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Executives

Mikael Grahne – President and Chief Executive Officer

Francois-Xavier Roger – Chief Financial Officer

Analysts

Luigi Minerva – HSBC

Thomas Heath – Handelsbanken

Laurie Fitzjohn-Sykes – Citigroup Global Markets Ltd.

Mark Walker – Goldman Sachs

Jean-Charles Lemardeley – JPMorgan

Lena Osterberg – Carnegie

Cesar Tiron – Morgan Stanley

Stefan Gauffin – Nordea

Peter-Kurt Nielsen – Cheuvreux

Miguel Garcia – Deutsche Bank

Ric Prentiss – Raymond James & Associates

Andreas Joelsson – SEB Enskilda

Soomit K. Datta – New Street Research LLP

Kevin Roe – Roe Equity Research, LLC

Erik Pers Berglund – Danske Bank

William Miller – JM Hartwell

Sergey Dluzhevskiy – Gabelli & Company

Barry Zeitoune – Berenberg Bank

Sven Sköld – Swedbank AB

Fredrik Lithell – Handelsbanken Capital Markets

Millicom International Cellular SA (OTCPK:MIICF) Q1 2012 Earnings Call April 18, 2012 8:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Millicom Q1 2012 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 it’s accessible at www.millicom.com together with the presentation, summarizing the key features of the results?

I’d now like to hand the call over to your host today, Mr. Mikael Grahne, President and CEO, and Mr. Francois-Xavier Roger, CFO. Please go ahead gentlemen.

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 3. In the first quarter of 2012, we accelerated our investments in our new organization structure, in our networks and in our product offering, including through pricing initiatives.

In Q1, we recorded underlying local currency revenue growth of 8.4%, up against the very strong quarterly growth that we recorded last year in Q1 at 12.7%. On a like-for-like basis, revenues grew by 9% in Q1 inline with our expectations and ambitions.

Our focus on new categories is delivering solid results. In Q1, we generated 88% of our revenue growth from services and products outside of the communication category, some of which we introduced only recently. This achievement reinforces our long held belief that innovation is the cornerstone of our future.

Last but not least, our voice and SMS business remains resilient growing by 2% in local currency in Q1. We produced an EBITDA margin of 44.2% for the quarter, down 2.9 percentage points in Q1. Half of the margin erosion versus last year come from our investments in new categories and services including category building, network investments in 3G and handset subsidies all intended to support our growth. The other half is due to price declines in some of our markets in Africa and in El Salvador, which have not generated the desired level of elasticity.

As in previous year, in 2012 we aim again to strike the right balance between profitable growth, cash flow generation and returns. In order to deliver profitable growth, we have to invest in new product and services which initially will not generate similar margins to the 46% overall margins that we had last year.

Slide 4; in Q1 we invested $172 million or 14.7% of revenues in CapEx. We expect CapEx to increase, but not to exceed 20% of revenues as we invest in the 3G network and IT and billing platforms. Despite our higher investment in OpEx and CapEx in Q1, operating free cash flow generation in the quarter remains strong at $310 million including proceeds from tower disposals of $68 million in the quarter.

Slide 5, local currency revenue growth for the quarter was 8.4% inline with our expectations. Revenue growth quarter-on-quarter tends to be uneven, as you can see on this chart, but the underlying trend is consistent with our ambition.

Slide 6, our focus on cross selling and up selling more services to our customer is what is driving our top line 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, ARPU declined by just under 5% year-on-year due to pricing pressure in El Salvador, which led us to return to negative growth in that market. In Africa, mobile ARPU was 6.8% lower year-on-year. ARPU in Africa will continue to decline for some time as we pursue penetration gains both in customers and usage.

Slide 8, the split of revenue by our five categories is set out on this slide. In Q1, we accelerated the implementation of our new organization structure, which will be instrumental in sustaining and/or accelerating growth in our markets. In the first quarter of the year, in excess of 80% of our recurring revenue growth was derived from products and services that were not marketed three years ago; demonstrating the relevance of our innovation and growth strategy.

At the same time, we managed to defend our communication revenues by growing voice revenues 1% and SMS revenues 8%. Our fastest-growing category was again the information category. And in particular is mobile data, which grow by over 50% in this quarter. Information contributed to more than half of the growth in the quarter. Our recurring revenues in the four categories of Information, Entertainment, Solutions, and MFS together grew by around 29% in the quarter in local currency. And this category is contributed to more than a quarter of our revenues in the first quarter.

Slide nine, as shown on this slide; the investments we have been making in the new categories are delivering solid results. This quarter, we experienced some slowdown in our revenue growth in communication, yet we managed to grow overall revenues as a high single-digit rate. thanks to our strategy to grow through innovation.

88% of our growth came from the four new categories in which we are focusing our investments namely, Information, Entertainment, Solutions, and MFS. The absolute revenue contribution outside our communication has remained consistent at around 70 million quarter-on-quarter.

Slide 10, we have seen a 4.7 percentage points increase in the contribution of VAS the group revenues over the past 12 months. In Q1, we generated over 30% of our revenues from non-voice services and more than 35% in Latin America on track to reach our ambition to deliver half of our recurring revenues from VAS by 2015 in the region.

Slide 11 and 12. once again this quarter, we managed to grow mobile data revenues by over 50% in Latin America. this growth was underpinned by the investments we have made in the category, both in the network and in subsidies. As you can see on slide 12, we are accelerating our subsidies further to position ourselves ahead of the expected (inaudible) market adaptation or mobile data services.

the gross margin in the Information category is one of the highest of all categories. The shift from datacards to handset over past 12 months is a healthy transition, as it allows us to control traffic and improve ROIC. We are pleased to see a parallel curve between traffic and revenue growth.

Slide 13, on this slide you can see the total 2G and 3G data revenue increased by 12% quarter-on-quarter to exceed $100 million in Latin America. $60 million of this revenue is derived from handsets, which recorded an 8% quarter-on-quarter increase in ARPU.

Slides 14 and 15. The next two slides provides details of penetration of some of other services in our five categories. In particular, penetration of Tigo Lends You increased by 3.4 points year-on-year, and we are pleased to share with you that we have lend $120 million worth of airtime to our lending products in the quarter with the bad debt ratio of less than 1.5%.

We have focused on expanding the reach of our new Tigo Care Family products in the first quarter of this year. Under this umbrella, we have three families of services mHealth, assistance and insurance. We have rolled out these services in Central America, Colombia and Ghana. We already generated in excess of $2 million in revenues in Q1 from Tigo Care services and look forward to scaling up the revenue contribution from this promising initiatives.

On slide 15, you can see that in MFS category, the penetration of Tigo Cash in Tanzania has increased versus Q4 from 18% to 24% and in Paraguay from 14% to 16%. Our launch of MFS in Rwanda, is one of the most promising. After one year almost 7% of our customers are already enjoying the benefits that this service provides the community.

We will launch MFS in at least three more markets this year. We also plan to extend the range of services available in this category to meet the specific needs of our customers in each market. Along these lines, we have now signed agreements with Western Union to offer collection offer and remittences to mobile customer in most of our markets in Latin America. This service was launched first in Paraguay in mid-March.

Now, I would like to hand over to Francois-Xavier, who will take you briefly through the results for each region and the financials.

Francois-Xavier Roger

Thank you, Mikael. Slide 17, in Latin America we sustained high single digit growth at 9.2% in Q1 2012 inline with the growth rate achieved over the past 12 months. All categories grew strongly in Q1 with mobile data contributing more than half of the recurring revenue growth again. At the same time, we managed to grow our communication revenue by 2% year-on-year. Entertainment and Solution, each added close to one percentage point of top line growth in the region.

Slide 18, looking more specifically at Central America, you can see that revenues from mobiles and cable operations were up by 4.7% year-on-year in local currencies. The solid growth in Honduras and Guatemala offsets a negative top line performance in El Salvador, where price declines have not yet triggered the desired level of (inaudible).

Our EBITDA margin was 50.8% in Q1 declining 3.3 percentage points from the level at Q1 2011. We accelerated our network investments in Q1 versus last year as we see clear growth opportunities for us to develop the information category (inaudible) in Central America. Voice pricing pressure in El Salvador contributed somewhat to the margin decline in Central America.

Slide 19, in South America, revenues increased by 14.5% in local currency, with all three markets reporting a strong performance. Mobile ARPU was up by 3.7% in local currency, as a consequence of our ongoing focus on mobile data and other voice products. The increased subsidies combined with increased taxation and revenues resulted in a year-on-year decrease in the EBITDA margin to 40.9%.

Slide 20 and 21, revenues in Africa reached $239 million, essentially flat on a reported basis, but growing 5.4% year-on-year in local currency. Performance in our African footprint was mixed with some operations performing strongly, such as Tanzania and Rwanda, while some others reported revenue declines. We introduced flat tariffs in the second half of 2011 in Ghana, and we reduced cross net prices in Senegal and the DRC with an unsatisfactory level of elasticity to date, resulting in declining communication revenues.

We expect the situation in this market to remain challenging for some time until the actions we have taken starts yielding results. Overall, we have lost customers in Q1 2012, but we focus on the quality of our customer intake rather than the absolute number. We are pleased to report that in Q1, non-communication revenues were up 19% in Africa versus Q4. We are prepared to invest through price reduction and CapEx to accelerate growth in Africa, and to preserve our positions in the region for the long-term.

Now, let’s look in more detail at the financials. Slide 23, in Q1, 2012, our effective tax rate has reached 30.6%. The first quarter of the year is a time when we seasonally upstream more cash from our operation through dividends and hence we recorded seasonally higher tax rates. We are confident that going forward, we will mange to retain an effective tax rate of 11% to 13% of our profit before tax despite the fact that we see increasing corporate tax rates in several of our markets.

Slide 24. Normalized EPS declined by 9% to $1.56 and was negatively impacted by higher depreciation than last year combined with investments in our new corporate structure and increased taxation.

Slide 25. Our free cash flow for the quarter was $244 million, growing 28% year-on-year despite a much higher label of CapEx spend in this quarter than in Q1 last year as we try to spread our network investments evenly during the year.

Slide 26. At the end of Q1, our cash position was in excess of $1.1 billion and our leverage ratio was at 0.6 times net debt to EBITDA.

Slide 27. The average maturity of our gross debt remains stable at 3 years. 46% of the gross debt is at fixed rates, so we are less exposed to interest rate volatility today. At the same time, we have reduced our total cost of debt.

Slide 28. Inline with our achievement over the past two years, in 2012, we again aim to strike the right balance between revenue growth, profitability, cash flow generation and return on invested capital. Our Q1 results are consistent with our expectation and give us confidence to reiterate our guidance for the full year and to reiterate our medium term growth ambition.

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

Mikael Grahne

Thank you, Francois-Xavier. I would just like to close with a summary. As evidenced by the performance reported today, our future growth and successes will depend on our ability to innovate and capture new growth opportunities in categories outside of communication, while defending our voice and SMS businesses.

In Q1, we have accelerated the pace of our investments and we aim to continue to deliver into our shareholders, the right balance between profitable growth, cash flow generation and returns. And we look forward to updating you further on the development of our new categories when we present our half-year results.

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

Question-and-Answer Session

Operator

Certainly. (Operator Instructions) And we’ll take our first question from Luigi Minerva from HSBC. Please go ahead.

Luigi Minerva – HSBC

Yes, good afternoon. I was wondering with regards to especially Africa, if there is anything you can do in order to see the elasticity kicking off sooner rather than later after the switch to the flat rate tariffs. And if your expectation is still probably for the second half of the year for some positive elasticity to happen? And secondly on El Salvador, maybe if you can give us a bit more details about what drove the pricing pressure in that market, and whether we continue to read across to other markets in the immediate future? Thanks.

Francois-Xavier Roger

Okay, let me start by Africa, we haven’t gotten recognition from our customers on basically the move to the flat rate. So it hasn’t generated the elasticity, so as we speak we are experimenting with various pricing initiatives with the objective of trying to find the right balance to get the elasticity and growth. So we are in a stage of experimenting at this stage.

In El Salvador, there’s been quite intense competition around double and triple balance and quadruple balance promotions at the point of reload. We tend to go through the cycles, it’s been a little bit more intense than usual in Q1. But similarly, in El Salvador we are also looking at various pricing options on how to counter that situation, and still offer value to our customers, but also drive revenues with better elasticity.

Luigi Minerva – HSBC

Okay, thank you.

Operator

And we will take our next question from Thomas Heath from Handelsbanken. Please go ahead.

Thomas Heath – Handelsbanken

Hello, thank you. Two questions, if I may. Firstly, a question on handset subsidies, we have them growing now. What sort of long-term level should we look at here, and what is the split between handsets and modems and other devices look like? That’s the first question. The second question on growth in the communication category, do you see a risk for negative growth in the communication category, and if so when could this materialize? Thank you.

Mikael Grahne

Let me start with a general sort of question around the data card or the handset. We save our investment in the handset; it applies to us a more healthy usage of the data capacity and a better ROIC. So we clearly favored that growth to happen. In terms of handset…

Francois-Xavier Roger

In terms of handset subsidies, we don’t consider that this is a one-off event just I think with the category. We believe that this is something that will be a recurring item, because once you start giving subsidies to customers, you will have to do it in the future. we don’t give subsidies of the full amount of the device, usually it’s around one third or slightly more of the cost of the device. We don’t see that as anything negative, because usually when we convert prepaid customer to a postpaid customer, we do better plan. it contributes to increase the ARPU, increase the EBITDA, increase the ROIC and reduce churn. So we see that as something positive.

another positive development that we see obviously is the fact that the cost of handsets is moving down, the level of subsidies will go down. So will it translate into a reduction of subsidy going forward or will we take the opportunity to give more subsidies to customers, it’s likely to be the second one that probably at least in the short-term, we will probably give more subsidies to more customers to convert them from prepaid to postpaid.

We are happy to see that the ARPU on data is increasing from Q4 to Q1, also quarter-on-quarter, the data ARPU only on the handset increased by 8% from $7.3 to $7.9, which is very satisfactory to us.

Mikael Grahne

In terms of the communication revenue and growth there, we have many tools to sort of apply here. as you know, we’ve done customer segmentation, we have what we call Tag and Trigger our customer. So when a certain customer profile runs down their prepaid balance, they automatically get an offer. So we are still quite confident in our ability to defend this category. We could have an isolated quarter where we could have a negative number, but then it could be followed on by a quarterly [deposited] number depending on the promotional intensity in this category.

Thomas Heath – Handelsbanken

Okay, thank you very much.

Mikael Grahne

Welcome.

Operator

And we will take our next question from Laurie Fitzjohn-Sykes from Citi. Please go ahead.

Laurie Fitzjohn-Sykes – Citigroup Global Markets Ltd.

Thank you, and good afternoon. One question on Africa, even though you have seen continual losses this quarter despite the price reductions during last year, should we expect further price starts to try and [differentiate] going forward, and in this regard how much of the elasticity you’re seeing on those price cuts due to capacity reactions to those cuts. So maybe just a simple color on the competitive dynamic and how that leads into elasticity, you think. Thank you.

Mikael Grahne

Well, okay let’s start with the pricing. The cuts were triggered by competitive reaction, it started basically almost 12 months ago. In that our competitors reduced – equalized their on and across rates, basically the consumer pays the same when they call within the network and outside the network. And we know from experience that, that the outside call have very limited elasticity, the cuts on that have high elasticity.

For some time we didn’t follow that, we pursed other tariff plans, and in the end in the third quarter of 2011 we started to get some feedback from our customers that they didn’t see the value in our proposition, so we followed our competitors, equalizing the on and across rate. And on that one we haven’t got any value recognition at this stage from our consumers. So there are different models to apply, not all of these models require further cut in the rates per se, just rearranging what you charge from, what kind of a call being it international or on net or across net and so on. In parallel, of course we are aggressively developing our value added services in Africa, copying the success we had in Latin. And in the first quarter of this year, our value-added service revenues were up 19% versus Q4. So that’s a very strong performance there. So we are looking to drive growth with an acceleration of VAS services and products, and finding smarter tariff that truly give us a value recognition from our consumers and come with the necessary elasticity to drive growth.

Laurie Fitzjohn-Sykes – Citigroup Global Markets Ltd.

Thank you.

Francois-Xavier Roger

You’re welcome.

Operator

We’ll take our next question from Mark Walker from Goldman Sachs. Please go ahead.

Mark Walker – Goldman Sachs

Hi, there guys. If I could just follow-up on Africa firstly, and given the price pressure that was seen recently is just the three markets of Ghana, DRC and Senegal.

Francois-Xavier Roger

Yeah.

Mark Walker – Goldman Sachs

I’m just wondering if you could comment on the risk that the economics deteriorate, and then market in which you have experienced positive trends to the other four, and in particular the two bigger ones is Tanzania and Chad? And then secondly, it looks like you didn’t get any of your buyback away this quarter. I just wondering if you could update us on what your plan is for that, and whether or not that impacts how you’re thinking about future shareholder remuneration and in particular, the bonds between buybacks and dividends? Thanks a lot.

Mikael Grahne

I’ll start with the macros in the countries we are doing well. As you know, we don’t track macros. There is very limited availability on reliable macros and second is very little we can do about it. We’re just focusing on offering value to our consumers and driving growth that way. So in Q1 we did fantastically well in Tanzania and Ghana and acceptably well in Chad. So, we don’t look at any market trends when it comes to that.

Francois-Xavier Roger

Regarding the share buyback indeed, we did not do any buying of shares during the first quarter, which is exactly what we did last year. There is nothing specific to read in that. The main reason being the fact that we have two close periods during the first quarter, because we cannot buy before – almost at the end February, and then we enter very quickly into the second [calendar] period for the end of Q1.

We have indicated that we intend to buy up to $300 million of shares in 2012. As we did last year, the bulk of it will be done in Q2, Q3, Q4. There is a strong likelihood that we would stop the program as early as next week.

Regarding shareholder remuneration, no change from what we communicated earlier in the year with the dividend that we announced for – to be paid in June these share buybacks that I mentioned, and we confirm our intention to return to shareholders later in the year any excess cash we may have.

Mark Walker – Goldman Sachs

Thanks very much. If I could just sorry, comeback on the first question, I forgot, I was actually refereeing the price pressure you are seeing, so I was talking about competitive dynamics. So the introduction of flat tariff structures or cross net price cuts in Ghana, DRC and Senegal, can you just comment on the risk of those being led for example by (inaudible) in markets like Tanzania and Chad?

Mikael Grahne

Well, I don’t if you saw, but we have some statements that came out of the Chairman’s visit to the Barcelona conference that took place a month ago whereby they sort of admitted that they had seen limited electricity on some of their pricing actions. That’s the only thing I comment. I mean we went through a pricing, quite intense pricing environment in Tanzania that has somewhat eased. And so, that’s the only comment I have on that subject.

Mark Walker – Goldman Sachs

Okay. Thank you very much.

Mikael Grahne

Thank you.

Operator

And we’ll take our next question from Jean-Charles Lemardeley from JPMorgan. Please go ahead.

Jean-Charles Lemardeley – JPMorgan

Hi, yes, hello. Just on the subsidies presumably concentrating in Latin America, could you just make the indications on how this is helping smartphone adoptions so penetration grows with smartphones maybe also give us an idea of the overall impact when people uses smartphones on voice and the impact including voice, SMS and data. You have provided some interesting indications on the impact in Colombia in the past. And then maybe any indication on what’s happening on the smartphone front in Africa, as it would be helpful?

Mikael Grahne

Can I just start there, I mean, at in any new service or any technology that has so high upfront cash outlay, normally it stops the natural development there. So we subsidized in order for people to be able to access these new services and many people can pay $10, $20 a month for a service that are more difficult finding the $400, which is required upfront and that leads to that the subsidy here. We still have the same trend, people who jump from 2G to 3G have a significant increase in ARPU primarily driven by data services, and we haven’t seen any decline per se on the voice ARPU from these customers, so it’s still a very healthy development.

Francois-Xavier Roger

I can just add obviously it facilitated the entry on the joining of customers in these new category at an early stage of the development of the category and (inaudible) because today in Latin America we have more than 14% of our customers using data in Q1. We’re absolutely convinced of the fact that old customers who have an ARPU of more than $10 which in Latin America is more than one (inaudible) of our customer portfolio, we will get access to the categories. Obviously if we can help them to join as early as we can through limited subsidies that’s what we do and we could see that it’s paying off, because the 3G category has been growing for mobile at more than 50% during the quarter, and it has been constantly the same rate over the last couple of quarters.

Mikael Grahne

In Africa we have very limited subsidies on our smartphones. and typically, the smartphones tends to be of similar to the ones we are selling in Latin America.

Jean-Charles Lemardeley – JPMorgan

Okay. And so penetration rates of smartphones, is it accelerating right now in LATAM or – I don’t think there’s any detail in your presentation slides, on that particular point this quarter?

Francois-Xavier Roger

No, but you can see that the data users in Latin America increased from 13.5% in Q4 to 14.2% in Q1. So most of it is taking place obviously through smartphones, and I mean we increased the number of customers by – on the 3G; on data service from 3.5 million in Q4 to 3.8 million in Q1, which is a 9% increase quarter-on-quarter, and we are not even talking here on Europe.

Jean-Charles Lemardeley – JPMorgan

Okay.

Mikael Grahne

And the driver here is the smartphone. The driver is the smartphone.

Jean-Charles Lemardeley – JPMorgan

Two quick questions on Africa, just to finish, I mean one in Senegal, there’s the change in the presence, you changed anything to your – the outlook for the resolution. And then in Ghana, just on this MTN in the second half of 2011 did quite well in revenue growth, it accelerated there. So just wondering, I mean what’s happening to your revenue share, you’re seeing in that market, and what’s the outlook for your revenue share?

Francois-Xavier Roger

I think we had some loss on revenue share in that market. And as of this stage, I don’t want to comment on the outlook, because as I said, we are going through different pricing scenarios and service scenarios that will hopefully help us to restore growth. In terms of Senegal, we are happy that the election process went well and was exercised; the Senegalis had a chance to exercise the democratic right. we are still expecting the arbitration outcome in the next three or four months.

Jean-Charles Lemardeley – JPMorgan

Thank you.

Mikael Grahne

You’re welcome.

Operator

And we’ll take our next question from Lena Osterberg from Carnegie. Please go ahead.

Francois-Xavier Roger

Hello?

Operator

Miss Osterberg, please go ahead.

Lena Osterberg – Carnegie

Yes. Hello, sorry. I was on mute sorry (inaudible) telecom analyst. I’m sorry to have turned to Africa again. I’m curious about what’s the current pricing difference between yourself and the other players in DRC and Ghana at the moment? And the second question, what do you believe are the key criteria for you’re not being able to regain traction in those two markets despite cutting prices? And then also what margin…?

Francois-Xavier Roger

Can I stop that? In its simplicity we have relative similar pricing to our competitors. We are latecomers to this pricing positioning and hence we don’t get really a recognition for that.

Lena Osterberg – Carnegie

Okay. So, what will then change and what will make you get better momentum?

Mikael Grahne

Well, as I said investment and value-added service is on one hand, but at the same time we are experimenting with different pricing model and different options of offering value.

Lena Osterberg – Carnegie

Okay. And given some of the price levels that you’re seeing in the market now, which seems to be quite low, because I understand your three cities on that cost currently, what margins do you believe, do you believe it can return to 40%, 41% margin for Africa, if you get the usage increase?

Francois-Xavier Roger

I don’t want to comment on that one going forward, but we are determined to trying the right solutions to accelerate the growth we have in these markets.

Lena Osterberg – Carnegie

Okay. And then also in El Salvador, what was the growth rate in local currencies, and why is just El Salvador so aggressive, anything particular in that market. And do you see any risk of these aggressions building over to the other Central American markets given that it’s the same competitors?

Francois-Xavier Roger

We had a negative growth rate in some single-digit numbers in El Salvador, primarily triggered by the voice competition around quadruple and triple offers of free airtime when you load. We have had the various level of intensities around that across the market, it just happened a little bit more intense in this quarter in El Salvador, but similar to Africa, we are looking at various pricing models and continued investment in (inaudible).

Lena Osterberg – Carnegie

Okay, may I also ask you a question on G&A expenses. How should we look at them for the full year, should we pull customer as a percentage revenues, because I understand now they will increase value so higher invest in new services. So will they increase with revenues or should we see them more of fixed cost, so you will get leverage once your revenues increase or how should we view them forward?

Mikael Grahne

Well some part of the G&A is a fixed cost, but at this stage we think that the – among the smartest investments we can do is invest in people with the right skill set to drive all these new categories including our factories, our networks that have to deliver all these. So we will probably see an increase in the G&A going forward throughout the year.

Lena Osterberg – Carnegie

So it will be fairly constant percent of revenues?

Mikael Grahne

That’s very difficult to really forecast, I think we had a step up because in Latin America a number of our 3G network moved out from their sort of initial free service periods or when you have a new network for the initial years, you normally don’t pay your maintenance fee, and then when you move out of that guarantee period you have an ongoing maintenance fees. So they could have been a step up driven by the Latin America and 3G networks.

Lena Osterberg – Carnegie

Okay, thank you.

Francois-Xavier Roger

You’re welcome.

Operator

We’ll take our next question from Cesar Tiron from Morgan Stanley. Please go ahead.

Cesar Tiron – Morgan Stanley

Yes, hi. I want to go back to Africa again. And I would like to understand why it took so long for the price cuts that have been implemented in H2, 2011 to result in a significant slowdown of the revenues in those countries and even negative revenues in some of the countries? And also would like to understand how is it possible that you don’t have elasticity in those countries, but at the same time you basically blame increasing of [net] traffic for the lower margins in that clusters, if you could explain that? Thank you very much.

Francois-Xavier Roger

Yes, okay. Some basics here, when you do a price decrease on net, you normally have great elasticity because behavior in our industry is that you tend to have 4, 3 to 5 people, you call a lot with being friends and families. And normally when you reduce those prices you’ll get great elasticity. People simply talk more and actually spend more than the original you had because they’ll recognize the value.

In emerging market that is typically or higher cost to call across the networks, people know that. So their habit is not one where they have a lot of a cross net calls. So when we reduce this cross net call, you don’t really create more calls. You just basically take out revenues and reduce your margins. We saw our competitors move to this flat tariff, we don’t think it’s smart. There were lots of comments (inaudible) and so on that they don’t want to be price leaders. We kept the model we had in place, but in the end from customer reactions we had to follow and perhaps because we were latecomers, we haven’t gotten the recognition that we more or less have similar tariffs to our competitor. So we have to find some other solutions, which we are working on.

Cesar Tiron – Morgan Stanley

Just a follow-up question if I may. If there is no significant elasticity, how can more traffic move off in that?

Francois-Xavier Roger

Not necessarily. Basically you make less money and less revenues on a cross-net calls because lets say, if some customer do three calls cross-net per month and now you reduce significantly that tariff, if you simply just and it will only make the three calls, so just loose revenues.

Mikael Grahne

When you have the differentiated tariffs between non-net and cross-net there was a perception on consumer that cross-net expensive and that you should not use it. If you introduce that tariff then there is a perception among consumer that you can use independently one or the other, which mean that people are talking more cross–net. So you have a bigger share of your total traffic, which is coming from cross-net calls with a lower margin, so it’s putting a lot of – because you’re sharing with another operator.

Cesar Tiron – Morgan Stanley

Okay. I got it. Thank you so much for it.

Operator

And we’ll take our next question from Stefan Gauffin from Nordea Bank. Please go ahead.

Stefan Gauffin – Nordea

Yes, I have a couple of questions. Firs of all, I didn’t find information on the churn levels this quarter something that you have provided each quarter historically. And I wonder if it’s – why this information is not provided. Secondly, there will be an interconnect cut in Columbia in April and the information we have seen earlier was that it would be 50% cut over three years. Could you give information on how big the cut will be now in April? And sort to come back to the question previously of course, I didn’t really understand the answer. Can you give some information on how the traffic pattern has changed of the flat tariff structure in Africa, somehow percentage wise or and I think to just understand the margin impact from this.

Mikael Grahne

Okay, let me start at the Africa and for competitive reasons, I don’t want to disclose exact traffic patterns. But just going back to this, if you have – if you embark on a strategy where you have some, exactly the same tariff as your competitors as more or less we did, it’s not automatic that you get that recognition from your customers. So there is not – whatever tariff you put in place that is not a instant recognitions by the customers that that or what that tariff is and particularly in Africa it normally takes a little bit longer to drive through the recognition of your pricing than for example in Latin America. It’s not automatic that we copy our competitors that we get exactly the same traffic pattern or exactly a neutral preference between our tariffs and theirs, it’s not automatic.

Francois-Xavier Roger

On the churn, we did not disclose a churn, because there was no significant material change in the churn. The only real interesting information about churn is that we see that there is a significant production in churn among our customers while using some of our VAS products. Just as an example, for example the customer using MFS Services have a churn, which is significantly lower than the normal customers to a standard price to (inaudible) as well. Regarding the interconnection cut in Columbia, this has nothing to do with what happened in 2008, when we had the 50% cut, when we were a strongly dependent interconnection at that time. this time, the share of our traffic that is dependent on interconnection is significantly more limited to start with. and we are talking of 50% decrease [under base], which is already 50% of what it was in 2008 and divided by three, because it is on three parts. So as you can see, the (inaudible) makes it, I would not say insignificant, but we don’t expect any real pressure from that change.

Stefan Gauffin – Nordea

Okay, thank you.

Mikael Grahne

Okay.

Operator

And we’ll take our next question form Peter Nielsen from Cheuvreux. Please go ahead sir.

Peter-Kurt Nielsen – Cheuvreux

Thank you. Apologies for another question on Africa. You seem to be taking, have been taking (inaudible) by recent development. so it’s just interesting in whether what you’ve just been discussing and what you’re seeing in Africa at the moment in the past quarter, is then anyway changing your expectation for medium term growth on that continent or perhaps the risk associated with that growth, and whether this is likely to change your appetite for further expansion in Africa? Thank you.

Mikael Grahne

Yeah. I don’t think so. we are very committed to Africa. we think we are going through a – somewhat disruptive pricing scenario triggered by [Bharti’s] entry. And as we are learning about elasticity, I think our competitors do the same. We already have some markets like Tanzania where we went through this experience and we got some smarter tariffs that both gave benefit to our consumers and provided growth for the operator. So we are still very confident in our midterm outlook for Africa, we simply just have to learn now to find different tariff combinations that get the recognition of being great value to our customers, and that’s what we are in the process including driving out value-added service where we tend to be ahead of our competitors, and our intention is to continue to do so.

Francois-Xavier Roger

I confirm that Q1 is inline with our expectation and that in light of Q1, we are confirming our guidance for the full year 2012, as well as the expectation that we shared for the medium term.

Peter-Kurt Nielsen – Cheuvreux

Okay. Thank you.

Operator

And we’ll take our next question from Miguel Garcia from Deutsche Bank. Please go ahead.

Miguel Garcia – Deutsche Bank

Thank you. Good morning.

Mikael Grahne

Hi.

Miguel Garcia – Deutsche Bank

My first question is going back to Africa again, but I wanted to see if there is any – do you see any space for M&A activity, because it looks like some of these markets are more challenging and require some consolidation, and if you are looking to being part of that?

And the second question is regarding triple play on 3G. We have seen some markets in Latin America where our operators after developing strong 3G network are offering broadband plus wireless services plus a type of fixed solution to compete the triple play network, triple play offering. Is that something that you’re considering? Thank you.

Mikael Grahne

Okay. Let’s start with M&A opportunities in Africa. Some of the African markets simply have too many operators and their consolidation would absolutely make sense. I think that will happen, but not short term, I think it’s more over time. There is also perhaps some regulatory challenges in putting together business in Africa at the moment, but that’s certainly something that will happen on the time, over time. We don’t see that many Greenfield opportunity to us, the expansion is more about finding an asset which would be a number two or number one in the market, and something that we could buy and apply our skills, and get a return that would exceed country – at that time.

Francois-Xavier Roger

Regarding triple play or even quadruple play, this is something that indeed we are contemplating. This is something that doesn’t wait to look today in our total revenues, but this is something that we look at with a lot of interest in development in more developed markets, especially in Central America where we can also as well seek services, be it broadband Internet or fixed telephony, we are interested in developing quadruple play which we already do. But we expect it to grow in the future. Like wise, I mean if we could have opportunities to develop similar program in other regions, even if we don’t fixed infrastructure for the time being, we’ll do it with a lot of interest.

Miguel Garcia – Deutsche Bank

Thank you. So just to clarify on the first question, it would be – what I gather is that, it would be hard for you to be the acquirer because you have the first or second position, right in most of the markets.

Francois-Xavier Roger

No, what I mentioned, in an existing market, whether too many operators and we have strong positions in all the markets we are in, we would naturally be a buyer of an asset to expand our market share. We just don’t see that happening in the short term.

Miguel Garcia – Deutsche Bank

Okay.

Francois-Xavier Roger

And in terms of expanding to other Africa markets, it’s not about Greenfield, it’s about buying on asset, which is number one or number two.

Miguel Garcia – Deutsche Bank

Great, thank you.

Francois-Xavier Roger

You’re welcome.

Operator

And we’ll take our next question from Ric Prentiss from Raymond James. Please go ahead.

Ric Prentiss – Raymond James & Associates

Thanks. Got a couple of questions, none of them about, Africa. First question is, you’ve been to Columbia, your market share there, and how it – what you’ve seen historically. Can you talk to us little bit about what you’re doing in Colombia to get the market share in the information or data segment? Second, on the handset side, can you talk a little bit about the different operating platforms, Android, BlackBerry and Nokia, Windows, Apple kind of what you’re seeing as far as the device lineups, the cost and the user interest in those different systems?

Francois-Xavier Roger

Yeah. let me start first with the strategy. In Columbia, we are sort of focused on the young urban customers, and very strongly we focused on non-value-added services, and even our packaging around the data products is also based a lot about sort of a young customer profile.

The most successful product we have on the data side is, it’s call a social plans, primarily on BlackBerry, where you basically have unlimited access to Facebook, e-mail and BlackBerry Messenger, and then on top of that you buy a voice package. Some of that added together is around $25 a month as a cost, and that’s something that really works well for us.

We also have a quite large sales force of – you could call that young people who can be out there in our shops and on the streets and demonstrate to people how to use data services and how to use smartphones, and we find that’s very effective in converting people to users.

Mikael Grahne

Regarding handsets, it’s under development that we see is really with Android, and we see the development with a lot of interest as well, because in terms of margin that is quite effective to us for two reasons. First of all these handsets are amongst the most affordable to start with and it seems, I mean the software is free in terms of usage, we don’t pay any fee or any service to anybody like we do for example with RIM. So this is something that we are promoting, but I mean there are different segments as well we started not such a long time ago to market, some iPhones as well, even if the market is not that large in all countries, but it starts to sell reasonably well as well.

Ric Prentiss – Raymond James & Associates

Okay. And then on the entertainment category, I don’t think we spent a lot of time on that on the call, you mentioned interest in getting access to music content. I know in the United States (inaudible) as the move product. Are you looking to develop your own or you looking to partner or what exactly are you signaling there with the music content, what’s the opportunity?

Mikael Grahne

No, we just think. We don’t want to say now anything in terms of how we would do it, we just wanted to see now that we think there is an opportunity there, our emerging markets are full of young people, music is close to everybody’s interest and heart. So we are looking at various options how to add this step, but that’s an important area for us going forward.

Ric Prentiss – Raymond James & Associates

And probably not much effect in 2012 financials is that really a (inaudible).

Mikael Grahne

It will take some time to build that up

Ric Prentiss – Raymond James & Associates

Great, thanks guys.

Mikael Grahne

Welcome.

Operator

We’ll take our next question from Andreas Joelsson from SEB Enskilda. Please go ahead.

Andreas Joelsson – SEB Enskilda

Yes, two questions if I may, first on Latin America, you mentioned that there is a few auctions coming up during 2012. Do you have any idea on how that could affect cash flow? And secondly, back to Africa, you mentioned that you focus on quality in the subscribe base. And ARPU is down almost 7% in local currency due to the price pressure. Do you expect the decline in ARPU to be less than going forward, since you focus more on the quality of…

Mikael Grahne

Our less drives and less services like mobile financial services, but I don’t want to give a forward guidance on what will happen there.

Francois-Xavier Roger

The auction prospect from – as you probably saw we excluded these amounts from our guidance in terms of CapEx due to the lack of visibility on those countries where it could take place the timing and even the amount. The most advanced auction is in Columbia, where there is currently an intensification between existing operators and the regulator and underway to convert that auction which are very collective discussion. There are some sign that something could happen as well in Paraguay. But we have limited visibility for the time being both in terms of timing, the amounts, availability of spectrum and so forth. But obviously, we show a significant interest in getting part of this excess. If we can share with some of our competitors, we would be more than happy to do it because we know that this is something that works in Europe, you have all – I think in the U.S. as well. You have a lot of operators who are sharing not only spectrum, but networks as well which makes a lot of sense and which is totally feasible from a technical point of view, limiting CapEx, OpEx and bringing affordability to consumers.

Andreas Joelsson – SEB Enskilda

Okay, thanks a lot.

Mikael Grahne

Welcome.

Operator

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

Soomit K. Datta – New Street Research LLP

Hi, I’ve got a question on Paraguay, please. And I believe you as of now (inaudible) on-net and cross-net tariffs in that market given your commentary about elasticity on on-net and off-net in Africa, could you maybe give any sense to how you could imagine revenues on the voice side would play out in Paraguay over the coming months? And has there been any impact, may be it’s a bit early, but has there been any impact yet on the numbers? Thanks very much.

Mikael Grahne

Okay. In Paraguay, the cross-net, on-net equalization hasn’t happened. So we still have the tariff plans in place that we had. In Paraguay, you have to remember, we have a very strong market position and we have more than 40% of the revenues in non-voice setting in VAS. We have a strong growing mobile financial service business, which we are unique in the market with. So, we think we have a very strong at this stage defensive position to manage through any changes in this area.

Soomit K. Datta – New Street Research LLP

As and when you move up your own net prices in Paraguay, do you think the same will hold there as you’ve said in Africa i.e. you will essentially see volumes drop to compensate?

Mikael Grahne

Well, you have to remember we have a totally different position here us being the clear market leader and us then having to be the mover with the advertising capability to seeing now that, so it’s a different situation.

Soomit K. Datta – New Street Research LLP

Okay. Thanks.

Mikael Grahne

Welcome.

Operator

We will take our next question from Kevin Roe from Roe Equity Research. Please go ahead.

Kevin Roe – Roe Equity Research, LLC

Thank you. As you experiment with price initiatives in Africa to drive the elasticity this quarter, should we expect further margin pressure versus the EBITDA margin you reported in Q1? And then, Rwanda can you talk a little bit the slight subscriber drop in the quarter. I know you mentioned there were strong revenue growth, but just curious what activity you took in the quarter ahead of Bharti’s entry, and so far in April, has their been any more disruptive than you’ve seen in other markets? Thanks.

Francois-Xavier Roger

On the margin side, I mean we reiterate our guidance for the full year, which is around mid-40s. EBITDA in light of – and we confirm it in light of Q1. In Rwanda, as we indicated, it’s the market, which comes on the other which is delivering very good reserves. Bharti indeed launched operations couple of days ago, and it’s very difficult for us to comment about their performance for the time being. I mean at Rwanda (inaudible) one of the fact that our MFS business is developing very well with 7% of our customers already using it.

Kevin Roe – Roe Equity Research, LLC

Yes. On the first question, I was referring specifically to Africa. If you expect further margin pressure sequentially for that region?

Mikael Grahne

We are still looking at various pricing options. So, I don’t want to comment on that one.

Kevin Roe – Roe Equity Research, LLC

Okay.

Mikael Grahne

Okay.

Operator

And we’ll take our next question from Erik Pers from Danske Markets. Please go ahead.

Erik Pers Berglund – Danske Bank

Thank you. Regarding El Salvador, I’m not sure if I understood, as you were the leader or the follower about the price declines, and have you seen any of those triple or quadruple time offerings continuing to (inaudible), and what do you think about the outlook there? And also for those who are to aren’t perfectly up-to-date on that consolidation process, is that still happening or is it (inaudible) definite, sort of a regulatory hurdle there. Or some times in the year, what’s the pricing structure there with regards to off-net and on-net prices, or why they are different? Thank you.

Francois-Xavier Roger

Regarding El Salvador, in El Salvador (inaudible) markets, we never position ourselves as a price [fighter], so we – and especially in El Salvador in Latin America in general, where ever we can have leading position usually we always make sure that we work with affordability perception for customers, but we – I don’t think that you would see a [mini gun] triggering any price any where. You had a question on Tanzania; I will let Mikael on to the other question. And then, regarding consolidation in Central America, we have noted the fact that Digicel merged with America Movil in Honduras and the merger took place, I think couple of days ago. While the merger has not been completed yet in El Salvador, which is by the way one of the reason why we see, we always seen more pricing activity in El Salvador, because the competitive environment is quite different from the two other markets in Central America with much more intense competitive landscape.

Mikael Grahne

In terms of Tanzania we have a [delta] between on our cross-net price.

Erik Pers Berglund – Danske Bank

Okay, do you see a risk, you might go through a similar.

Mikael Grahne

We went through a cycle like that already.

Erik Pers Berglund – Danske Bank

Okay. Thank you.

Mikael Grahne

Thank you.

Operator

And we’ll take our next question from Bill Miller from Hartwell. Please go ahead.

William Miller – JM Hartwell

Good morning.

Mikael Grahne

Good morning.

William Miller – JM Hartwell

Give us a little bit more color on how the developments with Western Union are taking place and what you think the potential is for that and whether there are barriers to Western Union or any other structural barriers to there being a big part of the financial picture for you?

Mikael Grahne

Okay, some background there. We are only live in Paraguay, although we have agreements to start later on in Central America. In Paraguay, the remittance markets incoming remittance is around $900 million. At this stage, we just have gone through sort of a non-advertised stage where we do technical testing and just ensure that Western Union’s are now our machine can talk in a reliable method with each other. So we are a few weeks away from really trying to start commercially to exploit that. But we are quite optimistic about the impact there.

Francois-Xavier Roger

And this is a cooperation that makes a lot of sense, because we don’t have any international presence in terms of – for international remittances, because we are the only presence in our markets, in our certain market, but we have no capability for example to get access to international remittances from the U.S. or from Argentina, for example or from Spain as far as Paraguay is concerned. So while locally we have a very strong distribution reach, which Western Union doesn’t have, so this is a type of cooperation that makes a lot of sense, and we are happy to start with Paraguay as Mikael said, we would extend it to Central America and most likely as well in other markets in Africa.

Mikael Grahne

But like all financial services, I think the expectation would be that it will take months to basically start ramping up scale. People have to learn to press the system. When somebody has a good experience they tell their friend or the neighbor and you get it that way. So I don’t expect any material impact in 2012. I think the real benefit will come 2013 and onwards.

William Miller – JM Hartwell

How big a deal should it be, is there may have a brand name, which is (inaudible) and…?

Mikael Grahne

Yeah, I mean it could be a quite big deal. I mean if the remittance market is $900 million in Paraguay, and we are probably the largest company in that country that could over time, we could take a substantial share of that. In Central America the remittance, annual remittance value is around, across the three markets around $2.8 billion and again in these three markets, we have leading market position. So, this could be a long-term a very attractive opportunity.

William Miller – JM Hartwell

Great, thanks very much.

Mikael Grahne

Welcome.

Operator

And we’ll take our next question from Sergey Dluzhevskiy from Gabelli & Company. Please go ahead.

Sergey Dluzhevskiy – Gabelli & Company

Hi, good moaning.

Mikael Grahne

Hi.

Sergey Dluzhevskiy – Gabelli & Company

Could you talk a little bit about your cable and fixed broadband strategy over the next few years, obviously you have (inaudible) in Central America you put some cable licenses in Paraguay, so how needful this business could become for you over the next few years. And do you expect to make more acquisitions of cable or maybe fiber assets in other countries in Latin America?

Francois-Xavier Roger

Looking at the results of our acquisition of Amnet a little bit more than three years ago, which by the way we are rebranding in almost all markets now to Tigo, we are very happy with the development. This is a business that grew on average over the last three years by close to 15% on the top line with a margin, which is attractive, which is close to the average margin of Millicom, so we are extremely happy.

As I said earlier, this is a good opportunity for us to leverage cross-sell (inaudible) products and services given that we can – I mean, sell a triple player or a quadruple player. So this is share infrastructure as well. We have confirmed that to we would be interested in expanding in the same way and if not through green-field project as we are currently doing in Paraguay. Our two acquisition in other markets where we don't have a fixed operation, given that we are extremely happy with what we have seen. There are not so many opportunities right now. But in Africa as of today there are not so many opportunities, but there could be some probably in South America. So we would keep looking at it, and if we don’t find the right opportunity we will not (inaudible) to go move Greenfield or Brownfield.

Sergey Dluzhevskiy – Gabelli & Company

Thank you.

Operator

And we’ll take our next question from Barry Zeitoune from Berenberg Bank. Please go ahead.

Barry Zeitoune – Berenberg Bank

Hi good afternoon. I have [three] questions. The first one is, looking at your commitment to go for the higher value subscriber and we did see successful upselling and cross selling in South America, but at the same time, we’re seeing a proportion of customers are having ARPU of greater than $10 move or from 30% in Q4 to 26% this quarter. Is that mainly concentrated with what’s happening in Africa or do you think that the strategy of going for the higher value subscribers is starting to run its course in some of your Central American market? Second question is on the (inaudible) Guatemala and Honduras. I was wondering whether you could quantify the impact that has on Central American revenues and EBITDA. Third question is on contribution from communication to overall top line growth, but your capital markets that you where talking about a 3 percentage point contribution to 10% top line growth. Now, you’re kind of a – at around half that level this quarter, and I understand that its a volatile number, but do you still stand by that 3 percentage point contribution to top line growth. And then, final question would just be on shareholder return. I was wondering whether you’re tempted to wait until the spectrum auctions in South America and particularly Columbia as is the way and that you’ve got clarity on the costs around those auctions before you commit further shareholder returns? Thank you.

Mikael Grahne

So, let me start with the commitment to the higher value customer, that commitments in absolute – and I just may be want to point out that we are in no way denying the access for lower ARPU customers to our networks. But the real focus is to develop services that makes sense and can drive ARPU among the people who can afford a little bit more. So we might have some volatility on this high ARPU customer number from quarter to quarter and we might have lost some high ARPU customers in Africa in this turbulence around the pricing moves.

Francois-Xavier Roger

Regarding the contribution to communication indeed versus what we gave as an indication in London during the Investor Day last year, it is true that in Q1 the contribution of communication is lower than what we expected around three points. If you look at Q4 last year, we were close to what we expected. Don’t forget as a vendor what we said initially, which is a fact that we had an extremely high gross in the first quarter of 2011. So we are not absolutely [convened] that the Q1 2012 gross is a good proxy of what could happen later in the year.

Regarding the impact of the spectrum auction in Latin American on shareholder return, I don’t see really a strong relationship given that – I mean, we believe that we can finance the auction regardless – independently from any shareholder return. So I don’t think that if we buy a new spectrum in Latin America, it would impact negatively our capacity to return funds to shareholders.

Barry Zeitoune – Berenberg Bank

Sorry just on that, I didn’t mean in terms of variable capacity payment in terms of timing. Would be you tempted to wait to have clarity for deciding on an amount for further shareholder return?

Mikael Grahne

No, not really. As I said, I mean we intend to – we expect to stop the share buyback as early as next week. So I don’t think that there will be any connection between the two items.

Barry Zeitoune – Berenberg Bank

Sorry, just to clarify once more. I mean, in terms of a further buyback beyond what’s already being committed?

Mikael Grahne

Well, at this stage we have – we are making no statements about any further returns.

Barry Zeitoune – Berenberg Bank

Okay, thank you. And just the point on MTR cuts in Guatemala and Honduras. Can you quantify the impact that would have on the revenues and EBITDA?

Francois-Xavier Roger

Do you remember, I think Guatemala and Honduras, we have very dominant market positions. The bulk of our revenues on the voice side is on-net, so any interconnect cuts on interconnect raise, but we’re very low already to have this material impact (inaudible).

Mikael Grahne

What put more pressure on our EBITDA margin in Q1 was the new tax introduced in Honduras, because we introduced a security tax, which is 2% on revenues that’s played a much higher – had a much higher impact than any MTR cuts in both countries.

Barry Zeitoune – Berenberg Bank

Okay, that’s great. Thank you very much.

Mikael Grahne

You’re welcome.

Operator

We’ll take our next question from Sven Sköld from Swedbank. Please go ahead.

Sven Sköld – Swedbank AB

Thank you. Only questions about the financials remaining here on my list. I noticed that deposition increased more than revenue in this quarter and that you actually saw EBIT decline year-on-year. I’m wondering about the – what you think about the deposition for the remaining part of the year? Will it continue up forth than revenue? And well, that’s the first question.

Francois-Xavier Roger

Okay. Now, on the first question, depreciation indeed increased more, there is a slight technical impact, because last year in Q1 we extended the depreciation period of some of the assets on, especially the tower that we still have from 10 to 15 years, which mean that we took one-off benefits, which contributed powerfully to the fact that it looks like a significant increase this quarter.

Sven Sköld – Swedbank AB

Okay, okay. But for the remaining – I mean, this is the normal level going forward, I assume. There’s kind of nearly a 17% of revenue.

Francois-Xavier Roger

We gave a guidance at least for CapEx that we expected to invest in CapEx, and with up to 20% or less than 20% of revenues. and so you can expect from that trend on depreciation.

Sven Sköld – Swedbank AB

Yeah, okay.

Mikael Grahne

Even if we may have, we may have as well a slight impact, because as you probably notice in the last two years, we were very back-loaded in the year with the CapEx, because we had the very, very strong portion of our CapEx in Q3 and even more in Q4. We have (inaudible) to better spread the CapEx even nearing the year, which mean that we may have a little bit more growth in the depreciation in the earlier part of the year in H1, at least this year.

Sven Sköld – Swedbank AB

Okay, I understand. But it couldn’t be so that EBITDA actually is declining this year?

Francois-Xavier Roger

You were saying that EBITDA declined, EBITDA didn’t decline in absolute value, EBITDA increased in absolute value, so we don’t give any guidance in absolute value, but we gave a guidance of around mid-40s that we right, allocated for EBITDA this year.

Sven Sköld – Swedbank AB

Yeah. But EBIT, could it be declining this year?

Francois-Xavier Roger

We don’t give any guidance on EBITs.

Sven Sköld – Swedbank AB

A second follow-up, a second question if I may. I know there seems to get the minority on the individual quarters. Can you give us a hint on where the minority adjustment should be, I mean normalized in this quarter? There are major differences between the historical quarters, so...

Francois-Xavier Roger

You had some disadvantage in the past why because we were, we’ve been making losses for a longtime in Colombia, which was the main item in minority interest in our P&L, but now we have another one, which is Honduras. So first we move from losses to profits in Colombia, which means that we’ll move from positive minority interest line to a negative one, and then came Honduras on the top of it. I think that now it should be much more predictable when you choose to be for that reason, so it should be much more stable.

Sven Sköld – Swedbank AB

At this level or is this level that you showed in Q1 is that reflecting I mean the normal level or is I mean there have been so many extraordinary items historically, so it’s…?

Francois-Xavier Roger

Well, you would have a negative figure, well but, I mean I can’t give you any guidance on that specific line. What I can tell you is that each (inaudible) stabilized because this is the outcome of two main items which are much more stable than they where in the past.

Sven Sköld – Swedbank AB

Okay. Great, thanks.

Operator

And we’ll take our next question from Fredrik Lithell from Handelsbanken. Please go ahead.

Fredrik Lithell – Handelsbanken Capital Markets

Yes, hi. Could you give us some (inaudible) explain, if you talked about Central America and South America the EBITDA margin drop you have seen, various magnitudes between the two regions, but still they have pricing pressure and has some taxes and you try to mitigate this and you have initiatives to drive investments on. When do you see that EBITDA margin will sort of researches again come back up or stabilize at these levels. How should we look at that? Thanks.

Mikael Grahne

First of all, you have different momentums in the margin. The Central American margin is impacted by common factors with South America, which is the investment that we are doing in the new categories, the investment that we are doing both in terms of testing the new categories, as well as valuation that may come from the fact that some of these new categories will have a lower EBITDA margin, but a better ROI (inaudible), which is really the case for the solution until 10 months on MFS categories, and that will not stop, it’s going to continue, so we need to focus more and more on return on invested capital.

And we have – in both cases as well Central and South America, we have invested in our network and especially on 3G, so which is putting a little bit of pressure on the EBITDA margin as well as we have invested on subsidies as we said earlier. There is one specific case that explains the larger decrease in Central America, which is El Salvador pricing, which I would say roughly speaking makes a difference between the two regions.

But don’t expect that the margin is going to increase because as we have always said over the last two years, the fund that we invested in new categories will dilute the margin because any new category will not deliver a 46% EBITDA margin in the early stage of its development. We believe that we are doing the right thing because when we see that 88% of our growth in Q1 is coming from these new categories and even if you look at 80% of our growth in Q1, is coming from products and services that we did not market at all three years ago. So but obviously bring some kind of dilution on the EBITDA margin, but we focus more and more on the return on invested capital.

Fredrik Lithell – Handelsbanken Capital Markets

Okay. Thank you very much.

Operator

(Operator Instructions) And we’ll take the follow-up question from Lena Osterberg from Carnegie. Please go ahead.

Lena Osterberg – Carnegie

Yes, I just wanted to share a specification on your EBITDA margin guidance for the full-year, which is sort of mid-45s. Do you believe that this quarter at 44%, is at the guidance level, so it’s sort of – do you see a wider range or is it 45% that is your guidance?

Mikael Grahne

So we confirm on guidance which is around mid-40s, that grew, this is at a range can be given the way that you look at the range. We will look at it during the year, because we have opportunities to invest in order to sustain the growth and to accelerate the growth in some categories and especially with the information on MFS category.

So while we see that we have these fantastic opportunities in our market, which are really contributing to our growth. We may decide to accelerate or slowdown the level of investments in these opportunities, and which may are push the margin a little bit up and down, which is the reason why we keep this around mid-40s guidance for the time being. If we can, during the year we will fine tune it, but for the time being we want to keep a little bit of flexibility to increase or slowdown the amount of investments.

Lena Osterberg – Carnegie

But in your opinion, you are at the guidance level for Q1?

Mikael Grahne

As we said earlier, this quarter is absolutely inline with what we expected for Q1, both on the top line as well as on the margin, and it is in full-year line as well with the guidance that we gave, which is the reason why we reallocated that guidance.

Lena Osterberg – Carnegie

So that implies that your full-year guidance could be as low as 44%?

Mikael Grahne

We didn’t say that, but we said that we wanted to keep some flexibility in order to address the margin to the growth opportunity.

Lena Osterberg – Carnegie

Okay, thank you.

Francois-Xavier Roger

You’re welcome.

Operator

And we’ll take our next question, a follow-up question from Mr. Bill Miller from Hartwell. Please go ahead, sir.

William Miller – JM Hartwell

Thanks. Perhaps Mikael, you had all attempted to stretch the fixed portion of your debt beyond the current 46% or whatever it is given the level of interest rates around the world. And secondly, how do you expect to ever get that one-to-one unless you do go out and borrow more money and accelerate the stock buybacks, gets you up there as well or is that no longer a target?

Mikael Grahne

Regarding the fixed rate part of the debt, we used to have, I think a little bit more than a year ago, we were at, maybe 18 months ago, we’ve got 80% of our debt at variable rate, which was quite good actually, because we benefited from very low – a very low cost of financing. Given that there is some kind of risk of an accelerated or return to inflation and we see it in some of our market by the way, we decided to fix a larger portion of our debt. So now we are at about 50/50, which is the objective that we set for ourselves. I’m quite happy, because we managed to do that while even assuming further, the decrease of the average cost of the debt.

Do we want to go even further, for the time being, no but this is something that we review on a regular basis, so which is something that we review. If we want to increase it further, we would certainly share it with you. So I didn’t get your question on the share buyback?

William Miller – JM Hartwell

The net debt-to-EBITDA...

Mikael Grahne

Sorry, sorry. And the net debt-to-EBITDA of one, yes indeed, we always said that we would be more comfortable at a level of around one, and the current level where we are at 0.7, if we find the opportunity to do, it is either through M&A or we could do it through additional return to shareholders. This is something that could be done. To be at 0.7 or 1, end of day, doesn’t make a very big difference, but we confirm the fact that we would feel better around 1.

William Miller – JM Hartwell

Okay, thanks.

Mikael Grahne

Welcome.

Operator

That concludes the question-and-answer session. I will now hand back to you gentlemen for any concluding remarks.

Mikael Grahne

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

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