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Call Start: 08:00

Call End: 09:11

Millicom International Cellular SA (OTCPK:MIICF)

Q4 2011 Earnings Call

February 8, 2012 8:00 AM ET

Executives

Mikael Grahne – President and CEO

François-Xavier Roger – Chief Financial Officer

Analysts

Mark Walker – Goldman Sachs

Cesar Tiron – Morgan Stanley

Stefan Gauffin – Nordea

Mauricio Fernandes – Merrill Lynch

Miguel Garcia – Deutsche Bank

Lena Osterberg – Carnegie

Erik Pers – Danske

Soomit Datta – New Street Research

Thomas Heath – Handelsbanken

Andreas Joelsson – SEB Enskilda

Kevin Roe – Roe Equity Research

Barry Zeitoune – Berenberg Bank

Jean-Charles Lemardeley – JP Morgan

Bill Miller – Hartwell

Operator

Good day, ladies and gentlemen. And welcome to the Millicom Q4 2011 Conference Call. For your information, this call 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 hosts of today’s conference, Mr. Mikael Grahne, President and CEO; and François-Xavier Roger, CFO. Please go ahead.

Mikael Grahne

Thank you and welcome to you all. As usual, you can find the slides for this call on our website. Please go to slide number three. In Q4, we recorded underlying local currency revenue growth of 10.1%. Our focus remains on high value customers and in Q4, 80% of our revenues were generated by 30% of our customers who have an ARPU about $10.

We have seen a stabilization of ARPU in Latin America in local currency and in Africa, there has been a slowdown in the rate of ARPU erosion despite our continuous focus on affordability. Overall, the year-on-year decline in ARPU was close to half the decline in Q4 last year.

We are seeing continuous strong development of VAS across the group. Most specifically, in Latin America, our non-voice service contribute over one-third of our recurring revenue and half of our growth in recurring revenue is coming from mobile data services.

We produced an EBITDA margin of 45.5% for the quarter and a high level of profitability in a period of the year when we traditionally invest more in commercial activity. In Q4, we returned $436 million to shareholders in the form of dividends and share buyback.

Slide four. For the full year 2011, we recorded local currency revenue growth of 10.5%. We ended the year with an EBITDA margin of $46.1 in line with our guidance and reflecting our investments in innovative services.

In 2011 and for the second year in a row, we returned close to $1 billion to shareholders, half in dividends and the other half through our share buyback program, and we ended the year with a net debt to EBITDA of 0.8 times.

The Board will propose to the AGM in May a dividend of $2.40 per share to be paid to shareholders in June. This represents an increase of 33% over the 2010 dividend. In addition, a share buyback program of up to $300 million has been approved for 2012.

In line with our strategy of finding the right balance between growth and returns, in 2011, our ROIC increased to 28% from an already high level of 26% in 2010.

Slide five. Now, let’s look at the financial highlights for the fourth quarter in more detail. Revenues for the quarter were $1.18 billion, up 10.1% year-on-year. The EBITDA margin was $45.5, 1 percentage point lower than for the prior year eroded by the revenue mix in our products and markets.

In Q4, we invested $396 million or 33.6% of revenues in CapEx bringing the total for the year broadly in line with our guidance. Despite our high investment in OpEx and CapEx in Q4, operating free cash flow generation in the quarter remained strong at $300 million, including proceeds from the tower disposal of close to $100 million in Q4.

Slide six. Our commercial investment in data and services in the fourth quarter amounted to $258 million, up around 5% over Q4 2010. Subsidies were up 6.1%, less than in previous quarters for three reasons.

Firstly, our detailed analysis of ROIC per device that we shared with you at our Capital Markets Day enabled us in Q4 to be more efficient and selective in our subsidies. Secondly, the decrease in smartphone prices reduced the total amount we spent for phone on subsidies in Q4. And thirdly, we were active in the fourth quarter in market in prepaid data bundles with lower commercial costs to grow the addressable market for data services.

Overall, in 2011, our sales and marketing costs increased by around 12%. We expect to increase our commercial investment further in 2012 in order to grow the penetration of 3D services. We expect the information category to be our largest growth driver again in 2012.

Slide seven. I have already highlighted our full year revenue growth of 10.5% and our EBITDA margin of $46.1, reflecting investments in 3D services. I would also like to add here that despite of our 20% increase in CapEx year-on-year, our cash flow generation in 2011 was the highest ever at over $1.2 billion even excluding the contribution from tower disposals.

Slide eight. For 2011, overall, we produced an average growth of 10.5%, only 0.8 point lower than in 2010, despite the most challenging economic environment. For 2012 and 2013, our ambition is to grow our revenues by 8% to 11% in local currency. As you can see on this slide, we have experienced some volatility and revenue growth quarter-on-quarter, and we expect quarterly growth to be somewhat uneven in 2012.

Slide nine. Our focus on the quality of our customers rather than on their absolute number is what is driving our topline performance. Looking at the ARPU development by region, you can see that in Latin America ARPU was essentially stable year-on-year, in South America, ARPU has been growing positively for over a year. In Central America, a high level of low ARPU net addition in the festive season was responsible for the decline seen in Q4 ARPU.

In Africa, mobile ARPU was 5.5% lower. The marked improvement over the year-on-year decline reported in Q3 2011. ARPU in Africa will continue to decline for some time as we pursue penetration gains and raise the traffic volumes and minutes of use through affordability initiatives.

Slide 10. As you can see on this slide, we are seeing a positive shift towards greater revenue generation from higher value customers. Here we have the data for Latin America. In Q4, 38% of our customers had an ARPU of 10 or more $10 or more and generated 86% of our revenues.

In Latin America, by focusing on less than 10 million customers, we will be able to allocate our resources more efficiently, ForEx for instance by across the mobile data services to the customer who can more easily afford to adopt them in this initial phase.

Slide 11. Looking at the breakdown of our revenues by service, you can see voice and SMS revenues were more resilient in Q4 than in previous quarter. The 8% growth reported in SMS, combined with 35.5% growth in non-SMS VAS, produced a year-on-year growth in excess 24% in all non-voice services combined.

Slide 12. We have seen a 3.9 percentage point increase in the contribution of VAS to the group revenue over the past year. Of the 28.5% contribution reported in Q4, 18.5 points are coming from non-SMS VAS, which is where we are concentrating our efforts.

Please move to slide 14. The sales revenue by our five categories is set out on slide 14. As we communicated last week, we are strengthening our organization structure to better serve the needs of our customers in our five categories.

As you can see, the bulk of our growth in Q4 comes from information and in particular, from mobile data which grew by 58% year-on-year. We are pleased that our solutions in MFS categories are already contributing a meaningful part of our growth. We look forward to growing the contribution further thanks to our improved organization structure and our ongoing investment in these categories.

Slide 15 to 17. The next three slides provides details of performance of key services in our three fastest growing categories, mobile data in the information category, zero balance products in the solutions category and Tigo Cash in MFS.

In particular, we are pleased to share with you that in 2011 Tigo Lends You, our most successful product in the solutions category generated in excess of $30 million in revenues and was used by more than 50 million customers. In the MFS category, the penetration Tigo Cash in Tanzania has materially increased versus Q3 from 30% to 80% and in Paraguay, the penetration is now 20%.

Revenues in the MFS category grew 64% quarter-on-quarter. In 2012, we will launch MFS in at least three more markets. We also planned to extend the range of services available in all our categories to meet the specific needs of our customers in each market.

Now, I would like to handover to François-Xavier, who will talk you briefly through the results for each region and the financials.

François-Xavier Roger

Thank you, Mikael. We come now to the region starting with Central America on Slide 19. Revenues from mobile and cable operations in Central America were up by 6.2% year-on-year in local currency. This solid topline performance is supported by strong growth in data services.

We also saw a significant increase in net addition of lower ARPU customers in Q4 attracted by our seasonal promotion on prepaid data packages. These packages generated reductively low ARPU with incurred limited subsidy costs.

Overall, we recorded a 20% year-on-year increase in total net additions in the region, which in term has a dilutive impact on reported ARPU for the quarter. Our EBITDA margin remained stable at 51.3% with a more measured increase in subsidy level this quarter.

Slide 20. In South America, revenue increased by 14.4% in local currency with all three markets reporting a strong performance. Mobile ARPU was up by 2.2% in local currency, as a consequence of ongoing forecast on mobile data on Cordova. The increased commercial spending, combined with a one-off cost related to employee cost, contributed to a year-on-year decrease in EBITDA margin to 41.9%.

Slide 21. Revenues for Africa were at $249 million, up 10.6% in local currency year-on-year and direct ARPU erosion slowed down in the quarter to 5.5%. We anticipate further ARPU erosion in Africa in 2012 as we focus on affordability initiative to drive down growth in penetration and usage.

We recorded strong performances in Chad, Rwanda, Tanzania and Mauritius during the quarter, with Rwanda reaching EBITDA breakeven just two years in the launch of our operation. In DRC, we experienced difficult trading conditions in December in the aftermath of the election. In Ghana and Senegal, the situation remained challenging but we have taken action in terms of pricing which we expect to yield reserves over time.

EBITDA for Q4 was $102 million, up 9.2% year-on-year and the EBITDA margin was 41%, down 0.7 percentage points year-on-year as a result of our forecast on affordability in particular in Ghana and Senegal. We recorded higher CapEx payments in Africa of $145 million due to phasing. In 2011, we invested in excess of 15% of our revenues on 3G CapEx in Africa where we expect a growing demand for better.

Now let’s look in all details of the financials starting with slide 23. We see tax optimization as a good driver of EPS growth. We are pleased to report that our effective tax rate, excluding exceptional items, has come down in 2011 to 25.2%.

We are confident that, going forward, we will manage to return an effective tax rate of less than 30% of profit before tax despite the effect that we are seeing increasing corporate -- we see increasing corporate tax rates, for example, in El Salvador, where the rate has increased from 25% to 30% as of the 1 January, 2012.

Slide 24. Normalized EPS grew by 9% to $1.72 and was negatively impacted by foreign exchange losses on higher depreciation than last year. As a reminder, last year, we extended the useful lifetime of October from 10 years to 15 years, which had a positive impact of depreciation and resulted in a particularly low level of depreciation in Q4 2010.

Slide 25. Our normalized EPS grew 26% overall year-on-year in 2011 supported by EBITDA growth of successful debt restructuring activities and OpEx deficiency initiative.

Slide 26. Our free cash flow for the quarter was $248 million, up 21% of revenues, amounting to $982 million for the full year 2011, a record free cash flow in the year of increased investments.

Slide 27. Supported by growth of 26% in our normalized net income, the Board will propose to the AGM to be [continued] in May, the payment of the $2.4 dividend per share. The buyback program of up to $300 million has been approved by the Board and will be executed on all available platforms, NASDAQ OMX, over-the-counter in the U.S. and through MTFs. We will remove the cap on purchases on the U.S. market that we previously have in place.

We’re also pleased to share with you our revised dividend policy. From 2012 onwards, we commit to pay at least $2 per share as an ordinary dividend and no less than 30% of our normalized net profit. Our intention in the absence of attractive external growth opportunities is to return excess capital to shareholder as we did in the last two years.

Slide 28. By the end of the year we have completed all tower closing in Ghana. In Q4 we completed the first closing in DRC representing approximately 50% of the total number of towers committed in that market.

We are still completing additional closing in Tanzania to bring the completion to around 70% of the objective. In Colombia by year end, approximately 1,340 sites have been transferred to ATC Infraco representing about two-third of our total tower portfolio. We also acquired 40% minority stake in ATC Infraco during Q4.

Total cash proceeds for tower in 2011 were $163 million and we expect to receive another $140 million in 2012 and $30 million 2013.

As we have previously stated, the five deals that we have done to date, three in Africa and two in Latin America, we generated net present value in excess of $600 million estimated on a conservative this year basis. We will continue to pursue other opportunities to share passive infrastructure which could include 3G or 4G network and spectrum, enabling us to focus on our core activities.

Slide 29. At the end of Q4, our cash position was $916 million and our leverage ratio stood at 0.8 times net debt-to-EBITDA.

Slide 30. Turning to our debt maturity, we see the average maturity of our gross debt at three years and three months. 54% of the debt is at fixed rates, meaning that we are less exposed to interest by volatility to debt once have been reduced our total cost of debts.

Slide 31. In line with our achievements of about two years in 2012, we again aim to strike the right balance between revenue growth, profitability, cash flow generation and return on invested capital. We guided on EBITDA margin around the mid-40s in 2012 and operating free cash flow margin of around 20% and the growth in CapEx which however will not exceed 20% of our revenue. The increase of CapEx year-on-year demonstrates the confidence that we have in the growth opportunity in our businesses.

We also anticipate that the impact of taxes and regulatory intervention in our market will be slightly higher in 2012 than in 2011, but as we have done in the past, we are working to mitigate this impact. We wish to reiterate that all of previously communicated mid-term ambitions remain valuable.

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

Mikael Grahne

Thank you, François-Xavier. Slide 32. I would just like to close with a quick summary here. We are pleased with the performance achieved in this quarter and throughout the year 2011. We grew our topline by 10.1% in Q4 and close the year with an organic revenue growth of 10.5% in line with our expectations.

In 2012, we are strengthening our organization structure so as to better serve the needs of our customers in our 14 markets and our five categories. This new structure is designed to support our strategic goal to accelerate the development on new products and categories, deepen our consumer understanding skills and to bring innovation to our go-to-market strategies once we continue to focus on increasing efficiency

We will now be happy to take your questions. Operator, may we have the first question please.

Question-and-Answer Session

Operator

Thank you, sir. Our first question today comes from Mark Walker of Goldman Sachs. Please go ahead.

Mark Walker – Goldman Sachs

Hi there guys. I have a few questions, please.

Mikael Grahne

Hi.

Mark Walker – Goldman Sachs

Number one, given the focus on ARPU that you’ve reiterated versus subscriber growth could you just give us some more color on the addition of the low ARPU customers in Central America that has worsened the ARPU trend in that region?

And then secondly, the spectrum purchases of $44 million occurred in the year is that -- do you think that is all indicative of the FY ‘12 incremental CapEx? And can you also confirm this new license expires in 2012?

And then the final question, could you just give us some idea what assumptions you’re making around the penetration of sub $100 smartphones in your revenue and EBITDA margin guidance? Thanks very much.

Mikael Grahne

All right. That was whole set of question. Let’s start with the lower ARPU customers added only in Central America typically around the festive season and the holidays, you get Central American immigrants from the U.S. coming back to their home countries, and some of them pick up extra local phones that are not used that much so that could be one driver. So we don’t see anything strategic in that. That’s more tactical for the season.

In terms of spectrum acquisitions, wherever we can, we like to buy spectrum. Normally, you have good payback because you reduce the CapEx required. It’s very difficult to give a guidance for 2012 because government are not always in advance forthcoming on the exact date and spectrum available for auctions, so it’s more of reactive process. But as I said, whenever we can, want to buy spectrum at the right price and we normally get a good result on that.

François-Xavier Roger

Yeah. We don’t have any licenses expiring in 2012. The next one is charted 2014 and (inaudible) 2015. So we still have time, it’s over, I mean, we start working on it early enough. You had a question on the penetration of the smartphones around $100.

The good news is that a little bit more than a year ago we had, let’s say, the entry level smartphone was priced at about $200. Now, we get closer to $100 which means that it’s going to increase the affordability for the customer and increased penetration of 3G overall.

And the other benefit that it will reduce probably the amount of subsidy that we are spending, which you saw somewhat in Q4. We don’t have precise data on the penetration of such devices for the time being but this is something that we will monitor in the future.

Mikael Grahne

Generally, you could assume that the 9.7 million customers in Latin America that generate 86% of revenues and have an ARPU higher than $10 would be sort of a target for mobile data penetration.

Mark Walker – Goldman Sachs

Okay. Very clear. Thanks a lot, guys.

Mikael Grahne

Thank you.

Operator

And our next question today comes from Cesar Tiron of Morgan Stanley. Please go ahead.

Cesar Tiron – Morgan Stanley

Yeah. Hi.

Mikael Grahne

Hi.

Cesar Tiron – Morgan Stanley

Congratulations on the strong results. I have two questions, please. First one on the shareholder remuneration, you said you would return the excess cash to shareholders. Does it mean that another buyback is possible in H2?

And second, on -- my second is on Colombia. Could you please explain how you’re seeing the MTR cut would impact your competitive landscape in the country, I understand that your strategy is mainly focused on data, but it should help you continue to gain market share in the country and probably give some data points such as revenue growth in Colombia in the quarter if possible. Thank you so much.

Mikael Grahne

In terms of shareholder remunerations, what we do now is quite similar to what we did in the last two years, which is to announce ordinary dividend, which increases by 33% at $2.40 per share, which is quite the sizeable increase, as well as the share buyback program of $600 million for the branding, so which means in total $550 million. And there could be more coming if we spend very much on what could happen on the M&A front. This was the case as well last year.

So if we find any opportunity, we may stop the shareholder remuneration at this level that’s $550 million. If we don’t find any opportunity as this was the case last year, so we have clearly mentioned our intention to return any excess cash to shareholders as we did last year. I imagine that, okay, you have the question on share buyback or extraordinary dividend. There is no decision at this stage because for the time being we just announced a $550 million shareholder return.

François-Xavier Roger

In terms of Colombia, we more -- we’ve done the number a analysis of the possible impact of the MTR cuts. It’s difficult either to see an upside or downside, so we sort of, it’s more or less a non-event when it comes to us.

And you also have to recall that today in Latin America 33%, almost 34% of the revenues are non-voice and in Colombia that number is even higher. So the impact is also less for the total, but we have assumed really no major impact. In terms of disclosing the revenue numbers for Colombia. We will not do that.

Cesar Tiron – Morgan Stanley

Thank you. But those MTR cuts should still have you continued to gain a market share, right?

François-Xavier Roger

Possible, but we are not building our plans based on that.

Cesar Tiron – Morgan Stanley

Thank you.

Mikael Grahne

Welcome.

Operator

And our next question will come from Stefan Gauffin of Nordea. Please go ahead.

Stefan Gauffin – Nordea

Yeah. If I could just follow-up on the buyback program. Do you intend to spread out the buyback during the entire 2012 or is this a first half 2012 event?

And then a question on, you mentioned that expect some order to decline in Africa in 2012. During 2011, the ARPU decline has been around 7%. Does that ever reflect a fair level also for 2012 or should we expect more or less?

And finally, you mentioned the year sort of tax effect in El Salvador, but there’s also tax increases in Bolivia and Honduras. Can you say approximately what the tax rate impact will be in 2012, if all are equal? Thank you.

François-Xavier Roger

For the share buyback, we don’t give any information on the timing. We could technically start later this week but this is a program that we announced for the whole of 2012 depending on market conditions. The only thing that we have said is that we could do it on any of the three platforms, NASDAQ OMX, beyond the pink sheets in the U.S. or MTFs given that we will favor as we did in the past NASDAQ OMX and the U.S. market.

And in terms of tax pressure or regulatory pressure, indeed we have indicated, at least on the tax line, the increase of the corporate income tax in El Salvador from 25% to 30%. For the rest of this, we don’t want to comment too much because a lot of these taxes, maybe some of them have been the laws have been passed but have not been enacted so we are not even sure about the exact timing of their implementation. So we have disclosed all of them in our Q3 release, as well as in our Q4 release, but we can’t say much because we don’t always know much more than what we have disclosed.

Mikael Grahne

In terms of Africa ARPU, it’s difficult to give a forecast on that one because we have a number of factors impacting that number. But first is geographic mix. And in 2011, we tended to grow at a higher rate with new subscriber addition in Rwanda which had the lowest ARPU in Africa.

So it -- one is the country growth in relation to each other, second, the key driver could be the growth of MFS, we know from experience in Tanzania that the people who use our services and in the last quarter it was 17% on our customer base, tend to generate additional ARPU that would then excel to growth and then we have the data segment. So there’s a lot of various factors that aiming to really impacts to ARPU growth or ARPU decline in Africa. So we are not in a position to give a forecast on it.

Stefan Gauffin – Nordea

Okay. Could I just make a follow-up on Africa? There was some subscriber losses in the quarter and you say that you have made adjustments in both Ghana and Senegal. Do you see a reason to -- is the impact from this sort of visible in ARPU already this quarter? Should we expect further ARPU impact from price reductions?

Mikael Grahne

I think, price reductions because majority of that reduction was at gross net. To recall at gross net price reductions have lower elasticity than on that. We think the price -- the low pricing we put in place is sort of a more of a long-term build rather than the short-term. So, again, it’s difficult to give a projection on that one.

Stefan Gauffin – Nordea

Okay. Thank you.

Mikael Grahne

Welcome.

Operator

And our next question today comes from Mauricio Fernandes of Merrill Lynch. Please go ahead.

Mauricio Fernandes – Merrill Lynch

Thank you very much. Two questions, please. First on, we’ve been hearing and I think you comment about the flat monthly fees that could be introduced in Paraguay or the flat rates in order to charge this thing for on-net and off-net calls. So, the question is how much would that impact Millicom’s results there and if you could share, what is the level of MTRs in Paraguay at this point?

And the second question, there’s been talks about the Colombian regulator changing the way -- may come over to Comcel or publishes it’s pricing plans in Colombia in a way that they would have to show their pricing plans before to the competitors. And if the competitors would match the plan and it would be approved by the regulator licensing, would it. How do you see that coming and whether that’s feasible to happen, there will be a unique regulatory measure relative to other countries? Thank you.

Mikael Grahne

Yeah. Let me start with the comment of Colombia. I think I don’t want to give anything out on that one. It’s a regulatory issue and if they have their own agenda that they will pursue, let’s see what comes out. But as a constellation, it looks somewhat unlikely.

In terms of Paraguay, and again, it hasn’t happened yet. There is a law but no decree. The MTR is supposed to go from $0.06 to $0.04 U.S. cents. We don’t know when that will be valid. In terms of being able to forecast the in parts of going to a flat tariff on voice, we will try to be creative around our packets, how we bundle products and so on, so it’s too early to tell and again, remember in Paraguay about 40% of the revenue is non-voice, so we have many tools to operate with in that market.

Mauricio Fernandes – Merrill Lynch

Okay. That makes sense. Thank you very much, Mikael.

Mikael Grahne

Welcome.

Operator

Thank you. (Operator Instructions) And we’ll take our next question which comes from Miguel Garcia of Deutsche Bank. Please go ahead.

Miguel Garcia – Deutsche Bank

Yeah. Good morning.

Mikael Grahne

Good morning.

Miguel Garcia – Deutsche Bank

I want to gauge your level of commitment to some of the African operations that seem to need some consolidation, right? Will it be a better use of your capital to solve some of those operations with your less successful and increase your presence in Latin America in those markets that could generate synergies with your current operations? Thank you.

Mikael Grahne

Well, let’s answer the questions. We are 120% committed to Africa. We don’t feel we have any weaker operations. In fact, our growth in most markets tends to outperform our competitors and we’ve spent years building very strong either number one positions or number two positions. So if some data is a consolidation in the market, we would plan to be consolidators rather than consolidates.

Miguel Garcia – Deutsche Bank

Okay. That’s clear. And in the – with, I mean, regardless you’re committed to Africa, would you be open to considering new markets in Latin America or are there new Latin America markets that are interesting for you in terms of generating synergies?

Mikael Grahne

Yeah. Like we said before, I don’t believe in global scales, I don’t believe in regional, only the number one or number two in the markets we compete in. So from a scale point of view, at this stage, we haven’t felt the need to go into new markets.

It’s more of an opportunistic, if you can find the right market where we can see ourselves getting a number one or number two position over time and a return that would exceed country-wide over time we would do so. But those opportunities are not that many.

Miguel Garcia – Deutsche Bank

Very clear. Thanks a lot.

Mikael Grahne

Welcome.

Operator

Thank you, sir. And we’ll take our next question comes from Lena Osterberg of Carnegie. Please go ahead.

Lena Osterberg – Carnegie

Yeah. I’m sorry I was cut off in the middle of the call. I’m sorry if you already mentioned this, but I was just wondering how many of your towers you have transferred today and also I’m wondering out of the total tower base in all of your operations, what’s the potential that you could transfer that make sense for you to transfer just to see how much there remains? That’s the first question.

And then, second, I’m wondering but you’ve said repeatedly over the year that you’re focusing on higher value-added customers and now, you’ve taken in some customers on the low and which are diluted ARPU. What’s the reasoning behind this and as you previously mentioned that, I was thinking was 1% of your -- 33% of your customers generated less than 1% of revenues?

Mikael Grahne

Yeah. We are not -- just to be very clear, we are denying anybody’s access to our networks. So if you have seasonal effects and people travel from their home countries who spent time with their families, you automatically end up picking up new customers who might not be there for long. So we don’t have any mechanic to hinder things.

The second element of these lower ARPU customers, sometimes they are part of an ecosystem. So you have a family farther that might be higher ARPU customers who have children who they just like to being contacted than it’s more -- just incoming calls to this once a week or something like that.

So we are not really doing anything to deny it, to deny access. We are just focusing on really building the customer segment to whom the number is important and many of our -- so we didn’t buy this extra customers in Central America. They just came on. There is no concerted effort to attract them.

François-Xavier Roger

Okay. On the towers, so in Ghana we have transferred 100% of the towers. In Tanzania, DRC and Colombia, we have transferred roughly speaking two-third of the towers. We still have about one-third to transfer. In terms of cash, we have got a little bit less than a half though because there was a bit of a delay in the payment.

Do we have more opportunities in towers? Yeah, little bit in Latin America and some African countries as well. But we believe that what is less is of a lower interest that is in terms of value creation, which doesn’t prevent us from working on it.

So we are rather moving to the next stage which is to check what kind of other passive infrastructure we could share. There is certainly an interest in doing so for fiber because fiber has a huge capacity that we can obviously share it and we have even more interest to share either 3G or 4G network or spectrum.

And for example, when we look at the situation in the Swedish market, for example, where the entire 2G, 3G, 4G, I mean, network some spectrum of shares. We know that it’s an excellent driver to reduce both CapEx and OpEx. So that’s what we are targeting right now.

Lena Osterberg – Carnegie

And do you see any markets that would be ready for that you have joint venture?

François-Xavier Roger

We are looking any markets. We have a difficulty to find an agreement with the competitor of ours, obviously which is not easy. We know that these deals take time and this next stage will be probably more complex than what we done, especially when we have to build something with the competitors, but there is a possibility that something could happen before the end of 2012, as the first market but we are looking at all of them.

Lena Osterberg – Carnegie

Okay. Thank you.

Operator

Thank you. And we’ll take our next question now from Erik Pers of Danske. Please go ahead.

Erik Pers – Danske

Hello?

Operator

Hello, Mr. Pers, please go ahead your line is open.

Erik Pers – Danske

Can you hear me?

Mikael Grahne

Yeah. Go ahead.

Erik Pers – Danske

Good. I have a question about voice revenues and your voice revenues were almost flat in Q3 just 1% up I think in local currency and now they accelerated to, I think it was 3.6% up or something like that, quite a positive aspect in this fourth, I think. Could you give us some additional flavor and sort of detail on how that was achieved which regions and their services or segment rather? Thank you.

Mikael Grahne

Yeah. I think the number elements, firstly we had -- we are continuing to experience good growth on SMS, particularly in Latin America. We don’t see penetration, per say, increase but we see the usage. So, I think our SMS revenues were up 8% in the quarter.

On the voice side we have done a lot as we discussed before. We’ve done a lot of customer segmentation and we are also successfully tagging and triggering these customers, meaning that you are a customer who belong on a certain segment, you run out of balance in the same sector and you’ll get an SMS from us offering a tailored offer for you that fits your consumption needs.

And it’s that continuous refinement on this growth offer that has led to our customers appreciate the value it brings and basically consuming more. So it’s continuous refinement on customer segmentation and product design.

Erik Pers – Danske

Okay. And your minutes of use, can you comment on that?

Mikael Grahne

We -- there is so much volatility on minutes of use because so we don’t normally comment on that, because you have things like promotional minutes and so on so impacting it. That’s why we are more focused on our ARPU, which is the amount of money people spend.

Erik Pers – Danske

Thank you.

Mikael Grahne

Welcome.

Operator

And we’ll take our next questions from Soomit Datta of New Street Research. Please go ahead.

Soomit Datta – New Street Research

Yeah. Hi there. I was hoping just for point of clarity on Paraguay and to go back to the regulatory changes there. The on-net prices you offer now are equivalent to the off-net prices?

Mikael Grahne

No. They are not.

Soomit Datta – New Street Research

Okay. And when will they have to be by?

Mikael Grahne

We don’t know. That’s the uncertainty here. We know that a law has been passed. But no decree issued yet to enact the law. So it’s slightly uncertain when that would come into place.

Soomit Datta – New Street Research

Okay. Thank you.

Mikael Grahne

Okay.

Soomit Datta – New Street Research

And then just as a follow-up, could you just take me through the rationale, I’m not sure if this applies to Africa generally or whether it was Ghana specifically, but why the reduction in off-net tariff prices versus on say on-net prices given the elasticity comments, what’s driving that decision? Thank you.

Mikael Grahne

Okay. Without revealing too much on strategy here to our competitors, basically our two competitors equalize their on-net and off-net price and we did not follow that. So we had a higher across our off and a lower on.

And for the first-half of the year we didn’t feel the impact of their activity. We then started to get the market research basically customer complaints about our tariffs and our affordability perception so we more or less copied their model and so that’s the position we are in.

Soomit Datta – New Street Research

And it’s not just -- that was just Ghana, was that more generally with all other market.

Mikael Grahne

Yeah. Specifically Ghana.

Soomit Datta – New Street Research

Okay. Thank you very much.

Mikael Grahne

You’re welcome.

Operator

Our next question today will come from Thomas Heath of Handelsbanken. Please go ahead.

Thomas Heath – Handelsbanken

Thank you. Firstly, a question on the priority of your targets, I know some previous years you changed your internal compensation target for senior management in terms of gross margin and cash flow. I was just wondering, if you made any changes to your incentive schemes there? And then if you could have a word on the Senegal situation as well? That would be great. Thanks.

Mikael Grahne

Yeah. In -- as of 2012, we are incorporating ROIC as a component of our LTI, our long-term incentive.

Thomas Heath – Handelsbanken

All right.

Mikael Grahne

So that’s the change.

Thomas Heath – Handelsbanken

And which…

Mikael Grahne

Yeah.

Thomas Heath – Handelsbanken

Which sort of factors are being or paved the way for ROIC, then?

Mikael Grahne

The TSR, total shareholder return.

Thomas Heath – Handelsbanken

Okay. Thank you.

Mikael Grahne

You’re welcome. In Senegal so the hearing managed by the World Bank actually took place in December in tariff. Now we are waiting for the outcome from the tribunal. So we cannot comment on the situation. But we expect that probably we will hear their final decision probably at the end of Q1 or most probably Q2.

Thomas Heath – Handelsbanken

Okay. Thanks.

Operator

And our next question will come from Andreas Joelsson of Roe Equity Research. Please go ahead.

Andreas Joelsson – SEB Enskilda

For SEB Enskilda I think that should be. Two questions if I may on data ARPU. And first of all data ARPU is sequentially down in the quarter. Could you please explain the dynamics on that? And then also given that handsets now are approaching $100, do you think the penetration of data users will accelerate in 2012 versus 2011?

Mikael Grahne

Yeah. Let me adjust at the penetration. Yeah, logically the penetration should actually direct, because from the voice side, the normally the biggest hurdle is how to access the services and the monthly fees. So once you have a capability to access, it’s easier to adapt to the monthly fees. So we would expect some increase in the penetration for falling handsets.

In terms of ARPU, there could be some volatility. We had some focus in Central America on prepaid customer acquisition to try to drive that penetration and normally a prepaid customer comes with significantly lower ARPU at least in the beginning was the postpaid.

Andreas Joelsson – SEB Enskilda

Okay. Thanks.

Mikael Grahne

Welcome.

Operator

And our next question will come from Kevin Roe of Roe Equity Research. Please go ahead, sir.

Kevin Roe – Roe Equity Research

Thank you. A couple of questions. First, Mikael, thanks for reiterating your criteria for greenfield investments. Could you update us on your appetite for in-market consolidation cable broadband minority stakes? That would be helpful.

Mikael Grahne

Okay. In general, we have delivered in-market consolidation. I mean in our industry, it’s good to be number one or number two and possibly number three before five or six. It’s normally not a strong position to be in.

In Africa, in particular have too many operators. I don’t believe that the regulatory environment is there yet for government to see the logic in this consolidation. I think it will happen over time, but I’m certain that it will take a few years until we get there.

Kevin Roe – Roe Equity Research

And on. Yeah.

Mikael Grahne

Cable and broadband, we are very pleased with what we have delivered with on-net sequential three years ago. I mean, we have reached 12% compounded annual revenue growth over the last three years and we have the margin which is for on-net not so far way from the on-net margin in America. So we are very pleased with that. So, if we can -- if we find some other opportunities like this one in our market even that there are very few of them in Africa to start with, we would go for it, obviously at the right price.

François-Xavier Roger

So from a strategy point of view, we believe in honing the last mile to the home. Not so much long-term for the phase of the entertainment side, but primarily for the broadband opportunity. Demand for increased speed is going to grow our side, among our users as it has done in the developed world.

Kevin Roe – Roe Equity Research

Do you think we could see some activity on the Nordic states in 2012?

François-Xavier Roger

I think we have very strong unhappy minority shareholders in our key markets. So I don’t expect any movements there.

Kevin Roe – Roe Equity Research

Happy is good. One last question, Senegal, your prepared remarks you mentioned increasing the investments there. Is that a reflection of an increase confidence in that market?

Mikael Grahne

Well, it’s as shift of investment. We feel our base in the outcome of the final hearing that we had early December. We’ve been investing throughout the years we have this dispute and it’s just now we need shift that investment to power which was something that the government that was behind in delivering and typically in our side, we have one generator that then could cope with a certain amount of outage but can’t cope with the outage today’s level. So we are putting in the second generator, which from a logistic point of view, it take some time to put in place. So we feel it to build that investment in Q1, Q2.

Kevin Roe – Roe Equity Research

Very, good. Thank you.

Mikael Grahne

Welcome.

Operator

We’ll move now to our next question which comes from Barry Zeitoune of Berenberg Bank. Please go ahead.

Barry Zeitoune – Berenberg Bank

Hi. Good afternoon. It’s Barry Zeitoune from Berenberg. First question is, you mentioned obviously, I heard the potential in the taxes, the ones in Bolivia and El Salvador you’ve already detailed and Honduras. From what you’ve said before, I believe that Bolivia tax would be a tax on revenues. I’m not sure about the Honduras tax. Given that these are not yet in place, have they can build into your margin guidance or are they excluded from your current margin guidance?

Second question is whether you can confirm if and how much was paid for the 40% stake in the Colombia Tower Corp.? Was that just simply offset by the cash amount that you received?

And then third question is on subsidies. You mentioned that the lower cost of smartphones has driven lower subsidies. I was also wondering whether you’re seeing any less competitive intensity driving lower subsidies in Q4?

And then finally, I was just interested in, I’ve been interested in some of the comments you made on smartphone pricing and data pricing. Do you think it might make sense to any point to lower the cost of data as the cost of smartphones is coming down to try and promote uptake? Thank you.

Mikael Grahne

Sorry, can you repeat that last question if it’s...

Barry Zeitoune – Berenberg Bank

Yeah. I’m just wondering how you view your current data pricing. So, data pricing being high in the context of high smartphone prices might make sense. But as this price of smartphones comes down, do you feel it might make sense in terms of boosting penetration to lower the cost of data for the end user?

Mikael Grahne

Okay. That was whole host of question. Let me start with the taxes built in the guidance. Yeah, we more or less model different things when we build our plan, but remember, additional taxes and fees have always been a feature of the Millicom life.

And I think we have had a strong track record in trying to mitigate and find cost saving license to balance this for many things from tower outsourcing to fiber network rather than these to savings on distribution and so on. So we are constantly working on cost out in order to be able to mitigate any additional taxes that come up.

In terms of data pricing jumping a little bit, I think we are quite affordable as is today and primarily, if you compare to the level of data pricing that we have in the developed markets. To us is more of also the question of giving value in terms of pocketing and so that we understand our customer’s usage patterns and as we have on the voice side, we have packet data, packages.

So, for us, I mean, we have a social package which is on a BlackBerry which gives you unlimited access to Facebook, e-mail, BlackBerry messenger and voice, doesn’t allowed you to go on YouTube for example. So that’s something that we can offer tailor to a certain customer need. So we think the success in driving that penetration is more to understanding what the customer needs are, and tailor packages too much of that.

François-Xavier Roger

And (inaudible) ARPU in Colombia, the amount of equity that we have is around $26 million for our share of the equity which is a 40% stake that we have. We have not paid entirely the full amount yet, but we have released a really part of it and the rest of it will come in 2012. We would obviously use part of the cash flow that we have got from the dealer.

Barry Zeitoune – Berenberg Bank

Okay. And just quickly in terms of the level of competition that you’re seeing, have you been able...

Mikael Grahne

Don’t state in the competitive landscape.

Barry Zeitoune – Berenberg Bank

Okay. Thank you very much.

Mikael Grahne

Welcome.

Operator

Thank you. (Operator Instructions) And our next question today comes from Jean-Charles Lemardeley of JP Morgan. Please go ahead.

Jean-Charles Lemardeley – JP Morgan

Yeah. Hello.

Mikael Grahne

Hi.

Jean-Charles Lemardeley – JP Morgan

I’m just wondering, could you give us an idea of what kind of ARPU uplift you see from smartphone users -- users switching to smartphones in Latin America? And then just on Africa, it seems that you have a wide range of performances depending on the markets and markets doing much better than others. Today, we saw Vodacom reported 40% revenue growth in Tanzania and roughly 20% in DRC.

Can you give us an idea of how, what is the high-end and what is the bottom of the range if you want to grow local figure in Africa, would do you see going forward from 10.6% revenue growth in the last period?

And then finally, if you could give us your rough idea of your interconnection position in Colombia whether it’s your net pay or net receiver market?

Mikael Grahne

Let me start by Africa. We don’t breakout the individual markets but we feel our growth is competitive in the markets where we are in wherever we have access to other competitor’s information. We look that the performance is a little bit uneven in the Africa markets depending on the intensity of the pricing situation and other factors. So from quarter-to-quarter, we tend to have somewhat uneven performance and we expect that to continue.

François-Xavier Roger

And if you look at the ARPU at least coming from data, if you look at our average ARPU in Latin America, it’s $12.7. If you look at the data ARPU only for handsets, for example, it is already at $11. So it gives you an idea of the contribution of data in the ARPU because for consumer, we’re using ARPU on average data ARPU which is basically 1% higher than a normal customer.

Jean-Charles Lemardeley – JP Morgan

And that’s for smartphone users, 3G handsets users you say?

François-Xavier Roger

We don’t have smartphone in specifically so we are looking at handsets. We break it, so you have it in the presentation, we break it between handset ARPU customers and data cards ARPU customers. So handsets, we have an ARPU which is at about $11, which includes smartphones and feature phones.

Jean-Charles Lemardeley – JP Morgan

Okay. In Colombia, on interconnect?

Mikael Grahne

I don’t have that data. Remember Colombia less 40 percentage value added services, I think it’s pretty even, possibly, relatively even.

Jean-Charles Lemardeley – JP Morgan

Okay. Thank you.

Mikael Grahne

Welcome.

Operator

And our next question comes from Bill Miller of Hartwell. Please go ahead.

Bill Miller – Hartwell

Good morning.

Mikael Grahne

Good morning.

Bill Miller – Hartwell

You have a fair amount of debt coming in out due this year and I’d like to know what your plan to finance long or short-term and what the capacity of the markets since you probably pushed that down with the operating company levels? That was my first question.

Second, like to comment on that, second is you have had a history of being unable to complete the share buybacks witnessed last year for instance. Why wouldn’t you start that sooner rather than later? So as you could in fact complete it as advertised this year rather than having to go serve hoops to get it done? Okay. Thanks. Bye.

François-Xavier Roger

Actually, not -- it’s not that we could not execute the share buybacks that we had announced during the year, that we rather decided to rebalance the shareholder remuneration between share buyback and dividends to rather to roughly speaking 50-50 of distribution.

We are not saying that we are not going to start now. We are just saying that this $300 million program, we are not saying that we’re going to do in the next couple months. We are just saying we are going to do it during the quarter of 2012.

And once again, I mean, we don’t want to be sitting on bunch of cash, so we have decided to return any excess cash to shareholders, but we don’t commit any specific numbers at this stage, we don’t commit on any specific way to do it. Sorry, I could not hear the first part of your question?

Mikael Grahne

Capacity of debt.

François-Xavier Roger

Capacity of debt? Yeah. The fact as we have a lot of debt short-term, while part of it I would say more than half of it is really the cash that we are keeping for working capital properties, in the normal course of business.

On the top of this, traditionally, at the end of the year, we are accumulating a little bit more cash in the operations because we distribute dividend in Q1 and this is especially true in Central America, and in South America as well. So there’s a little trading issue at the end of the year.

Bill Miller – Hartwell

So, you have not refinanced any debt this year or you’re going to refinance it locally or in long-term?

François-Xavier Roger

Our policy to refinance the unfinanced debt locally, since we can secure tax debt relative of the interest in that case and we can push down part of the country risk in that case locally, especially if we can take non-recourse debt. We do have to renew part of the debt this year as we traditionally do. So, we are working on a couple of refinancing as we speak taking the opportunity of extremely low rights today.

Bill Miller – Hartwell

Many thanks.

Mikael Grahne

Thank you.

Operator

And we have a follow-up question from Erik Pers Berglund of Danske Bank. Please go ahead.

Erik Pers – Danske

Thank you. I have a question about -- a follow-up on tower companies, you mentioned you have $26 billion....

Mikael Grahne

Erik, can you repeat? We hear you very faintly. Can you move closer to the phone or...

Erik Pers – Danske

Yeah. Sorry about that. It’s about the follow-up on the tower companies. I think you mentioned you had $26 million of equity in the Colombian tower company. Could you provide us with a number for the total investments in all of your tower companies?

And secondly, if we should expect an impact in your P&L in the next couple of years from these associated companies? Thank you.

Mikael Grahne

Yeah. I don’t have the number for the tower companies in Africa, even that we need to take into consideration the fact that we have a 40% tax to stop with and the second that, I mean in Colombia, as we did in Africa, we are leveraging these companies with our partners, with Helios in Africa, American Tower in Colombia as much as we can. So the amount of equity that we are left with with our 40% and the maximum leverage is not that high anyway.

Yeah, we do have significant positive impact in terms of EBITDA coming from these towers that we set that for example for Africa once we will have transferred all of these towers it could be up to 2 percentage points of additional EBITDA in Africa, for example.

We have already indicated to the market that we do not intend to keep this benefit but we intend to reinvest them for further growth and especially, for example, in the short-term on better growth on MFS. So don’t expect a significant increase of the EBITDA as a consequence because we expect to reinvest these savings into the business for future growth.

Erik Pers – Danske

Okay. But I thought the EBITDA positive impact was coming from savings you made on OpEx because of the tower outsourcing. But is that, I mean, is there also a contribution from them on the net profit level, because I assume they are consolidated as…

Mikael Grahne

Yeah. Indeed, they will be over time. Let us all take into consideration the fact that these companies at the beginning are not generating any positive net profit because of the high leverage that we have. And this company needs to -- these tower companies needs to gain new customers as well, because obviously when we started -- the day we start with these companies, there is only one tenant which is Millicom.

But now if, as we speak for example in general, the first project that we started with, I think that the average tenant of Tower is around $1.8. So, obviously, over time, when these companies are renting out these towers and having more than one tenant of tower, obviously, we will get over time some positive in terms of net profit.

Erik Pers – Danske

That’s clear. Thanks.

Mikael Grahne

Thank you.

Operator

Ladies and gentlemen, our final question today is a follow-up question from Stefan Gauffin of Nordea. Please go ahead.

Mikael Grahne

Hello.

Stefan Gauffin – Nordea

So follow-up, yeah, hello. Can you hear me?

Mikael Grahne

Yeah.

Stefan Gauffin – Nordea

Yeah. It’s a follow up on sort of data ARPU question, but from another angle. A lot of the European operators have seen voice and SMS declines as customers used over the top services. If -- can you protect your voice or SMS revenues by blocking for example mobile voice traffic?

Mikael Grahne

Well, in general, in life, you can’t protect anything forever. So, it’s more about understanding the customer need and designing products -- and product combinations that make sense. As I said, so far in Latin America, we still have strong growth of SMS. Our SMS revenues in local currency in Q4 in Latin America was up 80%, sorry 8%. So we still see strong U.S. international and we are when we design our data packages and some of them we include SMS packages as a must. So we still think that we can get growth out of the SMS.

And in terms of voice levels we were still positive as a group at 3.6% for Millicom as a total so which is customer segmentation with the second figure and other model that we will bring to par. We are still determined to ensure that we will get voice growth going forward, although even if it’s single digits, we feel targeting growth.

Stefan Gauffin – Nordea

Okay. Thank you.

Mikael Grahne

Thank you.

Operator

Ladies and gentlemen, that concludes our question-and-answer session today. I’d now like to turn you over to your host for any concluding or final remarks.

Mikael Grahne

Yeah. We just like to thank you for joining the call today and we look forward to seeing you soon. Thank you.

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