Millicom International Cellular SA (TIGO) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Millicom's Third Quarter 2006 Results Conference Call. For your information, this conference is being recorded. May I also remind you that this call is being audio-streamed over the web and is accessible at www.millicom.com, together with a presentation summarizing the key features of the results. I would now like to hand you over to the host of today's conference, Mr. Marc Beuls, President and CEO, and Mr. David Sach, CFO. Please go ahead.

Thank you, operator, and welcome to everyone who has joined us today. For this call, both David and I will be using slides to run you through the results. It will be helpful to have those slides in front of you, and you can find them on our website at www.millicom.com. We will both be happy to answer any questions you might have at the end, but first, I would like to give you an overview of the results and run you through the performance of each cluster.

Let me start the result overview by saying that the third quarter of 2006 was a truly [run rate of stepping one]. Never before have we added more subscribers in one quarter getting us today, including a newly acquired business in Colombia, over 15 million subscribers. Eight of our operations have more than 1 million subscribers on the network today, and two of those are about to reach to 2-million subscriber mark.

We also produced the highest ever quarterly revenue, EBITDA and net profit from ongoing operations during the third quarter. The Latin American operations were the biggest contributors to the record results, but I'm sure that you will have noticed the accelerated revenue growth in Africa this quarter. And as you know, we are planning an analyst and investor trip to Ghana from the 19th to the 21st of November to showcase the success of Tigo in Africa. It's not too late to sign up for this trip if you haven't already done so. Please visit our homepage for details of how to register.

We are very excited about the acquisition of our controlling stake in Colombia Movil, which gives us an opportunity to implement our triple A business model in one more Latin American market. We will share some more data on this business in a few minutes.

But first, on to these slides, and I ask you to turn to slide number two which summarizes the results for the third quarter. You will have seen in our press release that we are no longer reporting pro forma numbers as we have taken the decision to show Vietnam as a discontinued operation, given the delays occurring in the privatization process there. The new government is in place in Vietnam now, and our communications with them have been positive.

We still consider we have the right of first refusal in a cooperation with CMS, but we have somewhat received clear guidance about the terms and conditions of operating in Vietnam in a privatized market. The other pro forma items, namely Honduras and Pakcom, are much smaller and do not make a significant difference to the reported numbers which we will refer to during this call.

You will see that Millicom has, again, delivered an exceptional growth. Total subscribers were up 62%, revenues were up by 54%, and EBITDA up by 58%. Even more encouraging, Millicom has increased its CapEx for the quarter to $188 million from $89 million in Q3 last year, bringing the total CapEx for the year-to-date to $429 million. We are likely to exceed total CapEx for the year of $700 million, as we invest in our new Colombian business and build out our new networks in the Democratic Republic of Congo and Pakistan.

We believe that these and our other investments in our networks and distribution in Africa and South Asia will help drive growth levels similar to those we have seen and continue to see in Latin America, that we have come about since the launch of Tigo and the implementation of our costumer focus business model based on the provision of affordable, accessible, and available services.

It's clear that this Tigo model has been the cornerstone of our success in Latin America, and we look forward to seeing the results when we complete our rollout of the Tigo brand in Africa and Asia next year.

As seen in slide number three, Millicom added almost 1.9 million total subscribers in the third quarter, bringing the total to 12.8 million at the end of September, representing a 62% increase over the third quarter of 2005. I am delighted to report that today our subscribers total 15 million, including the subscribers we have in Colombia. The subscriber growth indicates that Millicom's businesses are now well into the accelerated J-curve of emerging market growth.

In Q3, subscribers in Central America grew by 84% year-on-year, and in South America by 71%. Africa reported year-on-year subscriber growth of 90% in Q3, which gives us confidence that we will be able to capitalize on the growth potential in Africa in the same way that we have across Latin America. However, in Africa, the population of the license is far larger, and so, the long-term potential is even greater. Attributable cellular subscribers increased by 60% from the third quarter of 2005 to just under 11 million at the end of September.

Slide four shows that, as you would expect, our strong subscriber growth has fueled to revenues, and for Q3, we have recorded our highest-ever quarterly revenue of $403 million, an increase of 54% from the third quarter of 2005. In Central America where penetration is higher and networks are more developed, revenue growth of 72% in Q3 is extremely strong. The highest quarterly year-on-year growth was recorded in Guatemala with revenues up by 92%. Revenue growth was 70% in South America and 59% in Africa.

Referring to slide number five, EBITDA for the three months ended September 30, 2006 was a $179 million, a 58% increase from the third quarter of 2005. Millicom's EBITDA margin was 44%, up one percentage point from last quarter, despite the lower margin in Africa due to the network build-out and the Tigo launch costs across the region and the negative impact of South Asia as Paktel invested in its GSM business, both of which were more than offset by increases in Central and South America and South East Asia.

Let's now look at the results of each cluster starting with Central America, which remains the largest cluster in terms of revenue and EBITDA. So, I would like to ask you to turn to slide number six. On slide number six, you can see that the total subscribers reached 4.2 million, up 84%. Over 600,000 new subscribers were added in the quarter, the highest addition recorded by any cluster, demonstrating the clear demand for affordable telephony as Tigo's rolled further into previously unpenetrated rural areas.

Quarterly year-on-year growth for Central America was 72%, to $207 million for the third quarter of 2006. EBITDA for Central America increased by 77%, to $111 million for the third quarter of 2006, and the EBITDA margin was 53%. The effects of the continuing Tigo rollout and the launch of additional value-added services can also be seen in the South America cluster.

Please turn to slide number seven where we see that the subscribers grew by 71% to reach almost 2 million at the end of September in South America. Revenue for Q3 grew by 70%, to $62 million relative to Q3 2005. And Paraguay and Bolivia produced revenue increases of 86% and 44%, respectively, over the same period. EBITDA increased by 102% on a quarterly year-on-year basis to $28 million, and EBITDA margin was 46%.

Tigo in Paraguay is Millicom's champion for value-added services. They represent today 25% of the company's recurring revenue. In our tradition of copying best practices across Millicom, we expect the value-added services to become a large revenue contributor in other the markets starting 2007.

In order to allow all of you to get a better idea of the size of our newly-acquired business in Colombia, I will share with you some numbers for the year to September 30, 2006. Under our strict definition of subscribers and why we no longer consider a subscriber to be active if he or she doesn't generate traffic in 60 days, we have just under 1.9 million subscribers.

We estimated that the year-to-date revenues were approximately $230 million using our accounting principles, and the revenues are generating a single-digit EBITDA margin today. The year-to-date profitability of the business is slightly better than anticipated when the due diligence was performed ahead of the acquisition of our controlling state, and it is expected to be a good basis for future growth.

The consolidation of Colombia Movil will result in a temporary reduction of Millicom's consolidated EBITDA margin until such time that the business operates at the average Millicom EBITDA margin. We have taken management control of the business and have started preparing for the launch of Tigo and our triple A business model in the first quarter of 2007.

Turning to slide number eight, you will see that in our Africa cluster, total subscribers increased by 90%, the highest recorded year-on-year growth in the group, to 3.2 million at the end of the third quarter of 2006. This subscriber growth contributed to a year-on-year increase in quarterly revenue of 59%, to $80 million. And despite the heavy startup cost of building out the new and extended networks in Africa, a 42% increase in EBITDA to $31 million, representing EBITDA margin of 39%.

Slide nine shows that subscribers in South Asia increased by 17% from Q3 2005 to 2.3 million at the end Q3 2006. Revenue was $24 million for the third quarter, down 21% from Q3 2005 due to the sale of Pakcom in June 2006 and the network interference issues, which affects Paktel revenue in the first half of this year.

South Asia reported a loss before interest, tax, deprecation, and amortization of $2.1 million due to the high cost associated with improving the network in Pakistan. Pakistan is a very competitive market, but we provisionally resolved the network interference issues that affected Paktel, and our plan for Paktel is to continue to increase the quality of the network and focus on revenue-generating subscribers.

Our target is for Paktel to relaunch the business in the first quarter of 2007 on the back of substantially improved networks. The Sri Lankan operation continues to perform well and despite some of the lowest ARPUs in the group due to an EBITDA margin of 50% for the third quarter demonstrating that our low cost operating model and success even when confronted with declining ARPUs.

We are also investing heavily and expanding the network in Sri Lanka and expect to see the first results of this investment in Q4 of this year.

Turing to slide number 10, you will see that the subscribers for Cambodia and Laos increased by 37% from the third quarter of 2005 to 1.1 million at the end of September 2006. Revenue for South East Asia was $28 million for the third quarter, up 27% from Q3 2005, and EBITDA was over $10 million, up 24%.

Now, I would like to hand it over to David to talk you through the financials. David, go ahead.

Thank you, Marc. Please turn to slide 11, where you will see the key financial ratios for the third quarter compared to the same period last year. Overall, the EBITDA margin has improved slightly from last quarter to 44% from 43%. This is mainly due to the additional economies of scale that we achieve by growing our businesses, coupled with the change in the mix of our revenues.

The economies of scale are seen both in the improved gross margin and the improved G&A cost percentage. Growing our businesses has helped our gross margin because a greater percentage of our revenues now come from calls within our own networks. These are highly profitable calls because there are no costs for us to connect with other mobile or fixed networks.

In addition, we are beginning to see the benefits of expanding our value-added services, which are helping to drive revenues higher. Offsetting the improved gross margin and G&A cost percentage is a slightly higher sales and marketing cost as a percentage of revenues. This is due to higher costs in South Asia and Africa to promote the recently launched, or upcoming launches, of the Tigo brands in these operations.

On slide 12, you can see that we have been able to maintain our EBITDA margins as we grow our businesses. The economies of scale, explained on the previous slide, have enabled us to more than offset the higher sales and marketing costs as a percentage of revenues, which have been needed to promote the new Tigo launches and drive the revenue growth.

Please turn to slide 13. In 2005, the average level of CapEx was $88 million per quarter. In the first quarter of 2006, CapEx spend was $95 million. In the second quarter, it rose to $146 million. And for the third quarter, it rose further to $188 million as we continue to increase the level of investment in our businesses to drive future growth. This brings the total for the year-to-date to $429 million, representing an average level of CapEx of $143 million per quarter in 2006.

CapEx spend in the fourth quarter will be even higher as we invest in our new Colombian business and continue to invest even more heavily to support the new launches for our Congo and Pakistan businesses.

For the full year, we expect CapEx to be over $700 million. With the addition of our Colombian business, absolute CapEx spend is likely to be even higher in 2007 but will decrease as a percentage of sales.

Turning to the bottom half of the profit and loss, whereby I think it is most helpful to present the year-to-date results, on slide 14, you will see several items impacting the comparability of the results. Please note that the 2005 figures have been amended to exclude the results of our Vietnamese business, which has been shown as a discontinued operation.

Firstly, corporate costs have increase by $16 million. As explained at the half year, corporate costs have been impacted by the one-off expenses of conducting the strategic review totaling over $5 million and changes to the incentive plans resulting in higher stock compensation costs of $7 million.

Secondly, depreciation is higher because of the accelerated depreciation of the older technology networks and the increase CapEx spending this year. Thirdly, write-downs have been reduced significantly because 2005 included many one-off items that have not been repeated. These write-downs have been explained in previous calls.

On slide 15 is the quarterly breakdown of depreciation. You can see that depreciation started to increase at the beginning of 2005 when we began to accelerate the depreciation of our older technology networks. Depreciation has risen in 2006 due to the higher level of CapEx compared to 2005, plus we have decided to increase the acceleration and the depreciation of the older technology networks in the third quarter this year since the rate of conversion to our newer GSM networks has been faster than originally anticipated. Most of the non-GSM networks will be fully depreciated by the end of the first half of 2007.

On slide 16, it provides an analysis of other income and costs. The largest movements in this category have been the valuation movements surrounding the Tele2 shares held by Millicom and the related 5% exchangeable notes. On August 7, 2006 we settled the exchangeable notes by transferring the Tele2 shares to the noteholders. I have isolated the net impact of these valuation movements for you since there will be no future movements.

Slide 17 shows that the blended tax rate for the operating companies remains the same as the first half rate at 27%, which is lower than the nine-month rate for last year of 37% due to a change in the mix of our profits to lower-rate countries.

More importantly, though, our overall group tax rate has fallen even slightly more to 39% for the nine months vs. 41% for the half year and compares to a rate of 132% for last year. This is, obviously, due to the higher percentage of profits before tax generated by the operating companies compared to total profits before tax but also reflects the actions we are taking to better manage our tax position.

As mentioned on previous calls, we are taking steps to increase the management and brand fees that the company has paid to corporate, especially now that Tigo has been rolled out in many more countries. This creates additional tax deductions in the operating companies but does not create taxable income of corporate because of the corporate costs. As such, our overall effective tax rate is lowered.

As you can see, the net non-deductible cost in corporate are falling as a result of these tax-planning actions. As our operating companies become even more profitable, we will be able to transfer even more income to corporate but are unlikely to fully offset the corporate costs until 2008 when the 10% bonds can be refinanced with local company debts. Afterwards, all other things being equal, we might be able to get the overall group tax rate below 30%, depending on the geographical mix of profits.

Slide 18 shows that our strong operating cash flows are financing the bulk of our increasing level investments. Investments for the nine months were $485 million, which was roughly doubled the level of investments for the comparable nine months last year.

We ended the period with a very strong cash position of $567 million and a relatively low net debt position of $463 million, which was lower than the comparable position at the end of the first half, despite the higher level of investment in the third quarter. The strong operating cash flows and relatively low net debt position enable us to continue investing in the businesses going forward.

Slide 19 shows that the two main areas of investment in the nine months to September were CapEx of 429 million and acquisitions of 62 million. The acquisitions are mainly attributable to the buyouts of minority stakes in Senegal, Tanzania, and Sierra Leone earlier this year and Paraguay in the third quarter. License payments increased due to the acquisition of additional spectrum in Guatemala.

Thank you. Now, I will hand you back to Marc.

Thank you, David. And let me conclude by saying that the third quarter has delivered exceptional growth with revenues up by 54%, to $403 million, and EBITDA by 58%, to $179 million, driven by the addition of almost 1.9 million new subscribers who were attracted by affordable, accessible and available services embodied in the Tigo brands.

I am delighted to report that today Millicom has a subscriber base of 15 million people, including the subscribers of our operations in Colombia, which is being consolidated into our numbers from the October 2, onwards. We have a number of major challenges ahead of us such as the relaunch of Pakistan, the launch of Tigo and DRC Congo, and the implementation of our triple A operating model in Colombia. These three businesses combined can transform Millicom.

The growth we have seen so far this year is the result of targeted CapEx in 2005, and our future growth will be fueled by increased CapEx next quarter which will bring the total for the year to more than $700 million.

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

Thank you, sir.

[Operator Instructions].

Adrian Dawes from J.M. Hartwell. Please go ahead.

Marc, fabulous quarter. It's [Bill Miller] here. Just trying to catch up the number for your level of CapEx.

Bill, you are breaking up. Could you repeat again?

Yes, sorry, starting to break up. I am curious with the increased level of CapEx. On the last conference call, you indicated that you can still expected with the higher level of CapEx, which was not as high than it is now, obviously, and certainly you are expecting to have lower CapEx for next year, whether you still expect to be able to get a payback in two years and whether that's still a valid numbers for us?

And secondly, what kind of market penetration do you think you can get in a country like the Congo, for instance?

Okay. So, in terms of the payback for existing businesses, yes, we do believe that we can stick to that two-year payback. Of course, for completely new startups, like Congo for instance, and I think you could put Pakistan in that category also because it's almost like a complete re-launch of the business, that payback will be somewhat longer.

But for investments in existing businesses in Africa and Asia and Latin America, we can stick to the existing two-year payback period. What was your second question again Bill?

Second question was concerning the eventual market penetration in the Congo, and if you could also give us a little more color on Colombia, like how fast the market is growing? What penetration you have? How fast you are growing versus the rest of the folks down there? It would really be helpful, I think.

Okay. Good. In terms of DRC, today's mobile penetration is around about, I think, 5%. So, it's still fairly low. And it's a company, I think, that still needs to get to, you know, a further economic situation, in better shape. We think that that will happen and that will drive subscriber growth. I think in our long-term plan, we are looking at a mobile penetration that could reach, you know, somewhere between 40% to 50% in countries like DRC, but that will, of course, take quite a number of years.

We are focusing on building the network, and that will, then, allow us to launch our service hopefully still this year, depends a little bit on the political situation. If not this year, hopefully early next year so that we can then start gaining market share and also at the same time drive mobile penetration, overall mobile penetration.

In terms of Colombia, of course, a completely different picture. It's a country, excluding Mauritius, you know, that has the highest mobile penetration. And Millicom today, over 50%, is also country rich, of course, has a much higher GDP per capita than any of our other Latin American markets. And I must say when I visited the country a month ago, I was really impressed with the way things have been organized, infrastructure, also the signs of what money and royalty you see in the country. So, we are very optimistic about that country.

It has three operators, three mobile operators. Number one, you know—there's quite a bit, there is Comcel owned by American Movil, I think about a 60% market share today. So, there is a real giant there. Followed by, number two, Telefonica, with a market share of roundabout 30%, and then VCOM with a market share of roundabout 30%, if you, of course, believe the subscriber numbers that are published in the market.

So, we would expect that we can grow that market share substantially once we will start implementing our triple A business model and once we will have launched Tigo brand, which is now planned for the first quarter of next quarter.

Yeah, sure it was 10%. You just repeated 30.

Okay. Sorry, yes, 10%.

How fast do you think the market is growing, Marc?

I think the market is growing very rapidly at this point in time. As I said, Colombia is a country that's got these things in order, and it is creating economic activity. And that, of course, is generating the markets.

I think you guys need to give us a little bit of time. We just moved our management into operations. So, we need to kind of get operation into the Millicom mode so that we can start implementing Millicom models. So, don't expect to see, you know, immediate results in the first quarter. We need to get to that launch of the Tigo brand, which will only happen in the first quarter next year.

Thanks so much, and congratulations. Wonderful move.

Thank you Bill.

[Lena Rosenberg] from Enskilda. Please go ahead.

Yes. Hi, and also congratulations. Fantastic numbers.

Thank you.

I was going to ask you on Pakistan. Even before launching there, you are showing a very good growth trend. Do you think that you will be able to get up on par in that traditional [suite] with your competitor shortly?

We're not there yet. We still have a long way.

Half way.

Yes. I don't know. What we have seen is increased subscriber intake, that's correct. But it's subscribers that come with very low ARPUs, and the ARPUs are very low because, not so much the low usage, I think Pakistan is amongst, you know, the highest minutes of user within Millicom, but just because of the long tariffs and also because of another reduction, scheduled reduction, of anti-connect tariffs that happened in the third quarter.

So, we need to further build on that working in that country, especially to South, that's where we got our frequency issues resolved [during] the last. So, we still need to build more networks in Karachi in order to be able to start fully competing with the other operators in the market. We, of course, are not sitting still and are also moving forward very, very rapidly. So, we still have a lot of work to be done, and it will take, you know, some time to be able to catch up with the others.

Can I also ask you--previous quarter, you came with guidance for the full year, which was an EBITDA growth pro forma of 50%-plus and EBITDA growth slightly that--so far for this nine months, you actually grown EBITDA more rapidly than revenues and you managed to offset the launch costs, or the network costs, in Congo and Pakistan very well.

So, should we still expect that that margins will dip Q4? Or from your comments previously, it seems you are actually expecting to keep margins rather stable despite the launches.

The margins, as I suggested on the call, will come under pressure because of the consolidation of the Colombian business.

But excluding that.

It is operating at a single-digit EBITDA margin. And so, it will take us a while in order to get that business to [be] the Millicom average EBITDA margins. So, that will have the impact on the margin in the quarters to come.

As far as the percentages, I think if you just add up the numbers for that past three quarters, you can see that we are well on track to reach our 50% growth. But we will see what the fourth quarters is going to bring. Fourth quarter, you know, last year was a very strong quarter in Latin America and also some other markets. So, lets hope that is going to be case again.

But if you exclude the effect of Colombia and just look at the ongoing underlying business and the launches in Congo and Pakistan, do you expect that the margin will still follow, do you think that you can offset those launch cost with increasing scale?

We have, I think, mastered the art of launching Tigo, you know, in a number of countries without having a lot of upfront costs. Anyway, the re-launch of Pakistan will be next year only, so it's not going to be this year. Congo, we don't know what it's going to be, this year or next year. Anyway, I think the impact of Congo, if it were to be this year, it's going to be fairly small, given that if it happens, it will happen pretty late in the quarter.

Okay. Thank you

Thank you.

Andreas Ekstrom from Handelsbanken. Please go ahead.

Thank you. Just coming back to Colombia for a second, and maybe you answered this question first. What did you say, Marc, how many subscribers you had in Colombia, something about 1.9?

That's correct, Andreas; 1.9 according to our 60-day definition.

That's what you saw today from--.

Catalog, so the 15 million subscribers are mentioned include 1.9 million subscribers from Colombia, then you can figure out, you know, how many new subscribes quarter-over-quarter.

I can do that math. On the margin side on Colombia, you said that you have single-digit EBITDA margins now. When you announced the acquisitions, you said that you are aiming for EBITDA to breakeven during the later part of next year. Is that now history, should we expect that Colombia could even be EBITDA-positive for the full year, or do you think that you would incur new cost, so to say, by coming in and starting the [management team], et cetera?

There will be certain costs that are associated with the launch of Tigo early next year. And, of course, when you enter into new business, there are always cost associated with, you know, sizing the business onto the Millicom model, and we don't have any indications as to how much these costs are going to be at this point in time. But it's good to see that instead of being, what we thought, that the margin was going be slightly negative, we see that is now slightly positive. So, that's a very encouraging the start for the business.

But positive EBITDA margin for the full year is not unrealistic to assume?

For next year, depends on what the costs are going to be, but I think it's a realistic assumption to make, that margin is going to be positive next year, yes.

Okay. Very good. One question on the ARPU level, we saw a slight decline in Central America, I think it was down 3%, and it has been slightly up in the previous quarters this year. Do you see any change in that market going forward, should we expect some more decline or do you think that you can keep it at this level?

The issue we had in Central America was a good issue to have in El Salvador, where [switch] got completely congested, and so we had to give away a number of free minutes, I think a total of $1.2 million to our clients. El Salvador is a country that has very good costumer protection law and legislations.

So, we made a gesture to the markets by giving them these free minutes in order to compensate for the congested network. Our network is no longer congested, the new switch was brought in and that's why things are going, again, very well there. And that's why we found pressure on the, you know, ARPUs in Central America, so primarily coming out of El Salvador.

Okay.

It's a temporary issue.

More of a one-quarter issue, you haven't seen any drastic changes in the price there [from yourself] or competitors?

Not really, not really.

Okay. Very good, thanks a lot.

Thank you.

Peter Nielsen from Cheuvreux. Please go ahead.

Thank you. I'm Peter Kurt Nielsen from Cheuvereux. Just two questions please. Firstly, as you mentioned, the momentum in customer intake is actually accelerating at this stage, could you, perhaps, tell us how you see that developing going forward? Will it continue to accelerate or would you expect a slowdown at some point already next year?

And second question relates to Colombia, if you had consolidated Colombia--should Colombia have been consolidated at the balance sheet date here Q3, what would your net date has been at that time? Thank you.

So, in terms of the subscribers, as you know, we don't give guidance for subscribers nor for any other financials. You have noticed that, as I said on the call, that the increased revenue growth we show that subscriber intake we are showing this year is the result of increased investments we stopped making in 2005.

Given that the CapEx number in 2006 is going to be, for the total year, it's going to be substantially higher than 2007, you can put one-and-one together and come to the conclusion that with the number of major markets like Congo, Pakistan and some others also that are really not up to cruising speed, you can come to a conclusion that we will be looking at, you know, solid subscriber growing to next year. So David, do you want to answer the second question on Colombia?

Yes, the Colombia transaction closed, obviously, on October 2, as mentioned in the press release. So, we don't consolidate anything until the fourth quarter. We, obviously, will consolidate their net debt figure. I don't have the figure in front of me, but it was I think in excess of 300 million at a guess, but you will see those numbers in the year-end reporting.

I appreciate that David, obviously, but my question is, is it fair to say that the acquisition—[will effect] at the current date today broadly double your net debt?

Yes, a little less than doubling the net debt, yes.

Okay, thank you.

You're welcome.

[Anders Vinberg] from REM. Please, go ahead.

You talked about accelerating the depreciation of the old analog networks in that first depreciation line this quarter, and that is continuing until mid next year, is that correct? How much lower will the depreciation from this old network be once they, kind of, finish depreciating. Just quantify how big the effect is of this?

Okay. I don't have that number, maybe David has one, but let me maybe give some color as to why we are accelerating the depreciation of these networks. We see, especially in Latin America, when we move clients from the TDMA networks over to the GSM networks, networks that we get better ARPUs, so from a payback point of view, for us, it's better to move those customers as early as possible to the GSM network. And especially in other places like Guatemala, and also, very recently, El Salvador, we've been able to secure additional spectrum which allows us to push this migration much harder. But I don't know whether you have a number--?

We've been asked on previous calls, and we have accelerated depreciation, but it comes off in various stages, so some of the networks where we are going to cut them off earlier than others, and that process will happen in early 2007 through the end of 2007 with most of them being turned off or migrated for the GSM networks in the first half of 2007. So, it's tough to give you an exact number of how much accelerated the depreciation is, but it's in the tens of millions.

So right now, the profit is first, but kind of second half next year and into '08, you will get a benefit from it kind of on the depreciation line?

Yes. You should see depreciation going down, all other things being equal, you would see depreciation fall, okay, throughout 2007 quarter-on-quarter, as obviously all these networks migrate from older technologies to GSM.

You may not see that because of, obviously, the increased CapEx that we've seen in 2005 in 2006 and continuing into 2007. So, depreciation will go up, but there will be, obviously, this slightly offsetting trend from fully depreciating the older networks.

My second question is on South America, excluding Colombia, you had a very much margin expansion from 39 to 46 of June last year. I guess that's a function of your rolling out GSM networks in Bolivia and Paraguay. Do you see any chance of this model continuing up towards the Central America level or is there some [instructional] reason why it should not reach that level, or how should we see this developing going forward?

No. What I've said historically is that, first of all, we will increase our margin in South America. And the reason why the margin was a lot lower South America had to do with the economic situation in that part of the world. That is all behind us now, and we see very strong growth. You have seen the numbers, you know, subscriber numbers in Paraguay, and also now Bolivia has started catching up.

And Bolivia, of course, is driven by the GSM network that, let's not forget, was only started or launched less than a year ago. And so, I would always say that in Bolivia, there is still a lot more to come. Bolivia has structural issues, as I've always said, because of the size of the country, the cost of transmissions that that will not allow us to get to the EBITDA margins we see in Central America. I do believe that Paraguay has the ability to reach the EBITDA levels we see in Central America.

Okay thanks.

Thanks.

[Brad Moget] with [Speban]. Please go ahead.

Thank you very much. A clarifying question first on the revenue there in Colombia, was it 230 million?

Yes. For the first nine months.

All right, up until September. And then secondly, regarding the ARPU levels, if I make the calculation right here, $4 in the South Asia operation and you are making a loss, despite all this--I just wonder what kind of levels do you see going forward here, bottoming out, below $3? What are you expecting from the development in Africa currently standing around $9?

In terms of Asia, or South Asia, we do expect low ARPUs there going forward. South Asia has always been a low ARPU region, and that will not change. We hope, as we have seen in another regions, that by building a better and bigger network that we will be able to attract the better quality customer that might temporarily give kind of upward trends in the ARPUs.

We don't see those low ARPUs in Africa today, and we don't see any indication, that is, that this will be happening in Africa, so I would expect that Africa will be somewhere, in terms of ARPUs, somewhere between Latin America and Asia.

And a follow-up, what kind of ARPU levels are you able to run a profitable operation? Will you see any bottom there? I mean, [inaudible] profit from $3.5 ARPU level, what kind of yield do you have there?

At Sri Lanka, we are around, I think, the $4 level today, and we have a profitable business there, so I think that does answer the question, so, you know, how low it can go, having said that, you know, we prefer to be as high, of course.

All right, good. Thank you very much?

Thank you.

Thank you. Our next question is coming from Kevin Roe from Roe Equity Research. Please go ahead.

Thanks. Good afternoon, gentlemen.

Hi, Kevin.

Hi, very nice quarter. A few questions, first for you, Marc. Given your acquisition in Colombia, the heavy lifting you have do in Congo and Pakistan, has that satiated your appetite for M&A, excluding something happening in Vietnam or not?

I think in terms of our activity outside countries where we are currently active or where we have been active at a certain point of time, I think we are more or less full for the time being. As I said in the call, we have three major challenges. That keeps us very busy, and I think it so much better, you know, to focus on those three countries rather than trying to add a fourth or a fifth country. I think getting those three right, you know, I think, is going to, as I said in a call, is going to transform the company, so that's what we will be focusing on.

As far as Vietnam was concerned, that's a country where we were active for 10 years, so clearly we continue to follow developments there and, of course, we would love to get back into that country if that were possible at a certain point in time.

Got it. And, David, on CapEx, the increase from 600-plus to 700-plus million for this year, how much of that increase ballpark would you say is from Colombia, and how significant is Colombia in your '07 CapEx?

I don't think we're going to give any specific guidance on, you know, on that, Kevin, I mean, I can tell you, obviously, Colombia was a contributing factor for us raising it from the 600 to the 700, and you know, obviously, on previous calls, we had said the CapEx in 2007, we thought, would be lower in absolute amounts. And now, in this call, I mentioned it would be higher in absolute amounts in 2007, although lower as a percentage of sales. So, you can assume that Colombia was a contributing factor in both of those changes, both the 2006 full year guidance and 2007 guidance.

Okay. And lastly, Marc, on Colombia, I think you mentioned in your prepared remarks, maybe if you can confirm that for me, but the margins in Colombia, you expect long-term could reach, or should reach, the Millicom average Latin American margin?

No, what I said was the average Millicom margins.

The average Millicom margin, okay.

Yes. Might reach Millicom margins, right.

And, you know, care to put a timeframe on that; are we talking three years, four years, or shorter?

Hey, Kevin, we are just in a month in that business. Give us some time to get our feet under the table and start building some plants there. But that said, I am very bullish about the country; I think it looks like a great place to operate more of our businesses. But, you know, it's a tough place at the same time with two big competitors, competitors that we know well because we see them in other markets in Latin America.

And I think you mentioned you put in your own management team in Colombia already, is that--?

That's right, so we have about 4 or 5 key executives, including the general manager, the CFO, marketing director and some other people that have been moved into the organization more or less, you know, that were there from October 2, onwards.

These were individuals working already in other Millicom--?

Yes. Combination of Central America and South American markets that have been moved--people who have done great jobs for us in other markets, so now, just taking on another challenge.

Excellent, well, good luck with that. Thanks, guys.

Thanks.

[Brian Lofe] from Morgan Stanley. Please go ahead.

Hi. Can you guys hear me?

Yes.

Just a couple of quick questions on structure in Colombia, does that $300 million net debt number include, that you incurred to fund the acquisition, the $125 million? And then also, is any of this debt guaranteed by the parent?

The first one, in terms of the 125, the 125 went into the business, okay, so you can't double count that. So, you know, we took that money and, obviously, injected it into the business so it, obviously, ends up there. So, don't double count that. In terms of a parental guarantee on which piece? Because there is debt existing in the business and there's, obviously, a piece that we financed to make the 125 million acquisition cost, so which?

The piece that you used to finance acquisition?

No, we borrowed out of one of our existing Central American businesses, so I believe that was done without parental guarantee.

Okay. And so, basically you borrowed $125 million out of a subsidiary, and then, is it correct to say, then, you also acquired $175 million of debt, is that how you are getting to the 300 million number?

Yes, we acquired the debt that was existing in the business, so obviously, you know, we are consolidating that business, a 100% of that business, because we obtained control. So, because of that 50-plus-1 share, stake, we fully consolidate that and obviously back out of another interest. So, we have to take 100% of the existing debt onto our books.

Okay, and the amount of that was 300, or does that 300 include--I guess that's the question I'm--?

Correct, that's the over-300. I don't have the number in front of me, so I'm just taking a guess at the number from memory.

Okay. And this final question, in terms of funding of the Colombia acquisition using the debt at the subsidiary, any thoughts on why cash at the parent wasn't used? Or, you know, your CapEx, your investment plans are obviously pretty sizable, but it seems to be mostly funded with operational cash flow. So, any thoughts on sort of the cash balance currently [at the parent] and what you guys think that will be used for?

No, I mean, borrowing as a subsidiary level to do this acquisition is in line with what we have been saying, you know, over the last couple of years is that we want to all the time reduce the borrowing at the corporate level and borrow more at the operating level for reasons that David has explained a number of times. We get better in tax efficiency and borrowing at the corporate level, given that we don't have a lot of operating income at the corporate level. So, this is in line with what we are doing.

So, we don't have any other plans for the time being with the cash that's at the corporate level, so we will see in the next year and the coming years as to what we are going to do with that cash.

Okay, great. Thank you very much.

Thank you.

[Operator Instructions].

Soomit Datta from New Street Research. Please go ahead.

Hi, David. This is Soomit from New Street Research. Again, saw your follow-up on margins in Colombia. [Inaudible] your competitors in [inaudible] and America Movil, and I think [inaudible] struggled in the markets with single digit EBITDA margins, America Movil is around 30% in the first half. Is there any reason to think Colombia is structurally a low returns on capital market than some of your other later markets?

We don't think so. I think we see good gross margins in the business, of course, different from other markets in Latin America as [far as that's we are here in] number three where we are typically, you know, are item number one or number two. So, that always gives you, kind of, a different traffic pattern in terms of [off-net] and [on-net] calls.

So, we think that if we do the same thing in Colombia as we have done in the five other markets in Latin America, we should be able to, you know, reach EBITDA levels that are similar to the Millicom ones. We would like to remind you that in the five other markets, you know, we do run a business model that is different from the two companies you just mentioned, which, I think, you know, allows us to operate at higher margins. And that's also the business model we would expect to implement in Colombia.

And a quick follow-up, maybe this is little bit simplistic, but are you, sort of, concurrently hoping to grow market share and margins at the same time, is that sort of consistent with your current business model?

Our first idea is to grow market share, and we are sure that, you know, by growing market share and getting better economies to scale, combined with what I would call the right-sizing of the business and implementing our business model, we should also at the same time, or slightly later maybe, start moving into higher margins. But, of course, we do need to get the volumes, and that's where the market share is important.

Okay. Great, thanks.

Thanks.

Thank you. Adrian Dawes from J.M. Hartwell. Please go ahead.

Marc, Bill Miller again. I am curious now with the gross rates you've experienced this year and the increased levels of CapEx, both for the fourth quarter and for next year. What do you think subscribers will grow next year? What kind of percentage increases do you think you will get over this year?

You're asking me a question I can't answer, Bill. But again, I am repeating what I said which is that with the higher CapEx again next year, you know, compared to this year, we would expect that that is also going to generate a lot of, you know, subscriber growth. Of course, percentage-wise, given that the base is getting bigger, you know, these percentages will stop coming down. But I think that on absolute terms, you know, that is still going to be very strong subscriber growth.

Great, thanks. And secondly, what are you going to do with the management that has [ran], now that you are forsaking that agreement, are you moving them to Vietnam or to Congo, where are they going?

Well, one is the Colombia, one is the Tanzania.

Okay.

I'll answer your question so very precise. So, I know this had come out before. So, for the last [ones], the GM and the CFO, all have been, you know, deployed in other businesses in Millicom.

Great, thank you.

Thank you.

Thank you.

[Operator Instructions].

No more questions, operator?

[Bent Monez] from [Sonotrose]. Please go ahead.

Yes. Thank you very much. I guess if you can give any comment on Iran there, where you disconnected your agreement? Can you give any more details around that or you view of the situation there in Iran?

What I have said previously is that we were trying to get to an interconnect agreement between RIC and TCI that would allow us to make money in a similar way that, you know, we are making money, or we expect to make money, in other businesses in Millicom. And we have not seen over the last two years any progress in those negotiations. And so, we don't expect the progress will be made.

So, therefore, it doesn't make sense for us, you know, to continue deploying people in the country if we don't expect to be able to first build and then own part of a successful business. So, that's the reason why we decided mutually with RIC to terminate the operating conflict.

Thank you very much.

Thank you.

Follow-up question from Andreas Ekström from Handelsbanken. Please go ahead

Thank you. Regarding Colombia, again, in the market, there's some local rumors that [Umba], the Colombian operator, will be IPO-ed or listed on the local exchange, is there some truth or is this rumor just a hoax?

No, all mobile operators in Colombia, including our two competitors, have an obligation because that's part of the license to at least do an attempt to list the company on the local stock exchange. Two competitors have tried that over the years, and they failed. So, when you fail, you know, when it doesn't happen, you know, that takes care of the obligation, at least to try. We will do so shortly, I think we are going to do it before year-end or early next year, and then we'll see. But it's an obligation that comes with the license.

And how will that impact your ownership?

We have in our shareholders agreements, you know, taken the necessary measures that would allow us to keep controlling stake in that company.

Thank you.

Thank you, Andreas.

Nik Kershaw from Investec. Please go ahead.

Hi. Good afternoon, gentlemen. Great results. Just a quick question on clarifications on Ghana. I mean, clearly your subscriber growth on a year-on-year basis on Ghana was very strong. If you look for the quarter, it was quite a big acceleration in the [mid] at Ghana. Can you tell us what was driving this and have you seen any movements over the quarter in your market share in the region?

Ghana is our second star now in Africa. The first one, as you know, was [Chart], you know, that was launched in the fourth quarter last year and set new records within Millicom in terms of starting up a new business. And Ghana is now setting new records in terms of an existing business being turned around in a similar way as we have done in Latin America.

So, what we have done in Ghana is exactly the same as we have done in South America and in Central America, that is, to start investing more money into networks, so build a quality network, at the same time, introduce Tigo and also a substantially improve the distribution in the country. And that is the reason why we see this exponential growth in Ghana.

And, as I said previously, you know, I would like to invite everybody, you know, to come and see for yourself, you know, during the Investor Days we are organizing there in the middle of November.

I know that at the half year, you mentioned that your year-on-year growth in revenue had been 73% in Ghana. Are you able to give us any indication what it is for the nine months, and, indeed, [as, sort of, part of that], I know you won't give us the detailed [good] margins, but what's the trend been over this quarter for, sort of, [all good] margins in Ghana?

I don't have the data in front of me, but in terms of, you know, subscribers and revenue, we see acceleration of the growth. And I think Ghana is one of those markets where the number two in the market was not really experiencing any kind of serious competition, and we start providing that competition, as I said, backed by much better network, good distribution, strong brand, and that is what is resulting in that exponential subscriber growth and revenue growth.

So, it's the result of the Tigo model, the triple A model, plus the fact that we found a very good market there with good demand, and we expect that that demand is going to continue to be there for the quarters to come.

Okay. And then so, just the last question on Tanzania. In the second quarter, you had particularly strong net adds, and you did mention at the time that you had a big promotion job going on in Tanzania, now that, sort of, the net add [inaudible] in this quarter. With that distributing on the back of the--in the previous quarter, you just had this big promotion job, and that has come to end?

No, we have done all kind of promotions. We have also launched Tigo now in Tanzania, and that is what is driving the subscriber growth. Unfortunately, Tanzania was hit by currency depreciation in the third quarter. If that hadn't been the case, we would probably have seen even much more of that translated into revenues.

Okay. Thanks very much.

Thank you.

Thank you. We have a follow-up question from [Paul Noody] from [Mount Polier]. Please go ahead. Mr. Noody, your line is open now.

Okay. Operator, maybe I think we should stop the Q&A session here, if there are no longer questions.

No more questions, sir.

Okay, good. So, let me thank you all once again for being here on the call today, for being with David and myself on this conference call. And like I said previously, we hope to see you all at our Investor Day in Ghana so we can show you the success of Tigo and the Tigo launches in Africa. So, again, you're more than welcome to join us on that trip. So, thank you, and have a great day.

That does conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.