominant in certaingeographic sectors to tariff regulations.Current legislation makes provisions for the authorityto regulate the tariffs of services provided throughinterconnections between concession holders every fiveyears by means of a regulated technical and economicprocess in line with the criteria established by the GeneralTelecommunications Act. Of these tariffs, the connectioncharge corresponds to payments for use of networks ofdifferent concession holders and applies to any operator,regardless of whether they are a long-distance operatoraccessing a network to originate or terminate a call, or afixed/mobile concession holder accessing another network toterminate a communication.The current tariff decrees for mobile companies establishedby the Ministry of Transport and Telecommunications cameinto force on January 24, 2009 and will run until 2014, meaningthat towards the end of 2012, the process for determining thenew tariffs for the following five year period will begin. Thetariffs set out in this legislation only apply to charges providedthrough interconnections services for which charges are madebetween telecommunications companies.Long-Distance ReformsTowards the end of 2010, the primary zones for long-distancenational communications were restructured, reducing thenumber of zones from 24 to 13 from October 2011. This is thefirst stage of a legal change that will eventually see the longdistancenational category eliminated altogether, 37 monthsfrom enactment of the legislation (subject to a favorable reportfrom the Tribunal for the Defense of Free Competition). As
December 5, 2011January 16, 2012March 12, 2012April 16, 2012May 14, 2012June 18, 2012July 23, 2012August 27, 2012Fixed Number Portability in Arica.Simultaneous launch of Mobile Number Portability throughout the country.Fixed Number Portability in Santiago.Fixed Number Portability in Iquique, Antofagasta, and Temuco.Fixed Number Portability in Rancagua, Coyhaique, and Punta Arenas.Fixed Number Portability in Curicó, Talca, Linares, Chillán, Concepción, and Los Angeles.Fixed Number Portability in Valparaíso, Los Andes, Quillota, and San Antonio.Fixed Number Portability in Valdivia, Osorno, Puerto Montt, Copiapó, La Serena, and Ovalle.such, from this date, fixed local telephony will operate in thesame way as mobile telephony (i.e. without the requirementto use a carrier for calls between different geographic regionsof the country).Network NeutralityThe concept of network neutrality came into effect in the secondhalf of 2011 as a result of an amendment to the GeneralTelecommunications Act (2010) requiring companies that provideInternet access to make more information available ontheir websites and undertake quarterly monitoring of technicalservice indicators to allow users to make comparisons betweendifferent providers and make informed decisions.Number PortabilityThe fixed number portability program was launched in Aricaon December 5, 2011, and will be progressively rolled outacross the country in line with Act 20,471, giving users theright to keep their number when switching companies. Mobilenumber portability will be rolled out simultaneously across thecountry from January 16, 2012.Antenna ActFollowing 10 years of debate in Congress, theTelecommunications Antenna Act was approved by the Senateon January 11, 2012. In terms of health, it stipulates that theregulations for controlling emissions are to be establishedas part of the Environmental Act and in line with therecommendations of the World Health Organization, setting alevel that must be equally rigorous or more so than the averageof the five OECD countries with the strictest standards in thisarea. The new law will also establish stricter conditions forthe construction of new telecommunications towers, alongsidegreater exclusion zones for towers close to sensitive areassuch as hospitals, schools, nursing homes, and nurseries.This legal initiative will incentivize adapting towers to the urbanand architectural environment of their site, the installationof smaller antennas, as well as shared infrastructure or colocation,carbon mitigation measures, and compensation topreserve the extra value of districts with tax incentives.The construction of antenna support towers and radiatingsystems for telecommunications 12 m or higher requiresplanning permission from the appropriate public worksdepartment, with a requirement to inform neighbors 30 daysin advance by means of a letter certified in front of a notarycontaining the plans for the development to allow neighbors toexpress their opinions and take part in the process.4G ServicesIn December 2011, the Department of Telecommunicationslaunched the public tender process for 2,600 MHz spectrum,which will permit the deployment of 4G or LTE networksthroughout the country, providing a considerable increase inthe browsing speeds of mobile devices.The tender is for three blocks of 40 MHz frequency and applicantsare only entitled to one block. Furthermore, the regulatorentail a requirement to provide coverage to 181 rural areasand offer facilities for the service provided by this frequencyband. Applications may be presented until April 19, 2012.57Report 2011
(* )Achievements in 2011ConsumersSegment_Recognizing the requirements andbehavior of our users, <strong>Entel</strong> offerscommunication and connectivitysolutions with high service standardsin an approach that has allowed us toconsistently increase our market shareand secure high levels of customerloyalty and permanency.********Significant growth in postpaid and prepaid customers.Strong growth in contract customers with integratedconnectivity solutions (smartphones and multimedia plans)Mass-market adoption of mobile broadband for bothpostpaid and prepaid segments.Launch of <strong>Entel</strong> Visa credit card in partnership with Bancode Chile.Creation of online management to position <strong>Entel</strong> as a leadingbrand on digital media and social networking platforms.Expansion of services to include C3–D socio-economicgroups.Increase of coverage through the development of newdistribution channels.First place in the mobile telephony category of the NationalConsumer Satisfaction Survey for the ninth year.*Advance of 91% in the “Todo Chile Comunicado” rural digitalconnectivity project.
CONSUMERS SEGMENT SHARE OF TOTALENTEL REVENUECONSUMERS SEGMENT SHARE OF TOTALENTEL SERVICESFIXED SERVICES14%MOBILE SERVICES74%58%CONSUMERSSEGMENT42%OTHERSEGMENTS0% 20% 40% 60% 80% 100%CONSUMERS SEGMENT SERVICES59CustomersOTHER SEGMENTS SERVICESIn 2011, <strong>Entel</strong>’s active customer base for mobile telephonygrew to 9,347,434 users, an increase of 24% with respect tothe previous year, representing a market share of around 39%(three percentage points higher than in 2010).Around 89% of these customers are serviced by the ConsumersMarket Division.Through innovation, service quality, and providing best telecommunicationsnetwork in the country, <strong>Entel</strong> meets the challengesof this demanding market, whose underlying characteristicis a requirement to provide services to customers whoare increasingly adept at using new technologies and makecontinuous usage of the Internet and multiple connection devices.In line with its objectives, <strong>Entel</strong> increased the proportion ofpostpaid clients to 30% of its total subscriber base. Similarly,there was strong growth in the number of customers withsmartphone handsets.The postpaid voice segment grew 17% in 2011, largely drivenby an increased share in the capture of gross sales and migrationsfrom prepaid to postpaid.During the last year, <strong>Entel</strong> has made a special effort to expandits brand to all socio-economic segments, targeting C3 andD groups by means of marketing events and neighborhoodssales (E-Days), and the installation of stores for three or fourdays in areas of high public concurency (<strong>Entel</strong> Fairs).The company has also focused on increasing customer loyaltyby promoting the <strong>Entel</strong> Zone, relaunched as our own customerclub in July 2010. The strategic objectives for the club in 2011were to optimize the transparency of member segmentation,to recognize customer purchase patterns and how long theyremain with the company, and make use of the club as a channelto secure customers.As of December 31, 2011, the <strong>Entel</strong> Zone had approximately 5million members.Report 2011In 2011, the company has focused its efforts on capturingcustomers with multimedia plans, obtaining an increase of 10percentage points in its market penetration for the postpaidbase of the Consumers Segment.
SolutionsEven if mobile communications make up the bulk of the servicesoffered by <strong>Entel</strong> in the Consumers Segment, long-distanceservices from fixed phones are also significant.PENETRATION OF SMARTPHONESIn total base of <strong>Entel</strong> mobile subscribersIn summary, at the end of 2011, <strong>Entel</strong> offered the following serviceswith various pricing plans:JANUARY20116%60Mobile telephony* Postpaid* PrepaidDECEMBER201113%Report 2011Mobile ServicesCustomer Telephone Access CentersAccount Management (e.g. Reversed Charges, Balance Alert)Social Networking*Value Added Content (e.g. CDF Premium Football, Video Gol)*0% 20% 40% 60% 80% 100%Smartphones such as the iPhone, the BlackBerry and the Samsung Galaxyare owned by a increasing number of customers (Consumers, Enterprise,and Corporate Segments). In 2011, the market penetration of these handsetsincreased from 6% to 13% of the total number of mobile voice subscriberswith <strong>Entel</strong>.Mobile InternetBroadbandMobile Internet*Long DistanceLong-Distance International from Mobile Phones*Long-Distance National and International from Fixed Phones*International Mobile Roaming#
945,429 subscribersMBB services (including data cards for mobileapplications)<strong>Entel</strong>, December 2011(2010: 550,879)Net Customer SatisfactionTELEPHONY SERVICEConsumers Postpaid Segment (August 2011)Percentage of customer satisfaction<strong>Entel</strong> Visa CardThe new <strong>Entel</strong> Visa credit card was launched onto the marketin November 2011, a product that is the result of a long-termpartnership between the company and Banco de Chile.100%80%+24 pp +40 ppThe product will help <strong>Entel</strong> to reinforce and promote thecommercial offer.In 2011, the quality of <strong>Entel</strong>’s mobiletelephony service was recognizedby two important prizes:first place in its category in theNational Customer SatisfactionSurvey, run by ProCalidad, forthe ninth year running, and BestCustomer Expedience for 2011,awarded by the Ibero-AmericanAssociation for Company-CustomerRelations.60%40%20%0%68%Consumers SegmentSIZE OF GAP44%28%entel COMPANY B COMPANY CInternal Customer Satisfaction Tracking GFK - Adimark<strong>Entel</strong> achieved a net satisfaction level of 68% in the August 2011 customersatisfaction tracking in a study that gathered opinions from mobiletelephone customers with postpaid contracts throughout the country, consideringsignal, coverage, and quality of communication. This result representsa gap of 24 percentage points between <strong>Entel</strong> and the second-highestranking company.At the end of the year, there were already 13,000 cardholders,with the card being promoted in the 32 <strong>Entel</strong>´s stores andthrough remote service channels such as its website and callcenters.The principal aim of the new card is to ensure the loyalty of<strong>Entel</strong> customers by providing benefits associated with both<strong>Entel</strong> and Banco de Chile services. These include the ability tocollect <strong>Entel</strong> Zone points and qualify for special discounts onevents sponsored by <strong>Entel</strong>, as well as benefits associated withBanco de Chile cards.Both companies, backed by the value of their brands, have setout to make the card the most important in the telecommunicationsindustry.61Report 2011
62Report 2011Online DepartmentIn order to secure <strong>Entel</strong>’s position as a leading and innovativebrand in online media and the national leader in e-commerceand e-care, the company created an Online Department reportingto the Consumers Market, although it is also available tothe Enterprises and Corporates divisions.This new department also has responsibility for providing customerswith excellent online service through the leading websitein the industry, which provides the best user experiencethroughout the full customer life cycle, facilitates knowledgeand the purchase of additional products and services, and promotesstrengthening usage.In recognition of this strategy and its digital media activities, in2011 <strong>Entel</strong> was awarded the IAB Chile (Interactive AdvertisingBureau) prize for Best Advertiser of the Year, as well as a numberof other acknowledgements.The activities carried out by the department include El Crack,the first web series made in Chile, whose success on onlinemedia led to it being broadcast on public television as a telefilm.Channels DevelopmentIn 2011, <strong>Entel</strong> continued expanding its customer sales and servicechannels with the launch of new <strong>Entel</strong> Express stores, afranchise format that creates the potential for fast and efficientgrowth while ensuring high levels of service, with these pointsof sale making it possible for customers to carry out commonoperations (equipment purchase, exchange, and repair) in justa few minutes.At the close of the year, the company had 75 <strong>Entel</strong> Express storesand 57 of its own stores, where it also helps customers tooptimize their plans and provides post-sales service and contractschanges.The call center was also an important channel during 2011 andwas used to carry out successful sales campaigns and contributedto high levels of service, principally through the technicalsupport desks, such as the BlackBerry Telephone ServiceCenter.Activity for the distributors, department stores, and wholesalerschannel grew during the year, driven by new productsassociated with mobile broadband.Similarly, in the context of number portability, the departmentdeveloped a mini-site to provide portability instructions deliveredby the two characters Professor Rosa and Guru Guru, whosubsequently became icons for portability in Chile.In addition to all these channels, in 2011, the company launched<strong>Entel</strong> Fairs, an innovative method of capturing new customersthrough a sales format with limited days in areas with ahigh public concurrency.In terms of social networking, <strong>Entel</strong> has consolidated its positionas the preferred brand among Chileans (Source: SoyDigital study, 2011), with activities ranging from customer serviceto the promotion of product services and events, activitiesthat have been responsible for the significant increase in thenumber of our Twitter and Facebook followers (over 240% and100%, respectively), leading the industry in terms of the numberof followers on the latter platform.
Innovations 2011The new products and services launched for the Consumers Segmentby <strong>Entel</strong> included:Diary Backup +A service that makes it possible to synchronize, backup, and recovercontacts and content stored on a customer’s mobile phoneand the handset SIM card, such as music (polyphonic ringtones,realtones), calendars, notes, tasks, videos, and images.63Report 2011ContentProvides customers with a personalized service throughsubscriptions to different categories that allow them to downloaddaily content.<strong>Entel</strong> Visa CardCredit card created as a result of a partnership between <strong>Entel</strong>and Banco de Chile that aims to become one of the most popularcards on the market.
entErprisesegmEnt_In 2011, the enterprise segment wasdominated by the integration of thefixed and mobile operations. This madeit possible to consolidate a range ofinnovative, integrated, and convergentproducts that allow enterprises ofall sizes to manage their businessprocesses efficiently and be connectedeverywhere 100% of the time.Achievements in 2011****Market leadership in the large companies, with a marketshare of over 50% for mobile telephony and over 60% formobile broadband.Successful integration of mobile, fixed, and IT services tocustomers in the segment.High market penetration for products that includes dataonto mobile devices (mobile Internet).Significant fiber-optic deployment.#...
ENTERPRISE SEGMENT SHARE OF TOTALENTEL REVENUEENTERPRISE SEGMENT SHARE OF TOTALENTEL SERVICES21%ENTERPISESEGMENTIT SERVICES3%FIXED SERVICES39%79%OTHERSEGMENTSMOBILE SERVICES21%0% 20% 40% 60% 80% 100%65ENTERPRISE SEGMENT SERVICESOTHER SEGMENTS SERVICESReport 2011CustomersThe Enterprise Segment provides a wide range of solutionsto satisfy the communications requirements of independentprofessionals at small- and medium-sized businesses, as wellas large companies. In 2011, its customer base increased toalmost 100,000 companies.The year was notable for the development of special projectsfor the County of Viña del Mar, where an MPLS network with57 public and private telephony sites covering 1,500 users,and Internet was installed. In the Municipality of María Elena,the LAN network was extended across 12 sites using dark fiber,providing telephony to 150 subscribers, alongside secureInternet, and Wi-Fi. Major projects were also undertaken forMIMET, ACB Ingeniería, and TJC Chile, involving the implementationof MPLS networks, Internet access, and telephony, togetherwith the provision of other IT services.During the period, one of the main achievements for the SMEsegment was the launch of multimedia plans, a new productthat shifts the traditional focus from voice plans to a visionsatisfying the mobility requirements of companies, connectingthem to the Internet via mobile devices 100% of the time, regardlessof location, as well as mobile productivity tools suchas e-mail, information, and GPS maps.In terms of image, intensive work was carried out to force closerrelationships in the segment through active participation insome of the main SME events and conferences. Effort was alsomade to raise awareness of the wide range of fixed and mobilesolutions, previously only accessible to large companies,and which are now accessible to smaller ones. All this wasaccompanied by a painstaking revision of our processes andstructures to ensure our key priority of providing the customerwith an excellent experience.
66Report 2011SolutionsMobile Communications*Web Mail, Business SMS, <strong>Entel</strong> GPS, BlackBerry®, Superchip3.5G, Mobile Business Solutions: Purchase Order, MSeriesField Sales, Mobile Management of Online Sales, MobileCharging Management, Mobile Sales Force Operation, BinarioSales,BinarioServices, BinarioWorkflow, BinarioLogistics,BinarioDataCapture.Connectivity*Traditional Telephony, IP Telephony, Long-Distance Telephony,Internet, Data Solutions, Call Center Services.IT On-Demand*Virtual Dedicated Server, Email Service, Net Billing, Housing,Hosting, Instant Messaging and Presence Service, CollaborativeInternet Services, Web Hosting, SAP and SAP BasisHosting, Server Monitoring, Administration of OperatingSystems, Database Administration, Backup Administrationand Monitoring, On-demand Online Service Chat, WorkstationSupport.SmartphonesIn 2011 there was an explosive increase in the market share ofsmartphones. As the functionality of smartphone is similar tothat of a computer, more intensive use of the devices resultedin significant results in the market penetration of value addedservices.Smartphones are a tool that allows businesses to increasetheir productivity, allowing executives who work on site to bein constant contact, replying to emails, checking their agendas,or dealing with outstanding tasks. Instant messaging allowsthem to stay connected to their team, performing tasks suchas coordinating times and orders.The mass-market adoption of smartphone equipments fosterspotential growth in terms of new revenue, such as the use ofnew business and management applications for doing business.(...)
+50% market sharein mobile services for large companies in the segmentThe convergence of fixed andmobile operations was one of themajor management challengesfor the Enterprise Segment in2011, with effort being focusedon offering integrated solutionsthat help customers optimizetheir business.Expansion of GPON Network<strong>Entel</strong> has had an urban fiber optic network based on GPONtechnology since 2010, providing businesses with first-classconnectivity and access to a wide range of new services fordata, video, and Cloud Computing tools with fast, high-qualityservice.<strong>Entel</strong> continued this deployment throughout 2011 and currentlyprovides coverage to 17% of companies throughout thecountry through the <strong>Entel</strong> GPON network. The companies aredistributed throughout nine districts (Antofagasta, Las Condes,Providencia, Vitacura, Lo Barnechea, Conchalí, Rancagua, andEmail, Dedicated Virtual Server and MobileApplicationsMajor investments were made to upgrade two email platformsin 2011. One of these was the migration from HMC to Exchange2010, ensuring <strong>Entel</strong> to provide an attractive email servicefor large companies. The other investment was the updatingof the Iplanet platform, which provides an email service withmobility and synchronization for freelancers, as well as smallandmedium-size companies.Another notable development was the launch of dedicatedvirtual servers. This service allows companies to deal with67Report 2011Puerto Montt). Levels of coverage vary depending on the area,periods of high demand without needing to invest in physicalwith the highest level being in Vitacura (81%).servers, since they can increase their storage and processingThe complete project aims to cover the majority of enterprisesin the most densely populated districts of the country throughthree projects with similar features between 2011 and 2012,capacity by contracting a virtual server when they need it andonly pay for the time used. All this translates into an increasein working capital for enterprises.implying investment of around USD $100 million.In terms of mobile applications, in 2011 work was undertakenon an application to allow companies to collect informationthrough their smartphone. It is hoped that this initiative willboost the penetration of smartphones and mobile Internet sales.
cOrporatesegmEnt_<strong>Entel</strong>’s objective in the CorporateSegment is to provide integratedtechnology solutions that ensure theoperational continuity of its customers’businesses, allowing them to focuson their core activities. It providesintegrated solutions for connectivityrequirements for fixed, mobile, and ITsolutions, supported by its own worldclassdata center and expert staff.Achievements in 2011******9.5% increase in the level of sales contracts with respectto 2010.Consolidation of convergent business model for mobile,fixed, and IT solutions services.Increase in market share in the IT Outsourcing marketto 22%, making <strong>Entel</strong> the third largest provider in thissegment.Tier 3 certification for the design of the second phase ofconstruction of the Ciudad de Los Valles data center.Consolidation of the IT on-demand platform that providescompanies access to the capacity they require in line withtheir activities.High level of customer satisfaction for mobilecommunications services (77%), and an increase of13 percentage points in the satisfaction level for fixedservices.*Launch of a new data center for Banco de Chile inLongovilo.
CORPORATE SEGMENT SHARE OF TOTAL ENTEL REVENUECORPORATE SEGMENT SHARE OF TOTAL ENTEL SERVICES13%CORPORATESEGMENTIT SERVICES97%FIXED SERVICES47%87%OTHERSEGMENTSMOBILE SERVICES5%0% 20% 40% 60% 80% 100%CORPORATE SEGMENT SERVICES69OTHER SEGMENTS SERVICESBusiness AreasThe revenue structure of the Corporate Segment is composedof three main business areas: mobile services, wirelineservices, and IT services. Market share for each of theseservices in terms of total revenue for the segment is 32%, 46%,and 22%, respectively.Finally, IT services grew by 13%. The strong performance ofthe IT outsourcing business and the considerable increase indata center service sales were offset by a fall in equipmentsales.Report 2011In 2011, revenue from the Corporate Segment rose by 23%with respect to 2010. Half of this growth came from a changein segmentation criteria, which resulted in an increase in theCorporate customer base; the other half of this growth was aresult of the strong performance of all its business areas.Revenue from mobile services grew by 36% in 2011. Even ifthere was strong growth in voice and Value Added Services,it should also be noted that mobile Internet and blackberryservices grew by 60%, with a strong increase in penetrationabove voice areas.Customers<strong>Entel</strong>’s customers in the Corporate Market are characterizedby their requirement for specific, individual, and specializedsolutions, both in terms of technologies and services, sincethese are largely responsible for supporting the strategicprocesses of their operations.There are around 600 conglomerates or large companies inChile, representing around 80% of total expenditure on ITCservices.The wireline business grew by 18%, largely as a result of thestrong performance of data services. The remainder of thewireline business, mainly long distance and local telephony,followed the market trend.<strong>Entel</strong> provides various services, such as mobile, fixed, and ITservices, to around 50% of these conglomerates. Due to thescope and depth of the services provided to these customers,the company has adopted an integrated approach.
70*Some of <strong>Entel</strong>’s major customers include Banco de Chile, CCAFLos Héroes, Banco Internacional, Colbún, AMSA, the ChileanHealth Service, the Department of Libraries, Archives, andMuseums, and the Judiciary.In 2011, in partnership with Los Héroes, <strong>Entel</strong> developed atechnology project to provide connectivity to 212 branchesthroughout the country, the administration of all technologyinfrastructure, and transaction processing for the payment ofpensions and benefits for the Department of Social Security.Los Héroes formed a strategic partnership with <strong>Entel</strong>, placingits trust in <strong>Entel</strong>’s telecommunications and IT solutions toenable it to provide the best possible service to more than 2million beneficiaries from Arica to Porvenir.Solutions<strong>Entel</strong> has structured the services it offers to the CorporateSegment in a broad portfolio of services to provide solutionsthat meet the various needs of its customers and the level ofcomplexity of their operations:Cloud Computing Services*On-demand IT InfrastructureCloud Telecommunications Services (Private and On-Demand Cloud)Report 2011Similarly, during the last year, <strong>Entel</strong> signed a contract withthe Santiago Stock Exchange Market to provide an integratedservice that includes the hosting of technology equipment atits Ciudad de Los Valles data center, continuous monitoringand operation, and latest generation technology connectivitybetween the site and the stock market’s data centers inSantiago. This solution will allow the stock market to ensureits operational continuity, increase levels of security, andimprove the service it offers its users. to also provides highcapacity for growth in technology infrastructure using ondemandservices.In addition to this, the company developed major technologysolutions for the Ministry of Public Works, the Departmentof Social Security, ABC DIN, SAAM, Ultramar, and Presto, inaddition to implementing on-demand services for Scotiabank.Information Technology**Engineering Equipment and Services (Equipment Sales,Expert Services and Outsourcing of IT Staff)Data Center: Housing, IT Operation Services, ApplicationSolutions (Microsoft Hosted Messaging and Collaboration,SAP Hosting), End-User Solutions (PC and PrintersDelivered through Leasing, Thin Client Virtual Applicationsand Desktops, and Technical Helpdesk and On-Site Support).TelecommunicationsDataPrivate Telephony (Full IP, Hybrid IP, SIP Trunk, Host IP PBX)Audiovisual Solutions (Digital Transmissions Services with*Radio and TV Transmitters and Video Conferencing)Corporate Internet (Interconnection and Dedicated Access)Local TelephonyLong Distance (National and International, ISDN Services,*I80 0 Service, N600 and N800 Services)
Mobile ServicesInfrastructureFor the provision of IT services,the Group has 800 experts employedby the parent companyand around 250 specialists workingat the technical support desksof the <strong>Entel</strong> Call Center subsidiary,as well as around 50 subcontractedstaff.**Mobile Email Solutions (Windows Mobile, BlackBerry–<strong>Entel</strong>,BlackBerry Enterprise Server, BlackBerry Enterprise ServerExpress, BlackBerry Internet Service)<strong>Entel</strong> GPSMobile BroadbandMobile InternetUnified CommunicationsM2M Data PlansMobile Enterprise Applications (e.g. Sales Force Solutions,Field Services, CRM)Service QualityStudies carried out by specialist companies show <strong>Entel</strong> to bea leader in service quality for the Corporate Segment. In 2011,its customer satisfaction level was 77% for mobile servicesand it was also highly ranked for telecommunications and ITservices. The portion of customers who ranked <strong>Entel</strong> above itscompetitors increased by 10% with respect to 2010.IT services provided by <strong>Entel</strong> are evaluated as per ServiceLevel Agreements (SLAs). Each SLA signed with our customersestablishes parameters related to significant aspectsdetermined by the nature of the service (e.g. the criticality ofthe equipment or service provided, the geographic location,resolution time).In terms of operational continuity, <strong>Entel</strong>’s results for 2011are 30% higher than those obtained in 2010. Service levels(number of calls taken by the helpdesk) reached the target of95%, service response (total calls answered within 15 seconds)reached 95%, and resolution on first contact for helpdeskservices (total calls solved in the first instance) was 80%.To deliver the most secure and advanced cloud computingservices, <strong>Entel</strong> has a network of six interconnected datacenters, with a total floor space of 5,660 m² and a worldclasson-demand service platform. In 2010, it launched thefirst phase of its latest data center located in Ciudad de LosValles as part of a master plan to provide flexible growthin line with the forecast demand, with a total floor space of8,000 m² and an investment of USD $35 million for the firstphase. The design of phase two of the Ciudad de Los Vallesdata center, whose construction began in September 2011and is due for completion in July 2012, obtained the Tier 3certification from the Uptime Institute, an award that affirmsthe planned infrastructure is suitable for providing highquality,uninterrupted services, since it has an availability levelof 99.982% and high standards of construction, sustainability,and security.In addition to this, in 2011 <strong>Entel</strong> added a new data center roomfor Banco de Chile at its Longovilo site, which was incorporatedinto Ciudad de Los Valles and included in the process forconsolidating the bank’s sites into two centers.71Report 2011
Business ExpansionThe majority of new coming players in the telecommunicationsindustry do not have their own network, or have not establishedcommercial agreements with other operators for nationaland international services. This situation provides opportunitiesfor <strong>Entel</strong> to grow, due to its robust infrastructure.In 2011, <strong>Entel</strong>’s gross revenue (including inter-company revenue)for the Wholesale Market increased by 15% with respectto the previous year to a total of CLP $131,347 million. Servicesfor network leasing to other telecommunications companiescontributed CLP $99,260 million, a 12% increase from 2010,and the wholesale traffic business added CLP $32,087 million,an increase of 27%.It is important to note the growth of 18% in revenue from leasinginfrastructure to third parties, which includes servicesprovided to national and international fixed and mobile operators.One of the most important events in 2011 in this area was thenational roaming agreement signed with Nextel Chile, whichwill enter the Chilean market with latest generation mobilecommunication services. This agreement will provide NextelChile access to its network in areas of the country where theoperator does not have coverage with its own infrastructure.The agreement covers both voice and data traffic.73Report 2011;)
15 %annual growthin Wholesale Segment revenue74Report 2011NET REVENUE FROM NETWORK LEASING INFRASTRUC-TURE TO THIRD PARTIES(in CLP$ million)(values reported under IFRS)Distinguished Position in InternationalVoice Traffic30,00022,50015,0007,500017,191 17,19165%18%20,24620092010 2011NETWORK LEASING INFRASTRUCTURE TO THIRD PARTIES<strong>Entel</strong> is one of the most important international traffic brokersin Latin America. It operates in New York, Los Angeles, Rio deJaneiro, and Lima, processing millions of minutes to destinationsacross the globe through its international networksusing traditional PSTN and IP protocols.In terms of the wholesale data business, the company has positioneditself as one of the most important operators in theindustry, with a wide range of national coverage and subseacables. Its network topology and infrastructure allow it totransport different latest generation services, practically coveringthe whole world.Similarly, with 17 years of experience in successful multiregionalprojects, <strong>Entel</strong> has consolidated its position as a marketleader for wholesale value added services in the regionthrough three lines of products (premium voice, mobile, andInternet).
75Business AreasMemoria 2011Segment Customers ServicesData Network Wholesale BusinessTraffic Wholesale BusinessLong-distance companies, local fixed and mobile telephonyoperators, Internet service providers (ISPs), network providersand international carriers (e.g. Claro, Movistar, VTR, Telsur,Chile.com, AT &T Corp, Telecom Italia, GTD , LANautilus, GlobalCrossing)International carriers and mobile roaming partners: e.g. AT&T Corp, Verizon, IDT , US Sprint, Telecom Italia, DeutscheTelekom, British Telecom, Cables & Wireless, Orange, grupoVodafone, Alianza Latinoamericana.National and international transport of voice, data and Internetservices.International roaming traffic.Value Added Wholesale Business Full range of wholesale customers. Premium Voice: Entertainment or voice content servicestransmitted over traditional telephony networks.Premium Mobile: Entertainment services based on mobiletechnology protocols accessed using a mobile phone.Premium Internet: Digital entertainment services based on IPprotocols and accessed through websites on the Internet.National Roaming and MVNO Wholesale Business Virtual mobile operators (MVNOs). Leasing of mobile network and infrastructure required to enterthe industry with quality services for end users.
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Chapter 4corporAtesOcial responsibilitY_
pOlicy andactiOns_78Corporate social responsibility formspart of <strong>Entel</strong>’s business strategyand this is evident in the company’swillingness to listen , understand, andsatisfy the legitimate expectations andinterests of its various stakeholders.Its goal is to ensure sustainability,contributing to the development andwell-being of Chilean society.CommitmentReport 2011The strategic planning of each of <strong>Entel</strong>’s business areastakes into account each of their stakeholders, ensuring thatthe company complies with its duty to provide value to itscustomers and new opportunities in the community.<strong>Entel</strong> makes a significant contribution to the technologicaldevelopment of the country through network and data centerinfrastructure. In recent years, it has made a firm commitmentto the challenge of eliminating the digital gap for Internetaccess in rural and urban areas through the expansion of itsnetworks and mobile broadband services.The challenges and commitmentsmade by <strong>Entel</strong> with respect to eachof its stakeholders are aligned withits business strategy.As part of its growth, the company has responsibly deployedits mobile and data network, respecting and adapting tonatural and urban environments, and complying with the moststringent environmental standards in the construction of itsnew data centers and corporate buildings.Top 10 in CSR<strong>Entel</strong> was ranked eighth in general and first for its industryin the MORI 2011 CSR monitor, the longest running study thathas been identifying the country’s most socially responsiblecompanies and highlighting trends in the field since 2000. Theranking is prepared using spontaneous answer questionnairescompleted by 1,200 people over the age of 18 resident in ruraland urban areas between Arica and Punta Arenas.
#79AREA GOALS FOR 2011 ACTIONSCommunityParticipate in activities to support the community, related to the deploymentof networks and telecommunications to improve quality of life and access to ITCtechnology.Regional CSR seminars in 14 regional capitals, connectivity projects forschools, publishing of CSR book, regional CSR journalism award.Report 2011EnvironmentTo care for the environment with an emphasis on activities related to the business.Base line study for energy consumption, company paper recyclingcampaign, Gonzalo plan promoting mobile equipments recycling.StaffGuarantee and promote workers’ rights in a safe working environment, providingtools for their development and promoting equal opportunities in an environment ofdiversity free from discrimination.Coordination of volunteer work by staff with participation of 15% of staffthroughout the country. Published the summary of third sustainabilityreport for workers and their families.SuppliersDevelop a transparent and equitable acquisitions policy and make suppliers awareof the company’s values, principles and ethics.Partnership with Ericsson for CSR Book partnerships, regional CSRseminars and regional CSR journalism awards.ShareholdersProvide objective and timely information about the economic, environmental, andsocial performance of the company.Publication of third sustainability report for 2010.
In August 2011, the second stage of the TodoChile Comunicado project to provide Internetand mobile telephone services to 1,474rural areas from Arica to Punta Arenas waslaunched in the area of Huape, 33 km fromValdivia The initiative will contribute to thequality of life of more than 3 million Chileans,connecting them to the rest of the countryand the world beyond.tOdo Chile ComunicadoprojEct_80Report 2011Closing the GapTodo Chile Comunicado is a public-private initiative that aimsto provide Internet access to more than 3 million Chileancitizens in 1,474 of the country’s rural areas.The project is made up of three phases that will be fullyoperational during the first half of 2012. It constitutes the mostsignificant connectivity challenge the country has ever seenand has been made possible thanks to a partnership between<strong>Entel</strong> and the Chilean government.1,474 areaswill have MBB and Mobile Internetconnections as a result of the plan.Todo Chile Comunicado requires investment of USD $110million, USD $65 million of which is provided by <strong>Entel</strong>and USD $45 million financed in equal parts by theTelecommunications Development Fund, administered bythe Department of Telecommunications, and the country’s 15regional governments.By the end of 2011, the project was 91% complete, thanks tothe enormous feats of technology and engineering in whichmore than 630 people have taken part and in which <strong>Entel</strong>’stechnology partner, Ericsson, has played a major role.91% progresson the project by the end of 2011.+ 3 millionpeople will benefit when the projectis completed in 2012.
81Report 2011
(* ) USD$ 45 millionParticipants in <strong>Entel</strong>’s Artennas for Chile projectincluded the painters Ximena Mandiola andIsmael Frigerio, architect and design studentsPezo Von Ellrichshausen, Sebastián Errázuriz yDaw, and LyonBosch, the advertising and designcollective Grupo Grifo, and the sculptors ClaudioCorrea and Cristián Salineros, who worked forover two months on the development of theirrespective proposals.ARTEnas fOr Chile_82City-Friendly InfrastructureReport 2011ARTEnas for Chile is the name given to an initiative by <strong>Entel</strong>aiming to provide a new face for mobile telephone towersthrough the work of eight national artists, designers, andarchitects. This project aims to make the presence of towersand antennae infrastructure in the city more appealing.The first phase of the project will see the company transforma number of antennas located in different areas of the countryinto works of art. Alongside other initiatives, the project willinvolve investments of USD $45 million, and will start during2012.The first phase of the project met the participation ofdistinguished artists and architecture, collectives designersunder the curatorship of gallery manager Patricia Ready andthe architect Pablo Allard, who selected the proposals basedon their technical and economic feasibility, and aestheticquality. The work will come to fruition in the first half of 2012in districts such as Valparaíso, La Florida, San Bernardo, andPudahuel.<strong>Entel</strong>’s investment in transformingantennas into works of art.
esUlts_Chapter 5
(* )...consOlidatedresultS_86Report 2011<strong>Entel</strong> captured a significant part ofthe industry growth during 2011, especiallyin terms of mobile telephony andbroadband, helping it to consolidateits leadership in the high-valuecustomer segment.The increase in revenue from mobile services, <strong>Entel</strong>’s mainsource of growth, contributed to a 16% EBITDA increase from2010.2011 2010 Annual ChangeConsolidated Revenue (CLP$ million) 1,240,914 1,086,405 14 %EBITDA (CLP$ million) 515,200 446,018 16 %Operating Profit (CLP$ million) 238,227 208,130 14 %Annual Profit (CLP$ million) 180,767 172,971 5 %Profit per Share (CLP$) 764,26 731,31 5 %Dividend Yield (%) 6,12 5,47 65 ppReturn on Equity (%) 24,19 25,03 -85 pp
DISTRIBUTION OF CONSOLIDATED REVENUE BY BUSINESSINTERNATIONALOPERATIONS19%WIRELINEBUSINESS1% 2%OTHER78%MOBILEBUSINESS<strong>Entel</strong>’s mobilebusinesscontributed 78%of consolidated revenue in 201187Report 2011Change in Revenue by Service2011(CLP$ million)20102010 (CLP$ million)Change%Mobile Services 966,709 840,056 15Data Services (including IT services) 93,703 85,090 10Local Telephony (including NGN–IP) 41,705 39,677 5Long Distance 30,687 33,761 -9Internet 16,585 15,885 4Service to other TelecommunicationCompanies20,246 17,191 18Traffic Business 31,696 24,965 27Americatel Perú 19,147 19,410 -1Call Center and Other 10,319 7,560 36Other Revenue – Non Core 10,117 2,810 260Total Revenue 1,240,914 1,086,405 14
mobilebUsiness_88Report 2011Market share rises to over 39%<strong>Entel</strong> holds a strong market position for mobile services, aproduct of its successful business strategy and recognizedservice quality.GROWTH IN MOBILE SUBSCRIBERS BY SERVICE(in millions)24%9.35In 2011, its market share increased to over 39% of active customers,representing an increase of three percentage pointswith respect to the end of 2010.Prepaid and postpaid customers (voice + MBB) grew by 26%and 17%, respectively, when compared to last year.4.110.783.335.011.033.985.640.041.454.156.000.131.664.216.460.251.774.447.570.552.015.000.952.346.0624% annual growthin the total customer base for mobile services.9,347,434 customersat the end of 2011.2005 2006 2007 2008 2009 2010 2011PREPAID VOICEPOSTPAID VOICEMBB (INC. DATA)<strong>Entel</strong>’s contract customers represent 30% of its customer base.
72% annual growthin the mobile broadband customer baseTotal RevenueNet revenue recorded for the mobile business in 2011 totaledCLP $988,836 million, an increase of 16% over the 2010 figure.Mobile Broadband(includes data cards for business applications).<strong>Entel</strong>’s business policies have resulted in the progressivegrowth in the number of mobile broadband subscribers, whichexceeded 945,000 contracts as of December 2011 (includingcards for business applications).TOTAL NET REVENUE(reported under IFRS)(in CLP$ million)250,000200,000749,529 854,92216%988,836MOBILE BROADBAND (MBB) CUSTOMERS1,100,000990,000880,000770,000660,000550,000440,000330,000220,000110,0000126,442248,0972008 2009 2010 2011Value Added Services (VAS)550,879Revenue from value added services such as mobile Internetand mobile broadband increased 41% from CLP $148,108 millionin 2010 to CLP $208,310 million in 2011.REVENUE FROM VALUE ADDED SERVICES (VAS)(reported under IFRS)(in CLP$ million)72%945,429150,000100,00050,000EBITDAMobile services recorded EBITDA of CLP $396,348 million for2011, a figure that represents annual growth of 19%, mainlyassociated with an increase in the service profit margin andpartially offset by equipment margin contraction, in line withhigher sales that made it possible to increase market share.There were also increases in the administration and salescosts directly associated with the increased customer base.EBITDA(reported under IFRS)(in CLP$ million)2009 2010 201189Report 2011250,000200,000150,000100,00050,000148,10899,50541%208,3102009 2010 2011420,000387,500355,000322,500290,000303,714 334,03819%396,3482009 2010 2011
wirElinebusinEss_90Report 2011Focus on Business Segments<strong>Entel</strong>’s wireline business is made up of integrated voice, dataand Internet services, with a strong focus on enterprise segmentsand services associated with IT and infrastructure networkleasing to other companies in the sector.CLP $316,824 millionrevenue for wireline business (includinginter-company sales)9% annual growth(2010: CLP $289,380 million)WIRELINE BUSINESS REVENUE(reported under IFRS)(in CLP$ million) (including inter-company)DISTRIBUTION OR REVENUE BY MARKET7%RESIDENTIALMARKET350,000300,000250,000284,790289,3809%316,82418%ENTERPRISEMARKET200,000150,000100,00042%WHOLESALE ANDOTHER MARKET50,000065%20092010 201133%CORPORATEMARKET
wirEline revenUeby services_Data and IT ServicesThe greatest sales in this area were for data and IT services,with revenue of CLP $110,346 million, representing an increaseof 9% with respect to 2010. This reflects the solid position indata services and the strong market position as a provider ofdata center and technology integration services.Long Distance<strong>Entel</strong>’s revenue from long-distance services totaledCLP $30,875 million, representing a decrease of 9% withrespect to the previous year, as a result of lower traffic activityand a decline in domestic tariffs, partly due to the reduction inthe number of primary zones.DATA, INTERNET & IT SERVICES REVENUE(reported under IFRS)(in CLP$ million)LONG DISTANCE REVENUE(reported under IFRS)(in CLP$ million)92120,000107,50095,00095,482100,9779%110,34636,00027,00018,00035,547 33,761 30,875-9%Report 201182,50070,0002009 2010 20119,00002009 2010 2011Local Telephony<strong>Entel</strong>’s revenue for local telephony increased by 3% toCLP $41,917 million.LOCAL TELEPHONY REVENUE(reported under IFRS)(in CLP$ million)Wholesale Traffic and Network LeasingThe wholesale traffic business showed significant expansion,contributing CLP $32,087 million with growth of 27%, whilenetwork leasing services to other telecommunicationscompanies generated revenue of CLP $99,260 million, a 12%increase on the 2010 figure.43,00039,75042,20040,7343%41,917WHOLESALE SEGMENT REVENUE(reported under IFRS)(in CLP$ million)36,50033,25030,0002009 2010 2011140,000120,000100,00080,00060,00040,00020,0000114,24291,79715%131,3472009 2010 2011TRAFFIC BUSINESS AND OTHERINFRASTRUCTURE LEASINGSource: <strong>Entel</strong>
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Chapter 6subsidiAries_
AmericatelpErú_96Report 2011Aligned with the strategicdefinitions of its parent companyin Chile, Americatel Perú hasgrown towards enterprise markets,with these contributing 48% of itsrevenue in 2011.Americatel Perú in 2011**Revenue of USD $43 million (8% increase over 2010).Promoted satellite services growth.* 11% increase in customer base in the enterprise segment. Address: Canaval y Moreyra 480, 20th floor, San Isidro, Lima, Perú.
120% growthin EBITDA (USD $4 million in 2011).StrategyAmericatel is focused on the Corporate and SME segments ofthe market, for which it has specific goals:Businesses and SMEs, continue increasing the number of accessesand turnover with bundles that include telephony, Internet,data and other value-added services.Corporations, focus on maintaining its turnover and customerportfolio for fixed telephony, broadband, and data links, as wellas increasing average revenue per user (ARPU), offering newIT and satellite services throughout the country.97Market Description Products and ServicesCorporate1,600 companies in the country, with annualrevenue over USD $10 million.Long Distance, Digital Fixed Telephony, Dedicated Internet, 0800 Lines,Data Links, NGN (Service Bundling) and Satellite Services for Internet& Data, and IT Outsourcing Services (Housing, Dedicated Hosting, IaaSand SaaS).Report 2011Businesses and SMEsSmall- and medium-size companies in LimaMetropolitan Area who use telecommunicationsservices over USD $100 per month (70,000points in Lima).Data Solutions, Voice and Internet (NGN), Fixed Analog Telephony andADSL Internet, Long Distance.Mass-MarketPeople in A, B, and C segments throughout thecountry.Fixed and Mobile Long-Distance Direct Dial, Contracted Products (Long-Distance International Plans for Fixed and Mobile Origin, and Long-Distance National Plans for Fixed Origin).WholesaleNational and International Operators.Termination of Traffic for Peru and RoW, and 0800 Services. For LocalOperators: Data Links, Internet Access and Datacenter Services (Use ofInfrastructure and Housing).
AMERICATEL PERÚ GROSS REvENUE(in USD$ thousand)REVENUE DISTRIBUTION BY SEGMENT45,00040,00038,97339,3608%42,69648%CORPORATE &SME SERVICES25%LD35,00030,00025,0009920,00015,00010,0005,00002009CORPORATE & SME SEGMENT2010201127%TRAFFICBUSINESSReport 2011WHOLESALE SEGMENTMASS-MARKET SEGMENTEBITDA EVOLUTION, AMERICATEL PERÚ(in USD$ thousand)5,0004,0003,9823,000120%2,0001,0971,8071,0000200920102011
<strong>Entel</strong> callcEnter_100Report 2011The flexibility and competitiveness of itsservices form a vital part of the Group’sremote service strategy. With three newcall centers in Chile and the first COPCcertification in the country, in 2011 <strong>Entel</strong>Call Center consolidated a new platform forits contact center and technical helpdeskoperations.The Amunátegui center,located beside the <strong>Entel</strong>Tower in Santiago, isspecially designed fortechnical helpdesk andsocial networking services.<strong>Entel</strong> Call Center in 2011****First company in Chile to obtain the international COPC®certification for four different services and the first in LatinAmerica to certify its technical helpdesks.Three new centers in Chile; two in Santiago (Amunáteguiand General Mackenna) and one in the Valparaíso Region(Curauma).Operating income increased by 67% from 2010.Awarded the tender for customer service and documentsupport platforms for Banco de Crédito del Perú (BCP),the largest bank in the country. This is the first time it hasoutsourced its services.
(* )24%annual growthactive positions (2010: 2,047).2,536active positions<strong>Entel</strong> Call Center in Chile and Perú.101StrategyThe mission of <strong>Entel</strong> Call Center is to provide end users (itsclients’ customers) with a fast and accurate solution to ensurehigh levels of satisfaction. It’s goal is to be the leading callcenter in terms of innovation, productivity, and service quality,both for its own customers and end users.<strong>Entel</strong> Call Center operates internationally, with four centers inChile and two in Peru, all built and equipped to the highest internationalstandards for contact centers, especially with respectto comfort, lighting and climate, all of which are necessaryto guarantee a good working environment for the 4,506staff in both countries.The company’s centers are interconnected by a high-availabilitysystem with load and call-flow balancing. The company’sgrowth has been accompanied by its geographic diversificationto achieve high levels of support and service in the face ofevents such as the earthquake that struck Chile on February27, 2010.In terms of the number of active positions (desks attended bystaff), <strong>Entel</strong> Call Center is second in Chile behind Atento, andthird in Peru, where competes with Atento and GSS.Report 2011
102ServicesDescriptionReport 2011Service DeskTechnical help desks for <strong>Entel</strong> Group and external customers. The goal isto provide support to remote users with the highest FCR rate (First CallResolution) to achieve high levels of user satisfaction and allow significantcost optimization through the recovery of availability and avoiding sitevisits.Customer ServiceMultichannel service for inbound and outbound calls, chat, social networks,IVR or Click to Call, for companies seeking to provide more comprehensiveand personalized service.Sales CampaignsComplements face-to-face customers sales channel, through a platformmade up of highly-trained agents who act as remote salespeople.Technology ServicesAdministration of technical and management platforms related to callcenters.
COPC® CertificationIn April 2011, <strong>Entel</strong> Call Center obtained the internationalCOPC® (Customer Operations Performance Center) certificationfor four of its services: Mobile Billing, Premium Telebilling,<strong>Entel</strong>´s Enterprise segment services and BlackBerry TechnologyService Center. It is the first company to obtain this awardin Chile for four contact center services, and the first in LatinAmerica for technical helpdesk (BlackBerry CAT).ResultsIn 2011, revenue from <strong>Entel</strong> Call Center totaled CLP $26,562 million,an increase of 23% over the 2010 figure. This increase inactivity, both in Chile and Peru, resulted in operating income ofCLP $1,698 million, representing an increase of 67% with respectto the previous year.Consolidated EBITDA reached CLP $2,733 million, representingan increase of 37% over 2010.CONSOLIDATED REVENUE(reported under IFRS)(in CLP$ million, including inter-company figures)CONSOLIDATED OPERATING INCOME(reported under IFRS) (in CLP$ million)30,00025,00020,00015,00010,00018,52021,55723%26,5622,0001,5001,0005003581,01767%1,698103Report 20115,000002009 2010 20112009 2010 2011CONSOLIDATED EBITDA(reported under IFRS) (in CLP$ million)3,0002,7332,2501,98837%1,5001,35575002009 2010 2011
Chapter 7compAnyinfOrmation_
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108Report 2011conStitutingdocumEnts_<strong>Entel</strong> Chile S.A. was incorporated as a public limited companyby public deed, notarized before the Santiago Notary JaimeGarcía Palazuelos on August 31, 1964. The company and itsarticles of incorporation were approved by Supreme Decree5,487, issued by the Ministry of the Treasury on December 30,1964.The relevant extract is recorded on page 381 No. 191, and theaforementioned decree on page 384, No. 192, of the SantiagoTrade Register, dated January 18, 1965, published in the stategazette on January 20, 1965. The company was declared legallyestablished by Supreme Decree 1,088 issued by the Ministryof the Treasury on April 4, 1966. Following this date, thecompany statutes have undergone a range of modifications to ensurecompliance with Executive Order 3,500 (1980) regarding the numberand nationality of directors, the existence of alternate directors, increasesin capital, and extensions to the company’s business areas.}compAnyownErship_As of December 31, 2011, the capital stock of Empresa Nacional deTelecomunicaciones S.A. was distributed in 236,523,695 single seriesshares, fully subscribed and paid in by its 2,134 shareholders.The list of the twelve largest shareholders of <strong>Entel</strong> S.A., together withthe number of shares held and the percentage of their stock is givenin the following table:Name or Company Name Stocks as of 12/31/2011 % StocksInv Altel Ltda 129,530,284 54.76%Banco de Chile por cuenta de terceros no residentes 27,143,237 11.48%Banco Itau por cuenta de inversionistas 16,657,395 7.04%Banco Santander por cuenta de inv extranjeros 10,976,825 4.64%AFP Habitat S.A. 8,048,927 3.40%AFP Cuprum S.A. 6,191,161 2.62%AFP Capital S.A. 6,185,298 2.62%AFP Provida S.A. 6,010,248 2.54%BanChile C de B S.A. 2,426,146 1.03%Larrain Vial S.A. Corredora de Bolsa 2,118,427 0.90%Penta C de B S.A. 1,667,503 0.71%Santander S.A. C de B 1,215,817 0.51%Others 18,352,427 7.75%236,523,695 100.00%(*) With shares held by brokersDoes not include shares catalogued as financial investments
*Tax ID No. Shareholders Quantity of Shares % StockControllersIn compliance with General Regulation No. 30, it is reportedthat the only controlling company remains to be InversionesAltel Ltda., Tax ID 76.242.520-3, with 129,530,284 shares representinga 54.7642% ownership of <strong>Entel</strong>. Inversiones AltelLtda. is owned by Almendral Telecomunicaciones S.A. (Tax ID99.586.130-5), with a share of 99.99%, and Almendral S.A. (TaxID 94.270.000-8) with a share of 0.01%.Information as per Shareholder Register, December 31, 2011.The individuals and legal entities that directly and indirectlyform part of the controlling group are as follows:96.969.110-8 Forestal Cañada S.A. 561,429,758 4.15%96.895.660-4 Inversiones El Raulí S.A. 703,849,544 5.20%96.878.530-3 Inversiones Nilo S.A. (*) 926,012,160 6.84%96.656.410-5 Bice Vida Compañía de Seguros 16,424,086 0.12%94.645.000-6 Inmobiliaria Ñagué S.A. 358,008,491 2.64%90.412.000-6 Minera Valparaíso S.A. 281,889,680 2.08%81.358.600-2 Cominco S.A. 154,795,552 1.14%81.280.300-K Viecal S.A. 95,058,166 0.70%79.770.520-9 Forestal y Pesquera Copahue S.A. 454,057,900 3.35%79.621.850-9 Forestal Cominco S.A. 78,666,592 0.58%77.320.330-K Inversiones Coillanca Limitada 50,500,000 0.37%96.791.310-3 Inmobiliaria Teatinos S. A. 215,905,538 1.59%96.800.810-2 Inmobiliaria Canigue S. A. 287,874,051 2.13%96.878.540-0 Inversiones Orinoco S. A. 143,937,025 1.06%4.333.299-6 Patricia Matte Larraín 4,842,182 0.05%4.436.502-2 Eliodoro Matte Larraín (*) 3,696,822 0.03%6.598.728-7 Bernardo Matte Larraín (*) 3,696,695 0.03%Grupo Matte (17) 4,340,644,242 32.07%77.677.870-2 Inversiones Los Andes Dos Limitada 312,672,052 2.31%77.302.620-3 Inversiones Teval S.A. 1,290,595,292 9.53%Grupo Fernández León (2) 1,603,267,344 11.84%96.950.580-0 Inversiones Huildad S.A. 1,129,980,943 8.35%96.502.590-1 Inversiones Metropolitana Ltda. 49,000,000 0.36%89.979.600-4 Inversiones Paso Nevado Ltda. 262,000,000 1.94%Grupo Hurtado Vicuña (3) 1,440,980,943 10.64%109Report 2011
Information as per Shareholder Register, December 31, 2011.Tax ID No. Shareholders Quantity of Shares % Stock99.012.000-5 Cía. De Seguros de Vida Consorcio 405,540,420 3.00%79.619.200-3 Consorcio Financiero S.A. (*) 894,655,313 6.61%Grupo Consorcio (2) 1,300,195,733 9.60%96.927.570-8 Los Peumos S.A. 264,803,356 1.96%79.937.930-9 Inmobiliaria Santoña Ltda 105,809,865 0.78%85.127.400-6 Inmobiliaria Escorial Ltda. 347,973,232 2.57%79.942.850-4 Inversiones El Manzano Ltda. 79,280,486 0.59%79.933.390-2 Andacollo de Inversiones Ltda. 38,996,296 0.29%96.928.240-2 Santo Domingo de Inversiones S. A. 3,079,761 0.02%79.937.090-8 Andromeda Inversiones Ltda. 102,372,197 0.76%11078.136.230-1 Santa Rosario de Inversiones Ltda. 63,260,509 0.47%77.740.800-3 Inversiones La Estancia Ltda. 30,805,638 0.23%77.174.230-0 Inversiones Los Ciervos Ltda. 5,936,539 0.04%4.431.346-4 Valdes Covarrubias Maria Teresa 2,471,777 0.02%Report 201196.962.800-7 Inmobiliaria Estoril II S.A. 93,631 0.001%79.934.710-5 Comercial Marchigue S.A. (*) 42,090,874 0.31%76.072.917-5 Inversiones El Manzano II S. A. 3,079,761 0.02%76.072.983-3 Andaluza de Inversiones II S. A. 3,079,761 0.02%76.072.985-K Inversiones La Estancia II S. A. 3,079,761 0.02%76.073.008-4 La Esperanza S. A. 3,079,761 0.02%96.932.040-1 Los Boldos 3,124,495 0.02%79.966.130-6 Inmobiliaria e Inversiones Santa Sofía Ltda. 3,079,761 0.02%79.757.850-9 Asturiana de Inversiones Ltda. 3,079,761 0.02%77.863.390-6 Cerro Colorado de Inversiones Ltda. 3,079,761 0.02%17.456.060-9 Vicente Izquierdo Toboada 32,300 0.0002%Grupo Izquierdo Menéndez (23) 1,111,689,283 8.21%96.949.800-6 Inversiones Green Limitada 371,005,336 2.74%96.949.780-8 Las Bardenas Chile S.A. 371,005,336 2.74%(*) With shares held by brokersDoes not include shares catalogued as financial investmentsGrupo Gianoli (2) 742,010,672 5.48%Controlling Group (48) 10,538,788,217 77.85%Minority (1,861) 3,000,833,815 22.15%Total (1,909) 13,539,622,032 100.00%
On January 24, 2005, the board of directors of Almendral S.A.took control of the company through various shareholders whosigned a joint interest agreement for the company, to allowthem to obtain control, thereby forming the controlling groupof Almendral S.A. and each becoming a member of the group.The individual members of the controlling group are as follows:Grupo MattePatricia Matte Larraín (Tax ID 4.333.299-6), Eliodoro Matte Larraín(Tax ID 4.436.502-2), and Bernardo Matte Larraín (Tax ID6.598.728-7), who, directly and indirectly, and in equal proportions,control the companies through which Grupo Matte actsas a controlling member of Almendral S.A.Grupo Fernández Leóna) Inversiones Los Andes Dos Ltda., whose ultimate controllersare Eduardo Fernández León (Tax ID 3.931.817-2), ValeriaMac Auliffe Granello (Tax ID 4.222.315-8), Eduardo FernándezMac Auliffe (Tax ID 7.010.379-6), and Tomás Fernández MacAuliffe (Tax ID 7.010.380-K), with 37.97%, 25.24%, 18.38%, and18.41% direct and indirect shares of capital stock, respectively.b) Inversiones Teval S.A., whose controlling group is madeup of the following:_Grupo Fernández León, composed of Eduardo FernándezLeón (Tax ID 3.931.817-2), Valeria Mac Auliffe Granello(Tax ID 4.222.315-8), Eduardo Fernández Mac Auliffe (TaxID 7.010.379-6), and Tomás Fernández Mac Auliffe (Tax ID7.010.380-K) with 4.735%, 3.615%, 20.78%, and 20.87% indirectshare of capital stock, respectively; Grupo Garcés Silva,made up of José Antonio Garcés Silva (Tax ID 3.984.154-1),María Teresa Silva Silva (Tax ID 3.717.514-5), María Paz GarcésSilva (Tax ID 7.032.689-2), María Teresa Garcés Silva (Tax ID7.032.690-6), José Antonio Garcés Silva (Tax ID 8.745.864-4),Matías Alberto Garcés Silva (Tax ID 10.825.983-3), and AndrésSergio Garcés Silva (Tax ID 10.828.517-6), with 1.71%, 0.32%,9.594%, 9.594%, 9.594%, 9.594%, and 9.594% of indirect sharesof capital stock, respectively.Grupo Hurtado VicuñaJosé Ignacio Hurtado Vicuña (Tax ID 4.556.173-9), MaríaMercedes Hurtado Vicuña (Tax ID 4.332.503-5), María VictoriaHurtado Vicuña (Tax ID 4.332.502-7), Juan José HurtadoVicuña (Tax ID 5.715.251-6), José Nicolás Hurtado Vicuña(Tax ID 4.773.781-8), and Pedro José Hurtado Vicuña (Tax ID6.375.828-0), who control, directly and indirectly, and in equalproportions, the companies through which Grupo Hurtado Vicuñaacts as member of the controlling group of Almendral S.A.Grupo Consorcioa) Consorcio Financiero S.A., whose ultimate controllers are:_P&S S.A., with a 47,7% share of capital stock. Additionally,P&S S.A. is controlled, in equal parts, directly and indirectly,with a share of 82% of capital stock, by José Ignacio HurtadoVicuña (Tax ID 4.556.173-9), María Mercedes Hurtado Vicuña(Tax ID 4.332.503-5), María Victoria Hurtado Vicuña (Tax ID4.332.502-7), Juan José Hurtado Vicuña (Tax ID 5.715.251-6),José Nicolás Hurtado Vicuña (Tax ID 4.773.781-8), and PedroJosé Hurtado Vicuña, Tax ID 6.375.828-0).Banvida S.A., with a 47,7% share of capital stock, controlledby Inversiones Teval S.A., with an 80.3% share of capital stock.b) Compañía de Seguros de Vida Consorcio Nacional de SegurosS.A., whose controlling group is the same as that of ConsorcioFinanciero S.A., through which it holds 99.826227% ofcapital stock of the former.Grupo Izquierdoa) Los Peumos S.A., whose ultimate controllers are SantiagoIzquierdo Menéndez (Tax ID 5.742.959-3), and Bárbara LarraínRiesco (Tax ID 6.448.657-8), with a 97.04% and 2.96% directand indirect share of capital stock, respectively.b) Inmobiliaria Santoña Ltda., whose ultimate controllers areVicente Izquierdo Menéndez (Tax ID 5.741.891-5) and María VirginiaTaboada Bittner (Tax ID 6.834.545-6), with a 93.02% and6.98% direct share of capital stock, respectively.111Report 2011
112Report 2011c) Inmobiliaria Escorial Ltda., whose ultimate controllers areFernando Izquierdo Menéndez (Tax ID 3.567.488-8) and Ida EsterEtchebarne Jaime (Tax ID 5.418.932-K), with a 59.7640%and 39.2460% share of capital stock, respectively.d) Inversiones El Manzano Ltda., whose ultimate controllersare Diego Izquierdo Menéndez (Tax ID 3.932.428-8) and MaríaIsabel Reyes (Tax ID 5.748.650-3), with a 99% and 1% share incapital stock, respectively.e) Andacollo de Inversiones Ltda., whose ultimate controllersare Gonzalo Izquierdo Menéndez (Tax ID 3.567.484-5) and LuzMaría Irarrázaval Videla (Tax ID 5.310.548-3), with a 99.99%and 0.01% direct share of capital stock, respectively.f) Santo Domingo de Inversiones S.A., whose ultimate controllersare Rosario Izquierdo Menéndez (Tax ID 5.548.438-4)and Santiago Izquierdo Menéndez (Tax ID 5.742.959-3), with a99.79% and 0.21% direct share of capital stock, respectively.g) Andrómeda Inversiones Ltda., whose ultimate controllersare Roberto Izquierdo Menéndez (Tax ID 3.932.425-3), with86.9720%, María Teresa Valdés Covarrubias (Tax ID 4.431.346-4), with 0.3920%, Roberto Izquierdo Valdés (Tax ID 9.099.538-3), with 2.1060%, Francisco Rodrigo Izquierdo Valdés (Tax ID9.099.540-5), with 2.1060%, Luis Eduardo Izquierdo Valdés (TaxID 9.099.537-5), with 2.1060%, José Manuel Izquierdo Valdés(Tax ID 9.968.191-8), with 2.1060%, María Teresa Izquierdo Valdés(Tax ID 9.099.215-5), with 2.1060%, María Josefina IzquierdoValdés (Tax ID 9.099.218-K), with 2.1060% of capital stock.h) Santa Rosario de Inversiones Ltda., whose ultimate controllersare Rosario Izquierdo Menéndez (Tax ID 5.548.438-4)and Santiago Izquierdo Menéndez (Tax ID 5.742.959-3), with a99.79% and 0.21% direct share of capital stock, respectively.i) Inversiones La Estancia Ltda., whose ultimate controller isMaría del Carmen Izquierdo Menéndez (Tax ID 5.548.409-0)with a 99.99% of capital stock.k) Inmobiliaria Estoril II S.A., controlled 100% by InmobiliariaEstoril I S.A. and ultimate controllers are the IzquierdoMenéndez family who hold the capital stock in equal proportions:Matías Izquierdo Menéndez (Tax ID 3.674.298-7),Vicente Izquierdo Menéndez (Tax ID 5.741.891-5), SantiagoIzquierdo Menéndez (Tax ID 5.742.959-3), Roberto IzquierdoMenéndez (Tax ID 3.932.425-3), Gonzalo Izquierdo Menéndez(Tax ID 3.567.484-5), Fernando Izquierdo Menéndez (Tax ID3.567.488-8), Diego Izquierdo Menéndez (Tax ID 3.932.428-8),Rosario Izquierdo Menéndez (Tax ID 5.548.438-4), Gracia IzquierdoMenéndez (Tax ID 5.742.317-K), Alejandra IzquierdoMenéndez (Tax ID 5.020.827-3) Carmen Izquierdo Menéndez(Tax ID 5.548.409-0).l) Comercial Marchigue S.A., whose ultimate controllers areFernando Izquierdo Menéndez (Tax ID 3.567.488-8) and Ida EsterEtchebarne Jaime (Tax ID 5.418.932-K), with a 76.1172%and 8.1950% share of capital stock, respectively.m) Los Boldos S.A., whose ultimate controllers are Rosario IzquierdoMenéndez (Tax ID 5.548.438-4) and Santiago IzquierdoMenéndez (Tax ID 5.742.959-3), with a 99.77% and 0.23% directand indirect share of capital stock, respectively.n) San Bonifacio S.A., whose ultimate controllers are RobertoIzquierdo Menéndez (Tax ID 3.932.425-3) with 86.9720%, MaríaTeresa Valdés Covarrubias (Tax ID 4.431.346-4) with 0.3920%,Roberto Izquierdo Valdés (Tax ID 9.099.538-3), with 2.1060%,Francisco Rodrigo Izquierdo Valdés (Tax ID 9.099.540-5), with2.1060%, Luis Eduardo Izquierdo Valdés (Tax ID 9.099.537-5),with 2.1060%, José Manuel Izquierdo Valdés (Tax ID 9.968.191-8), with 2.1060%, María Teresa Izquierdo Valdés (Tax ID9.099.215-5), with 2.1060%, María Josefina Izquierdo Valdés(Tax ID 9.099.218-K), with 2.1060% of capital stock.o) Inversiones El Manzano II Ltda., whose ultimate controllersare Diego Izquierdo Menéndez, Tax ID 3.932.428-8) and MaríaIsabel Reyes (Tax ID 5.748.650-3), with a 99% and 1% share incapital stock, respectively.j) Inversiones Los Ciervos Ltda., whose ultimate controller isDiego Izquierdo Menéndez (Tax ID 3.932.428-8), with 99%, andDoña María Isabel Reyes (Tax ID 5.748.650-3), with 1% of capitalstock.p) Andaluza de Inversiones II S.A., whose ultimate controller isMaría Alejandra Izquierdo Menéndez (Tax ID 5.020.827-3), with99.99% of capital stock.
]q) Inversiones La Estancia II S.A.,whose ultimate controller isMaría del Carmen Izquierdo Menéndez (Tax ID 5.548.409-0), with99.99% of capital stock.r) La Esperanza S.A., whose ultimate controller is Gracia InésIzquierdo Menéndez (Tax ID 5.742.317-K), with 99.99% of capitalstock.s) Inmobiliaria e Inversiones Santa Sofía Ltda., whose ultimatecontroller is Matías Izquierdo Menéndez (Tax ID 3.674.298-4),with 99.91% of capital stock.t) Asturiana de inversiones Ltda., whose ultimate controllersare Santiago Izquierdo Menéndez (Tax ID 5.742.959-3), andBárbara Larraín Riesco (Tax ID 6.448.657-8), with a 97.04% and2.96% direct and indirect share of capital stock, respectively.u) Cerro Colorado de Inversiones Ltda., whose ultimate controllersare Gonzalo Izquierdo Menéndez (Tax ID 3.567.484-1135) and María Irarrázaval Reyes (Tax ID 5.310.548-3), with a99.50% and 0.50% direct share of capital stock, respectively.Grupo Gianolia) Inversiones Green Ltda., whose ultimate controller is ElinaPatricia Gianoli Gainza (Tax ID 2.942.054-8), with 100% of capitalstock.b) Las Bardenas Chile S.A., whose ultimate controller is SergioPedro Gianoli Gainza (Tax ID Rep. of Uruguay 1.088.599-5)with 100% of company stock.Report 2011
cOmpanystrUcture_114Report 201199,99999,99050,000ENTEL PCSTELECOMUNICACIONES S.A.SOCIEDAD DETELECOMUNICACIONESINSTA BEEP LTDA.ENTELCOMERCIAL S.A.BUENAVENTURA S.A.0,0010,01099,0001,00010,0008,5800,0100,1000,015<strong>Entel</strong> chile s.a.99,990ENTELINVERSIONES S.A.ENTELCALL CENTER S.A.ENTELSERVICIOS TELEFÓNICOS S.A.MI CARRIERTELECOMUNICACIONES S.A.SATELTELECOMUNICACIONES S.A.ENTEL SERVICIOSEMPRESARIALES S.A.90,00091,42099,99099,90099,9850,01053,43399,997100,000ENTELINTERNACIONAL BVI CORP.100,000EUSA Wholesale inc.AMERICATELPERÚ S.A.SERVICIOS DE CALL CENTERDEL PERÚ S.A.46,5670,003OPERATING COMPANIES HOLDING PARENT COMPANY1,000ENTELTELEFONÍA LOCAL S.A.99,00099,9990,001TRANSAMCOMUNICACIÓN S.A.99,8860,114WILL S.A.COMPANIES In ChileCompaNIeS abroaDMOBILE BUSINESSWIrelINe buSINeSS aND otHerS
:)divideNdpOlicy_The dividend policy, approved by the Board of Directors andcommunicated at the Ordinary General Shareholders Meetingon April 26, 2011 is as follows:Dividend policyIn accordance with the regulations set out by the Chilean Securitiesand Insurance Supervisor, the board of directors mustapprove the company’s dividend policy for future years.For 2011 and subsequent years the board intends to keep astable dividend policy and proposes to distribute up to 80%of the profits earned during each financial year as a dividendand also, where applicable, to capitalize part of these profitsaccrued at the end of each period. It is proposed to pay the finaldividend on or before 31 May of each year. The intention is topay an interim dividend in the final quarter of 2011 with the valueof this payment to be based on the company’s performanceduring the first three quarters of this period.The policies for the determination of the liquid distributableprofit for the handling of adjustments for the initial applicationof IFRS for the 2009 financial year are maintained as follows:a.- As policy to determine the liquid distributable profit for thefinancial year, it was agreed to consider the net effect, takinginto account positive and negative variations from changes inthe fair value of assets and liabilities.In the event of a net positive effect (profit), this will be deductedfrom the financial profit in order to calculate the liquid distributableprofit.In the event of a negative effect (loss), this will not be addedto the distributable liquid profit. It is expressly stated that thispolicy relates to adjustments for the purpose of financial derivativecontracts, since at the date of writing, the companyhas no recorded assets or liabilities subject to adjustment tomarket values as per IFRS.115Report 2011In determining the percentage of profit and the dates on whichproposed final dividends will be paid, the company seeks toensure financial stability while adhering to the established distributionpolicy. In particular, specific attention has been paidto safeguards in terms of debt, liquidity, and finance budgeting,and possible covenants that may arise in public supplycontracts and credit agreements entered into by the company.b.- As policy for handling adjustments for the first-time adoptionof IFRS, losses incurred for the first-time adoption of IFRSwill be managed in an equity account. As such, it has been decidednot to absorb them by decreasing paid-in capital.However, a decision may be taken to absorb this balance byallocating it against profits for future financial years.At all times, the board’s intended dividend payments dependon the results and investment requirements as stated in theforecasts made regularly by the company.It is also noted that the policy was communicated to the ChileanSecurities and Insurance Supervisor in a timely manner and that
116Report 2011it has been acknowledged at the meeting in line with the provisionsof Circular 1945 of the Securities and Insurance Supervisor.This policy will regulate future financial years in the abovemanner.Dividend Payment ProcedureUpon written request from any shareholder, dividends will bedeposited in the shareholder’s current or savings account on thedate established for payment. To do so, the shareholder mustcommunicate the name of the bank, the branch or office, andthe number of their current or savings account at least 24 hoursbefore the close of the register. The shareholder will remainbound by this payment method unless written instructions tothe contrary are received.to below. Dividends that have not been collected within 60 daysof the due date, will remain available in the at the offices of theadministrator of the register of shareholders.Parties who wish to withdraw their dividends from a commercialbank or the from the company’s designated offices, must doso in person or by a legally authorized representative with therelevant powers, as stipulated in public law or a private contractlegalized by a public notary. For the latter, either the originaldocument or a duly certified photocopy should be left with thecompany.The payment of dividends will be communicated through anational newspaper as chosen at the general shareholdersmeeting.}In addition to this, and in line with shareholders’ wishes, theymust also communicate any requirement for the dividend to bepaid via check in their name and dispatched by recorded post atleast 24 hours before the close of the register.The company will provide shareholders with forms, availableupon request, to allow them to select one of the establishedpayment methods.For shareholders who have not selected one of theaforementioned payment methods, dividends will be paidat a bank in Chile’s Metropolitan Region, as selected by thecompany, or at the address indicated in the notification referred
invEstmentpOlicy_The objective of the business is to maximize return on equitythrough the analysis, construction, and operation of telecommunicationsand IT systems and the provision of related servicesboth in Chile and abroad. To ensure compliance with this objective,the company makes investments to meet the demandsof its customers and users as a way of maintaining efficiency,both technically and financially, and at levels conducive to supportingthe maintenance of its facilities and the development ofits operations to ensure they meet the needs of Chile’s telecommunicationssector. Consequently, the company will ensure itsinvestments have a stable rate of return over time and that thisis at least equal to the capital cost of their financing structure.In 2011, in line with the investment and finance budgets, annualinvestment in fixed assets for a value that does not exceed thedebt ratio permitted by the finance policy was authorized. Theinvestments correspond to company projects both within thecountry and abroad.In line with the rules approved at the general shareholdersmeeting, the board must provide details of specific investmentsto be made by the company in companies, works, and studies.Essentially, the values of these investments will depend on theprograms to be undertaken throughout the calendar year.The company will be authorized to make contributions to subsidiariesand associates within the of this policy.In order to maximize yields from cash surpluses, the companywill invest in financial assets and/or market securities, in linewith the portfolio selection and diversification criteria. Thesecriteria will take into consideration liquidity, security, and profitabilityfactors.*117Report 2011
)The consolidated income statements for the 2011 financial YearNominal Dividend (in CLP$)year show a profit of CLP $180,766,658,842.1997 55,671998 20,00For the purposes of determining the liquid distributable profitto be considered in the calculation of the minimum compulsory1999200010,0040,00119and supplementary dividend, the company has established2001 40,002002 43,38a policy of deducting profits originating from the adjustment2003 65,00of assets and liabilities to fair value while these have still not2004 90,00been undertaken.2005 895,002006 290,00In line with this policy, during the previous financial year,CLP $885,992,024 was deducted for unrealized profits; in2011, CLP $434,369,663 of these profits materialized, a valuethat must be reinstated to determine the profit to be distributedfor 2011. Consequently, the liquid distributable profit forthe 2011 financial year is CLP $181,201,028,505.20072008200920102011338,00443,00443,00450,00545,00Report 2011distribuTablepRofits_dividEnds peRshAre_An interim dividend of CLP $150 per share, equivalent to a totalof CLP $35.478.554.250 was allocated against these profits,payable on December 12, 2011. The dividend was agreed at themeeting of the company’s board of directors that took place onNovember 7, 2011 and represents 19.58 % of liquid distributableprofits for the financial year.Profits are not subject to any other deductions for distribution.
sumMary oftransactiOns_Summary share transactions of Empresa Nacional de Telecomunicaciones S.A. over the last three years:Santiago Stock Exchange Chilean Electronic Stock Exchange Stock ExchangeQuantity Traded Value Traded (CLP$) Average Price(CLP$)QuantityTradedValue Traded(CLP$)Average Price(CLP$)QuantityTradedValue Traded(CLP$)AveragePrice(CLP$)Quarter 1, 2009 14,502,454 99,061,631,096 6,791 692,358 4,685,454,476 6,756 15,298 106,429,737 6,957Quarter 2, 2009 20,155,709 146,927,393,588 7,288 1,731,992 12,660,407,486 7,233 65,177 476,923,975 7,317Quarter 3, 2009 14,275,269 103,834,085,297 7,279 691,801 5,054,328,090 7,272 30,098 220,508,780 7,326Quarter 4, 2009 19,176,490 135,660,828,421 7,069 7,193,299 51,817,772,057 7,104 27,684 197,375,119 7,130120Report 2011Quarter 1, 2010 22,608,351 167,919,256,265 7,500 2,177,001 16,343,504,979 7,503 44,473 331,190,839 7,447Quarter 2, 2010 15,357,515 110,810,176,951 7,211 1,935,426 14,227,081,279 7,262 31,763 229,475,540 7,225Quarter 3, 2010 16,870,066 131,896,627,021 7,819 2,138,772 16,649,199,323 7,784 90,600 718,469,812 7,930Quarter 4, 2010 14,362,661 115,509,854,377 8,051 906,176 7,262,801,043 8,069 44,706 366,111,817 8,189Quarter 1, 2011 15,957,457 126,648,587,797 7,937 1,028,126 8,149,829,990 7,927 26,166 205,368,620 7,849Quarter 2, 2011 26,293,805 232,657,810,841 8,848 2,501,652 22,374,195,749 8,944 38,985 337,663,018 8,661Quarter 3, 2011 23,082,175 221,781,884,732 9,608 1,992,263 18,966,299,783 9,520 15,672 146,602,858 9,354Quarter 4, 2011 19,554,883 190,830,226,753 9,759 2,413,875 23,484,695,759 9,729 4,202 41,229,141 9,812Totals 222,196,835 1,783,538,363,139 8,027 25,402,741 201,675,570,014 7,939 434,824 3,377,349,256 7,767Share TransactionsIn compliance with the directives set out in General Regulation269 of the Chilean Securities and Insurance Supervisor,it is expressly stated that in 2011, in line with our records, thefollowing share transactions were carried out by the relatedshareholders.Name/Trading As Type ofRelationshipTransaction Date Transaction Type Purchase/SalePlace No. of Shares Unit Price(CLP$)Value Traded(CLP$)Tomás Hurtado Cruzat With owning director 12/21/11 Financial investment Sale Stock Exchange 5,907 9,949.98 58,774,517Yelcho Inmobiliaria S.A. With owning director 12/12/11 Financial investment Sale Stock Exchange 436,755 9,700.10 4,236,567,176Yelcho Inmobiliaria S.A. With owning director 12/06/11 Financial investment Sale Stock Exchange 32,002 9,708.79 310,700,896
“finAncialactivitIes_The maturity of the first installment of the syndicated loan for Similarly, the financing requirements arising from the investmentin the new company headquarters in Parque Ti-USD $200,000,000 in June 2012, together with the associatedshort-term accounting requirement and impact on liquidity indicators,made it favorable for <strong>Entel</strong> to enter the debt markets CLP $10,094,608,084 for the year.tanium were covered from our own resources and totaledduring the financial year.In March, advanced payments were made for loans of the acquiredcompany, Transam, as well as for the costs of rescindingTo increase financing options and sources, the company signedtwo series of local bonds with the Chilean Securities and InsuranceSupervisor in August for a total value of UF 5 million, withassociated derivatives.three series in UF and CLP being registered for each. The three During the year, <strong>Entel</strong> continued its strategy of contracting derivativecontracts that cover its full net exposure to exchangecurrent registers have a joint limit of UF 5 million and an expirydate for the payment of capital of between 5 and 21 years. The rate fluctuations arising from debt liabilities in dollars and obligationsto pay suppliers in foreign currencies. This has been121bonds may be placed on the market within 36 months followingregistration. After evaluating the market and the various options,a decision was taken to postpone the placement of these swaps. The latter have also partly covered the risks associatedbalanced by structuring forwards, options, and cross currencysecurities and give priority to bank finance instead. In November, with fluctuations in the Libo interest rates upon which internationalcredit is based.a loan was structured on the international debt market and fullpayment of the facility was obtained in December from Tokio-Mitsubishi and Scotiabank. This is a three-year loan with a single With respect to exchange rate hedges provided by forward contracts,the Group has retained an average purchase portfolio ofamortization in 2014 and was used for the advanced payment ofthe full amortization installment of the current syndicated loan approximately USD $360 million with a range of terms based onof equal value, which has remaining amortizations of equal value the best rate prevailing at the close.in 2013 and 2014. The financial conditions of this new loan wereattractive when compared with similar placements during the Cash surplus balances continued to be invested in line with ayear, both in the local bond market and in bank loans provided by strict investment policy and risk classification for issuers.financial institutions in Chile. As a result of the above, the company’sdebt structure remained long-term at the end of the year.In short-term financial activities, occasional use was made ofoverdrafts and commercial bills to finance temporary cash deficits.In October, the final payment was made for the purchase ofTransam, bringing the total for the year to CLP $3,564,609,540, inaddition to the payment made in 2010.Report 2011
iSkfactoRs_122Report 2011The Risk of Technological ChangeChanges in telecommunications technology make it necessaryto continuously review investment plans to ensure that metour goal of responding to changes in connectivity requirementsadopted by markets. Changes in technology can arisefrom both modifications in demand patterns and the developmentof new forms of communication associated with applicationsand speeds. The periods of obsolescence for investmentsin new technology may be less than those estimated when theinvestment is made, meaning that the initial estimates of expectedprofitability may not be met.This makes the risk of technological change an inherent partof the industry in which <strong>Entel</strong> operates and the company’s positionat the cutting edge of technological development meansit is essential that it actively manages technological risk for itto maintain this position and remain competitive.Accordingly, <strong>Entel</strong> has an active and continuous policy of adoptingcutting-edge technology as a strategic part of its growthand development, although always subject to a continuous reviewof its profitability. This has allowed <strong>Entel</strong> to position itselfat the forefront of technology, adapting to the use of new technologiesand making the transition from offering a singleproduct to becoming an integrated connectivity provider andconstantly offering new ways of doing business. The appearanceand development of new technologies has enabled <strong>Entel</strong>to grow, integrate, and diversify, reducing its exposure to individualbusiness areas and segments.Regulatory RisksRegulation plays an important role in the telecommunicationsindustry. Stable regulations and criteria allow for the suitableevaluation of projects and the reduction of the risk inherentin investments, although this means it is important to closelymonitor regulatory changes. In this respect, 2011 saw the implementationof the various regulatory directives published atthe end of 2010.In January 2011, the <strong>Entel</strong> Phone tariff process to fix accesscharges and the costs of other facilities provided to other telecommunicationsconcession holders was completed and willrun for five years from this date. However, at the end of 2011,the decree was still being processed and will be applied retrospectivelyfrom January 2011 when it is finalized and published.The introduction of network neutrality into the General TelecommunicationsAct, the main function of which is to establishrequirements to provide users with better information, willaffect the market by making it possible to compare differentoperators and make better informed decisions as a result ofthe new information. In 2011, the initiative was complementedby a regulation requiring companies providing Internet accessto make certain information available on their websites andundertake quarterly measurements of technical indicators forservices providing access to the Internet. The regulation is alreadyin operation and its first impact will be felt during thecoming year, with the publication of the figures for the technicalindicators.
In the national long-distance business, the number of primarygeographical areas defined for national communications wasreduced from 24 to 13 in October 2011. It is estimated that thislegal modification will have no significant effects, however, theregulations stipulate that 37 months after the law has comeinto force (i.e. the second half of 2014), and subject to a favorablereport from the Tribunal for the Defense of Free Competition,the national long -distance category will be eliminated. Assuch, from this date, fixed local telephone services will operatein the same way as mobile telephone services, without a requirementto use a carrier for calls between different geographicalareas within the country.In addition to this, the company has continued to pay attentionto the telecommunications convergence process promoted bythe new government through initiatives seeking to increase thediversity of uses of the radio electric spectrum for telecommunicationsservices. This is in addition to communications fromthe industry regulator regarding new spectrum to be tenderedin the medium term. This is of fundamental importance for theexpansion of the company’s operations and in December 2011,the Ministry of Transport and Telecommunications publishedthe call to tender for spectrum on the 2,600 MHz band, used inthe majority of countries for the development of LTE technology(Long Term Evolution or 4G).In addition to this, in line with legal modifications made atthe end of 2010, in 2011, the first steps were taken in the implementationof number portability, taking effect throughoutthe country from January 16, 2012, and allowing subscribersfrom different fixed and mobile telephone companies toswitch supplier while keeping the same number. In the firstphase, changes are only possible between companies operatingwithin an equivalent network (e.g. from one mobile line toanother). This new competitive scenario was initially launchedin Arica’s primary fixed telephony zone in December 2011. Itwas then followed by mobile telephone services (national) onJanuary 16, 2012, and fixed telephone services for the MetropolitanRegion in March, after which point it will be progressivelyrolled-out to incorporate new primary zones. The intentionis that the gradual implementation of the system for thewireline network will be complete on a national scale duringthe second quarter of 2012.Similarly, during 2011, and following a number of years ofprocessing, the legislative debate in congress to regulate theinstallation of antennae for the emission and transmissionof telecommunications services was completed. In its legislativeprocess, the mixed commission approved a bill of lawwith favorable votes in both chambers at the start of Januaryfor subsequent enactment and publication in the official gazette,subject to procedures by the constitutional court for itsconstitutional organic regulations. This initiative regulates theinstallation of antennas in order to tackle the impact of developmentson the urban environment through stricter requirementsat a municipal level, as well as the regulation of otheraspects relating to the installation of antennas, such as colocation,and compensation for those living nearby in certainareas, something which may have an impact on the developmentof telecommunications networks and imply additionalinvestments.There is also currently an investigation under taken by the Tribunalfor the Defense of Free Competition to review telephoneservices tariffs for on-net calls, the provision of telecommunicationsservices in bundles products is also being analyzed.In this process, presentations are already being made by allstakeholders, and the tribunal is considering the informationin order to issue a resolution with respect to the material.All these regulatory changes being introduced by the authorityprovide new business opportunities. Additionally, the diversityand relative size of <strong>Entel</strong> cushion it from the effects of adverseor inadequate regulation, reducing the risk created for itsoperations, cash flows, wealth creation for shareholders, andcontribution to the community. However, within a regulatedindustry such as that in which <strong>Entel</strong> operates, changes in regulationsor in the policies of legal and regulatory authoritiescannot be ruled out and have the potential to impact negativelyupon the results of the company or restrict its possibility forgrowth.Exchange Rate Risks<strong>Entel</strong>’s financing is largely in foreign currency. Furthermore, aproportion of <strong>Entel</strong>’s suppliers permanently generate obligationsfor foreign currency payments. Both represent liabilitieswhose value changes on a daily basis as a result of exchangerate fluctuations. As a result of this, <strong>Entel</strong> takes out short- andlong-term contracts in foreign currency assets (hedge derivatives)to protect against such variations and thus eliminate riskfrom exchange rate fluctuations.123Report 2011
Interest Rate Risks124Report 2011The company’s policy partially covers risks from interest ratefluctuations and has contracted the corresponding financialinstruments to comply with it. The proportions of variable-ratedebt exposed to fluctuations in the estimated rate behave ina manner sufficiently similar to business assets and reflectsEBITDA generated during each financial year.As of December 31, 2011, the Group had credits in foreign currencyto the value of USD $600 million, accruing interest basedon the variable Libo rate and impacting on financial expensesin the income statements. In order to mitigate the effectsof these variations, the management takes out financial contractsfor rate derivatives (Cross Currency Swap), hence fixinga significant proportion of the interest paid.When there is a rise in the Libo base rate according to marketforecasts, the Group’s annual financing costs increase,although they are still within the limits established by themanagement and the financial safeguards guaranteed to itscreditors.Credit riskCredit risk derived from the balances of accounts held withbanks, financial instruments, negotiable stocks, and derivativesis managed by the Finance Division in line with investmentcapital policies. These policies ensure the diversification ofrisk by means of pre-established limits for the duration of theplacement, percentage by institution, and the risk of instrumentsin which cash surpluses are invested. The investmentinstruments approved for use are those issued by the CentralBank of Chile or banking subsidiaries with high risk ratings.Investments may be denominated in the national currency orthe main foreign currencies.Risk exposure associated with the recovery of accounts receivableoriginating from business operations is derived from theterms of payment that must be offered as a result of the natureof the telecommunications industry to direct customers,intermediaries, and other national and international operatorswith whom reciprocal connection agreements are held.Risk management for accounts receivable is designed to minimizeexposure, insofar as possible given market conditions.Risk management processes are differentiated according todebtors’ profiles in line with segmented portfolio controls:these include consumers, enterprises, corporations, telecommunicationscompanies, correspondence, distributors, largeretailers, and other channels for the distribution of goods andservices.For each segment, there are prospective and predictive modelsthat make it possible to devise policies depending onthe origin of the debt. These range from the prepaid servicesused for the highest risk customer/product combinations, allthe way to the establishment of credit limits, with and withoutcollateral guarantees, credit insurance, and other alternatives,evaluated on a case-by-case basis.Liquidity RiskIn terms of providing the required liquidity to meet financial obligationsin a timely manner, <strong>Entel</strong> pays future expiries in advance,seeking options on the market that can provide funds in a timelymanner. As such, during 2011, the amortization installment of thesyndicated loan due in June 2012 was paid in advance, thus avoidingthe potential risks of the debt market around the due date.#
perfOrmance comparEdwith sHare pricE_;)Evolution of EntEl’s RElativE shaRE PRicE v. iPsa MaRkEt indEx(%) for last 24 months15013212511496Report 20117860E-10 M-10 J-10 S-10 D-10 M-11 J-11 S-11 D-11ipsaentelsharEholdercomMents_During the last financial year, the company did not receive requestswith comments or proposals related to the course of itsbusiness to be included in this report.
consolidAted materiAlevEnts 2011_126Report 2011“In compliance with the current legal and regulatoryframework, during 2011 the Group Companies informed theChilean Securities and Insurance Supervisor of the followingmaterial events or relevant information:I. Parent CompanyShareholders MeetingBy Letter 3, dated April 4, 2011 communicated that at the boardmeeting held on April 4, 2011, agreement was reached to:II. Parent CompanyApproval of 2010 Report, Dividend Distribution, and OtherMattersBy Letter 4, dated April 26, 2011, communicated that at theOrdinary Shareholders Meeting held on the same date, agreementwas reached to:a.- Approve the Annual Report, Balance Sheet, and IncomeStatement for 2010._Schedule an Ordinary Shareholders Meeting for April 26, 2011and send out the notification and supporting papers in a timelymanner to shareholders and other bodies as required by legalregulations.b.- Pay a final dividend of CLP $545 per share, equivalent to74.52% of net profits for the year. The sum of CLP $100 waspaid in December 2010 as an interim dividend, leaving a dividendof CLP $445 per share, payable on May 24, 2011._Propose at the Ordinary Shareholders Meeting the payment of afinal dividend of CLP $545 per share from the profits made duringthe financial year, from which the sum of CLP $100 per shareshould be deducted for the interim dividend paid in December 2010,leaving a dividend of CLP $445 payable on a date to be agreed atthe Ordinary Shareholders Meeting.c.- Approve the investment and financing policy and communicatethe dividend policy.d.- Maintain the remuneration of directors and the directorscommittee, as approved at the previous Ordinary ShareholdersMeeting, and establish the committee’s annual budget inline with the minimum legal requirement. Approve the appointmentof KPMG as external auditors and retain the appointedand reserve accounts inspectors, alongside the riskrating agencies Feller Rate (S&P) and Fitch Ratings, and retainthe newspaper El Mercurio de Santiago for the publication ofcompany notices and related operations.
III. Parent CompanyManagement ChangesBy Letter 6, dated June 6, 2011, communicated that at the boardmeeting held on the same date, agreement was reached to:_Acknowledge and accept the resignation tendered by BernardoMatte Larraín as director of Empresa Nacional de TelecomunicacionesS.A._Appoint Andrés Echeverría Salas as replacement for the postof director of Empresa Nacional de Telecomunicaciones S.A.IV. Parent CompanyDistribution of DividendBy Letter 19, dated November 7, 2011, communicated that at theboard meeting held on the same date, agreement was reached to:Pay an interim dividend of CLP $150 per share, payable onDecember 12, 2011 and allocated against the profits for thethird quarter of this year.The total payment for this interim dividend was to beTh.CLP $35,478,554, representing 23.65% of profits as of thethird quarter 2011.V. Parent CompanyMerger by Absorption of GTDIn a letter dated November 28, 2011, it was communicatedthat the board of directors, in extraordinary session 942/2011held on the same date, acknowledged on behalf of the representativesof the controller, the Memorandum of Intent signedon that date between the controller of <strong>Entel</strong>, Inversiones AltelLimitada (Altel), subsidiary company of Almendral S.A. and Inmobiliariae Inversiones El Coigüe Limitada (Coigüe), affecting<strong>Entel</strong> as follows (Memorandum of Intent).1) Non-Binding Agreement for Merger by Absorption of GTDwith <strong>Entel</strong>The Memorandum of Intent reflects the willingness of Coigüe,in its capacity as controller of GTD Grupo Teleductos S.A. (GTD)and Altel to undertake the merger by absorption of GTD (mergedparty) and <strong>Entel</strong> (acquiring party), through the absorption of theformer (the Merger), however this does not constitute a legallybinding contract for either the parties or <strong>Entel</strong>.For the purposes of the merger, GTD will be dissolved and itssubsidiary companies, GTD Teleductos S.A., GTD Telesat S.A.,GTD Internet S.A., GTD Larga Distancia S.A. (reporting companywith registration number 33 in the Special Register of ReportingEntities), GTD Imagen S.A., and GTD Manquehue S.A. (all privatelimited companies), and Compañía Nacional de Teléfonos, Telefónicadel Sur S.A. and Compañía de Teléfonos de CoyhaiqueS.A. (both public limited companies, with registration numbers167 and 238, respectively, in the Trade Register of the ChileanSecurities and Insurance Supervisor, will become subsidiariesof <strong>Entel</strong> and controlled by it.GTD and its subsidiaries (GTD Group) had a turnover of approximatelyTh.CLP $150,000,000 for the 2010 financial year. Thebusiness areas in which they operate include the provision ofbusiness services such as Internet, data, and local telephony, inaddition to the residential provision of Internet and paid televisionfocusing on specific geographic regions, all this deliveredover a platform of fiber-optic and copper access networks.127Report 2011
128Report 20112) Shareholding of Coigüe in <strong>Entel</strong> Following the MergerAs a product of the Merger and subject to legally required expertreports and the agreements that must be passed by extraordinaryshareholder meetings for <strong>Entel</strong> and GTD in which the Mergerwill be approved, the direct and indirect shareholding of Coigüein <strong>Entel</strong> stock will be 9.8% (Coigüe Shareholding Following theMerger). The Coigüe Shareholding Following the Merger mayonly be altered: (i) as a result of a due diligence process by theGTD group and <strong>Entel</strong> and its subsidiaries (<strong>Entel</strong> Group), whosescope and limitations will be established in the final contracts;or (ii) by any dividend payment or reduction in capital agreedafter June 30, 2011, the date of the financial information used todetermine the Coigüe Shareholding Following the Merger.The board agreed that the due diligence process for <strong>Entel</strong>should be carried out after adopting all the safeguards foraccess to information and confidentiality established bycurrent legislation and the regulations of the Chilean Securitiesand Insurance Supervisor (SIS), authorizing the executivemanagement and <strong>Entel</strong> attorney to prepare the information andsign the contracts guaranteeing its provision.3) Conditions of the MergerThe Memorandum of Intent stipulates that the Merger mustmeet the following conditions, in addition to any that may bepresent in the final contracts:a) All the licenses and authorizations required to complete theMerger are obtained in a timely manner, including approvalfrom the boards of directors, shareholder meetings, creditors,inscriptions and registrations with SIS other and regulatorybodies, as well as any other requirements from laws,regulations, company statutes, and contracts signed by thecompanies being merged.b) The merger satisfies the consultations, authorizations, orapprovals of the bodies, which, in line with DL–211 of theDefense of Free Competition, must be declared for it, insofaras it is necessary to carry out or make such consultations orrequests.c) An agreement will be signed by shareholders that will notrepresent a joint action agreement with respect to <strong>Entel</strong> andwill govern matters covered by this type of shareholder agreement,mainly related to the assignability of shares and otheritems regarding relationships between Altel y Coigüe in theircapacity as parties to the agreement (Agreement), which containsthe following items relevant to <strong>Entel</strong>:_The right of Coigüe to choose one (1) director from the nine(9) directors of <strong>Entel</strong> with the support of Altel, provided it maintainsa minimum percentage of stock or meets a thresholdgranting it access to this right, this being established by mutualagreement in the Agreement._For a period of two years, and in order to facilitate the executionof the Merger, the provision will be made for Coigüeto have the right to select, subject to third-party ratificationand in line with the Agreement, two (2) directors of the seven
](7) that make up the board of directors of Telsur and Telcoy, Regarding the financial effects of the material event disclosed,subsidiaries of GTD.with respect to the assets, liabilities, or income of <strong>Entel</strong>, theboard of directors agrees that these will be reported upon_Other provisions that aim to facilitate the integration of the execution of the Merger, once the steps and activities in the<strong>Entel</strong> Group and the GTD Group, product of the Merger.Memorandum of Intent and the Merger Contract have beencompleted, permitting all the information required to determineit appropriately.4) Transitional Period129The Memorandum of Intent establishes that between its date VI. Parent Companyand the shareholder meetings to decide on the Merger, <strong>Entel</strong> Merger by Absorption of GTDand GTD must make their best efforts to ensure the GTD Groupand the <strong>Entel</strong> Group carry on business as usual and abstain By letter No. 26, dated December 23, 2011, communicatesfrom undertaking or participating in any activity beyond the that it has been acknowledged by the representatives of theremit of their businesses and the ordinary course of business. controller that on this date, Inversiones Altel Limitada (Altel),controller of <strong>Entel</strong>, and Inmobiliaria e Inversiones El Coigüe5) Merger ContractLimitada (Coigüe), have agreed to modify the Memorandumof Intent, signed between them on November 28, 2011, andAltel and Coigüe declare they will make their best efforts to executethe Merger as soon as possible and, for this purpose, in of Intent).reported as a material event on the same date (Memorandumthe Memorandum of Intent, they undertake to sign a definitiveand legally binding ratification (Merger Contract), by December23, 2011 at the latest, although this date may be postponed constitutes a material event for <strong>Entel</strong>, as detailed below:In light of its relevance, it is deemed the agreed modificationby mutual agreement between Altel and Coigüe.The board of directors agrees to begin to process the Memorandumof Intent insofar as it concerns <strong>Entel</strong>, especially regardingthe provision of and handling of information, reports,invitations to the board, and the next extraordinary shareholdersmeetings that must agree the Merger, and other steps andstages required, without affecting this material being definitiveand binding, for the effective signing of the announcedMerger Contract.1) The Memorandum of Intent reflects the willingness ofCoigüe in its capacity as controller of GTD Grupo TeleductosS.A. (GTD) and Altel, to undertake the merger by absorptionof GTD, which will be dissolved, with <strong>Entel</strong>, which will remain,(the Merger) however it does not constitute a legally bindingcontract.2) In the Memorandum of Intent, the parties are required tomake their best efforts to execute the Merger as soon aspossible, and to this effect, must sign a final and bindingReport 2011
130Report 2011agreement before December 23, 2011, although this deadlinemay be extended by mutual agreement.3) The modification agreed by Altel and Coigüe consists ofextending the deadline set out in the Memorandum of Intentfor signing the final and binding contract for the Merger toJanuary 13, 2012.With respect to the financial effects of the material event beingdisclosed on the assets, liabilities, or income for <strong>Entel</strong>, these“were discussed in the material event dated November 28, 2011.VII. Parent CompanyMerger by Absorption of GTDBy Letter 2, dated January 10, 2012, communicated that atthe board meeting held on January 9, 2012, agreement wasreached to:1°.- Acknowledge the communication by the CEO of AlmendralS.A., which, as a material event, will refer the company to theChilean Securities and Insurance Supervisor, reporting thatJuan Manuel Casanueva Préndez, representative and controllerof Inmobiliaria e Inversiones El Coigüe Limitada (Coigüe),which controls GTD Grupo Teleductos S.A. (GTD), retractsits commitment to comply with the Memorandum of Intentsigned between Inversiones Altel Limitada, subsidiary of AlmendralTelecomunicaciones S.A. and controller of <strong>Entel</strong> S.A.,and Coigüe, through a private instrument dated November 28,2011, reported as a material event on the same date, and itsextension, reported as a material event on December 23, 2011.Consequently Almendral Telecomunicaciones S.A. reports asa material event that the merger between <strong>Entel</strong> S.A. and GTDwill not go ahead as previously reported to the market, exclusivelydue to the unilateral retraction of Juan Manuel CasanuevaPréndez, representative and controller of GTD2°.- Classify the information received from Almendral S.A. asa material event, authorizing the CEO to communicate it in thismanner to the respective organizations without affecting therequirement to notify the National Economic Prosecutor andthe Tribunal for the Defense of Free Competition, aware of thepossible merger in uncontested proceedings.
insuranCecommitmeNts_<strong>Entel</strong> has insurance contracts for all its companies to coverpossible events that might affect its assets, equity, and cashflow by causes losses or reductions in value.The contracts for the various insurance policies are based ona previously defined policy which places special emphasison events whose occurrence could have a strong impacton the economic and financial position of the Group and itsrelationships to third parties; the latter as a result of damagescaused accidentally as a result of the activities of the variousbusinesses.In addition to this, the strategy for contracting insurancepolicies attempts to cover, insofar as possible, risks that wouldconduct to significant losses while excluding certain minorrisks with minimal financial impact in order to balance lowpremium costs with high risk coverage.131Report 2011
(* )132Report 2011The main policies, covered in the <strong>Entel</strong> insurance program are:a) Physical Risks to Assets and Losses Arising fromStoppages. This insures against all risks to all the assetsowned by Group companies and the loss of net incomeresulting from potential stoppages caused by sinister.b) Civil Liability. This covers group companies against potentialpecuniary demands for damage caused to third parties or theirassets while carrying out business activities whether at theirfacilities, in public areas, or in third-party premises.c) Directors and Officers Liability (D&O). This protectsdirectors and executives of Group companies from claimsthat may be made against them by third parties, aiming tocompensate for losses to their equity as a result of decisionstaken by others.d) International Transport. Protects against possible damagesto equipment and material imported by land, sea, and airtransportation.e) Credit. Protects against possible net losses or deteriorationsin <strong>Entel</strong>’s net equity as a result of third parties failing to complywith obligations contracted in funds originating from creditsales.f) Miscellaneous. Insurance for vehicles, mobile equipment,travel, personal accidents, health and life for company staff,shipping, etc.g) Insurance program for contractors (OCIP). Provides civilresponsibility and personal accident coverage for contractorsand subcontractors of Group companies to protect the equityof contractors and their workers.Insurance Settlement for Property and Damages Due toStoppage for the Earthquake on February 27, 2010.The earthquake that occurred on February 27, 2010, had asignificant effect on the policy for physical assets and lossesarising from stoppages. The event caused material damagesto more than one thousand of the company’s network siteslocated between the V and VIII regions in the country, inaddition to damage caused to equipment in storage and anumber of buildings. Together these damages representedlosses in the region of UF 1 million, which was covered by thepolicy in force at the time of the event with the RSA insurancegroup, coinsured by Chartis.The settlement for this event was the responsibility of theinsurance loss adjuster Juan Pablo Valdivieso y Asociados, whoprovided the definitive settlement for the event on December30, 2011, which totaled UF 818,102.
]deClaration ofreSponsibility_Report SignatoriesIn compliance with General Regulation 283 of the Chilean Securitiesand Insurance Supervisor, of February 5, 2010, this reportis signed by the absolute majority of the members of the company’sboard of directors and the CEO of Empresa Nacional deTelecomunicaciones S.A.Juan José Hurtado VicuñaChairmanID Nº 5.715.251-6Juan Claro GonzálezDirectorID Nº 5.663.828-8Luis Felipe Gazitúa AchondoVice ChairmanID Nº 6.069.087-1Raúl Alcaíno LihnDirectorID Nº 6.067.858-8Sworn Declaration of TruthThe undersigned, directors and CEO of Empresa Nacional deTelecomunicaciones S.A. declare under oath to be responsiblefor the truth of the information provided in this Annual Reportfor 2011.Juan Bilbao HormaecheDirectorID Nº 6.348.511-KAndrés Echeverría SalasDirectorID Nº 9.669.081-9133Report 2011Juan José Mac-Auliffe GranelloDirectorID Nº 5.543.624-KAlejandro Pérez RodríguezDirectorID Nº 5.169.389-2Alejandro Jadresic MarinovicDirectorID Nº 7.746.199-KAntonio Büchi BucCEOID Nº 9.989.661-2
ConsolidatedFinancialStatements
136Report 2011
IndependentAuditor ReportIndependent Auditor Report,Dear shareholders and directors of Empresa Nacional de Telecommunicaciones S.AWe have undertaken an audit of the consolidated balance sheets for Empresa Nacional de Telecomunicaciones S.A. and its subsidiarycompanies, dated December 31, 2011 and 2010, and the corresponding consolidated statements for comprehensive income,changes to equity and cash flows for the years ending on these dates. The preparation of the financial statements (including thecorresponding notes) is the responsibility of Empresa Nacional de Telecomunicaciones S.A. Our responsibility consists of expressingan opinion regarding the consolidated financial statements based on the audits we have undertaken.Our audits were carried out in accordance with generally accepted auditing standards in Chile. Those standards require that weplan and undertake our work so as to obtain reasonable assurance as to whether the consolidated financial statements are freefrom significant misrepresentations. An audit entails examining the evidence supporting the values and information disclosed inthe financial statements on the basis of tests. It also includes an evaluation of the accounting principles used and the significantestimates made by the management of the Company, as well as an assessment of the general presentation of the consolidatedfinancial statements. We believe that our audits are a reasonable basis upon which to form our opinion.137Report 2011In our opinion, the financial statements mentioned above present fairly and in all significant aspects, the financial position ofEmpresa Nacional de Telecomunicaciones S.A. and its subsidiaries as of December 31, 2011 and 2010, together with the incomefrom their operations and cash flows for the years ending on these dates, in accordance with the International Financial ReportingStandards (IFRS).Alejandro Espinosa G.Santiago, January 30, 2012.KPMG Ltda.KPMG Auditores Consultores LTDA., a Chilean limited liability company and an independant member firm of KPMG affiliates toKPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
ConsolidAted financiAlstAtements_EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESCONSOLIDATED BALANCE SHEETDecember 31, 2011 and 2010138ASSETSCURRENT ASSETSNumberNote12/31/2011Th.CLP$12/31/2010Th.CLP$Cash and cash equivalents 5 23,064,067 75,272,215Other current financial assets 6 5,407,220 870,798Report 2011Other current non-financial assets 7 16,754,397 13,145,025Commercial debtors and other accounts receivable 8 251,229,640 236,011,842Accounts receivable from related entities 9 722,752 469,192Inventory 10 63,091,800 36,799,196Current tax assets 14 5,465,298 17,108,315Total Current Assets 365,735,174 379,676,583NONCURRENT ASSETSOther noncurrent financial assets 6 5,800,553 6,057,517Other noncurrent non-financial assets 7 4,718,678 3,935,778Noncurrent rights receivable 8 5,324,234 2,807,389Intangible assets 11 31,118,433 32,665,098Goodwill 12 45,895,283 45,821,474Property, plant and equipment 13 1,056,555,054 978,457,143Deferred tax assets 14 42,866,597 39,853,167Total Noncurrent Assets 1,192,278,832 1,109,597,566Total Assets 1,558,014,006 1,489,274,149The attached notes, numbered 1–33, form an integral part of these Consolidated Financial Statements
EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESCONSOLIDATED BALANCE SHEETDecember 31, 2011 and 2010Liabilities and EquityCURRENT LIABILITIESNumberNote12/31/2011Th.CLP$12/31/2010Th.CLP$139Other current financial liabilities 15 18,584,041 14,570,686Commercial accounts payable and other accounts payable 16 326,224,772 319,275,469Other provisions 17 578,262 689,270Current tax liabilities 14 7,951,010 201,105Other current non-financial liabilities 18 40,923,365 41,634,759Report 2011Total Current Liabilities 394,261,450 376,371,289NONCURRENT LIABILITIESOther noncurrent financial liabilities 15 353,504,014 350,331,042Other long-term provisions 17 5,123,356 4,001,616Deferred tax liabilities 14 11,708,289 21,345,618Noncurrent provisions for employee benefits 19 7,718,074 8,257,812Other noncurrent non-financial liabilities 18 12,621,732 7,592,249Total Noncurrent Liabilities 390,675,465 391,528,337EQUITY 20Issued capital 522,667,566 522,667,566Cumulative earnings (losses) 310,971,878 261,715,066Other reserves (60,562,353) (63,008,109)Equity attributable to owners of the controller 773,077,091 721,374,523Non-controlling stock - -Total Equity 773,077,091 721,374,523Total Liabilities and Equity 1,558,014,006 1,489,274,149The attached notes, numbered 1–33, form an integral part of these Consolidated Financial Statements.
EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESCONSOLIDATED INCOME STATEMENTFor the years ending December 31, 2011 and 2010Income statement CumulativeNumberNote01/01/201112/31/2011Th.CLP$01/01/201012/31/2010Th.CLP$Revenue from ordinary 22 1,230,798,252 1,083,595,141Other revenue 22 11,572,942 4,303,159Expenditure for employee benefits 19 (125,278,220) (112,119,823)140Cost of depreciation and amortization (269,798,674) (233,199,472)Impairment losses (reversals), net (38,803,907) (29,542,543)Other expenditure 22 (568,806,105) (503,413,628)Report 2011Other profit (loss) (1,456,948) (1,493,117)Financial revenue 22 3,059,293 1,381,288Financial expenditure 22 (10,315,663) (9,900,811)Foreign exchange gains (losses) 24 (6,349,377) 1,296,277Income from currency indexes 24 (5,295,078) (3,337,075)Earnings (losses) before tax 219,326,515 197,569,396Revenue (expenditure) for income tax 14 (38,559,856) (24,598,187)Earnings (losses) from continued activities after tax 180,766,659 172,971,209Earnings (Loss) from discontinued operations after tax - -Earnings (losses) 180,766,659 172,971,209Earnings (losses) attributable to shareholders with stock in controlling stockholderequity and minorityEarnings (losses) attributable to holders of stock instruments in controlling shareholderequity180,766,659 172,971,209Earnings (losses) attributable to minority shareholders - -Earnings (losses) 180,766,659 172,971,209Earnings per shareEarnings per basic shareEarnings (losses) per basic share for continued operations 764,26 731,31Earnings (losses) per basic share for discontinued operations - -Basic earnings (losses) per share 764,26 731,31The attached notes, numbered 1–33, form an integral part of these Consolidated Financial Statements
EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESCONSOLIDATED INCOME STATEMENT (Continued)For the years ending December 31, 2011 and 2010Income statement CumulativeNumberNote01/01/201112/31/2011Th.CLP$01/01/201012/31/2010Th.CLP$CONSOLIDATED income statementEarnings (losses) 180,766,659 172,971,209Components of other consolidated income, before taxForeign currency translationEarnings (losses) for foreign currency translation 1,618,714 (479,497)Cash flow hedgingEarnings (losses) for cash flow hedging 1,002,475 4,096,169Other components of other consolidated income, before tax 2,621,189 3,616,672Income tax related to components of other CONSOLIDATED incomeIncome tax related to cash flow hedging of other consolidated income (175,433) (686,279)Other consolidated income 2,445,756 2,930,393Total consolidated income 183,212,415 175,901,602CONSOLIDATED income attributable toControlling owners 183,212,415 175,901,602Non-controlling stock - -Total consolidated income 183,212,415 175,901,602141Report 2011The attached notes, numbered 1–33, form an integral part of these Consolidated Financial Statements.
EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESSTATEMENT OF CHANGE IN STOCKHOLDER EQUITYDecember 31, 2011 and 2010Other ReservesInitial balance for current period01/01/2011CoNSOLIDATED incomeIssued capitalReserves for foreignexchangecurrencyReserves forcash flowhedgingOther reservesEarnings(cumulativelosses)Equity attributableto controllingownersNon-controllingstockTotal equityTh.CLP$ Th.CLP$ Th.CLP$ Th.CLP$ Th.CLP$ Th.CLP$ Th.CLP$ Th.CLP$522,667,566 (581,746) (1,661,482) (60,764,881) 261,715,066 721,374,523 - 721,374,523Earnings (losses) - - - - 180,766,659 180,766,659 - 180,766,659Other consolidated income - 1,618,714 827,042 - - 2,445,756 - 2,445,756142Consolidated income - - - - - 18,212,415 - 183,212,415Dividends - - - - (131,509,847) (131,509,847) - (131,509,847)Increase (reduction) for transfersand other changes- - - - - - - -Report 2011Total changes in equity - 1,618,714 827,042 - 49,256,812 51,702,568 - 51,702,568Final balance for current period12/31/2011522,667,566 1,036,968 (834,440) (60,764,881) 310,971,878 773,077,091 - 773,077,091Initial balance for previousperiod 01/01/2010522,667,566 (102,249) (5,071,372) (60,764,881) 204,122,838 660,851,902 - 660,851,902CoNSOLIDATED incomeEarnings (losses) - - - - 172,971,209 172,971,209 - 172,971,209Other consolidated income - (479,497) 3,409,890 - - 2,930,393 - 2,930,393Consolidated income - - - - - 175,901,602 - 175,901,602Dividends - - - - (115,378,981) (115,378,981) - (115,378,981)Increase (reduction) for transfersand other changes- - - - - - - -Total changes in equity - (479,497) 3,409,890 - 57,592,228 60,522,621 - 60,522,621Final balance for previous period12/31/2010522,667,566 (581,746) (1,661,482) (60,764,881) 261,715,066 721,374,523 - 721,374,523The attached notes, numbered 1–33, form an integral part of these Consolidated Financial Statements
EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESCONSOLIDATED CASH FLOW STATEMENTFor the years ending December 31, 2011 and 2010DIRECT CASH FLOW STATEMENTNumberNote01/01/201112/31/2011Th.CLP$01/01/201012/31/2010Th.CLP$Amount charged to customers 1,418,482,609 1,244,486,693Payments to suppliers (694,217,932) (546,939,360)Payments to and on behalf of employees (131,338,793) (105,102,929)Other payments for operating activities (53,373,227) (61,226,536)Amounts received for interest classified as operating 1,263,873 1,409,859Tax on earnings reimbursed (paid) (30,701,356) (41,438,730)Net cash flows used in operating activities 510,115,174 491,188,997Cash flows used to obtain control of subsidiaries (3,565,222) (8,078,310)143Amounts received from the sale of property, plant and equipment 1,819,380 636,328Purchases of property, plant and equipment (407,532,346) (321,172,106)Purchases of intangible assets (3,820,678) (5,128,947)Dividends received 1,217 981Interest received 3,059,293 970,282Government subsidies 5,193,680 15,220,600Other cash entries (outgoings) - 39,785Net cash flows used in investment activities (404,844,676) (317,511,387)Report 2011Amounts proceeding from long-term loans 102,536,000 -Amounts proceeding from short-term loans 448,197 19,953,797Loan payments (106,277,554) (40,286,051)Payments of liabilities for financial leases (1,403,422) (2,974,161)Dividends paid (140,527,007) (106,391,186)Interest paid (9,211,469) (9,018,815)Other cash entries (outgoings) (4,210,322) (23,074,929)Net cash flows used in financing activities (158,645,577) (161,791,345)Net increase (decrease) in cash and cash equivalents (53,375,079) 11,886,265Effects of foreign currency variations on cash and cash equivalents 1,166,931 22,808Cash and cash equivalents at start of period 75,272,215 63,363,142Cash and cash equivalents at end of period 23,064,067 75,272,215The attached notes, numbered 1–33, form an integral part of these Consolidated Financial Statements.
notes to the consolidatedfinancial statements_EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIES1. COMPANY INFORMATIONa) <strong>Entel</strong> GroupEmpresa Nacional de Telecomunicaciones S.A. (<strong>Entel</strong>–Chile S.A.), is constituted and domiciled in the Republic of Chile, with Tax ID 92.580.000-7. Its head office isAvenida Andrés Bello 2687, piso 14, Las Condes, Santiago, Chile.144This is the parent company of the companies of the <strong>Entel</strong> Group included in these consolidated financial statements.It is a public limited company, subject to regulation by the Chilean Securities and Insurance Supervisor, with which it is registered under number 0162. Its sharesare listed in the Register of Securities and traded on the national stock market.Report 2011The controlling shareholder of <strong>Entel</strong>–Chile S.A. is Altel Ltda. (Tax ID 76.242.520-3), which owns 54.76% of currently issued stock. Altel Ltda. is 99.99% controlled byAlmendral Telecomunicaciones S.A. (Tax ID 99.586.130-5) and 0.01% by Almendral S.A. (Tax ID 94.270.000-8).The subsidiary companies included in the consolidated financial statements are domiciled both in Chile and abroad, and details are provided in note 3a.Subsidiaries based in Chile are represented by private limited companies that are not subject to regulation by the Chilean Securities and Insurance Supervisor; assuch, their shares are not traded or registered with the Registry of Securities.However, as holders of public telecommunications concessions and in line with legal requirements, the subsidiaries <strong>Entel</strong> PCS Telecomunicaciones S.A., MicarrierTelecomunicaciones S.A., and Transam Telecomunicaciones S.A. are registered in the Chilean Securities and Insurance Supervisor Special Register, with registrationnumbers 33, 247 and 232, respectively. Companies registered in this special register are subject to the same regulations as public limited companies in termsof market information and circulation, except for the requirement to provide intermediate financial statements on a quarterly basis.The Group’s workforce totaled 7,009 as of December 31, 2011 and averaged 6,792 throughout 2011.b) Business ActivitiesThe activities undertaken by the companies that make up the Group involve mobile telecommunication services, including voice, value added services, data, broadband,and mobile Internet. The companies also provide wireline services for the provision of integrated solutions of data network services, local telephone services,Internet access, long distance public telephone services, IT services (data center, business process outsourcing, and business continuity), network leasing, andwholesale traffic. The Group also provides call center services both for the enterprise market and its subsidiary companies.These activities are primarily undertaken in Chile. Activities outside of Chile are carried out by two companies operating in Peru that provide wireline services andcall center services.
2. BASIS FOR THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTSa) Declaration of ComplianceThe consolidated financial statements, dated December 31, 2011, have been prepared in line with the International Financial Reporting Standards (IFRS) publishedby the International Accounting Standards Board (IASB).On the date on which these consolidated financial statements were published, the IASB had issued the following directives, each with mandatory adoption startingfrom the annual periods indicated for each case:Standards and amendmentsApplication required by:NEW IFRSIFRS 9 – Financial Instruments Annual periods starting February 1, 2015IFRS 10 – Consolidated Financial Statements Annual periods starting January 1, 2013IFRS 11 – Joint Arrangements Annual periods starting January 1, 2013IFRS 12 – Disclosure of Interests in Other Entities Annual periods starting January 1, 2013IFRS 13 – Fair Value Measurement Annual periods starting January 1, 2013145AMENDMENTS TO IFRSIAS 1 – Presentation of Financial StatementsPresentation of Other Components of Comprehensive Income Annual periods starting July 1, 2012IAS 12 – Income TaxesDeferred Tax: Recovery of Underlying Assets Annual periods starting July 1, 2012Report 2011IAS 19 – Employee BenefitsElimination of Corridor Approach for Defined Benefits Annual periods starting January 1, 2013IAS 32 – Financial Instruments PresentationOffsetting Financial Assets and Financial Liabilities Annual periods starting January 1, 2014IRFS 1 – First-time adoption of IFRS(i) Removal of Fixed Dates for First-time Adopters(ii) Severe Hyperinflation Annual periods starting January 1, 2011Amendment to IFRS 7Financial instruments: Information to DiscloseDisclosures of Transfers of Financial Assets Annual periods starting January 1, 2011At the time of writing, no decision has been made to bring forward the adoption of any of these regulatory changes. Furthermore, it is estimated they will not havea significant impact on the Group’s consolidated financial statements for the initial period in which their application becomes compulsory.The consolidated financial statements for <strong>Entel</strong> Chile S.A. for the year ending December 31, 2011, were approved and authorized for publication at the board meetingheld on January 30, 2012.
) Measurement BasesThe consolidated financial statements have been prepared based on historical cost, except for the following essential items in the balance sheet:_Derivative financial instruments measured at fair value_Interest accruing loans measured using amortized cost_Staff obligations for specific post-employment benefits measured at present value and taking into account actuarial variables.c) Working and Reporting CurrencyFigures in these financial statements and accompanying notes are expressed in thousands of Chilean Pesos (Th.CLP), the Group’s working currency.d) Use of Estimates and Accounting JudgmentsEstimates determined based on the best information available at the close of each financial year have been used in the preparation of the consolidated financialstatements. The estimates affect the valuation of certain assets, liabilities, incomes, and cash flows, and hence there may be significantly affected when new eventsresult in variations to any assumptions made and other sources of uncertainty assumed on the date.146The main estimates are:_Actuarial assumptions considered when calculating employee separation obligationsReport 2011_The valuation of assets and goodwill originating from the acquisition of companies that can affect the determination of losses due to impairment in their value._The useful life of property, plant and equipment, and intangible assets._Assumptions made when determining the fair value of financial instruments._Assumptions regarding the generation of future taxable revenue, whose tax would be deductible from assets as deferred tax._In establishing the cost of decommissioning installations.e) Changes to Accounting PoliciesAccounting principles have been consistently applied throughout the course of the financial years covered by these consolidated financial statements.
3. SUMMARY OF ACCOUNTING POLICIESa) Consolidation BasesThe financial statements of subsidiaries are included in the consolidated financial statements from the date control starts until the date it ends.Control exists when <strong>Entel</strong> S.A., has a direct or indirect majority of voting rights or has the power to determine (also through agreements) the financial and operatingpolicies of a company to derive profit from its activities.In the preparation of these consolidated financial statements, the assets, liabilities, revenues, and costs for the consolidated companies are consolidated line forline. All direct and indirect subsidiaries of <strong>Entel</strong> S.A. are 100% controlled and as such there are no non-controlling shares in the consolidated financial statementsof the <strong>Entel</strong> Group.For consolidation purposes, significant transactions and balances between consolidated companies have been removed in addition to any balances owed.The book value of the investment in each subsidiary is offset against its equity, after adjustment to its fair value on the date control was acquired (where applicable).Goodwill from intangible assets is recorded on this date, as described further on, while any earnings from the purchase of a business or negative goodwill arerecorded in the comprehensive income statement.The assets and liabilities of consolidated foreign subsidiaries expressed in currencies other than Chilean Pesos are converted using the exchange rate on the date ofthe statement; revenue and costs are converted at the average exchange rate for the period covered by the financial statements. Exchange rate variations resultingfrom this method are classified under equity until disposal of the investment.147The extension provided by IFRS 1 (First-time adoption) for annulling exchange rate differences accumulated at the date of transition to IFRS was not adopted.The subsidiary companies included in the consolidated financial statements are domiciled in Chile and abroad:Report 2011
a) Summary of accounting policies (continued)Tax ID Company name Country of origin WorkingCurrencyPercentage of stock12/31/2011 12/31/2010Direct Indirect Total Total96.806.980-2 ENTEL PCS TELECOMUNICACIONES S.A. CHILE CLP 99.999 0.001 100.000 100.00076.479.460-5 ENTEL COMERCIAL S.A. CHILE CLP - 100.000 100.000 100.00096.561.790-6 ENTEL INVERSIONES S.A. CHILE CLP 99.990 0.010 100.000 100.00096.554.040-7 ENTEL SERVICIOS TELEFONICOS S.A. CHILE CLP 91.420 8.580 100.000 100.00096.563.570-K ENTEL CALL CENTER S.A. CHILE CLP 90.000 10.000 100.000 100.00096.697.410-9 ENTEL TELEFONIA LOCAL S.A. CHILE CLP 99.000 1.000 100.000 100.00096.548.490-6 MICARRIER TELECOMUNICACIONES S.A. CHILE CLP 99.990 0.010 100.000 100.00096.553.830-5 SATEL TELECOMUNICACIONES S.A. CHILE CLP 99.900 0.100 100.000 100.00096.672.640-7 ENTEL SERVICIOS EMPRESARIALES S.A. CHILE CLP 99.985 0.015 100.000 100.00079.637.040-8 SOC.DE TELECOMUNICACIONES INSTABEEP LTDA CHILE CLP 99.990 0.010 100.000 100.00096.682.830-7 CIENTEC COMPUTACION S.A. CHILE CLP - - - 100.00096.652.650-5 TRANSAM COMUNICACIÓN S.A. CHILE CLP - 100.000 100.000 100.00014896.833.480-8 WILL S.A. CHILE CLP - 100.000 100.000 100.0000-E AMERICATEL PERU S.A. PERU PEN 46.570 53.430 100.000 100.0000-E SERVICIOS DE CALL CENTER DEL PERÚ S.A. PERU PEN 0.004 99.996 100.000 100.000Report 20110-E EUSA WHOLESALE INC. USA CLP - 100.000 100.000 100.0000-E ENTEL INTERNACIONAL B.V.I. CORP. BRITISH VIRGIN ISLANDS CLP 100.000 - 100.000 100.000The subsidiary Cientec Computación S.A. was taken over by <strong>Entel</strong> S.A. on August 1, 2011 by means of a merger by absorption that included the totality of all assets,liabilities, rights, and obligations, and as such did not cause changes in equity at Group level. Similarly, the merger has not had any impact on consolidated incomeand cash flow.b) Transactions and Balances in Foreign CurrenciesTransactions made by <strong>Entel</strong> S.A. and its subsidiaries in a different currency than their working currency are treated as foreign currency transactions and recordedusing the exchange rate on the date of the transaction.The balances of monetary assets and liabilities denominated in foreign currencies are presented using the values of the exchange rates at the end of each financialyear. The variation calculated between the original value and the value at the end of the period is allocated to income under Foreign Currency Translation.Assets and liabilities that should be expressed at fair value (essentially those arising from derivative financial contracts) are exempt from the above. The differencesbetween the exchange rate at the end of the period and the fair value of these contracts are also allocated against income under Foreign Currency Translation, exceptfor cash flow hedge contracts whose differences are allocated against equity.
) Transactions and Balances in Foreign Currencies, ContinuedAssets and liabilities in foreign currencies or expressed in currency indexes have been converted using the following rates:Exchange RatesRate at close of period12/31/2011CLP$12/31/2010CLP$US Dollar USD 519.20 468.01Euro EUR 672.97 621.53Nat. Curr. Idx UF 22,294.03 21,455.55Peruvian Sol PEN 193.27 166.79c) Financial InstrumentsFinancial Assets149For valuation purposes, the group classifies its financial assets under the following categories: financial assets at fair value with changes in income; accounts receivable;and loans. The classification depends on the purpose for which the financial assets are obtained.The assets are dropped upon their expiry or upon expiry of contractual rights to their cash flows.Report 2011_Financial Assets at Fair Value with Changes in IncomeFinancial assets at fair value with changes in income are financial assets held for trading. The Group companies use this category for derivative instruments thatdo not comply with the requirements for the application of hedge accounting. Contracts classified as assets at the end of the period are presented on the balancesheet under Other Financial Assets, whereas liabilities are presented under Other Financial Liabilities._Accounts Receivable and LoansThese correspond to financial assets with fixed determinable payments that do not have a price on the active market. These assets are initially recorded at fairvalue plus directly attributable transaction costs. After being recorded in this way, they are valued at their amortized cost using the effective interest rate method,subtracting losses from impairment.Commercial accounts receivable are registered using invoice values and making the corresponding adjustment where there is evidence that payment from theclient is at risk (impairment).Short-term commercial accounts are recorded at current value without discounting to present value. The company has determined that the amortized cost calculationdoes not differ from the invoice value since the transaction does not have significant associated costs._Cash and Cash EquivalentsCovers highly liquid and extremely short-term holdings or investments where the risks of a change in value are not deemed significant. In addition to cash balancesand those held in current accounts it also includes the following: short-term deposits in the financial market; placements for fixed income mutual funds paid in
installments; and operations with buyback and resale options with an original expiry of three months or less. These assets are recorded at their nominal value oramortized cost, depending on their nature, and recording changes in their values under income. Their valuation includes interest and accrued adjustments at theend of the financial year.Financial LiabilitiesIn the first instance, the Group records issued debt securities on the date they originate. All other financial liabilities (including liabilities at fair value with changesin income) are initially recorded on the date contracted, this being the date on which the Group becomes related by the instrument’s contractual provisions.The Group classifies non-derivative financial liabilities under Other Financial Liabilities. These assets are initially recorded at fair value plus any directly attributabletransaction costs. After this initial recording, financial liabilities are valued at their amortized cost using the effective interest method.Other financial liabilities include loans and obligations, the use of overdraft facilities, and commercial accounts payable and others.Financial liabilities covered by derivative instruments designated for managing exposure to variations in cash flows (cash flow hedges), are measured at theiramortized cost in line with IAS 39.Derivatives financial instruments150Report 2011The <strong>Entel</strong> Group contracts derivative financial instruments to cover its exposure to foreign currencies and interest rates.In the event that implicit derivative contracts coexist in certain contracts, these are separated from the principal contract and accounted for separately. This procedureis applied if the financial conditions and risks of the principal contract and the implied derivative are not closely related, if an independent instrument withsimilar conditions as the implied derivative would meet the definition of a derivative, and if the combined instrument is not measured at fair value with changes inincome.In line with IAS 39, financial derivative instruments only qualify for hedge accounting if:at the start of the hedge, the hedge relationship is formally designated and documented*it is expected the hedge will be highly effective***its effectiveness can be reliably measuredthe hedge is highly effective for all periods in which the financial statements are reported for which it is designatedAll derivatives are measured at fair value in line with IAS 39. When a derivative financial instrument qualifies for hedge accounting, the following accountingprocedures apply:*Cash Flow Hedge – When a derivative financial instrument is classified as a hedge against exposure to the variability of cash flows for an assetor liability, or a highly probable planned transaction, the effective proportion of any profit or loss from the derivative financial instrument is directlyrecorded under the equity reserve (Cash Flow Hedge Reserve). The cumulative income is removed from equity and recorded under income when thehedged transaction affects incomes. The earnings or losses associated with the ineffective part of the hedge are immediately recognized under income.Where hedge operations are no longer probable, the cumulative earnings or losses from the equity reserve are immediately recorded under income.
j) GoodwillIn the case of the complete or partial acquisition of company rights, the acquisition method is applied, establishing the fair value of the assets and liabilities identifiedfor the acquired company, registering any increases values for the acquisition as goodwill. This value is subject to testing for impairment in value at the closeof each financial year to record possible losses of this nature.k) Income Tax and Deferred TaxesThe cost of income tax is determined based on the financial statements.Temporary tax differences between the financial and tax bases are recorded as noncurrent assets or liabilities as applicable. Independent of the estimated recoveryperiod, these values are recorded at current value without being discounted to present value.Deferred tax assets and liabilities are recorded in line with the tax rates effective during the periods that they are expected to be realized or settled.l) Employee Benefits_Defined Benefits Plan (Post-Employment Benefits)This covers compensation for years of service payable to employees with a permanent contract with <strong>Entel</strong>–Chile S.A. and who are members of the mutual corporationwith eight years of continuous membership.153These obligations are accounted for at present value, discounting long-term interest rates and using actuarial forecasts of staff turnover, life expectancy, and salaryprojections for prospective beneficiaries.To determine the net value of the liability recorded, the fair value of the cumulative salaries of employees is calculated in line with payments that must be made tocertain funds according to current agreements.Report 2011Changes in the obligation due to accruals associated with increases in the number of attributable periods, new or leaving employees, and earnings or losses due toactuarial effects are allocated against remuneration costs, whereas those for the accrual of implied interest are allocated against financial income._Severance BenefitsSeverance pay, in contrast to post-employment benefits, is recognized as a cost when the Group has a clear commitment, without the possibility to withdraw theoffer, to a formal and detailed plan upon termination of employment before the normal date of retirement or to pay compensation for termination as part of an offerto encourage voluntary retirements. Where benefits are due more than 12 months after the date of reporting, they are adjusted to present value._Short-Term BenefitsThe values of obligations for short-term employee benefits are not discounted and are recorded as costs when the corresponding services are provided. A liability isrecorded for the value expected to be paid in short-term cash bonuses or share plans for benefits where the Group has a current legal or implied obligation to payout the sum as a result of past services provided by the employee and the obligation can be reliably estimated.The cost of employees vacations are accounted for in the financial year in which the right is accrued, independent of the year in which it is exercised.
m) RevenueRevenue is recorded based on the criteria of accrual, that is to say, upon the right to receive values or the obligation to make a payment. As such, the date of thedelivery or receipt of goods or services is considered, regardless of when the corresponding cash flow will be received (in advance, simultaneously, or within a giventerm).With respect to revenue, the following specific policies are observed for the cases set out:_Aggregate supplies The components of supplies are bundled as part of commercial packages that determine the properties of each package.Based on this information, revenue for the bundle is distributed to each component, applying the corresponding individual revenue recognition regulations.Bundled sales that cannot be broken down are treated as a single transaction.In the event that only one or some of the elements can be confidently assigned a value, the residual value is attributed to the remaining elements.The value assigned to a given component is limited to the price of the transaction for its sale not subject to the delivery of other items._Equipment sales In line with the general regulations, revenue is recorded when the equipment is passed to the customer.Where the sale includes a complementary activity (installation, configuration, set-up, etc.) the sale is recorded upon satisfactory receipt by the customer.154Revenue received for equipment directly received and which, technically or contractually, can be used only for services provided by the company, is deferred andrecorded when the contract is expected to come to an end.Report 2011For equipment provided without transfer of ownership (free loan, loan, lease etc.), no sales revenue is recorded. Equipment meeting this condition remains includedas inventory assets in use and is subject to the corresponding depreciation._Access charges revenue Revenue from access charges is deferred and recorded as revenue throughout the period for which the contract is valid, or theexpected customer retention period, whichever of the two is smaller.The customer retention period is estimated based on historical experience, churn, or an understanding of market behavior.Connections where the direct cost of carrying out work is greater than or equal to the charge made to the customer are exempt from the previous procedure. Insuch cases, revenues received for connection charges are recorded when the customer is connected in order to maintain symmetry between revenue and costs.Connection costs take into account the following: installation work and the management of orders placed with third parties, commissions made to distributors, andthe cost of SIM cards.Connections that represent an independent transaction that cannot be rescinded and is not subject to the obligatory provision of other assets and services areexcluded from the general procedure._Customer Loyalty Programs The award of future benefits, with respect to service usage levels or current and past purchases. Any revenue receivedshould be distributed based on the fair value of the services already provided and those to be provided in the future; revenue assigned to the latter should be handledas projected revenue for future sales. In addition to this, provision is made for marginal costs associated with the goods and services to be provided fully orpartially free of charge.Isolated campaigns for the introduction of new products or the relaunch of existing ones are excluded when their duration is less than three months and they do notrepresent more than 1% of total sales in the last 12 months.
Such programs include: calling credit, product discounts, benefits for meeting targets, and the accumulation of redeemable points for goods or services providedboth by the company and third parties.In cases where expiry or cancellation clauses come into effect, the respective unused balances are transferred to revenue.These procedures are only applied when it is possible to make reliable estimates of benefits obtained by customers._Sales discounts Revenues are recorded net of any discounts provided to customers._Third Party Sales Where the company acts as a representative, agent, or dealer for the sale of goods and services produced by other agents, the net revenuefrom the activities is recorded, i.e. the company only records the margin received for these services that represents the commission or share received.To be classed as a representative, consideration is given to: if the product is explicitly sold under the supplier’s name; if the risks and responsibilities associated withthe product are assumed; and setting the price._Prepayment of Mobile Services Revenue received from customers for the prepayment of mobile services through cards or other means is recordedunder income in the month in which the users make use of the services for which the payment is destined or in which the prepayment expires, whichever occurs first._Services Spanning Accounting Periods The provision of services whose activity spans more than one accounting period is recorded as a percentageat the close of the period. This value is determined in line with the percentage of consumables supplied with respect to the budget.155n) Financing ExpensesThe initial costs for commissioning, consultancy, and taxes for contracting credit are handled using the amortized cost method. Using this method, these costs formpart of the effective interest rate and amortization is consequently determined in line with the contractual interest applicable to the credit.Report 2011o) ProvisionsLiabilities are recognized for all legal obligations for third parties, derivative transactions made, or future events with a high probability of generating payment flows.These provisions are recorded insofar as their values can be determined in line with the risks identified, and based upon best estimates. The value is discountedwhere it is estimated the effect of the time value of money is significant.p) DividendsDividends to be paid to third parties are reported as a change in net equity for the year the obligation for their distribution arises, either because they are declaredat the shareholders meeting or because they correspond to a legal obligation for minimum dividend payments.
q) Financial Information by SegmentAn operating segment is a component of the Group that conducts business activities for which it may receive ordinary revenue and incur costs, including revenueand costs for transactions with any other components of the Group. All income from operating segments is periodically reviewed by Group executive managementto determine the resources to assign to the segment and evaluate its performance.Reported income for segments includes elements directly attributable to the segment, in addition to those which can be fairly allocated to it.Capital expenditure for a segment (capex.) is the total expenditure incurred during the year for the acquisition of property, plant and equipment, and intangibleassets.r) State SubsidiesState subsidies for financing investments are allocated at the lower of the cost of acquisition or construction for the associated assets.s) Revenue and Access charge156Values accrued for or against Group companies are recorded based on the agreements and measurements for traffic switched with other operators, both nationallyand internationally.Report 20114. FINANCIAL ASSETS AND LIABILITIESa) Determination of Fair ValuesCertain of the Group’s accounting policies and disclosures require the calculation of fair values for both financial and non-financial assets and liabilities. Fair valuesare calculated for measurement and/or disclosure based on the following methods.Derivatives Financial InstrumentsThe fair value of derivatives contracts not quoted on an active market is obtained from the difference between cash flows from rights and obligations arising fromthe contracts, adjusted according to the corresponding interest rate.The rates used for discounting are risk free and zero coupon, with the Libor rate used for dollars.For a currency forward contract, this corresponds to the difference between the value of the currency to be purchased according to the contract, discounted at therate of the dollar for the remaining period and expressed in pesos according to the exchange rate at the close of the accounting period, minus the debt in pesosagreed in the contract discounted at the valid rate for pesos for the remaining period of the contract.For contracts to hedge against exchange and interest rates (CCS), it is determined by the difference in flows, including notional capital, discounted from each contractcomponent.
Non-Derivatives Financial InstrumentsThe fair value used for the purposes of disclosures is calculated based on the present value of future capital and cash flows from interest, discounted at marketinterest rates at the close of the accounting period.For financial leasing, both as leasing party and lease holder, the interest rate is determined by referring to the current market rates for leasing agreements of asimilar nature.In terms of current corporate assets and liabilities, their fair value is deemed to be the same as their present value, and they are thus are handled as short-termflows.Non-Derivatives Financial LiabilitiesThe fair value calculated for the purposes of disclosure is calculated based on the present value of future capital and cash flows from interest, discounted at themarket interest rate on the date of reporting. For financial leasing, the market interest rate is calculated by referring to similar leasing agreements.b) Fair Value HierarchiesThe different levels are defined as follows:_Level 1: Quoted (without adjustment) prices in active markets for identical assets or liabilities.157_Level 2: Inputs that differ to the quoted prices included in level 1 and are observable for assets or liabilities, either directly (i.e. as a price) or indirectly (i.e. derivedfrom a price)._Level 3: Inputs for assets or liabilities not based on observable market information (non-observable inputs).Report 2011The following table shows the total values of assets and liabilities for financial instruments, measured and reported at fair value:HIERARCHY OF FAIR VALUES12/31/2011Level 2Th.CLP$12/31/2010Level 2Th.CLP$AssetsNon-hedge derivatives 4,509,615 8,139LiabilitiesNon-hedge derivatives 15,799,808 14,116,323Hedge derivatives 33,994,498 56,994,899
c) Categories of Financial Assets and LiabilitiesThe following table shows the different categories of financial assets and liabilities, comparing the values recorded in the accounts at the close of each accountingperiod to their respective fair valuesCATEGORIES OF FINANCIAL ASSETS AND LIABILITIES12/31/2011 in Th.CLP$At fair valueNotewith changein income- negotiableHedgederivativesLoans andaccountsreceivableOtherfinancialliabilitiesCurrency orAdjustmentUnitTotalat accountingvalueTotalat fairvalueAssetsCash and cash equivalents 5 - - 23,064,067 - CLP/USD/PEN 23,064,067 23,064,067Other financial assets 6Debtors for financial leasing - - 4,824,425 - UF 4,824,425 4,714,429Derivatives 4,509,615 - - - USD 4,509,615 4,509,615Other - - 1,873,733 - CLP 1,873,733 1,873,733Commercial debtors and others 8 - - 251,229,640 - CLP/USD/PEN 251,229,640 251,229,640Accounts receivable from related entities 9 - - 722,752 - CLP 722,752 722,752Total assets 4,509,615 281,714,617 286,224,232 286,114,236158Report 2011LiabilitiesOther financial liabilities 15Interest accruing loans - - - 312,409,700 312,409,700 312,172,486Creditors for financial leasing - - - 9,884,049 9,884,049 10,831,165Derivatives 15,799,808 33,994,498 - - 49,794,306 49,794,306Commercial accounts payable and other 16 - - - 326,224,772 326,224,772 326,224,772Total liabilities 15,799,808 33,994,498 648,518,521 698,312,827 699,022,729
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES12/31/2010 in Th.CLP$At fair valueNotewith changein income- negotiableHedgederivativesLoans andaccountsreceivableOtherfinancialliabilitiesCurrency orAdjustmentUnitTotalat accountingvalueTotalat fairvalueAssets - negotiableCash and cash equivalents 5 - - 75,272,215 CLP/USD/PEN 75,272,215 75,272,215Other financial assets 6Debtors for financial leasing - 5,134,028 - UF 5,134,028 5,797,623Derivatives 8,139 - - - USD 8,139 8,139Other - 1,786,148 - CLP 1,786,148 1,786,148Commercial debtors and others 8 - - 236,011,842 - CLP/USD/PEN 236,011,842 236,011,842Accounts receivable from related entities 9 - - 469,192 - CLP 469,192 469,196Total assets 8,139 318,673,425 318,681,564 319,345,163LiabilitiesOther financial liabilities 15159Interest accruing loans - - - 282,814,590 282,814,590 279,076,263Creditors for financial leasing - - - 10,975,916 10,975,916 12,437,442Derivatives 14,116,323 56,994,899 - - 71,111,222 71,111,222Commercial accounts payable and other 16 - - - 319,275,469 319,275,469 319,275,469Report 2011Total liabilities 14,116,323 56,994,899 613,065,975 684,177,197 681,900,396
5. CASH AND CASH EQUIVALENTSCash and cash equivalents is composed of the following:12/31/2011Th.CLP$12/31/2010Th.CLP$Residual cash 72,757 440,447Bank account balances 6,423,113 4,723,985Short-term deposits 8,419,033 65,236,149Central bank placements 7,752,676 4,870,306Other cash and cash equivalents 396,488 1,328Total 23,064,067 75,272,215Total by CurrencyCLP 21,245,742 73,377,594USD 1,023,299 1,045,108PEN 785,715 836,143EUR 9,311 13,370Total 23,064,067 75,272,215160Report 2011Short-term deposits originally valid for less than three months are registered at their amortized cost. The breakdown as of December 31, 2011 and 2010, is asfollows:Institution Currency DateplacementDateexpiryDaysValueTh.CLP$DaysaccruedInterestaccruedTh.CLP$Total12/31/2011Th.CLP$Banco BBVA CLP 12/27/11 01/09/12 13 2,000,000 4 1,307 2,001,307Banco Corpbanca CLP 12/27/11 01/03/12 7 2,000,000 4 1,200 2,001,200Banco HSBA CLP 12/30/11 01/06/12 7 2,334,000 1 366 2,334,366Banco Santander CLP 12/30/11 01/06/12 7 1,438,000 1 220 1,438,220Banco Santander CLP 12/03/11 01/02/12 30 52,759 28 212 52,971Banco de Credito del Perú (BCP) PEN 12/27/11 01/03/12 7 75,375 4 33 75,408Interbank PEN 12/27/11 01/03/12 7 38,655 4 16 38,671Banco de Credito del Perú (BCP) PEN 12/29/11 01/03/12 5 38,654 2 8 38,662Banco de Credito del Perú (BCP) PEN 12/29/11 01/05/12 7 342,088 2 75 342,163Banco de Credito del Perú (BCP) PEN 12/30/11 01/09/12 10 96,055 1 10 96,065Total 8,415,586 3,447 8,419,033
Institution Currency DateplacementDateexpiryDaysValueTh.CLP$DaysaccruedInterestaccruedTh.CLP$Total12/31/2010Th.CLP$Banco de Chile CLP 11/18/10 01/11/11 54 3,180,000 43 13,674 3,193,674Banco de Chile CLP 12/06/10 02/01/11 57 4,479,103 25 11,571 4,490,674Banco de Crédito Inversiones CLP 12/15/10 02/21/11 68 2,400,000 16 4,224 2,404,224Banco de Crédito Inversiones CLP 12/27/10 03/01/11 64 2,420,605 4 1,130 2,421,735Banco de Crédito Inversiones CLP 12/27/10 03/01/11 64 2,000,000 4 933 2,000,933Banco de Crédito Inversiones CLP 12/28/10 03/24/11 86 4,216,856 3 1,560 4,218,416Banco de Crédito Inversiones CLP 12/28/10 03/28/11 90 4,200,000 3 1,554 4,201,554Banco Santander CLP 12/01/10 01/24/11 54 2,000,000 30 6,200 2,006,200Banco Santander CLP 12/14/10 02/15/11 63 4,300,000 17 8,041 4,308,041Banco Santander CLP 12/28/10 03/28/11 90 3,333,000 3 1,200 3,334,200Banco Santander CLP 12/30/10 01/29/11 30 50,000 1 574 50,574Banco Security CLP 12/09/10 01/24/11 46 1,876,000 22 4,265 1,880,265Banco Security CLP 12/10/10 02/08/11 60 3,500,000 21 8,085 3,508,085Banco Security CLP 12/27/10 03/08/11 71 4,000,000 4 1,813 4,001,813Corpbanca CLP 11/16/10 01/04/11 49 2,567,651 45 11,940 2,579,591Corpbanca CLP 11/24/10 01/18/11 55 2,265,000 37 8,381 2,273,381161Corpbanca CLP 12/02/10 01/25/11 54 2,000,153 29 5,800 2,005,953Corpbanca CLP 12/15/10 02/24/11 71 3,000,000 16 5,600 3,005,600Corpbanca CLP 12/17/10 02/22/11 67 2,240,172 14 3,554 2,243,726Corpbanca CLP 12/27/10 03/21/11 84 4,000,000 4 1,867 4,001,867Report 2011Scotiabank CLP 11/29/10 01/20/11 52 2,300,529 32 7,362 2,307,891Scotiabank CLP 12/27/10 03/15/11 78 4,000,000 4 1,813 4,001,813Banco de Credito del Perú (BCP) PEN 12/20/10 01/05/11 16 78,128 11 59 78,187Banco de Credito del Perú (BCP) PEN 12/22/10 01/11/11 20 20,015 9 12 20,027Banco de Credito del Perú (BCP) PEN 12/23/10 01/04/11 12 100,074 8 54 100,128Banco de Credito del Perú (BCP) PEN 12/23/10 01/11/11 19 84,396 8 46 84,442Banco de Credito del Perú (BCP) PEN 12/27/10 01/04/11 8 33,358 4 10 33,368Banco de Credito del Perú (BCP) PEN 12/28/10 01/07/11 10 130,096 3 27 130,123Banco de Credito del Perú (BCP) PEN 12/29/10 01/12/11 14 40,030 2 5 40,035Banco de Credito del Perú (BCP) PEN 12/30/10 01/14/11 15 30,022 1 2 30,024Banco de Credito del Perú (BCP) PEN 12/30/10 01/03/11 4 25,019 1 2 25,021Interbank PEN 12/28/10 01/12/11 15 22,350 3 5 22,355Scotiabank PEN 12/23/10 01/07/11 15 31,690 8 15 31,705Scotiabank PEN 12/27/10 01/11/11 15 16,679 4 5 16,684Scotiabank PEN 12/28/10 01/11/11 14 46,201 3 8 46,209Scotiabank PEN 12/29/10 01/07/11 9 58,377 2 8 58,385Scotiabank PEN 12/30/10 01/07/11 8 42,698 1 3 42,701Scotiabank USD 12/28/10 01/07/11 10 36,543 2 2 36,545Total 65,124,745 111,404 65,236,149
Financial placements in Central Bank instruments correspond to financial placements with rights receivable for commitments to the sale of financial instrumentson the balance sheets, recorded at their amortized cost. The breakdown is as follows:On 12/31/2011Code Dates Counterpart CurrencyOriginStartEndSubscribed valueTh.CLP$RatePeriodFinal valueTh.CLP$Identification ofInstrumentValueAccountingTh.CLP$CRV 12/28/2011 01/03/2012 Scotia C. de Bolsa CLP 1,800,000 0,45% 1,801,548 PACTO 1,800,774CRV 12/28/2011 01/03/2012 Scotiabank CLP 1,700,000 0,42% 1,701,428 PACTO 1,700,714CRV 12/28/2011 01/03/2012 Banco de Chile CLP 1,624,000 0,41% 1,625,332 PACTO 1,624,666CRV 12/28/2011 01/03/2012 Banco de Chile CLP 1,194,000 0,34% 1,194,816 PACTO 1,194,326CRV 12/30/2011 01/04/2011 Banco de Chile CLP 1,432,000 0,34% 1,432,979 PACTO 1,432,196Total 7,750,000 7,756,103 7,752,676On 12/31/2010Code Dates Counterpart CurrencyOriginStartEndSubscribed valueTh.CLP$RatePeriodFinal valueTh.CLP$Identification ofInstrumentValueAccountingTh.CLP$CRV 12/30/2010 01/03/2011 Banco BBVA CLP 3,400.000 0,29% 3,400,306 PACTO 3,400,306162CRV 12/30/2010 01/05/2011 Bancoestado S.A. Corredores de Bolsa CLP 734,000 0,04% 734,306 PACTO 734,000CRV 12/30/2010 01/05/2011 Bancoestado S.A. Corredores de Bolsa CLP 736,000 0,04% 736,319 PACTO 736,000Total 4,870,000 4,870,931 4,870,306Report 2011In line with working capital policies, the maturity date of all deposits in financial markets does not exceed 90 days and they have been contracted from reputablebanks and financial institutions with a high rating, primarily based in Chile.6. OTHER FINANCIAL ASSETSThe breakdown of this item as of December 31, 2011 and 2010, is as follows:Other financial assets 12/31/2011Th.CLP$Current12/31/2010Th.CLP$Non-hedge derivatives 4,509,615 8,139Debtors for financial leasing 897,605 862,659Current subtotal 5,407,220 870,798Non currentDebtors for financial leasing 3,926,820 4,271,369Term deposits 1,873,733 1,786,148Noncurrent subtotal 5,800,553 6,057,517Total other financial liabilities 11,207,773 6,928,315
The derivatives category applies to all contracts with positive balances for the Group companies. Those representing credits of balances against the Group, as wellas the notional values of contracts, are included under Other Financial Liabilities (Note 15).Debtors for Financial Leasing reflects balances related to the current contract with Telmex S.A. and corresponds to capital installments to be received in more thanone year’s time for the long term lease of telecommunications infrastructure.The contract comprises 19 equal annual payments of UF 40,262.12 each, the last of which is due on January 10, 2017, and a final installment (the purchase option)of UF 30,196.59 due on January 10, 2018.This value is shown net of non-accrued interest determined on the basis of the interest rate included in the contract, equivalent to an annual rate of 8.7%.The expiry profile of this contract is as follows:Minimum leasing payments 12/31/2011 12/31/2010Gross Interest Present value Gross Interest Present valueLess than one year 897,605 - 897,605 862,659 - 862,659Between one and five years 4,301,024 ( 1,028,674 ) 3,272,350 4,164,971 ( 1,113,993 ) 3,050,978More than five years 860,205 ( 205,735 ) 654,470 1,665,988 ( 445,597 ) 1,220,391Total 6,058,834 ( 1,234,409 ) 4,824,425 6,693,618 ( 1,559,590 ) 5,134,0281637. OTHER NON-FINANCIAL ASSETSThis item principally corresponds to prepaid expenses, detailed in the table below.Report 2011Other non-financial assets Current Non current12/31/2011Th.CLP$12/31/2010Th.CLP$12/31/2011Th.CLP$12/31/2010Th.CLP$Prepaid ExpensesLeasing, land, property 9,910,532 9,196,422 1,844,952 2,031,806Leasing, capacity 484,867 759,537 926,686 1,425,177Insurance 1,921,027 563,591 - -Marketing 1,045,807 370,603 1,836,256 -Other services 3,240,495 1,573,851 66,182 397,094Deferred costs for customer installations 151,669 500,318 35,337 72,422Other - 180,703 9,265 9,279Total 16,754,397 13,145,025 4,718,678 3,935,778
8. COMMERCIAL DEBTORS AND OTHER ACCOUNTS RECEIVABLEThe breakdown of these balances is as follows:Commercial debtors and other accounts receivable, net12/31/2011Th.CLP$12/31/2010Th.CLP$Commercial debtors, net, current 246,720,094 230,816,266Accounts receivable for personnel, net, current 1,156.766 1,146,455Other accounts receivable, net, current 3,352,780 4,049,121Accounts receivable for personnel, net, noncurrent 3,987,177 918,670Other accounts receivable, net, noncurrent 1,337,057 1,888,719Total 256,553,874 238,819,231Commercial debtors and other accounts receivable, grossCommercial debtors, gross, current 319,406,050 296,686,885Accounts receivable for personnel, gross, current 1,156,766 1,146,455Other accounts receivable, gross, current 3,417,428 4,113,769Accounts receivable for personnel, gross, noncurrent 3,987,177 918,670Other accounts receivable, gross, noncurrent 1,337,057 1,888,719164Total 329,304,478 304,754,498Report 2011These balances include values with an expiry date greater than one year (noncurrent), the net value of which corresponds to Th.CLP $5,324,234 and Th.CLP $2,807,389for each period, included under Rights Receivable for Noncurrent Assets.
The breakdown of commercial debtors for current and expired debts, including impairment, is as follows:12/31/2011DebtGrossTh.CLP$ImpairmentTh.CLP$DebtNetTh.CLP$Not expired 198,251,370 198,251,370HedgeRiskNot expired - Renegotiated 2,599,116 1,059,449 1,539,667 40.8%ExpiredLess then three months 50,271,213 9,643,286 40,627,927 19.2%Between three and six months 13,976,949 10,344,959 3,631,990 74.0%Between six and twelve months 24,251,785 22,128,098 2,123,687 91.2%Over twelve months 30,055,617 29,510,164 545,453 98.2%Subtotal expired 118,555,564 71,626,507 46,929,057 60.4%Total commercial debtors 319,406,050 72,685,956 246,720,094 22.8%12/31/2010DebtGrossTh.CLP$ImpairmentTh.CLP$DebtNetTh.CLP$Not expired 202,094,959 202,094,959Not expired - Renegotiated 5,003,363 5,003,363HedgeRisk165ExpiredLess then three months 30,928,459 10,587,004 20,341,455 34.2%Between three and six months 8,745,345 6,726,235 2,019,110 76.9%Report 2011Between six and twelve months 16,922,204 15,705,288 1,216,916 92.8%Over twelve months 32,992,555 32,852,092 140,463 99.6%Subtotal expired 89,588,563 65,870,619 23,717,944 73.5%Total commercial debtors 296,686,885 65,870,619 230,816,266 22.2%
Variation in impairment provision.Correction account for credit losses12/31/2011Th.CLP$12/31/2010Th.CLP$Initial balance 65,935,267 63,406,868Increase for impairment recorded under income 31,630,145 24,670,091Decrease in impaired financial assets (25,078,979) (22,141,692)Increase (decrease) in foreign currency translation 264,171 -Total 72,750,604 65,935,267The value of services provided but not invoiced is included under Commercial Debtors for Th.CLP $73,677,483 and Th.CLP $75,513,057 for the periods in question.Guarantees. Real guarantees are requested or credit insurance is contracted for customers or segments where there is a high risk of having to write off debt. Atpresent, in the case of intermediaries for electronic charges of mobile service usage rights (indirect channel), these risks are mitigated using guarantee letters andcredit insurance contracts with accredited insurance companies.166Compliance Incentive (Improving Credit) – In the Corporate & SME segments, customers’ motivation to meet payment terms is influenced by whether they will appearon public or private registers for poor payment practices (DICOM, Transunion – formerly Databusiness, and SIISA). Additionally, for all segments (People andCorporate & SME), differentiated service cut-offs are made, and telephone and in-person collection activities are undertaken before the company prohibits renewalof the contract.Report 2011
9. ACCOUNTS RECEIVABLE WITH RELATED ENTITIESThe transactions and balances with persons and legal entities related to the aforementioned controlling companies, together with benefits received by directors andkey members of the <strong>Entel</strong> Group are detailed below.a) Accounts receivableTax ID Company Country of origin Nature of relationship Currency Current12/31/2011 12/31/2010Th.CLP$Th.CLP$78.549.280-3 Envases Roble Alto S.A. Chile Shared director CLP 21,561 6,42079.818.600-0 CMPC Papeles S.A. Chile Shared director CLP - 8879.943.600-0 Propa S.A. Chile Shared director CLP 3,175 2,00384.552.500-5 Portuaria CMPC S.A. Chile Shared director CLP 4,597 3,91486.359.300-K Sociedad Recuperadora de Papel S.A. Chile Shared director CLP 9,175 4,63386.457.100-K Sociedad Estacionamientos Américo Vespucio Ltda Chile Shared director CLP 51 -88.566.900-K Empresa Distribuidora de Papeles y Cartones S.A. Chile Shared director CLP 2,911 1,61889.201.400-0 Envases Impresos S.A. Chile Shared director CLP 3,965 4,24389.696.400-3 Empresa de Residuos Resiter S.A. Chile Shared director CLP 9,257 8090.940.000-7 Inmobiliaria e Inversiones Varco S.A. Chile Shared director CLP 59 -16791.440.000-7 Forestal Mininco S.A. Chile Shared director CLP 100,811 79,39591.656.000-1 Industrias Forestales S.A. Chile Shared director CLP 10,669 7,80592.177.000-6 Le Grand Chic S.A. Chile Shared director CLP 1,340 9093.658.000-9 Chilena de Moldeados S.A. Chile Shared director CLP 1,159 825Report 201195.304.000-K CMPC Maderas S.A. Chile Shared director CLP 63,578 71,52096.500.110-7 Forestal y Agrícola Monte Aguila S.A. Chile Shared director CLP - 1,09096.529.310-8 CMPC Tissue S.A. Chile Shared director CLP 40,467 32,12196.532.330-9 CMPC Celulosa S.A. Chile Shared director CLP 71,294 59,83396.656.410-5 BICE Vida Compañía de Seguros S.A. Chile Shared director CLP 7,867 4,60696.757.710-3 CMPC Productos de Papel S.A. Chile Shared director CLP 107 24096.768.750-2 Servicios Compartidos CMPC S.A. Chile Shared director CLP 259,033 156,01996.778.980-1 Soc. Administradora Plaza Central S.A. Chile Shared director CLP 2,880 28696.853.150-6 Papeles Cordillera S.A. Chile Shared director CLP 10,047 4,86396.889.540-0 Dorin Ltda. Chile Shared director CLP 599 -97.080.000-K Banco BICE Chile Shared director CLP 46,268 20,49796.731.890-6 Cartulinas CMPC S.A. Chile Shared director CLP 50,911 7,00399.513.410-1 SMB Factoring S.A. Chile Shared director CLP 19 -99.544.240-K Inmobiliaria Suecia S.A. Chile Shared director CLP 10 -99.563.840-1 Las Garzas S.A. Chile Shared director CLP 942 -Total 722,752 469,192
) TransactionsCompanies for which transactions have been made with Chile as country of origin.Tax ID Company Nature ofrelationshipDescription oftransactionValueTh.CLP$12/31/2011 31/12/2010Effect on income(charge/credit)ValueTh.CLP$Effect on income(charge/credit)78.549.280-3 Envases Roble Alto S.A. Shared director Services provided 52,101 52,101 47,220 47,22079.818.600-0 CMPC Papeles S.A. Shared director Services provided 892 892 1,093 1,09379.943.600-0 PROPA S.A. Shared director Services provided 19,410 19,410 30,165 30,16584.552.500-5 Portuaria CMPC S.A. Shared director Services provided 20,808 20,808 23,021 23,02186.359.300-K SOREPA S.A. Shared director Services provided 54,281 54,281 62,893 62,89388.566.900-K EDIPAC S.A. Shared director Services provided 17,601 17,601 20,309 20,30989.201.400-0 Envases Impresos S.A. Shared director Services provided 34,076 34,076 40,151 40,15189.696.400-3 Empresa de Residuos Resiter S.A. Shared director Services provided 100,461 100,461 106,298 106,29891.440.000-7 Forestal Mininco S.A. Shared director Services provided 229,372 229,372 245,472 245,47291.656.000-1 Industrias Forestales S.A. Shared director Services provided 16,764 16,764 26,805 26,80592.177.000-6 Le Grand Chic S.A. Shared director Services provided 16,605 16,605 17,821 17,82116893.658.000-9 Chilena de Moldeados S.A. Chimolsa Shared director Services provided 9,115 9,115 13,469 13,46995.304.000-K CMPC Maderas S.A. Shared director Services provided 213,342 213,342 251,376 251,37696.529.310-8 CMPC Tissue S.A. Shared director Services provided 222,790 222,790 302,640 302,640Report 201196.532.330-9 CMPC Celulosa S.A. Shared director Services provided 294,478 294,478 341,315 341,31596.656.410-5 BICE Vida Compañia de Seguros Shared director Services provided 38,419 38,419 86,581 86,58196.731.890-6 Cartulinas CMPC S.A. Shared director Services provided 118,496 118,496 130,772 130,77296.757.710-3 CMPC Productos de Papel S.A. Shared director Services provided 3,041 3,041 3,393 3,39396.768.750-2 Servicios Compartidos CMPC S.A. Shared director Services provided 1,098,524 1,098,524 1,017,998 1,017,99896.778.980-1 Soc. Administradora Plaza Central S.A. Shared director Services provided 8,795 8,795 9,184 9,18496.853.150-6 Papeles Cordillera S.A. Shared director Services provided 44,395 44,395 55,341 55,34196.889.540-0 Dorin Ltda. Shared director Services provided 5,894 5,894 4,706 4,70697.080.000-K Banco Bice Shared director Services provided 188,218 188,218 198,644 198,64497.080.000-K Banco Bice Shared director Services received - - 72,495 ( 72,495 )99.513.410-1 SMB Factoring S.A. Shared director Services received 201 (201) 226 ( 226 )99.563.840-1 Las Garzas S.A. Shared director Services received 6,644 ( 6,644 ) 2,806 ( 2,806 )c) Remuneration and Benefits Received by Directors and Group Executives:The parent company is managed by a board of directors of nine members whose remunerations for 2011 and 2010 were Th.CLP $400,759 and Th.CLP $362,982,respectively.For the same period, remuneration of key members was Th.CLP $7,297,889 and Th.CLP $6,339,410, respectively.The periods account for 23 and 37 executives, respectively.
10. INVENTORYInventory is primarily composed of mobile telephone handsets and their accessories. These are valued according to the accounting criteria described in note 3d.The breakdown is as follows:12/31/2011Th.CLP$12/31/2010Th.CLP$Merchandise 308,000 744,920Work in progress 583,440 206,145Equipment and accessories for mobile telephone services 62,166,064 35,831,167Other Inventory 34,296 16,964Total 63,091,800 36,799,196At the close of each period there were no duties on any of the items that make up the stock.During the periods covered by these financial statements, allocations were made to income for the cost of sales or the consumption of materials for Th.CLP $101,624,554and Th.CLP $73,643,311, respectively.During the course of these periods, there have been no allocations against stock for adjustments to sale value.11. INTANGIBLE ASSETSAssets represented by licenses, easements, and others items, detailed in the following tables:16912/31/2011Th.CLP$12/31/2010Th.CLP$Total intangible assets, net 31,118,433 32,665,098Intangible assets with finite life, Net 31,118,433 32,665,098Report 2011Identifiable intangible assets, net 31,118,433 32,665,098Patents trademarks and other rights, net 13,141,890 9,837,016Other identifiable intangible assets, net 17,976,543 22,828,082Total intangible assets, gross 60,546,713 57,825,211Identifiable intangible assets, gross 60,546,713 57,825,211Patents trademarks and other rights, gross 39,148,124 31,809,365Other identifiable intangible assets, gross 21,398,589 26,015,846Total cumulative amortization and impairment, intangible assets ( 29,428,280 ) ( 25,160,113 )Cumulative amortization and impairment, identifiable intangible assets (29,428,280) ( 25,160,113 )Cumulative amortization and impairment, patents trademarks and other rights (26,006,234) ( 21,972,349 )Cumulative amortization and impairment, other identifiable intangible assets (3,422,046) ( 3,187,764 )Cumulative losses for impairment included in the above table mainly affect assets for usage rights for fiber optic cable capacities. For this item, cumulative losseswere Th.CLP $2,507,281 as of December 31, 2011. These losses originated in previous years and were a product of adjustments to the recoverable value of theseassets affected by a decrease in market demand.No fully-amortized intangible assets are kept in use.
11. INTANGIBLE ASSETS (Continued)There are no intangible assets with a restriction on ownership and for which full or partial guarantees have been made.As of December 31, 2011 there are no commitments for acquisitions of intangible assets.Changes in the values of intangible assets for 2011 and 2010 are as follows:Changes 2011Patents trademarks and otherrights, netOther identifiable intangibleassets, netTotal Identifiable intangibleassets, NetInitial balance 9,837,016 22,828,082 32,665,098Additions 137,674 1,919,527 2,057,201Amortization (3,261,376) (1,010,948) (4,272,324)Increase (decrease) in foreign currency translation - 647,140 647,140Other increases (decreases) 6,428,576 (6,407,258) 21,318Final balance 13,141,890 17,976,543 31,118,433Changes 2010Patents trademarks and otherrights, netOther identifiable intangibleassets, netTotal Identifiable intangibleassets, NetInitial balance 6,692,984 12,294,339 18,987,323Additions 5,640,390 252,721 5,893,111170Acquisitions through business mergers 989,158 11,873,271 12,862,429Amortization ( 2,192,351 ) ( 875,186 ) ( 3,067,537 )Loss for impairment recorded on income statement ( 1,218,000 ) ( 507,390 ) ( 1,725,390 )Report 2011Increase (decrease) in foreign currency translation - ( 193,193 ) ( 193,193 )Other increases (decreases) ( 75,165 ) ( 16,480 ) ( 91,645 )Final balance 9,837,016 22,828,082 32,665,098Losses allocated against costs for the 2010 financial year for the impairment of intangible assets refer to adjustments to book values that have their origins inlower market prices and insufficient recovery flows with respect to certain usage rights for fiber optic cables (Th.CLP $1,218,000) and operating licenses (Th.CLP $507,390). For these purposes, the current market values and/or recovery values have been taken into account in line with the expected generation of flows.Impairment has not been allocated against income for the current year.
Intangible assets are amortized in accordance with the following time scales:Assets Min rate or life (years) Max rate or life (years)Patents trademarks and other rights 4 20IT Programs 4 4Other identifiable intangible assets 10 10Usage rights for fiber optic cables 15 1512. GOODWILLChanges to balances for goodwill are as follows:Company Segment Initial balance01/01/2011Th.CLP$AdditionsFinal balance12/31/2011Th.CLP$<strong>Entel</strong> PCS Telecomunicaciones S.A. Mobile Network 43,384,200 - 43,384,200Cientec Computación S.A. Wireline network 2,402,281 - 2,402,281Will S.A. Wireline network 156 - 156Transam Comunicación S.A. Wireline network 34,837 73,809 108,646Final balance, net 45,821,474 - 45,895,283171Company Segment Initial balance01/01/2010Th.CLP$OtherIncreasesFinal balance12/31/2010Th.CLP$<strong>Entel</strong> PCS Telecomunicaciones S.A. Mobile Network 43,384,200 - 43,384,200Cientec Computación S.A. Wireline network 2,402,281 - 2,402,281Will S.A. Wireline network - 156 156Transam Comunicación S.A. Wireline network - 34,837 34,837Final balance, net 45,786,481 34,993 45,821,474Report 2011Goodwill balances are subject to testing for impairment at the close of each accounting period, although no such signs have been observed since the date on whichthey were acquired.
13. PROPERTY, PLANT AND EQUIPMENTThe breakdown of the gross values, depreciation, and net values of the items which made up this category at each close of period are as follows:12/31/2011Th.CLP$12/31/2010Th.CLP$Total property, plant and equipment, net 1,056,555,054 978,457,143Current construction, net 184,179,818 89,515,774Land, net 9,110,466 9,222,010Property, net 95,373,297 101,723,566Plant and equipment, net 735,495,111 736,360,830IT equipment, net 15,862,972 22,618,177Fixed installations and accessories, net 6,241,078 7,872,004Motor vehicles, net 281,591 375,868Improvements to leased assets, net 3,629,586 5,222,790Other property, plant and equipment, net 6,381,135 5,546,124Total property, plant and equipment, gross 2,723,582,450 2,585,265,799Current construction, gross 184,179,818 89,515,774Land, gross 9,110,466 9,222,010172Property, gross 209,991,460 211,767,053Plant and equipment, gross 2,072,673,714 2,018,914,771IT equipment, gross 78,358,535 87,737,647Report 2011Fixed installations and accessories, gross 133,543,606 133,751,057Motor vehicles, gross 837,744 1,044,590Improvements to leased assets, gross 16,181,942 15,950,435Other property, plant and equipment, gross 18,705,165 17,362,462Total cumulative depreciation and impairment, property, plant and equipment ( 1,667,027,396 ) ( 1,606,808,656 )Cumulative depreciation and impairment, property (114,618,163) ( 110,043,487 )Cumulative depreciation and impairment, plant and equipment (1,337,178,603) ( 1,282,553,941 )Cumulative depreciation and impairment, IT equipment (62,495,563) ( 65,119,470 )Cumulative depreciation and impairment, fixed installations and accessories (127,302,528) ( 125,879,053 )Cumulative depreciation and impairment, motor vehicles (556,153) ( 668,722 )Cumulative depreciation and impairment, improvements to leased assets (12,552,356) ( 10,727,645 )Cumulative depreciation and impairment, other (12,324,030) ( 11,816,338 )
Transactions in 2011 for property, plant and equipment items are as follows:Current ConstructionLand Property, net Plant andequipment,netIT equipment,netFixed installationsandaccessories,netMotorvehicles,netImprovementsto leasedassets, netOtherproperty,plant andequipment,netProperty, plantand equipment,netInitial balance 89,515,774 9,222,010 101,723,566 736,360,830 22,618,177 7,872,004 375,868 5,222.790 5,546,124 978,457,143TransactionsAdditions 126,818,750 - 308,641 231,668,740 2,923,206 378,404 19,985 6,744 1,687,725 363,812,195Removals - - - ( 13,900,090) ( 85) - (95,291) - ( 4,572) ( 14,000,038)Depreciation Costs - - ( 5,449,281) (244,803,492) ( 9,866,679) (1,776,949) (126,356) (2,293,898) (1,209,695) (265,526,350)Loss for impairment recordedon income statementIncrease (decrease) in foreigncurrency exchange- - - ( 6,416,111) ( 624) - - - - ( 6,416,735)- 60,831 80,012 730,922 40,603 102,951 730 - (453,761) 562,288Other increases (decreases) (32,154,706) (172,375) (1,289,641) 31,854,312 148,374 (335,332) 106,655 693,950 815,314 ( 333,449)Transactions, total 94,664,044 (111,544) (6,350,269) ( 865,719) (6,755,205) (1,630,926) (94,277) (1,593,204) 835,011 -Final balance Transactions, total 9,110,466 95,373,297 735,495,111 15,862,972 6,241,078 281,591 3,629,586 6,381,135 1,056,555,054Transactions in 2010 for property, plant and equipment items are as follows:Current ConstructionLand Property, net Plant andequipment,netIT equipment,netFixed installationsandaccessories,netMotorvehicles,netImprovementsto leasedassets, netOtherproperty,plant andequipment,netProperty, plantand equipment,netInitial balance 67,580,935 9,284,444 105,869,420 708,618,878 21,927,706 9,583,832 354,936 4,100,303 4,772,011 932,092,465TransactionsAdditions 72,173,877 - - 211,597,341 10,119,389 186,304 137,855 1,914,771 1,440,910 297,570,447Acquisitions throughbusiness mergers509,238 - - 77,509 - - - - 484,921 1,071,668Removals (155,948) - - ( 8,340,035) ( 17,404) - (6,667) - ( 22,429) (8,542,483)Depreciation Costs - - ( 5,619,161) (206,671,025) (10,416,188) (4,369,121) (123,396) (1,895,019) (1,038,025) (230,131,935)Loss for impairment recordedon income statementIncrease (decrease) in foreigncurrency exchange- - - (3,072,736) ( 2,956) - - - 112,450 (2,963,242)- (20,353) ( 26,924) (180,821) ( 6,635) (26,493) 523 - ( 77,689) (338,392)Other increases (decreases) (50,592,328) (42,081) 1,500,231 34,331,719 1,014,265 2,497,482 12,617 1,102,735 (126,025) (10,301,385)Transactions, total 21,934,839 (62,434) (4,145,854) 27,741,952 690,471 (1,711,828) 20,932 1,122,487 774,113 -Final balance 89,515,774 9,222,010 101,723,566 736,360,830 22,618,177 7,872,004 375,868 5,222,790 5,546,124 978,457,143173Report 2011
During 2011 and 2010, no interest to be charged for work in progress and associated materials has been generated, in line with the policy described in note 3f.The net balances for property, plant and equipment acquired by financial leasing are set out below.12/31/2011Th.CLP$12/31/2010Th.CLP$Property under financial leasing, net 14,903,504 15,531,560IT equipment under financial leasing, net 31,846 534,973Total property, plant and equipment under financial leasing, net 14,935,350 16,066,533Leased real estate is represented by real estate lease contracts for the real estate covering the main Group offices.The terms of lease agreements for leased assets are as follows:Start dateEnd dateEdificio Pacífico (Floors 9, 10, 12, 13, 14) May 1995 April 2015Stores February 1998 February 2018174Edificio Costanera (Floor 15) September 1998 August 2018Edificio Costanera (Floors 12–14) December 1998 November 2018The Group companies have procedures designed to detect possible impairment in the value of their property, plant and equipment assets.Report 2011Policies for determining impairment in the value of property, plant and equipment are based on a continuous analysis of impairment indexes. Where these are positive,the recovery values of the affected assets are estimated.The business makes use of asset control systems with varying degrees of component detail and integration with service technology platforms.The values allocated as losses for this category throughout 2011 and 2010 originate from the removal of customer equipment with a very low probability of reuse orof transfer, items damaged by the earthquake in February 2010, equipment whose remaining useful life is greater than the estimated periods of financial usage, andequipment affected by technological change or decreases in recoverable value owing to decreases in the prices of certain services.Impairment in the value of property, plant and equipment that has affected income is as follows:01/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Losses from deterioration, property, plant and equipment 6,416,735 2,963,242Total losses from deterioration 6,416,735 2,963,242
Components affected by impairment are detailed below:Asset description01/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Customer installations 973,000 1,226,446Assets in warehouse 5,019,000 1,025,840Equipment 104,601 2,956Network components 320,134 708,000Total 6,416,735 2,963,242Average depreciations applied are as follows:Assets Min rate or life (years) Max rate or life (years)Property 20 50Plant and equipmentExternal plant 10 20Subscriber equipment 3 7IT equipment 3 4Fixed installations and accessories 3 10Motor vehicles 3 7Improvements to leased assets 5 5Other property, plant and equipment 5 10175In terms of assets that have reached the end of their useful accounting life, recovery or final return values for transfer have not been calculated as it is difficult topredict the additional period of economic efficiency, primarily since technological risk has risen with their age.Report 2011There are no assets with restrictions on ownership, except for those normal for assets under financial leasing, nor have full or partial guarantees been made onthese.Commitments for the acquisition of property, plant and equipment as of December 31, 2011 and 2010, including purchase orders with suppliers and contracts forcivil engineering works, were Th.CLP $20,792,266 and Th.CLP $30,709,321, respectively.Within this category there are no elements of significant value that are out of service.The gross value of inactive materials that, while being fully depreciated are still to some extent in use, is Th.CLP $556,077,830. In general, these correspond to assetswith high technological obsolescence, whose withdrawal or replacement becomes economically feasible upon termination of the services for which they arebeing used, increases in failure rates, the withdrawal of technological support from the manufacturer, or other circumstances. Valuations at use value have not beenundertaken for these assets due to the uncertainty surrounding the remaining periods of use.At the end of 2009, the Telecommunications Development Fund, administered by the Ministry of Transport and Telecommunications, awarded the Digital InfrastructureProject for Competitiveness and Innovation to <strong>Entel</strong>, which will see mobile Internet delivered to 1,400 areas throughout Chile.In the context of this project, at the close of the 2011 financial year, work had been carried out to the value of Th.CLP $63,582,694. In line with the agreement signedwith the state, subsidies of Th.CLP $20,414,280 had been received. Of this value, Th.CLP $16,459,928 has been allocated as the lowest value of the works carried outand Th.CLP $3,920,940 has been retained as advance payments for work to be executed or currently being received.
14. INCOME TAX AND DEFERRED TAXa) General InformationIncome tax provisions by each Group company for income up to December 31, 2011 and 2010, are offset against the obligatory provisional monthly tax payments(PPM) made by these companies.The cumulative payments of these companies with credit balances are Th.CLP $596,566 and Th.CLP $11,884,354 as of December 2011 and 2010, respectively. Thesevalues are listed under current assets and categorized as tax assets.The total of negative balances was Th.CLP $7,951,010 and Th.CLP $201,105 at the end of each period and these are listed under current liabilities as tax liabilities.Positive balances for the Group companies in their Taxable Profits ledger as of December 31, 2011, are detailed below alongside the tax credits to be awarded toshareholders when the dividend is paid.CompaniesProfits (with credit)20%Profits (with credit)17%Profits (without credit)Value of creditEmpresa Nacional de Telecomuncaciones S.A. 35,385,061 130,630,521 9,546,252 35,601,889<strong>Entel</strong> Inversiones S.A. 582,498 11,799,398 126,332 1,662,459<strong>Entel</strong> Servicios Telefónicos S.A. 39,431 1,798,397 275,280 378,135<strong>Entel</strong> PCS Telecomunicaciones S.A. 165,656,101 152,688,874 41,778,835 72,687,656176<strong>Entel</strong> Comercial S.A. 1,770,225 1,224,957 442,556 693,450Satel Telecomunicaciones S. A. 881,685 1,045,614 176,777 426,608Transam S.A. - 2,520,907 294 451,174Report 2011Totals 204,315,001 301,708,668 52,346,326 111,901,371b) Deferred taxDeferred taxes established in line with the policy described in note 3k are detailed in the following table.:ItemAssetTh.CLP$12/31/2011 12/31/2010LiabilityTh.CLP$AssetTh.CLP$Depreciation property, plant and equipment 2,750,929 3,281,395 1,318,416 13,025,794Intangible amortizations 752,329 3,647,395 905,523 3,473,886Accumulations (or accruals) 2,837,911 - 3,731,942 -Provisions 766,421 - 1,032,034 -Impairment property, plant and equipment 8,101,744 - 6,720,980 -Impairment accounts receivable (unrecoverable) 12,938,968 - 11,437,654 -Adjustment of derivative contracts to market value 182,748 865,869 422,953 901,147Assets/liabilities at amortized cost - 425,978 - 298,958Deferred revenue 6,861,072 - 6,373,255 -Assets acquired under financial leasing 1,610,623 2,539,010 1,796,579 2,686,236Assets sold under financial leasing 417,293 841,956 460,818 921,695Tax losses 989,424 - 1,283,008 -Other 4,657,135 106,686 4,370,005 37,902Totals 42,866,597 11,708,289 39,853,167 21,345,618LiabilityTh.CLP$
c) Unrecognized Deferred Tax AssetsFor some subsidiaries, deferred tax assets associated with the application of tax losses that do not have a period of expiry have not been recorded. The unrecognizedtax assets for this concept are Th.CLP $4,809,577 and Th.CLP $1,075,571, as of 31 December for each year.d) Expenditure (Revenue) for Income Tax by Current and Deferred PartsCurrent income tax expenditure01/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Expenditure for current tax 51,859,909 30,800,536Adjustments to current tax from the previous period (679,713) 71,078Other current tax expenditure 205,852 1,827,664Current tax expenditure, net, total 51,386,048 32,699,278Deferred income tax expenditureDeferred expenditure (revenue) for tax related to the creation and reversal of time differences (11,682,825) (7,045,565)Expenditure (revenue) for taxes related to changes in the tax structure or new taxes - (1,955,526)Expenditure for reductions in the value of assets during the evaluation of their use - 900,000Other expenditure (revenue) for deferred taxes (1,143,367) -Deferred tax expenditure (revenue), net, total (12,826,192) (8,101,091)Total expenditure (revenue) for income tax 38,559,856 24,598,187177Report 2011e) Expenditure (Revenue) for Income Tax by Foreign and National Parts, NetCumulative01/01/201112/31/2011Th.CLP$01/01/201012/31/2010Th.CLP$Current tax expenditure by foreign and national parts, netCurrent tax expenditure, net, foreign 323,159 (8,837)Current tax expenditure, net, national 51,062,889 32,708,115Current tax expenditure, net, total 51,386,048 32,699,278Deferred income tax expenditure by foreign and national parts, netDeferred tax expenditure, net, foreign (255,997) (31,914)Deferred tax expenditure, net, national (12,570,195) (8,069,177)Deferred tax expenditure, net, total (12,826,192) (8,101,091)Total expenditure (revenue) for income tax 38,559,856 24,598,187
f) Reconciliation of Income TaxAs of December 31, 2011 and 2010, the expense reconciliation using the legal rate and the effective rate is as follows:01/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Cost of tax using legal rate 43,892,380 33,586,797Tax effect of rates in other jurisdictions (26,225) 842,118Tax effect of permanent differencesAdjustments/fluctuation of tax investments 2,144,983 577,228Own capital currency correction (7,159,204) (4,113,299)Tax effects from subsidiary merger (1,143,367) (6,386,501)Non tax deductible expenditure - 1,904,134Changes to tax structure for deferred taxes - (1,955,526)Evaluation of assets for recorded deferred tax - 900,000Tax effect of excess tax paid in previous years (226,552) 31,980Tax contribution calculated with applicable rate 1,674,936 (218,431)Other increases (decreases) in expenditure for legal taxes (597,095) (570,313)178Adjustments to cost of tax using legal rate, total (5,332,524) (8,988,610)Cost of tax using effective rate 38,559,856 24,598,187Report 2011g) Reconciliation of Legal and Effective Tax Rates01/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Legal tax rate 20.00% 17.00%Tax effect of rates in other jurisdictions -0.01% 0.53%Effect on tax rate ofAdjustments/fluctuation of tax investments 0.98% 0.29%Own capital currency correction -3.26% -2.08%Tax effects from subsidiary merger -0.52% -3.23%Non tax deductible expenditure - 0.96%Changes to tax structure for deferred taxes - -0.99%Evaluation of assets for recorded deferred tax - 0.46%Tax effect of excess tax paid in previous years -0.10% 0.02%Tax contribution calculated with applicable rate 0.76% -0.21%Other increases (decreases) in expenditure for legal taxes -0.26% -0.30%Adjustments to the legal tax rate, total -2.42% -4.55%Effective tax rate 17.58% 12.45%
15. OTHER FINANCIAL LIABILITIESThe breakdown of this category for each period is given in the following table.12/31/2011Th.CLP$12/31/2010Th.CLP$CurrentInterest accruing loans 987,193 433,723Creditors for financial leasing 1,644,813 1,494,233Non-hedge derivatives 15,799,808 12,427,560Hedge derivatives 152,227 215,170Current subtotal 18,584,041 14,570,686NoncurrentInterest accruing loans 311,422,507 282,380,867Creditors for financial leasing 8,239,236 9,481,683Non-hedge derivatives - 1,688,763Hedge derivatives 33,842,271 56,779,729Noncurrent subtotal 353,504,014 350,331,042Total other financial liabilities 372,088,055 364,901,728_a) Loans Accruing Interest – As of December 31, 2011, the current values of the following bank loans were:179_Syndicated Loan administered by Citibank N.A. Balance of USD $400,000,000, at Libor USD 90 day + 0.275%._Credit provided by Scotiabank & Trust (Cayman) Ltd. and The Bank of Tokyo-Mitsubishi UFJ, Ltd. Joint loan for USD $200,000,000, at Libor USD 90 day + 0.95%_b) Hedge Derivatives – Cash flow - This balance corresponds to the market value of derivative contracts classified as hedges against exchange and interest raterisks, Cross Currency Swap (CCS), with respect to the syndicated loan administered by Citibank N.A. These CCS contracts include the substitution of obligationsfor USD $173 million at a rate of Libor 90 day + 0.275% for UF 4,491,000, and obligations in Chilean pesos for Th.CLP $22,600,000, both rates fluctuating between2.95% and 5.58%.Report 2011_c) Derivatives at Fair Value with Change in Income – This item includes foreign exchange futures contracts (FR), with a purchase obligation of USD $411 millionand EUR €3 million, in a total of Th.CLP $222,023,105.It also includes CCS contracts due to expire in June 2012, with a purchase obligation of USD $67 million, in UF 2,246,000. The interest rate for these CCS contractsis the Libor USD 90 day + 0.275% for components in dollars, with rates fluctuating between 2.95% and 3.05% for the UF component.
In calculating the market value of derivative instruments flows are discounted considering variables quoted on active markets (interest rates). Consequently, themarket values determined are classified under the second level of the IFRS 7 hierarchy.The expiry profile of the nominal flows for other financial liabilities is presented in the following table. For the purposes of calculating values, capital and interestpayment flows (without discounting values) have been considered for financial debts and the compensation value of financial derivatives with favorable balances,according to the current exchange rates at the close of the period.CreditorClass ofLiabilityTotal debtTh.CLP$Current (term in days)0–90 daysOn 12/31/201191 days – 1yearTotalCurrentTh.CLP$Noncurrent (term in years)1 - 3 3–5Morethan 5TotalNoncurrentTh.CLP$Banco de Crédito e Inversiones Loans 448,197 448,197 - 448,197 - - - -Citibank N.A. (syndicated) Loans 211,306,353 506,934 1,360,268 1,867,202 209,439,151 - - 209,439,151The Bank of Tokyo-Mitsubishi UFJ, Ltd (deal) Loans 53,293,443 136,209 340,067 476,276 52,817,167 - - 52,817,167Scotiabank & Trust (Cayman) Ltd (deal) Loans 53,293,443 136,209 340,067 476,276 52,817,167 - - 52,817,167Banco de Crédito e Inversiones Loans 341,752 29,292 87,878 117,170 224,582 - - 224,582Claro Comunicaciones S.A. (Telmex S.A.) Loans 3,305,099 472,157 - 472,157 944,314 944,314 944,314 2,832,942Deutsche Bank (Chile) Hedge derivatives 17,622,114 344,410 885,165 1,229,575 16,392,539 - - 16,392,539Banco Santander - Chile Hedge derivatives 8,863,497 173,675 446,361 620,036 8,243,461 - - 8,243,461Banco de Chile Hedge derivatives 1,506,385 120,646 307,908 428,554 1,077,831 - - -180Scotiabank Chile Hedge derivatives 8,910,091 181,357 433,424 614,781 8,295,310 - - -Scotiabank Chile Hedge derivatives 2,341,189 176,306 449,520 625,826 1,715,363 - - -Deutsche Bank (Chile) Non-hedge derivatives 7,947,800 172,205 7,775,595 7,947,800 - - - -Banco Santander - Chile Non-hedge derivatives 3,996,417 86,837 3,909,580 3,996,417 - - - -Report 2011Scotiabank Chile Non-hedge derivatives 4,104,206 90,678 4,013,528 4,104,206 - - - -Banco Bice Non-hedge derivatives 49,000 - 49,000 49,000 - - - -Banco de Crédito e Inversiones Non-hedge derivatives 1,059,480 184,000 875,480 1,059,480 - - - -Banco Bilbao Vizcaya Argentaria, Chile Non-hedge derivatives 244,250 76,050 168,200 244,250 - - - -Corpbanca Non-hedge derivatives 140,725 63,225 77,500 140,725 - - - -Banco de Chile Non-hedge derivatives 162,780 98,280 64,500 162,780 - - - -Banco Santander - Chile Non-hedge derivatives 1,800 1,800 - 1,800 - - - -Banco del Estado de Chile Non-hedge derivatives 352,950 - 352,950 352,950 - - - -HSBC Bank (Chile) Non-hedge derivatives 190,700 - 190,700 190,700 - - - -JP Morgan Chase Bank, N.A. Non-hedge derivatives 89,400 7,500 81,900 89,400 - - - -Banco de Crédito e Inversiones Non-hedge derivatives 1,140 1,140 - 1,140 - - - -Banco Bilbao Vizcaya Argentaria, Chile Non-hedge derivatives 4,600 4,600 - 4,600 - - - -Corpbanca Non-hedge derivatives 500 500 - 500 - - - -Deutsche Bank (Chile) Non-hedge derivatives 30,000 30,000 - 30,000 - - - -Banco del Estado de Chile Non-hedge derivatives 6,780 6,780 - 6,780 - - - -HSBC Bank (Chile) Non-hedge derivatives 21,150 21,150 - 21,150 - - - -Scotiabank Chile Non-hedge derivatives 11,240 11,240 - 11,240 - - - -Consorcio Nacional de Seguros S.A. Financial Leasing 9,447,934 497,248 1,396,275 1,893,523 3,723,401 2,108,482 1,722,528 7,554,411Chilena Consolidada Seguros de Vida S.A. Financial Leasing 1,455,908 54,597 163,790 218,387 436,772 436,772 363,977 1,237,521Banco Bice Financial Leasing 1,023,873 41,508 124,525 166,033 332,067 332,067 193,706 857,840Bice Vida Cía. de Seguros de Vida S.A. Financial Leasing 454,968 23,533 70,598 94,131 188,263 172,574 - 360,837Commercial accounts payable and other Commercial credit 326,224,772 326,224,772 - 326,224,772 - - - -Total 718,253,936 330,423,035 23,964,779 354,387,814 356,647,388 3,994,209 3,224,525 363,866,122
CreditorClass ofLiabilityTotal debtTh.CLP$On 12/31/2010Current (term in days)TotalNoncurrent (term in years)CurrentMore0–90 days 91 days – 1 year Th.CLP$1-3 3-5than 5TotalNoncurrentTh.CLP$Citibank N.A. Loans 285,065,901 475,490 1,239,429 1,714,919 189,476,381 93,874,601 - 283,350,982Banco de Crédito e Inversiones Loans 441,665 28,191 84,574 112,765 225,530 103,370 - 328,900Claro Comunicaciones S.A. (ex Telmex S.A.) Loans 3,635,192 454,399 - 454,399 908,798 908,798 1,363,197 3,180,793Banco Santander - Chile Loans 730,165 25.625 51,246 76,871 307,497 345,797 - 653,294Deutsche Bank (Chile) Hedge derivatives 30,047,846 636,492 1,420,110 2,056,602 19,286,529 8,704,715 - 27,991,244Banco Santander - Chile Hedge derivatives 15,103,963 320,676 715,578 1,036,254 9,693,773 4,373,936 - 14,067,709Banco de Chile Hedge derivatives 2,786,700 147,062 330,261 477,323 1,482,487 826,890 - 2,309,377Scotiabank Chile Hedge derivatives 15,493,720 333,378 744,444 1,077,822 9,938.706 4,477,192 - 14,415,898Scotiabank Chile Hedge derivatives 4,387,079 217,092 486,775 703,867 2,324,392 1,358,820 - 3,683,212Banco de Crédito e Inversiones Non-hedge derivatives 2,343,470 107,340 933,145 1,040,485 1,302,985 - - 1,302,985Banco Bilbao Vizcaya Argentaria, Chile Non-hedge derivatives 3,484,275 746,460 1,880,430 2,626,890 857,385 - - 857,385Corpbanca Non-hedge derivatives 889,800 - 485,100 485,100 404,700 - - 404,700181Banco de Chile Non-hedge derivatives 1,605,955 528,260 825,845 1,354,105 251,850 - - 251,850Banco Santander - Chile Non-hedge derivatives 2,607,630 728,885 1,800,160 2,529,045 78,585 - - 78,585HSBC Bank (Chile) Non-hedge derivatives 1,981,535 575,630 1,405,905 1,981,535 - - - -Scotiabank Chile Non-hedge derivatives 1,789,720 133,920 960,845 1,094,765 694,955 - - 694,955Banco Security Non-hedge derivatives 735,540 - 735,540 735,540 - - - -Report 2011Nbank of America N.A. Non-hedge derivatives 1,354,555 278,245 1,076,310 1,354,555 - - - -Rabobank Chile Non-hedge derivatives 283,200 283,200 - 283,200 - - - -JP Morgan Chase Bank, N.A. Non-hedge derivatives 843,930 205,920 638,010 843,930 - - - -Banco Bilbao Vizcaya Argentaria, Chile Non-hedge derivatives 109,160 109,160 - 109,160 - - - -Corpbanca Non-hedge derivatives 51,870 51,870 - 51,870 - - - -Banco de Chile Non-hedge derivatives 32,625 32,625 - 32,625 - - - -Banco Santander - Chile Non-hedge derivatives 13.930 13,930 - 13,930 - - - -Deutsche Bank (Chile) Non-hedge derivatives 77,550 77,550 - 77,550 - - - -Banco del Estado de Chile Non-hedge derivatives 53,375 53,375 - 53,375 - - - -HSBC Bank (Chile) Non-hedge derivatives 389,120 389,120 - 389,120 - - - -Scotiabank Chile Non-hedge derivatives 103,555 103,555 - 103,555 - - - -Consorcio Nacional de Seguros S.A. Financial Leasing 10,853,655 447,920 1,343,762 1,791,682 3,583,364 2,958,542 2,520,067 9,061,973Chilena Consolidada Seguros de Vida S.A. Financial Leasing 1,611,322 52,543 157,629 210,172 420,345 420,345 560,460 1,401,150Banco Bice Financial Leasing 1,145,154 39,947 119,842 159,789 319,578 319,578 346,209 985,365Bice Vida Cía. de Seguros de Vida S.A. Financial Leasing 528,447 22,648 67,943 90,591 181,182 181,182 75,492 437,856Banco de Crédito e Inversiones Financial Leasing 217,127 104,362 112,765 217,127 - - - -Banco Security Financial Leasing 21 21 - 21 - - - -Scotiabank Chile Financial Leasing 200,660 60,199 140,461 200,660 - - - -Commercial accounts payable and other Accounts payable 319,275,469 319,275,469 - 319,275,469 - - - -Total 710,274,881 327,060,559 17,756,109 344,816,668 241,739,022 118,853,766 4,865,425 365,458,213
Group companies with debts are listed below, together with the respective creditor, the countries of origin, and financial conditions of these liabilities:Debtor Tax IDDebtorEntityCountryof debtorOn 12/31/2011Creditor Tax ID Creditor Countryof creditorForeignType ofAmortizationRateCashNominal rate92.580.000-7 <strong>Entel</strong> S.A. Chile 97.006.000-6 Banco de Crédito e Inversiones Chile CLP Monthly 6.37% Corriente + 1.2%92.580.000-7 <strong>Entel</strong> S.A. Chile 0-E Citibank N.A. (sindicado) USA USD Deferred annual 4.86% Libor USD90 d + 0.275%92.580.000-7 <strong>Entel</strong> S.A. Chile 0-E The Bank of Tokyo-Mitsubishi UFJ, Ltd USA USD Deferred annual 1.70% Libor USD90 d + 0.95%92.580.000-7 <strong>Entel</strong> S.A. Chile 0-E Scotiabank & Trust (Cayman) Ltd (deal) Cayman Islands USD Deferred annual 1.70% Libor USD90 d + 0.95%92.580.000-7 <strong>Entel</strong> S.A. Chile 97.006.000-6 Banco de Crédito e Inversiones Chile UF Monthly 5.41% 5.41%92.580.000-7 <strong>Entel</strong> S.A. Chile 88.381.200-K Claro Infraestructura S.A. (Telmex S.A.) Chile UF Annual 9.12% 8.70%92.580.000-7 <strong>Entel</strong> S.A. Chile 96.929.050-2 Deutsche Bank (Chile) Chile UF Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.036.000-K Banco Santander - Chile Chile UF Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.004.000-5 Banco de Chile Chile CLP Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.018.000-1 Scotiabank Chile Chile UF Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.018.000-1 Scotiabank Chile Chile CLP Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 96.929.050-2 Deutsche Bank (Chile) Chile UF Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.036.000-K Banco Santander - Chile Chile UF Deferred annual - -18292.580.000-7 <strong>Entel</strong> S.A. Chile 97.018.000-1 Scotiabank Chile Chile UF Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.080.000-K Banco Bice Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.006.000-6 Banco de Crédito e Inversiones Chile CLP - - -Report 201192.580.000-7 <strong>Entel</strong> S.A. Chile 97.032.000-8 Banco Bilbao Vizcaya Argentaria, Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.023.000-9 Corpbanca Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.004.000-5 Banco de Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.036.000-k Banco Santander - Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.030.000-7 Banco del Estado de Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.951.000-4 HSBC Bank (Chile) Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.043.000-8 JP Morgan Chase Bank, N.A. Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.006.000-6 Banco de Crédito e Inversiones Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.032.000-8 Banco Bilbao Vizcaya Argentaria, Chile Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.023.000-9 Corpbanca Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 96.929.050-2 Deutsche Bank (Chile) Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.030.000-7 Banco del Estado de Chile Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.951.000-4 HSBC Bank (Chile) Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.018.000-1 Scotiabank Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 99.012.000-5 Consorcio Nacional de Seguros S.A. Chile UF Monthly 8.03% 8.03%92.580.000-7 <strong>Entel</strong> S.A. Chile 99.185.000-7 Chilena Consolidada Seguros de Vida S.A. Chile UF Monthly 8.43% 8.43%92.580.000-7 <strong>Entel</strong> S.A. Chile 97.080.000-K Banco Bice Chile UF Monthly 8.32% 8.32%92.580.000-7 <strong>Entel</strong> S.A. Chile 96.656.410-5 Bice Vida Cía. de Seguros de Vida S.A. Chile UF Monthly 7.52% 7.52%
On 12/31/2010Debtor Tax IDDebtorEntityCountryof debtorCreditor Tax ID Creditor Countryof creditorForeignType ofAmortizationRateCashNominal rate92.580.000-7 <strong>Entel</strong> S.A. Chile 0-E Citibank N.A. USA USD Deferred annual 4.86% Libor USD90 d + 0.275%96.682.830-7 Cientec S.A. Chile 97.006.000-6 Banco de Crédito e Inversiones Chile UF Monthly 0.43% 0.43%92.580.000-7 <strong>Entel</strong> S.A. Chile 94.675.000-k Claro Comunicaciones S.A. (Telmex S.A.) Chile UF Annual 9.12% 8.70%96.652.650-5 Transam S.A. Chile 97.036.000-k Banco Santander - Chile Chile UF Monthly 6.90% 6.90%92.580.000-7 <strong>Entel</strong> S.A. Chile 96.929.050-2 Deutsche Bank (Chile) Chile UF Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.036.000-k Banco Santander - Chile Chile UF Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.004.000-5 Banco de Chile Chile CLP Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.919.000-k Scotiabank Chile Chile UF Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.919.000-k Scotiabank Chile Chile CLP Deferred annual - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.006.000-6 Banco de Crédito e Inversiones Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.032.000-8 Banco Bilbao Vizcaya Argentaria, Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.023.000-9 Corpbanca Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.004.000-5 Banco de Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.036.000-k Banco Santander - Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.951.000-4 HSBC Bank (Chile) Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.018.000-1 Scotiabank Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.053.000-2 Banco Security Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 0-E Nbank of America N.A. Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.949.000-3 Rabobank Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 97.043.000-8 JP Morgan Chase Bank, N.A. Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.032.000-8 Banco Bilbao Vizcaya Argentaria, Chile Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.023.000-9 Corpbanca Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.004.000-5 Banco de Chile Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.036.000-k Banco Santander - Chile Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 96.929.050-2 Deutsche Bank (Chile) Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97..030.000-7 Banco del Estado de Chile Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.951.000-4 HSBC Bank (Chile) Chile CLP - - -96.806.980-2 <strong>Entel</strong> PCS S.A. Chile 97.018.000-1 Scotiabank Chile Chile CLP - - -92.580.000-7 <strong>Entel</strong> S.A. Chile 99.012.000-5 Consorcio Nacional de Seguros S.A. Chile UF Monthly 8.03% 8.03%92.580.000-7 <strong>Entel</strong> S.A. Chile 99.185.000-7 Chilena Consolidada Seguros de Vida S.A. Chile UF Monthly 8.43% 8.43%92.580.000-7 <strong>Entel</strong> S.A. Chile 97.080.000-k Banco Bice Chile UF Monthly 8.32% 8.32%92.580.000-7 <strong>Entel</strong> S.A. Chile 96.656.410-5 Bice Vida Cía. de Seguros de Vida S.A. Chile UF Monthly 7.52% 7.52%96.682.830-7 Cientec S.A. Chile 97.006.000-6 Banco de Crédito e Inversiones Chile UF Monthly 4.50% 4.50%96.682.830-7 Cientec S.A. Chile 97.053.000-2 Banco Security Chile UF Monthly 5.30% 5.30%96.682.830-7 Cientec S.A. Chile 97.018.000-1 Scotiabank Chile Chile UF Monthly 6.91% 6.91%183Report 2011
Liquidity risks are controlled by financial planning that takes into account debt policies and potential third party financing sources. The low level of debt held by theGroup’s companies and access to national and international finance through bank loans and placing debt securities secures allows it to reduce long term liquidityrisks, with the exception of systematic alterations in the financial markets.In the previously included tables of expiry dates, a range of obligations for financial leasing contracts are included, whose specific expiry profiles are as follows:Minimum leasing payments 12/31/2011 12/31/2010GrossInterest Present Value GrossInterest Present ValueTh.CLP$Th.CLP$Less than one year 2,372,074 ( 727,261 ) 1,644,813 2,318,955 ( 824,722 ) 1,494,233Between one and five years 7,730,398 ( 1,600,915 ) 6,129,483 8,384,115 ( 2,023,573 ) 6,360,542More than five years 2,280,211 ( 170.458 ) 2,109,753 3,502,229 ( 381,088 ) 3,121,141Total 12,382,683 ( 2,498,634 ) 9,884,049 14,205,299 ( 3,229,383 ) 10,975,916On June 24, 2011, the parent company signed two contracts to issue dematerialized bearer debt securities up to a maximum of UF 5,000,000 each, equivalent toTh.CLP $111,470,150, with terms of 10 and 30 years. On this date, the complementary deeds were also issued for the contracts, destined to establish the individualconditions of their placement.184These contracts for issuing securities represented a strong alternative to the refinancing of liabilities undertaken by the company during the last quarter of thecurrent year. Finally, due to the prevailing economic and market conditions at the time of carrying out the refinancing, another source was chosen.16. COMMERCIAL CREDITORS AND OTHER ACCOUNTS PAYABLEReport 2011Covers the items set out in the table below:Commercial accounts payable12/31/2011Th.CLP$12/31/2010Th.CLP$Foreign correspondents 2,759,304 4,190,709Telecommunications suppliers 36,753,378 42,336,029Foreign suppliers 28,478,857 29,305,174National suppliers 205,252,293 177,040,728Other accounts payablePersonnel obligations 16,067,996 19,311,786Dividends payable 19,375,846 28,393,006Others (VAT debit, retained taxes) 17,537,098 18,698,037Total 326,224,772 319,275,469
17. OTHER PROVISIONSThe breakdown of noncurrent provisions is as follows:Provisions, current12/31/2011Th.CLP$12/31/2010Th.CLP$Legal claims 287,566 409,427Decommissioning, restoration and renovation costs 239,008 239,008Other provisions 51,688 40,835Total current provisions 578,262 689,270Provisions, noncurrentDecommissioning, restoration and renovation costs 5,123,356 4,001,616Total noncurrent provisions 5,123,356 4,001,616The changes in these provisions during the periods covered by the current financial statements are as follows:Decommissioning andrestoration costsTh.CLP$Other provisionsTh.CLP$Total provisions, initial balance (01/01/2011) 4,240,624 450,262 4,690,886TotalTh.CLP$185Increase (decrease) in existing provisions 413,626 4,370 417,996Increase for time value of money adjustment 569,001 - 569,001Increase (decrease) in foreign currency translation 12,654 6,483 19,137Other increases (decreases) 126,459 (121,861) 4,598Changes in provisions, total 1,121,740 ( 111,008 ) 1,010,732Report 2011Total provisions, final balance (12/31/2011) 5,362,364 339,254 5,701,618Decommissioning and restorationcostsTh.CLP$Other provisionsTh.CLP$TotalTh.CLP$Total provisions, initial balance (01/01/2010) 3,313,148 - 3,313,148Increase (decrease) in existing provisions 627,253 450,262 1,077,515Increase for business merger 239,008 - 239,008Increase for time value of money adjustment 61,215 - 61,215Changes in provisions, total 927,476 450,262 1,377,738Total provisions, final balance (12/31/2010) 4,240,624 450,262 4,690,886In determining provisions for restoration and renovation costs, the estimated value of the construction, demolition, or any other required activity is considered.These costs are discounted in line with the estimated terms of the contracts with the owners of the properties or sites on which installations are located, in line withtermination and renewal forecasts. These values are discounted using the cost of capital rates for each company.
18. OTHER NON-FINANCIAL LIABILITIESMainly corresponds to deferred revenue, detailed for each period in the table below.Current Noncurrent12/31/2011Th.CLP$12/31/2010Th.CLP$12/31/2011Th.CLP$12/31/2010Th.CLP$Deferred revenuePrepaid cards 11,292,574 8,328,466 - -Access charges 23,640,939 21,383,249 717,068 653,939Customer loyalty programs - - 6,526,611 2,197,340Leasing of underwater cables 176,650 165,047 937,885 1,046,851Other 2,864,599 2,166,529 - 898,270Advances of applicable state subsidies 2,948,603 9,591,468 972,337 -Other deferred liabilities - - 3,467,831 2,795,849Total 40,923,365 41,634,759 12,621,732 7,592,24919. STAFF BENEFITS AND EXPENSES186a) Workforce CostsReport 201101/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Salaries 87,409,174 78,345,395Short-term benefits for employees 12,444,218 13,990,210Costs of post-employment benefit obligations 643,884 ( 2,093,086 )Severance benefits 7,401,724 5,488,944Other staff costs 17,379,220 16,388,360Total 125,278,220 112,119,823b) Compensation for Years of Service (Post-Employment and Severance Benefits)The Parent company retains the most significant agreements for compensation for years of service with employee and executive segments.The right to receive this benefit and the determination of its value are regulated by the respective agreements, taking into account factors such as years of service,permanency, and remuneration.
The benefit is provided to staff through the <strong>Entel</strong>–Chile Mutual Corporation, jointly financed by both employees through a monthly contribution of 2.66% of their basesalary, and by the company, which must contribute supplementary funds required on an annual basis as required to meet payment of compensation to a maximumof 3% of the workforce.Liabilities recorded as of December 31, 2011 and 2010, designated for post-employment benefits were Th.CLP $7,651,126 and Th.CLP $8,182,456, respectively,representing the current value of severance pay accrued on those dates after deducting the values available from the Mutual Corporation.In addition to agreements held by the parent company, the subsidiaries <strong>Entel</strong> Call Center S.A. and Cientec S.A. have agreements to cover severance pay for yearsof service in the case of redundancy, which have been designated as Severance Benefits. The total accrued by these subsidiaries for each period is Th.CLP $66,948and Th.CLP $75,356, respectively.The change in balances of post-employment obligations for the parent company is as follows:Transactions 12/31/2011Th.CLP$12/31/2010Th.CLP$Present value of obligation, initial balance 8,182,456 9,663,719Cost of current service 643,884 480,264Cost for obligation Interest 485,950 611,823Current losses (earnings) of obligation - ( 2,051,137 )Contributions paid to plan ( 1,661,164 ) ( 522,213 )Present value of obligation, final balance 7,651,126 8,182,45612/31/2011 12/31/2010187Discount rate 6.90% 6.50%Salary increment rate 1.00% 1.00%Turnover rate 6.29% 6.29%Death rate RV-2004 RV-2004Report 201120. EQUITYChanges in equity throughout 2011 and 2010 are detailed in the Statement of Changes in Shareholder Equity_CapitalThe Company maintains a series of shares without nominal value in circulation which are fully paid-in. This number of shares corresponds to the capital authorizedby the Company.ClassNo. subscribed sharesTh.CLP$No. paid-in shares No. shares with voting rights Subscribed capitalTh.CLP$Paid-in capitalTh.CLP$SINGLE 236,523,695 236,523,695 236,523,695 522,667,566 522,667,566
Between January 1, 2010 and December 31, 2011, no changes were recorded for issuing, surrenders, reductions, or any other circumstances.The portfolio does not contain shares in its own companies.There are no reserves or commitments to issue shares to cover option and sale contracts._Cumulative Earnings (Losses)As of December 31, 2011 and 2010, these suffered decreases of Th.CLP $54,229,998 and Th.CLP $51,625,565, respectively. These values correspond to the provisionaldividends paid out for these years, plus the provision for the remaining distribution for compliance with the legal minimum dividend.The remaining provisions to meet the legal minimum dividend are CLP $12.61 and CLP $100 per share for the respective years._Dividend PolicyIn line with Act 18,046, and except when another agreement has been reached at the shareholders meeting by unanimity of shares issued, at least 30% of any profitmade by public limited companies must be paid as a dividend.188The company’s dividend distribution policy that is currently in force establishes dividends in excess of the legal minimums. However these limits set maximumsand as such any dividends paid in excess of the legal minimum are discretionary. With respect to the above, the company does not make dividend provisions inexcess of the legal minimum.Report 2011The policy communicated at the most recent ordinary shareholders meeting held on April 26, 2011, will consider proposing payments of up to 80% of profits foreach financial year, conditional on the company’s annual results, investment requirements, and the safeguards established in long term bank loan agreements towhich the Company is committed with respect to debt, liquidity and financing.The Chilean Securities and Insurance Supervisor requires the parent company to define a policy for handling income originating from the adjustment of assets andliabilities to fair value. As such, the company has established a policy of deducting the unrealized profits that would have been generated from the income to bedistributed.In terms of profits for the 2010 financial year, this corresponded to a reduction of Th.CLP $885,992 for the adjustment of non-hedge financial derivative contracts tofair value. With respect to the profits for 2011, no adjustments are required to be made in this respect.Except for the conditions referred to in the previous paragraphs, the company is not subject to additional restrictions for the payment of dividends._Dividend paymentsAt the ordinary shareholders meeting, held on April 26, 2011, it was agreed to make a final dividend payment of CLP $445 per share, equivalent to Th.CLP $105,253,044.The dividend was payable on May 24, 2011.At the ordinary shareholders meeting, held on April 29, 2010, it was agreed to distribute a final dividend payment of CLP $350 per share, equivalent toTh.CLP $82,783,293. The dividend was payable on May 25, 2010.At the board meeting held on November 7, 2011, the board agreed to pay an interim dividend of CLP $150 per share, equivalent to a total of Th.CLP $35,478,554. Thedividend was payable on December 12, 2011.At the board meeting held on November 9, 2010, the board agreed to pay an interim dividend of CLP $100 per share, equivalent to a total of Th.CLP $23,652,370. Thedividend was payable on December 13, 2010.
_Other reservesThe other reserves present in the Statement of Changes in Equity are of the following nature:Reserves for Foreign Currency Translation – This value reflects the cumulative results of exchange rate fluctuations when converting the financial statements ofsubsidiaries based outside of Chile from their working currency to the Group’s reporting currency (Chilean Pesos).Cash Flow Hedge Reserve – Corresponds to the difference between the spot and fair values of cash flow hedge contracts (CCS) classified as effective. Net of deferred tax.These values are transferred to income upon maturity of the contract.Other Reserves – Charges and credits to equity for the adjustments to be made for the first-time application of the International Financial Reporting Standards(IFRS), effective from January 1, 2008.The main balances for controlled adjustments in this reserve correspond to deferred tax liabilities and prepaid revenue from customers not recorded on this datefor Th.CLP $10,866,212 and Th.CLP $8,215,281, respectively.Additionally, in accordance with Act 18,046, Article 10, , and Circular 456 of the Chilean Securities and Insurance Supervisor, the revaluation of paid-in capital for2008 must be listed under this item.21. EARNINGS PER SHAREEarnings per share are as follows:18901/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Earnings (losses) attributable to holders of stock instruments in controlling shareholder equity 180,766,659 172,971,209Report 2011Income available to ordinary shareholders, basic 180,766,659 172,971,209Weighted average of no. of shares, basic 236,523,695 236,523,695Basic earnings (losses) per share 764,26 731,31The calculation of basic earnings per share for 2011 and 2010 is based on profit attributable to shareholders and the number of single class shares. The companyhas not issued convertible debt or other equity instruments. Consequently there are no factors that could cause the dilution of the company’s earnings per share.
22. INCOME AND EXPENDITUREa) Ordinary RevenueThe Group’s revenue is principally derived from services. Sales of goods are not significant and are viewed as accessories to services. Breakdown by type of serviceis as follows:01/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Provision of mobile services 966,400,498 839,622,831Provision of wireline services 234,933,530 217,019,496Other services 29,464,224 26,952,814Total ordinary revenue 1,230,798,252 1,083,595,141190b) Other RevenueThe breakdown of this item for each year is as follows:Report 201101/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Revenue from commercial interests 1,263,873 998,853Revenue from leasing 2,895,881 1,840,554Net revenue from insurance settlement 6,920,792 -Other revenue 492,396 1,463,752Total other revenue 11,572,942 4,303,159The item Net Revenue for Insurance Settlement records the net effect of charges and credits to income for the earthquake that affected the central zone of Chile atthe start of 2010.For 2010, the charges for deterioration in value, write-offs, and the costs of repairing assets were Th.CLP $7,646,329. This value was offset by provisions made inthe estimation of insurance compensations to the same value.The repair work to facilities and valuation of damages were completed in 2011. Similarly, the insurance loss adjuster issued the final settlement for damagesto assets and facilities, and losses for stoppage. The valuation of the damages was adjusted based on this information, with an allocation against income forTh.CLP $1,085,315 and a credit for Th.CLP $8,006,107 was recorded to adjust the estimates of compensation provisions from the previous year to the value of thefinal settlement.
c) Ordinary ExpenditureThe breakdown of other expenses for each year is as follows:01/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Access charges and shares to correspondents (182,665,119) (170,820,924)Outsourcing and materials (26,321,220) (25,596,064)Marketing, commissions and sales costs (180,048,248) (139,265,121)Leasing and maintenance (90,090,676) (81,161,819)Other (89,680,842) (86,569,700)Total other expenditure (568,806,105) (503,413,628)d) Financial Revenue and ExpenditureThe breakdown of financial revenue and expenditure for each year is as follows:01/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$191Interest on term deposits (loans and accounts receivable) 2,673,162 970,282Interests on financial leases provided 386,131 411,006Total financial revenue 3,059,293 1,381,288Report 2011Expenditure on interest, loans (liabilities at amortized cost) (2,050,654) (2,381,578)Amortization of expenditure for the credit contracts (806,643) (682,529)Rate hedges (CCS) (4,907,068) (4,434,627)Non-hedge rate derivatives (53,732) (80,345)Expenditure on interest, financial leasing (837,835) (986,016)Expenditure on interest, post-employment benefit plans (485,950) (611,823)Expenditure on Interest, other (905,708) (584,021)Other financial costs (268,073) (139,872)Total financial costs (10,315,663) (9,900,811)Total financial income, net (7,256,370) (8,519,523)The net financial income includes the following interest with respect to assets and liabilities not measured at fair value with change in income:Total revenue for interest from financial assets 3,059,293 1,381,288Total expenditure for interest from financial liabilities (5,086,790) (5,245,967)
23. ASSETS AND LIABILITIES IN FOREIGN CURRENCIESThe information regarding balances of assets and liabilities in foreign currencies is provided below.Class of asset Currency 12/31/2011Th.CLP$Values not discounted according to expiries1–90 days 91 days – 1 year 1–3 years 3–5 yearsCash and cash equivalents Dollars 1,023,299 1,023,299 - - -Peruvian Sol 785,715 785,715 - - -Euro 9,311 9,311 - - -Other current financial assets Dollars 250,068,924 64,108,792 185,960,132 - -Other current non-financial assets Dollars 128,446 128,446 - - -Peruvian Sol 14,143 14,143 - - -Commercial debtors and other accounts receivable, current Dollars 6,865,546 6,865,546 - - -Peruvian Sol 1,670,175 1,670,175 - - -Euro 4,139,857 4,139,857 - - -Current tax assets Peruvian Sol 1,066,064 - 1,066,064 - -Other noncurrent financial assets Dollars 89,664,668 - - 89,664,668 -Noncurrent rights receivable Peruvian Sol 476,023 - - 476,023 -Intangible assets Peruvian Sol 4,845,860 - - - -Property, plant and equipment Peruvian Sol 10,192,789 - - - -192Deferred tax assets Peruvian Sol 1,267,102 - - - -Total assets in foreign currency 372,217,922Dollars 347,750,883Report 2011Peruvian Sol 20,317,871Euro 4,149,168Class of liabilities Currency 12/31/2011Th.CLP$Values not discounted according to expiries1–90 days 91 days – 1 year 1–3 years 3–5 years More than 5 yearsOther financial liabilities, current Dollars 730,964 179,752 551,212 - - -Commercial accounts payable and other accounts payable Dollars 40,008,963 40,008,963 - - - -Euro 6,566,918 6,566,918 - - - -Peruvian Sol 767,997 767,997 - - - -Other financial liabilities, noncurrent Dollars 309,312,292 - - 309,312,292 - -Provisions, noncurrent Dollars 92,360 - - - - -Deferred tax liabilities Peruvian Sol 419,487 - - - - -Total liabilities in foreign currency 357,898,981Dollars 350,144,579Peruvian Sol 1,187,484Euro 6,566,918
Class of asset Currency 12/31/2011Th.CLP$Values not discounted according to expiries1–90 days 91 days – 1 year 1–3 years 3–5 yearsCash and cash equivalents Dollars 1,045,108 1,045,108 - - -Peruvian Sol 836,143 836,143 - - -Euro 13,370 13,370 - - -Other current financial assets Dollars 151,428,667 51,976,542 99,452,125 - -Euro 932,295 932,295 - - -Other current non-financial assets Dollars 67,647 67,647 - - -Peruvian Sol 554,981 554,981 - - -Commercial debtors and other accounts receivable, current Dollars 6,514,665 6,514,665 - - -Peruvian Sol 3,243,623 3,243,623 - - -Inventory Peruvian Sol 2,251 - - - -Current tax assets Peruvian Sol 975,198 - 975,198 - -Other noncurrent financial assets Dollars 153,282,795 - - 69,450,127 83,832,668Noncurrent rights receivable Peruvian Sol 1,140,802 - - 1,140,802 -Intangible assets Peruvian Sol 4,336,547 - - - -Property, plant and equipment Peruvian Sol 7,627,769 - - - -Total assets in foreign currency 332,001,861193Dollars 312,338,882Peruvian Sol 18,717,314Euro 945,665Report 2011Class of liabilitiesMonedaExtranjera12/31/2010Th.CLP$Values not discounted according to expiries1–90 days 91 days – 1 year 1–3 years 3–5 years More than five yearsOther current financial liabilities Dollars 68,580 68,580 - - - -Commercial accounts payable and other Dollars 34,479,913 34,479,913 - - - -Euro 1,004,053 1,004,053 - - - -Peruvian Sol 1,757,041 1,453,728 303,313 - - -Deg 133,652 133,652 - - - -Other noncurrent financial liabilities Dollars 279,337,934 - - 93,112,645 186,225,289 -Deferred tax liabilities Peruvian Sol 339,769 - - - - -Other noncurrent non-financial liabilities Dollars 11,456 - - 11,456 - -Total liabilities in foreign currency 317,132,398Dollars 313,897,883Peruvian Sol 2,096,810Euro 1,004,053Deg 133,652
At the end of each accounting period, the Group companies hold derivative contracts for exchange rate protection (foreign currency forwards) and the substitutionof obligations in dollars at variable interest rates for obligations in the national currency index at a fixed rate (Cross Currency Swap - CCS). In the previous tables,only the foreign currency element of these contracts is included.24. FOREIGN CURRENCY TRANSLATION AND INCOME FROM INDEXESThe origins of effects on income from currency translation and the application of currency indexes throughout the indicated periods are as follows:Cumulative194Report 2011Foreign currency translation01/01/201112/31/2011Th.CLP$01/01/201012/31/2010Th.CLP$Cash and equivalents 1,166,794 95,331Commercial debtors and other accounts receivable (24,352) 7,624Commercial creditors and other accounts payable (2,243,298) 1,955,144Interest accruing loans (31,876,000) 23,454,000Derivative instruments, effect rates at close (FW) 21,230,796 ( 16,606,292 )Derivative instruments, effect rates at close (CCS) 12,285,600 ( 9,102,500 )Derivative instruments, effect rates at close (Call) 117,350 -Derivative instruments, effect fair value (FW) (7,520,400) 1,590,982Derivative instruments, effect fair value (CCS) (31,056) 74,966Derivative instruments, effect fair value (Call) (174,050) ( 140,669 )Other liabilities 719,239 ( 32,309 )Total foreign currency translation ( 6,349,377 ) 1,296,277Income from currency indexesOther assets 367,061 213,628Interest accruing loans (13,451) ( 22,871 )Derivative instruments, effect rates at close (CCS) (5,648,688) ( 3,526,819 )Other liabilities - ( 1,013 )Results for currency indexes ( 5,295,078 ) ( 3,337,075 )
25. OPERATIONAL LEASESThe main operational leasing agreements as lease holder refer to contracts for telecommunication signal transmission capacities, vehicle floats, the provision ofcables to third party carriers, leases, and usage rights for urban and rural real estate for the installation of technical nodes.Minimum future payments 12/31/2011Th.CLP$12/31/2010Th.CLP$Up to one year 56,230,306 44,225,492Between one and five years 167,868,731 100,392,198Total 224,099,037 144,617,69001/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Leasing installations recognized in income 51,549,703 46,177,214Operational leases in the capacity of leasing party refer to contracts associated with the leasing of networks to other telecommunications operators and data centerservices (housing, hosting, virtual servers, etc.).195Minimum future payments 12/31/2011Th.CLP$12/31/2010Th.CLP$Up to one year 176,650 174,384Between one and five years 706,600 648,395More than five years 231,284 398,456Total 1,114,534 1,221,235Report 201101/01/201112/31/2011Th.CLP$Cumulative01/01/201012/31/2010Th.CLP$Leasing installations recognized in income 176,650 165,047As of December 31, 2011, there are no contingent installments to be recorded as paid.
26. FINANCIAL INFORMATION BY SEGMENTThe <strong>Entel</strong> Group has developed management information systems that can provide financial information broken down into fine degrees of separation in order tomake decisions for the allocation of resources and performance evaluation.The most relevant segmentation used for decision making purposes uses subgroups of operating companies which operate in the following business areas:1. Telecommunications over Mobile NetworksThis operating segment is represented by a group of subsidiaries that deploy and operate networks and licenses for the provision of mobile telecommunicationservices.These services include voice, value added services, data, broadband, and mobile Internet.2. Telecommunications and Other Services over a Fixed NetworkThis segment is represented by a group of companies focused on the operation of fixed telecommunications service networks and concessions. It provides thefollowing services: data networks, local telephone services, Internet access, long distance public telephone services, integration of IT services (data center, BPO andoperational continuity), network leasing, and wholesale traffic services.1963. International Operations and Other ActivitiesReport 2011This essentially corresponds to the company’s operations in Peru, which include the provision of business services, as well as long distance and wholesale trafficservices.It also includes the operations of subsidiaries providing call center services to the corporate market and Group companies.The information relative to each of these segments as of December 31, 2011 and 2010, is as follows:Transactions between segments are recorded for the periods in which services were provided or assets were transferred, taking into account market prices.International operations delivered through subsidiaries in Peru generated revenue of Th.CLP $22,179,440 for the 2011 financial year, equivalent to 1.8% of Grouprevenue from ordinary activities.
General information on income, assets and liabilities, 12/31/2011Mobile networkTh.CLP$Segment DescriptionFixed networkTh.CLP$Abroad Companiesand OtherBusinessesTh.CLP$RemovalsTh.CLP$Income from ordinary activities from external customers 966,400,498 234,933,530 29,464,224 - 1,230,798,252Income from ordinary activities between segments 8,351,596 81,287,816 16,053,257 (105,692,669) -Revenue from interest, segment 819,764 14,913,447 273,315 (12,947,233) 3,059,293Costs from interest, segment (12,527,494) (10,560,714) (174,688) 12,947,233 (10,315,663)Revenue from interest, net, segment (11,707,730) 4,352,733 98,627 - (7,256,370)Depreciation and amortization, segment ( 202,689,865 ) (64,135,736) (3,080,648) 107,575 (269,798,674)Significant revenue and expenditure items ( 586,759,498 ) (212,963,805) (40,278,484) 105,585,094 (734,416,693)Segment earnings (loss) above that reported 173,595,001 43,474,538 2,256,976 - 219,326,515Expenditure (revenue) for income tax ( 33,595,452 ) (4,748,591) (215,813) - (38,559,856)Segment earnings (loss) above that reported, total 139,999,549 38,725,947 2,041,163 - 180,766,659Assets for segments 964,428,805 935,200,783 66,579,911 (408,195,493) 1,558,014,006Disbursements of non-monetary assets for segment 252,030,535 109,794,457 4,044,404 - 365,869,396Liabilities for segments 559,619,404 602,545,329 26,322,938 (403,550,756) 784,936,915TotalTh.CLP$General information on income, assets and liabilities, 12/31/2010Mobile networkTh.CLP$Segment DescriptionFixed networkTh.CLP$Abroad Companiesand OtherBusinessesTh.CLP$RemovalsTh.CLP$Income from ordinary activities from external customers 839,622,831 217,019,496 26,952,814 - 1,083,595,141Income from ordinary activities between segments 11,904,019 73,168,843 13,250,454 (98,323,316) -Revenue from interest, segment 54,422 12,608,595 218,468 (11,500,197) 1,381,288TotalTh.CLP$197Report 2011Costs from interest, segment (11,628,968) (9,556,678) (207,508) 11,492,343 (9,900,811)Revenue from interest, net, segment (11,574,546) 3,051,917 10,960 - (8,519,523)Depreciation and amortization, segment (168,024,671) (62,376,632) (2,916,029) 117,860 (233,199,472)Significant revenue and expenditure items (523,026,621) (181,965,747) (37,527,692) 98,213,310 (644,306,750)Segment earnings (loss) above that reported 148,901,012 48,897,877 (229,493) - 197,569,396Expenditure (revenue) for income tax (22,022,265) (1,983,179) (592,743) - (24,598,187)Segment earnings (loss) above that reported, total 126,878,747 46,914,698 (822,236) - 172,971,209Assets for segments 884,085,283 801,808,450 61,118,296 (257,737,880) 1,489,274,149Disbursements of non-monetary assets for segment 206,107,116 109,051,639 2,238,900 - 317,397,655Liabilities for segments 483,168,232 513,158,862 24,555,997 (252,983,465) 767,899,626The charges against income for impairment to noncurrent assets during 2011 were Th.CLP $6,416,735, mainly affecting the wireline business segment. Charges forthis concept in the same period of the previous year were Th.CLP $4,688,632, with Th.CLP $3,924,840 charged against the wireline business and Th.CLP $763,792against international companies.Results for both 2011 and 2010 have not been affected by the discontinuation of any kind of operations.
27. RISK MANAGEMENT_The Risk of Technological ChangeChanges in telecommunications technology make it necessary to continuously review investment plans to ensure they are aligned with our goal of responding tochanges in connectivity requirements adopted by markets. Changes in technology can be caused both by modifications to patterns of demand and the developmentof new forms of communication associated with their applications and the speeds used. The periods of obsolescence for investments in new technology may be lessthan those taken into account when the investment is made, meaning that the initial estimations of expected profitability may not be met.This makes the risk of technological change an inherent part of the industry in which <strong>Entel</strong> operates and the company’s position at the cutting edge of technologicaldevelopment means it is essential for it to actively manage technological risk for it to maintain this position and remain competitive.Accordingly, <strong>Entel</strong> has an active and continuous policy of adopting cutting-edge technologies as a strategic part of its growth and development, although alwayssubject to a continuous review of their profitability. This has allowed <strong>Entel</strong> to position itself at the forefront of technology, adapting to the use of new technologies andmaking the transition from offering a single product to becoming integrated connectivity provider and continuously offering new ways of doing business. The appearanceand development of new technologies has enabled <strong>Entel</strong> to grow, integrate, and diversify, reducing its exposure to individual business areas and segments._Regulatory Risks198Regulation plays an important role in the telecommunications industry. Stable regulations and criteria allow for the adequate evaluation of projects and the reductionof the risk inherent in investments, making close monitoring of regulatory changes important. In this respect, 2011 saw the implementation of the variousregulatory directives published at the end of 2010.Report 2011However, in January 2011, the <strong>Entel</strong> Phone tariff restructuring process to fix access charges and other facilities provided to other telecommunications concessionholders should have been complete, having been planned to last for five years from this date. As of the end of 2011, the decree was still being processed, howeverwhen it has been finalized and published, it will be applied retrospectively from January 2011.The introduction of network neutrality into the General Telecommunications Act, the main function of which is to establish requirements to provide users with betterinformation, will affect the market by making it possible to carry out comparisons between different operators and make more informed decisions as a result of thenew information. In 2011, the initiative was complemented by a regulation requiring companies providing Internet access to make certain information available ontheir websites and undertake quarterly measurements of technical indicators for services providing access to the Internet. The regulation is already in operationand its first impact will be felt during the coming year with the publication of the figures for the technical indicators.In the national long distance business the number of primary geographical areas defined for national communications was reduced from 24 to 13 in October 2011.It is estimated that this legal modification will have no relevant effects on <strong>Entel</strong>’s revenue for the coming three years, however, the regulations stipulate that 37months after the law has come into force (i.e. the start of 2015), and subject to a favorable report from the Tribunal for the Defense of Free Competition, the nationallong distance category will be removed. As such, from this date, fixed local telephone services will operate in the same way as mobile telephone services, withouta requirement to make use of a carrier for calls between different geographical areas within the country.In addition to this, in line with legal modifications made at the end of 2010, in 2011, the first steps will be taken in the implementation of number portability, takingeffect throughout the country from January 16, 2012 and allowing subscribers from different fixed and mobile telephone companies to switch supplier while keepingthe same number. In the first phase, changes are only possible between companies operating within the same type of network (e.g. from one mobile to another).This new competitive scenario was first rolled out in Arica’s primary fixed telephony zone during December 2011. It was then followed by mobile telephone services(national) on January 16, then fixed telephone services for the Metropolitan Region in March, after which point it will be rolled-out progressively to incorporatenew primary zones. The intention is that the gradual implementation of the system for the wireline network will be complete on a national scale during the secondquarter of 2012.Similarly, during 2011, and following a number of years of processing, the legislative debate in congress to regulate the installation of antennae for the emission andtransmission of telecommunications services was completed. In its third stage, the mixed commission approved a bill of law with favorable votes in both chambers
at the start of January for subsequent enactment and publication in the Official Gazette, subject to procedures by the Constitutional Court regarding its constitutionalorganic regulations. This initiative regulates the installation of antennae in order to tackle the impact of development on the urban environment through stricterrequirements at a municipal level, as well as the regulation of other aspects relating to the installation of antennae, such as co-location, and compensation forthose living nearby in certain areas, something which may have an impact on the development of telecommunications networks and imply additional investments.In addition to this, the company has continued to pay attention to the telecommunications convergence process driven by the new government through initiativesseeking to increase the diversity of uses of the radio electric spectrum for telecommunications services. This is in addition to communications from the industryregulator regarding new spectrum to be tendered in the medium term, something of fundamental importance to the expansion of the company’s operations. In thisrespect, during December 2011, the Ministry of Transport and Telecommunications published the invitation for a new tender for spectrum on the 2600 MHz band,used in the majority of countries for the development of LTE technology (Long Term Evolution or 4G).There is also currently an investigation under way by the Tribunal for the Defense of Free Competition to review telephone services that have different tariffs forcalls to other networks; similarly, the provision of telecommunications services in product bundles is also being analyzed. In this process, presentations are alreadybeing made by all stakeholders, and the tribunal is considering the information in order to issue a resolution with respect to the material.All these regulatory changes being introduced by the authority provide new business opportunities. Additionally, the diversity and relative size of <strong>Entel</strong> cushion itfrom the effects of adverse or inadequate regulation, reducing the risk created for its operations, cash flows, wealth creation for shareholders, and contribution tothe community. However, within a regulated industry such as the one in which <strong>Entel</strong> operates, changes in regulations or in the policies made by legal and regulatoryauthorities cannot be ruled out and have the potential to impact negatively upon the results of the company or restrict its possibility for growth._Exchange Rate Risks<strong>Entel</strong>’s financing is largely denominated in foreign currencies as a result of signing a syndicated loan and another credit agreement provided by two banks in December2011 (Tokio-Mistubishi and Scotiabank). Furthermore, a proportion of <strong>Entel</strong>’s suppliers permanently generate obligations for foreign currency payments. Bothcomponents represent liabilities whose value changes on a daily basis as a result of exchange rate fluctuations. As a result of this, <strong>Entel</strong> takes out short- and longtermcontracts in foreign currency assets (hedge derivatives) to protected the value against these variations and thus eliminate risk from exchange rate fluctuations.199Report 2011_Interest Rate RisksThe company’s policy establishes that the debt structure must be held with a maximum of 60% at variable interest rates. In the event that debts rise above thislimit, the company will structure the corresponding financial instruments to ensure compliance with this policy. The proportions of variable-rate debt exposed tofluctuations in the estimated rate behave in a manner sufficiently similar to the assets of the business and reflects the EBITDA generated during each financial year.As of December 31, 2011, the Group had credit in foreign currency to the value of USD $600 million, accruing interest based on the variable Libor rate and impactingon the fluctuations of the financial expenditure in the Income Statements. In order to mitigate the effects of these variations, the management takes out financialcontracts for rate derivatives (Cross Currency Swap), hence fixing a significant proportion of the interest paid.When there is a rise in the Libor base rate according to market forecasts, the Group’s annual financing costs increase, although they are still within the limits establishedby the management and the financial safeguards guaranteed to its creditors._Credit RiskThe credit risk related to the balances of accounts held with banks, financial instruments, negotiable stocks, and derivatives is managed by the finance area in linewith the policies devised to maintain the invested capital. These policies insure the diversification of risk through pre-established limits for duration of placement,percentage by institution, and risk of the instruments in which cash surpluses are invested. The investment instruments approved for use are those issued by theChilean Central Bank or banking subsidiaries with high risk ratings. Investments may be denominated in the local currency or in main foreign currencies.
Risk exposure associated with the recovery of accounts receivable originating from commercial operations, is derived from the terms of payment that must beoffered, due to the nature of the telecommunications industry, to direct customers, intermediaries, and other national and international operators with whom reciprocalconnection agreements are held.Risk management for accounts receivable is designed to minimize exposure, insofar as possible given market conditions. Risk management processes are differentiatedaccording to debtors profiles, in line with segmented portfolio controls: these include people, businesses, corporations, telecommunications companies,correspondence, distributors, large retailers, and other channels for the distribution of goods and services.For each segment, there are prospective and predictive models that make it possible to devise policies depending on the origin of the debt. These range from theprepaid services used for the highest risk customer/product combinations, all the way to the establishment of credit limits, with and without collateral guarantees,credit insurance, and other alternatives, evaluated on a case-by-case basis._Liquidity RiskIn terms of providing the required liquidity to meet financial obligations in a timely manner, <strong>Entel</strong> pays future expiries in advance, seeking an option on the marketthat can provide funds in a timely manner. During 2011, the amortization installment due in June 2012 was paid in advance, thus avoiding the potential risks of thedebt market.For more detail, the expiry dates of financial liabilities are detailed in note 15.20028. CONTINGENCIES, LITIGATION AND FINANCIAL RESTRICTIONSContingencies for the direct commitments of the Group companies as of December 31, 2011 and 2010. are related to:Report 2011a. Contingencies for direct commitments from international purchase orders of Th.CLP $50,356,114 and Th.CLP $6,516,278 for each period.The totality of these purchase orders are recorded in foreign currencies and have been converted according to the current exchange rates at each end of period.b. Contingency for bank guarantee deposits provided to guarantee faithful contract compliance, the award of 900 MHz frequencies, and the replacement of publicusage assets for the construction and maintenance of networks. The values of current invoices for each period were Th.CLP $17,584,416 and Th.CLP $15,533,597,respectively.c. As of December 31, 2011, lawsuits and legal action of a significant nature that may represent a contingency of loss for the Company are as follows:_Bordachar v. <strong>Entel</strong> S.A.Court: Civil Court No. 6, Santiago de Chile.Case No.: 9088-2005.Notification: September 6, 2005.Matter: Ordinary large claims trial. Compensation for damages.Claimant: Gerard Phillippe Bordachar Sotomayor.Request: Payment of compensation for moral damages to the claimant and his daughters, as represented by the claimant, for a total of CLP $225,000,000.Cause of action: Publication of information regarding an investigation by television channel Canal 13 into Universidad Católica on the <strong>Entel</strong> website.Current procedural stage: Sentence dated June 3, 2010, rejects claim with costs. August 2, 2010, claimant files appeal. Pending review of case. Case No. 5293-2010.On September 8, 2011 the claimant filed an Inapplicability Requirement with the Constitutional Court for Article 2,331 of the Civil Code, Case No. 2085-2011. Pendingexamination of requirement.Probable outcome: It is considered likely the case will be rejected on poor legal grounds.
_Grupo Consultor en Telecomunicaciones Ltda. v. <strong>Entel</strong> S.A. and <strong>Entel</strong>phone S.A.Grupo Consultor en Telecomunicaciones Ltda. v. <strong>Entel</strong> S.A. and <strong>Entel</strong>phone S.A.Court: Civil Court No. 7 Santiago de Chile.Case No.: 7749-2010.Notification: August 11, 2010.Matter: Compliance with contract, including compensation for damages.Claimant: Grupo Consultor en Telecomunicaciones Ltda.Request: Compliance with contract, including compensation for damages of CLP $150,177,002.Cause of action: Alleged non-compliance of accused.Current procedural stage: On September 1, 2010, <strong>Entel</strong> and <strong>Entel</strong>phone raise objection of gross incompetence. On September 6, claimant complied with transfergranted. Pending resolution of objection lodged. File No: 551-2010.Probable outcome: It is considered likely the case will be rejected on poor legal grounds._Asistencia Electrónica v. <strong>Entel</strong> S.A.Court: Civil Court No. 8, Santiago de Chile.Case No.: 26,542-2009.Notification: November 4, 2009.Matter: Ordinary case for compensation of damages.Claimant: Sociedad Asistencia Electrónica S.A. represented by Ismael Jara Gallardo.Request: Damages of CLP $100,000,000.Cause of action: Publishing arrears in trade registers.Current procedural stage: <strong>Entel</strong> objects, claiming incompetence in principal and subsequently contesting on January 22, 2010; notification of incompetence servedalthough still not resolved. File No: 278-2009.Probable outcome: It is considered likely the case will be rejected on poor legal grounds.201_José Miguel Muñoz Díaz v. <strong>Entel</strong>.Court: Civil Court No. 15, Santiago de Chile.Case No.: 12006-2005.Notification: August 6, 2008.Matter: ordinary large claims trial. Indemnity for damages.Claimant: José Miguel Muñoz Díaz.Request: Damages, compensation for CLP $100,000,000.Cause of action: The provision of incomplete and erroneous information regarding remunerations of the claimant. It is alleged this would have resulted in receivingless benefits as an exonerated politician.Current procedural stage: Sentence dated May 25, 2010 rejects case and acquits <strong>Entel</strong> S.A. Notification of sentence on October 14, 2010. Claimant files appeal. Caseno. 6661-2010. Pending review of case.Probable outcome: It is considered likely the case will be rejected on poor legal grounds.Report 2011_Promotora Promout v. <strong>Entel</strong> y <strong>Entel</strong>phone S.A.Court: Civil Court No.18, Santiago de Chile.Case No.: 1250-2006. Notification: March 17, 2006.Defendants: <strong>Entel</strong> S.A. and <strong>Entel</strong>phone.Request: Compensation of UF 46,000 for consequential and moral damages.Cause of action: Alleged damages due to non-compliance with telemarketing contract.Current procedural stage: On May 11, 2009, the case entered the discovery stage. Pending notification.Probable outcome: It is considered likely the case will be rejected on poor legal grounds._Agrícola El Carrizal v. <strong>Entel</strong> S.A.Court: Civil Court No. 25, Santiago de Chile.Case No.: 36,055-2009.Notification: January 22, 2010.
Matter: Termination of easement contract with compensation for damages. Substitute claim for extracontractual liability.Claimant: Agrícola El Carrizal S.A.Defendant: Empresa Nacional de Telecommunicaciones S.A.Request: Termination of easement contract and <strong>Entel</strong> to pay CLP $1,374,188,309 for consequential and moral damages, and loss of earnings.Cause of action: Alleged damages caused by fire on premises of claimant’s property.Current procedural stage: Case filed by insurance (Luís Sandoval Olivares). Discussion stage complete. Ordinary evidence stage closed. Pending review of evidence._Treasury v. <strong>Entel</strong> S.A.Court: Civil Court No. 16, Santiago de Chile.Case No.: 23,740-2006.Notification: January 8, 2007.Matter: Ordinary Treasury Lawsuit for payment of CLP $996,711,294 plus adjustments for inflation and interest.Claimant: State Defense Council.Request: Reimbursement of a sum paid by the Ministry of Public Works to move telecommunications cables.Cause of action: Payment made in error by the Treasury in January, 2002.Current procedural stage: On August 31, 2009 ruling made accepting lawsuit against <strong>Entel</strong>. Ruling confirmed by Appeal Court (Case No.: 7,445-2009). On October29, 2010, <strong>Entel</strong> filed for cassation in form and content, which was granted on November 9. Pending review of resource in Supreme Court. Supreme Court Case No.:286-2011. Inapplicability requirement presented May 30, 2011, Case No. 1993-2011. December 1 2011, proceeded to hear case, agreement reached for this date.Probable outcome: It is believed that the Supreme Court should accept the motion, without affecting consideration of exercising of other actions.202Report 2011_Ceballos v. <strong>Entel</strong> S.A.Court: Civil Court No. 27, Santiago de Chile.Case No.: 9,893-2007.Notification: July 13, 2007.Matter: Ordinary case for termination of contract and compensation for damages.Claimant: Doris Yanet Ceballos Pilcol.Request: Contractual responsibility and compensation for damages of approx CLP $150,000,000.Cause of action: Non-fulfillment of contract.Current procedural stage: Discussion stage completed. Pending notification of parties to produce evidence. Archival of file at court, from August 6, 2010.Probable outcome: It is considered likely the case will be rejected on poor legal grounds._Treasury v. <strong>Entel</strong> S.A.Court: Civil Court No. 16, Santiago de Chile.Case No.: 19,384-2008.Notification: October 23, 2008.Matter: Ordinary Treasury Lawsuit for payment of CLP $242,844,230 plus adjustments for inflation and interest.Claimant: State Defense Council.Request: Reimbursement of a sum paid by the Ministry of Public Works to move telecommunications cables.Cause of action: Erroneous payment made by Autopista Central.Current procedural stage: Conviction dated December 20, 2011. Pending notification.Probable outcome: It is considered likely the case will be rejected on poor legal grounds._Treasury v. <strong>Entel</strong> S.A..Court: Civil Court No. 16, Santiago de Chile.Case No.: 23,840-2008.Notification: January 5, 2009.Matter: Ordinary Treasury lawsuit for payment of CLP $112,675,303 plus adjustments for inflation and interest.Claimant: State Defense Council.Cause of action: Erroneous payment made by Autopista Central.Current procedural stage: Conviction dated November 28, 2011. Pending notification.Probable outcome: It is considered likely the case will be rejected on poor legal grounds.
Current procedural stage: Ruling for sentence on February 11, 2005.Probable outcome: It is considered likely the case will be rejected on poor legal grounds._IBM de Chile S.A.C v. Cientec Integración S.A.Court: Civil Court No. 28, Santiago de Chile.Case No.: 4190-2010.Notification: August 5, 2010.Matter: Notification of payment of invoice.Claimant: IBM DE CHILE S.A.C.Request: Preparation for enforcement. Notification of payment of invoices for CLP $145,297,453 ordered.Cause of action: Alleged unpaid invoices.Current procedural stage: On August 6, 2010 Cientec Computación S.A. lodges procedural annulment for having been erroneously notified of preparatory proceedingsas Cientec Integración should have been notified instead. On August 24, 2010, court rules alleged annulment invalid since Cientec Computación is not partof case. On March 11, 2011, the court ruling annuls the ruling requiring certification that defendant has not discredited the invoices as false and instead ordersclaimant to accredit CEO of defendant company Cientec Integración. Case archived with date December 1, 2011. File No. 642-2011.Probable outcome: It is considered likely the case will be rejected on poor legal grounds.204Report 2011_Ferrand y Compañía v. <strong>Entel</strong> Telefonía LocalCourt: Civil Court No. 23.Case No.: 36,415-2009.Notification: May 17, 2010.Matter: Ordinary lawsuit Ordinary case for compensation of damages.Claimant: Ferrand y Compañía Limitada.Request: Damages of CLP $250,000,000.Current procedural stage: Discussion stage closed, end of evidence stage. With summons from December 6, 2011. Pending notification of sentence.Probable outcome: It is considered likely the case will be rejected on poor legal grounds._Manzano v. Empresa Nacional de Telecomunicaciones S.A.Court: Civil Court No. 1, Puerto Montt.Case No.: 6286-2010.Notification: December 27, 2010.Matter: Compensation for damages.Claimant: Federico Isaías Manzano VeraRequest: Compensation of damages for CLP $100,808,000.Cause of action: Legal non-compliance having falsely attributed a crime to the defendant.Current procedural stage: Discussion stage completed. Court accepts objection of gross incompetence. Claimant lodges appeal. Case No. 384-2011. On July 25, 2011,court revokes appealed ruling declaring it rejects exception. Enforcement ordered August 2.Probable outcome: It is considered likely the case will be rejected on poor legal grounds._Reuquen v. Servicios Generales.Court: Employment Tribunal, Valparaiso.Internal Case No.: 0-766-2011.Unique Case No.: 11-4-0035252-8.Notification: September 30, 2011.Matter: Compensation for workplace accident.Claimant: Eduardo Andrés Reuquen Ortiz.Request: Compensation of approximately CLP $272,850,000.Cause of action: Compensation for workplace accident.
Current procedural stage: Pre-trial hearing takes place November 21, call for conciliation, although this did not occur. Court hearing fixed for March 30, 2012, 11.00AM.Probable outcome: It is considered likely the case will be rejected on poor legal grounds.d. Tax Adjustment_The Parent Company has been notified by the Inland Revenue Service of the following settlements:1) Settlements 4 and 5, April 25, 2007. These settlements request the repayment of Th.CLP $2,641,281 plus adjustments for inflation, interest and fines, derivedfrom allocations and adjustments made by the company in calculating its profits for the 2004 and 2005 tax years and judged as improper by the service.The final stage in this process corresponds to the filing of a claim against the tax court, dated November 7, 2007 which is currently awaiting judgment.2) Adjustments 33 to 36, September 1, 2009. These adjustments request the payment of Th.CLP $4,657,018 of tax plus adjustments for inflation, interest and fines,derived from allocations and adjustments made by the company in calculating its profit for the 2007 and 2008 tax years and judged as improper by the service.The service issued resolution 59-2010, dated January 7, 2011, which only partially accepted the request for the revision of the tax audit presented on November 13,2009. A claim was made against this resolution in the tax courts arguing it must be fully accepted given the arguments put forward._The subsidiary Call Center S.A. was notified on April 30, 2008 by the Inland Revenue Service as per summons No. 26, April 29, 2008. This summons challenges thetax losses declared by the company for the 2005 tax year for a total of Th.CLP $11,599,818. If this challenge is successful, it will not be possible to present theselosses against future earnings.The service issued resolution 59-02, dated August 31, 2009, which only partially accepts the request for the revision of the tax audit presented on September 9, 2009.A claim was made against this resolution in the tax courts arguing it must be fully accepted given the arguments put forward.205_For the subsidiary Satel S.A., refunds of provisional tax payments have been accrued for Th.CLP $103,109 and Th.CLP $81,510 for the 2004 tax year. Currentlywaiting for the court to receive evidence for case.Report 2011f. Management ProcessesDuring the final quarter of 2011, the Department for Telecommunications and Sernac, the Chilean consumer office, initiated processes for the inspection and investigationof events that affected service standards and/or their conditions of sale for services provided by <strong>Entel</strong> PCS. The results of these processes may lead to someform of sanctions. While it is not possible to determine their effects at this moment in time, it is estimated that the effect on the company’s income will be minimal.A summary of these events follows: i) In the second week of October, the supplier BlackBerry experienced an international problem with its network for certainusers in various countries, including Chile. The problem resulted in delays to its services and also affected our mobile subsidiary concession holder for aroundthree days. ii) Suppliers of complementary services operating in the mobile market and providing information services to customers through received messagesare under investigation. In this case, and given that the messaging service generated charges for each message received, it is being verified if the conditions underwhich they were contracted complied with the basic information required to allow customers to make a correctly informed decision. An agreement has been reachedthrough a mediation process with Sernac to reimburse certain sums to customers who received complementary services they did not contract within a periodof 90 days. Compliance will then be accredited by Sernac through a report prepared by an external auditing firm determined by the company. iii) The interruptionexperienced in the provision of the messaging service provided through the mobile network during a general power cut that affected a large part of the country.During this period backup equipment failed to function correctly, however the interruption did not affect public mobile telephone services and the mobile servicenetwork for Internet access, and lasted for less than two hours. Charges have been prepared by the Ministry of Transport and Telecommunications and the companyhas presented its defense claiming these should be rejected for a number of reasons.For the first two events, the company has made provisions for the estimated compensation to be paid to customers (Th.CLP $450,000 and Th.CLP $115,000, respectively).For the third event, no provisions have been made since the duration of the interruption was less than the time established for sanctions to be applicable.
g. There are management restrictions and limits on financial indicators imposed by the syndicated loan contract led by Citibank Citibank, N.A., credit contracts withScotiabank & Trust (Cayman) Ltd. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., and the contracts for issuing the dematerialized debt certificates. The most significantof these stipulate that:_No merger or consolidation with another company is allowed unless the company survives and none of the restrictions established in debt covenants are exceeded._The company or its subsidiaries may not sell assets without considering:i) The asset’s fair value.ii) Sales or leasing operations for assets must not exceed 35% of assets in each year, except when dealing with obsolete or unnecessary inventory, cash or cashequivalent operations, customer agreements, and other operations in the normal course of business.iii) Any sale of shares in the subsidiary <strong>Entel</strong> Telefonia Personal S.A. must guarantee retention of at least 50% of the shares and the possibility of having a majorityon the board of directors.206_Assets must not be pledged, with the exception of existing pledges as of August 13, 2007 that do not exceed USD $60 million, for securing operations, leasing orcredit letters, deferred taxes, duties on new acquisitions, or projects in excess of certain amounts specified for each case.Report 2011_The consolidated debt ratio must not exceed 4.0:1. In order to determine the ratio, only financial debt is taken into account (excluding debts arising from goodsand services in the line of business) in relation to total operating revenue for each period, plus depreciation, amortization, and other expenses that do not representcash flows (EBITDA)._The consolidated interest hedge ratio must not be less than 3.0:1. For this purpose, the relationship between the EBITDA and net financial expenditure is considered,both being calculated for the twelve months preceding the end of each quarter.In the event of non-compliance with any of these requirements, creditors may demand payment of all amounts owed, without the possibility of complaint, lawsuit,or protest on the part of the debtor. As of December 31, 2011, the company has satisfied all these requirements.29. THIRD PARTY GUARANTEESThe Group’s companies have not received any sureties from third parties for assets, loan operations, or to guarantee any other type of obligation.
30. ENVIRONMENTThe company has not made any disbursements for environmental regulations.31. RESEARCH AND DEVELOPMENTThe Group companies have not undertaken any activities of this nature during the periods covered by the financial statements considered in this report.However the parent company maintains a valid contract with the principal public agency responsible for the promotion of innovation (Corfo Innova Chile Committee)to promote business innovation, innovative entrepreneurship, technology diffusion and transfer, and public innovation. The expenses incurred to this date in thecontext of this initiative do not yet qualify as research and development expenditure as such.In the context of this contract a modern Innovation Center was launched at the end of 2010, focusing on the creation of high-tech projects with the joint participationof customers and technology partners.32. SANCTIONSThe Group companies and their directors and managers have not been subject to sanctions of any nature by the Chilean Securities and Insurance Supervisor or anyother regulatory authorities.20733. SUBSEQUENT EVENTSOn January 9, 2012, the unilateral retraction of the controller of GTD Teleductos S.A. to merge the company with <strong>Entel</strong> S.A. was acknowledged in line with the Memorandumof Intent signed on November 28, 2011.Report 2011Between January 1, 2012 and the date on which these financial statements are published, no subsequent events have occurred that could significantly affect thevalues contained therein.
Ratio analYsis of consOlidatedfinAncial statemEnts_December 31, 2011FINANCING STRUCTURE, REVENUE GROWTH, COSTS, AND PROFITABILITYFINANCIAL RATIOS208The changes in the most relevant financial indicators during the last twelve months are detailed below.Report 2011For the purposes of analysis, the reader should bear in mind that the information has not been adjusted in line with purchasing power parity since, the IFRS standardsadopted by the company from 2008 do not require figures to be corrected from this date.The change in the consumer price index between December 31, 2008 and 2011, was 13.6%.12/31/2011 12/31/2010LIQUIDITY RATIOSCurrent liquidity (Current Assets / Current Liabilities) 0.93 1.01Quick Ratio (Cash and Cash Equivalents / Current Liabilities) 0.06 0.20DEBT RATIOSDebt Ratio (Total Debt / Equity) 101.53 106.45Proportion of Short-Term Debt (%) (Current Liabilities / Total Debt) 50.23 49.01Proportion of Long-Term Debt (%) (Noncurrent Liabilities / Total Debt) 49.77 50.99Hedging of Financial Expenditure (Income Before Taxes and Interest / Financial Expenditure) 22.26 20.95EFFICIENCY AND PROFITABILITY RATIOSProfit Margin (Profit over Revenue) 14.69 15.96Return on Equity (%) (Profit from Period over Average Equity) 24.19 25.03Return on Assets (%) (Net Profit from Period over Average Assets) 11.86 12.12PROFITABILITY AND VALUE PER SHAREProfit per Share (CLP$) 764.26 731.31Dividend Yield (%) Dividend over Last Twelve Months / Share Price at Close ) 6.12 5.47Book Value (Equity / Number of Shares) (CLP$) 3,268.50 3,049.90Market Value (According to Price) (CLP$) 9,719.30 8,232.90
Ebitda(Income before taxes, interest, adjustments and exchange rate fluctuations, depreciations, amortizations, and extraordinary items).Ebitda rose from CLP $466,018 million to CLP $515,200 million between 2010 and 2011. This represents an increase of 15.5%.Evolution in Financial RatiosOver the last two financial years, the financial ratios of the <strong>Entel</strong> Group have remained within ranges that indicate an extremely solid financial position.The debt ratio at the end of 2011 was 101.53%, remaining within levels that tend to balance internal and external sources of finance. The improvement observedwith respect to the end of 2010 is a result of a 7.1% increase in equity while total debt has decreased by 2.2%.Neither debt levels or financing costs have been affected by the volatility of the exchange rate during the last two years, this being neutralized by the Group’s exchangerate hedge policies. The policy is based on using derivative instruments to hedge exposure.The value of the US Dollar has seen both positive and negative variations during each of the last 24 months, with an annual variation of -7.71% for 2010 and 10.94%for 2011.Liquidity ratios have also remained stable, with a one to one relationship between current assets and liabilities.There have been no significant variations in the composition and level of debt, as well as the ratio for short-term and long-term debt at the end of the annual periods.209Efficiency and profitability ratios remained at satisfactory levels, both in terms of profitability and return on equity and assets.However there is a slight decrease in profitability between the 2010 and 2011 figures, essentially caused by market conditions that resulted in an increase in marketshare for the mobile businesses within a highly dynamic industry.Report 2011Ebitda, as mentioned above, increased by 15.5% from one year to the other.The ratio of financial expenditure hedging remained at a high level of solvency: hedges of this expenditure for income before taxes increased from 20.95 to 22.26times in the last 12 months.The performance of this ratio is even more significant when the net financial cost is taken into account (i.e. compensating revenue and financial expenditure), sincewhen measured in this way, it has risen from 24.19 to 31.23.Similarly, if the calculation is carried out based on cash flows, considering income before depreciation, the value increases from 52.11 to 69.39.The following are taken into account when calculating the ratios for the hedging of financial expenditure: interest from bank loans, differences in rates from theapplication of interest rate hedge contracts, and interest from financial leasing contracts. The interest calculations are carried out based on effective rates, in linewith the procedures of the amortized cost method (IAS 39).The Group’s total assets have increased by 4.6% between 2010 and 2011, equivalent to Th.CLP $69 million.The largest change is in Property, Plant and Equipment, with a net increase of Th.CLP $79 million. This rise corresponds to an increase in investment over and abovedepreciation for the period.For the 2011 financial year, gross investment was Th.CLP $358 million, including postpaid customer handsets.
Investments were mainly focused on more advanced services, such as mobile telephony, data center platforms, networks for wholesalers services provided overthe wireline network, operational continuity service platforms, and broadband Internet.Of the total investment made, almost 70% was focused on subsidiaries providing mobile services. The subsidiaries invested Th.CLP $139 million in network infrastructureand Th.CLP $112 million in handsets provided to postpaid subscribers.The investment over the last twelve months includes investments for the Digital Infrastructure for Competitiveness and Innovation project, designated for promotionalinitiatives such as Todo Chile Conectado. Almost Th.CLP $64 million was invested in this project, Th.CLP $16 million of which came from government subsidies.<strong>Entel</strong> was awarded the project at the end of 2010 by the Telecommunications Development Fund Council and aims to provide Internet access in approximately1,500 rural areas with state subsidies applicable to areas with low coverage. The 3.5G network will be used for these purposes since it is already in operation in themajority of the areas to be covered.Investments made during the last twelve months include Th.CLP $15 million in real estate for advanced payments for work on one of the Parque Titanium towersthat will house the Group’s headquarters.In terms of current inventories, these are mainly made up of mobile handsets for prepaid customers. Their level, activity and rotation are determined based ongrowth projections of the portfolio in addition to requirements for the renewal of equipment.Market Analysis210The <strong>Entel</strong> Group operates in a highly competitive market for the various services it provides.There have been no major changes in terms of the large number of active competitors in the telecommunications market during the last year.Report 2011The starting operations by VTR and Nextel, the two new mobile operators with frequencies for 3G telephone services in 2010, has yet to have no significant effect.Once these new operators are fully active, in combination with the recent implementation of number portability, the range and depth of competition for serviceswill increase. Effects on the market and prices are difficult to predict, especially given the requirement that new operators ensure the profitability of any resourcesdeployed, both their own and subcontracted. Their networks will have to compete with current operators in terms of scale and coverage and they will need to undertakesignificant marketing activities to attract customers.The <strong>Entel</strong> Group recently signed a domestic “roaming” agreement with Nextel, which it will provide with access to its mobile networks in regions where it has nocoverage.The Group is favorably positioned to deal with the challenges that lie ahead. In terms of mobile services, which represented almost 78% of revenue in 2011 and havea market share of almost 40% of active subscribers, the <strong>Entel</strong> brand maintains a strong position, with high levels of customer preference. To the present date, thesefactors have been decisive in determining policies regarding market share and composition of the customer portfolio (postpaid and prepaid).This was confirmed during the first nine days of number portability, which came into effect on January 16, 2012. The behavior observed among mobile users duringthis period was highly positive. There was a positive balance of net movement, with <strong>Entel</strong> recording 60% more incoming customers than outgoing ones; the situationwas the opposite for the remainder of the industry.It should be noted that in the mobile services area <strong>Entel</strong> has been ranked first for nine years in a row in the Mobile Services Customer Satisfaction index, organizedby the organization Procalidad and Capital magazine.<strong>Entel</strong> has also been recognized by Cisco as Service Partner of the Year for the Southern Cone of Latin America for the leadership that has secured its position asthe leading supplier and system integrator in Chile.
The market policies employed have been successful in providing differentiated service to postpaid customers whose service level usage (MOU) and average revenue(ARPU) are greater than those of prepaid customers.Similarly, the policies employed have driven the increase in the number of subscribers to Mobile Broadband (MBB) services, which exceeded 945,000 contracts inDecember 2011, including cards for business applications, an increase of 72% with respect to the same month of the previous year.In general and in line with the market share analyses carried out by Group companies over the last twelve months, some variations have been observed in thecompanies’ market share for both mobile and wireline services.The most significant variation corresponds to the increase in the Group’s share of active mobile customers from 37% to 40% during 2011.New business activities being developed by the Group have continued to see improvements in its position, especially with its focus on the business segment and theprovision of integrated voice, data and Internet solutions, and IT services.The migration from national and international long distance services to mobile and IP services has continued although the reduction in the number of primary areasfrom 24 to 13 in October had limited impact on volumes of traffic. These services represented 2.5% of the Group’s revenue for 2011.In its international operations, the Group currently has presence in Peru, whose markets, resource requirements, and management activities are aligned with currentstrategic goals. In Peru, the Group’s business activities are focused on wireline services for enterprise customers in Lima, as well as domestic and internationalCall Center services.The most significant variations in volumes and prices will be discussed further on in reference to changes in sales revenue.211Analysis of Market RiskThe market risks faced by the Group companies are discussed in note 27 to the consolidated financial statements.The note comments on the technological, regulatory, exchange rate, credit, interest, and liquidity risks, in addition to the control and mitigation policies employed.Report 2011The permanent analysis of technological and market trends continued to benefit from a partnership with the UK-based operator Vodafone Group, a world leader inmobile telecommunications. Through this partnership, the Group’s mobile subsidiaries are able to share best practices in customer services, access new voice anddata products with international access, are able to expand the coverage and quality of their roaming services, and maintain leadership in the development of valueadded services for Advanced Digital Mobile Telephony, also known as 3G.As has been previously observed, <strong>Entel</strong>’s market recognition is shown by it having come first in the Mobile Services Customer Satisfaction ranking organized by theorganization Procalidad and Capital magazine for nine years in a row, and having been recognized by Cisco as Service Provider Partner of the Year for the SouthernCone of Latin America for the leadership that secured its position as the leading supplier and systems integrator in Chile.In terms of regulatory material for the services the Group provides at a domestic level, a range of reforms that will affect competition, accelerate Internet penetration,and control the deployment of antennas in urban areas have been enacted or are in the advanced stages of the legislative process.As noted in the notes to the financial statements, these reforms include the establishment of mechanisms to provide improved information to allow users to comparethe market for Internet services, the elimination of the national long distance category, the uniformity of telephone numbers, number portability for mobile andfixed services, the incorporation of infrastructure suppliers, and the stimulation of increased broadband access by means of demand subsidies.In December 2011, the Ministry of Transport and Telecommunications published the invitation for a new tender for spectrum on the 2600 MHz band, used in themajority of countries for the development of LTE technology (Long Term Evolution or 4G).
In consideration of the aforementioned regulatory changes, the diversity and scale of the <strong>Entel</strong> Group allows it to mitigate against the consequences of potentiallyadverse regulations as well as create new business opportunities. Overall however, in the context of a regulated industry, it is impossible to rule out changes thatmay impact on income or limit possibilities for growth.Evolution in Sales RevenueIn the Income Statement, The Group’s revenue is represented by Revenue from Ordinary Activities, Other Revenue, and Other Earnings (Losses). Revenue increasedby 14% between 2010 and 2011, as per the following breakdown:212Mobile telephony 966,709 840,056 15Private services (including IT services) 93,703 85,090 10Local telephony (Includes NGN–IP) 41,705 39,677 5Long distance 30,687 33,761 -9Internet 16,585 15,885 4Services to other operators 20,246 17,191 18Traffic business 31,696 24,965 27Americatel Perú 19,147 19,410 -1Call center and other services 10,319 7,560 36Other revenue 10,117 2,810 260Total operational income 1,240,914 1,086,405 142011M.CLP$2010M.CLP$Change%Report 2011As can be observed, the growth of mobile services continues to represent the main source of increases in the Group’s revenue.The above, together with the focus on services with increased margins caused Ebitda to increase by Th.CLP $49 million pesos (equivalent to 15.5%).The increase in sales mobile services was in line with growth in the customer base, both in terms of voice services and innovative value added services (VAS), andMobile Broadband (MBB).For mobile services, the Group maintained its strong position sustained by higher commercial activity and service quality that helped to secure the preference ofits users. As of December 31, 2011, the customer base had 9,347,434 users, an increase of 24% with respect to the same date for the previous year. The number ofmobile broadband customers grew to 945,429, an increase of 72% over the last twelve months.Call Center services grew as a result of increased activity, both in Chile and Peru.Revenue from integrated voice, Internet and data networks provided to the business segment, together with IT services, have shown strong growth driven by newcustomer contracts.The reduction in long distance services was due to drop in the level of traffic and the reduction in tariffs for national services.
Costs, Expenses and ProfitabilityThe following information represents the most significant costs and expenses for 2011 and 2010:Operating costs (1,002,687) (878,275) 14Operational earnings (EBIT) 238,227 208,130 14– Net financing costs, adjustments and others (18,901) (10,560) 79Net profit 180,767 172,971 52011M.CLP$2010M.CLP$Change%The growth in operating costs is largely a result of growth in the customer base and higher operations volume.The increase in charges for depreciation is particularly relevant to mobile customers and related to strong growth in postpaid customers, as well as increasedinvestment in the 3.5G mobile networks, sales costs for prepaid equipment (whose numbers also saw significant growth) access charges and correspondence servicesassociated with the increase in the level of traffic for mobile services, and sales commissions. There was also higher expenses on staffing costs, particularlyin the context of severance payments arising from the integration of the mobile and wireline areas.Pre-Tax ProfitThe increase in pre-tax profits is the result of the previously discussed trends in revenue and costs.213COMMENTS ON CASH FLOW STATEMENTCash generation sources have exhibited the following trends during 2010 and 2011 for each of the financial activities examined:Report 2011Operating activities saw strong growth in net revenue cash flow, rising by Th.CLP $19 million from Th.CLP $491 million to Th.CLP $510 million.Growth in operating activities was largely a result of the item Amount Charged to Customers, which grew by 14%. This was partially offset by the increase in paymentsto suppliers and employees.Investments showed an increase of Th.CLP $87 million in net outward flows from Th.CLP $318 million to Th.CLP $405 million. This increase is concentrated onpurchases of Property, Plant, and Equipment, and largely stems from investments in infrastructure and handsets for mobile services.Finally, in terms of financing activities, there was no significant change in the net outward flows, which remained around Th.CLP $160 million. These flows tendedto compensate for the increase of Th.CLP $34 million in Dividends Paid with the reduction in flows for Net Debt and Other Cash Outgoings.As a consequence of these changes, the final available balance at the end of each of the periods for Cash and Cash Equivalents decreased from Th.CLP $75 millionto Th.CLP $23 million, remaining at a level that satisfactorily meets the Group’s cash flow forecast.FULFILLMENT OF COMMITMENTSThe Group companies are up to date in terms of the fulfillment of all commitments to third parties.
consolidAtedmateriAl evEntsIn compliance with the current legal and regulatory framework, during 2011 the Group Companies informed the Chilean Securities and Insurance Supervisor of thefollowing material events or relevant information:I. Parent Company – Shareholders MeetingLetter 3, dated April 4, 2011 communicated that at the board meeting held on April 4, 2011, agreement was reached to:*Schedule an Ordinary Shareholders Meeting for April 26, 2011 and send out the notification and supporting papers in a timely manner to shareholders and otherbodies as required by legal regulations.*Propose at the Ordinary Shareholders Meeting the payment of a final dividend of CLP $545 per share from the profits made during the financial year, from whichthe sum of CLP $100 per share should be deducted for the interim dividend paid in December 2010, leaving a dividend of CLP $445 payable on a date to be agreedat the Ordinary Shareholders Meeting.214II. Parent Company – Approval of 2010 Report, Dividend Distribution, and Other MattersReport 2011Letter 4, dated April 26, 2011, communicated that at the Ordinary Shareholders Meeting held on the same date, agreement was reached to:a.- Approve the Annual Report, Balance Sheet, and Income Statement for 2010.b.- Pay a final dividend of CLP $545 per share, equivalent to 74.52% of net profits for the year. The sum of CLP $100 was paid in December 2010 as an interimdividend, leaving a dividend of CLP $445 per share, payable on May 24, 2011.c.- Approve the investment and financing policy and communicate the dividend policy.d.- Maintain the remuneration of directors and the directors committee, as approved at the previous Ordinary Shareholders Meeting, and establish the committee’sannual budget in line with the minimum legal requirement. Approve the appointment of KPMG as external auditors and retain the appointed and reserve accountsinspectors, alongside the risk rating agencies Feller Rate (S&P) and Fitch Ratings, and retain the newspaper El Mercurio de Santiago for the publication of companynotices and related operations.III. Parent Company – Management ChangesLetter 6, dated June 6, 2011, communicated that at the board meeting held on the same date, agreement was reached to::**Acknowledge and accept the resignation tendered by Bernardo Matte Larraín as director of Empresa Nacional de Telecomunicaciones S.A.Appoint Andrés Echeverría Salas as replacement for the post of director of Empresa Nacional de Telecomunicaciones S.A.
IV. <strong>Entel</strong> PCS Telecomunicaciones S.A. – Management ChangesIn a letter dated March 2, 2011, it was communicated that at the board meeting held on March 1, 2011, agreement was reached to:*Acknowledge and accept the resignation of Antonio Büchi Buc from the board of directors, appointing Alfredo Parot Donoso as replacement until the next OrdinaryShareholders Meeting when the board would be fully re-elected.*Acknowledge the resignation of CEO Hernán Marió Lores, appointing Antonio Büchi Buc as the new CEO.V. TRANSAM Comunicaciones S.A. - Management ChangesIn a letter dated March 2, 2011, it was communicated that at the board meeting held on March 1, 2011, agreement was reached to:*Acknowledge and accept the resignation of Hernán Marió Lores from the board of directors, appointing Alfredo Parot Donoso as his replacement until the nextOrdinary Shareholders Meeting, when the board would be fully re-elected.VI. Parent Company – Distribution of DividendLetter 19, dated November 7, 2011, communicated that at the board meeting held on the same date, agreement was reached to:Pay an interim dividend of CLP $150 per share, payable on December 12, 2011 and allocated against the profits for the third quarter of this year.215The total payment for this interim dividend was to be Th.CLP $35,478,554, representing 23.65% of profits as of the third quarter 2011.VII. Parent Company – Merger by Absorption of GTDReport 2011In a letter dated November 28, 2011, it was communicated that the board of directors, in extraordinary session 942/2011 held on the same date, acknowledgedon behalf of the representatives of the controller, the Memorandum of Intent signed on that date between the controller of <strong>Entel</strong>, Inversiones Altel Limitada (Altel),subsidiary company of Almendral S.A. and Inmobiliaria e Inversiones El Coigüe Limitada (Coigüe), affecting <strong>Entel</strong> as follows (Memorandum of Intent).1) Non-Binding Agreement for Merger by Absorption of GTD with <strong>Entel</strong>The Memorandum of Intent reflects the willingness of Coigüe, in its capacity as controller of GTD Grupo Teleductos S.A. (GTD) and Altel to undertake the merger byabsorption of GTD (merged party) and <strong>Entel</strong> (acquiring party), through the absorption of the former (the Merger), however this does not constitute a legally bindingcontract for either the parties or <strong>Entel</strong>.For the purposes of the merger, GTD will be dissolved and its subsidiary companies, GTD Teleductos S.A., GTD Telesat S.A., GTD Internet S.A., GTD Larga DistanciaS.A. (reporting company with registration number 33 in the Special Register of Reporting Entities), GTD Imagen S.A., and GTD Manquehue S.A. (all private limitedcompanies), and Compañía Nacional de Teléfonos, Telefónica del Sur S.A. and Compañía de Teléfonos de Coyhaique S.A. (both public limited companies, with registrationnumbers 167 and 238, respectively, in the Trade Register of the Chilean Securities and Insurance Supervisor, will become subsidiaries of <strong>Entel</strong> and controlledby it.GTD and its subsidiaries (GTD Group) had a turnover of approximately Th.CLP $150,000,000 for the 2010 financial year. The business areas in which they operateinclude the provision of business services such as Internet, data, and local telephony, in addition to the residential provision of Internet and paid television focusingon specific geographic regions, all this delivered over a platform of fiber-optic and copper access networks.
2) Shareholding of Coigüe in <strong>Entel</strong> Following the MergerAs a product of the Merger and subject to legally required expert reports and the agreements that must be passed by extraordinary shareholder meetings for <strong>Entel</strong>and GTD in which the Merger will be approved, the direct and indirect shareholding of Coigüe in <strong>Entel</strong> stock will be 9.8% (Coigüe Shareholding Following the Merger).The Coigüe Shareholding Following the Merger may only be altered: (i) as a result of a due diligence process by the GTD group and <strong>Entel</strong> and its subsidiaries (<strong>Entel</strong>Group), whose scope and limitations will be established in the final contracts; or (ii) by any dividend payment or reduction in capital agreed after June 30, 2011, thedate of the financial information used to determine the Coigüe Shareholding Following the Merger.The board agreed that the due diligence process for <strong>Entel</strong> should be carried out after adopting all the safeguards for access to information and confidentiality establishedby current legislation and the regulations of the Chilean Securities and Insurance Supervisor (SIS), authorizing the executive management and <strong>Entel</strong> attorneyto prepare the information and sign the contracts guaranteeing its provision.3) Conditions of the MergerThe Memorandum of Intent stipulates that the Merger must meet the following conditions, in addition to any that may be present in the final contracts:a) All the licenses and authorizations required to complete the Merger are obtained in a timely manner, including approval from the boards of directors, shareholdermeetings, creditors, inscriptions and registrations with SIS other and regulatory bodies, as well as any other requirements from laws, regulations, companystatutes, and contracts signed by the companies being merged.216b) The merger satisfies the consultations, authorizations, or approvals of the bodies, which, in line with DL–211 of the Defense of Free Competition, must be declaredfor it, insofar as it is necessary to carry out or make such consultations or requests.Report 2011c) An agreement will be signed by shareholders that will not represent a joint action agreement with respect to <strong>Entel</strong> and will govern matters covered by this typeof shareholder agreement, mainly related to the assignability of shares and other items regarding relationships between Altel y Coigüe in their capacity as partiesto the agreement (Agreement), which contains the following items relevant to <strong>Entel</strong>:I.The right of Coigüe to choose one (1) director from the nine (9) directors of <strong>Entel</strong> with the support of Altel, provided it maintains a minimum percentage of stockor meets a threshold granting it access to this right, this being established by mutual agreement in the Agreement.II.For a period of two years, and in order to facilitate the execution of the Merger, the provision will be made for Coigüe to have the right to select, subject to thirdpartyratification and in line with the Agreement, two (2) directors of the seven (7) that make up the board of directors of Telsur and Telcoy, subsidiaries of GTD.III.Other provisions that aim to facilitate the integration of the <strong>Entel</strong> Group and the GTD Group, product of the Merger.
4) Transitional PeriodThe Memorandum of Intent establishes that between its date and the shareholder meetings to decide on the Merger, <strong>Entel</strong> and GTD must make their best efforts toensure the GTD Group and the <strong>Entel</strong> Group carry on business as usual and abstain from undertaking or participating in any activity beyond the remit of their businessesand the ordinary course of business.5) Merger ContractAltel and Coigüe declare they will make their best efforts to execute the Merger as soon as possible and, for this purpose, in the Memorandum of Intent, they undertaketo sign a definitive and legally binding ratification (Merger Contract), by December 23, 2011 at the latest, although this date may be postponed by mutualagreement between Altel and Coigüe.The board of directors agrees to begin to process the Memorandum of Intent insofar as it concerns <strong>Entel</strong>, especially regarding the provision of and handling ofinformation, reports, invitations to the board, and the next extraordinary shareholders meetings that must agree the Merger, and other steps and stages required,without affecting this material being definitive and binding, for the effective signing of the announced Merger Contract.Regarding the financial effects of the material event disclosed, with respect to the assets, liabilities, or income of <strong>Entel</strong>, the board of directors agrees that these willbe reported upon execution of the Merger, once the steps and activities in the Memorandum of Intent and the Merger Contract have been completed, permitting allthe information required to determine it appropriately.VIII. Parent Company – Merger by Absorption of GTD217Letter 26, dated December 23, 2011, communicates that it has been acknowledged by the representatives of the controller that on this date, Inversiones Altel Limitada(Altel), controller of <strong>Entel</strong>, and Inmobiliaria e Inversiones El Coigüe Limitada (Coigüe), have agreed to modify the Memorandum of Intent, signed between themon November 28, 2011, and reported as a material event on the same date (Memorandum of Intent).In light of its relevance, it is deemed the agreed modification constitutes a material event for <strong>Entel</strong>, as detailed below:Report 20111) The Memorandum of Intent reflects the willingness of Coigüe in its capacity as controller of GTD Grupo Teleductos S.A. (GTD) and Altel, to undertake the mergerby absorption of GTD (being dissolved) with <strong>Entel</strong> (remaining) (the Merger) however it does not constitute a legally binding contract.2) In the Memorandum of Intent, the parties are required to make their best efforts to execute the Merger as soon as possible, and to this effect, must sign a finaland binding agreement before December 23, 2011, although this deadline may be extended by mutual agreement.3) The modification agreed by Altel and Coigüe consists of extending the deadline set out in the Memorandum of Intent for signing the final and binding contractfor the Merger to January 13, 2012.With respect to the financial effects of the material event being disclosed on the assets, liabilities, or income for <strong>Entel</strong>, these were discussed in the material eventdated November 28, 2011.
IX. Parent Company – Merger by Absorption of GTDLetter 2, dated January 10, 2012, communicated that at the board meeting held on January 9, 2012, agreement was reached to:1°.- Acknowledge the communication by the CEO of Almendral S.A., which, as a material event, will refer the company to the Chilean Securities and InsuranceSupervisor, reporting that Juan Manuel Casanueva Préndez, representative and controller of Inmobiliaria e Inversiones El Coigüe Limitada (Coigüe), which controlsGTD Grupo Teleductos S.A. (GTD), retracts its commitment to comply with the Memorandum of Intent signed between Inversiones Altel Limitada, subsidiary of AlmendralTelecomunicaciones S.A. and controller of <strong>Entel</strong> S.A., and Coigüe, through a private instrument dated November 28, 2011, reported as a material event onthe same date, and its extension, reported as a material event on December 23, 2011.2°.- Classify the information received from Almendral S.A. as a material event, authorizing the CEO to communicate it in this manner to the respective organizationswithout affecting the requirement to notify the National Economic Prosecutor and the Tribunal for the Defense of Free Competition, aware of the possiblemerger in uncontested proceedings.218Report 2011
cErtificate ofaccounts inspEctorsDear ShareholdersEmpresa Nacional de Telecomunicaciones S.A.We have reviewed the Individual and Consolidated Financial Statements of Empresa Nacional de TelecomunicacionesS.A. for the twelve month period ending December 31, 2011. There are no remarks to be made followingour review. Our examination and review as Account Inspectors included verification of the account balancein the General Ledger and summary sheet of the Consolidated Financial Statements with the correspondingaccounts on the Balance Sheet and the Income Statement on this date.219Report 2011MANUEL ONETO FAUREAccounts InspectorGUSTAVO MATURANA RAMIREZAccounts InspectorSantiago, January 30, 2012.
sUbsidiariesand associAtecOmpanies_
CONSOLIDATED BALANACE SHEET OF SUBSIDIARIESAt December 31, 2011 and 2010(Th.CLP$)<strong>Entel</strong> Pcs Telecomunicaciones S.A. Y Filial <strong>Entel</strong> Telefonía Local S.A. Y Filiales <strong>Entel</strong> Servicios Telefónicos S.A. Satel Telecomunicaciones S.A. Micarrier Telecomunicaciones S.A.12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010ASSETSCurrent assets 264,915,449 227,847,436 13,611,659 13,550,150 1,491,526 1,532,697 972,219 1,212,309 392,119 300,730Non current assets 652,149,359 607,895,327 20,385,410 21,995,130 18,739 18,176 3,403,749 2,395,130 1,791,273 1,791,773TOTAL ASSETS 917,064,808 835,742,763 33,997,069 35,545,280 1,510,265 1,550,873 4,375,968 3,607,439 2,183,392 2,092,503LIABILITIESCurrent liabilities 284,786,089 314,810,684 11,753,751 13,977,789 248,616 195,851 38,939 105,657 163,912 108,267Non current liabilities 274,833,315 199,406,852 15,478,291 16,359,609 1,051,814 1,233,672 - - - -TOATAL LIABILITIES 559,619,404 514,217,536 27,232,042 30,337,398 1,300,430 1,429,523 38,939 105,657 163,912 108,267222STOCKHOLDER EQUITYPaid-in capital 128,398,586 128,398,586 29,603,142 29,603,142 1,413,277 1,413,277 3,560,075 3,560,075 4,141,580 4,141,580Other reserves (10,526,899) (47,773,888) (2,419,357) (2,419,357) (115,502) (115,502) (290,952) (290,952) (338,476) (338,476)Accrued Income (Accumulated Losses) 239,554,326 240,892,578 (20,419,768) (21,976,516) (1,087,940) (1,176,425) 1,067,906 232,659 (1,783,624) (1,818,868)Non controlling stock 19,391 7,951 1,010 613 - - - - - -Conversion reserves - - - - - - - - - -Total Liabilities And Stockholder Equity 917,064,808 835,742,763 33,997,069 35,545,280 1,510,265 1,550,873 4,375,968 3,607,439 2,183,392 2,092,503Report 2011SUMMARIZED INCOME STATEMENTS FOR SUBSIDIARIESFor the years ending December 31, 2011 and 2010(Th.CLP$)<strong>Entel</strong> PCS Telecomunicaciones S.A. y Filial <strong>Entel</strong> Telefonía Local S.A. y Fililaes <strong>Entel</strong> Servicios Telefónicos S.A. Satel Telecomunicaciones S.A. Micarrier Telecomunicaciones S.A.12/31/2011 12/31/2010 31/12/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010Operating Revenues 974,752,094 846,594,495 48,933,015 47,984,316 2,357,847 984,968 1,111,595 1,155,359 134,273 158,193Other Revenues 14,903,178 9,683,622 (125,444) 163,286 (22,103) 164,559 24,697 35,616 78,503 55,371Salaries and Expenses (45,862,733) (44,251,501) (2,546,085) (3,262,626) (1,181,855) (85,934) - - -Depreciation and amortization (202,689,865) (168,020,594) (3,965,635) (2,962,692) - (100,273) (100,273) -Other operating expenses (567,507,673) (498,434,448) (40,385,382) (39,241,780) (1,055,086) (1,326,853) (24,675) (96,977) (199,565) (239,871)Income (loss) before tax 173,595,001 145,571,574 1,910,469 2,680,504 98,803 (263,260) 1,011,344 993,725 13,211 (26,307)Income tax (33,595,452) (21,412,557) (353,325) (770,113) (10,318) (353,892) (176,097) (159,700) 22,033 16,133Income (Loss ) 139,999,549 124,159,017 1,557,144 1,910,391 88,485 (617,152) 835,247 834,025 35,244 (10,174)Income (loss) attributable to stockholders of controllingstockholder equity139,981,504 124,156,632 1,556,747 1,910,451 88,485 (617,152) 835,247 834,025 35,244 (10,174)Incomes attributable to non controlling stock 18,045 2,385 397 (60) - - - - - -Income (Loss) 139,999,549 124,159,017 1,557,144 1,910,391 88,485 (617,152) 835,247 834,025 35,244 (10,174)EARNINGS PER SHARECommon shares 1,745,79 1,548,43 89,66 110,01 27,310,18 (190,479) 835,247,00 834,025,00 3,524,40 (1,017,4)NOTE (1): The subsidiary Cientec Computación S.A. was taken over by <strong>Entel</strong>Chile S.A. on July 31, 2011, by a merger through absorption as a product ofthe company restructuring exercise undertaken by the Group, which concludedon December 31, 2011.
<strong>Entel</strong> Servicios Empresariales ( Ex - Red DeTransacciones Electrónicas S.A.)<strong>Entel</strong> Inversiones S.A. Y Filial <strong>Entel</strong> Call Center S.A. Y Filial Cientec Computación S.A. (1) <strong>Entel</strong> Internacional Bvi Corp. Y Filial Empresa De Radiocomunicaciones InstaBeep Ltda.12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/20103,132 350,967 5,451,393 7,627,091 9,061,829 6,448,904 - 3,447,855 42,100 42,110 3,574 3,437560,708 8,095 40,057,356 36,213,434 12,361,538 11,193,428 - 13,101,328 210,381 189,851 - -563,840 359,062 45,508,749 43,840,525 21,423,367 17,642,332 - 16,549,183 252,481 231,961 3,574 3,437193,981 85,020 4,686,666 7,310,110 5,954,494 3,637,527 - 1,199,306 36,383 34,220 708,006 680,292- 90,551 4,547,742 2.923.138 11,249,073 10,851,155 - 3,823,775 - - - -193,981 175,571 9,234,408 10,233,248 17,203,567 14,488,682 - 5,023,081 36,383 34,220 708,006 680,292737,071 737,071 2,870,848 2,870,848 13,867,175 13,867,175 - 3,756,870 25,211,353 25,211,353 2,969,432 2,969,432125,983 - 55,556 (784,068) (1,128.189) (1,165,112) - 8,980 4,949 4,865 (242,681) (242,681)(493,195) (553,580) 28,050,829 26,929,723 (8,422,644) (9,527,165) - 7,760,252 (25,000,204) (25,018,477) (3,431,183) (3,403,606)- 5,297,108 4,590,774 20 6 - - - - - -- - - (96,562) (21,254) - - - - - -563,840 359,062 45,508,749 43,840,525 21,423,367 17,642,332 - 16,549,183 252,481 231,961 3,574 3,437223Report 2011Red de Transacciones Electrónicas S.A. <strong>Entel</strong> Inversiones S.A. y filial <strong>Entel</strong> Call Center S.A. y filial Cientec Computación S.A. (1) <strong>Entel</strong> Internacional BVI Corp. y filial Empresa de Radiocomunicaciones InstaBeep Ltda.12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/20102,273,021 1,081,020 20,109,586 19,948.526 26,508,639 21,503.952 - 10,701,856 - - - -- - 591,593 521,220 53,489 52,603 - 50,772 - - - -(2,074,856) (956,597) (3,427,839) (3,328,504) (11,050,662) (8,775,584) - (1,811,845) - - - -- - (2,045,975) (1,947,428) (1,034,673) (968,601) - (4,530,196) - - - -(23,434) (17,209) (14,065,637) (16,038,616) (13,217,463) (11,138,101) - (5,089,616) 18,273 (83,622) (27,577) (16,203)-174,731 107,214 1,161,728 (844,802) 1,259,330 674,269 - (679,029) 18,273 (83,622) (27,577) (16,203)11,636 3,782 (61,039) 21,231 (154,774) (613,974) - 99,645 - - - --186,367 110,996 1,100,689 (823,571) 1,104,556 60,295 - (579,384) 18,273 (83,622) (27,577) (16,203)186,367 110,996 1,121,108 (87,049) 1,104,563 60,291 - (579,384) 18,273 (83,622) (27,577) (16,203)- - (20,419) (736,522) (7) 4 - - - - - -186,367 110,996 1,100,689 (823,571) 1,104,556 60,295 - (579,384) 18,273 (83,622) (27,577) (16,203)5,414,66 3,224,85 99,250,59 (74,262,49) 116,26 6,35 - (1,866,76) 0,30 (1,38)
SUMMARIZED CASH FLOW STATEMENTS FOR SUBSIDIARIESAt December 31, 2011 and 2010(Th.CLP$)<strong>Entel</strong> PCS Telecomunicaciones S.Ay Filiales.<strong>Entel</strong> Telefonía Local S.A. y Fililaes <strong>Entel</strong> Servicios Telefónicos S.A. Satel Telecomunicaciones S.A. Micarrier Telecomunicaciones S.A.12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010Cash flows provided by operating activities 501,634,262 391,314,649 8,826,001 5,498,167 549,764 48,597 968,344 325,506 (58,812) 71,727Cash flows provided by other operational activities (45,682,600) (44,052,615) (447,725) (90,117) 9,168 (39,859) 20,740 211 " -Net cash flows provided by operating activities 455,951,662 347,262,034 8,378,276 5,408,050 558,932 8,738 989,084 325,717 (58,812) 71,727Net cash flows used in investment activities (258,538,353) (164,393,123) (5,707,995) (8,954,051) " " (323) (340) 57,697 (79,728)Net cash flows used in financing activities (199,903,282) (181,500,971) (2,647,239) 3,196,456 (546,904) (11,594) (988,125) (325,718) " -Net increase (decrease) in cash and cash equivalents (2,489,973) 1,367,940 23,042 (349,545) 12,028 (2,856) 636 (341) (1,115) (8,001)Effect of exchange rate variations on cash and cash equivalents (7,557) 101,204 - - - (290) 80 (101) - (30)Effects of changes in the scope of consolidation on cash and cash equivalents - - - - - - - - - -Cash and cash equivalents, cash flow statement, initial balance 3,796,548 2,327,404 565,159 914,704 495 3,641 334 776 3,247 11,278Cash and cash equivalents, cash flow statement, final balance 1,299,018 3,796,548 588,201 565,159 12,523 495 1,050 334 2,132 3,247224STATEMENT OF CHANGE IN NET STOCKHOLDER EQUITY FOR SUBSIDIARIESAt December 31, 2011 and 2010(Th.CLP$)Report 2011<strong>Entel</strong> PCS Telecomunicaciones S.A.y Filiales<strong>Entel</strong> Telefonía Local S.A. <strong>Entel</strong> Servicios Telefónicos S.A. Satel Telecomunicaciones S.A.Initial balance for current period 01/01/2011 321,525,227 5,207,270 121,350 3,501,782Income from consolidated revenue and costs 139,999,549 1,556,747 88,485 835,247Payment of dividends (99,325,305.0) - - -Increase (decrease) for distribution to shareholders (12,379,484.0) - - -Other increases (decreases) in stockholder equity 7,625,417 1,010 - -Final balance for current period 12/31/2011 357,445,404 6,765,027 209,835 4,337,029Initial balance for previous period 01/01/2010 296,114,885 3,296,817 738,502 2,667,757Income from consolidated revenue and costs 124,159,016 1,910,451 (617,152) 834,025Payment of dividends (98,395,319.0) - - -Increase (decrease) for distribution to shareholders 13,799,528 - - -Other increases (decreases) in stockholder equity (14,152.883.0) 2 - -Final balance at 12/31/2010 321,525,227 5,207,270 121,350 3,501,782NOTE (1): The subsidiary Cientec Computación S.A. was taken over by <strong>Entel</strong>Chile S.A. on July 31, 2011, by a merger through absorption as a product ofthe company restructuring exercise undertaken by the Group, which concludedon December 31, 2011.
<strong>Entel</strong> Servicios Empresariales (Red deTransacciones Electrónicas S.A.)<strong>Entel</strong> Inversiones S.A. y filial <strong>Entel</strong> Call Center S.A. y filial Cientec Computación S.A. (1) <strong>Entel</strong> Internacional BVI Corp. y filial Empresa de Radiocomunicaciones InstaBeep Ltda.12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010(3,161,651) (85,499) 4,300,160 2,001,924 1,837,292 2,339,187 - 2,107,503 (3,773) (67,302) (1,087) (37)(2,317,772) - - - - - - (81,143) (493) (530) -(5,479,423) (85,499) 4,300,160 2,001.924 1,837,292 2,339,187 " 2,026,360 (4,266) (67,832) (1,087) (37)- - (4,436,341) (1,172,274) (1,820,825) (741,892) - (1,126,604) - (2,626) -5,479,423 85,507 (39,863) (339,865) 26,510 (1,568,720) - (887,292) - 101,407 1,087 370 8 (176,044) 489,785 42,977 28,575 - 12,464 (4,266) 30,949 0 0- - - - - - - (2,568) 4,256 2,465 - -- - - - - - - - - - - -8 - 1,027,574 537,789 182,787 154,212 - 4,349 42,110 8,696 - -8 8 851,530 1,027,574 225,764 182,787 - 14,245 42,100 42,110 0 0225Micarrier Telecomunicaciones S.A. <strong>Entel</strong> Servicios Empresariales ( Ex -Red de Transacciones ElectrónicasS.A.)<strong>Entel</strong> Inversiones S.A. y filial <strong>Entel</strong> Call Center S.A. y filial Cientec Computación S.A. (1) <strong>Entel</strong> Internacional BVI Corp. y filial Empresa de RadiocomunicacionesInsta Beep Ltda.Report 20111,984,236 183,491 33,607,277 3,153,650 - 197,741 (676,855)35,244 186,367 1,121,108 1,104,549 - 18,273 (27,577)- - - - - - -- - - - - - -- 1 1,545,956 (38,399) - 84 -2,019,480 369,859 36,274,341 4,219,800 - 216,098 (704,432)1,994,410 72,497 47,899,593 3,092,755 12,105,485 282,690 (660,652)(10,174) 110,996 (87,049) 60,299 (579,384) (83,622) (16,203)- - - - - - -- - - - - - -- (2) (14,205,267) 596 1 (1,327) -1,984,236 183,491 33,607,277 3,153,650 11,526,102 197,741 (676,855)
Subsidiaries of <strong>Entel</strong> S.A.Company Name <strong>Entel</strong> PCS Telecomunicaciones S.A. and Subsidiaries <strong>Entel</strong> Telefonía Local S.A. o <strong>Entel</strong> Phone S.A. and Subsidiaries226Legal StatusConstituting DocumentsBusiness PurposePrivate limited company, registered in the Special Register ofReporting Entities (No. 33.).<strong>Entel</strong> PCS Telecomunicaciones S.A. was incorporated asa limited company by public deed on October 3, 1996, inaccordance with the laws of the Republic of Chile.The purpose of the company is: the study, construction andoperation of a system to provide all types of transmission,switching, communication, metering, billing and chargingservices for mobile telecommunications; to import andexport, market, distribute, sell, lease, and provide in any othermanner, all types of equipment required for the provision ofmobile communications and complementary/supplementaryservices; and in general, to undertake all types of activities,agree, sign and execute all types of contracts required for theprovision of any type of mobile communications services.Subscribed and Paid-in Capital on December 31, 2011 The company’s subscribed and paid-in capital isTh.CLP $128,398,586.Private Corporation.Direct and Indirect Stock <strong>Entel</strong> S.A. <strong>Entel</strong> Chile S.A.: 99.999% <strong>Entel</strong> Chile S.A. 99,000%<strong>Entel</strong> Inversiones S.A. 1,000%Percentage of Investment of <strong>Entel</strong> S.A. Assets 26.03% 0.49%Income for 2011 Financial Year Th.CLP $139,999,549 Th.CLP $1,557,144<strong>Entel</strong>Phone S.A. was incorporated as a limited company bypublic deed on April 29, 1994, in accordance with the lawsof the Republic of Chile. On December 20, 1994, by SupremeDecree 450, the Ministry of Transport and Telecommunicationsawarded a public telephone services concession to thecompany to install, operate, and run a local telephone system.The company meets the telephone communications,multimedia and infrastructure needs of high-use consumers,and provides marketing and dealership of equipment anddevices and undertakes all telecommunications relatedbusiness activities.The company’s subscribed and paid-in capital isTh.CLP $29,603,142.Report 2011Board of DirectorsRichard Büchi B., ChairmanJuan Hurtado V., Vice-ChairmanLuis Felipe Gazitúa A., DirectorAlfredo Parot D., DirectorFelipe Ureta P., DirectorRichard Büchi B., ChairmanAntonio Büchi B., DirectorAlfredo Parot D., DirectorJosé Luis Poch P., DirectorFelipe Ureta P., DirectorCEO Antonio Büchi B. Marío Nuñez P.Positions Held at <strong>Entel</strong> S.A.Commercial Relationship with <strong>Entel</strong> Chile S.A.Agreements and ContractsRichard Büchi B., Executive Vice-PresidentAlfredo Parot D., Vice-Chairman of Technology and OperationsFelipe Ureta P., Corporate Finance and Financial PlanningAntonio Büchi B., CEO<strong>Entel</strong> Telefonía Personal provides <strong>Entel</strong> Chile S.A. networkinfrastructure to broaden the coverage of its fixedtelecommunications services. <strong>Entel</strong> Chile S.A. provides <strong>Entel</strong>Telefonía Personal with telecommunications services tosupport its mobile communications operations.<strong>Entel</strong> PCS S.A. contracted national signal transport servicesin dedicated and switched mode from <strong>Entel</strong> S.A. forTh.CLP $71,114,574.It also leased and-subleased physical space in buildings,stores, and radio stations owned by <strong>Entel</strong> PCS S.A. or thirdparties to <strong>Entel</strong> Chile S.A. Finally, it contracted marketingconsultancy services, telephone technical services, andData Center services for Th.CLP $7,072,225. <strong>Entel</strong> ChileS.A. contracted leased infrastructure, telecommunicationsservices, and the payment of access charges from <strong>Entel</strong> PCSS.A. for Th.CLP $7,208,407.Richard Büchi B., Executive Vice-ChairmanAntonio Büchi B., CEO.Alfredo Parot D., Vice-Chairman Technology and OperationsJosé Luis Poch P., Vice-Chairman Consumers MarketFelipe Ureta P., Corporate Finance and Financial PlanningMario Nuñez P., Vice-Chairman Enterprise Market<strong>Entel</strong>Phone S.A. provides Chile <strong>Entel</strong> S.A. with the servicesrequired to complement its integrated communications andoperational continuity services. <strong>Entel</strong> Chile S.A. provides<strong>Entel</strong>Phone S.A. with the operation and maintenance ofnetwork platforms to support its business activities.<strong>Entel</strong> Chile S.A. leases telecommunications infrastructure andinstallation services, provides the operation and maintenanceof networks, the lease or sublease of physical space inbuildings and commercial branches, IT data processingservices, network administration and administration servicesto <strong>Entel</strong>Phone S.A. for Th.CLP $22,303,153. <strong>Entel</strong>Phone S.A.provided <strong>Entel</strong> Chile S.A. with telecommunications servicesand access charges for Th.CLP $3,926,432.
Subsidiaries of <strong>Entel</strong> S.A.Company Name <strong>Entel</strong> Servicios Telefónicos or <strong>Entel</strong>fónica S.A. Satel Telecomunicaciones S.A. or Satel S.A.Legal Status Private limited company. Private limited company.Constituting Documents<strong>Entel</strong>fónica S.A. was originally incorporated as a privatelimited company by public deed on March 13, 1989, inaccordance with the laws of the Republic of Chile under thename Global Telecomunicaciones S.A. On June 24, 1993, thecompany statutes were modified to establish the current nameand nature of the company.Business Purpose The company provides telecommunications services,marketing, distribution and dealership of equipment, and anyother telecommunications related business activities.Subscribed and Paid-in Capital on December 31, 2011 The company’s subscribed and paid-in capital isTh.CLP $1,413,277.Direct and Indirect Stock of <strong>Entel</strong> Chile S.A. <strong>Entel</strong> Chile S.A.: 91.420%<strong>Entel</strong> Inversiones S.A.: 8.580%Percentage of Investment in Chile <strong>Entel</strong> S.A. Assets 0.01% 0.32%Satel was incorporated as a joint stock company by public deedon March 13, 1989, in accordance with the laws of the Republicof Chile.The company provides high- and low-speed corporatetelephony and data transmission services using satellitetechnology at a national and international level.The company’s subscribed and paid-in capital isTh.CLP $3,560,075.<strong>Entel</strong> Chile S.A.: 99.9%<strong>Entel</strong> Inversiones S.A.: 0.1%Income for 2011 Financial Year Th.CLP $88,485 Th.CLP $835,247Board of DirectorsJosé Luis Poch P., ChairmanJuan Baraqui A., DirectorFelipe Ureta P., DirectorAntonio Büchi B., ChairmanAlfredo Parot D., DirectorFelipe Ureta P., DirectorCEO Pablo Pfingsthorn O. Pablo Pfingsthorn O.Positions Held at <strong>Entel</strong> Chile S.A.Commercial Relationship with <strong>Entel</strong> Chile S.A.Agreements and ContractsJosé Luis Poch P., Vice-Chairman Consumers MarketJuan Baraqui A., Administration ExecutiveFelipe Ureta P., Corporate Finance and Financial PlanningPablo Pfingsthorn O., Financial Planning & Control SupportExecutive<strong>Entel</strong>fónica S.A. provides administration services for theservice centers used by <strong>Entel</strong> Chile S.A. customers. <strong>Entel</strong>Chile S.A. provides <strong>Entel</strong>fónica S.A. with the operation andmaintenance of the public telephone network.<strong>Entel</strong>fónica S.A. contracted national and international signaltransport services from Chile <strong>Entel</strong> S.A. It also receivedadministration and computing services, and leased andsubleased physical space in buildings and commercial branchesfor Th.CLP $228,171. <strong>Entel</strong>fónica S.A. provided advertising andservices to <strong>Entel</strong> Chile S.A. for Th.CLP $1,691,993.Antonio Büchi B., CEOAlfredo Parot D., Vice-Chairman of Technology and OperationsFelipe Ureta P., Corporate Finance and Financial PlanningPablo Pfingsthorn O., Financial Planning & Control SupportExecutiveSatel S.A. provides satellite transmission services tocomplement the <strong>Entel</strong> Chile S.A. telecommunicationsbusinesses. <strong>Entel</strong> Chile S.A. provides the company with theoperation and maintenance of its satellite network.Satel S.A. contracted international signal transport,administration services and installation, and service operationand maintenance from <strong>Entel</strong> Chile S.A. for Th.CLP $99,931.Satel S.A. provides <strong>Entel</strong> Chile S.A. with communicationsservices for Th.CLP $523,457.227Report 2011
Subsidiaries of <strong>Entel</strong> S.A.Company Name Micarrier Telecomunicaciones S.A. or Micarrier S.A. <strong>Entel</strong> Servicios Empresariales S.A.(Formerly Red de Transacciones Telefónicas S.A.)Legal Status Private Corporation. Private Corporation.228Constituting DocumentsBusiness PurposeSubscribed and Paid-in Capital on December 31, 2011Micarrier was incorporated as a limited company by publicdeed on December 30, 1988, in accordance with the laws of theRepublic of Chile. The company initially traded under the name<strong>Entel</strong> Servicios de Datos S.A. until March 26, 1996 when it wasagreed to amend the articles of incorporation to establish thecurrent name of the company.The company installs, operates, runs and provides publicand private telecommunications services at national andinternational level, both directly and through third parties.The company’s subscribed and paid-in capital isTh.CLP $4,141,581.Direct and Indirect Stock of <strong>Entel</strong> S.A. <strong>Entel</strong> Chile S.A.: 99.990%<strong>Entel</strong> Inversiones S.A.: 0.010%Percentage of Investment in <strong>Entel</strong> Chile S.A. Assets 0.15% 0,03%<strong>Entel</strong> Servicios Empresariales S.A. was incorporated as alimited company by public deed on June 9, 1993, in accordancewith the laws of the Republic of Chile.The company provides: software analysis, design,development, operation and maintenance, consultancyservices and technical support; third-party administrationservices for infrastructure, systems and business processes;e-commerce, business and accounting transactions using allelectronic media; representation of national and internationalsuppliers for software, hardware, and other tools andequipment related to IT, telephone support, and the continuityof technology platforms.The company’s subscribed and paid-in capital isTh.CLP $737,071.<strong>Entel</strong> Chile S.A.: 99.9855%<strong>Entel</strong> Inversiones S.A.: 0.0145%Report 2011Income for 2011 Financial Year Th.CLP $35,244 Th.CLP $186,367Board of DirectorsRichard Büchi B., ChairmanAntonio Büchi B., DirectorAlfredo Parot D., DirectorJosé Luis Poch P., DirectorFelipe Ureta P., DirectorFelipe Ureta P., ChairmanJulian San Martín A., DirectorVictor Hugo Muñoz A., DirectorCEO Pablo Pfingsthorn O. Pablo Pfingsthorn O.Positions Held at <strong>Entel</strong> S.A.Richard Büchi B., Executive Vice-ChairmanAntonio Büchi B., CEOAlfredo Parot D., Vice-Chairman of Technology and OperationsJosé Luis Poch P., Vice-Chairman Consumers MarketFelipe Ureta P., Corporate Finance and Financial PlanningPablo Pfingsthorn O., Financial Planning & Control SupportExecutiveCommercial Relationship with <strong>Entel</strong> Chile S.A. Micarrier S.A. provides long distance national andinternational services to <strong>Entel</strong> Chile S.A. In return <strong>Entel</strong> ChileS.A. provides Micarrier S.A. with the administration, operationand maintenance of its networks.Agreements and Contracts Micarrier S.A. contracted operation and maintenanceservices for telephone exchanges and switching equipment,administration and computer services and leases officesfrom <strong>Entel</strong> for the value of Th.CLP $25,930. <strong>Entel</strong> Chile S.A.contracted the leasing of telecommunications from MicarrierS.A. for Th.CLP $31,316.Felipe Ureta P., Corporate Finance and Financial PlanningJulian San Martín A., Vice-Chairman Corporations MarketVictor Hugo Muñoz A., IT Services ExecutivePablo Pfingsthorn O., Financial Planning & Control SupportExecutive<strong>Entel</strong> Servicios Empresariales S.A. provides technologyplatform continuity services to <strong>Entel</strong> Chile S.A. to supportcustomers operations.<strong>Entel</strong> Servicios Empresariales S.A. provides services in thefield of technology platform continuity to <strong>Entel</strong> S.A. to supportthe customers operations for Th.CLP $2,271,303.
Subsidiaries of <strong>Entel</strong> S.A.Company Name <strong>Entel</strong> Inversiones S.A. and Subsidiaries <strong>Entel</strong> Call Center S.A. and SubsidiariesLegal Status Private Corporation. Private Corporation.Constituting DocumentsBusiness Purpose<strong>Entel</strong> Inversiones S.A. was incorporated as a limited companyby public deed on August 8, 1989, in accordance with the lawsof the Republic of Chile.The company makes investments considered strategicallyappropriate to corporate goals, regardless of whether theseare related to the telecommunications industry.Subscribed and Paid-in Capital on December 31, 2011 The company’s subscribed and paid-in capital isTh.CLP $2,870,848.Direct and Indirect Stock of <strong>Entel</strong> Chile S.A. <strong>Entel</strong> Chile S.A.: 99.990%<strong>Entel</strong> International Bvi Corp.: 0.010%Percentage of Investment in <strong>Entel</strong> Chile S.A. Assets 1.98% 0,28%<strong>Entel</strong> Call Center S.A. (formerly <strong>Entel</strong> Internacional S.A.) wasincorporated as limited company by public deed on September12, 1989, in accordance with the laws of the Republic of Chile.Its initial purpose was to provide consultancy services forthe development of telecommunications and IT projects. Itsbusiness purpose was amended on March 29, 2000.The company develops, installs, operates and runs bothits own and third-party telecommunications platforms inChile and abroad, and in general, undertakes any activity orprovides services through telecommunications equipment orinstallations served by operators or automated operations.The company’s subscribed and paid-in capital isTh.CLP $13,867,175.<strong>Entel</strong> Chile S.A. 90,000%<strong>Entel</strong> Inversiones S.A. 10,000%Income for 2011 Financial Year Th.CLP $1,100,689 Th.CLP $1,104,556Board of DirectorsRichard Büchi B., ChairmanAntonio Büchi B., DirectorAlfredo Parot D., DirectorAntonio Büchi B., ChairmanRichard Büchi B., DirectorAlfredo Parot D., DirectorJosé Luis Poch., DirectorFelipe Ureta P., DirectorChief Executive Officer Felipe Ureta P. Álvaro García L.Positions Held at <strong>Entel</strong> S.A.Richard Büchi B., Executive Vice-ChairmanAntonio Büchi B., CEOAlfredo Parot D., Vice-Chairman of Technology and OperationsFelipe Ureta P., Corporate Finance and Financial PlanningAntonio Büchi B., CEORichard Büchi B., Executive Vice-ChairmanAlfredo Parot D., Technology and Operations ExecutiveJosé Luis Poch P., Vice-Chairman of Consumers MarketFelipe Ureta P., Corporate Finance and Financial PlanningCommercial Relationship with <strong>Entel</strong> Chile S.A. None. <strong>Entel</strong> Call Center S.A. currently provides the requiredinfrastructure for service via remote channels for customersof subsidiaries of the <strong>Entel</strong> Group. <strong>Entel</strong> Chile S.A. provides thecompany with telecommunications services to support its callcenter business.Agreements and Contracts<strong>Entel</strong> Chile S.A. provided <strong>Entel</strong> Invesiones S.A. and Subsidiariesinternational data transportation and traffic terminationservices for Th.CLP $625,254. <strong>Entel</strong> Inversiones S.A. andsubsidiaries provide <strong>Entel</strong> Chile S.A. with international traffictermination services for Th.CLP $803,487.<strong>Entel</strong> Chile S.A. provided <strong>Entel</strong> Call Center S.A.telecommunications, administration and IT services, and theleasing of office space for Th.CLP $461,612. <strong>Entel</strong> Call CenterS.A. provided <strong>Entel</strong> with inbound and outbound call servicesfor the value of Th.CLP $6,137,222.229Report 2011
Subsidiaries of <strong>Entel</strong> S.A.Company NameLegal StatusConstituting DocumentsBusiness Purpose<strong>Entel</strong> International B.V.I. Corp. and Subsidiary.Foreign subsidiaryThe company was incorporated as a limited company onFebruary 12, 1993, in Tortola, British Virgin Islands.Subscribed and Paid-in capital on December 31, 2011 The company’s subscribed and paid-in capital isTh.CLP $25,211,353.Direct and Indirect Stock of <strong>Entel</strong> S.A. <strong>Entel</strong> Chile S.A.: 100.00%Percentage of Investment in <strong>Entel</strong> Chile S.A. Assets 0.02%Income for 2011 Financial Year Th.CLP $18,273Board of DirectorsRichard Büchi B., ChairmanAntonio Büchi B., DirectorFelipe Ureta P., DirectorCEO Felipe Ureta P.230Positions Held at <strong>Entel</strong> S.A.Commercial Relationship with <strong>Entel</strong> Chile S.A.Agreements and ContractsRichard Büchi B., Executive Vice-ChairmanAntonio Büchi B., CEOFelipe Ureta P., Corporate Finance and Financial PlanningNone.There were no agreements or contracts with significant effectson operations and income.Report 2011Subsidiaries of <strong>Entel</strong> S.A.Company NameSociedad de Telecomunicaciones Instabeep Ltda.Legal StatusLimited company.Constituting DocumentsBusiness PurposeSubscribed and Paid-in Capital on December 31, 2011The company was incorporated as a limited liability companyby public deed on November 4, 1985, in accordance with thelaws of the Republic of Chile.The company undertakes business activities related toelectrical and electronics engineering, especially those relativeto the establishment, operation and running of communicationsservices and any other related activity agreed by the partners.The company’s subscribed and paid-in capital isTh.CLP $2,969,432Direct and Indirect Stock of <strong>Entel</strong> Chile S.A. <strong>Entel</strong> Chile S.A.: 99.990%<strong>Entel</strong> PCS Telecomunicaciones S.A.: 0.010%Percentage of Investment in <strong>Entel</strong> Chile S.A. Assets 0,00%Income for 2011 Financial Year Th.CLP $(27,577)Board of DirectorsNone.CEO José Luis Poch P.Positions held at <strong>Entel</strong> S.A.Commercial Relationship with <strong>Entel</strong> Chile S.A.Agreements and ContractsJosé Luis Poch P., Vice-Chairman Consumers MarketNone.There were no agreements or contracts with significant effectson operations and income.
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