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Millicom International Cellular S.A. (MICC)

Q4 2009 Earnings Call Transcript

February 10, 2010 9:00 am ET

Executives

Mikael Grahne -- President and CEO

François-Xavier Roger -- CFO

Analysts

Ric Prentiss -- Raymond James

Peter Nielsen -- Cheuvreux

Stefan Pettersson -- Nordea Bank

Lena Osterberg -- Carnegie

Andrews Winberg [ph] -- Abramas [ph]

Kevin Roe -- Roe Equity Research

Soomit Datta -- New Street Research

Roopashree -- Frost & Sullivan

Thomas Heath [ph] -- Bowman Equities [ph]

Alexander Vassiouk -- Morgan Stanley

Andreas Joelsson -- SEB Enskilda

Jan Dworsky -- Handelsbanken

Chris King -- Stifel Nicolaus

James Rivett -- Citi

Operator

Good afternoon, ladies and gentlemen and welcome to the Millicom fourth quarter 2009 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 the 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 François-Xavier Roger, CFO. Please go ahead.

Mikael Grahne

Thank you, operator and welcome to you all. As usual you can find the slides for this call on our Web site.

Please turn to Slide #4. We enjoyed the strong final quarter of 2009 with the consistent level of underlining revenue growth and the record EBITDA margin. 3G and VAS revenues continue to be key driver, growing 47% year-on-year in local currency and exceeding 21% of recurring revenues. Cash flow was strong and we had seen around 500 million in proceeds from two of our Asian disposals during the quarter.

As you know, we recently introduced a regular dividend policy and the Board is proposing a dividend of $1.40 for the 2009 year, subject to final audit of the 2009 accounts and approval at the AGM. This represents an increase of 12.9% on the 2008 dividend.

Slide #5, we continue to achieve (inaudible) in top line growth with improving margins and strong cash generation. Customer numbers were up 22%, thanks to a strong seasonal benefit.

Revenues increased by over 9% in local currency and our EBITDA margin continue to improve, thanks to strong growth in value-added services and increase in operational leverage in Colombia and, of course, Africa.

CapEx was a little higher in Q4 as a result of facing an initial deployment in Rwanda, but operating free cash flow still reached 31% of revenues, a record for the Group.

Slide #6, given that we have completed another year, I think it’s worth reflecting for a moment on our progress over the last 12 months. 2009 has been a transformational year for Millicom.

In difficult circumstances, we have achieved a good balance between our commercial and financial performance. We have outperformed our competitors and gained market share while improving margins and generating over 600 million of operating free cash flow.

We have real confidence in our operating model, which is focused on innovation, branding and strong distribution capabilities and good cost control. We are also focused on developing our best assets, our people.

Slide #7, as we indicated in the last quarter, we have focused on active customers and ARPU rather than customer growth at any cost. ARPU in local currency has stabilized despite the higher rate of customer growth in the quarter. The proportion of higher spending customers continues to grow with customers spending less than $5 a month falling.

Slide #8, one of the trends with our business this year has been the increasing balance of revenues and profits across our regions. Higher revenue growth and improving margins in South America and Africa has created a more balanced portfolio and better risk profile. By Q4, our revenues have become quite evenly spread across our three mobile regions.

In terms of profitability, of course, Central America is still by far the most significant single contributor as South America and Africa are now generating more than 50% of Group EBITDA between them. We expect this trend to continue over the coming year as revenues and margins grow faster in our younger market.

Slide #9, after 12 months of negative Forex effect, we had an immaterial effect from dollar translation in Q4. Underlining revenue growth at over 9% was consistent with the first nine months of the year.

Slide #10, we are also exposed increase in capacities and changes to interconnect regimes. Looking at the fourth quarter, these factors cost us 3 percentage points of revenue growth, and in turn, highlights the strength of our underlining performance. The underlining revenue growth of our business excluding these external factors was 13%.

Slide #11, looking at revenues by categories, I would again like to highlight value-added services up 47% year-on-year in local currency. We are now generating over 21% of our recurring revenues from value-added services, delivering higher margins and increased customer usage and loyalty.

Slide #12, VAS has made great progress during the year, moving from 16% of recurring revenues in Q1, up to 21% in Q4. Again the driver has been information and entertainment services, not just peer-to-peer SMS.

We talked at length in Miami about our commitment to innovation as a key differentiator. I am pleased to say that we already have over 30 people in the businesses dedicated to developing new products and services. And I look forward to updating you on the progress in due course.

Slide #13, at the end of December 2009, Millicom Cellular market share on a weighted basis stood at 28.7%, the same level as of the end of Q3 and consolidating our strong market share gains over the year.

We helped our gain market share in almost all of our markets with some market share erosion in El Salvador and Ghana.

Slide #14, churn figures for Q4 show a similar trend to Q3 and are in line with the rest of the 2009 for the Group as a whole with some improvements in Africa.

Slide #16 please. Moving now to the regional clusters in more detail, in Central America, customer numbers were up 15% year-on-year, an acceleration from Q3. However, revenues fell 5% in local currency although revenue growth in Guatemala was positive.

EBITDA margin was still high, up falling in line with our expectations reflecting raise in taxes and sales in interconnect raise in some markets. Tax generation in Central America was very strong and we expect this to continue in 2010 and beyond.

Slide #17, changes to interconnect rates and the impact for new taxes took 3 percentage points of growth of our Central American revenue base in Q4. These fiscal and regulatory factors along with the macro environment are putting pressure on growth. Adjusted for these external factors and for the currency, underlying revenues were down around 1% year-on-year in the quarter.

Slide #18, in South America, customer numbers were up 18% and revenues increased by 15% in local currency. The continued strength of the Colombian peso to dollar revenue growth to 20%.

EBITDA for Q3 was up 32% in local currency and the EBITDA margin was 43%, an improvement of 4.5 percentage points year-on-year as the Colombian EBITDA margin continue to improve. Lower CapEx and strong working capital management saw over 100 million of operating free cash flow in Q4 at nearly 35% of revenues.

Slide #19; in Africa, 1.1 million customers were added in Q4, representing 10% growth quarter-on-quarter and 35% growth year-on-year. This all continued with its momentum in Tanzania, Chad and the DRC and the strong recovery in Senegal. However, we expect customer intake to be volatile across Africa in coming quarters as we wait to see about the growing requirement to register SIM cost that customers will have.

Revenue growth at 27% in local currency, remain strong given the economic backdrop and represented an acceleration in growth on previous quarters. EBITDA for Q4 was $89 million, up 42% year-on-year in local currency with the margin increasing by more than 4 percentage points as we generated increasing operation leverage in a number of markets. And I’ve sort to stop that losses from our launch in Rwanda.

Slide #20; margins in Amnet continue to be strong although they’re down slightly year-on-year after our initial investments towards the business that really comes operational standards. Year-on-year revenue growth in Amnet was 9% driven by a strong performance in broadband.

Slide #21, I would like to put Amnet’s performance in the context of a very tough economic environment in Central America and the performance of our mobile operations there. Amnet is demonstrating good year-on-year growth in a negative GDP environment.

This underlines the structural growth opportunities that stays on broadband offer, which was the main rationale for the acquisition. Residential broadband revenues were up 24% for 2009 as a whole and broadband penetration of the customer base rose from 24% to 32%.

At the same time, we have done much this year to integrate Amnet into the peak of way of doing things. With the successful re-branding in El Salvador and a change of focus from technical operations to marketing and customer service. We have learned a lot about the cable and broadband over last 12 months and we think it brought us very attractive long-term growth opportunities across the globe.

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

François-Xavier Roger

Thank you, Mikael. I would like to start with Slide #23 by reconciling EBITDA down to the net profit and EPS line. As you will note depreciation is rising more rapidly than EBITDA and is likely to do so for the next couple of years. This reflects the significant investments for growth that we have made over the last three years.

Year-on-year our funding cost benefiting from our variable rate exposure. The one-off items reflect the significant gains on disposal of Cambodia and Sri Lanka in Q4, but excluding one-off items in both year, EPS growth was strong.

Slide #24, looking at the full year, we can see a similar trend in depreciation as for Q4. Finance cost rose steeply compared to 2008, reflecting the full-year impact of the Amnet debt in 2009. EPS fell marginally year-on-year as a consequence of the growth in CapEx over the last three years.

Slide #25, as you know, we now have $1.6 billion of cash on the low level of gearing at 0.5 times net debt to EBITDA after a year of strong cash for generation under receipt of the proceeds from two of our Asian disposals.

Slide #26, we are very satisfied with the better distribution of our cash flow generation. At Central America, which accounted for the entire group cash flow generation, now accounts for a little bit more than half. North America now accounts for 38% of operating free cash flow and Africa is turning positive.

Slide #27, our free cash flow has continued to be very strong despite an increase in CapEx in Q4. We also benefited from over $60 million of working capital inflows in Q4, but working capital movements tend to be volatile and this should not be seen as a trend for 2010.

Next slide, turning to our debt maturity, we now see the average maturity of our gross debt at under three years. This is a little bit shorter than what we would ideally like and we are in the process of refinancing some debt at local level, which would take average maturity over three years.

Slide #29, as we highlighted in Miami in October, we are now focused not only on growth, but also on asset productivity. We see no material advantage to own all of our preceding structure, infrastructure and the creation of the tower company in Ghana in January is a clear indication of our commitment to managing our asset base more effectively.

The benefits for this transaction to our financial model in Ghana are significant and the combination of cash proceeds, lower CapEx, OpEx saving and the equity value in the tower of joint venture has a net present value in excess of $100 million. We are pursuing similar opportunities in other markets.

Slide #30; our outlook for 2010 is very similar to our guidance for 2009. We are confident that we can maintain our EBITDA margin in the mid-40s with some pressure in Central America, being offset by some sort of work in Africa. We expect CapEx to be around 700 million with a focus on increasing 3G capacity with some coverage in Africa. Finally, we anticipate operating free cash flow into mid-teens as a percentage of revenues.

Slide #31, before handing back to Mikael, I would like to update you on our plans for our growing cash balance. We are currently actively pursuing external growth opportunities. We believe we have the track record and the experience to add value to businesses in emerging markets.

Any external growth opportunity, we have to offer both attractive returns on potential leading position overtime. At the same time, our capital structure will continue to evolve with a view to enhancing shareholder return.

I would now like to handover to Mikael for his final comments.

Mikael Grahne

Thank you, François-Xavier. We are pleased with our results for Q4 and whole of 2009. We have proven in 2009 that we can adapt quickly to changing environment and have delivered a good balance of market leading revenue growth, market share gains, margin improvements, excellent cash generation and a major commitment to innovation.

Looking ahead, we see innovation as a key driver for growth, clearly differentiating our business model and attracting loyal and higher spending customers. We now have the right organizational structure and resources to capture the opportunity provided by innovation. While we are not assuming any great improvement in the economic environment in 2010 we are looking forward to the coming year with confidence.

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

Question-and-Answer Session

Operator

Thank you gentlemen. (Operator instructions.). Our first question today comes from Ric Prentiss of Raymond James. Please go ahead.

Ric Prentiss – Raymond James

Thanks. Hi, guys.

Mikael Grahne

Hi.

Ric Prentiss – Raymond James

Couple questions, first, in Senegal. You mentioned some improving trends there, can you just update us as far as what is going on in country. We’ve seen some interesting articles coming out recently in the international press about license fees and the government and the sons of the leaders there. So first question is on Senegal operationally and just from an update standpoint?

Second question is on the cash balance. You mentioned that well positioned in the short-term to pursue external growth. What do we view as short-term? One quarter, '010, just kind of what kind of timeframe should we be thinking of and as you look at your external growth opportunities, how do you rank them? How important is a region of the world? How important is the competitive landscape? In other words, can you become that leading position which you like to achieve, just kind of how you rank order, as you look at our opportunities around the world?

Mikael Grahne

Yeah, thank you. Let me start with the Senegal question. On the operational side, we are doing well in Senegal. We have very strong customer support for the Tigo branded services we offer. We’re basically optimizing the revenue streams by spending what I would call relatively minimal amount of CapEx, but we have great confidence that we can keep the business on a growth stage for sometime on this platform.

On the license side, there hasn’t been a big evolvement. There’s been a decision at the arbitration court in Washington that basically asked the Senegalese court to withhold any activity in this regard, waiting for the next arbitration meeting that will take place around May-June in Washington. So, very little progress on the license side.

François-Xavier Roger

On the cash balance side, we’ll continue the timeframe as we indicated we are actively pursuing some growth opportunities. But as you normally know it takes a little bit of time. So it’s very difficult to give a timeframe. So we don’t give any commitment there.

As far as the KPI that we are looking at for any external growth opportunity, there are various ones, but we obviously look at first of all the environment of a given country, the economy, the capability to repatriate dividend in an easy way, the regulatory environments. We are looking at the specifics of the business, the trust penetration, the number of operators, market share, ARPU (inaudible) margins. There’re certain number of operators. Obviously, we’re looking at an asset which would have leading position, which means number one or number two. If it is not at that stage that would have the possibility with our experience and know-how to grow to that kind of position.

Ric Prentiss – Raymond James

Great, thank you.

Operator

Thank you. We will now take our next question from Peter Nielsen of Cheuvreux. Please go ahead.

Peter Nielsen -- Cheuvreux

Thank you. Just one question please related to the outlook for 2010. I’m aware that you do not provide group guidance. But the revenue growth in organic terms you’ve reported for Q4 in 2009 of around 9-10%. Would you consider it realistic or achievable, a similar rate of growth for 2010?

François-Xavier Roger

We don’t give any guidance on revenue, the main reason being that there is quite a little volatility for example in exchange rates which can impact in our growth. In dollar terms it’s a little bit difficult to forecast from that point of view. So we don’t give any guidance. We have set our own that the year 2010 should be very similar to the year 2009.

Peter Nielsen -- Cheuvreux

Okay, thank you. I was referring to the organic revenue growth.

Operator

Thank you. We will take our next question from Stefan Pettersson of Nordea Bank. Please go ahead.

Stefan Pettersson -- Nordea Bank

Yes, hello. I have three questions. The first one relates to the margin in Columbia. If you could state what that was in the fourth quarter? And also what was the reason behind the margin improvement and is it sustainable going forward?

The second question relates to the interconnect cost in El Salvador. How much of the revenues in El Salvador relates to interconnect? And what will the margin effect be from an interconnect cut? Do you have more incoming or outgoing calls?

And then the third question relates to depreciation. You made quite a big jump in depreciation sequentially this quarter compared to last year when you have much higher CapEx spend. Is there a reason why depreciation is increasing at this pace and shouldn’t we approach a level where depreciation is around the same level as CapEx going forward?

Mikael Grahne

Okay. I’ll start with the two first questions and Francois Xavier will come back to the depreciation. Colombia margins were in Q4 in the excess of 25%. One of the key driver there for the margin growth is our increasing growth in value-added services. That continued to grow very strongly in the quarter and we are confident in our ability to continue to drive the margins forward in Colombia in the months and years ahead.

In terms of the interconnect, I don’t have the specific detail for El Salvador, the bulk of our calls in El Salvador since we are market leaders tend to be on net. So, I think the interconnect is incoming revenues is a smaller part of the business.

François-Xavier Roger

As far as the depreciation is concerned the depreciation is mainly the consequence of the CapEx that we booked in the quarter, an average we depreciate around seven years to eight years. The volatility that we can see and that you are referring to is mainly the consequence of foreign exchange and the mix of foreign exchange impact on the amount of depreciation from the past that we have, that is going down according to the exchange rate of the given countries. So this is what explains the depreciation.

Stefan Pettersson -- Nordea Bank

And going forward regarding how we should view this in 2010 considering that we are approaching a level where depreciation is approximately the same level as the CapEx you’ve guided for?

François-Xavier Roger

We don’t provide any guidance on depreciation.

Stefan Pettersson -- Nordea Bank

Okay. Fair enough.

François-Xavier Roger

You can use the rule that I just gave you which will probably help you to do your own math.

Stefan Pettersson -- Nordea Bank

Yes. Okay. Thank you.

Mikael Grahne

Thank you.

Operator

Thank you. We will now move to Lena Osterberg of Carnegie. Please go ahead.

Lena Osterberg -- Carnegie

Yes, given the very strong report you published today, I was wondering why you are so cautious on guidance for margins for 2010, given that you’ve already above that in the fourth quarter despite a very strong subscriber take. And also second question is I was wondering what gearing would you think would be acceptable in case of prices and company acquisitions?

And then also finally if you maybe could shed some light on how you go about when you turn for subscriber intake? How do you target markets and when do you decide and how to push in a certain market, given that you say we should expect that subscriber intake will be volatile? Can you just give us some light on how you view your marketing campaigns and your pushes in different regions?

François-Xavier Roger

As far as the guidance is concerned, see, because its very much in line with what we’ve achieved in the full-year 2009. We don’t think that we are conservative, this is in line with what we think will happen, taking into consideration the volatility and the uncertainty in the global environment and potential new technique that could be introduced as we don’t have any information as of now.

As far as gearing is concerned, 0.5 times is relatively low, so we should look at many of the operators in emerging countries, many of them are at that level or even at the lower level. We said that we would be comfortable with the level of 1, which is a good amount, let’s say, and we also said that we did not have any intention to exceed to anywhere as far as net debt to EBITDA is concerned.

Lena Osterberg -- Carnegie

Okay. But you could go up to 2?

François-Xavier Roger

Would not exceed 2.

Mikael Grahne

On subscribers volatility, there are a number of markets in Africa today, where basically the government has imposed registration of prepaid customers, their SIM card and that normally slows down a little bit either the intake of new customers or you also can pose some threat to the marginal customers, you have on subscriber basis, they don’t comply with these regulations sometimes. So that’s why we go and out stay that we might see some volatility on the customer base.

Other than that, we don’t really plan any specific customer numbers. Our objective is to, as we said before, is to either hold on or improve our market positions and sometimes if we do something very successful, it gets copied out by our competitors so they might retaliate over a month or two. And over those months, we would see a slightly lower customer intake and that’s why we will get some level of volatility on these numbers.

Lena Osterberg -- Carnegie

Could you may be just say which countries in Africa that already implemented registration and which ones are to come and when?

Mikael Grahne

Ghana, Tanzania and DRC are in various stages of implementing this process. Ghana, DRC and Tanzania.

Lena Osterberg -- Carnegie

Okay. Thank you.

Mikael Grahne

Welcome.

Operator

Thank you. We will now take our next question from Andrews Winberg [ph] Abramas [ph]. Please go ahead.

Andrews Winberg – Abramas

Hello, Andrews Winberg [ph] here.

Mikael Grahne

Hi.

Andrews Winberg – Abramas

Hi. I just wonder on the ARPU side, I know you had a very strong quarter as you commented in particularly, South America, also Africa, which essentially after also the year-over-year declines in local currency has decreased a lot. I think we’ve received enough local currency in South America. Do you see all these things stable in those regions going forward or what should we assume as a very big paying shift compared to --

Mikael Grahne

Well, as we said before, I mean our focus on value-added services is really to encourage and get the active good customers, so we think it’s a great tool to work against, these are the natural decline of ARPU that would come from increased penetration. So, we are very focused on driving these value-added services because we can clearly see how they basically help to either keep or increase our ARPU. So, we’re going to continue on that track.

François-Xavier Roger

We have been very pleased to see the trend with the erosion slowing down or even bringing positive territories in Q4. (inaudible) Q4 might be a little bit of seasonal impact due to the effective season. It’s difficult to quantify it, but nevertheless if you look at the trend over the last four quarters; it’s really positive and encouraging.

Andrews Winberg – Abramas

In Colombo, you had issues, regulatory issues before. Can you comment a little bit how that is --?

Mikael Grahne

Yes, I think December 6, América Móvil who is a leading operator there have to implement a new pricing policy on their across net calls, where basically they could only charge whatever they charge on that plus the interconnect which is about $0.05 to $0.06 across net calls. But, here for to-date we haven’t seen a significant increase of incoming call from that. It’s too early to tell.

Andrews Winberg – Abramas

Thanks.

Operator

Thank you. We will now move to Kevin Roe of Roe Equity Research. Please go ahead.

Kevin Roe -- Roe Equity Research

Thank you. Terrific quarter, gentlemen.

Mikael Grahne

Thank you

Kevin Roe -- Roe Equity Research

Continuing on Africa, a couple questions. First, on Ghana, very nice turnaround in subscriber additions. You mentioned in your prepared remarks that you had lost some share, your subs went up materially. Is the market going fantastic or you’re talking abut losing share year-over-year, just some additional detail will be great?

And on DRC, we saw a deceleration of subscriber growth. Is that a reflection of a change in the competitive landscape or is there something going on with continued economic weakness. And lastly, the Africa margin was fantastic this quarter even with Rwanda dilution. Can you give us a sense of how much dilution Rwanda generated in the quarter on the Africa margin? Thank you.

Mikael Grahne

All right. Let me maybe start with DRC first. DRC has a customer registration policy in place. So from that point we have actually seen a slowdown on customer intake because we are very focused on ensuring that our high value customers really get registered in time. We noted with our competitors actually have reported a negative customer growth as a result. They seem to be having less prepared on that. There is a general slowdown in the economy, but still we managed to produce a 17% growth in local currency in the quarter, which we think is quite strong.

In Ghana, it’s just some small seasonal impact and if you look at sort of revenue growth, we were up 12% in local currency, which we think is a quite strong performance.

François-Xavier Roger

The dilution on Rwanda is still (inaudible) and exceed one percentage point in Q4 or it might be obviously higher or I mean over time, obviously in the course of 2010 increase, it’s material for you to have more visibility we may report on a separate line with and without Rwanda.

Kevin Roe -- Roe Equity Research

So the Africa margin would have been slightly above 20%?

François-Xavier Roger

Yes, yes.

Mikael Grahne

Marginally above.

François-Xavier Roger

It’s probably above 40%.

Kevin Roe -- Roe Equity Research

Very good. Thank you.

Mikael Grahne

Welcome.

Operator

Thank you. We will now take our next question from Soomit Datta of New Street Research. Please go ahead.

Soomit Datta -- New Street Research

Hey, hi guys. Soomit Datta of New Street. Quick question on the Central America, first. We saw much better numbers coming out of América Móvil, now reported a week or so back. And I just wondered, how much if you’re sort of seeing any increased competition from América Móvil across those markets if at all?

Secondly on Columbia, I just wondered, obviously the revenue trends are very good, they talked about value-added services and could may be give us a sense as to how much of the revenue growth was coming from handset sales if indeed it was at all? And then the final question on El Salvador, the tariffs, you said have come down in accordance with the interconnect cut, perhaps you could sort of quantify the percentage cut you’re seeing in tariffs across the market? It will be very helpful. Thanks.

François-Xavier Roger

Let me start with respect to Columbia there. We do not have any handset sales on prepaid. So the handset sales is pretty low basically. Our strategy in Columbia is really to focus on the young urban cool customers and value-added service is a key driver there. So we just have had tremendous growth on value-added services which both contribute to ARPU growth and as well as revenue growth and margin expansion.

In terms of Central America, América Móvil was quite weak in Q3, but it was still strong. I think specifically that it’s also the mix of businesses applied is different. We are, for example, very strong in Honduras that went through a very difficult political upheaval with the resulting decline in the living standard and ability to purchase our services. So we think it could be a mix issue, while there looks like the strong revenue in Q4 compared to us.

Mikael Grahne

So could you repeat the question on El Salvador?

Soomit Datta -- New Street Research

Yes, of course, just a comment in relation to the interconnect cut, you said, I think, end-user tariffs have come down sort of accordingly, suggesting in line with the interconnect cut. I just wondered what was sort of percentage tariff declines that implies, please?

François-Xavier Roger

That’s probably around 20-30% cut somewhere in that range. That’s approximately. It’s quite substantial. The interconnect costs came down, I think from $0.18 to $0.09 and we passed that on to the customers.

Soomit Datta -- New Street Research

Okay. That’s really helpful. Thanks.

Operator

Thank you. We will now move to Roopashree of Frost & Sullivan. Please go ahead.

Roopashree -- Frost & Sullivan

Good day.

Mikael Grahne

Hello.

Roopashree -- Frost & Sullivan

Hello. Good day.

Mikael Grahne

Yes.

Roopashree -- Frost & Sullivan

Good. I like to know last year Tigo Congo was the third largest mobile operator. And now in your report, now you are the first largest operator out. Could you elaborate on that?

Mikael Grahne

Yes, we are basically focusing our operations in the Bas-Congo Kinshasa area. So when we give you the market share there it reflects our position in that market area and not nationally.

Roopashree -- Frost & Sullivan

Not nationally.

Mikael Grahne

Okay?

Roopashree -- Frost & Sullivan

Okay. Yes. So it’s not your total number in that country, only in Bas-Congo and Kinshasa?

Mikael Grahne

Yes, our network is focused in Bas-Congo and Kinshasa. With the demise of the mining industry in the east, we moved more than 200 radio base stations from the east into this Bas-Congo Kinshasa area, which is the economic heartland of Congo today. So our strategy is really to be strong in that area and then later on maybe with the country to cover go back to the regions again

Roopashree -- Frost & Sullivan

Okay. Thanks so much.

Mikael Grahne

You’re welcome.

Operator

Thank you. We will now move to Thomas Heath [ph] of Bowman Equities [ph]. Please go ahead.

Thomas Heath – Bowman Equities

Hello, thank you. Just a quick question. You commented a little bit on Amnet and broadband. Was I right to interpret that you might be looking at acquisitions in fixed broadband? Thank you.

Mikael Grahne

We feel very comfortable with the business now. We start to understand fully how to leverage and grow these assets. And naturally in the markets we are in there could be opportunity to strengthen our position and maybe overtime we will look at similar opportunities in Latin America in the markets where we operate.

Thomas Heath – Bowman Equities

Okay. Thank you.

Operator

Thank you. Alexander Vassiouk of Morgan Stanley has our next question.

Alexander Vassiouk -- Morgan Stanley

Yes, hello. Can you please get back to the El Salvador interconnect cut? I’m a bit confused. You said you adjusted your tariffs by approximately 20% to 30%. And today if I look at your local revenues there was no much change sequentially. Can you just explain whether you saw a corresponding increase in the traffic volume or whether the full impact of the interconnect cut is still to be realized in Q1?

François-Xavier Roger

I think that tariff cut, of course, was only on approximate cost. The majority of our costs in El Salvador, since we are market leader on Amnet, so the approximate cut is a quite small segment for us and we actually saw virtually full elasticity on those tariff cut. In other words, our revenues held up quite nicely with that produce more minutes.

Alexander Vassiouk -- Morgan Stanley

Okay. Thanks. And also on Honduras, I’m also trying to understand how the tax works. Because you said the main reason for the local currency decline in Central America was the new tax introduced in Honduras. And then you’re saying that it was introduced in July. How would that explain the sequential decline in revenues between Q3 and Q4?

François-Xavier Roger

Don’t have the quick answer to that one. We’ll have to look into the minutes and revenue distribution on my segment; don’t have that answer in front of us here.

Alexander Vassiouk -- Morgan Stanley

Okay. All right. And then finally, I just wanted to ask you. I think you were promising to give some more clarity on the use of proceeds from the disposal of Asia, just after your Q4 disclosure. Maybe you could just elaborate on how you see the priorities between shareholder remuneration and store growth?

François-Xavier Roger

I think it is very clear in this communication that we are prioritizing external growth. And we are actively pursuing opportunities in this respect. And that’s our priority for the moment.

Alexander Vassiouk -- Morgan Stanley

All right. Thank you.

François-Xavier Roger

Thank you

Operator

Thank you. We will now move to Andreas Joelsson of SEB Enskilda. Thank you.

Andreas Joelsson -- SEB Enskilda

Hi, this is Andreas from Enskilda. Two questions, if I may. The subscriber intake you took in this quarter was quite strong. Can you say a little bit that when you’re focusing on loyal and value-added customers, is that the majority of the 2.1 that you took? And then also what kind of tax rate do you expect going forward?

Mikael Grahne

Let me start from the customer base. Our service deliveries and our product developments and all of that is naturally focused on things that more active customers would use. But that doesn’t mean that the lower ARPU customers occasionally could use our services, something like the ring back tone that cost you maybe less than a $0.01 per day to use it’s something to appeal to broad segments. So, we’re basically providing services and offering them in a manner that they’re acceptable for all people with all kind of basically income level. So it’s just a result of good marketing and good distribution and having the right services to sell on a value-added platform.

François-Xavier Roger

As far as the tax rate is concerned, we had the tax rate last year of 27.2%, which is slightly higher than what we had in 2008. We (inaudible) having a tax rate below 30%. So very difficult to forecast it because it’s a mix of tax season revenues and tax season profits as well as (inaudible). By the way last year we have been slightly impacted in negative way on taxes due to the fact that we are relatively more divisions last year and we paid a little bit more it will impact of the consequence. But we are pretty comfortable in having a negative tax rate below 30%.

Andreas Joelsson -- SEB Enskilda

Perfect. Thanks.

Operator

Thank you. We will now move to Jan Dworsky of Handelsbanken. Please go ahead.

Jan Dworsky -- Handelsbanken

Thank you. I have a couple of questions. One, in relation to in being so successful in driving value-added services. From the 21% of revenues in Q4 2009 do you see that continue to grow better revenues at the same pace as we saw in 2009?

François-Xavier Roger

Yes, we are very optimistic. Just to give you some perspective, our most advanced market, when it comes to value-added services is Paraguay, where I think the value-added services as a percent of recovering revenues is at 37%. And there is nothing unique in the Paraguay market except superior customer understanding and development of all products at much better expectation. So we are very optimistic that we can continue to grow this value-added service segment in the months and years ahead.

Jan Dworsky -- Handelsbanken

In total, does that support and drive models higher neutral or being a drag on?

Mikael Grahne

On average they drive higher margins.

François-Xavier Roger

On average 10% higher EBITDA margin than in voice.

Jan Dworsky -- Handelsbanken

And if we look at sequential improvement in Africa, in the third quarter, I think moving the network in Congo was one driver for the sequential improvement. Just there were anything to highlight or was the improvements across those markets?

François-Xavier Roger

It was an improvement across the board in non-African markets. So DRC contributed to it and the fact that we moved half of the equipment from the western part of the country to eastern, focusing on Kinshasa and Bas-Congo will certainly have, but we saw an improvement across the board, Tanzania is certainly a country that has been doing better than the others and which have been the higher or a contributor from that point of view. But all countries provided their contribution.

Jan Dworsky -- Handelsbanken

Then on your CapEx guidance for 2010 in terms of power sharing and moving the towers off the book, is that through? Is the Ghana included in that or have you seen that you will do that in other markets within the 700 million guidance?

François-Xavier Roger

Within the $700 million on guidance, however, I mean even in Ghana, for example, the time to close and to execute the entire transaction going to take a few months and we are working actively on doing similar because these are really contributing to a high value creation. But by the time, it really gets its coming back I mean the impact for 2010. We’re not saying minimal, but will be let’s say relatively limited. But, certainly in 2011, we certainly see significant impact.

Jan Dworsky -- Handelsbanken

So if you take Ghana in 2011, what kind of magnitude on CapEx should we have?

Mikael Grahne

We haven’t planned that far, but for your perspective sort of speed of executing something like this. You might talk about 100 towers a month from a transfer point of view. And in Ghana we have to transfer some 700 towers. So it’s a quite long process.

François-Xavier Roger

The impact, we can’t give you any figure as far as the impact for Ghana CapEx in 2011.

Jan Dworsky -- Handelsbanken

Okay. Thank you.

Operator

Thank you. We will now move to Chris King of Stifel Nicolaus. Please go ahead.

Chris King -- Stifel Nicolaus

Good morning and congratulations.

Mikael Grahne

Thank you.

Chris King -- Stifel Nicolaus

Just had a quick question on the América Móvil news that they are interested in consolidating Telmex International. Just was wondering if that changes your strategy at all in Latin America either with Amnet or potentially other fixed line assets within the region directly or do you see that having competitive impact at all?

Mikael Grahne

It’s very difficult to say. These are sister company so they should have been able to cooperate already in either existing legal forms. We are setting our strategies in Central America and Latin America so we don’t see a change coming up because of that.

François-Xavier Roger

I think we have demonstrated as well that size that we might have to be performing in the given market. So we have been, obviously, relatively smaller than some of our competitors. It didn’t prevent us from delivering effective results over the last couple of years. We see it more as a synergy gain on that side which makes sense.

Chris King -- Stifel Nicolaus

Thank you.

Mikael Grahne

Welcome.

Operator

Thank you. We will now take a question from James Rivett of Citi. Please go ahead.

James Rivett -- Citi

Yes, good morning guys. I’m just wondering whether you can give some breakdown in terms of the CapEx guidance for this year, either in terms of region or in terms of the sort of 2G, 3G split. Thank you.

François-Xavier Roger

We don’t provide any guidance by region. But we gave some ranges in Miami. Whatever we gave at that time is still valid. So you can see it as our ranges. As far as the detail by category we don’t give any indication there, but obviously the bulk of it is still in 2.5G. 3G is mainly for capacity Latin America for 2010.

Mikael Grahne

The 2G, primarily the CapEx in Africa is 2G, and in Latin America the bulk is 3G.

François-Xavier Roger

What we can tell you though that mainly in Latin America, we are more talking outside the 3G capacity, we are more talking of maintenance CapEx, which we assess should be around 12% of revenues plus capacity on 3G.

James Rivett -- Citi

Perfect. Thank you.

Operator

(Operator instructions). We now have a follow-up question from Ric Prentiss of Raymond James. Please go ahead.

Ric Prentiss -- Raymond James

Thanks. I want to get back, you talked about your maturity schedule on the balance sheet and that you are looking at past were doing some work in local markets. Can you just update us as far as what the debt market is looking like around the world? What kind of range or what kind of in country financing you might be thinking about?

François-Xavier Roger

We are obviously looking permanently at pushing down the debt of operating level for two reasons. First of all we can benefit from the taxability of the interest rates. So it’s more attractive from that point of view, which we don’t enjoy, for example, with the higher bond in Luxemburg, which is asserting.

The second thing is that it’s a good way for us to mitigate countries further because we don’t want to have any assets in a given country of cash in some countries. But we want to have liabilities as well. And whenever we can without recourse and whenever we can in debt in local currency. That’s on the availability of debt capital markets in some of the countries is pretty limited especially in local currency, so we often have to do it in U.S dollars.

If you remember that some of our countries we are trading in dollars, which is the case of El Salvador or DRC, for example, so, whenever you have a market where you can go in dollars and without any (inaudible) it’s much better. We have that in all of our countries, either from commercial banks or from direct financial institutions across the world and we are permanently looking at extending it. We are looking as well at raising if we can public debt in some of our markets. So we are working in with different configurations in terms of that.

Ric Prentiss -- Raymond James

And obviously the tariff sales are a kind of form of financing as well?

François-Xavier Roger

Anyway even in the Tower company that we set up jointly with Helios in Ghana, obviously, the idea is to raise debt in local currency to leverage as much as possible in this company.

Ric Prentiss -- Raymond James

Okay. And then my question is with 3G spending in Latin America, can you update us as far as data card sales, what kind of price points you are seeing out there. It seems like that is may be also a driver what could help value-added services go forward?

Mikael Grahne

Yes, I don’t know on data card pricing sort of pricing is now below $50. And so it starts to become a quite more affordable product. I think in terms of data card customers, I think, in Latin America by the end of Q4, we were up at around 150,000 customers. And we did contribute though. That is really the key driver for us on the 3G data card opportunity. In fact, we’re doing very well on data card business in Columbia, where we are actually No. 2 on 3G services, although we have a significant lower market share than our two competitors on the 2G side.

François-Xavier Roger

And we see a limited offtake on handsets. I mean it’s much more convenient to use data with 3G card rather than mobile handsets.

Mikael Grahne

And we don’t see any limit to sell these products on a prepaid basis as well, because which was the one of the concerns that we had at the beginning, but we have been able to sell some pre-planned packages for one couple of sense now or by the day or by the week or by the month and it’s working very well actually.

Ric Prentiss -- Raymond James

Great. Thanks.

Operator

(Operator instructions). Gentlemen, it appears we have no further questions. I would like to turn the call back over to you for any additional or closing remarks.

Mikael Grahne

Thank you operator. I would just like to thank you for joining the call today. And we will look forward to seeing you soon. Thank you very much.

Operator

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

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Source: Millicom International Cellular S.A. Q4 2009 Earnings Call Transcript
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