Millicom International Cellular: Value in Emerging Market Telco

| About: Millicom International (MIICF)

The large telco conglomerates such as Deutsche Telekom (DT), Telefonica-O2 (NYSE:TEF), France Telecom (FTE) and Vodafone (NASDAQ:VOD) are always grabbing headlines with regards to acquisitions in new markets, as I detailed in a recent post on Turkcell (NYSE:TKC) and the Balkans. I thought it may be quite interesting to look outside the traditional fold and put a little focus onto a little known player in the emerging markets' telco scene.

Millicom International (MICC) is a Luxembourg based holding company with a variety of assets spread across 16 emerging markets in Central and Latin America, Africa and Asia. Millicom serves 20 million customers with pre-paid services via its Tigo brand and cable TV and broadband in Central America via its Amnet fixed line operations. The group’s mobile operations have a combined population under license of approximately 291 million people.

As with any other publicly traded company, Millicom has seen some troubled waters in 2008, however looks to be reversing the trend lately.

Having lost roughly 60% in value in the last six months, the company has been making some serious gains in the last month, bucking the overall trend and winning back 10% or thereabouts in the last month of trading. Marc Beuls, President and CEO, presented to investors at the Morgan Stanley 8th Annual Technology, Media and Telecoms Conference in Barcelona in mid-November. His presentation can be downloaded here.

What is clear having looked through the presentation is that Millcom is operating in some interesting markets, which at present have very low penetration of fixed telecoms infrastructure and a burgeoning desire to be connected in some way. Mobile, whether GSM or CDMA, is the obvious answer. Digicel Carribean is probably the best example of this and Millicom seem to be following a similar business model, focusing on pre-paid services to emerging markets.

With the recent acquisition of Amnet, Millicom now has invaluable in-house expertise to provide fixed broadband services, which have seen a CAGR in 2008 of roughly 24%. This coupled with a much lower CAPEX deployment ratio of 12% than that enjoyed in developed markets will allow Millicom / Amnet to deploy quicker and to a much wider audience than previously experienced. Amnet is achieving blended ARPU of $1,807 and at present has a subscriber base of 150,000 users across the three active territories (Costa Rica, El Salvador and Honduras).

By coupling the trusted Tigo brand with the expertise of Amnet, Millicom has a very good chance of penetrating their other 13 markets with new services, fixed / mobile broadband and pay TV services being the obvious contenders. Beuls' stated aim is to provide services under a three pronged approach to provide the widest possible connectivity choice for potential and existing customers, with plans to integrate WiMAX technologies into its core offering and also as a backhaul component for metro scale deployments.

The recent acquisition of a license to operate in Rwanda, providing synergies with existing operations in Democratic Republic of Congo and also Tanzania, is another string to the Millicom bow. Beuls is looking for further growth in the region as it goes head to head with other players in emerging market telecoms, such as MTN Group.

For me, this is a good solid play and one to pick for a long term portfolio.

View my stock portfolio on kaChing.

Disclosure: Author holds a long position in MICC.