Millicom International Cellular Q2 2007 Earnings Call Transcript

Jul.24.07 | About: Millicom International (MIICF)
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Millicom International Cellular S.A. (MICC)

Q2 2007 Earnings Call

July 24, 2007, 10:00 AM ET

Executives

Marc Beuls - President and CEO

David Sach - CFO

Analysts

William C. Miller IV - J.M. Hartwell Ltd.

Drake Johnstone - Davenport & Co.

Anders Wennberg - Rational Asset Management

Kevin Roe - Roe Equity Research

Andreas Joelsson - SEB Enskilda Securities

Peter Nielsen - Credit Agricole Indosuez Cheuvreux

Steven Mead - Anchor Capital Advisors

Alexander Vislykh - Morgan Stanley

David Kestenbaum - Morgan Joseph

Presentation

Operator

Good day, ladies and gentlemen and welcome to today's Millicom 2007 Second Quarter Results Conference Call. For your information, this conference is being recorded. May I also remind you that this call is being audio streamed over the web and is accessible at www.millicom.com, together with a presentation summarizing the key features of the results.

I would now like to hand you over to the host of today's conference, Mr. Marc Beuls, President and CEO; and Mr. David Sach, CFO. Please go ahead gentlemen.

Marc Beuls - President and Chief Executive Officer

Thank you operator, and welcome to everyone who has joined today. For this call, both David and I will be using slides to run you through the results. It will be helpful to have those slides in front of you. So you can find them on our homepage at www.millicom.com. We will both be happy to answer any questions you have at the end, but first I would like to give you an overview of the results and run you through the performance of each cluster.

So coming to the headline numbers on slide number two of the pack, the second quarter of 2007 was once again a record setting one; surpassing the first quarter of 2007 in terms of both revenue and EBITDA, which grew by 80% and 65% respectively, year-on-year. We had 1.5 million new subscribers in Q2 giving us a total of just under 18 million subscribers at the end of the month of June.

The positive impact of our per second billing offer continues. Both in Central and South America, we had more new subscribers in the second quarter than in the first one. Our Triple A strategy has allowed us to continue growing market share in Central America, and also in Paraguay and Colombia, we saw a similar trend. The margins continue to be strong in Latin America.

As far as Asia is concerned, the first... the increased growth we saw in the first quarter in Asia accelerated in Q2, reflecting the introduction of per second billing in Cambodia and the tigo launch in Sri Lanka and Laos. Margins increased in Asia from the first quarter of this year as well as from the second quarter from last year.

Africa had good revenue growth in the second quarter, but the operating margin fell to 31% as the result of the combination of a number one-off adjustments in the quarter and the cost of improving the affordability of our services that will payoff in the months to come. I expect that the margin will improve from the current level onwards.

Millicom's CapEx for the quarter was $208 million, which represents a 69% increase over a year ago and a 14% increase over the last quarter, whereas you can see CapEx is increasing throughout the year as had been the historical trends, and we maintain our target of investing over $800 million in the year 2007. The moved to per second billing in Central America has been an additional driver of growth and we've been investing in extra network capacity there to accommodate the increase in minutes of use.

In Colombia, Africa and Asia, CapEx have been focused on the aggressive expansion of our networks, and as work to improve the availability of our services following the launches of tigo. We look forward to seeing the real benefits of this in Africa and Asia in the coming quarters.

Let's turn to subscribers; as seen in slide number three, Millicom added 1.5 million total subscribers in the second quarter, bringing the total to just under 18 million at the end of June, representing an 84% increase over second quarter of 2006. In Q2, subscribers in Central America also grew by 84% year-on-year. In South Americas, subscribers grew by 49%, excluding the Colombian acquisition and 183% including Colombia, and Millicom added over 92,000 subscribers in the quarter.

Africa reported year-on-year subscriber growth of 47% in Q2, and there's every indication that we will be able to capitalize on the growth potential in our popular African markets in the same way that we have across Latin America, as penetration rates rise.

The quarterly year-on-year increase in Africa... for Africa for Asia was 44%. Attributable subscribers increased by 87% from the second quarter of 2006 to 15.3 million at the end of June 2007. It's worth reiterating at this point that we should confirm [ph] that we can maintain the current run rate of approximately 1.5 million net additions each quarter, despite an expected higher than normal chain of customers, due to the phasing out of our legacy TDMA and CDMA networks in Latin America in 2007 and early 2008, on which nearly 1 million customers still exist.

We expect that the higher ARPU customers on these networks will be able to afford the GSM handsets and we will migrate to our GSM networks. The low ARPU customers might not be able afford the handsets however, and we are therefore likely to lose many of them. But their loss from the network will have little impact on revenues because of their low ARPUs. Phasing out these old TDMA and CDMA networks is important as it will release spectrum in the 850 and 1900 bands for 3G services, which we are planning to launch in our existing spectrum bands based on the current licenses in Latin America through 2008 and 2009.

Turning to slide number four; it shows that for Q2, we have recorded highest ever quarterly revenue of $630 million, an increase of 80% from the second quarter of 2006. In Central America where penetration is higher and networks are more developed, revenue growth at 49% in Q2 is very strong. South America, excluding Colombia produced revenue growth of 58% which once again represents the strongest year-on-year organic growth for the quarter by any cluster and reflects the success of per second billing and leadership in value-added services by this cluster. Revenues for Africa increased by 46%, and revenues for the Asian by 35%.

We turn to slide number five; EBITDA for the three months ended June 30, 2007 was $263 million, a 65% increase from the second quarter of 2006 and showing an increase of $15 million from Q1, 2007. EBITDA margin was 43%, which is very encouraging particularly in a period of aggressive growth, such as we are currently experiencing.

So let's turn to the cluster results. Starting with Central America, which today accounts for 44% of group revenue and 54% of group EBITDA. On slide six you can see, the total subscribers reached 6.7 million up 84% year-on-year and 13% over Q1. Over 780,000 new subscribers were added in the quarter, attracted to tigo in Laos [ph] and by the second billing which was rolled out... per second billing which was rolled out across the region in February. The strong subscriber growth, soon after the launch of per second billing has resulted in slightly lower ARPU from deeper penetration.

Second quarter revenue for Central America grew by 49% from Q2, 2006 and by 8% from the previous quarter to $271 million, indicating of the price elasticity which we expected to see following the launch of per second billing, based on our experience in Paraguay as occurring. EBITDA for Central America increased by 52% to $143 million for the second quarter of 2007 and the EBITDA margin was strong at 53%.

Please turn to Slide number seven to look at the results for South America in more detail. Subscribers grew by 183% to 4.9 million including Colombia, which accounted for 2.3 million subscribers in the second quarter. In total, looking at the quarterly year-on-year basis, revenues grew by 265% to $188 million, and EBITDA grew by 195% to $66 million. However, looking at the underlying growth, excluding Colombia, the numbers were still strong with revenues up by 58%, EBITDA up by 74% and subscribers up by49%.

The EBITDA margin for Q2 was 35%, affected by our efforts to grow our business in Colombia aggressively. In particular, we are working hard to grow our market share quickly by improving the accessibility of tigo. An independent report by AC Nielsen in May showed that our distribution network in terms of points of sale with inventory, was second only to the market leader and we are quickly closing that gap. The EBITDA margin in Colombia continues to exceed expectations and in Q2, it increased to 25% from 21% last quarter.

Once we have the Three A's fully in place, we expect to see accelerated growth in the third quarter of this year and beyond. In the longer term, expect to see Colombia operate at the average Millicom EBITDA margin.

Turning to slide number eight; in our Africa cluster there was a year-on-year increase in quarterly revenue of 46% to $106 million. And despite the heavy start-up costs of building out the new and extended networks in Africa, particularly in DRC [The Democratic Republic of Congo] and Chad, where there is a lack of transportation and power infrastructure, we still reported a quarterly year-on-year increase in the EBITDA of 15% to 300... to $33 million, resulting in an EBITDA margin of 31%. Total subscribers increased by 47% to 4 million at the end Q2 2007, following the addition just under 145,000 new subscribers in the quarter.

The results for Africa for the second quarter were affected by a number of factors, which I will briefly elaborate on: First, the promotion in Ghana. If you want to lower the price of SIM cards and attract many new subscribers, then core subscribers that fall in Q2 as a portion of these new subscribers were not viable long time customers. Secondly, aggressive price reductions in Ghana and Tanzania temporarily impacted revenues in EBITDA for this quarter, but they should benefit the total in the fourth quarter. Third, in Senegal, a new legislation was introduced in the quarter, that requires us to register our customers and thus it significantly impacted the new subscriber intake in May and June, and will continue to dampen growth in the third quarter.

We expect that the subscriber growth in Senegal will accelerate at the beginning of the fourth quarter. There were also one-off costs of roughly $3 million in Senegal that impacted EBITDA. In Tanzania, we saw the benefits of actions taking by new management in Q2, and we expect this operation to improve its performance in the future. The beneficial effect of launch of tigo is particularly evident in Chad, which has been Millicom's most successful launch ever, and in DRC where are pleased with the progress we are making in rolling out the networks.

Slide number nine shows that revenue for Asia was $48 million for the second quarter, up 35% from Q2 2006, and the EBITDA was $20 million up 44% producing an EBITDA margin of 42%. Subscribers in the Asian cluster increased by 44% for Q2, 2006 to 2.5 million at the end of Q2, 2007. The stronger results for Africa reflects the substantial investments that have been made in Asia since 2006, prior to the launch of per second building in Cambodia and the launches of tigo in Sri Lanka and Laos, last quarter.

I would like to hand over to David to talk you through the financials.

David Sach - Chief Financial Officer

Thank you, Marc. Please turn to slide 10, where you will see the key financial ratios for the first half of 2007 compared to the first half last year. The slide shows that compared to last year, sales and marketing costs as a percentage of revenues have increased slightly. But this is what you would expect to see following a period of tigo launches in several markets.

The G&A costs as a percentage of revenues were also up, but this is mainly due to the impact of Colombia and also due to the start-up costs in DRC relating to the roll out of the network. Encouragingly, cost of sales have again fallen slightly as the percentage of revenues, demonstrating the economies of scale from growing our businesses and our continued focus on tight cost control. In addition, expanding our value-added services has helped sustained ARPUs, which in turn had a positive impact on gross margin.

Sliding 11 shows the recent quarterly EBITDA trend. Following the acquisition of Colombia EBITDA margins have remained fairly consistent, as the economies of scale from growing our operations have been offset by additional spending on infrastructural marketing costs. We are confident that we will be able to trend back towards our pre-Colombian acquisition margin levels over time, as there is room to increase margins in Africa, Asia and Colombia.

On slide 12, you will see that there are several items affecting the profit and loss below EBITDA, and in the next five slides, I would deal with CapEx and depreciation, debt and interest expense and taxes. The other item worth mentioning is the impact of the sale of Paktel and that the disposal of other discontinued operations, which have added $294 million to profits compared to the prior year.

Please turn to slide 13. On this slide, we have presented the quarterly CapEx, which shows the CapEx has risen steadily throughout most of the last six quarters. This trend is expected to continue, although not as steeply as in 2006. We have reported CapEx for Q2, 2007 of $208 million, bringing the amount for the first half of the year to $391 million. Given the upward quarterly trend, we reiterate our previously stated forecast of over $800 million of CapEx for the full year. Going forward, we expect the CapEx-to-sales ratio to begin trending downwards.

As Marc has already mentioned, the focus of our CapEx spending in Latin America has been on capacity expansion to accommodate the increase in minutes of use, resulting from the introduction of per second billing. In Colombia and Africa, and to a less than extent in Asia, CapEx spending so far this year has been focused on expanding our networks. As many of you know, the payback periods from capacity expansion are relatively quick, since equipment prices have been falling for many years. Whereas the payback period from coverage expansion are longer, because the prices of the civil works have been rising. We believe that the color [ph] blend of coverage and capacity expansion is similar to previous periods, and will enable us to maintain a historical payback period and rates of return on our investments.

Slide 14 shows the quarterly breakdown of the depreciation, which indicates that depreciation has increased steadily due to the rising levels of investments that we are making in our businesses. This trend will continue for many years as depreciation will converge towards the average CapEx spending of the past six to seven years. Currently, CapEx is running at a rate of over $200 million a quarter. Despite the strength in absolute values, depreciation as a percentage of revenue has remained fairly constant, and we expect it to stay flat, even as we start to spend aggressively on converting our networks to 3G technologies.

On slide 15, which breaks down our quarterly debt, you can see that debt has settled. It's around $1.5 billion following the Colombian acquisition and has risen slightly since then, and now totals $1.6 billion. Due to our underlevered position with net debt to EBITDA of roughly 0.5:1, we will increase debt to finance our CapEx spending in the operations. This is likely to increase our cash balance even further. As mentioned on the previous quarterly call, we are reviewing our capital structure to determine the most appropriate level of debt, and to ensure that we utilize our cash in the best interest of shareholders. We are considering further minority buyouts, looking at potential acquisitions in Greenfield site start-ups, seriously considering the merits of the share buybacks and we look to repay the corporate 10% notes in December 2008, when they become redeemable.

Please turn to slide 16, to see the corresponding quarterly interest expense. The simple effective interest rate has stayed relatively stable through the last six quarters at roughly 10%. We are looking at ways to reduce the average gross interest rate, but more importantly, believe we can reduce our post-tax interest costs by borrowing more at a local level, where the interest is usually tax deductible, unless at Corporate, where we have been unable to deduct the interest. For this reason, we are very likely to repay the Corporate 10% notes when they become redeemable next year.

Slide 17 shows that the tax rate has risen year-on-year, despite our initiatives to better manage our overall tax position. We have been able to reduce the non-deductible net corporate expenses slightly, by increasing the management and brand fees, to offset the higher corporate costs. However, as we anticipated, the operations tax rate has risen due to the operating losses incurred in our business in Colombia and DRC, which provide no-tax benefits. The operations tax rate is likely to stay at the 28% level, or might even rise further this year, as these companies represent a larger proportion of profit before tax for the total group. Over time, this tax rate will likely fall, as these businesses become profitable. For 2009, we may be able to get the overall group tax rate to 30% or below, but this will depend on the geographical mix of profits. The profitability levels we can achieve in Colombia and in DRC, whether we repay the corporate 10% notes and our ability to transfer sufficient income to corporate, before they offset the remaining non-deductible costs.

On slide 18, we show the strong operating cash flows, which are more than financing the increasing level of investments within the group. Helped by the sale of Paktel, we ended the period with a very strong cash position of $1.1 billion dollars. Our net debt position is $549 million dollars, representing a ratio of 0.5:1 against extrapolated full year EBITDA. With such low levels of debt, Millicom is well placed to continue its investment... its significant investment program and as mentioned previously, is considering the best use of its cash to maximize shareholder value.

Slide 19 illustrates the continuing strong investment across our businesses. CapEx was $391 million in the first half of 2007, compared to $203 million for the first half of 2006. As mentioned previously, we except to see absolute CapEx figures to trend upwards throughout the year, and our current expectations are, the CapEx will exceed $800 million for the full year.

Thank you. Now I will hand you back to Marc.

Marc Beuls - President and Chief Executive Officer

Thanks David. To summarize to the past quarter and looking forward, I can say that Q2 was a strong quarter again, and that we expect the year 2007 to be another record year. I feel confident that we can continue adding 1.5 million subscribers a quarter in 2007, based on the plans of CapEx spending. In Latin America, we continue to improve our market position, despite the increased competition. The introduction of per second billing has improved the affordability of our services, leading to strong subscriber intake. Focus going forward will be on value added services, one of the reasons why we are planning gradually moving to 3G within our current frequencies and licenses in the years 2008 and 2009.

We hope to see you all in Colombia for our holidays [ph] starting October 29th, as we are building an interesting growth story on the back of much improved accessibility of tigo prepaid services. If you will be interested in attending, please contact Shared Value. In Africa, we are facing challenges, such as the lack of basic infrastructure that are .... at times will delay our aggressive expansion plans and temporally impact our profitability, given the higher OpEx. I continue to see great opportunities in Africa, where the telecommunications infrastructure is still poor and the mobile penetration low. The system implementation of our Triple A strategy will allow us to take advantage of those opportunities.

In Asia, we have improved our service offering by introducing per second billing in Cambodia, and launching tigo in Sri Lanka and Laos. The growth rate in that region has started going up and we expect to see Asia performing inline with the two other regions. That concludes my comments, and we will now be happy to take your questions. So, operator may I have the question please.

Question And Answer

Operator

Thank you gentlemen. The question-and-answer session will be conducted electronically. [Operator Instructions]. We will now take our first question from Bill Miller from Hartwell Investment. Please go ahead.

William C. Miller IV - J.M. Hartwell Ltd.

Marc, just a couple of questions, on the revenue side outlined in your press release, to increased competition. Could you characterize that increase competition, because you have always been in competitive markets? That's the first question. And secondly, if it is increased in some ways, say performance, you're going to tell us about. Would you tell us what your reaction to that increased competition is? The immediate impression I got is that it was going to impact margins. From what you say on the call it's not going to impact margins. Can you tell us what impact it will have? It doesn't seem to be on the growth rate, but as you look forward, can you see as you have said here increased margins. The second question is about your CapEx; historically, you have been able to visualize a 50% to your payback on your CapEx. Is that still the case? Or we are running into something mere... which is also reflected in the competitive environment? Thanks a lot.

Marc Beuls - President and Chief Executive Officer

Thank you. When we talk about increased competition theirs is no... that there are a number of new operators coming into the market. I think everybody knows the markets where we expect new operators to come in, places like Honduras, Senegal where there are only, two operators at this point in time. When we talk about increased competition is that, by us having introduced a Triple A business model, we have seen that the competition has start reacting. The impact, as you correctly said, so far has been negligible. As a matter of fact for Latin America region, especially Central America and Colombia region, if is it is not less then a month ago. We continue to increase our market share, our margins continue to be very strong in Colombia, are even going up. So we don't see it impact on the financials at this point in time. But we see that people... as we have always said, it'll copy our model but they don't always copy with precision. So, no impact on margin, no impact on growth at this point in time and we don't expect that that will have an impact going forward. In terms of the CapEx, given that our margins are not affected by this event, we don't see any change in terms of the paybacks we are seeing for our CapEx, which are like three years for existing... investments in existing businesses and it now could be between three to five years for investments in new businesses. So, none of those things are being impacted, as we speak.

William C. Miller IV - J.M. Hartwell Ltd.

I just have one further question; I mean you have billing the raised money in the welcome markets. Is that still available to you as we speak or is there... and do you expect the depth and breadth of those markets to continue to be as strong as they are?

Marc Beuls - President and Chief Executive Officer

Local debt continues to be available in the markets in Latin America but also now more in Africa and in Asia. So, we will continue using those pockets of money as the financial markets... as the debts markets are improving and those markets, we will be able to borrow more locally. So that is not a constraining factor for us a matter of fact, we every year, we are able to cut more into the financial markets, more into the debts markets than we were able to do the year before.

William C. Miller IV - J.M. Hartwell Ltd.

Well that sounds terrific. I will let someone else to take questions. Thanks very much Marc. Good quarter.

Operator

Our next question will come from Drake Johnstone with Davenport. Please go ahead sir.

Drake Johnstone - Davenport & Co.

Hi guys. How are you doing?

Marc Beuls - President and Chief Executive Officer

Hi there.

David Sach - Chief Financial Officer

Good.

Drake Johnstone - Davenport & Co.

A question for you; you have made a comment in Colombia where you have seen your margin improvement 21% first quarter, 25% second quarter, and you expected Colombia to get you... the margin you have to fund. Do you have a target for that? Are you looking at 18 months or do you expect key improvement in Colombian margins this year, because of the first 40 basis [ph] you talked the Colombian margins will remain where they were at the remainder of the year, but it sounds like they are making better progress?

Marc Beuls - President and Chief Executive Officer

Well what we said about Columbia is that, our focus is on top line growth and that's why we have been focusing a lot on improving the accessibility or the distribution of the profits and the services, and you have seen the results of the AC Nielson reports, so clearly. Now the team locally has done a great job in terms of improving the visibility and the distribution... the visibility of Tigo and the distribution, and again I saw that with my own eyes, when I was there with that over a month ago. So that is working out, that we expect at the third and the forth quarter if this year, we really... we will start seeing good revenue growth. Yes, the margin improvement; we're extremely happy with it. It's probably a little bit higher than what we anticipated. So, what's great news, and I think it is a result of some acceleration of the revenues we start seeing towards the end of the second quarter and that's why we feel confident that third and the forth quarter is going to show a lot more revenue growth than we have been showing in the first two quarters of this year.

Drake Johnstone - Davenport & Co.

And then in Africa, you have highlighted some of the challenges there, and you'd mentioned that in second quarter, you took a $3 million charge. If we look at the operating cost margins in Africa excluding the $3 million charge, I believe was roughly 34%. Do you actually expect that the margin to improve in Africa over the remainder of the year?

Marc Beuls - President and Chief Executive Officer

I don't see... sorry I see no reasons why to margins would not go up. There are a number of factors, some one-offs in the quarter, some kind of price reductions we did. As we did in Central America, in the beginning of the year, in order to improve the affordability of the service and given that some of the price levels in Tanzania and other markets were still fairly high. So we felt that we needed to bring them down in order to fuel growth, and as far as Tanzania is concerned and the country I visited three weeks ago, we start seeing the first positive impact of those price reductions and improved distribution visibility. We expect to see similar things in Ghana, and the other African markets in the course of this year. So, yes the margin, I think can only go up from the level it was at in the second quarter.

Drake Johnstone - Davenport & Co.

As here my... just a last question. The tax rate in the second quarter, your blended tax rate looked like it was about just under 30%, might be it was at 37% in first quarter. So the U.S. certain period [ph] in first half rate of '07 versus first half '06, I mean is there any potential that your third and fourth quarter tax rate this year might remain in the 30% level or are there factors to mention some potential [ph] possibilities in some countries that might affect the tax rate?

David Sach - Chief Financial Officer

I mean the thing affecting the tax rate most of all these days is Colombia and DRC. Both obviously, they have loses on a pre-tax basis and we do pay taxes. So there's tax there without any profit, so that's obliviously dries up the overall tax rate. I mentioned on my part of the call that that could go up a little bit this year, depending upon the CapEx spending, depreciation in those countries. But I don't expect that to be significant. So I would think the tax rate in the low 30s would hold, may be go up slightly, depending upon the losses in Colombia and in DRC and also the other impact obviously is Corporate, and our ability to move income into Corporate which we've been quite successful at. And you can see on the tax slide that I showed you, that it would have been able to offset a lot of the pre-tax losses at the corporate level with this... with the additional income. So all things considered, I would expect the tax rate to stay in the low 30s.

Drake Johnstone - Davenport & Co.

Low 30s and then going to '08, it might stay there and potentially... actually drop down when you move the debt from the corporate level and move it to the subsidiary level of pay it off by the first quarter '08.

David Sach - Chief Financial Officer

Correct. And then obviously as Columbia and DRC start generating profits, that will affect the overall tax rate as well. So I would expect that that operations tax rate of 28% will come down slowly over time, and then also with the Corporate effect that you mentioned.

Drake Johnstone - Davenport & Co.

Correct. Alright, thank you very much.

David Sach - Chief Financial Officer

Welcome.

Marc Beuls - President and Chief Executive Officer

Thank you.

Operator

We will now move to Anders Wennberg from RAM for his questions. Please go ahead.

Anders Wennberg - Rational Asset Management

Hello Anders Wennberg from RAM. With respect to the competition in Central America, we've seen often moving from about 25 down to just about 20 in two or three quarters. You at the same time introduced per second billing, you explained it before but should we expect all of this to stabilize at this level or do you still expect a rebounce? It looks like a scenario that competition is going to keep increasing, and ARPU keeps dropping?

Marc Beuls - President and Chief Executive Officer

Let me first say that the drop in ARPU doesn't have anything to do with competition. The drop in ARPU has to do with the price reduction we introduced on February 7th of this year. Okay. Where we introduced a 5%... 25% price reduction on purpose, because we need to constantly improve our affordability in order to sustain the growth. Okay. And if you look at the subscriber growth that we generated in the second quarter, which as I said on the call, was higher... the net subscribers in second quarter was higher than in the first quarter. By the way, it was the same in South America. Okay.

So as a result of the actions we took in the beginning of this year, we see an acceleration of the growth. So the ARPUs have noting to do with competition. This is to do with voluntary price reduction which we think is necessary to continue fueling the growth in the medium to long term. And that's also the reason why we are doing this in Africa. That's why we are ready to take a hit in the quarter in Tanzania and Ghana, where we brought down prices, in order to make sure that we continue fueling the growth.

Anders Wennberg - Rational Asset Management

Okay. So, clearly you have not followed in terms of per second billing.

Marc Beuls - President and Chief Executive Officer

Yes. I didn't say that, I mean we are... as I said earlier; we are being copied by our competitors. That was the case in the past and as we said in the release, we are being copied faster now-a-days. But judging from the market share numbers, I saw in Central America and in South America, judging from the margin that we have, judging from the subscriber intake that is not impacting our performance, one for you can say on the country. We are increasing our subscriber intake; our margin is at 53% in Central America, a very strong 53% in Paraguay, increasing margins in Colombia. So I don't think that is impacting our financial performance at this point in time.

Anders Wennberg - Rational Asset Management

Second question if I may, can you relate to shareholder to comment on it, you can skip the both ends? What is the process in Peru regarding new license and also new licenses in Paraguay, and now the company's potential to Costa Rica, etc?

Marc Beuls - President and Chief Executive Officer

We are not involved in Peru and I don't think the processes in Panama and Costa Rica have officially started at this point in time, but these are countries, that are close to existing markets where we will keep an eye on and get involved... probably get involve in the process, if and when it starts.

Anders Wennberg - Rational Asset Management

Okay. Thanks.

Marc Beuls - President and Chief Executive Officer

Thanks Anders.

Operator

Our next question is from Banc Moyet [ph] from Standard and Poor's. Please go ahead.

Unidentified Analyst

Thank you. Banc Moyet, Standard and Poor's Research in Stockholm. I was just wondering when it comes to Africa, has anything that changed in your view on the market, the dynamics in the market now, do you see the subscriber numbers ticking downwards and the people and that [ph], are you surprised in any way to volatility around the customer basis in different markets?

Marc Beuls - President and Chief Executive Officer

No I don't think any of the fundamentals in Africa have changed over the quarter. The main fundamentals definitely don't change that quickly. What we see is drastic opportunity, but it's an opportunity where there are number of challenges and the challenges are... as seen in the form of the delays we see rolling out networks, the difficulties getting equipment on place and stuff like that. But in terms of what it takes in order to build a successful business, it is the same as we did in Central America and Asia. Also there are times we've run into bottlenecks that we always manage to resolve those, and then once we will pass this bottlenecks, we will do business as usual. So I don't think that anything has changed in Africa. We have now the networks in place. We will continue building networks and then with our much improved offering and to this key that we continue to improve our affordability that we will able continue grow in those markets. I don't think we would have been able to continue grow in African markets at the price levels we have prior to the price reductions in Ghana and Tanzania for instance.

Unidentified Analyst

So if may just, are there any severe or more difficult factors in building the network in Africa that are delaying the deployment or information or electricity or spare parts or civil engineering other factors that are making it more difficult to you for roll out and that what --?

Marc Beuls - President and Chief Executive Officer

The civil engineering is getting in on concrete on this side, when there are no roads and can be challenging. Getting power is challenging, at times it's impossible. So you'll have to run the generators. So you run on fuel, has a high operating cost. Those are factors that's we see more in Africa then we have seen anywhere else in our operations. Having said that, economies where we are currently operating are growing extremely fast, and what you have in fast growing economies is that some times, the infrastructure can not cope with the growth. So you get bottlenecks, and power is definitely one of those bottlenecks. So those are the things we have learnt from live with, but kind of no delays at times the roll out of networks and as we said before, it impacts the profitability or contemporary impact of profitability of our business. That clearly is what happened in the second quarter this year.

Unidentified Analyst

But you said that you expect margin soon to come up they are going forward in this year. Are the factors improving rapidly here, what is behind as to more improved margins in the later part of this year?

Marc Beuls - President and Chief Executive Officer

The improved margin in Africa is going to be possibly as a result of first, a number of the issues were one-off. So we don't expect them to come back and non-recurring. Secondly next step introduction of FAS we introduced in Tanzania and Ghana has improved the affordability and will allow people to buy more minutes and will allow more customers to have access to the mode of services. So we think that the payback is going to be openly short of maybe of those price reductions, it's going to be relatively short. As we have shown in other markets where we did similar things, like in Latin America, South America, first and Central America later.

Unidentified Analyst

Thank you very much.

Marc Beuls - President and Chief Executive Officer

Thank you.

Operator

We'll now take a question from Kevin Roe with Roe Equity Research. Please go ahead sir.

Kevin Roe - Roe Equity Research

Thanks. Hi Marc and David.

Marc Beuls - President and Chief Executive Officer

Hi Kevin.

David Sach - Chief Financial Officer

Hi.

Kevin Roe - Roe Equity Research

Hi, on Africa; if we don't... if we adjust for the one-time costs in the quarter in Africa. Do you still expect to see margins to be up subsequently?

David Sach - Chief Financial Officer

Yes... we do yes.

Kevin Roe - Roe Equity Research

Okay and can you give us some more detail on what those one-time cost of $3 million in Senegal, what's that comprised of?

David Sach - Chief Financial Officer

For the one-time it was the write-off we had on the fee receivables which we thought we could recuperate at the end of the day and that was not possible and that's why we took a write-off.

Kevin Roe - Roe Equity Research

Okay and in Ghana you mentioned the SIM card issue and that affected Q2 sell subsale subsequently; has the subscriber base stabilized or you are now seeing net subscriber growth in Ghana is that adjustment behind you?

David Sach - Chief Financial Officer

I think that adjustment is behind us. What we learn from that and this action was run in the frame work of the 50th anniversary of the independence of Ghana. And so we wanted to be frankly to the population there by giving free SIM cards away. But it shows that you want to get subscribers on the network depth, showed some stickiness and showed loyalty and that's generally the revenues going forward, and that is what we are focusing on today. So we expect that we no longer going to have those fluctuations going forward. But it does also shows us that our subscriber base income and claim subscriber base with revenue generating customers.

Kevin Roe - Roe Equity Research

And couple of more questions on Colombia; is per second... the introduction of per second billing in the cards for this year or is that a later event?

David Sach - Chief Financial Officer

Playing poker right now. So I won't tell you, my cards Kevin.

Kevin Roe - Roe Equity Research

Okay and lastly your $1 billion plus cash position, you mentioned in prepared remarks share buyback, Greenfield acquisitions, minority buyouts. Can you give us a sense of can you quite prioritize your preferences there, and when do you think the Board will come back to shareholders with the final decision on share buyback, if any?

Marc Beuls - President and Chief Executive Officer

I can't that question. So you'll have to ask the question to the Board. In terms of our top priority is buyout the minority shareholders, followed by getting started in some markets that are adjacent to the markets where we currently are active in Latin America and in Africa. So that's were my priorities are.

Kevin Roe - Roe Equity Research

Are you making any good progress on minority buyout discussions?

Marc Beuls - President and Chief Executive Officer

The discussions are ongoing and but that have been ongoing for a number of years. So this is very hard to predict whether this is going to happen and if so when it is going to happen.

Kevin Roe - Roe Equity Research

Very good. Thank you

Marc Beuls - President and Chief Executive Officer

Thank you Kevin.

Operator

Our next question comes from Andreas Joelsson with SEB. Please go ahead sir.

Andreas Joelsson - SEB Enskilda Securities

Good morning its Andreas Joelsson from Enskilda in Stockholm. I have a question on Congo... it's a quite significant drop in net subscriber intake from Q1 to Q2 and I was wondering what the reason for this is and do you expect to come back to the level seen in Q1, already in the second half of '07?

Marc Beuls - President and Chief Executive Officer

What we saw in the second quarter of this year is that following the launch of our business or relaunch of our business in January of this year is that... I thought we have distributed to some resellers. Resellers were not selling in the market that they where reselling them to our competitor, one of our competitors, who exchange of one their SIM cards, so we have SIMs, activated SIMs on the network that were not reloaded. So the minutes on the SIM cards were used and that was it, there was no reload. And that's what we needed to correct in the second quarter and that's why... the growth in Congo was not as strong in the second quarter as it was in the first quarter. So this is out of the numbers, we have changed the way we deal with our resellers to such a way that they get most of the money not upon the sale of the SIM but on their first reloads of the accounts in order to avoid that kind of practices.

Andreas Joelsson - SEB Enskilda Securities

Okay. Thank you.

Marc Beuls - President and Chief Executive Officer

Thank you.

Operator

Our next question will come from Peter Nielson with Cheuvreux. Please go ahead sir.

Peter Nielsen - Credit Agricole Indosuez Cheuvreux

Thank you. Peter Nielsen from Cheuvreux. Couple of questions, please; firstly, of the TDMA and CDMA customers with respect to churn in sense of the Central America, how many of these have been churned in this quarter, if I may ask? And secondly, just out of curiosity, the price reductions in Africa you've talked about again in Tanzania, just ... what's the size of these reductions? If you would tell those broadly and when about in the quarter they were made? And thirdly, within to the CapEx guidance of above $800 million, as you are saying, we would expect CapEx to accelerate in the second half when we are almost under $400 million. So what's the likely that it that will be sort of significantly above $800 million. I mean will you give us a sort of a cap for where you see CapEx heading this year, given no new market interest? Thank you.

Marc Beuls - President and Chief Executive Officer

In terms of the TDMA, I don't have a number for you there. And this is an ongoing chance. So you can see yourself it doesn't really impact the revenue. I don't have a number. In terms of the price reductions in Africa, yes, they were substantial price reductions. I would say between 10% to 20% times and they were made in the course of the second quarter I can't remember the exact base, those price reductions were made. But they did impact quite a big part of the quarter. In terms of CapEx, yes, historically, we will increase our CapEx forecast... I think in the mean time, we got a little bit better in terms of forecasting our CapEx. So I don't expect a big increase in our CapEx forecast I mean there can always be some small adjustments in the fourth quarter. Historically, we use to have a big increase in the fourth quarter. I think now-a-days we've spread our CapEx more across the whole year. So don't expect a massive increase in CapEx towards the end of the year. As a matter of fact, for the revenues we want to make for the fourth quarter of this year that CapEx is already in progress. So that's already being shift or being installed on the ground.

Peter Nielsen - Credit Agricole Indosuez Cheuvreux

Okay thank you Marc.

Operator

And our next question will come from Steven Mead with Anchor Capital Advisors.

Steven Mead - Anchor Capital Advisors

Yes, Marc. Can you just go in a little bit more details as far as the revenue benefit from moving customers from the CDMA to GSM and then also what impact on CapEx this transition to the GSM in terms of the spending this year and next year, and then as you look at sort of the profile of the customers that are on the sort of upgraded GSM, system, what is the typical customer kind of look like? And how big is that market that you are going after?

Marc Beuls - President and Chief Executive Officer

Okay. In terms of the move from TDMA to GSM historically, we have seen that ARPUs are higher for the simple reason that the number of value-added services that are available on GSM networks are not necessarily available on TDMA networks. So from that point of view it's a beneficial move for us, as well as for the customer. So in terms of the CapEx spending, we are amortizing our TDMA and by the end of this year, most of that will be out of it. Mobile will be out our books and your ... you know that the next generation of technology, and all this comes at the lower price and we all done the previous one, and by the way we expected that third generation equipment now 40 years after it was introduced, now it going to come at a lower price, Pearl and then GSM equipment and definitely it will be available at a much lower price than TDMA and other technologies, we were using previously.

So technology changes especially as we can do in Latin America within our existing spectrum. So we don't need to buy any new spectrum. We don't need to get any new license. We just reuse that same spectrum but using different technology, not only comes at on a lower cost. In terms of the profile of the people that might knocks... kind of make the move. It's difficult to say, because this is prepaid business, so we don't necessary know those people. But these are the people with very, very low purchasing power, people who are probably using very old phones, phones that might have been given to them and they are just going to afford basically, the reloads of the minutes, but not be able to afford to the phones. So maybe, we are a little bit too negative here, maybe by the time you find the GSM phone, they are all going to be you know those old GSM phones at very low prices available and maybe some people will give them those phones for free. So may be they will be able to make the move but we know from previous technology changes that there is always a kind of a tail of subscribers that don't make the move or maybe people, who are holding two phones and just disconnecting one and continue with the other, who knows.

Steven Mead - Anchor Capital Advisors

But what's the divine sell in ARPUs though?

Marc Beuls - President and Chief Executive Officer

Well when we're talking about ARPUs here, people at APRUs below a dollar. So these are very, very low ARPUs and are those people going to be using value-added services if they were to get a GSM phone, probably not. So when I talk about higher ARPUs it is more likely to have the higher APRUs users. When they get a GSM phone, they typically spend more on their phone than they used to do before.

Steven Mead - Anchor Capital Advisors

And then in Central America, in terms of the share gain versus growth of the market. Where do things stand in terms of the growth that you can expect in Central America?

Marc Beuls - President and Chief Executive Officer

We continue to see very strong growth and we have been gaining market share in all three markets, over the last six months and we are now the clear market leader in Guatemala, with a market share at or maybe they are slightly over 40%. So we have become the market athlete and down south with over five operators, I think we increased our market shares by 1% and also on the Honduras, we increased our market share by 1% or 2% over the last six months. So this certainly approach, this per second billing we introduced has a very beneficial impact on our market position and it doesn't impact our profitability as you can see from our high EBITDA margins in that part of the world.

Steven Mead - Anchor Capital Advisors

And are those markets pretty much at saturation?

Marc Beuls - President and Chief Executive Officer

No, no. I still don't know that was. So... and we see mobile penetrations in Latin American today reaching 80%, 90%, places like Chile, I think Argentina, maybe in Mexico, they are all moving in that direction. And I think we will be able to move very closely to those levels also, going forward.

Steven Mead - Anchor Capital Advisors

Alright, thanks.

Marc Beuls - President and Chief Executive Officer

Thanks Steven.

Operator

And our next question will come from Alexander Vislykh with Morgan Stanley. Please go ahead.

Alexander Vislykh - Morgan Stanley

Yes, hi, question on elasticity in Central America. Could you just maybe comment on how the volume of traffic continued to develop during the second quarter? I remember in the first quarter you mentioned that traffic was up 25% towards the end of the quarter in response to moving to per second billing. Can you give any indication of the growth rates that you were seeing during the second quarter, any data points would be very useful, just to understand the underlying dynamics?

Marc Beuls - President and Chief Executive Officer

I don't have any hard data for you there, but we know in this industry that the higher market share you have the more on-net traffic you have and that is beneficial for your margin. So, as I said a few minutes ago, we've continued increasing our market share in those markets. So, probably there is even a better balance when it comes to the traffic in that region, but I don't have any hard data for you right now.

Alexander Vislykh - Morgan Stanley

Okay, that's fine. Thanks very much for that.

Marc Beuls - President and Chief Executive Officer

Thank you, Alex.

Operator

[Operator Instructions] We will now take a question from David Kestenbaum with Morgan Joseph. Please go ahead.

David Kestenbaum - Morgan Joseph

Mark, can you talk about why ARPU went down in Central America versus whereas it went up in South America during the quarter?

Marc Beuls - President and Chief Executive Officer

I think, Central America went down because of the very high subscriber intake we saw. As I said before, our subscriber intake in the second quarter was again higher than in the first quarter. So that has a diluted impact of... on ARPU. I think in South America, we see a combination of very strong offerings of value-added services in places like Paraguay, they push ARPU. I think Paraguay is also benefiting from a very strong local currency, which will also positively impact the ARPUs of course. And then of course Colombia, we see very strong performance there with revenue that really starts going up now. We've cleaned up our subscriber base there. So the subscribers we have there are revenue-generating subscribers. So I think that explains the difference between South and Central America. But you have seen also yourself that the subscriber increase in Central America is a lot higher than it is in South America, and by definition, then your ARPUs are lower.

David Kestenbaum - Morgan Joseph

Okay. Can you talk about how many points of sales you have in Colombia now and where you think you need to be?

Marc Beuls - President and Chief Executive Officer

The number of points of sale in Colombia, I think you have to come back in October, David, to count them yourself, but we have increased that number, just I don't have the number off the top of my head, but we have increased the number substantially and in terms of prepaid point of sale we are now number two in the market according to the that ACNielsen report. And if I remember, we are present in 11% of all points of sale in the country compared to 12% for the number one... for the market leader in the market. So for any kind of point of sale in Colombia, we are present with inventory in 11% of those.

David Kestenbaum - Morgan Joseph

Okay, so you are not far behind then?

Marc Beuls - President and Chief Executive Officer

Yes.

David Kestenbaum - Morgan Joseph

Okay. And then having the minority partners in Central America, has that affected your ability at all to compete and react to the competition?

Marc Beuls - President and Chief Executive Officer

No not at all, not at all. We are in full understanding with our local partners. That's what it takes to keep ahead of competition. That's the reason why we decided jointly to introduce tigo, to introduce jointly per second billing, e-pin and all of those things. There is no conflict whatsoever, there's no difference on opinion whatsoever as to what it takes in order to grow that business.

David Kestenbaum - Morgan Joseph

Okay, thanks.

Marc Beuls - President and Chief Executive Officer

Thank you.

Operator

Our next question will be a follow-up question from Andreas Joelsson with SEB. Please go ahead.

Andreas Joelsson - SEB Enskilda Securities

Actually my question was just recently said by my colleague here. So, sorry for that.

Operator

An now we will move to Bill Miller with Hartwell Investments. Please go ahead sir.

William C. Miller IV - J.M. Hartwell Ltd.

Marc, hi, sorry about it yet again. But I am still somewhat confused by your points why [ph] and when you talked about increased competition effecting it, and therefore I am going to ask a question about the transferability of the triple A marketing strategy, a.k.a. tigo to African is in the market. So, it sounds like it's been very successive, but could you shed a little light on that perhaps and tell us that it is or that it isn't transferable very easily?

Marc Beuls - President and Chief Executive Officer

Well, it is transferable and that's what we showed to those who joined us on the trip to Ghana last year, November, and then if you were to go today to, let's say, to Dar Es Salaam, Tanzania, you would see that tigo is that visible and at present in the streets as it is in tigo Tigalta [ph] in Honduras. So, yes, it is transferable and that's also the reason why we have been able to grow the revenues in Africa just under 50% in the second quarter. I am sure that without that triple A strategy, we would not have been able to do so. So, I think the transferability is there at least in house. I think how easy it is to copy by competitor, I think that is probably more difficult, not impossible, but more difficult, but in house it is doable. And to give you some examples, I mean, the guy who is running Tanzania today is a guy coming out of Paraguay. He has run this in Paraguay, the tigo concept, he is now implementing it in Tanzania. One of our customers [ph] in Africa comes out of Paraguay. So, he had done this in Latin America and he is doing now it in Africa. And that's the thing at Millicom where we are able to find people who have done it and then take expertise into the next market and implement it there in exactly the same way.

William C. Miller IV - J.M. Hartwell Ltd.

Well, sounds terrific and I guess I am just still confused by that opening paragraph you had, what percentage of the Congo is build out now?

Marc Beuls - President and Chief Executive Officer

Well, it is difficult to say... quantify that and I think we are now over 300, I think 310 to 320 base stations from I think just over 200 when we launched in January. So I think we have kind increased the number of base stations by 50% over the last 6 months. So, we are making good progress, but we need to do more. How much of that population that is covering, I don't know exactly.

William C. Miller IV - J.M. Hartwell Ltd.

Well, it sounds terrific. What is your target for that?

Marc Beuls - President and Chief Executive Officer

Ideally we would like to get over 400, 450 base stations by the end of the year and then we will continue building out next year. So, this is an ongoing process.

William C. Miller IV - J.M. Hartwell Ltd.

Well, sounds terrific, great. Thanks.

Marc Beuls - President and Chief Executive Officer

Okay. Thanks Bill.

Operator

[Operator instructions]. Our next question will come from Fren Scole [ph] with Swedbank. Please go ahead.

Unidentified Analyst

Hello, this is Fren from Swedbank. Just a question on margins again, back to Central America, margins in Q2 in Central America were higher than last year in Q2, but they were lower than in Q1. Is that only because, you do... what's the explanation for that?

Marc Beuls - President and Chief Executive Officer

I think the... as you have seen yourself the subscriber intake has been a lot higher in the second quarter than in the first quarter and that by definition don't have other impact because of the subscriber acquisition costs. There has been no change in any of the fundamentals in the market that explains any major shift in the cost of doing business in Central America.

Unidentified Analyst

So, the gross margin is stable or even up because volumes are higher?

Marc Beuls - President and Chief Executive Officer

Yes, the volumes are higher, gross margin is stable, but as I said, the more subscribers you acquire, the higher your cost is. And I think we did about 60,000 or 70,000 subscribers more in the second quarter than we did in the first quarter.

Unidentified Analyst

Sure, if that is the only explanation, that's fine.

Marc Beuls - President and Chief Executive Officer

That's the only one I know.

Unidentified Analyst

Okay. Great, thanks.

Marc Beuls - President and Chief Executive Officer

Thanks

Operator

[Operator Instructions] We will now take our next question from Banc Moyet [ph] with Standard and Poor's. Please go ahead.

Unidentified Analyst

Banc Moyet [ph] from Standard & Poor's. Just a follow-up, the only thing new to report for you all being Vietnam there regarding the license of potential, your involvement there?

Marc Beuls - President and Chief Executive Officer

Nothing new Brent. The process of privatization is ongoing, government is in the process of selecting a financial advisor. And we also know that there are quite... something has been going on within the government, some ministers have been replaced by others, but no change in position in Vietnam.

Unidentified Analyst

Do you think it is possible to see an equitization process late this year or should we expect that to happen in 2008?

Marc Beuls - President and Chief Executive Officer

I don't expect that any significant things will happen this year. Probably the choice of the financial advisor and I think that probably will stop for this year.

Unidentified Analyst

Thank you.

Marc Beuls - President and Chief Executive Officer

Any more questions operator?

Operator

At this time we have no questions and I would like turn the call back over to Mr. Beuls for any remarks.

Marc Beuls - President and Chief Executive Officer

Okay. Thank you everybody for participating in today's call. If you have any other questions, feel free call David or myself or Andrew Best at Shared Value and again, thank you for being on the call and have a great day. Good bye.

Operator

That will conclude today's conference call. Thank you for your participation ladies and gentlemen and have a nice day.

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