Equity Research

BTG Pactual Global Research

Latin America
Technology, Media & Telecommunication
Company Note
11 September 2017

Entel
Better Peru operations priced-in; reinitiating with a Neutral Rating Neutral

Reinitiating coverage with Neutral rating, for what we deem a fairly-priced stock 12m Price Target CLP7,300.00/US$11.77

We are reinitiating coverage on Chilean telecom provider Entel with a Neutral rating Price CLP6,410.50/US$10.33
and target price of CLP7,300, offering an upside of 13.9%. We remind investors that RIC: ENTEL.SA, BBG: ENTEL CI
Entel shares (2018E EV/EBITDA of 7.3x), despite a 22% sell-off from their mid-April
Trading Data and Return Forecasts
peak, still trade at a hefty premium to LatAm peers´ average (5.2x). So, yes, brighter
52-wk range CLP8276.56-6300.28/US$12.82-9.39
growth prospects do warrant a premium, and we deem valuation fair at current levels. Market cap. CLP1,936bn/US$3,121m
Shares o/s (m) 302.0
Tough competitive environment in Chile; Entel has just finished slashing prices
Free float 45%
Let´s face it, in Chile (Entel’s main market), the competitive environment is intense Avg. daily volume('000 Shares) 248
Avg. daily value (CLP m) 1,749.7
and will remain so in the foreseeable future, while a highly penetrated market and a
Forecast price appreciation +13.9%
virtually stagnant economy do nothing to ease the situation. As Entel revs up Forecast dividend yield 2.1%
marketing efforts and promotional campaigns to defend market share, margins will Forecast stock return +16.0%
likely come down. Here, we remind readers that Entel overhauled its postpaid and
prepaid pricing strategy in Chile, in a move followed by Telefonica. Stock Performance (CLP)
12,000.0 150

Stock price already reflects better operating results in Peru 10,000.0

120

Over the next few years, we expect Entel’s Peruvian operations to drive top line 8,000.0
90

6,000.0
growth and better EBITDA and operating cash flow. Better operating results are pretty 60
4,000.0
much consensus in Peru, but opinions on timing and magnitude vary greatly. With 30
2,000.0

OpFCF breakeven a distant reality (2021 is our best guess), changes in market
0.0 0
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11-Sep-16

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11-Jun-15

11-Mar-16

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conditions in the period could really affect forecasts. In particular, two major changes
have the potential to impact markets: i) virtual elimination of termination rates´ Price Target (CLP) Stock Price (CLP) Rel. IPSA

asymmetry; and ii) AMX’s better spectrum position.

Carlos Sequeira, CFA
Consistently better OpFCF in the years ahead
New York – BTG Pactual US Capital LLC
After an unfortunate four-year streak of negative operating free cash flow (EBITDA – carlos.sequeira@btgpactual.com
capex), we see Entel’s operating free cash flow approaching breakeven in 2017, +1 646 924 2479
before turning positive thereafter, on lower operating free cashflow losses in Peru.
Bernardo Teixeira
Brazil – Banco BTG Pactual S.A.
bernardo-leao.teixeira@btgpactual.com
+55 11 3383 3315
Valuation 12/2015 12/2016 12/2017E 12/2018E 12/2019E
RoIC (EBIT) % 3.8 4.6 3.9 5.3 7.5
EV/EBITDA 8.9 8.3 8.3 7.3 6.3
P/E (1,737.9) 62.8 109.3 53.4 21.7
Net dividend yield % 0.6 0.0 0.5 0.3 0.6

Financials (CLPmn) 12/2015 12/2016 12/2017E 12/2018E 12/2019E

Revenues 1,792,864 1,887,302 1,957,098 2,015,528 2,066,476
EBITDA 356,586 424,781 422,953 490,289 572,104
Net Income (1,102) 34,158 17,713 36,237 89,218
EPS (CLP) (4.66) 119.55 58.65 119.98 295.41
Net DPS (CLP) 6,057.97 6,057.97 6,057.97 6,057.97 6,057.97
Net (debt) / cash (1,267,873) (1,374,110) (1,572,948) (1,661,264) (1,640,215)
Source: Company reports, Bovespa, BTG Pactual S.A. estimates. / Valuations: based on the last share price
of the year; (E) based on a share price of CLP6,410.50, on 08 September 2017.

ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 26

Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Any U.S. person receiving this report and wishing to effect any transaction in a security
discussed in this report should do so with BTG Pactual US Capital, LLC at 212-293-4600, 601 Lexington Avenue. 57th Floor, New York NY 10022.
 Entel
11 September 2017 page 2

Tough competition in Chile; better Peru ops. are priced-in

We are reinitiating coverage on Chilean telecom provider Entel with a Neutral rating
and target price of CLP7,300 (WACC of 8.2%, growth in perpetuity of 2%), offering an
upside of 13.9%. We remind investors that Entel shares (2018E EV/EBITDA of 7.3x),
despite a 22% sell-off from their mid-April peak, still trade at a hefty premium to
LatAm peers´ average (5.2x). So, yes, brighter growth prospects warrant a premium,
and we deem valuations fair at current levels.

Table 1: Latin America telecommunications valuation comps

Mkt.cap EV PE EV/EBITDA EV/OpFCF
Company
US$ mn US$ mn 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E
AMX 60,268 92,186 12.9x 15.5x 13.9x 5.6x 5.5x 5.1x 10.6x 13.0x 12.3x
Telefonica Brasil 25,099 26,047 18.2x 15.2x 13.1x 5.5x 5.0x 4.5x 12.1x 10.2x 8.7x
TIM Brasil 8,796 9,955 29.2x 25.6x 19.7x 5.6x 5.2x 4.8x 21.1x 13.7x 11.1x
Entel 3,157 5,704 109.3x 53.4x 21.7x 8.3x 7.3x 6.3x - 59.1x 19.8x
Source: BTG Pactual estimates, Bloomberg

Chile, Entel’s main market, accounts for 78% of consolidated sales. There,
competition is tough and doesn’t look like changing. The top three mobile players,
Entel, Telefonica and AMX, represent over 90% of the market, while newcomers like
WOM, which operates its own network in the country, are gaining share, mainly in the
postpaid segment, via aggressive offers. A highly penetrated market and a virtually
stagnant economy do nothing to ease competition.

All-in, we see little room for Entel Chile’s revenues to grow in the next few years.
Although margins in Chile expanded in 2015 and 2016, we see high odds of a trend
reversal in 2017, as Entel ups its marketing efforts and promotional campaigns to
defend its market share – most of the share taken by WOM in the postpaid segment
in 2015 and 2016 came from Entel.

Chart 1: Chile revenues, EBITDA and margin (CLPbn)

2,000 38.0%

1,750 1,613 1,661 37.0%

1,567 1,548 1,552 1,582
1,500 36.0%

1,250 35.0%

1,000 34.0%

750 33.0%
519 529 511 509 526 544
500 32.0%

250 31.0%

- 30.0%
2015 2016 2017E 2018E 2019E 2020E

Revenues EBITDA Ebitda Margin

Source: Company reports, BTG Pactual estimates

 Entel
11 September 2017 page 3

Better Peru operations are already priced-into the stock

In the next few years, top line growth and improvements in EBITDA and operating
cash flow should come from Entel’s Peruvian operations. The company’s successful
entrance into the Peruvian market, focused on 4G, quality of services and branding,
helped it reach 17.1% market share, up from 6.3% in the space of two years.

As market share grows, EBITDA losses tend to fall. Losses were sizable again in
2016, but should plunge in 2017, breaking even in 2H18 (when market share should
be ~20%), boosting consolidated EBITDA. And as infrastructure is deployed, capex-
to-sales in Peru should also gradually fall, boosting operating free cashflow growth.

Chart 2: Peru revenues, EBITDA and margin (CLPbn)

600 537 560 30%
516
485
500 20%
381 10%
400
291 0%
300
-10%
200
91 -20%
100 40
-30%
-
-40%
(100) (25)
-50%
(116) (93)
(200) -60%
(176)
(300) -70%
2015 2016 2017E 2018E 2019E 2020E

Total EBITDA Ebitda Margin

Source: Company reports, BTG Pactual estimates

Changing market conditions may delay breakeven point

Better operating results and lower operating cash flow losses are consensus in Peru,
but views on the timing and magnitude of the recovery vary drastically. In fact, with
OpFCF breakeven far away (at some point in 2021, we believe), changes in market
conditions between now and then could really impact forecasts.

At this point, we see two main changes to market conditions with the potential to
toughen the competitive environment in Peru for Entel: i) 24% reduction in mobile
termination rates received by Entel in 2017, with the gap between the tariffs received
by Entel and paid to AMX and Telefonica narrowing sharply; and ii) AMX’s granting of
30Mhz spectrum in the 700Mhz band in mid-2016.

Mobile termination rates asymmetry virtually ended in Peru

Since April 2015, Peruvian telecom regulator decided to cap termination rates and
defined asymmetric termination rates between the two incumbent operators
(Telefonica and AMX) and the two entrants (Entel and Bitel, controlled by Vietnamese
Viettel). In April 2015, while Entel and Bitel were paid 3.25 USD cents per minute per
call ending in their networks, Telefonica and AMX were paid USD1.76. The fees paid
to Entel and Viettel declined to USD2.63 in April 2016 and again to USD2.00 in April
 Entel
11 September 2017 page 4

2017, reducing the gap to the tariffs paid to Telefonica and AMX materially (they are
still being paid USD1.76), virtually eliminating the asymmetry.

We estimate interconnection rates account for some 10% to 15% of Entel Peru’s
revenues. A 24% cut to rates in April 2017 should have a negative impact on sales
and increase EBITDA losses in Peru (margins on termination rates are usually very
high).

Maybe more importantly, lower termination rates to Entel and Bitel may make
Telefonica and AMX’s offers more attractive to clients, improving these companies
competitive positioning in the Peruvian market.

Chart 3: Mobile termination rates received by operators in Peru (USD cents per minute)
3.25 3.25

2.63 2.63

1.99 1.99
1.76 1.76 1.76 1.76 1.76 1.76

April/15-Mar/16 April/16-Mar/17 April/17-Dec/17

Movistar (Telefonica) Claro (AMX) Entel Viettel

Source: Company reports

New 4G/LTE spectrum has strengthened AMX’s Peru competitive positioning

Up until mid-2016, AMX’s Peru had a clear competitive disadvantage vs. Entel and
Telefonica in spectrum position. While Entel and Telefonica each bought 2x20Mhz of
spectrum in the 1.7-2.1Ghz spectrum band in 2013 (used to provide 4G/LTE
services), AMX stayed away from that particular auction.

AMX thus couldn’t deploy a competitive 4G network in Peru, exposing it to Entel’s

data-centric strategy focused on high-speed mobile broadband connections and high-
quality operations. The results of Entel’s strategy and AMX’s weakness are shown in
the evolution of postpaid market share in the country. From the end of 2014 until mid-
2016, Entel gained 4p.p. in postpaid market share, while AMX lost 4p.p. (chart 4).
 Entel
11 September 2017 page 5

Chart 4: Postpaid market share in Peru

100%
8% 9% 10% 10% 12% 12% 12% 13% 15%
90% 16% 17% 18%

80%
70% 40% 39% 38% 38% 37% 35% 35% 35% 35% 35% 35% 36%
60%
50%
40%
30%
52% 51% 51% 51% 51% 51% 51% 51% 49% 48% 46% 44%
20%
10%
0%
2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

Movistar (Telefonica) Claro (AMX) Entel Viettel Virgin 2Q17

Source: Company reports, BTG Pactual estimates

In April 2016, Osiptel (Peru’s telecom regulator) auctioned new 700Mhz spectrum.
Entel, Telefonica and AMX each won the right to use 2x15Mhz spectrum in the
premium 700Mhz band. AMX also bought two small Peruvian telecom players,
looking to gain access to their 2.5Ghz spectrum, also usable for 4G services.

The new spectrum allowed AMX to start deploying a competitive 4G network in Peru.
While Entel continued gaining postpaid market share from mid-2016 to 2Q17
(another 5 percentage points), Telefonica was the one losing out (6p.p. in the period).

We expect Telefonica to react. And since all three main players have similar
spectrum positions, competition for high-end postpaid clients looks set to intensify.

Table 2: Recent (mid-2013 on) spectrum acquisition in Peru by the main players (Mhz)

Operators 700Mhz 1700/2100Mhz Total

Movistar (Telefonica) 30 40 70
Claro (AMX) 30 30
Entel 30 40 70
Source: Osiptel

Consistently better OpFCF; positive Peru contributions only in 2021

After four years of negative operating free cashflow (EBITDA – capex), we expect
Entel’s operating free cashflow to almost break even in 2017, before growing over
time, as operating free cashflow losses decline in Peru.
 Entel
11 September 2017 page 6

Chart 5: Entel’s consolidated EBITDA, Capex and OpFCF (CLPbn)

900

750 696
648 642
552 572
600 531
467 461 490
425 423 429
450 370 392 382
357

300 260
180
150 61

-
(38)
(150)
(181) (174)
(300) (229) (223)
2013 2014 2015 2016 2017E 2018E 2019E 2020E

EBITDA Capex OpFCF

Source: Company reports, BTG Pactual estimates. (*)´16 capex impacted by buying Peru spectrum for USD290mn

In Chile, while EBITDA looks set for mild growth in the next few years (at 0.7% per
year on average in the next 4 years), capex-to-sales is expected to decline as Entel
Chile has just concluded a heavy capex cycle in recent years, and lower regulatory
capex. We expect capex-to-sales ratio in Chile to decline to 15%, in line with the ratio
seen in more mature markets (down from an average of 17.5% in 201-16).

Chart 6: Entel Chile EBITDA, Capex and OpFCF (CLPbn)

600
529 544
519 511 526
509

450

279 288
300 265 264 271 267 259 267 256
239 240 242

150

-
2015 2016 2017E 2018E 2019E 2020E

EBITDA Capex OpFCF

Source: Company reports, BTG Pactual estimates

In Peru, as Entel’s market share continues to expand, EBITDA losses should

gradually decline, until it reaches breakeven at some point in the second half of 2018.
However, Entel Peru may take longer to produce positive operating free cash flow, as
capex should remain relatively high for a few more years.
 Entel
11 September 2017 page 7

We believe Entel Peru will only reach OpFCF breakeven in 2021. We expect capex-
to-sales to remain above 20% of sales at least until 2020, while the company
continues to deploy its infrastructure.

Chart 7: Entel Peru EBITDA, Capex and OpFCF (CLPbn)

500
379
400
272
300
193
200 163
132 124
89
100 40
-
(100) (25) (34)
(116) (94) (92)
(200)
(176) (188)
(300)
(287)
(400)
(500) (448)
(494)
(600)
2015 2016 2017E 2018E 2019E 2020E

EBITDA Capex OpFCF

Source: Company reports, BTG Pactual estimates. (*)´16 capex impacted by buying spectrum in Peru for USD290mn

Leverage peaked at YE15 at 3.56x net debt-to-EBITDA. Anticipating strong cash

outflows in the Peruvian business in 2016, mainly due to the acquisition of additional
700Mhz spectrum for US$290mn, Entel issued 65.5mn shares, raising CLP353.7bn
in fresh capital (USD530mn). The capitalization was concluded in August 2016 and
leverage dropped to 3.3x net debt-to-EBITDA – the US$290mn spectrum payment
prevented a bigger decline.

We see higher leverage this year at 3.7x, before gradually falling from 2018 on, due
to positive operating free cashflow and EBITDA growth (lower Peru EBITDA losses).

Chart 8: Entel’s consolidated leverage

1,800 1,661 4.0x
1,640
1,650 1,573 1,594
3.6x
1,500 1,374 3.7x
3.5x
1,350 1,268
1,200 3.2x 3.4x
2.9x 3.0x
1,050 954
900 801 2.6x
2.5x
750 2.5x
600
450
2.0x
300 1.7x
150
- 1.5x
2013 2014 2015 2016 2017E 2018E 2019E 2020E

Net debt (CLPbn) Net debt/EBITDA

Source: Company reports, BTG Pactual estimates

 Entel
11 September 2017 page 8

2015 dividend payments (related to FY2014) plunged, and were virtually non-existent
in 2016 (related to 2015). The company paid CLP10.3mn in May 2017, related to
FY16, equivalent to 30% of 2016 earnings. We expect dividend payments to increase
as earnings grow and Entel gradually ups its dividend payout to 50% of net income
(current dividend policy calls for a dividend payout of up to 50% of net income).

Competition: Tough in Chile….and may get worse in Peru!

The competitive environment is tough in Chile. Entel, Telefonica Movistar and AMX
Claro are the three main players and together control more than 90% of Chile’s
mobile market. With deep pockets and similar sizes, these three players alone make
this 18mn people market a competitive one, which has been the case since AMX
entered Chile in 2005.

Chile’s telecom regulator, Subtel, has created attractive conditions for newcomers,
including mobile virtual network operators (MVNOs). In Chile, clients can port their
numbers seamlessly between fixed-line and mobile operators. Long-distance
termination fees were eliminated a long time ago and local mobile termination rates
are incredibly low at CLP8.7 per minute (~USD1 cent per minute).

These conditions have attracted newcomers. Virgin operates a MVNO business in

Chile, and the country’s leading cable/triple-play provider VTR, controlled by Liberty
Global and part of the LiLAC Group. VTR has leveraged on its triple-play client base
of 1.4mn clients (2.8mn RGUs), rounding out its offers with mobile services.

In early 2015, the former NII Holdings’ trunking operation in the country, Nextel Chile,
was bought by British investment fund Novator and renamed WOM (World of Mouth).
Operating its own network, focusing on young postpaid clients and with aggressive
offers, in two years WOM increased its market share in postpaid to 11.8%, from 3%
at the end of 2014 (overall share is 8%).

All-in, WOM and MVNO operators (Virgin and VTR) ended 2Q17 with 10.4% of the
overall market and 13.8% of the postpaid market.

Entel suffered the most from WOM’s entrance into the Chilean market. While WOM’s
postpaid market share increased 8 percentage points in the past two years, Entel’s
share declined 7 points.

We expect Entel to defend its postpaid market share with more vim, via more
aggressive pricing and increased data allowances, most likely hurting margins.
 Entel
11 September 2017 page 9

Chart 9: Market share in Chile Chart 10: Postpaid market share in Chile
100% 1% 1% 1% 2%
100% 1% 1% 3%
2% 3% 4% 5% 6% 5% 5% 7% 8%
7% 8% 9% 10% 12%
90% 90%
80% 38% 38% 37% 37% 37% 36% 36% 80%
36% 36% 35% 35% 34% 32% 48% 48% 46% 46% 46% 45% 44%
70% 70% 43% 41% 40% 40% 39% 38%
60% 60%
50% 23% 22% 21% 22% 22% 23% 23% 50%
24% 24% 24% 24% 24% 25% 15% 16% 16% 17% 17% 17% 16% 16% 16% 16% 17%
40% 40% 17% 17%

30% 30%
20% 38% 38% 39% 39% 38% 37% 36% 35% 34% 34%
20% 35% 34% 34% 34% 34% 34% 34% 34%
33% 33% 33% 33% 33% 33% 32% 31%
10% 10%
0% 0%
2012

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

2012

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
Movistar (Telefonica) Claro (AMX) Entel WOM Others Movistar (Telefonica) Claro (AMX) Entel WOM Others

Source: Company reports, Subtel, BTG Pactual estimates Source: Company reports, Subtel, BTG Pactual estimates

Pre-Entel, Peru´s competitive environment in Peru was benign!

In 2013, Telefonica Movistar and AMX Claro shared the Peruvian mobile market, with
a combined share of 95%. Nextel Peru, focused on the postpaid market, had only
5%. In April 2013, Entel agreed to pay US$400mn to buy Nextel Peru’s operations, at
the time basically a trunking operation with a dwindling client base.

Since the acquisition, Entel has overhauled the business, built a new 3G (and later on
4G) network and rebranded the company Entel Peru. It successfully decided to
implement in Peru the same strategy that had worked so well in Chile: focus on
customer services and good network coverage and capacity to attract high-end
clients. Since 2013, Entel’s share of the Peruvian market increased from 5% to 14%.

Entel, as well as Bitel, controlled by Vietnamese operator Viettel and which also
entered the market in 2014, benefited strongly from the Peruvian telecom regulator´s
(Osiptel) decision to establish asymmetric mobile termination rates starting in April
2015 – while dominant operators Telefonica and AMX were paid 1.76 cents of USD
per minute for calls ending in their networks, Entel and Bitel were paid 3.25 USD
cents. The asymmetry is diminishing every year and the gap is small (in 2016 the
termination fees paid to Entel and Bitel fell to 2.63 USD/cent and in April 2017 to 2.00
USD/cent in April 2017).

The newcomers also benefited from more benign number portability rules since mid-
2014 (basically the time to port a number was importantly reduced).

Spectrum positions had an important impact on competition in the past years

Another decisive moment in the Peruvian mobile market was the auction, in July
2013, of two licenses of 40Mhz each (2x20Mhz) in the 1.7-2.1Ghz band for the
provision of 4G/LTE services. Telefonica and Entel bought these licenses and started
offering 4G/LTE services in Peru in January and September 2014, respectively.
 Entel
11 September 2017 page 10

Without any 4G spectrum, AMX Claro could not compete for high-end postpaid
clients at the same level as Entel and Telefonica, and ended up losing 4 percentage
points market share in the postpaid segment from the end of 2014 until mid-2016.

In May 2016, AMX bought Olo del Peru and TVS Wireless, with the goal of gaining
access to 2.5Ghz spectrum controlled by these companies, which AMX can use for
4G/LTE services. Also in May, AMX, as well as Entel and Telefonica, bought
2x15Mhz of spectrum in the premium 700Mhz spectrum band.

The new spectrum allowed AMX to start the deployment of a competitive 4G network
in Peru. While Entel continued to gain postpaid market share from mid-2016 to 2Q17
(another 5 percentage points), Telefonica was the one losing share (it lost 6
percentage points share in the period).

We would naturally expect Telefonica to react, and since all three main players now
have similar spectrum positions, competition for high-end postpaid clients may
intensify.

Chart 11: Market share in Peru Chart 12: Postpaid market share in Peru
100% 5% 3% 3% 5%
100%
6% 6% 6% 7% 7% 10% 10% 11% 8% 9% 10% 10%
8% 9% 12% 12% 12% 13% 15%
90% 11% 90% 16% 17% 18%
12% 13%
13% 14%
80% 17% 80%
41% 40% 39% 39% 40%
70% 38% 36% 70% 39% 38% 38% 37% 35% 35% 35%
36% 35% 35%
34% 34% 35% 36%
60% 33% 33% 60%
32%
50% 50%
40% 40%
30% 54%
30%
54% 53% 53% 51% 51% 52% 51% 51% 51% 51% 51% 51% 51% 49%
48% 47% 45% 48% 46% 44%
20% 43% 41% 39% 20%
10% 10%
0% 0%
2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
Movistar (Telefonica) Claro (AMX) Entel Viettel Virgin Movistar (Telefonica) Claro (AMX) Entel Viettel Virgin

Source: Company reports, Osiptel, BTG Pactual estimates Source: Company reports, Osiptel, BTG Pactual estimates

Bitel/Viettel focused on 2G/3G services for prepaid customers

State-owned leading Vietnamese telecommunications group Viettel bought a license

to offer mobile services in Peru back in 2011 (a 2x12.5Ghz in the 1.9Ghz band,
followed by a 2x13Mhz in the 900Mhz band). It started operations in 2014 under the
brand name Bitel.

Since the beginning, Viettel’s focus has been on low-price voice solutions to prepaid
customers (it doesn’t own 4G/LTE licenses, making it tough for the company to
compete for data-hungry postpaid clients). As a niche operator, Viettel can claim it
has been relatively successful. In two years, Viettel grabbed 10.5% of the Peruvian
mobile market and 15.5% of the prepaid market.
 Entel
11 September 2017 page 11

Chart 13: Prepaid market share in Peru

100% 4% 3% 5% 5%
5% 4% 7% 10% 11%
6% 8% 14% 16% 16%
90% 10%
11% 12%
80% 43% 12% 13%
40% 40% 15%
39%
70% 38% 37%
36%
60% 34% 34%
33% 33% 32%
50%
40%
30% 57% 55% 54% 54% 51% 50% 47% 44% 43%
20% 40% 39% 37%
10%
0%
2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
Movistar (Telefonica) Claro (AMX) Entel Viettel Virgin

Source: Company reports, Osiptel, BTG Pactual estimates

Promotional activity: Movistar has just followed Entel´s

lead, and has also slashed prices in Chile
Mainly in Chile, but also in Peru, Entel has always priced its services at a premium to
competitors. The company’s superior coverage, services and branding have
supported this pricing strategy. However, as competitors priced their services more
aggressively, and with strategies directly eyeing Entel’s client base, Entel has
overhauled its pricing in recent months.

Clear trend towards unlimited data in high-end postpaid packages

In the high-end postpaid market in Chile, the three main operators, Entel, AMX Claro
and Telefonica Movistar, have similar package structures. All three basically give
voice for free (most postpaid plans offer unlimited calling) and include access to
social media platforms (WhatsApp, Facebook, Twitter, Spotify, Instagram). While
Entel and Claro give unlimited access to basically all social media platforms, as well
as video and music applications, Telefonica limits it to Whatsapp and Facebook. It is
interesting to note that only Entel includes YouTube in its packages.

As a response to WOM’s aggressive data-packages, last month Entel launched a

new family of high-end postpaid plans, some of them including unlimited data, at
prices much closer to its peers -- Entel is selling unlimited data packages for
CLP29,691 and CLP35,991, the difference between the two packages being the
quality of the connection.

Entel is also selling a 25GB plan, including unlimited access to social media
platforms, for CLP23,991 per month. It is still 8% cheaper than Telefonica’s new
25GB plan (selling for CLP25,990) even after Telefonica slashed prices of its
postpaid plans (in July, Movistar’s 15GB + 1 GB social media plan was selling for
CLP35,000, 35% more than its brand new 25GB + unlimited social media plan).
 Entel
11 September 2017 page 12

AMX Claro also slashed its high-end postpaid packages in the past months (including
the launch of unlimited data plans). Claro’s 24GB and 32GB plans, both including
unlimited access to social media, are now selling for CLP20,990 and CLP25,990 per
month, respectively. Claro also has an unlimited voice and data package selling for
CLP30,990. In a nutshell, Claro’s prices in the high-end postpaid segment are still
cheaper than Entel’s, but the price gap has narrowed significantly.

In the past weeks, Telefonica Movistar followed its main competitors and also
launched unlimited data packages. Still, Movistar’s prices are 11% and 29% more
expensive than Entel’s and Claro’s, respectively.

In a nutshell, it seems clear to us that: i) although Telefonica has adjusted the prices
of its plans down significantly, they are still less attractive than their competitors; and
ii) the high-end Chilean postpaid market has moved irreversibly towards an unlimited
voice and data market.

WOM has always focused on big data allowances (and not on voice)

Since its launch, focused on data-hungry young users, the newcomer WOM has
opted for big data allowances at pretty attractive prices, but not on unlimited voice
minutes or unlimited access to social media (only WhatsApp is part of packages).

Up until the recent price cuts by Entel, Claro and Telefonica, WOM prices were much
lower than peers. WOM sells 24GB plans, with 400 minutes of voice, for CLP19,990
per month. While still cheaper than Entel and Claro (Entel’s 25GB package is selling
for CLP23,991 and Claro’s 24GB for CLP20,990), the gap is much smaller. The
32GB plan is now selling for the same price of Claro’s 32GB (CLP25,990), but Claro
offers unlimited voice minutes and unlimited access to social media.

WOM also doesn’t have an unlimited data package at this point. In our view, to keep
its competitive positioning, WOM will have to reposition its packages, either via
cutting the prices of its high-end packages and/or launching unlimited data plans.
 Entel
11 September 2017 page 13

Table 3: High-end postpaid plans in Chile

GB Min CLP/mth CLP/GB
25 Unlimited 23,991 960
Unlimited Unlimited 29,691 -
Unlimited Unlimited 35,991 -

25 Unlimited 25,990 1,040

40 Unlimited 32,990 825
Unlimited Unlimited 39,990 -

24 Unlimited 20,990 875

32 Unlimited 25,990 812
Unlimited Unlimited 30,990 -

20 2000 29,990 1,500

24 400 19,990 833
32 600 25,990 812
Source: Company website

Low-end postpaid: More data, lower prices

Entel and Claro also made important adjustments to their low-end postpaid packages
in the past few months. Entel’s new entry level postpaid package includes 5GB of
data (it eliminated the 1GB, 1.5GB, 2GB and 3GB packages) and 260 minutes of
voice for CLP9,900 per month, down 45% and with more data than its July’s entry
level package (3GB with 600min of voice was selling for CLP17,991). It is now
offering 8GB for the same price it was offering 2GB before (CLP13,491) and 12GB
for the same price it was offering 3GB before (CLP17,991).

Claro basically doubled the data franchises of its previous low-end postpaid
packages, while keeping prices unchanged. The 8GB (former 4GB) sells for
CLP12,990, the 16GB for CLP16,990 and 20GB for CLP18,990.

Telefonica is selling 5GB with 300min of voice for CLP9,990 (slightly more expensive
than Entel’s 5GB plan, but with 40 extra minutes) and 10GB with 400min of voice for
CLP14,990 per month

While WOM still offers more data (and less voice minutes) than peers for lower
prices, the gap is now much smaller.
 Entel
11 September 2017 page 14

Table 4: Low-end postpaid plans

GB Social Media (Unlimited) Min CLP/mth CLP/GB
5 Whatsapp / Facebook 260 9,900 1,980
8 Whatsapp / Facebook / Spotify / Twitter 400 13,491 1,686
12 Whatsapp / Facebook / Spotify / Instagram / Twitter 600 17,991 1,499

5 Unlimited: Whatsapp / Facebook 300 9,990 1,998

10 Unlimited: Whatsapp / Facebook 400 14,990 1,499

8 Whatsapp / Claro Música 400 12,990 1,624

16 Whatsapp / Facebook / Twitter / Instagram/ Claro Música & Video 500 16,990 1,062
20 Whatsapp / Facebook / Twitter / Instagram/ Claro Música & Video 600 18,990 950

8 Whatsapp 100 9,990 1,249

10 Whatsapp 500 15,990 1,599
14 Whatsapp 1000 19,990 1,428
Source: Company website

Prepaid offers: Claro has the cheapest entry-level offers

In Chile, the basic, entry-level prepaid plans are 7-day recharges ranging from
CLP1,500 to CLP3,000. Claro offers the lowest possible recharge. For CLP1,500,
clients have access to social media (Whatsapp/Facebook/Twitter/Instagram) and
200MB of data (no voice minutes included) to be used in 7 days. Entel and Telefonica
offer 7-day recharges of CLP3,000 that give access to social media and 500Mb of
data in the case of Entel and 800Mb in the case of Telefonica.

All companies offer prepaid plans that have to be recharged every 15 days. For
CLP5,000, Entel clients can talk up to 100min and use up to 1GB of data in 15 days.
For the same CLP5,000, Claro clients can use up to 700MB of data and talk up to
70min, while for CLP4,000 Telefonica users can talk up to 60min and use up to 1GB
of data.

While Claro has the lowest entry-level prepaid package, prices in the prepaid
segment do not differ much from operator to operator, which makes sense given how
price-sensitive prepaid clients are.
 Entel
11 September 2017 page 15

Table 5: Pre-paid plans

Recharge Social Media Min GB Usage Days
3000 Unlimited Whatsapp / Facebook / Twitter 50 0.5 7
5000 Unlimited Whatsapp / Facebook / Twitter 100 1.0 15
8000 Unlimited Whatsapp / Facebook / Twitter 150 2.0 30

3000 200MB: Whatsapp / Facebook / Instagram/ Twitter / Waze 40 0.8 7

7000 500MB: Whatsapp / Facebook / Instagram/ Twitter / Waze 100 2.0 30
10000 500MB: Whatsapp / Facebook / Instagram/ Twitter / Waze 200 2.5 30

1500 Whatsapp / Facebook / Twitter / Instagram/ Claro Música - 0.2 7

3000 Whatsapp / Facebook / Twitter / Instagram/ Claro Música - 0.5 15
7000 - 100 1.0 30

1,000-2,999 Whatsapp + 150MB Redes Sociales 50/min 0.0 7

3,000-4,999 Whatsapp + 500MB Redes Sociales 50/min 2.0 15
>5,000 Whatsapp + 1GB Redes Sociales 50/min 2.0 30
Source: Comapny website

Peru: Price gaps look small across the board

In Peru, the postpaid price gaps between the three main operators (Claro, Telefonica
and Entel) are relatively small. In the entry-level postpaid segment, prices are very
similar. While Claro and Entel sell 1GB of data and 200min of voice for 29 soles per
month, for the same amount Telefonica gives its clients 500Mb and 200min of voice.

The price dynamics is similar for other low-end postpaid plans, with Telefonica
always a little less attractive. For 45 soles per month, Entel clients get 2GB of data
and 400 voice minutes, while Claro’s get the same for 49 soles per month. Telefonica
charges 45 for 1GB of data and 400min of voice.

Table 6: Low-end postpaid plans

GB Social Media (Unlimited) Min SOL/mth SOL/GB
1 Whatsapp / Facebook / Waze 200 29 29
2 Whatsapp / Facebook / Waze 400 45 23
3 Whatsapp / Facebook / Spotify / Waze / Soundcloud / Instagram 800 59 20

1 +1GB: Facebook, Whatsapp & Netflix 400 45 45

2 +2GB: Facebook, Whatsapp & Netflix+1GB Movistar Play Unlimited 69 35
3 +3GB: Facebook, Whatsapp & Netflix+1GB Movistar Play Unlimited 79 26

1 Claro Video / Claro Música 200 29 29

2 Whatsapp / Facebook / Twitter / Instagram/ Claro Música & Video 400 49 25
3 Whatsapp / Facebook / Twitter / Instagram/ Claro Música & Video 600 59 20
Source: Company website
 Entel
11 September 2017 page 16

Price gaps also aren’t big when it comes to high-end postpaid packages. Telefonica
is more expensive in all price levels, while Entel and Claro have similar prices. All
high-end postpaid packages include unlimited calling. Entel sells 8GB of data for 109
Soles/month, while Telefonica charges 139 Soles/month for the same plan (but with
limited social media) and Claro 119 Soles/month for 9GB. In the 12GB packages,
Entel charges 155 Soles per month, Claro 149 and Telefonica 199 (for 10GB).

Table 7: High-end postpaid plans

GB Social Media (Unlimited) Min SOL/mth SOL/GB
6 Whatsapp / Facebook / Spotify / Waze / Soundcloud / Instagram Unlimited 89 15
8 Whatsapp / Facebook / Spotify / Waze / Soundcloud / Instagram Unlimited 109 14
12 Whatsapp / Facebook / Spotify / Waze / Soundcloud / Instagram / Youtube Unlimited 155 13

6 +6GB: Facebook, Whatsapp & Netflix+3GB Movistar Play Unlimited 119 20

8 +8GB: Facebook, Whatsapp & Netflix+3GB Movistar Play Unlimited 139 17
10 +10GB: Facebook, Whatsapp & Netflix+4GB Movistar Play Unlimited 199 20

6 Whatsapp / Facebook / Twitter / Instagram/ Claro Música & Video Unlimited 99 17

9 Whatsapp / Facebook / Twitter / Instagram/ Claro Música & Video Unlimited 119 13
12 Whatsapp / Facebook / Twitter / Instagram/ Claro Música & Video Unlimited 149 12
25 Whatsapp / Facebook / Twitter / Instagram/ Claro Música & Video Unlimited 219 9
Source: Comapny website

In prepaid, Bitel has the most aggressive offers. A Bitel client can recharge 3, 5 or 10
Soles and talk 10min, 30min and 60min in 10 days (no data included). A 20 Soles
recharge would give clients 100min of calls and 80MB of data to be used in 30 days.

Entel and Claro offer daily recharges of 3 Soles that give clients unlimited daily calls
and 50MB of data. For 10 Soles recharges, Entel and Claro clients can talk unlimited
and use 30MB and 25MB of data in 6 days, respectively.

Telefonica´s minimum recharge is 7 Soles, which would give clients 20min of calls
and 100MB of data to be used in 7 days. For 20 Soles, clients can talk unlimited for 7
days and use up to 70MB of data.
 Entel
11 September 2017 page 17

Table 8: Pre-paid plans (in Peruvian soles)

Recharge Social Media (Unlimited) Min GB Usage Days
3 Whatsapp / FB MessengerInstagram / Soundcloud / Spotify / Facebook Unlimited 0.1 1
10 Whatsapp / FB MessengerInstagram / Soundcloud / Spotify / Facebook Unlimited 0.3 6

7 Unlimited Whatsapp / 1GB Facebook 20 0.1 7

20 Unlimited Whatsapp / 1GB Facebook Unlimited 0.7 7

3 - 4,99 Whatsapp / Facebook / Twitter Unlimited 0.1 1

5 - 9,99 Whatsapp (30 dias) / Facebook / Twitter Unlimited 0.1 3
>10 Whatsapp (30 dias) / Facebook / Twitter Unlimited 0.3 6

3 Whatsapp 10 0.0 10
5 Whatsapp / Facebook 30 0.0 10
10 Whatsapp / Facebook 60 0.4 10
20 Whatsapp / Facebook 100 0.8 30
Source: Company website

Model: Limited top-line growth, but decent margin

expansion
We are modeling for Entel’s consolidated sales to grow only modestly in the next
years. We are estimating for topline to grow an average of 3% per year in the next 4
years. EBITDA should grow faster (some 11% per year on average) as operating
losses on the Peruvian operations decline, driving consolidated EBITDA margins up.

Capex expenditure intensity should also decline over time (to some 18% of sales in
2020, from 24% in 2017), driving operating free cash flow growth.

Table 9: Entel’s main consolidated financial figures

BTG Pactual
(Billions of CLP) 2015 2016 2017E 2018E 2019E 2020E
Revenue 1,793 1,887 1,957 2,016 2,066 2,134
y/y growth 5% 4% 3% 3% 3%
EBITDA 357 425 423 490 572 642
y/y growth 19% 0% 16% 17% 12%
EBITDA margin 19.9% 22.5% 21.6% 24.3% 27.7% 30.1%
Net income -1 34 18 36 89 142
CAPEX 523 454 461 429 392 382
capex-to-sales 29.2% 24.1% 23.5% 21.3% 19.0% 17.9%
OpFCF -167 -29 -38 61 180 260
y/y growth - - - 196% 44%
Source: Company reports and BTG Pactual estimates

When compared to Bloomberg consensus, our estimates are somewhat more

conservative. We expect the company to deliver EBITDA that is 8% and 9% lower
than consensus estimates in 2017 and 2018, respectively.
 Entel
11 September 2017 page 18

Table 10: Entel consolidated estimates: BTG Pactual vs. consensus

BTG Pactual Consensus BTG vs. Consensus
(Billions of CLP) 2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020
Revenue 1,957 2,016 2,066 2,134 1,969 2,084 2,209 2,268 -0.6% -3.3% -6.5% -5.9%
EBITDA 423 490 572 642 458 540 591 632 -7.7% -9.3% -3.1% 1.6%
Net income 18 36 89 142 29 64 92 105 -39.0% -43.1% -3.3% 35.1%
CAPEX 461 429 392 382 400 397 396 378 15.2% 8.2% -1.1% 1.1%
Source: Bloomberg and BTG Pactual estimates

DCF-derived target price

Our Entel target price is DCF-derived discounted using a weighted average cost of
capital (WACC) of 8.2% and growth in perpetuity of 2.0% in nominal US dollar. Below
we show a sensitivity analysis for Entel’s target price at different growth rates in
perpetuity and WACC.

Table 11: Sensitivity analysis for Entel’s target price at different G and WACC

G / WACC 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7%

0.0% 8,244 7,129 6,162 5,317 4,571 3,909 3,318
0.5% 8,941 7,702 6,638 5,715 4,908 4,196 3,564
1.0% 9,760 8,367 7,184 6,169 5,289 4,518 3,838
1.5% 10,737 9,148 7,819 6,691 5,722 4,882 4,145
2.0% 11,922 10,081 8,565 7,297 6,221 5,296 4,493
2.5% 13,389 11,211 9,455 8,010 6,799 5,772 4,888
3.0% 15,254 12,612 10,535 8,859 7,480 6,324 5,343
3.5% 17,702 14,391 11,871 9,890 8,291 6,974 5,871
4.0% 21,058 16,728 13,570 11,166 9,275 7,749 6,492
Source: BTG Pactual estimates

Industry trends
As the Chilean and Peruvian economies improve, Entel’s operations may improve
accordingly.
 Entel
11 September 2017 page 19

Chart 14: Expected real GDP growth rates for Chile and Peru

3,9% 3,8%
3,7%
3,5%

2,7%
2,3%

1,6% 1,7%

2016 2017E 2018E 2019E

Chile Peru

Source: BTG Pactual estimates

Chile: A more mature telecommunications market

Figure 1: Chilean telecom market in 2016 Figure 2: Mobile service revenues market share per operator in Chile
100%
Com SME & 90%
Corp. 80% 45% 45% 46% 46% 45% 45% 45% 45% 44% 43% 42% 41% 44%
FBB 7%
70%
10%
60%
Local
Telephony & IP 50% 19% 19% 19%
18% 18% 17% 17% 17% 18% 18% 18% 19% 21%
Voice
9% Mobile 40%
50% 30%
IT Services 20% 39% 39%
37% 37% 37% 37% 37% 37% 37% 37% 37% 38% 36%
10%
10%
0%
Pay-TV
2012

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

14%

Movistar (Telefonica) Claro (AMX) Entel

Source: Company presentations Source: Company reports

Entel has historically produced higher ARPUs in Chile than its main competitors.
More recently, Telefonica has been closing the gap.
 Entel
11 September 2017 page 20

Chart 15: Mobile service revenue growth per operator Chart 16: ARPU per operator, in USD
25% 22
20%
20
15%
18
10%
16
5%
14
0%

-5% 12

-10% 10

-15% 8
-20%
6
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
Entel Movistar (Telefonica) Claro (AMX) Entel Movistar (Telefonica) Claro (AMX)

Source: Company presentations Source: Company presentations

Penetration rates are already very high in Chile, leaving little room for expansion.

Chart 17: Chilean mobile market & penetration Chart 18: Chile mobile market share
29
.0

100% 1% 1% 1% 2% 2% 3% 4%
Thousands

15
5.0% 5% 6% 7% 8%
28
.5

155.4%
90%
15
00
.%

152.3% 152.5% 80% 38% 38% 37% 37% 37%

151.3% 36% 36%
149.8%149.7%150.5%150.0% 36%
28
.0

150.0% 36% 35% 35%

148.5%147.9%149.3% 148.7% 14
50
.% 34% 32%
27
.5
70%
14
00
.%

27
.0
60%
13
50
.%

50% 23% 22% 21% 22% 22% 23% 23%

26
.5
24% 24% 24% 24% 24% 25%
40%
13
00
.%

27.4 27.6 27.5

27.4
26
.0

27.3 27.2 27.3 27.3 12

50
.%

30%
27.0 27.0 27.1 27.1
25
.5 26.6 12
00
.%

20% 38% 38% 39% 39% 38% 37% 36% 35% 34% 34% 33% 33% 33%
10%
25
.0
11
50
.%

24
.5 11
0.0%
0%
2012

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

2012

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
Chilena mobile subscribers Penetration Movistar (Telefonica) Claro (AMX) Entel WOM Others

Source: Company reports Source: Company reports

 Entel
11 September 2017 page 21

Chart 19: Postpaid market share in Chile Chart 20: Prepaid market share in Chile
100% 1% 1% 3%
100% 1% 1% 1%
5% 5% 7% 8% 2% 2% 3% 4% 4%
9% 10% 12% 5%
90% 90%
80% 80% 34% 34% 33% 33% 33% 32% 32% 33% 33% 32% 32% 31% 28%
48% 48% 46% 46% 46% 45% 44%
70% 43% 41% 40% 70%
40% 39% 38%
60% 60%
26% 24% 23% 24% 25% 25% 27%
50% 50% 27% 28% 28% 28% 28% 28%
15% 16% 16% 17% 17% 17% 16% 16% 16% 16% 17%
40% 17% 17% 40%
30% 30%
20% 20% 39% 40% 41% 41% 40% 39% 38%
35% 33% 34% 34% 34% 34% 34% 34% 34% 33% 33% 32% 31% 35% 34% 34% 33% 33% 33%
10% 10%
0% 0%
2012

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

2012

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
Movistar (Telefonica) Claro (AMX) Entel WOM Others Movistar (Telefonica) Claro (AMX) Entel WOM Others

Source: Company reports Source: Company reports

Peru: Competitive dynamics have changed massively in recent years

Figure 3: Peruvian telecom market (2016) Figure 4: Mobile service revenues market share per operator in Peru
100%
8% 7% 9% 9% 10% 12% 14% 15% 16% 17% 18%
90% 19%
Pay-TV
10% 80%
Fixed 42% 41% 41% 40% 39%
70% 37% 37%
Telephony 37% 37% 38% 38%
60% 40%
8%
50%

FBB & IT 40%

Services 30%
50% 51% 50% 51% 51% 51% 49% 48% 47%
18% 20% 45% 44% 41%
Mobile
64% 10%
0%
2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

Movistar (Telefonica) Claro (AMX) Entel

Source: Company presentations Source: Company reports

As Entel’s client base expands, its premium ARPU gets diluted.

 Entel
11 September 2017 page 22

Chart 21: Mobile service revenue growth per operator Chart 22: ARPU evolution per operator, in USD
70% 16
60% 15
50% 14
13
40%
12
30%
11
20%
10
10% 9
0% 8
-10% 7

-20%
6

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
Claro (AMX) Movistar (Telefonica) Entel Entel Movistar (Telefonica) Claro (AMX)

Source: Company reports Source: Company reports

Chart 23: Peruvian mobile market & penetration Chart 24: Peruvian mobile market share
54
.0
53
.5
53
.0
15
80
.%

100% 5% 3% 3% 5%
6% 7%
Thousands

52
.5
52
.0
51
.5
51
.0 6% 6% 7% 10% 10% 10%
8%
50
.5

9%
50
.0

90%
49
.5

11%
49
.0
48
.5
48
.0

12%
47
.5
13
80
.%
47
.0
46
.5
46
.0
13%
13%
45
.5
45
.0
44
.5
44
.0
43
.5
43
.0
42
.5
80% 14% 16%
42
.0
41
.5
41
.0
40
.5

128% 127% 128%

11
80
.%

41% 40%
124% 126% 127% 39%
40
.0
39
.5
39
.0
39%
119% 119% 119% 122% 122% 70% 38%
38
.5

120%
38
.0
37
.5
37
.0
36%
36%
36
.5

114%
36
.0
35
.5

34%
35
.0
34
.5
34
.0
33
.5
33
.0
98
.0
%

60% 34%
32
.5
32
.0
31
.5 33% 33% 33%
31
.0
30
.5
30
.0
29
.5
29
.0
28
.5
28
.0
27
.5
27
.0
26
.5
26
.0
25
.5
25
.0
78
.0
%

50%
24
.5
24
.0
23
.5
23
.0

40%
22
.5
22
.0
21
.5
21
.0
20
.5
58
.0
%
20
.0
19
.5
19
.0
18
.5
18
.0
17
.5

34.0 34.8 35.4 36.2 35.9 36.3

17
.0
16
.5
16
.0

31.3 31.6 31.9 32.8 33.2 30%

29.7
15
.5
15
.0
14
.5
14
.0 29.2 54% 54% 53% 53% 51% 51%
13
.5
13
.0
12
.5
38
.0
%

48% 47% 45%

12
.0
11
.5
11
.0
10
.5
10
.0
9.5
20% 43% 41% 40%
9.0
8.5
8.0
7.5
7.0
18
.0
%
6.5

10%
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0 -2.0%
0%
2012

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
Total Penetration Movistar (Telefonica) Claro (AMX) Entel Viettel Virgin

Source: Company reports Source: Company reports

 Entel
11 September 2017 page 23

Chart 25: Postpaid market share in Peru Chart 26: Prepaid market share in Peru
100% 100% 4% 3% 5% 5%
8% 10% 5% 4% 7% 10% 11%
9% 10% 12% 12% 12% 13% 6% 14% 16%
90% 15% 16% 17% 18% 90% 8% 16%
10%
11% 12%
80% 80% 43% 12% 13%
40% 40% 15%
40% 39%
70% 39% 38% 38% 37% 35% 35% 35% 70% 38% 37%
35% 35% 36%
35% 36% 34%
60% 60% 34%
33% 33% 32%
50% 50%
40% 40%
30% 30% 57% 55% 54%
52% 51% 51% 51% 51% 51% 51% 51% 49% 54% 51% 50%
48% 46% 45% 47% 44% 43%
20% 20% 40% 39% 37%
10% 10%
0% 0%
2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

2013

2014

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17
Movistar (Telefonica) Claro (AMX) Entel Viettel Virgin Movistar (Telefonica) Claro (AMX) Entel Viettel Virgin

Source: Company reports Source: Company reports

Company overview and shareholder structure

Entel is one of the leading telecommunications companies in Chile and a new entrant
in the Peruvian market through the acquisition of Nextel Peru in August 2013. The
company posted US$2.7bn in revenues in 2016, +1.8% y/y in dollars or +5.3% in
CLP. Consolidated EBITDA margin reached 22% (still pressured by the Peruvian
operations), while capex-to-sales ratio was 24%, impacted by the 700 MHz license
acquisition in Peru. Net debt-to-adjusted EBITDA ended 2016 at 3.35x.

Entel has been defending its leading position in the Chilean market, while growing
fast in Peru. As its operations gain share in Peru, it could achieve EBITDA breakeven
in that market (we model for EBITDA breakeven in Peru in the second half of 2018).

In Chile, the company has a stable operation providing mobile and fixed-line services
to customers and corporations with a leading 3G network and expanding 4G
technology. Chile represents ~80% of consolidated revenues (from 95% in 2013),
and this market fell 1.2% YoY in 2016 in local currency. Mobile and equipment
revenues were 70% of sales in 1Q17: 75% from consumers and 25% from corporates
and SME. The company has 38% market share (vs. 35% for Telefonica Movistar and
26% for AMX Claro), totaling 9 million subscribers in 1Q17. The breakdown of
postpaid, prepaid and mobile broadband clients is 33%, 59% and 8%, respectively.
Fixed-line revenues reached 21% of all Chilean net sales (79% from corporates and
SME clients).

In Peru, the company is a high growth pure 4G player. While operations have not
reached EBITDA breakeven yet, EBITDA losses have been declining as the company
gains share. Entel Peru already has 15% market share, from 5% when it was
acquired (other competitors are AMX’s Claro and Telefonica, with a share of 35% and
45%, respectively). Churn rates are still very high at Entel Peru, reflecting a changing
market environment.
 Entel
11 September 2017 page 24

Shareholder structure: Chilean groups run the show

Entel is controlled by Altel Inversiones, which owns 54.9% of the company. Altel is a
wholly-owned subsidiary of Almendral, which is controlled by a group of Chilean
entrepreneurs, including the economic groups of Matte, Fernandez/Hurtado,
Consorcio, Izquierdo and Gianoli. At the end of 1Q17, Chilean pension funds owned
17% of the company.

Figure 5: Shareholder structure

Shares: 302mn Mkt. Cap: U$ 3.250mn

Pension Funds Altel Inversiones Others

17.3% 54.9% 27.8%

Source: Company reports

 Entel
Entel 11 September 2017 page 25

Entel

Income Statement (CLPmn) 12/2012 12/2013 12/2014 12/2015 12/2016 12/2017E 12/2018E 12/2019E
Revenue 1,440,987 1,643,930 1,668,053 1,792,864 1,887,302 1,957,098 2,015,528 2,066,476
Operating expenses (ex depn) (904,462) (1,176,614) (1,297,903) (1,436,278) (1,462,521) (1,534,145) (1,525,238) (1,494,372)
EBITDA (BTG Pactual) 536,525 467,316 370,150 356,586 424,781 422,953 490,289 572,104
Depreciation (314,945) (249,279) (243,381) (275,742) (310,386) (314,716) (332,492) (342,972)
Operating income (EBIT, BTG Pactual) 221,580 218,037 126,769 80,844 114,395 108,237 157,797 229,132
Other income & associates (15,567) (22,229) (33,879) (35,932) (31,986) (11,285) 0 0
Net Interest (10,877) (18,891) (44,434) (58,794) (76,269) (89,778) (111,619) (108,138)
Abnormal items (pre-tax) 0 0 0 0 0 0 0 0
Profit before tax 195,136 176,917 48,457 (13,882) 6,140 7,175 46,178 120,994
Tax (31,342) (29,952) 8,014 12,780 28,018 10,538 (9,941) (31,776)
Profit after tax 163,794 146,965 56,471 (1,102) 34,158 17,713 36,237 89,218
Abnormal items (post-tax) 0 0 0 0 0 0 0 0
Minorities / pref dividends 0 0 0 0 0 0 0 0
Net Income (local GAAP) 163,794 146,965 56,471 (1,102) 34,158 17,713 36,237 89,218
Adjusted Net Income 163,794 146,965 56,471 (1,102) 34,158 17,713 36,237 89,218
Tax rate (%) 16 17 0 0 0 0 22 26
Per Share 12/2012 12/2013 12/2014 12/2015 12/2016 12/2017E 12/2018E 12/2019E
EPS (local GAAP) 692.50 621.36 238.75 (4.66) 119.55 58.65 119.98 295.41
EPS (BTG Pactual) 692.50 621.36 238.75 (4.66) 119.55 58.65 119.98 295.41
Net DPS 6,057.97 6,057.97 6,057.97 6,057.97 6,057.97 6,057.97 6,057.97 6,057.97
BVPS 3,441.54 3,725.15 4,043.34 4,039.12 4,683.74 4,317.43 4,419.82 4,679.23
Cash Flow (CLPmn) 12/2012 12/2013 12/2014 12/2015 12/2016 12/2017E 12/2018E 12/2019E
Net Income 163,794 146,965 56,471 (1,102) 34,158 17,713 36,237 89,218
Depreciation 314,945 249,279 243,381 275,742 310,386 314,716 332,492 342,972
Net change in working capital 0 0 0 0 0 0 0 0
Other (operating) 0 0 0 0 0 0 0 0
Net cash from operations 478,739 396,244 299,851 274,640 344,544 332,429 368,729 432,190
Cash from investing activities (400,814) (648,356) (551,380) (523,187) (454,189) (460,506) (429,433) (391,866)
Cash from financing activities (129,680) (89,023) (55,102) (9,091) (37) (10,302) (5,314) (10,871)
Bal sheet chge in cash & equivalents - (21,724) 461,385 (92,795) (180,331) (107,700) (88,317) 21,049
Balance Sheet (CLPmn) 12/2012 12/2013 12/2014 12/2015 12/2016 12/2017E 12/2018E 12/2019E
Cash and equivalents 61,132 39,408 500,793 407,999 227,668 119,967 31,651 52,700
Other current assets 367,683 533,605 489,375 533,951 652,217 616,097 616,871 624,207
Total current assets 428,815 573,013 990,168 941,950 879,885 736,064 648,522 676,907
Net tangible fixed assets 1,117,450 1,334,269 1,614,979 1,785,575 1,829,611 1,926,169 2,023,110 2,072,005
Net intangible fixed assets 76,267 180,130 184,118 187,891 368,529 372,582 372,582 372,582
Investments / other assets 72,723 169,538 246,530 347,537 402,413 551,137 580,953 591,482
Total assets 1,695,255 2,256,950 3,035,795 3,262,953 3,480,440 3,585,951 3,625,167 3,712,975
Trade payables & other ST liabilities 411,275 488,027 565,614 563,292 551,184 517,786 526,079 535,540
Short term debt 28,048 27,243 20,772 21,736 24,867 26,304 26,304 26,304
Total current liabilities 439,323 515,270 586,387 585,028 576,051 544,090 552,383 561,844
Long term debt 407,737 813,151 1,434,258 1,654,135 1,576,911 1,666,612 1,666,612 1,666,612
Other long term liabilities 34,189 47,443 58,805 68,443 65,605 71,311 71,311 71,311
Total liabilities 881,249 1,375,865 2,079,451 2,307,606 2,218,567 2,282,013 2,290,305 2,299,767
Equity & minority interests 814,007 881,085 956,345 955,347 1,261,873 1,303,939 1,334,862 1,413,208
Total liabilities & equities 1,695,255 2,256,950 3,035,795 3,262,953 3,480,440 3,585,951 3,625,167 3,712,975

Company Profile: Financial ratios 12/2015 12/2016 12/2017E 12/2018E 12/2019E

EBITDA margin 19.9% 22.5% 21.6% 24.3% 27.7%
Operating margin 4.5% 6.1% 5.5% 7.8% 11.1%
Empresa Nacional de Telecomunicaciones SA (Entel) is a
Chile-based telecommunications company. Entel operates in Net margin -0.1% 1.8% 0.9% 1.8% 4.3%
three segments, namely Mobile Network Telecommunications RoE -0.1% 3.1% 1.4% 2.7% 6.5%
Business, Landline Network and related services, and RoIC 3.8% 4.6% 3.9% 5.3% 7.5%
International Operations and other businesses. Mobile Network EBITDA / net interest 6.1x 5.6x 4.7x 4.4x 5.3x
Telecommunications Business handles the operation and Net debt / EBITDA 3.6x 3.2x 3.7x 3.4x 2.9x
development of the network, and dealership rules for the Total debt / EBITDA 4.7x 3.8x 4.0x 3.5x 3.0x
provision of mobile telecommunications services such as voice,
Net debt / (net debt + equity) 57.0% 52.1% 54.7% 55.4% 53.7%
value added service, data, broad band and mobile Internet.
Landline network and related services, provides landline Source: Company reports and BTG Pactual estimates. Valuations: based on the last share price of that year(E)
services, Internet access, long distance pubic telephone, based on share price as of 08 September 2017
information technology integrated services for data center,
business processes outsourcing and operational continuity;
network leasing and wholesale trade. International Operations
and other businesses, handles the operations in Peru related to
corporate services, long distance and commercial trade.
 Entel
11 September 2017 page 26

Required Disclosures

This report has been prepared by Banco BTG Pactual S.A.

The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results.

BTG Pactual Definition Coverage *1 IB Services *2

Rating
Buy Expected total return 10% above the company’s sector 54% 46%
average.
Neutral Expected total return between +10% and -10% the 42% 39%
company’s sector average.
Sell Expected total return 10% below the company’s sector 4% 50%
average.

1: Percentage of companies under coverage globally within the 12-month rating category.
2: Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
Absolute return requirements
Besides the abovementioned relative return requirements, the listed absolute return requirements must be followed:
a) a Buy rated stock must have an expected total return above 15%
b) a Neutral rated stock can not have an expected total return below -5%
c) a stock with expected total return above 50% must be rated Buy

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signature list.

Statement of Risk

Entel Chile SA [CLENTEL] (Primary) - The main concern associated with Entel is regulatory. (1) Tariff adjustments: the next tariff review starts in January 2014, when we expect a 38% drop in
interconnection rates. Entel’s rates should drop accordingly; (2) Competition: new rivals like VTR, Nextel and MVNO’s have entered the wireless business, increasing price competition; (3) the new
antennas law (sharing antennas) represents a negative risk for Entel, in our view.

Valuation Methodology

Entel Chile SA [CLENTEL] (Primary) - Our target price of Entel reflects a 10-year DCF (WACC=8.2% in chilean pesos; g=2.0%), which gives us a valuation of CLP7,300bn.

Company Disclosures

Company Name Reuters 12-mo rating Price Price date

Entel 1, 2, 4, 6, 18, 19, 20 ENTEL.SA Neutral CLP6,410.50 8-9-2017

1. Within the past 12 months, Banco BTG Pactual S.A., its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.
2. Banco BTG Pactual S.A, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services and/or products and services other than investment
services from this company/entity within the next three months.
4. This company/entity is, or within the past 12 months has been, a client of Banco BTG Pactual S.A., and investment banking services are being, or have been, provided.
6. Banco BTG Pactual S.A. and/or its affiliates receive compensation for any services rendered or presents any commercial relationships with this company, entity or person, entities or funds which
represents the same interest of this company/entity.
18. As of the end of the month immediately preceding the date of publication of this report, neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries beneficially own 1% or more of any class
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20. Neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries engaged in market making activities in the subject company's securities at the time this research report was published.
 Entel
11 September 2017 page 27

Entel
Stock Price (CLP) Price Target (CLP)
12000.0

10000.0

8000.0

6000.0

4000.0

2000.0

0.0
11-Jun-15

11-Jun-16

11-Jun-17
11-Dec-14

11-Dec-15

11-Dec-16
11-Sep-14

11-Sep-15

11-Sep-16

11-Sep-17
11-Mar-15

11-Mar-16

11-Mar-17
Buy
Neutral
Sell
No Rating

Source: BTG Pactual and Economatica. Prices as of 08 September 2017

 Entel
11 September 2017 page 28

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