Millicom International Cellular SA (TIGO) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Millicom 2005 second quarter results conference call. [OPERATOR INSTRUCTIONS]. I would now like to hand you over to the host of today's conference, Mr. Marc Beuls, President and CEO of Millicom International Cellular. Please go ahead sir.

Thank you operator and welcome to everyone who has joined me today to discuss the results for the quarter ended June 30, 2005. Bruno Nieuwland is with me and we will be happy to answer any questions you may have, after first making some brief comments.

Before summarizing the operating results, I would like to give you a brief update on events since the first quarter conference call in April. As you know, on May 18, 2005 Comvik International Vietnam's business cooperation contract with our former partner VMS ended. We stay in contact with VMS and VNPT and the Vietnamese government, of course, to explore a future cooperation. Comviq's offices in Hanoi and in Hochiminh City remain open and the staff is providing some support in the marketing area to VMS, as they requested us. And it's closing down the BCC, together with VMS, as required under the Vietnamese investment legislation.

During the quarter, we were pleased to be able to announce the launch of the GSM services in Greater Tehran by Rafsanjan Industrial Complex, RIC, with whom we have an agreement to manage their network for 2m pre-paid subscribers. The service was launched under the Talya brand and has 194,000 subscribers as of July 22.

In May, we acquired additional shares in our subsidiary Celtel in Honduras, bringing our ownership to two thirds of the total outstanding shares. This is in line with our stated strategy of increasing our ownership in our existing operations. And our Central American operations, in particular, have seen accelerated growth since the launch of our GSM brand Tigo.

At this point, I would like to inform all of you that we are planning a trip for analysts and investors to Central America in the first week of November of this year, to showcase our operations there. We will soon be sending out invitations and I hope a number of you will be able to join us, to see for yourselves how our strategy works in practice.

One last comment, before we get to the operating result. As most of you will have noticed, we have included in the press release a pro forma P&L excluding Vietnam and including the increased ownership in Honduras for the second quarter of 2004 and the first and second quarter of 2005. To allow all of you to get a better understanding of what the size is of Millicom, its growth and profitability, post Vietnam. Those numbers are referred to as pro forma numbers during this call.

Most improved is top line, by 30% in the second quarter of this year on a pro forma basis, which is higher than the previous quarter, which still included Vietnam.

So let's now turn to the operating result, starting with the subscriber growth. Compared to the reported subscriber figures of the last quarter, our total subscribers at the end of the quarter were down by 1.3m, due to the end of the BCC in Vietnam. On a pro forma basis, however, we added 685,000 net new total subscribers in the second quarter, building on the success we saw at the start of the year and demonstrating the success of our GSM launches in Latin America and Pakistan. The total subscriber additions in the quarter, on a pro forma basis, were 591,000.

Total subscribers at the end of June amounted to 7.2m, representing a 13% increase over the second quarter of 2004, despite the end of the BCC in Vietnam. The pro forma increase year on year is 45%. Proportional subscribers to total subscribers increased by 32% from the second quarter of 2004, or by 48% on a pro forma basis, to over 5.8m, 93% of whom are pre-paid today.

The sustained increase in the minutes of use has continued, with total cellular minutes for the three months ended June 30, 2005, excluding those for Vietnam, sorry, including those for Vietnam up to May 18, increasing by 37% from the same quarter of 2004. On a pro forma basis, total minutes increased by 47% and pre-paid minutes by 54%.

Let's turn to revenue growth. The sole subscriber growth translated into total revenues for Millicom of $261.4m for the three months ended June 30, 2005. And it's an increase of 21% from the second quarter of 2004, reflecting the trend of increasing growth in our operations. Revenue on a pro forma basis amounted to $241.4m, representing annual growth of 30% on a like-for-like basis. The highest growth relevant to the second quarter of 2004 was 58% recorded in Guatemala in Central America.

EBITDA for the three months ended June 30, 2005 was $122.2m, an increase of 14% from June 2004. EBITDA on a pro forma basis amounted to $105.3m, representing an annual growth of 25%. Millicom's EBITDA margin was 47% and 44% on a pro forma basis.

Over the last couple of quarters, Millicom's consolidated EBITDA margin was under pressure as a result of the Paktel GSM start-up costs. I am happy to report that the EBITDA margin on a pro forma basis increased in the second quarter to 44%, from 42% in the first quarter of this year.

Millicom's priority today is growing its top line and taking advantage of the opportunities in this market. This might, as we have seen in Pakistan, have an impact on the EBITDA margin, as well as on the CapEx spend.

So let's now look at the results for each cluster, starting with South East Asia. The total subscribers for South East Asia, where we lost our operation in Vietnam, of course, declined by 50% from the second quarter of 2004. On a pro forma basis, however, proportional subscriber growth for Cambodia and Laos increased by 34% from the second quarter of 2004, to a total of 439,000 at June 30, 2005.

Revenue for South East Asia was $45.5m for the second quarter, decreasing by 12%. On a pro forma basis, revenue for the region was $21m, up 28% from June 2004 on a like-for-like basis. EBITDA was $27.5m for the second quarter, a decrease of 15% from the same period in 2004 or $7.9m, up 37%, on a pro forma basis. The EBITDA margin was 60% and 38% on a pro forma basis.

In South Asia, comprising Sri Lanka and Paktel and Pakcom in Pakistan, proportional subscribers increased by 63% from June 30, 2004 to 1,736,000 as of June 30, 2005, which is the largest proportional subscriber base of all Millicom's clusters.

GSM subscribers for Paktel increased by 65% from the first quarter of 2005, to 675,000. And we are well on track to meet our target of adding 1m new active subscribers in Pakistan in the first 12 months since the launch of GSM services.

Revenue for South Asia was $31.6m for the second quarter, an increase of 6% from the second quarter of 2004. Revenues for Paktel were $13.1m for the quarter. EBITDA was $6.4m, down from the same period last year but up 29% from the first quarter of 2005. The EBITDA margin was 20%. As I mentioned last quarter, EBITDA margins have been impacted by the upfront sales and marketing costs associated with the GSM launch by Paktel.

Pakcom, our other business in Pakistan, is in the process of planning the conversion to CDMA, now that the license is signed and the frequencies have been agreed. It is Pakcom's intention to continue operating the CDMA network in parallel for a number of years. The heavy investment in sales and marketing in Pakistan will continue to impact the South Asia margin, and it will take until 2007 before this region again attains average Group margins.

Central America. The Central American cluster, comprising our operations in Guatemala, Honduras and El Salvador, continued to perform well, showing a 43% annual growth in proportional subscribers to 1,484,000 at June 30, 2005. On a pro forma basis, proportional subscribers grew about 35%. Revenue grew by 44% from the second quarter of 2004, to $101.7m for the second quarter of 2005, or by 41% on a pro forma basis.

EBITDA for Central America increased by 42%, to $51.1m for the second quarter of 2005 and by 38% on a pro forma basis. EBITDA margin was at 50%. The throughput and coverage of the network, combined with the strong Tigo brand, drives growth in the region.

Moving to the South America cluster, which comprises our operations in Bolivia and Paraguay. The total subscribers grew by 37%, to reach 1,034,000 at the end of June 2005. Revenue for Q2 grew by 26% to $33.4m relative to Q2 2004 and Bolivia and Paraguay produced revenue increases of 33% and 21% respectively over the same period. EBITDA increased by 35% from the second quarter of 2004, to $13.8m for the second quarter of 2005, and the EBITDA margin was 41%. In Bolivia, we will introduce our GSM services in Q4 of this year.

In Africa, in our African cluster, which comprises our operations in Ghana, Mauritius, Senegal, Sierra Leone and Tanzania, 97,000 proportional subscribers were added in the second quarter, resulting in a 67% increase of subscribers from June 30, 2004 to over 1.1m proportional subscribers at the end of Q2 2005. This was once again the strongest subscriber growth of all clusters and it contributed to an increase in revenue of 36%, to $48m for the second quarter relative to the second quarter of 2004.

Senegal performed particularly strongly, producing revenue growth of 54% over the same period. EBITDA increased by 69% from Q2 2004, to $23.6m for the second quarter. EBITDA margin reached almost 50% in the second quarter, which shows the improved profitability we have reached in Africa, with the economics of scale improving.

That concludes my review of the operations. So to summarize, Millicom has seen good subscriber growth in all of its operations, reflecting both increased investment in new GSM networks and growing demand in its key markets.

Africa remains the fastest-growing market, showing growth in proportional subscribers of 67% over the second quarter of 2004, and is today the second largest region in terms of revenue after Central America. This will continue to be of -- there will be opportunities to expand into new territories in Africa, the latest being Millicom's license in Chad, which is expected to be operational in the third quarter of 2005.

Millicom today is in a unique position, is well funded and it has a fantastic opportunity to follow this market. The objective is to grow the top line by building better margin networks. The Millicom pre-paid model works very well, combining high growth with good profitability. Our focus on organic growth will allow us to continue growing at attractive rates.

We look forward to another strong quarter, during which David Sach will join us at Millicom as CFO. David will take up the position on September 1 and he will be working closely with myself and Mikael Grahne, our Chief Operating Officer.

This concludes my comments and we will now be happy to take your questions. So operator, may I have the first question please.

Thank you Mr. Beuls. [OPERATOR INSTRUCTIONS]. We will take our first question from Adrian Dawes with Hartwell. Please go ahead sir.

Thank you. Congratulations on a great set of numbers.

Thank you Adrian.

Can you talk a little bit more about the success you are having in Iran, your thoughts on converting your option to buy into it? And also perhaps talk a little bit more about capital spending, the allocation of it for the remainder of the year?

The fact that now the network in Iran is up and running for about a little bit over a month is very positive news. It is the first step for us to start looking at exercising our options. And as a matter of fact, we are actively looking at the operating performance, to allow them to take up a position to exercise the option. There are still a number of steps that need to be taken for us to allow -- to exercise that option but I think the intention is there at both ends to -- for Millicom to get ownership in that business as soon as practicable.

The first feedback on the operating performance, being very young, is that we see very good minutes of use. I am not going to mention any ARPU numbers yet, but at least the minutes of use are very fine. What we also see is that the distribution of the SIM cards or the subscriptions is done in an organized way, so it will take us a couple of more weeks in order to allow us to reach the 600,000 subscribers that we expect to have on our network by August of this year.

And capital spending, Marc?

Capital spending for Millicom, I think this quarter was a little bit slower but there can be some delays and sometimes it's demanding CapEx. So I think we stick to the guidance we have given before, that means capital expenditure maybe slightly over $200m for the full year.

Right. Thank you very much.

Thank you Adrian.

Thank you. We now move to Andreas Ekstrom with Handelsbanken. Please go ahead sir.

Thank you and two short questions. Marc, can you update us a little bit on the situation in Pakcom, now you have extended the license? What are your plans for Pakcom and have you started upgrading the network? And how much can we assume in CapEx coming from Pakcom?

At this point in time, we are running the tender for finalizing the running of the tender for the CDMA network. And once that is done, we will be able to give a more precise date as to when we expect to switch that network on. In the meantime, we just continue running the TDMA network for the existing customer base.

Okay. And then a question on the ARPU in Pakistan. You state here in the report that you had an ARPU of approximately $5. We heard then on our guide of the market of ARPU levels in Pakistan of $3 the other day. Given that you had an ARPU of $7, $8 in 2004, would you say that the net subscriber is around $3, in the level of Telenor or --?

I think I can't really compare subscriber numbers between operators because I think we all use different definitions. What we focus on are active subscribers and the $5 is in line with the ARPU of last year, noting that there has been a price reduction or a price decrease in Pakistan over the last 12 months of around about 35%. So I think the $5 is more or less in line with that. As I said, it all depends on how you define the subscribers. We have, the subscriber, we have a very strict definition whereby a subscriber needs to generate revenue within a period of 60 days in order to be reported as a subscriber.

Okay. Thank you.

Thank you.

Thank you. From [Amblibank] we will now take our next question from [Banks Morriat}. Please go ahead sir.

Thank you. Just to follow up on the subscriber base. Did I get you right, that you are defining the customers there, have been active for 16 days?

60.

60, okay. Because I asked a similar question of Telenor, they said when they handed out the SIM card they are a customer. Another follow up here on Iran, that the political situation, now with the new president, does that effect in any way your considerations when it comes to Iran?

No. It is business as usual, so we haven't noticed any difference. And as a matter of fact, I think the old team is still in place and I think it will only be -- the new team will only be taking over shortly. But for us, it's business as usual.

Okay. And when it comes to Vietnam, this discussion, could you be more precise where the steps are taken in equitization there on the former operation in Vietnam?

As we said on the previous quarter call, we know that the government wants to equitize and perhaps privatize VMS, I think it's public information, and that they expect it to attract a strategic investor. When that is going to happen and how it is going to happen, that is unclear to us at this point in time. We are being told that the government is looking at all of those things.

And we're also being told that people still look favorably at Comvik, that's one of the reasons why we have kept those offices open in Vietnam and that we continue to support the investment in the marketing area, to show our goodwill and our intention to continue operating in that country in the long term. But at the same time, I can't give you any guarantee, given that the process is not very transparent, so I can't really tell you where we are in the process at this point in time.

Okay. Are there any other markets that you are currently examining that you can share with us?

Could you say that again?

Any other interesting markets that you are currently examining or looking at, that you could share with us?

No. We never share that information with the market; we don't want to wake up sleeping dogs.

Thank you.

Thank you.

Thank you. We now move to Lena Osterberg with Enskilda Securities. Please go ahead.

Yes. I had another question [inaudible] wondering the guidance that you gave.

Lena, I can't hear you. Could you come in a little?

Yes, sorry. Can you hear me now?

That's better.

Yes, okay, sorry. On Pakcom, the guidance that you gave on margins for Pakistan as a whole, return to Group leverage around 2007. Would that include the launch cost for Pakcom as well?

No. This is what we have said about Paktel. So it depends on the launch, the pace of launch of Pakcom, how that will impact the margins gong forward. So 2007 is for Paktel.

Okay. And I think previously you said that you expected to launch the CDMA operations towards year end, and now that you have got the frequency allocated, is that still --?

That's what we hope for but it depends a little bit on when we can finalize tender process and get all the contracts finalized. So once that is done, I will be able to give you a somewhat better view as to when that might happen.

Okay. But in the meanwhile, you will continue to lose subscribers probably, right?

Yes. We will continue to run the business as a TDMA business and we will continue to run the Paktel business.

Okay, thanks.

Thank you.

Thank you. We now move to Sundeep Bahanda with Lehman Brothers. Please go ahead sir.

Thanks, Marc, for the call. You have $620m in cash on your books. At what point of time would you wait for the Vietnam issue to get resolved, before you decide to make other uses of the cash?

Secondly, my question is on the sales and marketing expenses, which have in fact quarter on quarter declined, despite in emerging markets there has been a lot of growth and hence the need for sales and marketing. Can you clarify why it has come down, despite increasing in Pakistan? Thanks.

At this point in time, we want to keep some of our power to drive, talking about the cash, in order to deal with the Vietnam situation. But we have not decided as to when we draw the line and when we start looking at or when we would start using, we are always looking at new opportunities, but when we would start using some of that cash for new opportunities outside the existing businesses. So at this point in time, we keep our powder dry, except that we might want to do some small stuff like we are doing in Chad, there might be some other businesses of that size. But those are not cash, big cash users.

In terms of sales and marketing, our sales and marketing strategy or sales and marketing cost strategy has always been a strategy of low-rated cost. We very much believe that with a large distribution network, which now, in a number of countries, allows the dealers to sell minutes to pre-paid customers using the electronic top up services. That's the combination of wide distribution and those services will continue, will allow us to continue reducing the distribution costs and the sales and marketing costs. I think it is to the large distribution that you have a choice and that you can put pressure on the commission structure. If you don't have the large distribution network, then the dealers might put the pressure on you and then the margin might go up, so it's in line with out strategy.

Also, I must say that in Pakistan, of course, we have a high acquisition cost at this point in time. But of course, we start building a base, which of course allows us to have smaller sales and marketing, as a percentage at least, smaller sales and marketing costs.

Okay. Thank you Marc. Just another question. You have talked about cellular minutes and they are increasing quarter over quarter. Do you look at trends like revenue per minute on a total basis for Millicom?

Revenue what?

Revenue per minute. You have talked of revenues; you have talked of cellular minutes, total minutes of use increasing. Do you look at revenue per minute trends and how they have gone across the last four or five quarters?

Given that our minutes of use are going up, given that our ARPU per subscriber, pre-paid subscriber I am talking about, is stable around $11 and has been stable for the last five quarters now, show that, of course, the tariff per minute or the price per minute is coming down. And again, this is in line with our policies. Needless to say that the events in Pakistan, with the price reduction of 35% over the last 12 months, have had an impact. But we have seen price reductions in other countries.

So this is part of our strategy, so that means that we will be learning with lower prices per minute. But as long as the elasticity is there and that clearly is there, given that our ARPU stays stable, I don't mind.

Okay. Thank you.

Thank you.

Thank you. From Rowe Equity Research we will now take a question from Kevin Rowe. Please go ahead sir.

Thanks. Hi Marc.

Hi Kevin.

You mentioned that pro forma margins rose sequentially. Do you expect that trend to continue in the second half or is Pakcom, depending on when they turn on their CDMA network, could that negatively impact margins and keep it flat or how do you see that trending?

If you exclude Pakcom, I would expect that our margins would continue to come up, given that the economies of scale are growing in some regions, plus that we are building some sizable business in Pakistan. So there we will see good margin improvements. Of course, when Pakcom starts to launch the CDMA network, I think you might see a temporary erosion again. But excluding Pakcom, we should see improving margins going forward.

And the Pakcom launch at the earliest would be fourth quarter?

Yes. Fourth quarter, late fourth quarter. So you will see an impact maybe in our first quarter, yes.

Okay. And then Latin America, impressive results there. What -- was there a specific country that drove the EBITDA results and were there any one-time items there?

There was no one-time item in any of the Central American countries. I think the highest margin we see today in the Honduras. But, of course, the 58% revenue growth in Guatemala, I think, is what is increasing the overall EBITDA number. That shows that now in the latest of all markets in Central America, Guatemala, with a much improved network and value-added services that have been introduced, that is really going to drive revenues in that part of the world.

And it shows that, again, this, I think, is very important, is that -- because in all three markets we are competing with some very large operators. So that even in those markets, without model, our Millicom model, we can be very successful and keep our margins at the 50% level.

And did you do anything different in the quarter in terms of marketing or promotion?

No. I think with Tigo we probably have launched one of the strongest brands ever in telephony in that part of the world and as I said, I will invite you to come and see for yourself in November, when we will have our Investor Day there. But this, it is impressive, Tigo is present all across the three countries. And then, it's a combination of also in combination with improved networks. I think in some countries our networks were too small, maybe the capacity was limited, which didn't allow us to take all the calls we might have been able to take in the past. So that is all history now, so we have great networks with sufficient capacity and much better coverage.

And lastly, Marc, you talked about looking at always new license opportunities. Can you comment about the potential for consolidation and generally which geographic regions there may be opportunities? Are there opportunities in Latin America or are there opportunities in Asia or Africa?

I must say that, you know consolidation doesn't happen in Latin America and a lot of people who told me that I should have been part of that. But I think, as I look at the results in both Central and South America, I'm happy that we are a standalone entity and that we are making a lot of money in that part of the world. I think for the other regions, for Asia and Africa, I think growth is not so high that I think it's way too early to see any consolidation, except maybe for some individual markets like India where it has happened. But I don't see that happening in the African or Asian markets where we participate.

Great, thanks Marc.

Thank you.

Thank you. We'll now move to [Lars Palmer] with [Noonday]. Please go ahead sir.

Hi Marc. This is Lars Palmer.

Hi there.

Two questions, if I may. There has been discussions or speculations in the media that your license in Iran would be extended from 2m subscribers up to potentially 6m. Could you give us a little bit more color on that or if you -- at what point in time do you think that such accession could be made?

And secondly, I know you launched over the refill or top-up in some of the South East Asian markets. Have you -- do you have any plans to rollout on other markets in your universe? Thank you.

As far as the second question, yes, we have the intention to introduce that in every market that we -- big markets in Millicom because, as I've said earlier, we see it as a way to facilitate and to lower the cost of distribution of airtime minutes.

In terms of Iran, our contract states 2m pre-paid subscribers and nothing more, nothing less. At the inauguration - unfortunately I wasn't there myself - apparently the minister spoke about the 6m subscribers. We've said it several times, does that give us scope to increase from 2m to 6m? I don't know, I don't really want to speculate. What we are doing now is filling up and building that, first of all, building that 2m subscriber network, and then filling -- trying to fill it up as quickly as possible, which we should be able to do by the middle of next year. And then we will see where we are in terms of 2m, 4m, 6m subscribers. I don't really want to comment on that one right now.

Thanks.

Thank you.

Thank you. We now have [Brian Lowe] with Morgan Stanley. Please go ahead.

Hi guys.

Hi Brian.

Just a quick question for you on cash upstream. Could you give us the cash upstream number for this quarter?

And also, to follow up, if you have any guidance on cash upstream, now that Vietnam is no longer consolidated, if you have any cash upstream for what the run rate should be going forward?

And finally, holding company cash balance?

Bruno, can you take that question?

Yes. The cash upstream for the second quarter was around $48m, and the total cash at holding company level is around $513m. And, as usual, we will not give a forecast on cash flows.

Okay, great. Thank you very much.

Thank you.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS]. We now take a question from [Paul Isaac] with [Aperture]. Please go ahead, sir.

Yes, thank you. Could you give some color on the -- whether or not you have any unrecovered assets yet in the Vietnamese joint venture? And, if so, what the basic strategy will be, assuming you're unable to come to terms with any further involvement in that country?

We have fully written off, amortized, all of the assets we have been using and we have been buying in Vietnam, and those assets will be handed over for a dollar to our Vietnamese partner, VMS. So, on top of that, the Business Cooperation Contract is still to be closed, so that means they will reconcile all flows, in and out flows. We don't expect that this needs -- there's going to be a need for any kind of adjustment there, but we still have also receivables; from a cash point of view, we still have a receivable on Vietnam, for revenues that were generated in the second quarter.

But no, on the other side, there's no need. We've fully written off, we've fully amortized all the assets we bought under the BCC and they will be handed over for a dollar to VMS shortly.

Does that mean that you might have a non-operating income item from the second quarter Vietnam receivable at some point in the future?

No, no, no. These receivables have been accounted for in revenue, but what I'm saying here is that we haven't received the cash flow number, which is nothing unusual, it always takes a few months before you -- before all the numbers are being reconciled and then before the receivables are being paid.

Thank you.

So nothing unusual happening.

Thank you.

Thank you.

Thank you. From Canyon Capital, we now move to [Dominique Mieller]. Please go ahead.

Hi. With respect to Vietnam again, what would you say the focus of the conversation or negotiation is? Is it an issue of convincing them you are the right partner or a question of price, a question of real structure?

Well, if I knew, I would know a lot. It's definitely not an issue of price, but I always have said the valuation part will be done at the very last -- it will be the very last piece of the puzzle. What I think the government needs to do now is to choose a strategic partner and plan on how she's going to equitize that company. And that's where I personally don't have a clear view as to where they are in the process, given that it's not a transparent process for any outsider. This is something that is being run within the government of Vietnam.

But you do have in your mind a price limit on that? Is this correct?

A price limit you can only have when you know you're going to acquire ownership in that business because, clearly, the environment of Vietnam is changing very rapidly, from a quality duopoly a few months ago, we're now moving very rapidly to a fixed operator market some time by, I would say, the beginning of next year. And that, of course, might have an impact on the price of such an asset.

So therefore, I don't really looking at price at this point in time. It's more important to get involved, to get into the process, to get into the house and then you can take it from there to the next level, which is the valuation.

Right, okay. And then, this is obviously another great quarter. How many years do you think you have of double-digit growth until you reach some maturity in your existing markets?

Well, double digit I hope still quite a number of years because we we're still at 30% right now. So, and as I said, with the increased build up of networks and the improved quality of our networks, strong brand and changes in technology, I think the current growth will continue to be around for a while. I think, as long as we can continue running our model, which is based on the C5 leadership, that means that we need, in an organized way, to bring tariffs down in order to grow the market and take it down to drop the price elasticity which we see in most of our markets, we will be able to grow, continue growing at very attractive rates. If we would stop bringing down prices and stuff like that, then of course we would slow down growth, but that's not part of our strategy.

Are there any markets where you are seeing some signs of maturity and slower growth?

Not really, no. Even in Mauritius where we've, I think, somewhere over 40% mobile penetration today, we still see good growth and margins at over 50%. So no, as a matter of fact we don't really see any saturation across Millicom today. Then also, that most of the countries we operate in benefit from good economic growth, strong economic growth, good GDP growth, and that of course also fuels the growth for any Telecom operator in that country.

Okay. Thank you very much.

Thank you.

Thank you. From [South Capital] we'll now take a question from [Bernard Dodds]. Please go ahead, sir.

Could you please comment on capital expenditures this year and maybe next year for the whole Company?

And also, how did you account for the Pakistan license charges?

So in terms of CapEx, so we turned over, I think, around -- just under $95m in the first two quarters. And at this point in time, I'm not going to review our targets for the year, which was slightly over $200m. So we think that, as you know, prices for CapEx continue to come down, so we can buy more for less money.

In terms of the Pakistani licenses, I'll ask Bruno to explain the accounting treatment.

As regards the Pakcom license, the total cash outflow that will need to be paid over the coming 13 years is $291m, and this is recorded in our books at the net present value, leading to approximately $290m increase at the initial valuation date. And this value is amortized over the duration of the license, of 15 years. So you will see the increase in the value of license on the asset side in the license line.

And the cash goes out over the 15 years?

The cash outflow is over 13 years. You will have a first 50% over the three first years and then the remaining 50% over the thereafter coming ten years.

I'm sorry, 50% in the first three and then 50% over 10?

Yes, exactly. Forecast outflow [five years' debt] and then that's for the 15 year license.

Thank you.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS] We'll now take our next question from Andreas Ekstrom with Handelsbanken. Please go ahead.

Andreas?

Can you hear me?

Now I can hear you.

Excellent. Sorry, just a follow-up question on the payment in Pakistan. If I remember correctly, in Paktel the 50% that you will pay over the first three years will be skewed towards the end of that period. Is it the same thing for Pakcom as well, that a smaller amount will be paid in the first year and then a larger --?

Correct, yes. That's right, yes. It's the same thing with [indiscernible].

Okay, thank you.

Thank you. We'll now move to Adrian Dawes with Hartwell. Please go ahead.

Hi Mark, Bill Miller. Congratulations on a nice quarter.

Hi Bill.

Talk a little bit about the trend of pricing in Pakistan. Obviously the growth rate is terrific in terms of the subs. Are we still seeing price competition or have we leveled that off or are we able to stabilize - where are we in that?

And secondly, the margin -- sorry, [indiscernible] in South America was 41%, and I wonder when we could expect that to come back towards the 50% level?

In terms of Pakistan, I don't think we have reached the bottom in terms of tariffs. I think there will be further tariff reductions going forward. How much, it is difficult to say. I think it will depend on how much -- how well the one or the other operator feels about his success, or not being successful.

In terms of South America, as I've stated before, I think it's going to be very difficult for us to get to an average margin of 50% because of the structural issues in Bolivia. It's a very large country, where we are using transmission equipment from other operators and that comes at a substantial cost. In Paraguay, if I remember well, I think our margin in the second quarter has reached already 46%. So there we see an improvement in the margin. That means that the average is now 41%, but I don't think we will be able to get it to 50%.

Okay. Thanks very much.

Bill.

Thank you. [OPERATOR INSTRUCTIONS] We will now take a question from Adrian Dawes with Hartwell. Please go ahead, sir.

What about what you think, as you proceed in Iran, with the higher GDP that country enjoys, whether they will have above average ARPU, given the tremendous backlog of potential subscribers that you have there, as well as their GDP per capita?

[Inaudible].

[Inaudible] knowing or speculating, or is there any benchmark you can look to and say we should be able to achieve that?

Well, we've been told that ARPUs under the TCI network were $14, but I would like to see with my own eyes as to what our ARPU is going to be on our network, which is a pre-paid network only. You're right, the greenbacks that are coming into that country as a result of the high oil prices creates fantastic wealth. And I think that will translate itself into exponential amounts for an exponential increase for demand for all of our services.

But the services are being provided in a very well structured way, in order to avoid any kind of chaos. So that's why we are building up our subscriber base, up to 600,000, and then we will continue to build for capacity in order to reach 2m by the middle of next year. And so then we should be able to fill that up 100%.

So I'm very bullish about the markets. The demand clearly is there, the wealth is increasing, so it's probably one of the best markets to operate a mobile network today.

Marc, just to continue on that for a second, is there a constraint on building that capacity now? You've obviously put a lot of money and you've trained people to put in place the capacity. Is it going to be a lot easier to go from what you have now to a lot higher capacity because you have had a learning curve? Or can you accelerate it even more than it seems to be accelerating?

First of all, we have not put any money in ourselves, given that we're only managing the network, but we would hope to be able to spend some money when we exercise the option. And I think that might be an important point, where once we get ownership in the business that we might then be able to accelerate the build out and the growth of the network. It's all a new process for everybody who's involved in this. It's a learning process. But I think we -- people on the ground are doing an excellent job and, of course, we are learning and that should allow us, combined with us getting ownership maybe at a certain point in time, should allow us to improve the build out or the speed of the build out.

Do you have any concept of how much it will cost, what the book value will be, approximate book value will be at the time you do exercise your option?

That's the book value, so that's maybe about between $25 and $50m. So at this point in time I don't have any information that would allow me to change that number.

Great, thanks very much.

Thanks Bill.

Thank you. From UBS we'll now take our next question from Bob Kommers. Please go ahead.

Hi Marc. Congratulations, great stuff. Yes, very small question on Africa. I was just wondering about the Opra development, whether that was just a currency issue in Q2 or was it actually some decline in local currencies?

I think there's always pressure on local currencies, by definition, but of course there's some seasonality in Africa. Also, there are some markets that have very high roaming revenues in the first part of the year, needless to mention Mauritius. But no, there are no specific events, I think, taking place in Africa. What we are doing in Africa, especially in our three large markets - Ghana, Mauritius -- sorry, Senegal and Tanzania - is substantially increasing our build out, our CapEx build out, in order to be able to take on more minutes and more subscribers. And I think that that will take one or two quarters before that capacity will come onstream, and then I think we should be able to continue growing at high rates again.

So the combination of seasonality, I think, with the capacity we've put in place last year, I think probably starts being filled up now. And I think, when you get the next phase of equipment now, weight of equipment in there, in order to be able to continue growing. That will happen in the next quarter or two.

Alright, great. Thanks.

Thanks Bob.

Thank you. We'll now move to [Willem Kajak] with Kepler Equities. Please go ahead, sir. The line is now open.

Hello. We can't hear you.

No, you -- you can hear me now?

Now I can hear you loud and clear.

Okay. Marc, I've got two questions, the first on the - or maybe it's for the CFO - the tax is almost $15m in the second quarter. Is there any reason why that's so high? That's one.

Just also to check, did you indicate that in Iran currently, well, ARPUs are around $14 per month, because my guess is that in general the hope is for somewhat higher amounts?

Well, what I said about - as far as the second question, I'll then hand over to Bruno for the first question - is that on the TCI network we have been told that ARPUs in the past were $14. I don't know whether that's still $14 today. So the $14 does not relate to our almost 200,000 subscribers. What I can say about our 200,000 subscribers is that you see it with minutes of use. And then I think in a few months, we'll be able to give you some indication as to what ARPU is on our network.

Okay.

And then on taxes, I'd like Bruno to answer that question.

Regarding taxes, so we take -- it's the increase in the operating results of certain operations that leads to the higher tax charge. But it's plus $12m in the first quarter, it's now going to $14.7m, but it's in line with the increase in operating profit in certain operations.

It probably only optically looks higher because of the valuation movements, of course?

And you should probably also really look at operating profit as an indicator, as opposed to profit before tax, which is specified quite a number of lines below the operating profit.

Okay, great. Thanks.

Thanks Willem.

It appears there are no further questions at this time, Mr. Beuls. I'd like to turn the conference back over to you for any additional or closing remarks.

Okay. Thank you, operator. One thing then, I would like to thank you all for participating in today's conference call. If there are any further issues you wish to discuss, I will be happy to deal with these on a one-to-one basis. If you wish to contact us directly or alternatively you can call our Investor Relations firm, Shared Value, on 44 207 321 5010. Thank you for participating and have a good day. Goodbye.