Millicom International Cellular S.A. Q1 2010 Earnings Call Transcript

| About: Millicom International (MIICF)

Millicom International Cellular S.A. (MICC)

Q1 2010 Earnings Call Transcript

April 20, 2010 9:00 am ET

Executives

Mikael Grahne – President and CEO

François-Xavier Roger – CFO

Analysts

Stefan Pettersson – Nordea Bank

Ric Prentiss – Raymond James

James Rivett – Citi

Lena Osterberg – Carnegie

David Kestenbaum – Morgan Joseph

Martin Mabbutt – Nomura

Jan Dworsky – Handelsbanken

Kevin Roe – Roe Equity Research

Sven Skold – Swedbank

Stephen Mead – Anchor Capital Advisors

Andreas Joelsson – SEB

Bill Miller – J.M. Hartwell

Jean-Charles Lemardeley – JP Morgan

Operator

Good day, ladies and gentlemen, and welcome to the Millicom’s Q1 2010 results conference call. For your information, today’s 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 the conference over to your host for today Mr. Mikael Grahne, President and CEO and François-Xavier Roger, CFO. Please go ahead gentlemen.

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 have made an encouraging start to the year. Total revenues were up 16%, with an acceleration in constant currency revenue grow to 11.5% and a positive currency impact. Our EBITDA margin reached a positive level of 46.8% with the strong performance in all regions, and earnings per share was up 11%.

Cash generation continued to be good with nearly 26% of revenues converted to operating free cash flow. With a strong balance sheet and following the Asian disposals, we have decided to return $800 million to shareholders, as you will have seen from last week's announcement. Together with strong EPS growth, we are demonstrating our clear commitment to shareholder returns.

Slide 5, Customer numbers were up 21%, despite the uncertainty caused by the SIM registration process in four of our markets. Total revenue growth of 16% mainly reflects good customer momentum with an increasingly stable ARPU performance, as well as some currency benefits. The 20% increase in EBITDA is the fastest rate of growth for several quarters, and demonstrates good cost control as well as the benefits of increasing scale.

CapEx was low in the quarter at 99 million as a result of timing issues, but the working capital outflow reflects the payment of CapEx booked in the previous quarter. Taken together, these movements create a fair reflection of our investment activity during the period and produced an operating free cash flow at nearly 26% of revenues.

Slide 6, I know that many of you focus on our customer intake from own quarter to the next. While it is clearly important, there are any number of factors that can make it quite volatile. So we do not see it as a reliable indicator of our overall performance. We are much more focused on revenue growth, where our performance has been more consistent and where growth has accelerated this quarter.

This chart shows our quarterly intake over the last few quarters as well as the rolling average of the last four quarters, which gives a better picture of the underlying trend. As you can see, although quarterly days are very volatile, the moving average is really very stable. While we expect this average to decline over time as the market becomes more penetrated, it does demonstrate that our underlying performance remains very consistent.

Slide 7, looking at the sequential performance quarter-on-quarter, revenues declined marginally as expected after the holiday season, but EBITDA made further progress despite Q1 usually being seasonally weaker. Cash generation continued to be very strong despite the negative swing in working capital as a result of timing of CapEx payments.

Slight 8, as you know, ARPU has been a major focus for us over the last years. By stimulating usage, not only through value-added services and data, but also by customer segmentation and carefully targeted voice promotions, we have really begun to stem the decline in ARPU as this slight demonstrates.

In South America, and Africa in particular, local currency ARPU is now very robust year-on-year, while Central America has been affected mainly by external factors such as tax increases that are outside our control. We are also up against a negative mix effect with our lower ARPU African markets delivering higher growth than Latin America.

If we remove the effects of the country mix and the impact of taxes, the actual decrease in ARPU is around half of the reported figure.

Slide 9, breaking down revenue growth into its component parts, we were able to accelerate constant currency revenue growth to about 11% as a result of good ARPU management. We are now also benefiting from currency movements particularly in South America.

Slide 10, VAS continues to be a major driver of our top line growth with a 40% local currency growth rate on top of last year's high growth. Voice revenue growth is steady, but continues to be affected by interconnect regulation and taxes.

Slide 11, VAS represents almost 21% of recurring revenues, and delivering a more dependable and higher margin revenue stream that generates greater customer interest and loyalty. We maintained this rate in Q1 despite the holiday season typically being a time of increased usage of non-voice services. Within VAS, 3-G data is becoming an increasingly material element and will be a major focus for us over the coming quarters.

Just a year over its launch, data is already delivering over 3% of recurring revenues in Latin America from around 2% of customers. Broadband, whether wireless or fixed has affected growth prospects, and our total broadband revenues were up 93% year-on-year in the quarter.

Slide 12, our market share increased by 0.5 percentage point in the quarter with change in all three geographical regions. We were particularly pleased to continue to grow sale in Africa, despite the more significant competitive response in recent months after our strong showing in 2009. Since the beginning of 2009, we have grown our market share by 2 percentage points.

Slide 13, churn in percentage terms continues to be relatively stable; however, given our very strong customer intake in Q4, we did experience a higher absolute number of disconnections in Q1.

Please jump to slide 15. Now we will review the regional clusters in more detail. In Central America, customer numbers continue to grow at 15% annually in line with Q4 growth. In local currency revenues were flat. Given the impact of taxes and interconnect costs, this represents an encouraging performance and an improvement on the negative trends of 2009. EBITDA margins have so far held up better than anticipated, reflecting good cost control from strong growth from higher margin value-added services.

Slight 16, in South America, revenues increased by 17% in local currency. The continued strength of the Colombian peso took dollar revenue growth to 32%. In revenue terms South America is now almost on par with Central America. EBITDA for Q1 was up 41% and EBITDA margin was 42.4%, an improvement of 2.9 percentage points year-on-year driven mainly by improvements in Colombia.

As with Central America CapEx was unusually low due to timing differences, helping to deliver a very strong cash conversion.

Slide 17, in Africa customer growth continued to be strong despite the uncertainty created by SIM registration in three markets, and the softer competitive environment, particularly in Tanzania. At the end of March, we launched our half a shilling per second tariff in Tanzania, just as our competitors have matched our previous one shilling offer, and this had resulted in stronger customer intake with no impact on ARPU. We expect further volatility in customer growth while the registration process continues over the next few quarters.

Revenue growth at 26% in local currency remained strong, and is now much closer to the rate of customer growth thanks to our focus on stabilizing ARPU. EBITDA for Q1 was $33 million [ph], up 41% year-on-year with the margin increasing by four percentage points with our growing scale. Excluding Rwanda the margin was over 40%.

We generated 70 million of operating free cash flow in Africa, despite continuing to make significant levels of investment thanks to our improving margins.

Slide 18, turning now to our cable operations, we saw a consistent rate of growth in Amnet with revenues up 9% year-over-year. EBITDA margins have improved and cash generation was good. Amnet was cash flow positive and we expected it to continue to be so.

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

François-Xavier Roger

Thank you, Mikael. Slide 20, during the quarter, strong EBITDA growth translated into very good progress in earnings per share at plus 11%. Depreciation continue to increase quite sharply year-on-year, reflecting our continued investments and a negative effect from currency movements particularly in Colombia.

However, depreciation is down 7% in Q4 2009 and we're starting to benefit from the outsourcing of stores in Ghana, and we have revived the useful life of all of our stores from 10 years to 15 years to align with industry standards.

Slide 21, a tax rate was higher than in Q1 last year as the result of a very strong stream of dividends paid from our operations which attracts withholding tax. We still anticipate a full year of tax rate below 30%.

Slide 22, cash generation has continued to be a feature of our financial performance. Combined with an already strong balance sheet and most of the proceeds from the Asian disposals, we are proposing the return of 800 million to shareholders. This will still leave Millicom with net debt to EBITDA of less than one after the completion of the buyback program as well as excess cash for external growth.

Slide 23, all our clusters were cash flow positive in Q1. In Africa, this position may continue to vary from quarter to quarter depending on the timing of CapEx booking. We confirm our guidance for $700 million of CapEx full year and the low level of booking in Q1 is just a timing issue.

Slide 24, group free cash flow was $200 million during the quarter of 22% of revenues. While we benefited from unusually low CapEx booked as a result of timing differences, we also saw negative cash impact in Q1 from higher CapEx payment than in previous quarters.

Slide 25, turning to our debt maturity, we now see the average maturity of our growth debt at under three years. Our funding strategy is based on four elements, to extend maturities, to lower the net cost of debt, to secure sufficient liquidity, and to push down debt to operating level for best efficiency and to mitigate country risk. We expect to make further progress on these fronts in the coming month.

Slide 26, at this early stage in the year, we are happy to confirm the guidance given in February. Although we have outperformed so for, we continue to monitor changes to tax and regulation that could affect our performance. We are not aware of any other additional risk or any past or future known exposure has obviously been fully provided for in our returns and in our guidance.

Finally, as you know we plan to return 800 million dollars to shareholders in addition to the annual dividend already announced. While we continue to look for external growth opportunities, we have no intention of over paying for assets, and in the meantime we want to reduce our cash balances that were generating almost no return for shareholders.

This move still leaves us in a very strong and flexible financial position should new opportunities arise. As I mentioned before, our net debt to EBITDA would be still less than one after the shareholder returns, while our cash flow generation remained strong.

I would now like to hand over to Mikael for his final comments.

,

Thank you, François-Xavier. We are pleased with the start we've made to 2010. Economies are showing some early signs of stabilization, although we remain cautious of external factors. Although competition remains a fact of life, we continue to demonstrate that we are equal to it with a good formula of accelerating top line growth, strengthening margins and improving market share. We aim to continue to deliver a similar mix through the rest of 2010.

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

(Operator instructions) We’ll take the first question from Stefan Pettersson from Nordea Bank. Please go ahead.

Stefan Pettersson – Nordea Bank

Yes. Hello. I have a few questions. First of all, can you give some info on the taxes that might be introduced in Africa? And then, if you could give some information on the magnitude and timing of introduction of these taxes. Secondly, I would like to have some information regarding the competitive situation in Colombia after the regulatory changes. Has America Movil cut prices to defend position and also what was the EBITDA margin in Colombia this quarter? Finally, how does the changed life of towers change the average life of assets?

François-Xavier Roger

Okay. I will take the first question. On taxes in Africa, so we have two taxes that are currently under review and under discussion with the Government in Ghana via international incoming calls. And we see numbering tax as well as a spectrum tax. I mean I can't give you any amounts or any information on timing, because it is still under discussion between the industry mainly and the authorities.

But as I said earlier, I mean everything that is in our ability from the past regarding our taxes has already been provided for as far as Q1 is concerned, and anything that we're aware of has been provided for in our guidance.

Mikael Grahne

Okay. On Colombia, the regulatory body declared America Movil as having a significant competitive position, and as of December they were asked to reduce their gross rate from their Amnet tariff plus the interconnect that meant basically Amnet tariff plus around $0.05 compared to a situation before when the gross net tariff might have been the Amnet tariff plus $0.25.

We have not seen any significant acceleration of incoming calls from that operator as a result of the change. Usually, this takes a long time because it is something that our competitor is not very actively marketing to their customers. In terms of EBITDA performance, we have continued growth in the EBITDA margin in Colombia in Q1.

François-Xavier Roger

Regarding the change in depreciation policy for the towers, so we move from 10 to 15 years to align our practice with industry practices because we were really on the low side. Even – understand some operators even depreciate them over 25 years. The impact on the quarter on Q1 was around $8 million.

Stefan Pettersson – Nordea Bank

Okay. Thank you.

Mikael Grahne

Welcome.

Operator

Next question comes from Ric Prentiss from Raymond James. Please go ahead.

Ric Prentiss – Raymond James

Hi. It's Ric Prentiss. Good morning, good afternoon. Two questions for you guys, if I may. First, on the Central American region, margins continue to do nice there, even in a competitive environment and with the changing of the taxes and the interconnect rate. Can you share with us a little bit about where you think margins might be headed in that region and what it might mean for the group margins? And then, the second question is on the stock buyback. I noticed you were going to be doing the buyback on NASDAQ by year end. What form will that buyback take and, as you look out, how much cash do you want to keep on hand long-term in the business?

Mikael Grahne

Okay, I will start with the Central American margins, as we said before, we don't see basically from an operating point or from an industry point of view significant threats to our margins because we have very strong positions, high level of Amnet calls which clearly raise the margins, and very strong advance on West [ph] that continue to strengthen.

As we always said, there could be some regulatory or fiscal changes that could have an impact on those margins. But from an operating point of view, we don't see that and we are quite confident that from an operating point of view we cannot keep on holding on to those margins.

François-Xavier Roger

As far as the share buyback is concerned, so we will do it through an open market purchase with a broker. On NASDAQ, our intention is to complete it within the next nine months or before the end of 2010. We will obviously not do any share buyback during blackout periods. We have the approval to start now, but we will need further approval to a complete it because the approval that we have now is valid till the next GM that is taking place in May.

Mikael Grahne

As far as the cash that we intend to maintain, as we said in the past we don't need more than $500 million in cash for liquidity purposes. So any cash over $500 million will be excess cash. We have no intention, frankly speaking, to keep any excess cash because we're destroying value somewhat, but we may keep some if need be for a short period of time, if we think that we may use it for external growth at a later stage, as we did over the last couple of months.

Ric Prentiss – Raymond James

Right. And the external growth, I think you mentioned you don't want to overpay for assets, which I applaud. Some of the pricing has gotten high out there. How do you view the marketplace? Are you a buyer? Are you a seller? Are you a patient watcher? Just how do you view the external M&A process?

Mikael Grahne

First of all, I would like to start by that we concluded that as you are aware, the most important scale is really the in-market scale being number one or number two in the markets where we compete. That drives a sustainable long time profitable growth. So as we said before, any acquisition would have to be purely opportunistic and complementary rather than strategic.

So we would only buy assets if they meet that criteria. In addition we are looking at the number one or number two position in the market, something that we can reach within a reasonable period of time. I think clearly we would not have both the assets from Zain at the kind of a price Bharti reportedly has paid for that. It is a little bit difficult to really fully assess that pricing, because Bharti again has not publicized fully their 2009 results for Africa. But if the price is paid as reported, we would have not done those acquisitions that those pricing levels.

Ric Prentiss – Raymond James

Great. Thank you.

Operator

Next question comes from James Rivett from Citi. Please go ahead.

James Rivett – Citi

Good morning, guys. I just had one question. As you're talking about the African competition, we know that it's heated up in Tanzania. Can you just give us an update on the position there, and whether you're seeing things get tougher in any of the other markets since the turn of the quarter? Thank you.

Mikael Grahne

Yes, I just like to comment on Tanzania. This has been quite competitive in Q1. (inaudible) pricing significantly. We looked at this and we actually followed in March, but just to our number in Q4, we had a local currency growth in Tanzania at 47%, and in this quarter we were at 45%. So I would believe that we clearly are outperforming our competitors in Tanzania at this moment even in this very competitive situation.

James Rivett – Citi

And there's been no change since that period – the tariffs, the stock, and everything is the same?

Mikael Grahne

Well, we announced as I said in the opening remarks, we have moved, come up with the new tariff, which is basically half a shilling, and we have seen an increased customer intake as a result of that. But this is nothing new. I mean, we go through. I mean we operate in competitive situation period, and we just have created a model and implementation capability to be the winners in it.

James Rivett – Citi

Great. And this hasn't spilled through into any of the other markets for this stage?

Mikael Grahne

I think you know all the markets continue to be competitive, I mean, that is – there is no big change from that perspective.

James Rivett – Citi

Okay. Great. Thank you.

Operator

Next question comes from Lena Osterberg from Carnegie. Please go ahead.

Lena Osterberg – Carnegie

Yes. Hello. I was wondering, when you decided to do the extraordinary dividend on the share buyback program, why didn't you opt to also address the high-yield bond at the same time? That's my first question. The other issue, I was wondering if you could maybe say something about where the margin in Colombia is currently? And also, I was wondering, Rwanda, the expected future negative effect on EBITDA – if you could give us some guidance on that.

François-Xavier Roger

As far as the high yield bond is concerned, we did indeed consider redeeming the high yield bond, and we said in the past that this was one of the options that we were looking at. I mean the board and the management have decided not to redeem it at that stage. We are aware of the fact that this is a fairly expensive financing, and there is also a cost attached as well to the fact of early redeeming it.

So for the time being we have decided to maintain it because it provides some liquidity as well. But as I said earlier, I mean we're seriously looking at different options in order to extend maturities of our debts, reduce the cost of our debt, secure sufficient liquidity and push down debt. So we're looking at it and I mean the decision is not entirely final at this stage.

Lena Osterberg – Carnegie

Again, I ask you – my understanding is that the cost of redeeming the bond is 3.35%. You pay an annual interest of, I think, $45 million and on top of that, you don't have a tax shield. So, I'm – I just can't figure out why you're not doing it.

François-Xavier Roger

You know, if we redeem first of all, we have to bear this penalty of 3.3%, and if we issue, for example, a new bond we have to pay probably around 2% of upfront fee. So in terms of payback it is quite a lot of money to pay upfront, the 3.3% plus the 2%, which make the – the payback is not always as attractive as it may look at first glance.

But once again this is something that we permanently look at and it must depend on the other option that we have to secure long-term financing under other configurations, and indeed as you said the ideal situation would be to be able to secure long-term financing at the operating level, and we are working on it.

Lena Osterberg – Carnegie

Is it very difficult to that currently?

François-Xavier Roger

It depends; I mean we're working on 13 different markets. So what is indeed difficult in a market might be easier in some other market. And I mean there are different options as well, because we can go for private financing. We can go for financing through direct financial institution or we can go through public financing as well. So there are different options and we are looking at different options.

Mikael Grahne

Colombia margin in Q1 between 25% and 30%, continued margin improvement. There are two factors driving that scale and focus on cost, but the primary factor is basically continued growth from value-added services that come with higher margins. So we're very busy establishing Tigo as the real young urban cool choice in Colombia. That said it is working well for us.

Rwanda, of course it is a Greenfield project and we are just in I think in month four since the introduction. So we're right now focusing on building enough scale on the subscriber base so that we can start you know on the financial numbers, once we have enough momentum and revenue. So, I would expect the Rwanda would cost us 1% to 2% of EBITDA margin in the next few quarters.

Lena Osterberg – Carnegie

Okay. Thank you.

Operator

Next question comes from David Kestenbaum from Morgan Joseph. Please go ahead.

David Kestenbaum – Morgan Joseph

Okay, thanks. Mikael, could you just update us on what's going on with the process in Laos and what exactly happened with the Vimpelcom? And then, also the process in Costa Rica. Thanks.

Mikael Grahne

Yes. We have a share processing agreement with Vimpelcom. All the conditions were satisfied. Vimpelcom elected not to compete because they wanted basically full approval from the government, which wasn’t the condition on the sale. And in order to protect our position, we came out with a release that you might have seen. We are still confident that we will complete the disposal of Laos in given time.

David Kestenbaum – Morgan Joseph

So…

Mikael Grahne

Yes, go ahead.

David Kestenbaum – Morgan Joseph

Sorry. So, if they do get full approval of the government before, in the near term, then they may actually buy the asset, is what you're implying, right?

Mikael Grahne

Yes, that is correct. But we still believe that we are in a strong position to sell this asset.

David Kestenbaum – Morgan Joseph

Okay.

Mikael Grahne

In Costa Rica, we are still looking at the opportunity, the license – exact license rules are not fully known. But it is something we are studying.

David Kestenbaum – Morgan Joseph

What is the time – sorry.

Mikael Grahne

I'm not updated on the time but I think it is -- the final rules should be quite imminent.

David Kestenbaum – Morgan Joseph

Okay. Thank you.

Operator

Next question comes from Martin Mabbutt from Nomura. Please go ahead.

Martin Mabbutt – Nomura

Well, thanks very much. Just a quick question on CapEx, if I may. You talked about the benefits of the 3-G networks that you've put in one or two places. I wondered how that's going to impact on CapEx maybe beyond this year. Do you expect CapEx to rise from the $700 million level or do you see that as an ongoing fair level for future years?

Mikael Grahne

Well, we haven't given any guidance beyond 2010 on CapEx because we need to invest in 3G coverage in our markets, primarily in urban areas when it comes to Central America and also in some smaller cities in Colombia, where 3G actually is performing very strongly because of lack of alternative.

I know – we are comfortable with the 700 million guidance for this year, and we haven't done any plans for 2011.

Martin Mabbutt – Nomura

Okay. Thanks.

Operator

Next question comes from Jan Dworsky – Handelsbanken. Please go ahead.

Jan Dworsky – Handelsbanken

Thank you. A question on Senegal, any update on the process in Senegal?

Mikael Grahne

Not any material update. The arbitration committee has gone through a few hearings, and so the process is ongoing. And as I said before, we do not expect a very rapid resolution. In the meanwhile, the business in Senegal is performing relatively strongly. We had revenues up 11% in the quarter, and basically subscribers were up 21%. So steady progress there. I think we have strong support among the ordinary people there in the country. So slow progress as we said before.

Jan Dworsky – Handelsbanken

When it comes to Ghana and I'm not sure if Globacom has launched yet or if they are just about to launch. Do you see that as a sort of potential threat in Ghana or just another –?

Mikael Grahne

Yes, we are used to competition. They have not published a launch date in Ghana. You know, they are quite busy doing free advertising. We are slightly uncertain when the last date itself is going to be. Clearly, Ghana is still crowded with six plus operators. So over time there has to be some consolidation. We are the number two operator with a very strong number two position, you know, I feel that you know, if there is any consolidation we are in a good position to take advantage of that.

Jan Dworsky – Handelsbanken

Then, I just want to come to back to your answer in relation to the margins in Central America. Is it – I think, previously, you said that in terms of the group margin reaching mid – sort of being maintain at mid-40s that you saw some pressure in Central America and margins in Africa reaching group levels. But now based on your answer, it sounds like you don't see any operational issues that will really take down the margin in Central America. Is that a correct interpretation?

Mikael Grahne

Yes, I think we always – yes, I think we always emphasize that from an operating point of view we felt the margins you know, were quite defendable. The threat was always from either regulatory or fiscal change that could impact that and because of that we still maintain the status that, you know, if Africa EBIDTA margins over time grow up to group average you know, probably we will have a decline in the Central American markets to counter that.

Jan Dworsky – Handelsbanken

Then, just finally on the operating cash flow target of mid-teens, with CapEx at the same level as last year and based on the organic growth and the margins, why shouldn't operating cash flow of central revenues be in line with 2009?

François-Xavier Roger

Yes, I mean if we look at it, the cash flow level on that we generated in last two quarters indeed, I mean our guidance may look a little bit conservative. We are still in Q1 and I mean, cash flow can be slightly volatile due to working capital adjustments and maybe CapEx payments. So we are still early in the year. I tend to agree with you that might be a little bit conservative, but for the time being we maintain that guidance and we will review that carefully – we keep on reviewing it carefully regularly and if need be, I mean, we will review it accordingly in the next quarter.

Jan Dworsky – Handelsbanken

Okay. Thank you.

Operator

Next question comes from Kevin Roe from Roe Equity Research.

Kevin Roe – Roe Equity Research

Thank you. Mikael, I wanted to follow up on your Zain Bharti commentary. They compete with you in four key African markets. Do you see this ownership transition as a potential market share opportunity or do you see it as a competitive threat with these assets now under Bharti’s control?

Mikael Grahne

I think I mean I have full respect for Bharti as an operator. They are probably going to do a better job than Zain did at the end of the period, given that they were “for sale” for a quite long period. I think we have very strong positions in Africa and as you can see from our numbers, we have consistency over the last year and even in this quarter, probably outperformed our competitors.

So to get that kind of a momentum going, it normally takes a few years because we have to get all the right people into the right position with the right know-how. So you know, I expect that this is going to continue to be as competitive as ever, but it is going to take maybe sometime for Bharti to get up to speed.

Kevin Roe – Roe Equity Research

So, potentially a near-term opportunity, given the transition?

Mikael Grahne

Yes, both potentially but we have for respect for them as a competitor so.

Kevin Roe – Roe Equity Research

Great. Thanks.

Operator

Next question comes from Sven Skold from Swedbank.

Sven Skold – Swedbank

Hi. Actually, most of my questions have been answered, but I have a few of them left here. First of all, when you say that you have seen a stabilization of the macroeconomic environment, is that an improvement in minutes of use or was it – what is it that you have seen? And I'm wondering specifically about Central America. And second, when you have cut the termination rates in El Salvador, have you seen – I mean, is the use picking up as a consequence of lower prices?

Mikael Grahne

Let me answer the El Salvador first. Interconnect rates typically across outgoing as growth rate falls have less elasticity to it than if you cut the rate on net cost. So we haven't seen a big increase there in shifting. I mean, in additional – so since, we have such a dominant position there we don't – we have a relatively limited incoming call compared to our own net call. So we haven't seen a big difference in incoming calls either.

In terms of macroeconomic environment that's probably more so you know, spots here and there. You can look at things like the Ghana currency that was declining very rapidly in 2009. Now it seems to have stabilized. So it's more signs like this than any hard macroeconomic data that you know lends us to say that we've seen some stabilization. I think in general, but I think in Africa it's very difficult to get reliable you know, up-to-date macroeconomic data.

Sven Skold – Swedbank

And how is minutes of yours doing, I mean, excluding the value-added services, which is obviously going up. But I mean, the call minutes, how are they doing?

Mikael Grahne

Yes, I mean you have – I mean you have a lot of volatility. The reason we don't report the minutes of use because we have a lot of volatility quarter-to-quarter, depends on promotional activities. We don't find that necessarily very good data to share. So there hasn’t been any material difference in the calling patterns compared to you know, previous quarter in general. As we said in 2009 there was sort of a tendency for more Amnet calls primarily driven by promotional activities and less incoming international calls, primarily Central America because of taxes, you know, on those international calls.

Sven Skold – Swedbank

Okay. Thanks.

Mikael Grahne

Okay.

Operator

Next question comes from Stephen Mead from Anchor Capital Advisors.

Stephen Mead – Anchor Capital Advisors

Yes, hi. Can you talk a little bit more about the value-added services in terms of you know, what level of ARPU those services are at in different parts of your operations? And are any of those on sort of a contract basis? And as you look forward, what does the growth of broadband or value-added services mean as far as the CapEx number?

Mikael Grahne

Yes, in general you know, our value added services perhaps are mainly only unique for a period of time, because we tend to be first. It is a little bit more difficult to copy value-added services in comparison to a price change because you have a, you know, small IT machinery working in a complex environment, and we focus a lot in terms of education and execution. So all the value-added services all the time gets copied by competition. The reason we stayed ahead is that we tend to be first and we do it better.

In terms of what the growth could be, our best performing market in terms of value-added services is Paraguay, where value-added services represent 39% of recording revenue versus Millicom average of 21%. There is no reason why over time many other markets could be that those levels. In terms of 3G CapEx it is actually on voice minutes. It's more productive or more cost-efficient than 2G and so far also the margins we generate from data tends to be slightly higher than the margins on voice. So we have good return from those investments.

Stephen Mead – Anchor Capital Advisors

But do you see the impact on ARPUs?

Mikael Grahne

Well, I think one of the key reasons for ARPU, you know, us having relatively defensible ARPU is the fact that we have a strong growth in value-added services and that's now will be complimented with strong growth on data. You know, basically we are attracting the good users from the market and from our competitors, people to whom the number is important and also higher user. So we think the focus on us truly has helped us in protecting our ARPUs.

Stephen Mead – Anchor Capital Advisors

And where are you in sort of the banking services and some of the other value-added services actually kind of get you into a different functionality as far as the use of the phone?

Mikael Grahne

Very early on we basically are going to open up a few test markets in 2010. Primarily focused stage one on pure in-market transfer where there seems to be a big need basically transferring money from one city to the other. So we will have a few markets in Latin America and in Africa up and running in 2010 based on in market transfer, and then that's a platform that we will add other services over time.

Stephen Mead – Anchor Capital Advisors

And do you expect the improvement in Colombia, in terms of margins, to continue as the year progresses?

Mikael Grahne

Yes, we said, yes we believe maybe there could be some variation quarter-to-quarter, but the guideline we have given is that in two years time we believe it can be up in the mid-30s as a margin target.

Stephen Mead – Anchor Capital Advisors

All right. Thanks.

Mikael Grahne

You're welcome.

Operator

Next question comes from Andreas Joelsson from SEB.

Andreas Joelsson – SEB

Hi. It's Andreas Joelsson from SEB Enskilda. You mentioned good cost control in the quarter. Is there any areas where you have been sort of, say, cautious on costs, any specific area or what is this cost control consisting of?

Mikael Grahne

Well I guess, I should have said continuous good cost control because it's really the kind of a mantra we have. You know, part of our philosophy always have been that we spend the money as it would be our own. So it is just continued focus on trying to improve processes, look at smarter ways of you know, taking the product to the market or energy usage at the site. I mean, it is a continuous challenge to figure out how we can do – what we do better at a lower cost. So it should be really continued cost control.

Andreas Joelsson – SEB

Perfect. Thanks.

Operator

(Operator instructions) And we’ll take our next question from Bill Miller from J.M. Hartwell.

Bill Miller – J.M. Hartwell

Hi. Good morning. Good evening to you.

Mikael Grahne

Good morning.

Bill Miller – J.M. Hartwell

Just – are there any other tower deals or anything else like that that can decrease your capital intensity and also increase your margins? And secondly, historically it's been noted that the African margins would progress at about 1% a quarter. Now, taking out Rwanda as the negative, do you still see that as a possibility and there a target of getting to 45%, which is your – the margin that was mentioned at that time. Is that a possibility for this year or is that something that is going to be further out, again, ex-Rwanda?

François-Xavier Roger

As far as African margin is concerned, we didn’t say 1 point a quarter, we said 3 points a year, which is a little bit less. I mean, little bit more than a year ago, we were 35% and we said that we would reach within three years about close to the average margin of Millicom, which was 45% at that time. So we are already at 40%, which means that we did half of the way in about one year. So we’ll get there eventually and we confirm the fact that we will be certainly within less than 2 years at the average margin of Millicom, which is close to 45%.

So, I didn't hear your…

Bill Miller – J.M. Hartwell

Tower deals. Any more?

François-Xavier Roger

Our tower deals, yeah, sorry. So we are, as we said in the past activity working on similar deals to the one that we did in Ghana, maybe under slightly different configuration, because each market has its own specificities, but we are certainly working very actively on similar transaction, both in Latin America and in Africa because we believe that the time when, I mean the coverage was a differentiating factor is really not the case anymore. So we don't see real competitive advantage except maybe in one or two markets in controlling and owning the towers. So we expect to announce similar deals by the end of the year.

Bill Miller – J.M. Hartwell

Good. Thank you.

Mikael Grahne

Welcome.

Operator

Next question comes from Jean-Charles Lemardeley from JP Morgan. Please go ahead.

Jean-Charles Lemardeley – JP Morgan

Yes, hello. Just first of all, want to confirm that you took a one-off charge in Ghana of about $4 million in reduced revenues in EBITDA for the quarter? And then, my second question is on what – the interest of Bharti. I mean, what are your expectations of Bharti? And particularly, if you could discuss what you're thinking of. The ability for them to implement their manufacturing model in those African markets, how easy would it be for them to replicate what they've done in India and to be disruptive on pricings? If you would comment on that, it would be great.

François-Xavier Roger

Regarding Ghana, I confirm that we took a provision in Q1 for any liability that we are aware of regarding mainly VIT on taxes and in turn [ph] no incoming calls but we don't disclose the amount, because we are still negotiating with the authorities. So I can't tell you more about it at this stage.

Jean-Charles Lemardeley – JP Morgan

But that impacted your reported –

François-Xavier Roger

It didn't in Q1, which is the reason why you may see that's actually our top line growth was little bit lower, but we gave in our release the top line growth, excluding this provision.

Jean-Charles Lemardeley – JP Morgan

Yes.

Mikael Grahne

Yes, on Bharti, we think Bharti could be a good competitor for us in Africa since they passionately believe in sharing the positive infrastructure given their tower call venture and outsourcing model they have implemented in India. So we are also strong believers in you know, sharing the positive infrastructure and there could be a good partner for that.

In terms of the minute factory that's nothing new, we have already been working on it for many years in Africa. The only difference I would say between India and Africa is Africa really is a high cost environment, when it comes to energy which – there is none, not enough for or even (inaudible) and so on. So I think it would be difficult for Bharti to get down to similar very low level in terms of rates per minute as they would have in India and still make a return, but we already have quite attractive Amnet recurring minute crisis in our key markets, which are substantially below what we would see on the tariff rate card itself because of promotion on minutes and other packages we sell.

Jean-Charles Lemardeley – JP Morgan

Okay. And just a follow-up on the tariff sharing, and maybe on tower deals, can you guide us again on the impact? I mean, the Ghana deals, the impact it has on your financials. So, you – obviously, your balance sheet, you get an active – and asset of the balance sheet. The license of the balance sheet – what has it done – does it do in terms of OpEx – of cash OpEx on an ongoing basis?

François-Xavier Roger

The benefit that we get from such a deal at least the way we are structured in Ghana because I'm not sure that all of the – which of these will be similar, but what actually happened is that we sold our towers to a company. So I mean, we have reduction of assets, we have reduction of depreciation as a consequence, which already happened in Q1. The impact for Ghana was about $1 million in the first quarter for Ghana only.

We will have no CapEx going forward in the future for towers, because the tower company is going to do it on our behalf. And we will reduce our OpEx as well, due to the fact that the leasing agreement that we have with tower company, the cost of leasing will be lower than our current operating costs. So we are winning both on the balance sheet and the P&L, which is really an indication that it is a good deal. It is not a trade-off between the balance sheet and the P&L. It is a win-win situation.

On the top of it, as far as the leading guy is concerned, we have a strong minority stake in the tower company, which mean that we would get the upside the fact of having more than one tenant. We are already close to 1.2 tenants on our towers with this joint venture with Helios in Ghana.

Jean-Charles Lemardeley – JP Morgan

Thank you very much.

Operator

We will now take a follow up question from Bill Miller from J.M. Hartwell. Please go ahead.

Bill Miller – J.M. Hartwell

Yes, one other minor point. You were talking about the macroenvironment, is there anything that you can appoint in the way of remittance trends that would help the macro which originally, obviously, wasn't macro?

Mikael Grahne

We had a – for the first time I don't know in how money quarters we had an increase in the remittances into Central America for March. But you know that is a small number, and there has been a little bit, quite a lot of volatility in those numbers, but that could be one small encouraging sign. I think for the first time in something like six or seven quarters, there was an increase in the actual remittance number from US into Central America.

Bill Miller – J.M. Hartwell

Great, thanks.

Mikael Grahne

You are welcome.

Operator

(Operator instructions) As there are no further questions, I like to hand the call back over to Mr. Grahne and Mr. Roger 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 look forward to seeing you soon. We have now fixed the dates for our market visit of Tanzania, which will be on the 8 and 9 of September, and we will be in touch with logistic details in the due course. Thank you very much and goodbye.

Operator

Thank you. That will conclude this conference call. Thanks for the participation, ladies and gentlemen; you may now disconnect.

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