Millicom International Cellular SA (TIGO) 2022 Q3 法說會逐字稿

Hello, everyone. Thanks for connecting to our video conference to discuss our third quarter 2020 results. Before we begin, please take a moment to review the safe harbor disclosure on Slide 2 of the presentation, which is available on our website, along with the earnings release.

During the presentation, we will be referencing non-IFRS measures, and we define these on Slide 3, and we provide reconciliation tables to the nearest IFRS metric in the earnings release as well as on our website.

I will now turn the call over to our CEO, Mauricio Ramos, for his prepared remarks. Mauricio?

Good morning, and good afternoon, everyone. Thank you for joining us today. The key message is that we are on track to meet our Organic OCF Growth target of approximately 10% for this year to generate solid equity free cash flow in 2022, in line with our budget for the year to invest about $1 billion in CapEx this year, which is also consistent with our long-term target. And we're also on track on our key projects to highlight and crystallize value for our infrastructure and fintech arms.

And on track on reducing our net debt, with net debt down this quarter despite tougher macro. And we're on track also on our social and ESG initiatives with meaningful external recognitions that I will address later today. So the macro environment is indeed much tougher, and yet, we remain not totally very broadly on track.

And this is because, one, we entered this period of increased macro volatility from a position of immense strength. Our networks have been modernized and expanded. We have increased our customer base with sustained or larger market shares. Our Sangre Tigo culture is at its strongest point ever, and our brand positioning has strengthened as a result in just about all of our markets.

And two, because our business, and particularly, its cash flow is extremely resilient. We show that to you (inaudible) during the pandemic. And despite the weakened macros, long-term demand for our products is still very much there and broadband penetrations are still very low.

And three, because we do volatility in challenging environments quite well. We continue to invest wisely through those circumstances. And always, we take on the opportunity to become more and more efficient. Indeed, earlier this year right after we could foresee this development is happening, we started out a new and a long-term efficiency project to protect our targets. Our project is called Everest. It's already underway and Sheldon will discuss it later on this call.

And lastly, because the currencies in Central America and Bolivia where most of our cash flow confronts, this time around have helped very, very well, even despite a strengthening dollar.

Now please turn to Slide 5 for the financial highlights of the third quarter and for some more detail on how we are staying on track. Service revenue grew 2.7% during the third quarter. This is a solid outcome in a tougher macro environment. Q3 was also good quarter in terms of operating cash flow with organic growth accelerating 4.5% on an adjusted basis. Year-to-date, this is right in line with the way we had budgeted the year and also with the long-term plans that we communicated to you at the beginning of this year.

Now there are some shifts in the way we're achieving our growth, and this is consistent with the general trends we see in our markets. Throughout the year, kids went back to in-person learning at school, and parents have been returning to the office. As a result, mobility has resumed and consumers are upgrading their mobile plans or getting a prepaid phone for their kids and their families.

All of this, you can see on the strong performance of our mobile business this year. The (inaudible) side is that spending on Pay TV and residential services has slowed down. And this is a phenomenon that is happening just as the global economy is slowing and consumers are feeling the effects of higher inflation.

So our read is that this re-accommodation of demand post pandemic is largely driving the temporary slowdown in our own business. But this Airband flow will settle and the growth in our home business will continue to be driven by its long-term drivers, low current penetration broadband rates, population growth, middle class formation and (inaudible) adoption by a very young population today.

And finally, B2B continues to perform very well, and we will expand on this in a minute. So let's go in detail line by line first. Let's start with our Mobile business on Slide 7.

Our prepaid base continues to grow, and most importantly, to serve as the base for us to actively migrate our best prepaid customers to postpaid. We do these upgrades to postpaid with selective segmentation and based on consumption, reloads and payment history of which we have a ton. And this is working. We have now added nearly 1 million postpaid customers across our footprint over the past year. More than half of these were upgraded from prepaid, and the growth in postpaid is widespread across all our markets.

Our postpaid still accounts for only 15% overall mobile customer base, but it now contributes 35% to our mobile revenue and it's growing about 10% organically. When we upgrade prepaid customers to postpaid, the result is lower churn or slightly better ARPU, better customer life and value and better network consumption patterns.

So as we articulated in our strategy some time ago, postpaid is now becoming an important growth driver for us. On a more short-term notice, during the quarter, we implemented price increases in many of our markets. You don't see that quite yet in the financial numbers, of course, a natural lag or delay for that to flow through into the numbers. But the important point is that these increases are reconstructive to pricing and will position us to close this year with stronger momentum in mobile and also set us up for 2023.

Now let's talk a bit more about home on Slide 8. As I said a few moments ago, there's some ebb-and-flow internet ad numbers this year. This is caused by, one, the dynamic ebb in demand this year, which already addressed. Two, the more difficult macro environment with inflation industries now quite obvious. This should be no surprise to anyone. And three, we ourselves are choosing to remain disciplined and on price.

During the quarter, we implemented price increases in most of our markets for home, and we continue to charge installation fees even if some of our competitors do not. This dampens net ads in the short term, but builds a much better and stronger business for the long run.

And as I said earlier, it is the long-term drivers of demand that will drive the business and keep it robust into the future. And these are low broadband penetration rates, digital adoption by young population and household formation on the back of economic growth.

Once the ebbs and flow of the pandemic subside, we expect that we will be at a long-term run rate of about 300,000 net ads per year, consistent with our average in the recent years. Because of this, we have now re-ramped our build machine. Cable is already an almost $2 billion revenue business for us with long-term growth. This quarter, as a result, we have built a 0.25 million homes and have started our greenfield fiber deployments.

We also entered into key additional content agreements. We signed a deal with Televisa Univision to distribute ViX+, their over-the-top platform. This will give our customers in Central America access to great content, including the Spanish Soccer League, LaLiga, which is phenomenal content that helps drive demand.

And as you can see on Slide 9, this agreement is just one more piece of the puzzle as we continue to position our flagship Tigo Sports television channel as the home for soccer in most of our markets. At the core of the offer, we have exclusive television rights to many of the local soccer leagues in our markets. This is a cost-effective way to build scale, position our plan and driving risk convergence and loyalty from our customers. The content we presented on a 360 basis available both at home and on our mobile platforms. And we are now using our unique sports content platform to support our ESG efforts and our communities in a win-win partnership with the Fundacion Realmadrid.

Now a brief moment to highlight our strong performance in B2B on Slide 10. Despite the weaker economy, our growth in B2B has continued to accelerate. It is being almost 6% organically in the quarter. This growth is driven by very robust demand for digital services, which grew 35% and are approaching 20% our overall B2B revenue.

As you likely recall, we revamped our long-term strategy for Tigo business just before the pandemic, and it is now working. This strategy is encompassed by a clear customer segmentation approach, the addition of digital, cloud and cybersecurity services to our connectivity offering, the strategic alliances with worldwide players and a clear focus on a well-trained commercial distribution team. Execution is now panning out to be solid. I want to publicly congratulate the Tigo business team today, plus, of course, raise the bar for them to deliver even more.

Let's now look at 3 of our largest markets, starting with Guatemala on the left. In Guatemala, both service revenue and EBITDA was down slightly year-on-year in Q3. As you know, we gained a very significant amount of mobile market share before and during the pandemic, and while our competitor was undertaking M&A integration efforts in the country.

Now a surprise then that our competitor now wants to recover some of that. For those of you who have followed us, you know that we will always take a longer-term view. And for this reason, we have been investing to sustain our gains by increasing the competitiveness of our product covering by enhancing our sales and marketing spend and by continuing to invest in our network. This may mean a bit of short-term ban, but it certainly will give us sustained long-term gain.

Meanwhile, we continue to grow nicely in Home and B2B in Guatemala, and we are relaunching our Tigo money business. Now all of this may not be obvious to you, but this is all pretty much as we had expected and had actually budgeted for this year. In fact the results here today in Guatemala are about 1% below budget only. So this is in line with what we had budgeted for.

In Colombia, we continued to deliver very robust performance with mid-single-digit service revenue and EBITDA growth. This is driven by mobile, where service revenue was up 14% in the quarter. This is both volume and ARPU driven as ARPU is now going in Colombia in pesos. Now this is more than offsetting the (inaudible) trends for staying in home, as we discussed previously, and Colombia is, as a result, growing overall and all the way down to OCF growth.

And finally, in Panama, we're seeing continued strength in our mobile business, which grew 9%. This is a market that is in the process of consolidating from 4 players on to 3 and possibly 2 players. And by the way, as you know, this is becoming the norm in Central America. The point is that we still have a lot of opportunity to increase our scale in mobile in Panama.

Meanwhile, B2B had a solid Q3 in Panama with growth 5%, and we are continuing to successfully protect and nurture our market leadership position in home. We're driving larger scale and continued margin expansion in Panama, which is already on one of our better cash flow producers.

We told you at the beginning of the year that we expect CapEx for this year to land at about $1 billion, and we are on track for that. What's really important is what's within that envelope. We have rolled out about 1,500 new physical sites and over 3,500 new radio base stations this year. This is about 18% more than we did last year. As a result, today, our population coverage in 4G will reach 79% by the end of the year across the board, up from 76% last year.

Most importantly, we've also completed this year, the mobile network organizations in Honduras, Paraguay and Colombia, with 5G compatible radios. With this, the networks in all of our countries have now been modernized over the last 3 to 4 years. And by the end of the year, all of our mobile core networks will be 5G NSA ready.

We have also now launched 5G in Guatemala, as you know, and we have commissioned sites to build early next year. Also by year-end, we will have rolled out about 850,000 new home passes, either in HFC or FTTH, including Honduras and as a result, our network will pass about 13.3 million homes by the end of the year. And of these, around 800,000 will already be fiber to the home with fiber deployments now active in all our countries.

This year, we will also complete our fiber connectivity project from Bolivia to Paraguay. Ours will be as a result the only (inaudible) Fiber connecting the 2 oceans through existing terrestrial routes. This carries important cost efficiency savings going forward.

This year, we will also finalize and complete our Tigo cloud project. This project is a connection of our 13 Tier 3 data center facilities across all countries with our own cloud solution. With this, we can host in-house or IT Tigo business and (inaudible) all in our own card infrastructure. This project has been in the making for the last 4 years and will allow us to cost efficiently add capacity to absorb the tracking growth that we continue to see on our network, and we're glad to see it finalize this year. Now for those of you who like ratios, these all means quite simply said, at a healthy 17% CapEx to sell ratio is expected for the year.

Now please turn to Slide 13 for an update on our plans to carve out our towers and our TigoMoney Fintech business. On towers, we have now continued to work with our financial and tax advisers on the business operation. And as a result, we are now well advanced in preparing the master lease agreements, which we expect we will finalize in Q4. This will in turn allow us to start transferring assets to the legal entities in the first half of 2023, all as we had planned.

And on TigoMoney, we continue to expand and execute on our development plan. Our new app is now live in Honduras and Bolivia, and we will be rolling it out in the remaining countries in Q4. For the past several weeks, we've been piloting Nano-lending in Paraguay and although this is only early days, the early results are indeed very promising.

We've also started rolling out our new merchant platform across the board, and we are now signing our retailers of all sizes. One of them, indeed, is a major food delivery company that now accepts TigoMoney in 4 of our markets.

This is a ton of color and a ton of detail, but simply to give the strong message that we're continuing to make good progress on these 2 strategic projects and that they are on track. Before I turn the call over to Sheldon to go over the financials, I want to take a moment to thank each and every one of our 20,000 employees at Tigo. We have jointly undertaken a major transformation over the past few years together. We have redefined our footprint with over $6 billion of M&A, created a $2 billion cable business, modernize our networks and increased our customer base.

But behind all of this transformation lies the 2 most lasting initiatives we have undertaken as a team. One, our dry to define our strong sense of purpose as a company to build digital highways that connect our customers and improve our communities; and two, to strengthen our unique and strong culture Sangre Tigo.

Now I'd say this because it is these 2 pillars that are driving one, the continued high rankings that our ESG strategy continues to deliver, which you can see all on this page; and two, a recognition this year as the second best place to work in all of Latin America and the fifth best place to work worldwide. And it is this team that is delivering and will deliver the targets unresolved that we have promised to you and to all of our stakeholders.

With that, let me turn it over to Sheldon.

Thank you, Mauricio. Before we review the financials, let me recap the macro context on Slide 16. As you would expect, inflation in our markets has increased over the last 12 months, in line with global trends and reaching an average of about 8% in September of 2022.

And on the right, you can see that GDP growth expectations have been coming down with growth of 4% now projected for our markets in 2022, slightly faster than the 3.2% that the IMF is projecting for the global economy. The IMF also projects that 2023 will be another year of slower growth, but it is interesting to see that our markets are expected to grow faster on average than the rest of the world, which I think is testament to the resilience of the countries where we operate.

Now let's look at our Q3 performance, beginning on Slide 17. Service revenue was $1.3 billion for the quarter. That's up 35% year-on-year due to the Guatemala acquisition. Excluding the acquisition and the impact of FX, organic growth was 2.7%. Our mobile business grew slightly more than 3% and contributed more than 2/3 of the overall growth in the quarter. And all of the mobile growth came from postpaid, which continues to perform strongly and grew just shy of 9% year-on-year.

We continue to reap the benefits from the additional investments we've made in some of our mobile businesses over the last couple of years, especially in Colombia. FX detracted from our revenue growth this quarter, largely due to the Colombian peso, which depreciated 12% on average during the quarter compared to a year ago.

Like many currencies globally, the Colombian peso has continued to weaken compared to the U.S. dollar since the end of the quarter, but many of our other currencies like the Guatemalan Quetzal have remained relatively stable.

Drilling down further on Slide 18 to the service revenue by country, Mauricio has already talked about Colombia, Panama and Guatemala. So I will cover those again here. Elsewhere, our performance in most of our other markets was solid. El Salvador and Nicaragua maintained their strong momentum with growth of about 6%. Paraguay grew for the sixth consecutive order and was up 2% with solid performance in mobile and B2B. Honduras, which we don't consolidate, is showing steady improvement and was up 2% this quarter. Bolivia was down 0.6% as we felt the impact of a change in regulation on our mobile overage rates that went to effect in August. This affected our mobile business, while our Home and B2B business continued to grow both year-on-year and sequentially.

Okay. Turning to EBITDA on Slide 19. EBITDA of $539 million was up 53% year-on-year due to the consolidation of Guatemala. Organically, EBITDA was down 1.9%, but this was impacted by a one-off of about $7 million this quarter related to the early termination of a software contract. Excluding this effect, EBITDA declined 0.6%. Other factors impacting EBITDA this quarter included about $6 million of incremental investments related to the carve-out of our TigoMoney and tower businesses.

Looking at EBITDA margins on Slide 20. Adjusting for this one-off this quarter, margins were broadly stable despite the investments in our carve-outs and the tougher macro situation. Energy costs were up about 17% on average during the quarter, and we have also seen an increase in employee wages, which we have largely been able to offset with efficiencies.

On the flip side, we've been able to put through some price increases across our markets, especially in our postpaid and home subscription businesses, but also in prepaid in some markets. We are very encouraged by the competitive response to our pricing action, and we are hopeful that the full benefit of these price increases will be more visible in our Q4 results when we will see a full quarter effect of these actions and as we take additional steps to offset the impacts of high inflation in our markets.

In addition, I want to share with you that we are putting the final touches on a very broad-based efficiency program called Project Everest that we've been working on for the past several months. We expect the program will be a key pillar of our EBITDA and OCF growth next year and over the next several years as targeted savings ramp up.

I plan to share more detail on this project when we report our Q4 results. Now looking more closely at the EBITDA performance by country on Slide 21. Aside from Colombia, Panama and Guatemala that Mauricio already talked about, Nicaragua led the group with EBITDA growth of more than 13% as they had an easy comparison due to catch-up of municipal tax payments in Q3 of last year.

El Salvador grew just shy of 4%, maintaining a solid performance that we have come to expect in the last couple of years. Paraguay EBITDA was down 2.7%, mostly due to some phasing of OpEx related to our soccer rights and our marketing campaigns. This is expected to normalize in Q4. Bolivia EBITDA declined 3.7% as the revenue impact from the regulatory change dropped straight to the EBITDA line. Finally, Honduras, which is not consolidated, grew 3.5% as the business is starting to show signs of improvement.

Moving to Slide 22. You can see how our operating cash flow as EBITDA less CapEx compared to the previous year. OCF more than doubled to $286 million in Q3 due to the consolidation of Guatemala. Adjusting for this M&A and also for the one-off charge this quarter, organic growth would have been 4.5%. As expected, this is an acceleration compared to the growth we reported in both Q1 and Q2 of this year.

On Slide 23, you can see our usual net debt bridge. Net debt is down almost $830 million year-to-date, including about $100 million during the third quarter, which came from equity free cash flow contribution during the quarter and from the benefit of the effect of the weaker currencies of our local currency debt. So we ended Q3 just shy of $6 billion of net debt. That's down almost $833 million since the start of the year, reflecting the rights offering and net debt to EBITDA after leases was 3.03x. If we include lease obligations of just over $1 billion, our leverage was at 3.12x at the end of Q3, down slightly from 3.14x at Q2.

Finally, on Slide 24, I want to close out by highlighting that we have a very well positioned debt profile during this rising interest rate environment. We have very few maturities in the next 24 months, so we do not have to be active in this current market re-pricing our debt.

Our $600 million revolving credit facility is undrawn, thereby providing significant liquidity and 82% of our debt is at fixed rates or swapped for fixed.

Now please turn to Slide 26 to talk about the outlook. As we've outlined today, the business continued to perform well in Q3. And even though conditions have gotten tougher, our results year-to-date are broadly in line with expectations we had when we prepared our budget almost 1 year ago. And this is why we are reaffirming our targets today.

First, as you can see on Slide 26, we remain on track to deliver organic operating cash flow growth of about 10% in 2022. As Mauricio mentioned earlier, we are maintaining healthy levels of investment through the business in 2022, but the phasing of our investment is different this year compared to 2021. Given our target CapEx of about $1 billion for the year, this means that CapEx in Q4 should be much lower than the record level of CapEx that was spent in Q4 of last year.

And on Slide 27, we want to remind you that our equity free cash flow is seasonal in nature, with most of it usually coming in Q4, and that is our expectation also again for this year. We now expect full year 2022 equity free cash flow should land between $150 million to $200 million. This is right in line with our budget and is consistent with our target of generating between $800 million to $1 billion during the 2022 to 2024 period. With that, we are now ready to take your questions.

Thanks, Sheldon. Thanks, Mauricio. So we'll now go to the Q&A portion of the call. If you would like to ask a question, please e-mail us at investors@millicom.com. And we'll take the first question now from Stefan Gauffin at DNB.

Yes. Hello.

Hey Stefan how are you?

Yes, I'm fine. So a couple of questions. See if I can start my video as well. So first of all, can you talk about which market and products you have implemented price increases for? When was this done? And what magnitude of price increases? Perhaps more importantly, what was the market reaction? And how has your competitors responded? Have they followed you or any flavor of this would be really helpful.

And you said you had 2 questions.

Yes. I can take the second one directly here. You're indicating some $200 million to $250 million in equity free cash flow in Q4 in order to reach your targets. Looking at the seasonality, Q4 is usually a strong quarter in terms of net working capital. Last year, you had $100 million net working capital release. But I mean, it's clearly more needed in order to reach your target. So any flavor on what you see for cash flow generation for Q4?

So why don't we go backwards? I think the second one is super mathematical under the big history of this in all of our prior years in which we've actually done more in the fourth quarter than we're looking to do this year. So I'll ask Sheldon to walk you through that one. And then I'll take on the pricing one in a second.

Sure. Hey Stefan, so I think -- as I talked about in the past and you picked up just on your comments there. There's a large seasonality to our cash flows as a company. A lot of it is working capital related. I mentioned for we spent a lot sort of in Q1 on working capital. I know we've got a big outflow. That's related to a lot of prepayments through the year for software and revelatory fees and the like, we build up inventories, kind of, in the years for handsets and the like, which in Q4 is probably one of our biggest sales quarters for the year, so those inventories kind of get depleted in at that point in time.

So you see that big swing and you've seen it historically. And so there's a big outflow in our working capital there is that, it basically comes back in Q4. I think what's also a bit more pronounced this year is the phasing of our CapEx in Q4 last year was a very large CapEx quarter for us. You can see, as I highlighted in our slides, this year's Q4 CapEx is going to be upwards about $100 million less than prior year.

So there's just a phasing of kind of -- of our CapEx spend is going to actually just benefit us as well from a cash flow timing perspective as we move through the year. So that's all going to potentially come to fruition here in Q4, and that's where we're going to see the large cash inflows coming in to achieve sort of the $150 million to $200 million range we just talked about.

The nature of the business, as you very well know, we tend to book our CapEx in Q4 and paid in Q1 -- taxes are paid in Q1. Most of the payments are prepaid during the first half of the year. So that's the nature of the business. It happens every year and this year is consistent with prior years.

I think the difference this year is it becomes a little bit more obvious to you because we're not consolidating Guatemala and because we're giving new equity free cash flow guidance. So just -- you're seeing what we see every year just now in a public manner. So that's -- that for pretty mathematical.

On the price increases and what we're seeing in the market, how much of that stakes, I'm going to try to keep that somewhat summary because it's 9 markets, basically the 3 lines of business as prepaid, postpaid, home, and are not including B2B, but I won't talk to that. So the matrix of that is quite big. So we can give you some more color offline.

I think the big market where things are moving towards price reconstruction is Colombia, and that is true both in prepaid and in postpaid, where you've seen ARPU actually grow up in Colombia around 6%, if I'm not mistaken. So that's given us in Colombia, both volume gains and also price increases. An ARPU pickup in Colombia. So the overall ARPU in Colombia is reconstructing significantly. As you know, we expect that it would eventually happen. The situation today is while in which Colombia and mobile is growing about 14%, 15% because we have both volume and ARPU gains.

We're also seeing prepaid price reconstruction in Paraguay. Those are the 2 markets, which we're seeing the price increases stake the most. Everywhere else is still to be determined whether the price increases will stick or not. And as you know, the nature of prepaid is we do this pretty much on a daily, weekly basis, and we also play with commissions in other ways and then reloads, periods of those reloads trying to get the ARPU up.

We have on postpaid taking over the year, price increases in just about -- and I'm just looking at a chart to make sure that (inaudible) in just about every market with the exception of Panama. Bolivia, we did on postpaid very early in the year. We may do something later this year or early next year, but that's still to be determined on how the market plays out. And in Colombia, we did something in the middle of Q3, and that seems to be sticking on postpaid in Colombia. Everyone seems to be following, including all the 3 competitors on postpaid in Colombia.

On Panama, we haven't done, its one market out of all in which we haven't done any increases in postpaid. And that's largely been because our largest competitor is not allowed to do any price increases until early next year. So we don't want to create too much of our price gap differential there because we can't be followed up until early next year.

On Home, we've taken price increases in most of our markets -- perhaps we gave you some details on these and those I have to say are sticking less than the postpaid price increases because we've been ourselves more price (inaudible) as we said then our competitors and by that I mean we kept the installation costs in the market, whereas others may have not followed us on that regard. We think as we said in our prepared remarks, that's definitely the right and correct thing to do for the long term.

As I said on the prepaid remarks we saying all these going through a bit of an (inaudible) because of the pandemic flow back towards the office because of the economic situation that we want to preserve a very healthy ARPU and installation cost scenario for the long term. That's the long and short of that.

All right. Our next question is going to come from Marcelo Santos at JP Morgan.

The first question is in the line of price increase of the first, I mean, Tigo operating market where it has a very good market structure Tigo is usually #1, 2, and there are a few competitors. But when you see inflation is running at 8% and you're growing your organic revenues -- service revenues at 2.7%. What's the main gap here? Is this only macro? Is there -- could you just try to break down this gap and how this should follow going forward? That's the first question. The second question is if you could dig a little bit deeper in Bolivia these regulatory changes, what happened and what -- how should this progress going forward?

Yes. So you're absolutely right Marcelo and it's a very good point. And it allows us to point out that price increases on the back of our inflationary environment do not get immediately visible to our P&L. So the first reason why you don't see it right away is, number one, there's a timing lag. Most of these are being put forward as we speak or will be put forward in Q4 and some earlier in the year. But you don't do it -- you don’t do it to the entire base, you do it in cohorts. So there's a lag effect of this. That's point number one.

Point number two is there is price elasticity of demand, i.e., in the context of inflation, every penny that you pass on may come back to you but they some downgrades, they came back to you with some softer demand and as a result of that the reason price elasticity. I not going to kid you on that one because that there's a reality.

So the long term of that is that you will eventually pass it through, but in the short term, in the context of an inflationary environment, it will take a longer simply because there's some price elasticity of demand. And the third effect is that competitors, even though there are 2 player markets, you see the opportunity to just wait it out maybe a month, maybe 2 months, maybe a quarter, maybe a couple of quarters and see if they take a little longer to react to the price increases, they may have better results. That's the human nature of individuals and management teams.

But it doesn't change the long-term outlook, right? It's just a couple of quarters of dislocation, but the long-term equity always kicks in. So those are the 3 reasons why there is a lagging element to the price increases flowing into the P&L.

The Bolivia?

There was a conversation. Yes. So the Bolivia was on what the market calls on demand, but I may just as well talk a little bit Bolivia macro. So the actual situation in the regulatory changes in Bolivia, this is a prepaid matter, by the way. In Bolivia it's the last one of the countries in which when consumers have a packet Tigo, right, they are consuming their prepaid balance on a promotion or not pocketing on that pack. But if they use that App and they still have a balance, that gets consumed at (inaudible), which are higher, right?

The entire industry continued to do this until about a couple of months ago when the regulators said, we don't stop doing that, right? So you cannot charge when someone's out of a specific prepaid plan (inaudible). There always has to be within one of your existing packet (inaudible). The state-owned company was doing the exact same thing as we were. So perfectly allowed perfectly legal. But the regulators said, don't do that. So what that does is it takes out some of our higher pricing on prepaid when people wear off still on balance, but off a (inaudible) and has a result of that we see a step change in our revenue.

Now that will wash out, obviously, eventually and we'll go back to normal rates. So it's -- it's a onetime loss of revenue because we will no longer allowed to on demand.

When was that implemented?

In the middle of the quarter. So this quarter, you'll see sort of a partial impact. I mean, I think on a going forward basis, of course, we're reconfiguring our offerings to help mitigate as much of that as possible. And -- but look, there will be here a period of time as for elasticity of the customer sort of moderates to the new -- to that new environment. So we expect over time to mitigate a lot of the loss, but I think we'll have an impact here and a bit more pronounced probably in Q4 in Bolivia because a lot of full quarters impact of that until that mitigation happens more towards the course of 2023.

And while we (inaudible) we don't mean the sort of the entire story on Bolivia. Indeed, mobile in Bolivia is going through some short-term (inaudible), the regulatory of course, our competitor remains very source driving in its pricing. We don't believe that a mobile that long-term pricing capacity for our competitor exists and they really run it for quite a long time. So we believe that some point they will run out of steam because they can't continue.

In the meantime, our home business continues to grow, and we continue to be very bullish on it. As you know, we've created a business of cable in Bolivia over the last 7 years that today is massive. It's actually bigger in terms of revenue that out mobile business in Bolivia. And we see a lot of run rate. We restarted later this year, and we continue to do so into the next year, our build in Bolivia because we think there's maybe 0.5 million homes that can still be built in fiber in Bolivia. And we see a lot of growth opportunity. As a matter of fact, you see that our base in Bolivia has gone up 7% year-on-year.

We deployed on our Tigo business, part of the equation, we deployed our Tier 3 data center, and we're now basically doubling its capacity because it's really kicking in Tigo business in Bolivia. So we restarted our build, and we think B2B will be an increasing driver of our Olivia revenue along with Home, which is already more than half of the business. So that gives you the entire picture of what's to Olivia despite the regulatory change that the social policy processing by a competitor.

All right. We're going to go now to Soomit Datta at New Street Research.

Two or 3 questions, if that's okay, please. Firstly, on the midterm equity free cash flow outlook, $800 million to $1 billion. Obviously, the macro environment is getting tougher. You've talked about inflation, obviously, as a factor. So the broader context is a tricky one for you guys, but you're reiterating the guidance. How much is project Everest, I think you called it. How much is that a relevant factor in making sure you hit the outlook going forward? And as a related question, the spectrum in the first 9 months, I think, has been running at about USD 160 million. So would there be an expectation that, that would be slightly above the normal run rate and it would reset, particularly thinking about some Colombian spectrum needing to be reissued into 2022. So yes, I mean, equity free cash flow, just hitting the guide in the buffer environment. And specifically, maybe anything on spec from that. If that's okay, that's kind of one question. Secondly, then just on inflation as well...

That was just one question?

Sorry... One question with 7 parts. Why don't I let you answer that and then if we -- maybe we'll run out of time.

I guess we'll forget the second and the third anyway. Listen, there's many ways to -- and I think I got most of the pieces of it. There's many ways to answer for that. But I think the better way to address it is -- the 2 things that are subsets in your question, we already baked in to the moment when we put things out for investor take. Meaning, by that time, although we don't have pre-visibility on the final spectrum renegotiations in Colombia happening pretty much as we've taken into next year. We baked into that notion that the Colombian spectrum will be renewed at higher prices than before. And that will have an impact in 2022 and 2023. And that from 2024 onwards, there is no longer that sort of bigger payment for the Columbia spectrum. I hope I made it very clear on that.

I wanted to do at the time was give everybody visibility, but yes, 2022 and 2023 would be handing act, if you will, more impacted by the Colombian spectrum, but that laps in 2024, we're free from that. So that part of it was baked in -- is baked in, although we don't know what the final outcome would be. But we made our assumptions and we're all baked into that $800 billion number.

As we said, I think it might be per remarks, as a result of that, our equity free cash flow that we've now told you for this year is going to be $150 million to $200 million is right in line with what we budget. So there's no change to that we budgeted right in the middle of that. Its (inaudible) that we can come clean on that, if you will. So there's no surprise to us out of there.

I think that it's a little bit more different and you're right, is that indeed, things change right after Investor Day, whether you call it a crane or inflation or rates going up. But most of our currencies have not really moved. So most of Central America has not really moved. That's very different this time around from any other crisis and that's very important. Yes, Colombia has moved significantly and maybe a little bit of Paraguay, but we don't really drive a lot of cash flow today -- from equity free cash flow from Columbia. So it doesn't really move the needle in terms of what your question is.

And as a result of that, we feel still like we're in the ballpark range. We're very confident we're going to make it despite all these moving pieces. Now the one thing we did, and this is the last bit of your question is Project Everest has started by early this year for 2 reasons. One, you've heard me say this before, I'm a believer that you need to do efficiency projects every 3 to 4 years, just to make sure that there's nothing you're missing and just to make sure that (inaudible) but this time around we understood that the macro was going to get tougher. And we wanted to start very early in the year. So we hadn't foreseen project Everest when we put out Investor Day or we put it in right after, just to make sure that when you ask as that question, we can come and say, yes, we're going to make it because Project Everest, we're not going to give you any numbers. We may do that in Q4 is already delivering a lot of efficiencies that are going to help us make it through a tough economies. So that's that on the equity free cash flow. We are on track.

Okay. That's super helpful. Maybe just a very quick follow-up then, if that's okay. In Guatemala I am just sort of interested in the, sort of, phasing of the competitive environment, so you sort of explained the context about what's happening, but we sort of the beginning of process of escalating competition or (inaudible) may sort of midway through we'll coming to the end of it.

So there's -- I'm not going to go back to explain that the history and the context. I think we did that on the prepared remarks. I mean you get that quite well, right? We could gain quite a bit of market share in the last 3 years. Our competitor seems to want some of that back, and we're trying to figure out, I don’t know, we kind of like where we are. So we like our skill and we like our market share.

The bigger question is the one you pose, which is, look at what happens from here going forward? Is this a skirmish -- or is this more of a drag on kind of competitive environment? I want to point out to perhaps 3 key things that make a difference in Guatemala for analysis (inaudible).

Number one, this is a 2-player market with 2 rational strategic return (inaudible) investors. But it's not only that. It's a fairly well balanced market. It's a 60-40 market, right? So there are no long-term incentives for either one of us to try to inch up significantly so. Would only (inaudible) our home revenue, whether it's our competitor or ourselves.

Now with that, I think this is a short-term dislocation. It is some thunderstones, some rains, but it is not a protracted long-term winter, if you will, allow that technology because the incentives are simply not there, right? Nobody gains from those bases. That's our view. But I realize that this is going to hurt us in the short term. I get it. Public markets are focused in the short term. I will take the hit that this may say.

The faster and the border we react to defend our 60% market share position the sooner the rain will pass. And as I said in our prepared remarks, we've play this for the long term, and we think the better long term is to actually get to that long-term equity, very, very sustainable long-term ergot the sooner we can. That's Guatemala for you in a nutshell.

All right. So we'll go now to Phani at HSBC.

So my question is on Colombia. It seems that your revenues quarter-on-quarter have been rather flattish. What is driving this? And how did the competitors react to your price increases in Colombia? So that's the first question from my side. The second question that I have is on a more consolidated level. How much is a broader price increase that you have on a consolidated level, how much is it impacting your ARPU? And how much is your -- how is it going to offset your inflation? And how is that going to take the guidance for 4Q EBITDA growth?

Okay. You get his first one. The first is approach which is the flattish Colombia, you're saying ARPUs there or.

I'm talking about the service revenue growth in Colombia. If you look at round Q-o-Q on quarter-on-quarter, it looks flattish, but you are growing very fast on the mobile. So what is driving the flattish quarter-on-quarter growth in Colombia?

Okay. The -- and the second one was just basically ARPU.

Price increase out there.

How much is the general price increases? And what is your expectation for EBITDA growth in Q4? And how is that going to offset your inflation -- inflationary costs?

Okay. So listen, on Colombia, again, it gets better to answer with the big context. Our service revenue growth in Colombia is about 6%, largely coming from mobile. And in mobile, it is a combination of increased intake in customers. We had about 200,000 again this quarter in Colombia, and we continue to inch up our position in Colombia, every quarter now for 6 or more quarters. So there's an element of that, which is volume and postpaid in Colombia is up 25%, 30% volume on a year-on-year basis. There's a chunk of this, which is volume, which is the result Phani, as you may recall from us getting spectrum, building a network, increasing commercial distribution, et cetera, et cetera. What is new in Colombia on mobile, which we had anticipated that is happening now for a couple of quarters, is that ARPU in mobile is being reconstructed and it's growing right around 6% now in pesos.

And the reason for that is that I think we've sensed quite well that the market was ready for reconstruction, and this is one of the pricing (inaudible), which we led and was followed by now pretty much all the competitors in Colombia. And that's leading to 6% ARPU reconstruction going forward.

Now your question, I think, has a little bit more to do with home in Colombia, which indeed is a little bit more sluggish in Colombia. And as I addressed on the remarks and in my earlier questions. Indeed, in Colombia inflation is high, 10% and consumers are filling that and Colombia was one of the countries in which people were most constraints to their home during the pandemic -- it's actually one of the highest home for lack of mobility ratios, so that we're seeing a lot of the -- what I referred to as they have in Colombia happened.

The third element in Colombia is that you're seeing B2B kick in quite significantly and growing quite significantly. And as a result of that, we have 6% service revenue growth in Colombia. I don't want to do -- you can do the comparisons. It's pretty darn good compared to our competitors. You can do the math.

The second thing that I think is key in Colombia is that we invested quite a bit and knowingly, you stop margin to do that. We're on the other side of that now. And we are seeing, most importantly, meaningful OCF growth, double digit this year and me to a year in Colombia because service revenue is recomposing our investment is behind us. Most of the network, other CapEx investment is behind us. And as a result of that, Colombia is becoming already a bit OCF grower for us which was in the case 2 years ago, because that's the way we want to play the market. All of this to simply say that Colombia is doing what we deemed it would do today in becoming a significant OCF grower for us.

Yes, you go on the second one.

Yes, the second part that you were just asking sort of price increases, how those play out here in the remainder of the year. Look, of course, we implemented a lot during the quarter. We were looking and expecting, sorts of, to see 4 quarters with the benefit of that here in Q4, we haven’t guided it all for our Q4 results on service revenue, but we have to talk to you about what we're expecting for full year on OCF and that being very back-end loaded this year.

I will tell you that that OCF objectives we have for the year and guidance we have for the year is not predicated on improvements on service revenue growth here for the balance of the year. So it's -- we're not relying on all of that to be coming through. I am expecting sort of EBITDA growth to improve here for the remainder of the year. A lot of that just because we're starting to lap some of the investments we've been making in TigoMoney and InfraCo, which really were ramping up kind of in Q4 last year. So we kind of have much more of a like-for-like comparison now in Q4. So we should see some EBITDA benefits on the growth line from that, which is going to help also drive the OCF target that we mentioned for the year of approximately 10%.

Yes, I think we kind of went through that pretty quick. And we are on target to be right around a 10% OCF growth this year, which is consistent with our 3-year 10% OCF growth organically on average. So we're kind of focused on the equity free cash flow, but the OCF, which is the other thing that we've been providing long-term guidance and actually, on average on a yearly basis is also on track.

Next, I think we have Lucas Chavez from UBS. Lucas are on?

Thanks for having my question. I cannot open my camera right now. It's not working in Zoom. My questions here actually. The first one on Panama and the second one is Salvador. On Panama, if you could give us more details on the country operation. Now we talk a lot about Panama already, but just to understand better mobile there and the consolidation and why saying that that is different from countries? And Salvador just one says understand better service revenue than the growth in this quarter.

All right. So on Panama -- it's performing -- this is one of those rare unique situations in which we are performing right as our acquisition business plan said and for the same reasons that our acquisition plan said we will perform in Panama. Even despite the pandemic, the inflationary environment. Our business plan was predicated on getting a position in home that had 60%, 70% market share, defending that position going forward and being able to acquire a mobile player that then we could cross-sell and increase market share as a result of being able to cross-sell into that mobile market share. All of that Lucas as panned out as our investment thesis was -- so in a country that is investment-grade by dollar economy and which has become effectively a 2-player market as we speak.

One player was acquired by cable and wireless and the other one has basically handed over the business to the government. And as a result of that, we are in a 3-player possibly in 2-player market on mobile in Panama, which has led out to the industry structure that we think is becoming the norm in Central America. So things have played out pretty much the way we imagine they would. And as a result of that and this is the punch line, but I'll give you some detail in a second Lucas. What you see in Panama is dollar-denominated revenue, 2-player market effectively. We have the #1 position. We're gaining scale on mobile and being able to not only defend fix, but also grow our footprint because there's opportunities as the business continues to grow and fix because the economy is growing. And as a result of that, we see household formation in many new cities around Panama, which makes us very bullish.

So the combination in Panama is you have service revenue growth of 5%, 6%, give or take, you have EBITDA margins that we've already reached 45%. And we see increased scale on mobile because the market is consolidating and the ability to build more network in Panama going forward.

And the business is already growing, operating cash flow at 20%, 22%, I think, is the number. So all in all, to say -- very glad we invested in Panama. It's on its way to become one of our better cash flow producers and its all dollar denominated.

Salvador, before I forget. So El Salvador had another solid quarter. Service revenue is up 6%. And the thing with El Salvador is we put our playbook 3 years ago. You've heard me say this a number of times. We revamped our management team, putting in one of our most solid management teams in place today after listening to the call. We supported them with new spectrum acquisition and then with the funds to build out that network in a market in which we think -- we thought we could do a lot more. And today, we're harvesting all of that with strong service revenue growth, expanding margins El Salvador, growing our postpaid base and also very bullish about TigoMoney there.

And in El Salvador, because I am sure you see from the quarter numbers, all the lines of businesses are performing, all but we think we can grow more mobile, where service revenue is growing and B2B, where again, Tigo business is becoming an important part of the ecosystem in El Salvador. And as I just said a minute ago, TigoMoney also has room to play significantly in El Salvador.

And again, just not to forget, it is also a dollar economy. So that helps out significantly -- that's the long and short of Panama and El Salvador.

All right. So we're right on the hour, and that was our last question. So... Back to you Mauricio.

All right. So I guess I can kind of wrap it up from here. You're not going to hear from me any last minute remarks that are different from what we are saying. We are on track to deliver that right around 10% of paying cash flow growth this year. And if that is consistent with our average 10% OCF growth for the 3-year period. We had to adjust, as I said, in order to get there, we're making it. We are going to get $250 million to $400 million of equity free cash flow this year, which is consistent with the where we have budgeted for the year and consistent with our 3-year plan to reach community $800 to $1 billion of equity free cash flow.

We also continue to invest $1 billion, and we are happy with the investments we have made in the past, and we're happy with the one we're making because we see a ton of upside opportunity, both in home and in mobile where every time we deploy new network, we see a (inaudible). And we're also making progress on the strategic initiatives that we are aware of TigoMoney and the tower business. And we continue to just be, quite frankly, the better gold standard in terms of ESG in our region and a great place to work recognition demonstrates that. So.