Millicom International Cellular SA (TIGO) 2003 Q2 法說會逐字稿

Welcome to the Millicom International Cellular second quarter 2003 earnings results conference call. (CALLER INSTRUCTIONS). I will now hand over to Mr. Marc Beuls, MIC's President and CEO. Thank you sir, please go-ahead.

Thank you operator, and thank you all for joining me today to discuss Millicom's results for the quarter ended June 30, 2003. With me on the call also is John Ratcliffe, MIC's Chief Financial Controller, and we will both be happy to answer any questions you may have after first making a few comments.

My comments on the results of the second quarter will follow the structure of the press release issued earlier today, so I will begin with a brief summary and some highlights and we will then move on to review Millicom's overall financial results and our regional telecom assets. I will conclude with a brief outlook statement following which, we will open the floor to discussions.

Let's look at the main features of the results excluding divested operations and El Salvador. The year 2003 has been one of the most important years in Millicom's history. First we restructured the Company's balance sheet, reducing the net debt by a 875 (ph) million and interest cost by 41 percent. This was achieved by entering into the bond exchange earlier this year and a selected sale of assets at the end of last year and beginning of this year.

Second, we decided to focus on our core activity being mobile telephony in emerging markets by monetizing our Tele2 position, however maintaining a 30 percent potential upside by entering into the mandatory exchangeable bond offering. This transaction will upon closing reduce our net debt to below 600 million and reduced our interest cost going forward by retiring high-cost debt. Both financial transactions resulted in a cash flow surplus of several tens of millions of dollars at the MIC corporate level on an annual basis.

All of this was possible thanks to the strong performance of our operating companies generating good revenue and EBITDA growth resulting in strong cash flow upswing into the parent company.

The continued strong subscriber uptake has resulted in a 28 percent increase in gross cellular subscribers year on year to just under 4.5 million at the end of June 2003. Reports (ph) of cellular subscribers increased by 25 percent to over 3 million. Some 121,000 net new cellular subscribers were added in the second quarter on a proportional basis and proportion of prepaid subscribers increased by 31 percent from June 2002 to 2.8 million at June 2003. The same increase in minutes of use has increased with prepaid minutes for the quarter increasing by 62 percent from the second quarter of 2002.

Revenue for the quarter was 143.9 million up 13 percent from June 2002 and EBITDA increased by 29 percent to 73.4 million. EBITDA margin was 51 percent, which makes Millicom one of the most efficient operators in the industry.

The emphasis on upstream and cash from operations continues with over $60 million having been received so far this year from over two-thirds of our operations. As of June 2003, MIC had $222.1 million of cash at the corporate level.

Moving on to the general operating and financial overview of Millicom, I would like to focus on four key areas; subscriber growth, revenue growth, EBITDA growth and financing. Let's start with subscriber growth first.

During the 12 months period ended June 30, 2003, MIC's worldwide cellular subscriber base grew by 28 percent to nearly 4.5 million. Proportional subscribers grew by 25 percent on an annual basis to over 3 million, 90 percent of whom are prepaid today.

Revenue growth -- Millicom produced total revenues of 143.9 million for the 3 months through June 30, 2003, an increase of 13 percent from the second quarter 2002. The percent growth rate reported is the largest since the third quarter of 2001, reflecting the potential to increase topline growth going forward.

MIC's operation in the Asia reported quarterly revenue growth of 24 percent from the second quarter of 2002 with Pakistan producing growth of 38 percent over the same period. Equivalent increase for MIC Africa was 30 percent.

Second quarter revenues for Latin America decreased by just over 2 percent from the second quarter of 2002. However, our central American operations in Guatemala and Honduras reported a combined increase in revenues of 10 percent. More importantly however is that Latin America reported a growth of over 2 percent against the first quarter of 2003, giving hope that the economic situation in South America has now turned the corner.

Moving on to EBITDA growth, EBITDA for the first three months ended June 30, 2003 was 73.4 million, an increase of 29 percent from June 2002, our highest percent of increase since the first quarter of 2001. Quarterly EBITDA for Asia increased by 38 percent from the second quarter of 2002, reflecting the buoyancy (ph) of this market and impact of stringent cost-cutting measures taken during 2002.

Cost-cutting was also a factor in the 7 percent increase in EBITDA for Latin America from the second quarter of 2002 despite the negative trends in the revenue line. Strong underlying performance in Latin America was shown by the fact that EBITDA increased by more than 4 percent against the first quarter of 2003. MIC Africa produced a record EBITDA growth of 98 percent from the second quarter of 2002, which represents a significant turnaround for the region.

The group EBITDA margin was an impressive 51 percent, which illustrates the beneficial effect of MIC's financial performance on the cost reduction measures taken in 2002 and marks Millicom out as one of the most efficient telecom operators. The quarterly EBITDA margin for Asia, Latin America and Africa were 56 percent, 48 percent and 45 percent, respectively.

Let's move now to the financing chapter. In May of this year, we announced approximately 781 million or 85 percent of Millicom's 13.5 percent senior subordinated notes due 2006 had been tendered in our private exchange offering which commenced in January. The exchange offer was closed on May 7, 2003 whereupon Millicom issued approximately 562 million new 11 percent senior notes due 2006 and approximately 64 million new 2 percent senior convertible PIK notes due 2006 in exchange for the 781 million tendered 13.5 percent notes which were then canceled.

Total net debt after cash and prime deposits at June 30, 2003 was 875 million, a reduction of 35 percent from the levels of the end of June 2002. Of this debt, 49.7 percent -- million is in respect of the 2 percent PIK notes convertibles at anytime into MIC's shares at a price of $10.75.

I've already mentioned our success with the exchange offer to bondholders as a result of which Millicom recorded a book gain of $97.1 million. Moreover in the first six months of 2003, MIC has reduced its interest expense by 41 percent to 55.7 million from 94.1 million as of June 30, 2003 as a result of both the debt restructuring and the divestment of our operations in the Philippines and Colombia that were both highly leveraged. At the end of the quarter, MIC has (indiscernible) mandatory exchangeable bond offering of approximately 2.5 billion Swedish Krona or $310 million. The bonds will mature in August 2006 and carry a coupon of 5 percent will be convertible into MIC's total current holding of 8.9 million Tele2 AB series B shares. The exchange premium is 30 percent and the reference price is 285 Swedish Krona.

This offering monetizes MIC's entire holding in Tele2 that provides a 30 percent potential upside. The proceeds amongst others will be used to retire high cost debt by further reducing MIC's funding cost and increasing free cash flow going forward.

Before I comment on the results for each of our regional companies, I should point out in the second quarter, our operations in (indiscernible) were reclassified as part of MIC Africa from Sanbao Telecom. We have therefore restated the regional results for prior periods to reflect this change. Let's look at the results for each operation in a bit more detail starting with Sanbao Telecom.

Year on year growth in proportional cellular subscribers was 39 percent in Asia, which contributed to the region's increase in revenue of 24 percent to 65.5 million and an EBITDA of 38 percent to 38.2 million. (indiscernible) remains the grouyp's largest revenue and EBITDA contributor recorded year on year increases in revenue and EBITDA of of 23 and 25 percent, respectively.

In April 2003, we launched GSM services to allow people in the (indiscernible) Republic under the well-recognized Tango brand-name. The services targeted to the under 30 age group which compromises 68 percent of the population and we're confident we will build a significant marketshare. Moreover, the new service will facilitate the development of synergies across the Southeast Asian operations.

Moving on to Latin America, revenues for Latin America decreased by a little over 2 percent from June 2002 primarily as a symptom of economic slowdown in South America although there was 2 percent growth against the first quarter of 2003. The positive impact of cost cutting however resulted in a 7 percent increase in EBITDA from June 2002 to 26 million with margins improving from 43 percent to 48 percent over the same period. Slowdown in growth occurred particularly in South America but in Central America however, Guatemala recorded revenue -- revenue increase of 17 percent from June 2002, demonstrating the relative resilience of this market.

MIC Africa added over 218,000 subscribers in the second quarter 2002, it's best quarterly results for two years and reported a 38 percent increase in proportional subscribers from the second quarter of 2002. Consequently, revenues for the region increased by 30 percent over the same period to 18.5 million. EBITDA rose by an impressive 98 percent to 8.1 million which is a record for MIC Africa with particularly strong improvements seen in (indiscernible). We are very encouraged by this recent impressive turnaround in results and we're confident our Asian success story to be replicated in Africa.

Let's conclude. The second quarter 2003 has been positive for MIC and I'm pleased to report some 29 percent increase in EBITDA for the quarter from the same period in 2002, the highest increase for over two years. MIC Africa was the best performer in terms of EBITDA using growth of 98 percent which is a record result representing a turnaround in the region. Group revenues increased by 13 percent from the second quarter of 2002 and EBITDA margin rose to 51 percent, evidencing the benefit of our recent cost-cutting exercise and the renewed focus on our core business.

The business continues to grow strongly in terms of customers and our proportional subscriber base grew by 25 percent from June 2002 to over 3 million customers worldwide. The total cellular minutes for the second quarter increased by 32 percent and prepaid minutes increased by 62 percent, proving our low-cost prepaid offering continues to be the most attractive in the emerging markets.

Millicom has taken several steps in the first half of 2003 to reduce debt on the balance sheet and at June 30, 2003, the net figures stood at 875 million, a 35 percent reduction from the same time last year and interest payments are now 41 percent lower. Following the recent launch (ph) of a mandatory exchangable bond, MIC will further reduce net debt on its balance sheet to below 600 million and reduce interest payments and therefore, cash outflows. These and subsequent initiatives to retire high yield debt will result in an increase of free cash flow going forward, allowing MIC to continue its mobile business and deliver increased value to shareholders.

This concludes my comments and John and I will now be happy to take your questions. Operator, may I have your first question please?

(CALLER INSTRUCTIONS). Steven Mead (ph).

Anchor Capital. Marc, how are you?

I'm fine, how are you.

Could you review the number of shares on a fully diluted basis are and after that, go into Latin America a little bit more in terms of detail as far as the tone of the different countries and what subscriber growth or diminish was? You went around the various countries in Latin America and as you look forward, is it purely an economic issue in terms of the economies? What else is going on?

Okay. Total shares on a fully diluted basis today is about 22.2 million. As far as Latin America is concerned, I think there is a lot of good news coming out of Latin America now. As I said on the call, we have seen to a 2 percent increase in revenues from the first quarter of this year which is the first time in a longtime that we saw this. So I see a turnaround in South America. As I stated before, I don't expect any miracles but I think that we have bottomed out now. I think it will go up from here and it's very much a macro-economic factor. The two countries, we're still active in South America in mobile, Paraguay and Bolivia, and also our broadband business in Argentina really were badly affected by the currency depreciation in the region. Don't forget that the Argentina Pesos was at a certain point in time 1 to 1 to the Dollar. I think is today 3 to 1 to the Dollar so clearly, that impacts every business in that region.

The subscriber disconnections we announced earlier in July when we announced our subscriber numbers have nothing to do with this macro-economic impact in Latin America. This was us cleaning up the subscriber base essentially in Bolivia, where we felt there were a number of non-performing subscribers were extremely low revenue generating subscribers who were not covering the cost it takes us to keep a subscriber on the switch and on the billing systems and therefore, we decided to take the subscribers off. So this is a one off and as I said before, it's nothing to do with a macro-economic factor in the region. It's just getting better cost control. It will not impact revenues going forward but it will increase -- sorry, it will reduce the costs going forward.

Okay.

Does that answer your question?

Yes, that's fine.

Adam Tuckman (ph).

Hi guys, Adam Tuckman from Golden Tree. A quick question on the net cash of the company after the monetization of the Tele2 shares.

The net cash, I don't have a number for you but for your information, the deal will close in the next day or so. The cash has not been paid out yet. What has happened is the (indiscernible) dominion facility has been paid back already and we have to prepay for the interest for the facility for the next three years, which will cost us, I think the TD(ph) facility for your information, I think was around $62 million. The prepaid interest on a MPV (ph) basis was $45 million approximately. And then the difference between that and I guess some fees, $310 million is what is going to be available shortly.

Great, thank you.

Thank you.

Bill Maylor (ph).

Bill Maylor from Hartwell (ph). How are you?

I'm fine Bill and you?

Good, thanks. If you're going to get the proceeds can you give us the timing of either the redemptions of the 13 1/2s on (indiscernible) your highest cost debt at this point and what is the ladder of debt you're going to try to redeem as you go along and will you or when will you register the 11s and PIK preferreds? And then I have a question about margins after that.

Yes. We will retire a certain amount of high yield debt. That will be decided very shortly because the ultimate goal of doing the mandatory changeable was first of all, to exclude our exposure on the share Tele2 but secondly, more importantly, reducing the funding costs and that's why we will reduce high yield in the not too distant future. Which debt we will retire, we will let the markets know like I said, probably in a couple of days from now.

Okay great. You have a wonderful margin as we look at the second quarter. As you look out over the course of the year, what kind of margin improvement can we expect particularly as the fastest-growing areas are your highest margin and then you can also probably weave into that something about when Honduras and or El Salvador will be completed or whether they are this year evolution or next year or where the timing is on those two entities?

If you exclude any new business, exclude in El Salvador and stuff like that, we will be able to continue to slightly increase our margin and if you look at the breakdown of the margins by region, you'll see that Latin America and Africa are still below the average with 48 percent for Latin America and 45 percent for Africa, so our target is to get everybody up to the 50 percent level and by definition, that will increase the average going forward. What the impact would be eventually for El Salvador, I cannot say, because as you know we have not had access to the Company or the numbers for a long time so I don't know exactly what the Company looks like. I'm sure there are not going to be surprises but what the exact revenues and EBITDA numbers are going to look like, I don't know at this point in time.

Can you give us the sense of the timing of that evolution or the Honduras Motorola purchase or sell?

I think timing wise, like I said on most of the previous calls, we continue to negotiate and meet with our partners in El Salvador. Honduras is a regulatory issue, so that is outside our control. I think what is very important for the market to understand is that if we were to buy out shareholders in those two businesses or in other businesses where we currently have shareholding, the goal would always be to do that without impacting the corporate cash flow. So let me make it very clear that the reason why we entered into the Tele2 exchangeable had nothing to do with us wanting to buy out minority holdings, so none of that cash will be used to buy out minority partners in existing ventures. The minority shareholders will be bought out using existing cash at those operating company levels.

Thank you Marc.

Adrian Dor (ph).

Haswell (ph). Congratulations on a good quarter.

Thank you.

Can you talk a little bit about the capacity constraints and the new GSM rollout in Pakistan and comment a little bit about what you expect for the rest of the year from that area?

As you can see the region Pakistan, the country Pakistan is doing extremely well with a 30 percent increase for the quarter. We still don't have the final signatures on all the papers to get to the GSM spectrum. I'm hopeful that will happen in the near future and we are working very hard to achieve that. I think the outlook for the region as a whole continues to be very positive. Mobile penetration levels are so low that I think there is only room for growth there and in Pakistan for instance we're still below -- the whole market is still below 1 percent penetration level. If we can get that up to the level of even Vietnam, which is around 2 present or close to 2 percent that would double the number of subscribers in Pakistan and that is why we are working very hard to get this GSM spectrum confirmed in Pakistan.

Could you give us a sense of what you anticipate capital spending to be going forward and what we should think about for depreciation and amortization looking at?

For the CAPEX, the target number is still 100 million for the year although for the first six months we only have spent 42 million so far. That is partly as a result of first of all not implementing the GSM move into Pakistan yet and secondly we see a substantial drop in the cost of second generation GSM equipment worldwide. Therefore going forward, because clearly we want to increase our revenue growth, we want to increase our topline growth going forward, as we show now with a 30 percent revenue growth for this quarter, it was 11 percent in the previous quarter so I expect that number to continue going up but that does not mean we'll have to spend in dollar terms, substantially more than 100 million going forward although we could force these days with all the refinancing initiatives we have taken reducing the interest costs for Millicom, we have as I said on the call, a substantial cash buffer of several tens of millions of dollars a year which we could use either to accelerate the growth by investing a little bit more or reducing debt, further debt going forward.

Thanks very much.

Thanks.

Ross Haberman (ph).

How are you Marc?

I am fine Ross, and you?

Nice quarter. Can you give us an update on what is doing with the Salvador operation, what the profitability or numbers are for the quarter and year-to-date and when do you think you will be reconsolidating it in?

Like I said before, we haven't had access to the Company for over two years now so I don't know what the numbers look like. From hearsay, we know the business is in good shape. And we are continuing on negotiations with our local partners there in the hope that we will be able to achieve some kind of settlement that would allow us to consolidate the business. Again, when that's going to happen, I hope it is going to happen this year but there is no guarantee that it will happen this year so unfortunately, I can not give you a date when we will be able to consolidate the business again. I hope we will be able to do it very quickly, but there is no guarantee that that will be possible.

Can I ask you what the main issues are, what you're disagreeing over?

As I said before in previous calls, I think the disagreement is over the local partners looking for liquidity for their shareholding and we are of course, a natural buyer and we are an interested buyer given that we think the mobile telephony in emerging markets in South America is a good business to be in. So I think its price that has always been a factor in the negotiations.

You guys own what percent currently?

We own 70 percent of the business.

70?

Yes.

Thank you.

Thanks Ross.

Tom Freedburg (ph).

Fianco Partners (ph). Mark, when we were out on the West Coast we discussed why Maricous (ph) may be more suited to be in Africa, but the question I have is it seems like EBITDA margins from Asia were flat quarter to quarter and you had an -- or ARPU decline somewhere in the 11.5 percent range. Should we be expecting continued ARPU pressures of that magnitude on an annual basis in order to sustain the subscriber growth that you've so positively demonstrated over the last couple of quarters and with that sort of ARPU pressure, can you sustain or expand margins into the high 70s in Asia?

Let me first say that Maricous (ph) has a very small island with 1.2 million inhabitants, fabulous place to be by the way. You understand that will not impact in any way significantly the result of Sanbao as such. I think the ARPUs, as I stated before, ARPUs will continue to come down given that we penetrate deeper into the market and so we get into a group of people that will spend less money on the phone and on top of that, we all know that tariffs do come down and that doesn't mean that the margins, the EBITDA margins will not continue to increase. I am very sure that we will be able to continue operating in the high 50s EBITDA margin for Asia going forward.

Even with the double-digit ARPU decline?

Yes. I think as you know, I am not that big of a believer in ARPUs.

I understand.

We know our prepaid ARPU is at $9 at this point in time and with the acquisition cost we have of around 30 or to $35 a subscriber, that still gives us a payback of about four months with an average lifetime of a subscriber of 24 months so that leaves us 20 months to make money on the subscriber and that's how we make the calculation. That calculation continues to work. So the decline in ARPU is something that we prefer not to see. You always hope that ARPUs will go up. But at the end of the day we know we are not operating in a dollar environment, we are operating in a low currency environment which will also generate some ARPU erosion going forward.

Thank you and great work on the balance sheet Marc.

Thanks Tom.

Ron Silverton (ph).

Hello Marc. This is Ron Silverton with J&B Capital. Congratulations on a good quarter.

Thank you.

Marc, I had a couple questions but rather -- let me just start with the first one. Can you walk-through for me again how the proceeds -- how -- how the proceeds from the exchangeable are allocated. I know it was a $310 million. Obviously the bankers are going to collect a piece of that. Some cash has got to be set-aside for future interest payments. You're using some of those proceeds to repay the (indiscernible) dominion facility including some prepayment there as well. Can you put numbers behind those pieces so I can actually see how much cash is left to retire high yield?

I think if you add it all up and John, maybe you have the breakdown of the numbers, but I know in detail TD (ph) was around 62 million. Is that correct John?

That's correct.

There was about $45 million of interest which we prepay which is invested in the U.S. Treasuries and the net present cost of that is 45 million so that leaves us with about 100 million that is going let's say that way and then of course there are costs related to these transactions, so let's say there is about just around $200 million of cash which will decide shortly how we want to allocate that cash. I could say now that you know, a substantial part -- if I were to make a guess now probably around $150 million we would definitely use to retire high yield debt.

That's 150 million from the operations. Can you review with me again, you said at the beginning of the call, how much of the cash you had at the -- is it the hold co or the Millicom level residing within the various entities? I know you upstreamed more cash this last quarter than any other quarter which is a great sign but how much cash is there at the holding company level or at the levels which you could use to repay debt?

At the corporate level we have 22 million, 22.1 million to be precise and the total cash, let me have a look at the balance sheet. John, do you have the total number of cash, cash we have?

About 88 million in June.

In total, so there is about 66 million in cash at the operating company level.

The placed deposits are also coming back when you retire the Toronto (ph) dominion facility, is that right?

There were no pledge -- that is a wash now so these placed deposits disappear as you know with the facility.

Okay. So that 22.1 is a combination of time deposits and cash and cash equivalents at the corporate level.

At the company level, yes.

Say you have call it 170 or 175 million that you could use to retire corporate debt?

In total, yes and we will let you know shortly how much debt and which debt we will retire.

Okay. One more question about the high yield offerings, and this is kind of going back to what another caller touched on, currently, the 2 percent PIK converts and the 11 percents are not registered nor the underlying stock. I know you have until December 4 to get that registration, to file it. Can you give us any guidance on where you are in that registration process? Can we expect that to happen by December 4 and secondly, are you able to convert the 2 percent PIK converts into unregistered stock?

The answer to the second question is yes. The answer to the first question as to when we are going to register, it's a matter of days now. So the document is more or less ready and I don't know John, I think there is a date set for the end of this week, is that correct?

At the end of this week, we're looking for clearance from the auditors and then it's just a final fine-tuning with the lawyers.

So we will be filing very shortly with the SEC.

Alright because I spoke with folks at Orick (ph) and they hadn't heard from you and other bondholders I talked to hadn't heard from you yet because I know clearly a portion of that registration requires contacting a majority of the holders of the notes and none of us have heard anything and our lawyers haven't heard anything either, so it is certainly good news to hear the registration is moving forward in that expedited a fashion.

Okay.

On the converts, why haven't you converted those since you can convert them into unregistered stock?

Well, we can force conversion now if we want but we will (technical difficulty) just at first and then so when we convert people get freely tradable stock.

So again you expect the registration to be filed by the end of this month?

Yes.

Thank you. Once again good quarter.

Thanks.

(indiscernible)

ING. How are you?

I'm fine.

Thank you for promoting the small and beautiful island of Maricus (ph).

My pleasure. I will be there next week by the way.

Well, enjoy the sun. Marc, with this new financial flexibility, are you considering any new market joint ventures at this point and any other asset sales on the plate?

Let me start with the second one, asset sales. In principal we are not interested in selling any assets at this point in time given that we think mobile telephony is a fantastic business to be in so the idea is that we hold onto all of our mobile businesses. As far as new ventures are concerned, we always are on the outlook for new opportunities and we have earmarked a few ones. In the good tradition, we will not mention the names of the countries where we're currently looking for opportunities but let me describes those countries as places where we could roll out the Millicom concept very successfully as we have done in other countries recently in Asia and Africa for instance.

Okay fair enough. And I have a follow-up. You currently are on credit watch positive for Moody's and I don't think S&P currently has a rating on you. Are you currently seeking a rating from that agency at this time?

We're focusing on Moody's first and we have been in contact with them and I would expect that when everybody gets back from holiday, I think they will come back with a decision and subsequently, we will talk to other credit rating agencies.

Okay. And this is a question that I am not sure you can even comment on but with your commitment to reduce expensive high yield debt and new and improved balance could you comment on the corporate calendar and when you would like to come back to the high yield market and refinance expensive 11 percent at a lower rate?

Of course, once all these things have been filed and registered properly, we would definitely and maybe even before, we will definitely look at the refinancing the high yield debt. I will however only do that if I can benefit from a substantial reduction of interest rate and we will be following the markets very closely and see what's happening and pick the right time to eventually refinance some of the high yield debt. When that is going to be, I cannot say.

Okay. Well, I am looking forward to seeing you in New York.

Thank you.

Goodbye.

Bye.

Romeo Rays (ph).

Jefferies and Company. Marc, just wanted to go over the capital structure just for clarification. How much debt do you have at the operating company level's right now? I think it was $170 million exclusive of the pledge (ph) deposits at the end of the first quarter? What's the number now?

The debt number at the subsidiary level as you can see in your press release is 155 million. There has been a 28 percent reduction -- $28 million sorry reduction in the joint venture debt over the last quarter.

Okay. And another quick follow-up on the balance sheet also, it seems like the 2 percents have dropped from 64 million to like 49 -- I think it might be 49 million, $50 million at the end of the second quarter. Was there some conversion of those notes during the quarter?

No, not notes were converted during the quarter.

That's purely an accounting rule in the notes -- the notes have an equity and liability element so 16 million is shown under equity in our balance sheet.

Okay, that sounds good. Great. I was looking through the numbers over the last few months and it seems like Marc, you guys have sold probably $600 million dollars worth of Tele2 stock and assets in the last 9 months or so, including MACH, so you have done a terrific job of monetizing some of these assets that were generating I think maybe $30 million of EBITDA. Great job.

Thank you.

Eric Benaut (ph).

Sierra Global (ph). Congratulations first. Then I have a question regarding the rating agency. Would that affect the 11 percent coupon? Is there any -- could we expect a stepdown provision or anything of that sort to lower your interest expense? And secondly regarding Latin America, what you expect the FX impact would be like in the next two quarters, I guess through the end of this year, particularly looking at the comps year-over-year and what the trends (ph ) have done, how do you think that's going to affect revenues and contribution from (indiscernible)?

First of all, there's no stepdown in the 11 percent notes. If we were to get a good rating, I think we will definitely make the refinancing of those notes easier and also possible at a lower interest cost going forward. In terms of the Latin American currencies, I guess you are especially focusing on the South American ones. What we have seen over the last quarter is a slight increase in Paraguay for instance in (indiscernible). I think what I have in mind is stability. I don't expect miracles in South America. I mean, things have dropped a lot over the last two years, but I think we're now in a stable period and hopefully as of next year, we're going to see some growth in the region again. Central America on the other hand, is doing very well. It was not affected by the currency devaluations in South America. It's more dependent on the U.S. and there we saw a 10 percent increase in revenues in the second quarter of this year, so that area is doing very well.

Great, thank you.

Thank you.

Tim Comer (ph).

Hello, it's Dana McGuiness (ph) at Dumission Advisors (ph). I would like to focus a little bit on your operation in Pakistan. I see you have two operations there, could you give us an idea of what percentage you believe you have of the total market there and I guess just the number of subscribers there?

I think we have a marketshare of around 31 percent today, I do not have the subscriber numbers handy at this point time but what I remember from our presentation which is by the way on the Web, I think it's 31 percent.

Are there are multiple operators in Pakistan or is there one operator that has the rest of the marketshare?

There are four operators today, of which there are two GSM operators and there are other two ones that we have an interest in.

Good job in the quarter, thank you very much.

Thank you.

Quincy Lee.

I wondered if you could help me think about taxes going forward? Obviously, looking forward you should be in a positive earnings environment. How should we think about taxes?

The taxes are two levels, the taxes at the operating company level and there we have been paying taxes for a number of years. That will continue. The taxes at the corporate level at this point in time, we're not paying any taxes on the corporate level because we have quite a substantial amount of losses carried forward from the interest we have been paying on the high yield notes since '96. So I don't expect that we will be paying taxes on the profits in the initial years to come.

Is there an average, is there an average tax rate that maybe we could think about for '04?

The tax rate for last year for the operations was 25 percent.

25 percent?

Yes.

Okay thanks.

Thank you.

John Glazer.

JMG Capital. A lot of my questions have been answered but Marc, are you prepared to give the market any kind of estimate either EBITDA wise or what kind of free cash you expect to generate in the coming quarters?

No, I haven't done that in the last years but I think if you just multiply the EBITDA for the first six months, we are over 140 million and so you can see that the year end, if you just multiply that by two, it is going to be north of 280 million so probably somewhere between 280 and 300 million. I don't see any factors that could slow the growth in the business down at this point time so that's where you guys should be looking at.

Thank you, great quarter.

At this time sir, there are no further questions. Please continue.

Thank you operator. Once again, I would like to thank you all for participating in today's conference call. If there are any further issues you would like to discuss, I would be happy to deal with these on a one-to-one basis. If you would like to contact us directly for an alternative, you can call Shared Value on 442073215010. Thank you very much and goodbye and have a great day. Thank you.

(CALLER INSTRUCTIONS).

(CONFERENCE CALL CONCLUDED)

All products and services provided by FDfn, Inc. hereunder, including, but not limited to call transcripts, are provided "as-is" or "as available". Except as expressly stated, FDfn hereby disclaims, and you hereby waive, all other express or implied warranties, regarding the call transcripts or other of FDfn's products provided hereunder or any portion thereof, including but not limited to, implied warranties of merchantability and fitness for a particular purpose, warranties created by course of dealing, course of performance, or trade usage, and any warranties of non-infringement. Without limiting the generality of the foregoing, FDfn does not represent or warrant that the call transcripts will always be accurate, complete, or error-free. The foregoing exclusions and disclaimers are an essential part of the order for this document and formed the basis for determining the price charged for the document.