Last in line: Telecom Argentina has customers and money rolling in but investors will have to wait.

What's the value of a telephone company in Argentina today? With US$842 million of cash on its balance sheet, in the case of Telecom Argentina, you'd think it was a lot. But that's only half the picture.

Like most Argentine companies, Telecom is cash rich but credit poor. That's because the company has yet, to successfully restructure a $3.2 billion debt load on which it defaulted in 2001. "Nobody doubts their ability to pay. It's their willingness that they wonder about," says Darin Batchman, associate director of emerging market corporate debt research for Bear Stearns in New York.

Here's why: In January the company offered to pay creditors on average $0.80 for every dollar invested in its defaulted bonds. Immediately, investors--70,000 of them well-organized, individual retail investors in Italy--rejected the terms as overly harsh and argued the company could pay without sacrificing growth or liquidity. Mirroring the Argentine government's own protracted debt negotiations, the company insists its offer is the best possible scenario and plans to put the proposal to a vote later this year. If 75% of investors approve, the deal will go through; if not, it's back to square one.

The company could be playing hardball needlessly. As Argentina's second largest telecom behind Spain's Telefonica, the company has been one of the quickest to benefit from a national economic rebound under way. The company posted net earnings of $120 million in 2003 after losses of $1.5 billion in 2002. The bulk of the growth came from its mobile division, Telecom Personal, which has been signing up new customers at the remarkable rate of 60,000 a month.

Meanwhile, the company has recovered more than a third of the 300,000 fixed-line customers who disconnected during the country's economic crisis to save costs. "Our biggest problem is that things are going too well" says Telecom Communications Director Luis Perazo.

It's not just creditor pressure that's building, though. The competition is also breathing down its neck. Although the company's 50% share of Argentina's fixed telephony business is all but assured, it's leadership in the mobile market has been deflated by Telefonica's acquisition of what until now was their common rival, BellSouth franchise Movicom. Both Telefonica and Telecom also must contend with recent arrival of Mexican heavyweight America Movil, which has been spending heavily to expand CTI Movil, the wireless operation it bought last year from New York's Verizon Communications.

Brand first. Frenzied buying doesn't worry Perazo. Going against the herd is in the company's blood, he says. Indeed, a key strength of Telecom is its perceived conservatism and attention paid to its brand. While Telefonica was busy throwing away billions last decade cobbling together a multimedia conglomerate, Telecom kept busy focusing on the more boring task of building customer loyally. "Everyone on Wall Street said we were going to become a dinosaur for not buying into cable and media," says Perazo.

To stay ahead in 2004, Perazo says Telecom Argentina will strengthen its grip on the relatively small but wealthy tech-savvy segment of the Argentine market.

As part of its $160 million investment strategy this year, the company in March unrolled the country's first, and so far only, public broadband wireless network--known as Wi-Fi--in the chic Puerto Madero neighborhood and at airports in Buenos Aires. As part of its push into wireless services, Telecom Personal clients can now tune into television via their mobile phones.

Helping keep the company on the cutting edge, says Perazo, was the break-up of Telecom's ownership duo, European rivals Telecom Italia and France Telecom. In December, France Telecom sold its 48% stake in Telecom's parent holding company to Argentine investment group W--owned by Argentina's Werthein family--for $125 million. As a result of the deal, Telecom Italia was left in complete command of the company's operational strategy while shareholders W took charge of renegotiating the debt and the sensitive task of negotiating tariff hikes with the government.

"There's no more mixed signals anymore. Everybody knows who's doing what," Perazu says. Now if only those bondholders would jump on board.