Millicom International Cellular's CEO Discusses Q2 2012 Results - Earnings Call Transcript

| About: Millicom International (MIICF)

Millicom International Cellular SA (OTCPK:MIICF) Q2 2012 Earnings Call July 18, 2012 8:00 AM ET

Executives

Justine Dimovic – Head, IR

Mikael Grahne – President and CEO

François-Xavier Roger – CFO

Analysts

JP David – Barclays

Barry Zeitoune – Berengerg

Laurie Fitzjohn – Citigroup

Mark Walker – Goldman Sachs

Soomit Datta – New Street Research

Peter Nielsen – Cheuvreux

Andreas Joelsson – SEB

Rizwan Ali – Deutsche Bank

Thomas Heath – Handelsbanken

Ric Prentiss – Raymond James

Erik Pers – Danske Bank

Lena Österberg – Carnegie

Kevin Roe – Roe Equity

Rodrigo Villanueva – Merrill Lynch

Bill Miller – JM Hartwell

Justine Dimovic

Hello, welcome everyone to today’s Millicom Half Year Results Presentation. My name is Justine Dimovic, I’m Head of Investor Relations. And I hope you all found the slides that we made available today on our website, www.millicom.com.

Before we start, I would like to remind everybody that the Safe Harbor statements apply to this presentation and a subsequent Q&A session. So, with me today on stage I have our President and CEO, Mr. Mikael Grahne and our CFO, Mr. François-Xavier Roger.

Without further delay, I will now hand over to Mikael, who will present our year-to-date highlights. And take you through our strategic update.

Mikael Grahne

Good afternoon everyone. It’s great to see some of you here today with us in London. Let me start with the highlights of the first year, please turn to slide five.

In H1, we accelerated investment for growth. In anticipation or demand, we invested $200 million more in CapEx than in the first half of 2011. We invested more in our product offering, including handset subsidies as we see unmet demand for mobile internet in our markets. And we continue to invest in our people and added stuff in our fastest growing categories with encouraging signs of growth.

I’m also very pleased to report that Paraguay is now our first country to generate more than half its revenues from West. This is our aim for the entire Latin American region by 2015, and we are on track to achieve this.

Earlier this week, we announced the acquisition of Cablevisión Paraguay, 20 years after we began mobile operations in Paraguay and four years after we made our first cable acquisition in Latin America. We will now also bring the Tigo brand into the big screen in homes in Paraguay.

In the first half of the year, we returned $350 million to our shareholders through share buybacks and dividends. And today, we also fine tune our guidance within the parameters of the offices we previously communicated for 2012, to give more visibility and reflecting our decision to accelerate investments for growth.

Slide six, and seven, turning to the key financial highlights of H1, our underlying local currency revenue growth increased slightly in Q2 to 8.9% from 8.4% in Q1. This is mainly the result of increased investment in our new categories.

On slide seven, you can see that the acceleration of investment had a dilutive impact on our EBITDA margins in Q2.

Slide eight, the transition from voice to data and from prepaid to postpaid in mobile, this dilutive margins not only ours but also those who mostly stay in our markets. Having, said that our margin remains among the highest in the mobile industry.

Slide 10, I would now like to give you a strategic update on where we stand six months into 2012 and nine months since our last Capital Market Day. I will give you an update on some of our more strategic competitive advantages, our brands, our distribution network and the progress made in building our categories in H1 2012.

Let’s start with our Tigo brand, slide 12. Those of you who have been following Millicom for some time will remember the days when we had a large selection of differently branded cellular businesses.

Since 2004, with the first launch of the Tigo brand in Central America, we have succeeded in making Tigo brand – Tigo our universal brand. Tigo is now recognized and respected as a brand that stands notably for simplicity and proximity to customers. These attributes are visible in our local taglines, examples of which you can see here. These are all drawn on our brand origins, the Spanish word Contigo, which means with you.

In 2002, our product and service offering has become increasingly diverse and sophisticated. We have introduced sub brands such as Tigo Money and we are also introducing a global tagline Smile, you have got Tigo.

On slide 13, you will see an extract of our latest advertising campaign, Smile, you have got Tigo. Now, let me show you a recent TV commercial here in Latin America.

(Video in Foreign Language) Smile, you got Tigo.

Slide 14, today the Tigo brand is one of our most valuable assets. In 2012, it has been ranked number 52 in brands, finance top 100 most valuable telecom brands, with the brand value estimated at $2.7 billion which is equal to 23% of our market capitalization.

As I’ve already mentioned, Tigo is also a local brand, and we are pleased to see that in Columbia, only five year since its launch, Tigo is now in the top 10 consumer brands in the country, which we see as a breakthrough, given that Columbia is one of the few markets where we do not yet have a leading position.

Slide 15, we have been looking at ways to measure our success in converting awareness of the Tigo brand into customer loyalty. Here, you can see an example from our markets – Central American markets where over 95% of our customers would recommend Tigo to friends and family. These marketing studies also will allow us to take commercial actions to strengthen our brand.

Slide 16 and 17 most of our success have seen in the rollout of VAS in our new categories. It has been facilitated by our extensive distribution network. This network enables us to one, provide our customers with many services be on reload and to build them from these new services.

We have almost 700,000 points of sales across our footprint, with an average of one point of sale for 400 people across our markets. We also deploy direct sales forces in our operations, that cross-sell and up-sell Tigo products and services on the streets and doorsteps of consumer’s home.

We have implemented across our distribution network, a superior distribution management system which enables us to track and monitor in real time inventories and airtime sales which some of your have seen in our markets.

Slide 18, as we consider cell-phone force as a fast moving consumer goods company, than a technology company, innovation is one of the pillars on which we build our growth.

Slide 19, as you can see on slide 19, in Q2, we recorded the highest absolute growth from our four new categories. This revenue outside communication grew year-on-year by 21% in Q2, from 29% in Q1. At the same time, we managed to develop our communication revenue, growing voice revenue by just under 1% and estimates revenue by a strong 9%.

Slide 20, in Q2, over 80% of our revenue growth in local currency came from product and services that we launched over the past three-four years.

Slide 21, this slide shows product penetration of our services. As you can see, there is ample room for product growth and penetration and usage of many of our currently successful innovative product.

Slide 22, through the staffing of our categories, we are investing in future revenue growth opportunities in the four new product and services. We know, we have only six months before our successful product get copied by our competitors. This is why we have to constantly innovate to stay ahead. There is a manorial spirit in which we have our roots is still very alive in Millicom.

Slide 23, mobile data, within the information category is currently our largest single contributor to revenue growth. As you can see on the chart of slide 23, there is a high correlation between revenue growth in mobile data and fabric growth. This is very positive as it demonstrates that we have the right pricing and space to monetize mobile data. Recently we have seen an acceleration in fabric growth which we are supporting which we are supporting given the rapid decline in the production cost of internet access.

Slide 24, mobile data penetration has reached 15.5% of our Latin American customer base in Q2. Not only this penetration increased by so did usage with an ARPU still up 2% Q-on-Q.

Slide 25, in mobile data, our strategies has a Q leading positions in our market, as we have achieved in mobile voice. In transition from voice data and prepaid to postpaid, devices are enablers. They give customers the tools, which to access the information category. In H1, revenue for mobile data grew by over 44% in local currency. This growth was supported by improved affordability of good quality, branded smartphones as well as higher subsidies.

At the same time, less than 5% of our total mobile customers are smartphone users. Of our 4.2 mobile data users in Latin America, we can see a growing use of Android devices, which is a positive development as Android customer deliver attractive returns.

Slide 26, given the penetration of our product is being driven by our commercial investment in handset subsidies, our total subsidy cost increase in Q2, by 16.2% year-on-year. Indeed, we decided to pass on to customers the benefits of the decline in device prices, making access to the category affordable to more customers. Moving customers from prepaid to postpaid, not only increases ARPU, but it also reduces churn.

Slide 27, our entertainment category brings element content to consumers to our mobile and fixed networks. We offer Pay-TV in Central America and soon also in Paraguay. We have successfully and continue to grow, grown revenue from ring-back tones notably in Africa this quarter. Revenue in the entertainment category accelerated significantly in Q2, growing 16% year-on-year.

In the first half of 2012, we rolled out SMS browsing, services to all of our customers in Latin America. Rollout in Africa will follow in H2. With this service we are making access to internet content available to all customers, even though, they cannot access the web with a smartphone. In certain markets we have also successfully launched USSD access to Facebook, facilitating access to social networking for more customers.

Slide 28, solutions was one of our fastest growing categories in the first half of 2012. And it has fabric pipeline over 100 planned product launches. Our most successful solution product continue to be our zero-balance product. So, again, in H1, close to 20% of prepaid airtime was borrowed, either from Tigo or from friends and families. This demonstrates both our marketing capability as well as our ability to find new growth opportunities. We are also starting to generate meaningful revenue from our Tigo Care franchise.

Slide 29, this slide shows our Tigo Care range of products related to health, safety, insurance and welfare. We have rolled out services in this product line in Guatemala and El Salvador, Honduras, Columbia and Ghana. In Guatemala for example, we now offer insurance for device-theft, medical consultation call services and through a partnership, certain types of health insurance coverage. With this product, we have structured a lower gross margin than our airtime running products but a increased loyalty to churn reduction and have very limited CapEx.

Slide 30, MFS continues to develop in Q2 and contributed close to 9% of group revenues – group revenue growth. This contribution is mainly coming from three markets, Tanzania, Paraguay and Rwanda, and for one product, domestic money transfer.

In Tanzania, the penetration of MFS has now reached close to 30% of our customer base. In Paraguay, 19% of our customers were using the service in Q2. We are also offering on international money transfer service in Paraguay in partnership with Western Union and we expect to launch similar services in other Latin American market under this partnership in the coming months.

In Rwanda, the growth of MFS services continue to be strong. And by the end of Q2, 12% of our customers were using this service. ARPU for MFS users now stand above $1 in all our markets. Today we are offering MFS in seven of our markets and expect to launch in Chad, DRC and Bolivia this year.

I will now hand over to François-Xavier, who will take you through our financial results for the quarter. François?

François-Xavier Roger

Thank you Mikael and good afternoon everyone.

Slide 32, in Q2, we recorded local currency revenue growth of 9.4%, excluding $0.105, revenue growth was 8.9% up 0.5 percentage points from the growth recorded in Q1. A slight improvement in the growth is a direct consequence of the investment we are making.

The EBITDA margin was 43.4% for the quarter, down 2.4 percentage points from Q2 last year, due to accelerated investment in our categories as Mikael outlined earlier. We invested $247 million of 20.9% of revenue in CapEx during the quarter, of which $32 million related to Spectrum Acquisition on license extensions in the year.

As I mentioned last quarter, we are attempting to spread our investment more evenly throughout the quarter, throughout the year. The cash iteration in the quarter was negatively impacted, essentially by the timing of investment and tax payments.

Now, let’s look at the performance in each of our three region starting with slide 32 with Central America, 33 sorry. Revenue from mobile and cable operations in Central America was up by 7.9% year-on-year in local currency. Addressing for the one-off in Guatemala last year, local currency revenue grew by 6.2% increasing by 1.5 percentage points over Q1 2012.

Solid growth in Honduras and Guatemala, once again more than offset the top-line decline in El Salvador. We experienced 3.4% year-on-year decline in mobile ARPU in the quarter. Our EBITDA margin was 49.7% in Q2, declining 1.9 percentage point from Q2 2011. We have accelerated our network investments on increase or onset subsidies related to the prior year as we seek new opportunities to develop the information on MFS categories further in Central America. Voice pricing pressure in El Salvador also contributed somewhat to the margin decline in the region.

Slide 34, in South America, revenues increased by 13.5% in local currency on an underlying basis, and all three markets reported a strong performance. We had disclosed to 210,000 new customers in the quarter, more than 80% of which were in Columbia.

Mobile ARPU was up by 2% in local currency, as a consequence of our ongoing focus on mobile data and other VAS. This also reflects our success in cross-selling and up-selling services to existing customers as well as the addition of high quality new customers to the Tigo network.

In Q2, around 18% of our recurring revenue in South America was generated in the information category, the highest level in the group. Increased subsidies and other investments to growth better a market share contributed to a year-on-year decrease in the EBITDA margin by 3 percentage points to 39.8%.

The margin was also impacted by a new tax on revenues in Bolivia, implemented in 2012. We will continue to encourage – our customer transition from voice to data and from prepaid to postpaid in the region, especially in Columbia by offering quality services, attractive (inaudible) with smartphone subsidies.

Slide 35, now let’s turn to Africa. Revenue in Africa grew by 5.7% in local currency in the second quarter. Revenue was negatively impacted by the strengthening of the US dollar against many of the currencies in our African markets. Performance in African footprints remained mixed with some operations performing strongly, but Tanzania and Rwanda.

With fast increasing competition with the arrival of new players in both Edna and Rwanda. Despite this, we increased our net customer addition quarter on quarter, and saw a clear slowdown in local currency ARPU erosion by 3.2 percentage points.

The EBITDA margin for the quarter was 38% down 2.4 percentage points as we focused on our affordability perception. We also recorded a provision for bad debt of $5 million on international traffic in Senegal.

CapEx in Africa in the quarter was $38 million, higher than Q2 2011 and included investments in Spectrum in DRC, in the attractive 900 bond, as well as an extension of our existing license from 2017 to 2024. The addition of Spectrum will enable us to expand our network more efficiently in this vast and populous country.

Slide 36, normalized EPS decreased by 2% year-on-year to $1.74 on 70%.

Slide 37, our tax rate for the quarter was impacted by higher resulting tax on upstream cash. Despite of fact that corporate tax rise are increasing in a number of countries, we are confident that we will be able to maintain an effective tax rates of less than 30% for 2012.

Slide 38, our free cash for the quarter was $98 million, reflecting substantially higher CapEx this quarter than in Q2 last year, as we aim to spread our network investments to more evenly between quarters.

Slide 39, in Q2, our net debt to EBITDA ratio increased by 0.8 times, as we return $350 million of cash to shareholders in the form of both dividends and share buyback.

Slide 40, turning to our debt maturity, the average maturity of our gross debt now stands at 3 years. During the quarter we issued a $180 non recourse local currency bond in Bolivia at 4.75% with an average maturity of 5 years. 52% of our gross debt is at fixed rates, reducing our exposure to interest rate volatility.

Slide 41, our recent bond insurance in Bolivia has further diversified our sources of funds with bonds on development finance institution debt, now accounting for 39% of our total debt. We aim to be less dependent on the traditional bank financing over time.

Slide 42, here you can see the split of our debts of currency and interest rates. At the end of Q2 2012, 59% of our debt was not exposed to currency fluctuation. Our debt structure has been designed to provide some natural hedge against both currency and interest rates risk.

Slide 43, you can see that, of our total debt of approximately $2.5 billion 68% is non-recourse. It is also our strategy to limit corporate guarantee as much as possible.

Slide 44, we were pleased with the agreement reached to acquire Cablevisión Paraguay, the leading player in cable TV in the capital city as on June. The acquisition in subject to regulatory approval. This acquisition will enable us to further accelerate our growth in fixed broadband and to improve the quality of services to customers through network integration.

Slide 45, I would now like to comment briefly on shareholder remuneration, in June we paid $2.40 per share ordinary dividend to shareholders. In Q2 we bought $106 million of shares in line with our previously communicated program of up to $300 million. In the absence of further external growth opportunities we remain committed to return any excess cash for shareholder.

Slide 46, in 2012 we again aim to strike the right balance between top line growth, profitability, cash flow generation and return on invested capital. We expect the full year EBITDA margin to be around 43% and the operating free cash flow margin to be around 20%. We expect CapEx in 2012 to increase, but to remain below 20% of sales excluding spectrum acquisition as we invest in data capacity, IT and billing platforms.

That concludes our presentation, we will now be pleased to respond to your questions.

Question-and-Answer Session

Justine Dimovic

We will start with questions from the audience present here today. If you can please introduce yourself than and your company name and...

JP David – Barclays

Hi, good afternoon. It’s J.P David from Barclays. Two questions please. The first one is on distribution which you have mentioned as a strategic advantage or keep alert to the strategy. How does the distribution model change or if at all, as you move from the voice to the data world?

And, the second question is on the margins and you clearly communicated a reinvestment in this growth. I guess, it seems there is an – clearly an incremental setup from your side, that’s different from what you saw at the beginning of the year. You mentioned the areas, maybe you can mention some of the countries, where you’re seeing this extra demand and maybe the payback period that you for see for this incremental investment? Thank you.

Mikael Grahne

Okay, let me start with the distribution side. With the increased amount of smartphone or data phones out there, what we are in a process doing right now is out of those 700,000 distribution points which are the ones that service our high ARPU customers that tend to also be the smartphone users and then what we can do is train, educate and train the people who run these retail shops to sell our packages and products rather than depending on the customer walks in knowing what they want. Somebody can educate them based on their calling pattern, for example. That’s an important thing we do.

The other one is MFS of course where we take the largest of these 700,000 retail points, I’m sure they have enough liquidity and re-brand them as Tigo Cash, in the cash out points. Today, it’s continuously distribution, fairly continuously evolve and innovate and move forward.

François-Xavier Roger

Regarding the margin and the additional investment, if I listen properly your question was, is it more specific to a given region. I would say that it is across all regions, maybe a little bit more in Latin America, because we are investing much more in subsidies and better opportunities, a little bit larger at least for the time being in Latin America. So, we are starting the investment as well in Africa, but we don’t have yet visualized in all countries.

JP David – Barclays

Payback?

Mikael Grahne

The payback is actually very good. We disclosed that a year ago – nine months ago in London during our Investor Day. We had – nine months ago, we had retail and invested capital and data, which was at that time around 17% for Latin America that we compared with the WACC at 11%. And since then it has even improved. So, I think that we are getting closer to 20% retail invested capital, as far as data is concerned, which is the largely the consequence of the slide that you saw before with the fact that we have a parallel curve between the growth of traffic and the growth of 3G revenues, which is probably not that common in industry.

Justine Dimovic

Let me give you another example that happens to be a smaller category, take the Tigo Care for example, either insurance or doctor’s appointment and so on. These are categories, where we have a lower gross margin, because we tend to operate with the third party. Last quarter, we generated about $10 million in revenues and just started from a sort of virtually zero base, and this is a category that’s very limited CapEx, the limited market investment, lower gross margin, but is great for customer loyalty and churn reduction.

Barry Zeitoune – Berengerg

Hi, guys Barry Zeitoune from Berengerg. When I look at Slide 20, and the mix of revenue growth, it’s pretty apparent the – this quarter like other quarters we’re seeing lower growth coming from voice and higher growth coming from data, which is making up the difference. I’m just wondering how, when we think back to the capital market today, and we had the original targets for growth, how does that change our medium term view on margins, the fact that we got more growth coming through from data than it is now coming through from voice?

And my second question is really on the slide, where we showed the margin progression, and we saw 0.6% percentage points of impact from the one-off items. I just want to check, are these completely one-off items or these new taxes that are going to be repeating in quarters ahead? And then finally, you mentioned that the Cablevisión acquisition is going to be financed by debt. Is your medium-term view of where you expect your leverage to be changed as a result of the acquisition?

Mikael Grahne

Let me take the last question, this acquisition of Cablevisión is important, because it shows you what we want to do, which is to make acquisition, for which we get the good return and that are complementary to what we do. With good return with leading position, which is the case of this acquisition. It is not a big acquisition, its $150 million.

So we don’t want even to change our shareholder remuneration as a consequence. The opportunities to marginally increase our leverage, I mean, we are talking only $150 million. So this will be obviously different, if we were going to do larger acquisitions in the future than obviously what I am saying for Cablevisión might not very indicative. Talking about the one-off items, the 0.7 point, it is essential, it is our pure one-off, which is essentially linked to this write off, but we had to do an international traffic in Senegal. So this is not recurring item.

Justine Dimovic

On the margin point versus the capital Dave, I think we’re seeing more persistent pricing pressure in some market in Africa than we sort of anticipated. And also El Salvador has been a market where despite significant pricing pressure, at the same time though we still have a very strong growth on SMS. You can see that’s going up 9% and that’s virtually at the 100% gross margin. So...

Barry Zeitoune – Berengerg

We expect margins to be different though or...?

Mikael Grahne

I mean a year ago, we were talking about mid 40s. I know it’s 2012, but we are now about 43% now, but has the medium term view changed at all or not really?

François-Xavier Roger

We have said for two years now that structurally anyway we will go into a lower margin going forward. Due to the fact that we are answering and developing on rolling in categories that are especially a lower margin such as mobile financial services solution on payment.

We said that we are not especially concerned by this underlying trend. Due to the fact that this, it happened that these three categories have lower EBITDA margin, but they are not really CapEx intensive. Just to give you some indication so far for mobile financial services, we invested a little bit more than $1 million per country. If I were comparing for example the last license that we got in Rwanda.

The amount of money that we invested in Rwanda compared to for example what we generated in terms of MFS in the neighboring country in Tanzania. I mean frankly speaking I would rather go for the low CapEx – even if the margin is lower, I would rather go for the lower EBITDA margin, but low CapEx business, but the traditional one was much more CapEx. So, structurally the margin would decrease. I mean we did decrease further – for 2013 and therefore we knew, we are still working on planning for next year. So, we cannot comment on that, but it is sure that there is an underlying trend.

Mikael Grahne

I also have just one point there. If everything has been equal, you also have different growth rates between the higher margins in Central American region and the lower margin Africa and South America. So, the mix is impacted by that.

Barry Zeitoune – Berengerg

In the long run a quite bullish message on CapEx dissolving, where we might expect?

Mikael Grahne

I think all the time. I think the new categories just have to grow in scale and I wouldn’t expect that leverage would come in place in 2013. I think it’s more 2014, and beyond that you will start to see that.

François-Xavier Roger

Even this year and again next year we still have fairly high amount of CapEx coming from IT because we said that we had about 200 – more than $200 million of CapEx to, you have a three year 2011, 2012 and 2013 and the bulk of it was actually from in 2010 and 2013, but as Mikael said probably from 2014 onwards, due to the fact that – a significant part of the growth will come from non-CapEx intensive categories, yes, we should see that happening.

Laurie Fitzjohn – Citigroup

Laurie Fitzjohn – Citigroup. Firstly, given your decision to invest more in subsidies and Value Added Services, do you consequently expect higher growth, as what should we expect growth towards the up bound this year and also in 2013 from the organic on the 8% to 10%?

Secondly in terms of DRC and Senegal, it’s interesting to know that that you flagged these in Q1 high competition, this entire pretty decent start in Q2, I was wondering are you seeing the competition start to rationalize slightly in those markets? And then lastly on El Salvador, you talked for a while telephony like to starting to actually bit more rationally given it’s a while since the AMEX and Digicel merged?

Mikael Grahne

With the telephony, the answer is no. Let me – DRC, DRC is a slightly complex environment because a minimum pricing is set and – and basically therefore it’s very difficult to come out with product plans that would give you an edge, so there’s very limited room about what we can do there. So we believe that the Mobile Financial Service product that we’ll release in the next few months, would really give us an edge in that market. And in Senegal I think, yeah, it’s been a little bit more competitive, but remember this is a market where we are in dispute with the government, so we are slightly behind in investing what would be required to capture the opportunity there.

François-Xavier Roger

And regarding the growth, I think there are two parts for the growth. There is the innovation part, on which we are very confident, and I think it’s working very well. I mean, if you can see in this quarter in Q2, actually we did the best, we got the best contribution from the growth form innovation that we ever had.

So which means that it is really working as planned, with there is always probably some uncertainties on the communication category, especially on pricing, which is something that we do not always control, although we participate, we never articulate in it, which is the pricing level and the pricing pressure that we now have in voice, which is something that we step out a little bit lately. That could be factor that could influence potentially the growth in the future. We are pleased to see that in Q1 and Q2 again, we had the resilience voice business, and MFS growing at 9.

François-Xavier Roger

And if you remember, I pointed out, within Paraguay, now 50% of the business is non-voice. So, if you keep on accelerated, this non-voice part you are less and less sensitive to any pricing movements on the voice side.

Laurie Fitzjohn – Citigroup

Thank you.

Mark Walker – Goldman Sachs

Hi. Mark Walker from Goldman Sachs. And first question on South America, I get in the release, we talked about subsidy investments, pricing your margins in that region, but can you talk a bit more about why the revenue and ARPU growth slowed.

And then, secondly in Africa hence the follow-on the very question, and you mentioned that you – it’s you’re expectation that growth should improve in the second half, because of some initiatives that you’re going to implement. Is that really just the MFS? And, in Ghana, sorry in the DRC in chart, you’re talking about? And then finally more sort of general question on subsidies, subsidies increasing 16% year-on-year, how do you expect that trend in sort of medium term view? Thank you.

Mikael Grahne

Let me start by Africa, I would be somewhat cautious on the growth acceleration in Africa in the near quarters. I mean, what we are doing is putting together a team that are going to be able to support an accelerated west growth in Africa with, there is a lots of opportunities around that simple services, including mobile financial services, you know, putting all that in place and having a bit of impact to market will take some time. If you can…

François-Xavier Roger

You were talking about but the revenue and the ARPU growth slowdown. Actually the ARPU capital increasing, and the ARPU in consumer care has been increasing for more than last two years, constantly quarter over quarter, which is very positive. There has been a little bit of slowdown in the growth, which is partially linked to the fact that we see the economic momentum in South America slowing down somewhat. You probably noticed that in Brazil for example, the economy growth is much lower than it used to be, which probably – which impacts somewhat our growths. Especially in Paraguay and probably in the other countries, as well, but I mean the growth momentum remains strong. Do you want to comment.

Mikael Grahne

Yeah, I mean, in subsidies you’re basically have falling device prices coupled with – and then we play around with subsidies to, you know, with rate plans and paybacks. So I mean our hope is that the device prices will continue to come down. I think we are right now a good, smartphone will be somewhere at $250, for a customer medium at around $50, and low end below a $100. Naturally if over time, these prices come down, we could either reduce the amount of subsidy we give per phone or we could just accelerate the amount of phones we put out there in the market.

Soomit Datta – New Street Research

Hi. Soomit Datta, New Street Research. A couple of questions please. First on the cash return, you said you look to return excess cash and towards the end of the year, can you give any more specifics on when we can hear anything? And you may not want to comment on this, but ballpark you returned about $1 billion last year and you signaled about $550 million so far through buyback and dividend $150 million and of Cablevisión in Paraguay, would it be wrong to think that potentially there is $300 million, which we can hear about later in the year?

Secondly, just on Africa I think the initiatives you talked about are focused around data, but I noticed the voice revenue trends in local currency slips further down minus 1.5%. No talk about sort of turning that around though, is that basically what we can expect going forward from African voice? And then just finally on Colombia, I think as it is mentioned in the press release about voice ARPU under pressure, can you talk a bit about where that’s coming from please? Thanks.

Mikael Grahne

Yeah, let me start with Africa voice. No, we haven’t given up the -the plan or the ability to turn that around very specific to certain markets. There are many variables you got comply around to address that one. In terms of any sort of more shareholder returns, we don’t have any new announcement on that point today.

François-Xavier Roger

It is true that we returned $1 billion in the last two years, but we stick to what we said before that we would return excess cash, okay. We don’t want to commit on any figure at this stage. We have said as well that this might be impacted as a result we come from another case for Cablevisión Paraguay, but it might be impacted by any external growth opportunity if it happens. If it doesn’t happen, you saw what we did in the last two years and you want to comment on that Columbia.

Mikael Grahne

It’s a seasonal thing, I don’t think there is anything specific relating to that, Colombia voice.

Peter Nielsen – Cheuvreux

Thank you. Peter K. Nielsen from Cheuvreux. If I may just return to the subsidies question there, how much of these off the handsets you currently subsidize, sort of possible to be bit more specific on this? And how long are you normally tying up your customers? And secondly on the move you talked about earlier Michael towards post paid from prepaid, how do you see the scope in sort of the overall subscriber base have actually a bigger share here moving towards post paid model, and how does that impact your own business model overall. Thank you.

Mikael Grahne

Let me start with the post paid to or prepaid to post paid move there, we are not fighting any trends. We welcome any trends, you just have to figure out how do you take advantage of that. Normally when you move customer from prepaid to post paid with a data plan, you get a significant in uptick on ARPU. And you take something in Colombia, roughly half of our revenues are already post paid as an indication. And this is the most mature market approach we have in terms of GDP per capita.

So that’s natural that would happen there. And in fact in Colombia, our data market share is twice our voice market share. So we are winning in the space that’s very important for the future. In terms of subsidy levels, and so we don’t for competitive reasons want to be too explicit about that point. If we have paybacks are normally six to eight months, we have some markets the length of the contracts is set by regulation. So we have anything from 12 to 15, 20 months. Some high value customers that we really give a top end smartphone, we can have 24 months contracts for example. But we are aiming for a payback, let’s say on average on six months.

Justine Dimovic

And there are some questions on the phone. Can we take some questions from the phone please? Operator?

Operator

The first question comes from Andreas Joelsson from SEB. Please go ahead.

Andreas Joelsson – SEB

Yes, good afternoon. Andreas Joelsson from SEB Enskilda. Just, wondering if you could explain the differences in ARPU trends in south respectively Central America. I think Central America is having declining ARPU and we have ARPU in South America. I’m just wondered, why that is? And secondly if you can give us a definition of excess cash, what kind of leverage do you have when you think you have excess cash?

Mikael Grahne

Let me start with the ARPU trend between South and Central, you have a relatively subdued economic growth in Central America. That’s the one market area, which is very dependent on Central American’s migrating to the U.S. and sending money back and the remittance side.

So, and, we also have more price pressure in El Salvador, which is basically dragging down little bit the ARPUs in the combined. South America has a stronger economic growth. I mean, Colombia is doing well. Bolivia is doing well, and Paraguay is doing reasonably well, although it’s been slowdown now with the economic slowdown in Brazil. So you have a combination basically, some macro factors that are and specific pricing actions that are making the delta.

François-Xavier Roger

I’m not giving you a brief definition of excess cash, but we were in terms of net debt to EBITDA ratio of 0.6 at the end of Q1, we were at the same level last year. We are 0.8 to date because we just paid the dividends on the term share buyback. What we have always said that we would feel comfortable with a net debt to EBIDTA ratio of one, so we are getting closer to that point even that we are, even going to get a little bit closer with the acquisition of Cablevisión Paraguay because we, we said that we are going to finance it through additional debt and so from that point of view you saw what we did in the last two years. We returned what we defined as excess cash, but once again we don’t want to give any precise number at this stage.

Andreas Joelsson – SEB

Okay. Thanks.

Mikael Grahne

We have no, we have no intention to be sitting on piles of cash on which as you know we have not such an attractive return. So we had you a lot shareholder remuneration so which is a reason why we been not as bad as we did in the last two years to return what we believe is excess cash.

Andreas Joelsson – SEB

Perfect. Thanks.

Justine Dimovic

Operator, can we have the next question please?

Operator

Thank you. The next question comes from Rizwan Ali from Deutsche Bank. Please go ahead.

Rizwan Ali – Deutsche Bank

Good morning. So my question is the pricing pressure in Africa. Last time, during the last conference call you said that there was lot of off-net pricing decreases. If that continues and does that continue to be the case and it is again Bharti which is being more aggressive in Africa? Can you elaborate on that? And second is post paid, there is, obviously especially in – there is a big trend towards post paid phones. Where do you see as percentage of your total service those to be going or representing, will it be closer to 20% of your sub base eventually?

Mikael Grahne

Okay. Let me start with that one. If you take Latin America, I think you have roughly around 30% of the customer base with an ARPU greater than $10. I think that would sort of be a natural penetration target across Latin America. In terms of the pricing environment in Africa, yes it – the lot of the pricing moves, one was off-net. And as you all know, the elasticity on off-net, i.e., when you’re going from one network to another one, is very limited, because the behavior in the mobile industries that you have three or four people on your network that you call a lot. So when you reduce that price, you tend to have great elasticity.

People are thankful and just talk more. And there is a general perception that is expensive, if you call to other network. So, even if that tariff falls – if you are an ordinary household, you might not have so many people to call. So, in our books its revenue loss, but a lot of the moves were driven like that. So, I think – yeah I was – and what our competitors moves. And so we’re still suffering through that the lack of those higher across net revenues we have.

François-Xavier Roger

Maybe one comment on post paid, because we don’t see post paid, the move from prepaid to post paid has something negative, because it brings additional or increased ARPU to start with. It increases loyalty and reduces churn. And it’s not always negative in terms of EBITDA either, because it is true that we have the cost of the subsidy, but we save on commission or reload as well. So, net debt is not something that we see as negative.

Rizwan Ali – Deutsche Bank

Good. On average in at least LATAM, we find that post paid margin is slightly below prepaid margins and ...?

François-Xavier Roger

In terms of margin, yes, but on a higher ARPU.

Rizwan Ali – Deutsche Bank

True.

François-Xavier Roger

So, in absolute value in terms of EBITDA margin, it’s not always negative.

Rizwan Ali – Deutsche Bank

You’re right.

François-Xavier Roger

But in terms of trying to forecast trending margin, as you go more and more towards post paid, should we then expect continuously or gradual...

Mikael Grahne

Yeah, I think we will see more incremental EBITDA margin, but maybe some margin you know reduction from that one.

Rizwan Ali – Deutsche Bank

Now, on the other hand you’ve had that data margins shouldn’t be much higher than voice margin, so I’m a bit surprised when you said that in your case you find that as you have more data module make come under pressure?

Mikael Grahne

Sorry, can you repeat that?

Rizwan Ali – Deutsche Bank

On average we’ve heard from operators that data margins are much higher than voice margins, so as you have more and more value added services and data services on your network, your margin ought to improve?

François-Xavier Roger

Yes, but the global margin is the not only linked to data to start with because as we said we have the dilution from the other categories, namely entertainment solution on MFS, and the other side is the question is the fact that when we say we have better margin on data than in voice, it is at gross margin level. So, at EBITDA margin, okay you need to take into consideration the impact of subsidies as well. But, I saw I mean there is no – not much of a difference, it is not significantly lower in terms of EBITDA margin on data versus voice.

Mikael Grahne

With then we probably have higher voice margin than the developed world because we have more on-net calls which have the higher margins versus the across net calls. I think people in the developed markets are less sensitive if they call other networks.

Justine Dimovic

We are ready to take only one more question from the phone and then move back to the audience. Operator, can we have next question please?

Operator

The next question comes from Thomas Heath from Svenska Handelsbanken. Please go ahead.

Thomas Heath – Handelsbanken

Thank you. Thomas Heath with Handelsbanken. Two questions if I may. Firstly, you showed the charts there on data traffic and revenue growth or data revenue growth and correlated, is it one-to-one in terms just to make sure they get the scale right. That sort of a one factor increase in data traffic to revenue, data revenue growing one times as well to check that. And also do you consider that’s sustainable, because it truly is an out lie compared to other operators? Secondly, just wanted to check on El Salvador the price pressure there, what it would take to change that and what’s the risk that we see a similar development in other neighboring markets? Thanks.

François-Xavier Roger

Yeah, let me comment on El Salvador and that’s maybe a bit of speculation there. You know that there is this intent to try to merge Digicel and America Movil and that’s being sort of frustrated by the lack of regulatory approval and that has probably driven some of that pricing pressure we have in that market. We haven’t seen a similar trend in the other Central America market.

Mikael Grahne

The slide on data traffic, I confirm that this clearly is the same. So, which mean that the parallel curve that we see between traffic and revenues and data is comparable base. You probably notice though that in the last two quarters, we had a little bit more growth on traffic than on revenue, which is always something that we were monitoring.

We are a little bit less concerned than we were, because on the other hand we have a very significant decrease in the cost of production of data, megabit and so forth. So, we monitor the relationship between traffic and revenues and data as well as the cost of producing data with the objective of maintaining a gross margin that is consistent and consistent of even why not improving our clients.

So, but we want to make sure that we don’t have the same kind of trend as we see in the developed world, where you have a massive growth of traffic and the smooth growth on revenues. So we are not there, and we are still with the steady parallel curve, but it may diverse slightly and marginally over time.

François-Xavier Roger

Okay thank you that’s very clear.

Thomas Heath – Handelsbanken

Can you just remind us when we are going to see an impact of the MTR in Colombia. Are we seeing anything in Q2 in that and can we quantify it.

Mikael Grahne

I think it’s too early to seen any trend, it went through in....

François-Xavier Roger

Yeah. It went through in April.

Mikael Grahne

It went through in April.

Thomas Heath – Handelsbanken

So we should be seeing the evidence in the Q2 number. Okay.

François-Xavier Roger

It’s a 50% decrease over 3 years or 2 years. So don’t forget that we had a 50% decrease I think in 2008, but it’s a 50% decrease over three years. Other ways that already were been reduced by 50% and we are so far highly dependent on voice today. Because our data business has really developed extremely well and that’s because that we have a market share on data, which is about twice as high as market share that we have in voice. So we consider that not that it is non issue, but it’s not a very significant issue for us.

Thomas Heath – Handelsbanken

That will be one of the reason why voice growth in Colombia was about slower.

François-Xavier Roger

Marginally.

Thomas Heath – Handelsbanken

Marginally. I think it wouldn’t have impacted the margin very much. Okay.

François-Xavier Roger

Not very much.

Thomas Heath – Handelsbanken

Okay. And then also in Colombia with the auction coming up, ARPU then about $150 million, I’m I being very aggressive or very conservative.

François-Xavier Roger

Well we don’t want to comment on what we will be prepared to pay for any spectrum when, and if it come for auction.

Thomas Heath – Handelsbanken

Okay.

François-Xavier Roger

The only thing we can comment is that the auction was suppose to be issued in June and it has been postponed I think to October or November, and so the process seems to be a little – take a little bit more time than expected initially, but we will see the way it goes.

Thomas Heath – Handelsbanken

On your capital structure, with 60% of your debt locally held, are there other opportunities to push that funds the local levels or is that where it’s going to set for a while.

Mikael Grahne

Well, if we could that 100% of our debt to the locally, in local currency of our with reasonable maturity, we would do it. It’s always tradeoff between costs and risk as well, because in some market we could take even more in local currency, but it is usually more expensive as well. It’s limited by another factor, which is the fact that there is no, not always the level of liquidity or the level of debts in some of our emerging markets.

For long-term debt in local currency. So it’s either not available or either too expensive. If you take, let me take an example. In Honduras, for example, we have – there is a market for medium term debt in lempira, the local currency of Honduras, but it is – I think something like 50% – at least 50% more expensive than dollar. So in that case, for example, we have decided to take half of our debt in US dollar and half of our debt in local currency. So it’s always a tradeoff between the cost on the under risk.

Thomas Heath – Handelsbanken

Thank you.

Justine Dimovic

Operator can we take some more questions from the phone, please.

Operator

Thank you. The next question comes from Ric Prentiss from Raymond James. Please go ahead.

Ric Prentiss – Raymond James

Thanks, good day everybody.

Mikael Grahne

Hi.

Ric Prentiss – Raymond James

Couple of questions, I want to come back to something you mentioned about Colombia – you had mentioned that you’re sure of data is twice what share of voices. Can you update us on what those shares are, and how you achieve them? And then my second question is at the Analyst Day back in September, you had an interesting slide talking about how you had moved people up to smartphones or to 3G phones, and had seen a large uptick in their revenue over the first year. Can you update us on what you’ve seen as far as when customers do upgrade to 3G or smartphones, and what are the ARPU trends?

Mikael Grahne

Yeah. Let me start with the last question. We are from a commercial point of view, we are a little bit holding back too much disclosure on how much more ARPU we are getting from every prepaid customers who moves to a post paid data plan or a post paid feature phone customer or moves to a post paid smartphones plan. But we still clearly see significant increases in the ARPU when that happens. So, that is a very clear trend. Yeah, the data is actually public in Colombia. It’s the regulatory authority there produces it, I think four times a year. And I think approximately we have a 27% share of the data market, and around 12% share of the voice market.

Ric Prentiss – Raymond James

And is...

Mikael Grahne

So,

Ric Prentiss – Raymond James

Yeah so, double that. And then as far as margins go on the data, are you still seeing better margins, because you don’t have to pay the termination rates? I know you had the earlier question about the other value added services, but it seems like data would have by itself, better margins, because of the lack of termination rates.

Mikael Grahne

Yeah, I mean, data margins in Colombia are quite good compared to our voice margin, because us being the third operator, we still have a proportionally higher part of our calls across net. So, if you just compare voice gross margin versus data margin, at this time in Colombia, the data margins are a bit more attractive.

Ric Prentiss – Raymond James

And how are you achieving that higher share on data than in voice, is it distribution or what explicitly are you doing to really create that noticeable difference?

Mikael Grahne

I don’t know, if I want to disclose all our secrets, but let’s put it this way, we have a lot of feet on the street. We have a lot of young people with ponytails and Tigo T-shirts who are out there demonstrating to customers, how to use data services, because most people really needs to be taken through a demonstration, so that they understand how to use this, unless you have a set of very smart teenagers at home, particularly if you are an older customer.

So, it’s really about having feet on the street. And then, naturally having plans that much is the consumer behavior – the consumer needs. Our most popular data plan is what we call a young adult social plan. So, it’s a typically on a Blackberry. It’s unlimited access to social network, but not YouTube, e-mail, and Blackberry messenger services. And then you have a voice back on top of it that will cost around $25 in Colombia. So that’s like a – that’s fitting our product that matches what our customers want. So, inside in the product offering and feet on the street, and its simplicity.

Ric Prentiss – Raymond James

Great. Thank you.

Operator

The next question comes from Erik Pers from Danske Bank. Please go ahead.

Erik Pers – Danske Bank

Thank you for taking my question. I just have a sort of a big picture question. It seems to me that now that you’re undergoing this structural margin decline. And with your revenue base being approaching $5 billion that might be difficult to accelerate the revenue growth significantly. It seems to me that you inevitably are in a period, but potentially quite long period of low EPS growth. How do you look upon that from a management perspective, is that sort of just inevitable transition payer that they you have to go through, or can you do something maybe on your P&L lines below the EBITDA line or something else to find a way around that.

The other question I had was just on margins on new services. Is it, the fact that you have lower margin that’s been partly discussed already, but is it in effect, to what extent it’s an effect of these services having a smaller scale, and needed to, once you gain scale, will it be possible that you have a very high margin on them eventually or do they actually, are you confident that they actually in a mature state will have a lower margin than voice. Thank you.

Mikael Grahne

Okay. Let me start in to margin, and yes, I mean in the beginning they are lower scales, you take something like MFS, then at the early parts of the MFS margin, is basically sending money from around the country, but the second stage if you start doing peer to peer transactions without taking out the money, then the margins will go up over time. But, I think there are fractional difference is on the MFS side. For example, we share the distribution margin with the retail trade that offers to service.

So, let’s say on average cost to send money would be 4%, we record only – we record the 4, but we pay half back to the retail trades. So basically we would have a 50% gross margin, when on voice you’re up at 85. So, naturally that margin could expand over time with other services with higher margins. The entertainment category is typically about sharing third party content.

So, you are more of an revenue share basis there. And so that would also therefore have lower margins. The solutions category, the lend, the zero balance product where we lend products either, we lend airtime to our customers or there is a transfer between customer to customer have very high margins. But over time, some of these categories, like the MFS could drive higher margins. But all of these are less CapEx intense or the mix, the revenue growth, we get out of this all over time will have a very attractive ROIC.

François-Xavier Roger

And then reflecting on what we can just say it on your – to answer your more specific questions, you seem to imply that we will have a lower gross in the future. We don’t start from, with that assumption. We believe that we have logical support we need, which is the reason why by the way, EBITDA need to accelerate our investments for future growth. And it happened that in Q2, we have a higher growth than in Q1.

So we don’t see, we don’t see ourselves ex-growth, we believe that growth is part of our DNA. It is true that margin wise, we have said that for some time and it has that but natural, and it is happening again this year. There is an underlying trend to reduce the EBITDA margin. But as we can just say, I mean, we look at, it doesn’t mean that we don’t look at EBITDA anymore, but we look more and more our return on invested capital. Due to the fact that large part of the gross today and it is probably going to be a larger part in the future of the revenue growth that we have, is coming from categories that have hardly any CapEx.

So, there might be a little bit of transition period, during which we may have more, still a little bit of CapEx. For example, we are catching up, as we said earlier in terms of IT. But directionally, we think that it’s more relevant to look, more and more relevant to look at return on invested capital as well as EBITs, doesn’t mean that we are giving up on EBITDA, but once again, for example, when you take a business like entertainment, obviously, this is, a large part of it is more linked to buying content on reselling it, so no CapEx, but lower margin.

Erik Pers – Danske Bank

Okay, excellent. Thanks.

Operator

Thank you. Our next question comes from Lena Österberg from Carnegie. Please go ahead.

Lena Österberg – Carnegie

Good afternoon.

Mikael Grahne

Good afternoon.

Lena Österberg – Carnegie

Yeah. I was wondering little bit on future M&A targets, because now you have managed to secure cable assets in most of your Latin American countries, like Bolivia and Colombia. So, I was wondering, is there anything that sort of suitable in size for you in those markets. And also I was wondering on Cablevisión on the acquisition, what you believe is the longer term margin potential for that you managed to lift and its margins quite significantly after the acquisition? And also if you could say something about, is there be any integration costs in the second half of the year for that acquisition. And then also, I was wondering on the rolling in Senegal, when you expect that to come?

François-Xavier Roger

Let me start at the last point, I think the ruling is expected any time between now and I would say the end of the year. I understand that some of this arbitration (inaudible) are probably on summer holidays now, but I think it should be within the next 3, 4 months to clearly come out there.

Mikael Grahne

So, regarding the integration cost for Cablevisión, but first of all Cablevisión is a limited, it is – fairly small acquisition, I mean we’re talking of a business of about $50 million in revenues, so there might be some integration cost, but I mean you won’t see. So it’s not significant on my view that it will covered largely by synergies as well.

Do we have, you were talking about the margins on cable, actually if we look at what we did with Amnet, which is the reason why we did that acquisition of Cablevisión, Amnet as we acquired almost 4 years ago, we were like – we’ve been extremely happy with what we have achieved. We have the growth in revenues, which were at about 13% on average compounded annual growth over the last four years. So which was – when at the same time we had low single-digit growth in revenues in our mobile business in the same countries.

So, it gives you an idea of the potential, and at the same time we increased significantly the EBITDA margin, and it happened that the EBITDA margin of this former unmet business, which was largely rebranded to Tigo by the way. That the margin on this Amnet business, is actually very close to the average margin of Millicom.

So, we don’t see that as drag on our overall margin. Do we see other opportunities in cable assets, we keep on monitoring the situation on the country-by-country basis. It is true that now we have covered Central America, and we have covered Paraguay. There are some remaining countries in Latin America. So, we keep on monitoring the situation. In Africa, there is not much at this stage, but I mean, things could change over time. And then does it prevent us, it doesn’t prevent us as well from developing some of – some part of this business on an organic basis, which is something that we could do as well, which we started to do in Paraguay, and before we did the acquisition of Cablevisión.

Lena Österberg – Carnegie

I think Colombia, all those companies think a bit big scale wise for you are they sort of what would you consider as a good size acquisition?

Mikael Grahne

I wouldn’t comment any more beyond the Francois comment there. It’s a moving field. Are we going to buy out America Movil in Colombia, probably not.

Lena Österberg – Carnegie

I was talking about the Cable companies, not NYMEX.

Mikael Grahne

Yeah, I mean we don’t have a cable presence in Colombia today, and that’s something that we might look into the future.

Lena Österberg – Carnegie

Thank you.

Mikael Grahne

Welcome.

Operator

Thank you. Our next question comes from Kevin Roe from Roe Equity Research. Please go ahead.

Kevin Roe – Roe Equity

Thank you. A couple of questions, first, Mikael, could you update us on any Greenfield opportunities out there and also in market consolidation, an update there would be helpful and maybe some of them are more stubborn markets like Ghana? And a second question on, well actually I’ll stop there and follow-up.

Mikael Grahne

Yeah. There are not that many Greenfield opportunities left in this world. So, I think sort of an expansion for us would probably be buying out the number one or number two operator in the market and then apply our skills on that one from categories to distribution or potentially a third operator if you could see a part for that operators to get to that number one or number two position. In market consolidation makes sense. I think six operators in Ghana are too many. At some points of time, there has to be a rationalization and at the end of it, yea they are from a decision point.

Kevin Roe – Roe Equity

Okay. And lastly for the second half of the year, are you monitoring any new developments in regulatory issues or tax issues that could impact your business? Thanks.

Mikael Grahne

Yeah. We are, of course, monitoring this, but I don’t think at this stage we have any visibility of any significant changes that could have an impact on the outlook we’ve given for the year.

Kevin Roe – Roe Equity

Very good. Thank you.

Mikael Grahne

Thank you.

Operator

Thank you. Our next question comes from Rodrigo Villanueva from Merrill Lynch. Please go ahead.

Rodrigo Villanueva – Merrill Lynch

Yes, hi. Good afternoon.

Mikael Grahne

Hi.

Rodrigo Villanueva – Merrill Lynch

I was wondering if you consider that a portion of your network CapEx is related to your new categories or not? And also I was wondering if you could provide a margin breakdown for your revenue categories? Thank you.

François-Xavier Roger

On the revenue breakdown by – on the margin breakdown by categories for commercial reasons we are not providing that information.

Mikael Grahne

And, so we provided some ideas of the one related to other last year in our capital market days, so you can maybe have a look at it I think that there on our website, and you are talking about the network cost, is that linked with the new categories as we said, the new categories with the exception of information and now it’s 3G is not very capital intensive, it doesn’t mean that there is nothing because there is a little bit of IT capability especially on the billing side and CRM side, but the rest of it and obviously on 3G we have significant amount of CapEx, but as we said earlier we are very happy with the return on invested capital that we get on that part of the CapEx.

Rodrigo Villanueva – Merrill Lynch

Understood, thank you very much.

Mikael Grahne

Welcome.

Operator

Thank you. Our next question comes from Bill Miller from JM Hartwell. Please go ahead.

Bill Miller – JM Hartwell

Good morning.

Mikael Grahne

Good morning.

Bill Miller – JM Hartwell

How many shares did you actually repurchase for the $120 million of effective price increase, have you done anything with (inaudible) towers, are they still a up for sale to another company that is going to enter the fray and third thing is, do you have as the trade the subsidies for your handsets and go from post to pre, what impact does that have on you when you add more handset subsidies, in other words the people tend to go from pre to post paid?

Mikael Grahne

On the number of shares, I don’t have the exact number, it’s in the press release, but I think it’s around 1.2 million shares that we bought in Q2. On the towers we still transfer the two towers to the tower operators we partnered with Helios in Africa on American power in Colombia.

We transfer some towers in the course of Q2, and we would still transfers from the remaining towers in H2 2012, as well as at the beginning of next year. We are still looking at options to extend further this towers deals to other countries. There might be some slight opportunities maybe next year. We believe that we have done the bulk of what could be done. But, there might be some side opportunities. I didn’t get your question on the subsidy.

François-Xavier Roger

Yeah. Before I go to the subsidies there, I just want to point out that we said many times publically that we are also very interested in sharing a full network, our Tele2 for example in Sweden. That shares a full network on 3G with 1 competitor run with LTE on a second. We think that will be a very good model, particularly when you have new things like LTE coming into the marketplace or interested in full network share.

I think it’s a great way of driving down the cost. And just compete the consumer insights and product and services and distribution. In terms of when we go from pre to post paid and when we move from smartphones to – feature phone to smartphone, we have a significant increase in ARPU. And we showed nine months ago in the capital day in London, some examples of that. We’re little bit careful with that information at this stage for competitive reasons. But they’re still very good growth. And that’s why we actually, actively pushing for that.

Bill Miller – JM Hartwell

Great, thanks.

Mikael Grahne

Thanks.

Operator

Thank you. There appears to be no further question.

Justine Dimovic

Thank you very much. Is there any further questions, from the room? Here no one, I don’t think so. Thank you. So Mikael would you like to conclude maybe on today’s presentation.

Mikael Grahne

Yeah. It’s been somewhat challenging environment and so we are particularly pleased various targets to harvest the benefits of our investments in improving our customer proposition. As we said we are increasingly focused on innovation and sustainable innovation, the new organization structure will allow us to drive the increasing pace going forward. So I just want to like to thank all of you who joining us today, all people here in London and then in the eco-space there. So thank you very much and hope to see you soon again. Thank you.

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