Millicom International Cellular SA (TIGO) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Millicom Q3 2010 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 call, Mr. Mikael Grahne, President and CEO and Francois-Xavier Roger, CFO. Please go ahead.

Thank you, operator and welcome to you all. As usual, you can find the slides for this call on our website. Please turn to slide number 4. First, I would like to make clear that we have consolidated Honduras at 100% since July 1, 2010 as our unconditional call option of our partners 33% stake gives us full control of that business. The historical numbers appearing in our press release and in this presentation have been restated accordingly in order to give like-for-like comparisons.

Turning to the highlights, you can see that Q3 was another quarter of solid top-line growth for Millicom. Revenues exceeded $1 billion for the first time, increasing organically in local currency by 11.7%. Our EBITDA margin remained strong at 47.5%. Cash flow generation also continued to be strong with an operating free cash flow margin of 24.1%.

During the quarter, we announced our intention to redeem the corporate 2013 notes early and to further push down debt to operating level. We also entered into an agreement with our partners in Honduras and Guatemala in Q3 in order to align the ownership of our cable operations in each Central American country. These agreements will enable the full integration of our fixed and mobile operations and the creation of synergies. Excluding the adjustment for the revaluation of our operation in Honduras, earnings per share grew by 2% year on year to $1.34.

Slide 5. Customer numbers were up 18% and we ended the quarter with 37.4 million customers, 1.5 million of whom are 3G customers using data services in Latin America. Total revenue growth of 13% reflects increasing stability in local currency ARPU and some currency benefits in South America. EBITDA growth at 16% continues to outstrip revenue growth as margins improve, but in coming quarters, if we see opportunities to invest further in our brands and services in order to accelerate our top-line growth, we will do so. And this may reduce EBITDA margin slightly from current high levels. CapEx of $196 million was 19% of revenues. We are reiterating our CapEx guidance of $700 million for the full year.

Slide 6. On slide 6, you can see how our year-on-year local currency revenue growth has been moving positively quarter on quarter. The 11.7% growth rate that we are reporting for Q3 is the highest rate achieved since the beginning of 2009 and this is being driven by our focus on innovation and on ARPU stabilization.

Slide 7. Local currency ARPU declines continued to slow as you can see on slide 7 as a result of our focus on higher-quality customers and developing our non-voice revenue streams. In South America, local currency ARPU was up year on year for the second quarter in a row.

Part of the decline in the blended group ARPU continues to be down due to the regional mix impact with lower ARPU, Africa growing faster. If we exclude the impact of country mix, the decline in ARPU was 4%, demonstrating that we are moving closer to stabilization. We no longer see a total correlation between customer number growth and future revenue growth, especially now that 3G is bringing a larger number of high ARPU customers into the mix. Mandatory registration also continues to cause volatility in net additions in Africa.

Slide 8. Breaking down revenue growth into its component parts, we increased our double-digit rate of local currency revenue growth from that achieved in Q1 and Q2 despite the full-year impact of additional taxes in El Salvador and Africa and the full consolidation of Honduras, which has slightly reduced the total growth as Honduras has a lower growth than the group as a whole. We enjoyed a small benefit from currency movements in Q3, primarily due to the strength of the Colombian peso.

Slide 9. Turning to look at EBITDA growth, the underlying performance, excluding the impact of the full consolidation of Honduras, was an increase of 14.6%. We are not aiming to increase or margins further as we prepare to invest behind our brands and services.

Slide 10. Voice revenues grew by 10% in the quarter, up from 7% last quarter and 5% in Q1. This is evidence that our branding and distribution focus helps to resist voice [commodization]. VAS growth continues to be strong, up by 25.7%.

Breaking down VAS in more detail, we grew non-SMS VAS. In other words, more sophisticated and differentiated services, up 46% in local currency, showing our commitment to innovation. We still value peer-to-peer estimates, which is a highly effective way of introducing customers to a range of new non-voice services.

Slide 11. VAS now represents 23.3% of total voice and VAS revenues, delivering a more dependable and higher-margin revenue stream that generates greater customer interest and loyalty. Non-SMS service, our main area of focus, has increased from 10% to 13% over the last 12 months.

Slide 12. 3G continues to be a real success story for our Latin American business and today, 3G revenues represent over 5% of all recurring revenues in Latin America. We attracted almost as many 3G customers in Q3 as in the first half of the year in Central America. And we ended the quarter with 2.1 million 3G customers in total for the group. The 3G customer is defined as a customer who owns a 3G-enabled device, i.e. either a 3G handset or a datacard and is producing some revenue in the 3G network.

In addition, currently 60% of our customers who own a 3G handset in Latin America are actually using them for data services. So there is an immediate opportunity to increase penetration of usage within this base. The growth of 3G data consumption is mainly driven by customer acquisition as prices and ARPU remain stable.

Slide 13. We gained 0.1 point of marketshare in each region during the quarter, but saw a marginal decline overall due to the country mix as the markets where we have a lower marketshare, such as Colombia and some African markets, are growing faster than those where we have a strong market leadership such as Central America. Guatemala, Chad and Tanzania all added 1.1 percentage points of share during the quarter.

Marketshare is also becoming a less relevant indicator of performance as we can only measure customer marketshare and we are putting more emphasis on growing our share of higher value customers. We would prefer to report marketshare by revenue, but unfortunately this data is not readily and consistently available.

Slide 14. On slide 14, you can see that we saw a decline in churn in South America and Africa, demonstrating the success of our products and services designed to increase customer loyalty. In Central America, our shift of resources away from 2G customer retention towards 3G customer acquisition has caused an increase in churn for the region and for the group as a whole.

Slide 16. We turn now to the regional clusters starting with Central America. Encouragingly, Honduras returned to positive growth during the quarter, but revenues for the region as a whole remained flat and continue to be impacted by the full-year impact of interconnect cards and taxes on incoming international calls in El Salvador, as well as fragile economies. While remittances into Honduras and Guatemala have continued to show year-on-year growth in recent months, in El Salvador where they account for 18% of the GDP, a year-on-year decline was reported in September, interrupting the trend, though volatile, of our year-on-year growth over recent months.

Our strategy of shifting resources from 2G customer retention to 3G customer acquisition is particularly relevant for the maturing markets of Central America, which explains why we saw a lower number of net additions in the quarter, but a 27% increase in the number of 3G data users over Q2.

Margins remained very strong at 55.9%, driven by our focus on quality customers and our disciplined approach to sale and marketing costs. We believe that Central America can return to growth in the mid-turn given the significant opportunities in 3G based on pent-up demand for Internet access.

Slide 17. In South America, revenues increased by 21% in local currency and by 28% on a reported basis with a strong Colombian peso providing the tailwind. All three markets reported a strong performance with ARPU up 3% year on year and growing for the second quarter in a row, demonstrating the success of customer segmentation and our smart pricing of data and voice services.

EBITDA for the quarter was up 34% and the EBITDA margin gained 1.7 percentage points year on year to reach 42.4%, once again driven mainly by increase in scale in Bolivia and Colombia where our product mix is proving very successful. Cash flow generation for South America was strong with operating free cash flow of $103 million, or 29% for revenues.

Slide 18. Revenue growth in local currency was 22% with DRC and Tanzania producing the best performance. In Chad, we made a one-off adjustment in the quarter for VAS linked to previous years without which revenue growth in local currency for the region would have been 24%. EBITDA for Q3 was $94 million, up 34% year on year in local currency and the EBITDA margin was 40.7%. CapEx in Africa in the quarter amounted to $73 million, or around 32% of revenues, including $26 million for the capitalization of tower leases as per IFRS rules, which is a non-cash item.

Slide 19. Amnet continued to grow well given the weak economic environment in Central America, reporting local currency revenue growth of 7% compared to 4% for our combined cable operations. Our aim is to continue to increase the take-up of services by our customers by marketing bundled services and we are seeing encouraging early results in triple and quadruple play. As in our mobile businesses, we are concentrating on the higher value customer who in the case of Amnet are broadband Internet customers rather than cable TV customers.

During the quarter, we took steps to align the ownership structure of Amnet and Navega with that of our mobile operations, which will enable us to generate synergies more effectively. The cable business is cash generative and should continue to offer an attractive balance of long-term growth opportunities with positive cash flow.

Now I would like to hand over to Francois-Xavier who will talk you briefly through the financials.

Thank you, Mikael. Slide 21, our effective tax rate for the quarter was at 29.1% as the traditionally lower cash repatriation in the second half of the year means less withholding tax and therefore less taxes. We expect the rest of the full year to be around 30%.

Slide 22. We recorded a large one-off gain in Q3 of around $1 billion when revaluing our 66% stake in Honduras when fully consolidating the business. Depreciation increased as we know how to depreciate intangibles following the revaluation of Honduras, which contributed $7.6 million in the quarter. Net finance costs have been impacted by the booking of the penalty for the early redemption of the 2013 10% notes and some of the upfront costs relating to the unutilized portion of the notes until expiry. As a consequence of these exceptional items, EPS was flat year on year.

Slide 23. Our cash upstreaming continues to improve with $663 million repatriated in the nine months to the end of September, an increase of 44% on the total amount for 2009 (inaudible).

Slide 24. Cash generation continued to improve in all regions. We continue to reduce dependency on Central America for cash generation.

Slide 25 shows our free cash flow for the quarter of $203 million, or 19.9% of revenues, demonstrating our sustainable free cash flow position.

Slide 26. We will redeem our 2013 notes on December 1, 2010 for a total consideration of $490 million and this will be accretive to EPS in 2011. This comprises $459.6 million for the principal, $23 million for the interest and $7.7 million as a penalty for early redemption. At the end of the year, Millicom's entire debt will be at the operating level, which will both improve our tax efficiency and mitigate our country risks.

Slide 27. We have been making progress with our share buyback program and at the end of September, we had acquired over 1.1 million shares for a cost of $104.7 million, representing 35% of the total $300 million program. We intend to complete the $300 million program by the end of the year.

Slide 28. At the end of Q3, our leverage ratio stood at 0.7 times net debt to EBITDA. We will see further returns to shareholders over the remainder of the year as we complete our buyback program. We will reduce our excess cash as well through the high-yield bond redemption.

Slide 29. Turning to our debt maturity, we now see the average maturity of our gross debt at two years and six months. Our funding strategy is based on four elements -- to extend maturities, to lower the net cost of debt, to secure sufficient liquidity and to push down debt to operating level for tax efficiency and to mitigate country risk. All of these objectives have been achieved during the quarter through a capital restructuring initiative with both the planned early redemption of the expensive corporate bond and with the raising of additional tax-efficient debt at the operating level. At year-end, we expect our debt to have an average maturity of around three years.

Slide 30. We have confirmed our EBITDA margin and CapEx guidance for 2010 and we have marginally adjusted upward our expectation for operating free cash flow to around 20% of revenues. We have not yet finalized our 2011 budget, which means that we will provide guidance for next year in February 2011. I would now like to hand over to Mikael for his final comments.

Thank you, Francois-Xavier. I would just like to close with a quick summary. We are pleased with our profitable top-line growth of 11.7% in the quarter, which is being driven by our focus on innovation and on attracting higher-value customers. Our progress towards ARPU stabilization is evident and this is the right approach. We are also creating shareholder value through the active management of our capital structure and by lowering our finance costs. We would now be happy to take your questions. Operator, may we have the first question, please?

(Operator Instructions). David Kestenbaum, Morgan Joseph.

Thank you. Can you just -- first question is can you just explain why the corporate costs went up so much to I think $36 million or $38 million this quarter?

Okay, we had, during the quarter, to book the cost of slightly more than $10 million for the long-term incentive plan given that we have a certain set of objectives and we complied. We believe that we will comply for the full year 2010, so we had to accrue for these costs.

Okay. So we won't see that in the fourth quarter?

No, we don't expect to -- I mean this is related to the plan for the full year.

Okay. And then for Mikael, can you talk about why we haven't seen more of a positive impact from remittances in Central America? And just talk about maybe the churn, what you can do about that? It doesn't seem to be a core focus of yours on Central America, but maybe just addressing some things maybe you could do to lower that churn number.

Okay, let me start with the churn number first. As you can see from the ARPU stabilization, we are really focusing more on the higher-value customers to whom we still offer affordable tariffs. So we are more strongly focused on driving growth by selling 3G, focusing on 3G customer acquisition and we are not necessarily cared so much with the 2G voice customers at the lower end of the ARPU scale. So my sort of guidance on that front, expect continued churn in Central America of lower ARPU customers, but also expect continued intake of higher-value 3G customers.

In terms of economic environment, there is no real hard data. Very difficult to get hard data for Central America. I just think that the consumers went through quite a big shock in the reduction of their spending power with the decline of the economic, both the remittances and the economic activity in the country. So it might take some time until they build back higher spending habits.

Okay, thank you.

James Rivett, Citi.

Yes, morning, all. I just have a question on Africa. We have seen several additional price cuts in the recent past; I think mostly on off-net tariffs. Can you talk about whether you guys feel the need to respond, what sort of a response we are thinking about? Thank you very much.

First of all, I wouldn't publicly comment on our response or no response to competitive action, not to give them that advantage. What I would like to say is that, in general in Africa, we have extremely competitive on-net tariffs that really are the key drivers for loyalty and long-term growth. There has been quite drastic cuts in both Ghana and Tanzania by our two competitors there. And we are currently assessing the impact on our business of that and what, if any, actions we have to put in place.

I think what I would like to say though that given -- in Ghana where we are more dependent on our cross-net calls than in any other Africa market, we probably will see some impact on the EBITDA margin in that country.

Okay. And is it -- I know you can't respond directly. That would be silly, but is it fair to say that, with these price cuts, you guys still think you are the cheapest players -- oh, that's right -- the best value players in the market for both on-net and off-net calls or do you think you are now slightly more expensive than the competition?

Well, we know we are more expensive than the competition on a cross-net call, but customers don't really rate you based on every single revenue statement. It is more the overall total picture what you offer. So that is still valid.

And sorry, just to follow up on that, how much of your traffic do you think or how much of your revenue do you think comes from on-net calls versus off-net calls in these markets?

Well, we don't really want to disclose the full amount, but we told you that, for total Africa, the cross-net traffic represents about 8% of the minutes.

Very clear. Thank you.

Peter Nielsen, Cheuvreux.

Yes, thank you. Just one question, please. You have obviously talked about, again this morning, but also recently that more of your growth will come from value-added services rather than subscriber growth going forward. And you are making some comments here about needing to invest potentially a bit more in 3G, etc. with a slightly dilutive effect on the margin. Has anything changed in your view here? I mean not the growth that you can expect from value-added services, etc., but the cost of sort of the investment requirements needed to drive that growth and the impact on margins. Has there been any change recently in your view? Thank you.

No, I don't think there has been any change in that statement. So I think you should expect that, going forward, we might have some marginal decreases to our EBITDA margins.

Okay, thank you.

Ric Prentiss, Raymond James.

Thanks. A couple questions, guys. First, appreciate the Tanzanian trip, which helped us understand the African market a lot better. You made a point in the press release also about the Tigo Lends and the Tigo cash. Can you update us on how you make money on the Tigo Lends and does that go into value-added services and then also on the Tigo cash?

On the Tigo Lends basically, it is a product that is designed for people who run out of balance and who either might not have cash in their pocket or be in an inconvenient location to buy more airtime. So we basically offer them a small airtime loan against which we make a fee. So our revenue there is based on a fee and we group that in what we call the solution category, financial solution.

And on Tigo cash, similarly, we would take a small fee from any sort of in-market transfer, which we would share with a distribution network and that, again, would be recorded as the revenue in the solution category.

Okay and solution would fall into the non-SMS VAS area then?

Yes, yes.

And then on the balance sheet, you have got the stock buyback program intending to complete by year-end. Your dividend policy, if I remember right, is 30% of normal net income. Can you talk to us a little bit about your thoughts looking into '11 and '12 as far as leverage levels and use of cash?

Regarding the dividend, we started with a dividend policy a bit more than a year ago. The first dividend that we paid in terms of payout was a 26% payout and we increased it to 28%. We still have room to increase it, so the Board will make a decision in due time.

In terms of capital structures, we have decided to redeem early the high-yield bond in Luxembourg, which is going to reduce our amount of excess cash. We will as well complete the share buyback program by the end of the year, which will go in the same direction to reduce the cash. After that, we will still be left with excess cash of both the amount of liquidity that we need that we estimate at about $500 million. So we will need to review with the Board the way to move forward.

In terms of M&A, we don't see any pressure to go for M&A because we have a lot to do already in terms of organic growth with our new pipeline of new products and we don't value international original scale, but we value an in-market scale and we are already the leader in 12 out of our 13 markets.

And as far as where you would like to keep net debt to EBITDA leverage as you look out long term?

We said that we would be comfortable with a ratio of net debt to EBITDA of about 1 and that we would not exceed 2.

Okay, great. Thanks.

Stephen Mead, Anchor Capital.

Yes, good morning. Could you provide just a little bit more sort of color on Honduras in terms of what the difference between a 3G customer in terms of ARPU is versus a regular customer and what kinds of gains you had in terms of the 3G in terms of new subscribers? If I look at the loss of 300,000, I am trying to get a better sort of feel of what (inaudible) in Honduras.

Okay, we don't provide a breakdown between the countries for competitive reasons on that, but you can just look at one number in the quarter was the first time we had positive revenue growth in Honduras as a whole against last year and also value-added services has been a very key driver for our revenue performance in Honduras. We have a very high uptick. I think in Tanzania we showed you that Honduras was already in Q2 up at 30% of revenues and so that, again, gives us higher ARPU customers.

But what do you think penetration of 3G can be across a country like Honduras in terms of value-added services?

Well, it is 3G. If you just go back to our experience on 2G was that when you could buy a good phone in the market for $25, we had a real explosion of penetration growth and at this stage, we don't really know what is the similar price point on a sort of smartphone, but we are testing different models to see if we can find that price point. But I would believe over a five-year period, it should be, I don't know, 25% or something like that.

Okay. And then if I could just, on the dividend question and use of capital, what kinds of calculations do you go through in terms of looking at buying back stock versus paying out a dividend?

Well, in terms of buying back stock, we look at the EPS impacts. And if we look at it -- I mean the share buyback is accretive. So we are happy to pursue the program on that basis.

And then looking at 2010, 2011, what would the share count do if there was no buyback of stock?

Could you -- sorry, I am not sure I understand --.

You mean the share count in 2010 because we haven't said anything for 2011?

In 2010, what were the additional shares outstanding if there was no repurchase of stock?

Okay, today, we have 109 million of shares issued and we have both a little bit more than 1 million, 1.1 million, so we intend to pursue the program that we announced of $300 million. So if we manage to pursue that by the end of the year at current prices, we will buy about another 2 million of shares. So we had 109 million before starting the program, 108 today after the acquisition of 1 million and if we pursue the program, another 2 million. So 106 million.

Okay. I didn't know what the terms of option impact and stuff like that in terms of --.

There is no -- there is hardly any option left anywhere. So there is no dilution with the option, hardly any.

Okay, all right. Thanks.

Stefan Gauffin, Nordea.

Yes, hello. A couple of questions, please. First of all, regarding food inflation, that had some impact on your businesses a couple of years ago and quite recently, we have seen both corn and wheat prices go up quite dramatically. Which markets were your most impacted by food inflation in 2008 and are you seeing any impact now on the business?

I am trying to recall this. It is some time ago in a fast-moving environment, but I think we had some inflation, food inflation in Ghana because we had, as you recall, a big deterioration of the currency, the local currency in 2008 and half 2009. As far as I remember, that was the highest impacted market.

In general because of lack of proper data, we are not that focused on inflation and other sort of things because there is nothing we can do about that. So I don't have any up-to-date data on inflation in our markets.

Okay. Secondly, a couple of questions on the subscriber intake in Africa. There has been an impact by the mandatory registration process in Ghana and Tanzania. I believe that you are through (inaudible) in Tanzania. How is that doing in Ghana?

Well, I mean what we have been doing very early on when these registration regulations came about is to focus on ensuring that our high ARPU customers are registered. And I think we have been quite -- we are quite advanced on that. For example, in Tanzania, we have 78% of our customers registered and they contribute 88% of the revenues. In Ghana, we have 42% of our customers registered and they contribute 70% of the revenues. In Ghana, we have a [time-out] in the end of June 2011 and in Tanzania, we have (inaudible) the mid -- until a few days ago.

But what we know from experience is that the good customers, when they realize that they have been cut off, they normally come back very quickly. So as we said before, we don't expect a revenue ARPU impact of this registration. It will cause some volatility in the customer number.

Then also on Senegal, I know that you had some constraints in the network and this affected subscriber intake in the quarter. And given the license situation, which occurred, maybe provide us with an update on that. Are you investing in more capacity to be able to at least take your fair share of subscribers in that market?

Yes, I don't want to comment on the license situation because we are in the middle of legal proceedings. We are investing some in keeping the business growing, but stronger investments could generate more revenue growth and more customers. But we are investing some funds to keep the business going and growing.

Okay. And then finally, just a quick question on the margin in Colombia. Could you give some more information on that?

We don't break it out, but you can see from the strong South American performance that we had an underlying growth in the EBITDA margin in Colombia.

Okay, thank you.

Sven Skold, Swedbank.

Okay, thank you. Actually, most of my questions have been answered, but I can take one more question. You are very cautious on margins for the coming quarters. Should we see the fourth quarter as kind of a startup for 3G services in Latin America? Is that what you are warning for or --?

Well, I think we are -- we feel we are well advanced on the 3G bandwagon already in Latin America. We are just exploring a different way of accelerating that growth, which means that we would have had higher subsidy costs behind things like BlackBerry if you want to drive that further. So that is why we think it is fair for the market to assume that we are probably -- we will see some marginal decline in our Q4 margins and beyond.

Okay, okay, great, thanks.

And we have confirmed our guidance for the full year at 47%.

Okay, thanks.

Kevin Roe, Roe Equity Research.

Thank you. A couple questions, gentlemen. First, could you give us an update on the license process in Costa Rica? And secondly, on Colombia, local ARPU, up sequentially, up year over year. I think it was the highest net add growth we have seen in more than two years. What is driving the improvement there and can you maintain that momentum in the fourth quarter?

Okay, let me first comment about Costa Rica. There is a license process under -- going on and final bids to be submitted by November 5. We are in a process of evaluating a business plan that will lead to a go/no go decision ahead of that leadtime.

In terms of Colombia, our strategy really on focusing on the urban, young and cool with value-added services is really working. So just a continuation of doing things well and we are also quite strong on the 3G side in Colombia. So it's just a continuation of the strategic -- of the path we set out to do.

The bumps that you saw this last quarter, did it cause a competitive response from Comcel or anyone else?

Not as far as we know today, no.

Very good, thank you.

Andreas Joelsson, SEB Enskilda.

Good afternoon and just a question on your strategy in Central America. What triggered -- did you see a trigger this quarter to move from -- to emphasize the shift from 2G to 3G or why was the subscriber intake so weak this quarter?

No, I don't think it was a real trigger; it was just a continuation of the focus on the 3G customers. And when you start from a low base, it takes some time to build up a momentum. So we think we have that momentum now.

That strategy will go on also in the coming (multiple speakers)?

We think the growth -- we are looking for growth from Central America primarily driven by 3G data services.

And is it possible for you to discuss how far you think ARPU can go in Central America as a group, so to say, from these levels due to the strategy?

Well, we have said publicly that, as a company as a whole, we are trying to -- and that is an aim rather than a guidance -- that we are aiming for ARPU stabilization. So naturally, our target would be the same in Central America.

Thank you.

Mathieu Robilliard, Exane BNP Paribas.

Yes, good afternoon, two questions, please. First, with regards to South America, kind of a follow-up on Colombia. It was a very strong performance overall. Are you surprised by this performance and what is it that is behind that? Is it you taking a bit more marketshare to customers? Is it the general macro and industry context that is more positive than it was in the past?

And the second question, and maybe I didn't understand rightly, with regards to the comments on the EBITDA margin, if I read the press release, you say that you may invest more in 3G and that may lead to a slower or rather lower EBITDA margin in the next few quarters. Now it seems from the last comment you made that that was a given. Basically, you were going to invest more and hence see a lower EBITDA margin. Just to clarify if it is the case or it is a potential evolution. Thanks.

Okay, I will start with the Colombia question and Francois-Xavier will address the EBITDA. As I said to the previous caller, there is just the culmination of a very strong focus on the urban, young and cool customers with value-added services and also a very strong focus on data services within that. So there hasn't been really any catalyst. It is just the sum of operational excellence across a whole band of different activities from distribution, to tariffing, to marketing and the quality delivery behind the services.

Regarding the EBITDA margin, no, it is not a fact. There is nothing certain at this stage. First of all, we are in the process of finalizing our budget for 2011, so we are looking at different options. We see that 3G is really taking off very nicely with good returns by the way. So we see an opportunity there and we are reviewing, on a country-by-country, is there opportunities to accelerate that takeoff by investing a little bit more mainly in subsidies.

But it is not only on 3G; it is the new services as well. Services like Tigo Lends is already well penetrated today, but if we take products like Tigo cash that we are going to market in other countries in Q4 as well, we see on opportunity to invest behind this service as well. So we are evaluating. There is nothing confirmed at that stage, but we see opportunities and we are analyzing them always with the idea of having a short payback and a good return.

Sorry -- with regards -- thank you for that. With regards to South America, I really was looking for insights apart from Colombia in the two other markets.

Well, the comment would be the same in the two other markets, continued drive behind VAS, excellence in distribution, excellence in pricing. We have this concept that we call paquetigos, which is selling small pockets of services like let's say $0.50 for two hours unlimited usage of on-net calls. So it's basically a culmination of the strategy we are pursuing that is driving that.

Thank you.

Sergey Fedoseev, HSBC.

Hello. Actually, I have a couple of questions. One question is on new subscribers. There was a discrepancy between what the consensus was expecting, around 700 -- around 1,000,700 that you recorded. How do you explain this discrepancy? And second -- would you give like a guidance for the new subscribers for the end of the year?

And the second question is we saw, in a number of African countries, the regulator cut the MTR prices. Do you expect any MTR cuts in any of your countries in Africa?

Regarding the third, we are below consensus. It happened last quarter. I think we were 300,000 above consensus. So we see a lot of volatility there and once again, we don't see a stronger relation between the revenue growth, which, in Q3, has been the highest that we had since the beginning of 2009 and the net adds.

Let me just one more time point out that the definition of a subscriber is not a constant equal measure. First of all, we define a subscriber as somebody who generates revenues in 60 days. Some other operators have 90 days. Second, there is a huge difference between let's say a subscriber that generates $1 in ARPU in somebody who generates $15. And so that is why we are not so focused on the absolute number of customer intake. We are more focused on the quality of that customer intake and that is how we really build our delivery platforms and our services.

Could you give any guidance for the new subscribers?

No, I don't think we are in a position to do that. In terms of interconnect cuts, I think there is some lobbying in Ghana from some industry players to reduce the interconnect. But that's as far as we know at this stage.

Do you know how far the (inaudible) has gone? Is it still in the idea stage? Has there been any --?

Don't know that. That is very difficult to, in our market sometimes, clearly pinpoint when a regulatory body actually is in a position to take a decision.

So the other African markets don't have any MTR cuts in the pipeline? (multiple speakers)

As far as we know, but again that could happen all of a sudden tomorrow there. But as I said in the beginning, Ghana is the one market where we face very active price competitiveness and also where we have a proportionately higher share of our revenues and minutes cross-net than in the other markets where we face these price competitors.

I see. Thank you very much.

Thomas Heath, Ohman Equities.

Hello, thank you. Three questions. Firstly, on Central America, I am just a little perplexed why you have to not get 2G customers when you want 3G customers. So why do you have to choose between them? It doesn't seem clear-cut to me.

The second question about Africa and the very impressive margin, is there anything that is unsustainable or should we expect the margin to continue up from this level?

And thirdly, do you have any sort of little bits of information on the launch of Tigo cash in Tanzania? Thanks.

Okay, let me take the first question of 2G versus 3G. As you know, in many of our markets, we have this multi-SIM phenomenon, so you have customers who have two or three SIMS and depending on who they call, they can switch their SIMs. And in fact in Latin America, our number one customer issue is a broken or lost SIM and that normally doesn't happen if you never take it out of the phone. So these customers are not loyal to us. We share their ARPU and normally they are not high spenders. I mean their ARPU is very low to start with. So we are not really focusing on fighting to ensure that the tigo SIM is the number one SIM among these customers. So we let our competitors do that. [We would] rather, as I said, we think there is much more value in attracting the active customer to whom his or her number is important.

Regarding the margin in Africa, we operate this to see that we have exceeded 40% now for some time. This is, we believe, a very good level in Africa. Looking ahead, we are looking at margin not in an isolated way, but we need to find the right balance between top-line growth and margin and a certain number of other factors such as cash flow generation as well. So we don't have an objective really to increase the EBITDA margin in Africa further than where it is today, but we want to find the right balance between top-line growth and margin. Given that in terms of margin, we think more globally for Millicom, we said that we would target the mid-40%s level medium term.

In terms of the Tigo cash loans, for competitive reasons, we are not in a position to disclose some key data, but it has started well and we are sort of in the process of ensuring that we can continuously build out the distribution network where customers, our customers can go in and either input money or take out money so that they have the ability to send it around. And so that basically is in progress.

Okay. Thank you very much.

[Ben Miller], [JMC] (inaudible).

[Bill Miller], [Hartwell]. Three questions. One, could you give us an update on the tower deal that you --?

Sorry, Bill, we can't hear you. Sorry, Bill, there is a noise behind (multiple speakers).

(technical difficulty) Colombia (technical difficulty). Finally, could you give a little more definition on your balance sheet and how much cash you need and what your target (technical difficulty)?

Bill, there was an echo on your line, so we didn't really get your questions. So I don't know if the operator -- did you get the questions? Operator?

Let me try again.

Try it again now. The echo is gone. Please go ahead.

(technical difficulty)

No, Bill, we have the echo again. We can't hear you.

(technical difficulty)

Bill, we can't get any of your questions. You have to basically close down the webcast when you call in. I think maybe you can get off the line and call in again and we will take some other questions in the meanwhile.

[Lynn Osterberg], [Carnegie].

Yes, good afternoon. A few questions on Africa. First of all, in those countries where you have had significant price cuts, what has the corresponding increase in minutes of use been? Have you seen full compensation in more than 1 in price elasticity or below 1 in price elasticity?

Also I was wondering if you could say something where you are saying that there will be an EBITDA impact on Ghana. Maybe if you could quantify that.

And then, finally, you are currently saying that Ghana is the only country where you expect to see any significant impact from this price pressure because this is where you have a lot of off-net traffic, but don't you think that if the balance between on-net and off-net tariffs changes dramatically, as we have seen now, that maybe also the traffic patterns will change and that you will have more cross-net traffic in the future?

Okay, just to answer that last question first, we have not seen that shift in our Latin America markets whereby we have gone through this reduction in interconnect. So we haven't really seen a strong shift in the behavior of our customers. Normally, you have much less elasticity on cross-net calls than you have on on-net calls. So we haven't seen in any of our markets a drastic shift on the call pattern.

Commenting on Africa today, for competitive reasons, we can't really disclose and are not really in a position to disclose any behavior we see in either what happened to the traffic from our competitors into our network or any action we have taken and the impact of that, not to give away to our competitors any inside information.

But I would go back again. I mean of all the markets where we face these price competitors, Ghana is the one where we have the highest amount of cross-net traffic and that is why, at this stage, we feel there is going to be an EBITDA impact. We don't know how big or how small that will be because there are so many variables that can impact that, including for example if the regulatory body decides to lower the interconnect costs from its current level.

In Latin America, the MTR cuts that you have seen, they have been sort of between 20% and 30%. Now you are seeing price cuts in Africa of around 50%. So it is a significant difference in price cuts, so do you think that, when these price cuts are that big between on and off-net calls, there could actually be an impact in traffic (multiple speakers)?

Well, I want to go back to the experience we had in Colombia where the main operator was asked to cut their cross-net call to be the on-net tariff plus the interconnect. So they went from a $0.40 a cross-net call to around $0.15. And over a period of six months, I think we saw an increase of 8% more calls coming in from that operator.

Okay.

Okay?

Ric Prentiss.

Yes, I wanted to follow up with a question maybe on the subscriber growth. Obviously, volatile. As you look at it, I think, Mikael, you talked about stable ARPU from 3G. Are you talking about stable ARPU on the corporate level or would 3G be higher? I am just trying to understand what kind of revenue growth we might expect if sub growth is volatile.

Well, again, I go back to the example. I mean if we add the $15 subscriber and we lose a $1 subscriber, that has a very positive impact on our revenues. So in fact, we could afford to lose 15 $1 ARPUs to equal one $15 ARPU.

Right. But then wouldn't ARPU do better than stabilize? Couldn't we see increasing ARPU trends?

Well, as you can see, we have increasing ARPU trends in South America. We have increasing ARPU trends in Colombia. So it is possible.

Okay. And then when we were in Tanzania, they were showing one of the smartphone devices, the Chinaberry or I think it was the [Me] phone. Can you talk a little bit about that device price points and if you'll deploy it into more markets?

I don't have any up-to-date information on that. I would just say that, in general, people in emerging markets have the same aspirations as people in developed markets. So if BlackBerry is in and hot in the developed market, then it is also in and hot in the emerging markets. So I think probably we would have more success with something like BlackBerry than with a lower-end smartphone.

Okay, thanks.

(Operator Instructions). That will conclude today's question-and-answer session. I would now like to turn the call over to you for any additional or closing remarks.

Thank you, operator. I would just like to thank you all for joining the call today and we look forward to seeing you soon. Thank you very much, everybody.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.