Millicom International Cellular S.A. Q2 2008 Earnings Call Transcript

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Millicom International Cellular S.A. (MICC) Q2 2008 Earnings Call Transcript July 22, 2008 9:00 AM ET

Executives

Marc Beuls – President and CEO

Andrew Best – Head, IR

Analysts

Anders Wennberg – RAM

Andreas Ekstrom – Carnegie Investment Bank

Bill Miller – JM Hartwell

Peter Kurt Nielsen – Cheuvreux

Lena Osterberg – SEB Enskilda

David Kestenbaum – Morgan Joseph

Bengt Moelleryd – Handelsbanken

Sven Skold – Swedbank

Stefan Pettersson – Nordia

Ivan Kim – Renaissance Capital

Kevin Roe – Roe Equity Research

Soomit Datta – New Street Research

Alexander Vassiouk – Morgan Stanley

Anders Berg – Evli Bank

Operator

Good day, ladies and gentlemen, and welcome to the Millicom Q2 2008 results conference call. For your information, this conference is being recorded. May I also remind you this call is being audio-streamed over the Web and is accessible at www.millicom.com together with a presentation summarizing the key features of the results.

I would like to now hand you over to the hosts of today's conference, Mr. Marc Beuls, President and CEO, and Andrew Best, Head of IR. Please, go ahead.

Marc Beuls

Thank you, operator, and welcome to everyone who has joined us today.

In Q2, Millicom has reported a strong set of numbers against a background of increasing economic uncertainty, both in the developed and emerging markets, with higher levels of global inflation now present than we have seen for many years. In all three regions, our businesses continue to post sector-leading levels of growth

revenues up year on year by 69% in Africa, by 38% in Asia, by 35% in South America and by 26% in Central America, and with an EBITDA margin of 42%.

These are excellent results and evidence that mobile telephony has become an essential service in the minds of consumers and probably only behind food in priority of spending. The resilience of demand gives us optimism that we can continue to grow our business strongly through these more challenging times. And our strong balance sheet gives us the option to look at a number of strategic opportunities. But, as ever, our priority is organic growth within our 16 businesses.

There are three priorities in terms of investments to achieve continued growth and enhance market share. Our first investment priority is to continue to invest in our networks, as coverage and capacity are the enablers of growth. Without capacity in our networks, our marketing options become limited as the key to successful marketing is to be able to carry greater volume in order to get the benefits of elasticity. Examples of past marketing successes are illustrated in Latin America through the per second billing and in Africa with our extreme offers of 'all you can eat for a dollar a day'.

You will have seen from our historic numbers that growth is closely correlated to CapEx. Therefore, you should be encouraged by the fact that in Q2 2008, we invested $378 million and a total of $643 million for the half year, and we are raising our full-year guidance for CapEx up to $1.5 billion. With our strict criteria in terms of internal rates of return in excess of 20% on all new investments, we would not be making this investment unless our local management continue to see exciting opportunities in their markets.

The second area where Millicom has particular focus is affordability. Millicom's core strategy is to ride the wave of penetration growth in each market, but to do this we have to produce a product for the mass market, which means attracting subscribers with substantially lower ARPUs, and here affordability is the key. Millicom continues to look at innovative offers to differentiate Tigo from the competition and one of the fundamental brand values is affordability.

The third area of focus is developing a broadband offer to attract and retain the higher value subscribers that we have nurtured as we have grown our businesses. Today, we have a disproportionate share of such customers in Latin America. In the medium term, this growing group of subscribers will become a key driver of growth as penetration moves above 100%. But in today's market, this relatively small group of high ARPU customers is more resilient in its spending patterns.

In the emerging markets, mobile telephony does not have to compete with other infrastructure in a major way. As fixed line and other options are limited in application, so mobile is often the only way – the only offer available to consumers, which means that there is relatively little broadband available in the market.

In the second half of 2008, we are launching 3G across Latin America to tap into this growing demand for broadband, but we believe that this is not – that this is only the first step. We see the need to utilize and extend fiber optic rings that we have built to give us a fully IP network which will allow subscribers greater bandwidth and quality. The acquisition of Amnet Telecommunications Holding Ltd., which we announced this morning, gives us a quantum leap in our ability to deliver broadband right across Central America.

Now let me turn to the summary slides for this call, which you can find on our homepage, and tell you a little bit more about Amnet. We announced today our acquisition of Amnet for an enterprise value of $510 million Amnet is a leading provider of broadband and cable television services in Costa Rica, Honduras and El Salvador, a provider of fixed telephony in El Salvador and Honduras, and a provider of corporate access services in Guatemala and Nicaragua, with some 350,000 corporate and residential customers.

This transaction is an important step in the development of our strategy for Central America, as there is a lack of fixed line infrastructure to carry the Broadband services which our customers are increasingly demanding. It will enable us to provide these enhanced broadband and cable television services in conjunction with the new 3G mobile services that we are rolling out in the region.

Turning to the financial highlights for the quarter on slide three, you will see that Millicom has continued to grow strongly in the second quarter with 58% year-on-year growth in subscribers to 28.5 million, 37% year-on-year growth in revenues to $843 million, and 34% year-on-year growth in EBITDA to $352 million, producing an EBITDA margin of 42%. This strong EBITDA margin is reflected in the net profit of $132 million, up 33% year on year.

CapEx for the quarter was $378 million, up 82% year on year, giving a CapEx to sales ratio of 45% for the quarter. We stated previously that our CapEx to sales ratio will ultimately fall but today we are investing as much as possible to continue to grow penetration faster in Africa and Asia and to enhance our offering in Latin America. Consequently, we are raising our guidance for CapEx for the full year up to $1.5 billion, based on the opportunity we see in our markets today.

Slide four shows our revenue split by category, and the element that stands out is VAS/SMS, which has grown by 108% since Q2 2007 and now accounts for 12% of Group revenue. On slide five you can see how the EBITDA margin compares to the previous quarters. Sales and marketing spend has represented 21% of revenues for the last three quarters, as we have been investing heavily in our brand. The cost of sales and G&A in Q2 remained at the same low levels as in Q1. As we start to see the benefits of scale from these investments and start to achieve critical mass and gain market share in our newer markets, we expect to see our EBITDA margin improve to our mid-40s target.

Slide six breaks out the regional contribution of subscribers and the change over the last 12 months, illustrating that the contribution from Africa has grown by five percentage points to 27%. At the end of the second quarter, Central America contributed 36% of total subscribers, South America contributed 24% and Asia 13%. The regional breakdown of CapEx on slide seven shows that Africa has taken the lion's share of CapEx, 38%, as you would expect given our aggressive network expansion over challenging terrain. But Latin America as a whole still accounts for 53% of CapEx, as we continue to invest in capacity.

Our CapEx together with investments in sales and marketing and distribution across our markets, is fueling subscriber growth as demonstrated on slide eight, where you can see that the total subscribers for the quarter increased by 58% year on year. Honduras, DRC, Ghana, Senegal, Tanzania and Laos all produced year-on-year growth in total subscribers of over 75% for the quarter.

Revenues for the quarter, which are set out on slide number nine, increased by 37%, which is one of the best top-line growth rates in the industry. Revenues in Africa, which increased by 69%, grew substantially faster as this cluster is growing from a smaller base. Asia saw the second highest growth rate at 38%, and encouragingly the businesses grew by 35% in South America and 26% in Central America.

The EBITDA growth for the Group, which is shown on slide 10 was 34%, equal to the year-on-year growth we achieved in the fourth quarter of 2007. Turning to slide 11 on Central America, it is interesting to see that our strong number one position and all the benefits that they bring in terms of economies of scale, have enabled us to maintain EBITDA margins at 55%. Despite a churn out of 200,000 non-recurring – non-revenue producing subscribers in El Salvador as detailed in the press release, subscriber growth for the cluster was still strong at 53%, producing revenue growth of 26% and EBITDA growth of 31%. Honduras continues to be the fastest growing country in the cluster, as its penetration rate of 67% lags that of El Salvador and Guatemala, despite a tax rate change in Honduras which slowed the market in the second quarter.

Slide 12 on South America shows that revenue growth continues to be strong at 35%. Paraguay and Bolivia both produced very good top-line growth of 68% and 71% respectively, but Colombia continues to be impacted by the halving of interconnect rates in December 2005. The EBITDA margin for Colombia was 12% and the EBITDA margin for the cluster was 32%. We expect to see margins for Colombia and, hence, for the cluster, improve beyond 2008 as the businesses gain traction and we continue to see the benefits of elasticity over the course of the year.

Quarterly highlights for Africa are shown on slide 13. Over 1 million subscribers were added across our fastest growing region in the second quarter, which represents a year-on-year increase in total subscribers of 92%. Revenue growth was 69% and EBITDA growth was 66%. And we are seeing EBITDA margins stabilize over 30% as the business in DRC begins to gain critical mass. The quarter was characterized by extensive network expansion and a build up of capacity accommodated to project the subscriber growth in the coming quarters. We expect to see a gradual improvement in margins as we increase market share and get economies of scale from spreading the costs over a wider base.

Finally slide 14 shows that Asia continues to be Millicom's second fastest growing region with subscriber growth of 50%, revenue growth of 38% and EBITDA growth of 33%, reflecting an increase in CapEx as we continue to upgrade our networks.

Now, I would like to hand over to Andrew to talk you briefly through the financials.

Andrew Best

Thank you, Marc, and welcome to everybody.

On slide 15, we've set out an overview of the P&L. Of note is the 33% increase in net profit to $132 million, which reflects the continued strong EBITDA margin of 42%. Please turn to slide 16, where you can see that CapEx for the second quarter was $378m, an 81% increase from Q2 2007. As we have said before, CapEx is a good indicator as to how we view our future potential. There continues to be wonderful opportunities to invest in our markets and we will continue to do so as aggressively and as profitably as possible. We predict full-year CapEx for 2008 of up to $1.5 billion.

Slide 17 shows that depreciation at $124 million for Q2 has risen due to higher capital expenditures. With the quarterly CapEx rising substantially over the past several years, we can expect to see depreciation continuing to rise for several years. As a guide, depreciation as a percentage of revenues stayed fairly constant, and we expect this to remain the case even with the investments in 3G technologies this year.

On slide 18 you will see that debt stood at $1.8 billion at the end of the second quarter, up from $1.7 billion at the end of Q1. In Q1, we forced the conversion of the 200 million 4% convertible notes which were due 2010, in January, as part of our ongoing program to improve balance sheet efficiency by replacing debt at the corporate level with debt in the operating companies, which is beneficial to our tax rate. We will continue to lower the corporate debt by exercising our rights to redeem the remaining 10% notes due 2013 in December of this year. Millicom is still in an under-levered position, with a net debt to extrapolated full-year EBITDA ratio of 0.7, enabling significant continuing investment.

On slide 19, you can see that the gross interest rate has stayed fairly constant over the past five quarters, and was at 9% in quarter two. We have been replacing our corporate debt with local debt, which significantly reduces the after-tax costs of borrowings. The benefits of these actions are reflected in our overall Group effective tax rate, as seen on the next slide. Our overall tax position is summarized on slide 20. The tax rate for the year to date is 30% compared to 33% last year, and we expect the effective tax rate for 2008 to be below 30%.

Please turn to the summary cash flow statement on slide 21. During the quarter, Millicom made a special dividend payment of $260 million, after which cash has stayed relatively flat. This reflects our ability to finance increasing levels of CapEx with free cash flows. The acquisition of Amnet will be financed 50% by local debt and 50% with corporate cash. As our CapEx to sales ratio falls, there will be room for either further acquisitions, dividends or both. The closing balance of $0.9 billion in cash means that we have net debt of $901 million and are well positioned to continue with our accelerated investment program for our existing businesses and to explore other options.

I would now like to hand back to Marc for his final comments.

Marc Beuls

Thank you, Andrew.

I would like to conclude by saying that I am happy with the second quarter results. Our increased CapEx spend for the second part of the year, including in 3G, will allow us to continue generating strong subscriber growth. We are excited about the Amnet acquisition, rolling out our broadband strategy in Central America.

That concludes my comments, and we will now be happy to take your questions. Operator, may I have the first question, please?

Question-and-Answer Session

Operator

(Operator instructions) And our first question will come from Anders Wennberg, with RAM. Please go ahead.

Anders Wennberg – RAM

Hello, this is Anders Wennberg from RAM. A couple of questions, if I may, on the important Central America business. First, for housekeeping on Honduras, what is the tax increases? I am not sure I have really heard about them before. Secondly, to stay on Honduras, what are you doing ahead of the new competition coming in during the second half? Are there any price adjustments or anything like that, or new types of offers, or marketing plans or anything like that? And thirdly, on Amnet Telecommunications, you have given us EBITDA. Can you help us understand the impact on EBIT? How much depreciation, and how shall we get to net profit? And finally on El Salvador, this 87% penetration, should we expect significantly lower net debt going forward, or what are you expecting there? Thank you.

Marc Beuls

Okay. Thank you, Anders.

First, the tax on Honduras, it's a tax that is levied by the government on incoming international calls. It's $0.03, which is paid by the one who is generating the call, so we don't pay the costs but, of course, it might have an impact on the number of calls that are being made by those who originate the calls in the U.S. or other countries. So this was introduced in the course of the month of April.

Secondly, in terms of the new operators, as we have been saying through the press release and then also during the call now, what we will continue to focus on, whether this is because of a new operator coming into the market or us dealing with existing operators, is affordability. Affordability is key in all of our markets. This combined with a good network build out, and that's why we're increasing our CapEx spend as Honduras, compared to the other countries in Central America, probably still has a little bit of catching up to do, so we're also spending money on the network there, and then of course there is the distribution. So we are just going to continue to implement a AAA strategy as we have done successfully in other markets when new operators enter the market.

In terms of Amnet, I can't give you much more information at this point in time. We just signed the agreements, so we need to wait until the closing of the deal before we will be able to give you somewhat more insight into the company. We've agreed with the sellers on what information is being disclosed to the market at this point in time. But once the deal is closed, we will definitely give you somewhat more detailed information on operational and financial numbers for the business.

And the last, but not least, El Salvador. It looks like El Salvador is going to be Millicom's first market where we're going to reach 100% mobile penetration. I don't think that it will stop there. El Salvador is a country where we've – in Central America where we have always had a much higher mobile penetration than the other countries. Unfortunately, the census which was done by the government came to the conclusion that there were, I think, 1.5 million people less living in the country than they had reported before, so this has an impact on the mobile penetration.

I think El Salvador, which is very well built out, we cover a very high percentage of the population of the country. I'm sure still has a long way to go, now with 3G, and also focus on value-added services. Broadband, I think will allow us to continue driving penetration. But of the three markets in Central America, this is the one which, of course, has the highest mobile penetration but also the lowest growth rate.

Operator

And our next question comes from Andreas Ekstrom with Carnegie. Please go ahead.

Andreas Ekstrom – Carnegie Investment Bank

Hi, Marc and Andrew, it's Andreas from Carnegie. I have a question regarding your acquisition again. I heard what you said on Anders' question, but I would learn – would like to learn a little bit more about it what you see going forward, what should we expect in terms of margins? Do you see an opportunity to maybe spend a little bit more on marketing just to promote your brand initially, or should we expect those 40%-something margins going forward as well? And what do you think the growth rate will be for the next year or so?

Marc Beuls

Amnet has been built following the acquisition of quite a number of small cable broadband companies across the region. And the focus of the onus so far has been on buying the networks, on buying existing companies in order to have this coverage and in order to have this network in the five or six Central American countries. That means that, I think, they have not applied, as we typically do, a mass market approach for the broadband and cable TV services. And that is what we would expect doing is that we will start marketing these services in similar ways as we are marketing our mobile services knowing, of course, that the penetration of broadband and cable TV is a lot lower in Central America than mobile is, which means first that we will look at smaller markets segments. Secondly, it, of course, gives a lot of growth, good growth outlook for the future.

But, as I said, we will be able to report a little bit more details once we close the deal, once the businesses are ours. But our approach is that we would focus a little bit more on the marketing, and that's why Mike Kazma, as one of the – or the founding father of this company, said that it's up to Millicom now to bring the company to the next level. And that's what we will be doing by kind of the focus on marketing.

Andreas Ekstrom – Carnegie Investment Bank

But it's fair to assume then, if I read you right, that the margins could come down initially, but longer term you are aiming for Group average margins also for this business. Is that a correct assessment?

Marc Beuls

But we would like to, where possible, integrate this business with our existing businesses, which means that there could also be some savings. Yes, there could be some increased costs on the marketing, but there could be some lower costs by the fact that we will be integrating with our existing businesses.

In this business, Amnet not only has the cable TV customers and the broadband customers, but they also have this network. And I've been stressing over the last year, I think, the importance of having a backbone in our markets in order to be able to carry the increased volumes of traffic, both voice and data. And now with mobile broadband being introduced, these networks – broadband networks and IP networks are becoming even more important. So there are opportunities there also to create synergies which might be beneficial for us.

Andreas Ekstrom – Carnegie Investment Bank

And just to conclude on that, on the guidance that you are mentioning, $1.5 billion, you are talking about 3G expansion. Does that include any CapEx from Amnet, or is that excluding that?

Marc Beuls

That's excluding Amnet for the time being.

Andreas Ekstrom – Carnegie Investment Bank

Okay, and how – just a ballpark figure, how much could that be for the second half?

Marc Beuls

For – it's excluding – the $1.5 billion is excluding Amnet. So, as I said, we can't give you a number for – including Amnet yet.

Andreas Ekstrom – Carnegie Investment Bank

Okay. Thank you.

Marc Beuls

Thank you, Andreas.

Operator

Our next question will come from Bill Miller with Hartwell. Please go ahead, sir.

Bill Miller – JM Hartwell

Good morning, guys. Good evening there , I guess. Just getting back to Amnet for a second, is this a definitive agreement? Do you need any regulatory approvals? Do you have a timetable for it happening? I know you said in the next three months, but could it be sooner than that? Is there anything to get in the way of it happening? That's the first –

Marc Beuls

We – Yes, go ahead.

Bill Miller – JM Hartwell

No, I'll forget what I – you go first.

Marc Beuls

Thanks. No, we need to have some regulatory approval in a few countries. We don't think that this is of any nature that could prevent us from closing the deal. So we are – we have already been working with some of those regulators, so I would expect that we will be able to close the deal within the next couple of months.

Bill Miller – JM Hartwell

Next part, the management is going to roll up the various elements, for instance, the – as you've described, cable and the other parts of the business. Are any of them staying on? Do you have somebody that has competence in this? Is there another layer, or are you going to have to take people from your own organization and put them there? And how, if there are going to be synergies, how are they going to be effective if there aren't that kind of capability at the potential acquisition? I've got some more.

Marc Beuls

In the agreement, there's agreement about certain key people to stay on board for a while. And we will definitely want to keep all good elements from Amnet on board to jointly continue growing the businesses. But it's clear that we will bring people from Millicom, from existing Millicom operations, and some of those have already been identified, that will come into Amnet in order to do two things, I think. First of all, the focus on the whole Broadband environment and value-added services. I think we're pretty good at that. And as I've said previously, the whole marketing distribution, which we've shown over the years that we control very well.

Yes, the synergies will definitely be there, but again we will be able to give you a somewhat better view once we've closed the deal. But as I've mentioned before, definitely on the infrastructure side, there are going to be synergies. But I can think of synergies when it comes to sales distribution, could even be on the network maintenance and all of those things. So I think there are quite a lot of synergies possible there.

Bill Miller – JM Hartwell

Marc, can you give us a breakdown between the cable and the other aspects of their business? What percentage each represents?

Marc Beuls

Today, cable is the biggest part of the business, followed by broadband. Our intention going forward, as I've always said, is to focus on broadband, and some people will argue that anyway. Cable and broadband, they will come together at a certain point in time, so maybe at that time the difference will no longer be there. Clearly for us, the broadband offering is going to be our main focus. We, of course, will continue to focus on the cable TV because once you have the infrastructure there, and then Amnet is passing a lot of households, I think it's more than a million, it's 1.1 million households across the region. So what you want to do is you want to put as many services through that infrastructure as you possibly can because that is what is going to allow us to generate good returns on that investment.

Bill Miller – JM Hartwell

Thanks. I'll get back in the queue. I've got some more of it, but I'll let somebody else have a shot.

Marc Beuls

Thanks, Bill.

Operator

Our next question comes from Peter Nielsen with Cheuvreux. Please go ahead.

Peter Kurt Nielsen – Cheuvreux

Thank you. Peter Kurt Nielsen from Cheuvreux in London. Turning back to the acquisition, more from a sort of strategic and diversification of business model perspective, I assume the logical conclusion for us is to make now is that you would be seeking also to move into the fixed line broadband space in other regions where you are operating, and perhaps that is what Andrew was alluding to in his comments about seeing opportunities for acquisitions. That's my first question.

Second question would be, you've raised your CapEx guidance quite materially compared to three months ago. It seems as if the (inaudible) has been broadly in line, or perhaps slightly below what you indicated at the time. So what has made you change your outlook for CapEx for the second half in the very short term, in such a short period of time? And secondly – or, thirdly, what should we expect for CapEx for 2009 then? Thank you.

Marc Beuls

Okay, yes.

Fundamentally, Central America's our largest region. So the fact that we're investing in broadband in Central America should not be a surprise, as the most advanced region also within Millicom. I've said previously, at the previous quarterly calls, that broadband is a priority for Millicom and, yes, we will roll out broadband services in other countries where we currently operate mobile services.

Does that mean that we will be able – that we will be buying similar companies like Amnet in South America or Africa or Asia? I don't know at this point in time. I'm sure that for some markets our broadband services will focus entirely on mobile Broadband. I think the majority of the countries, definitely in Africa and Asia, I don't think there are – there are not any of those companies that exist there. So if you wanted to do fixed broadband, you would have to build the infrastructure yourself.

We've said before that in places like Ghana, Senegal, just to name two, we are investing in fiber optic rings in order to be able to carry more and more traffic. So we are kind of laying the base in order to prepare ourselves for broadband, which as I've said could be mobile broadband in a number of places.

Secondly on CapEx, yes, we've seen very good subscriber intake. I would say 58% subscriber growth is very, very, very strong and we continue to see good minutes of use. I think one number we mentioned was Ghana, I think, where we saw, quarter on quarter, a 50% increase of minutes of use. And this gives the indication that, because of the affordability offers we are currently running in a number of our markets, we see that they are very successful and that means that we need to continue investing in CapEx.

As a result of those promotions, what we see is that people leave the Tigo SIM card in their phone, which is very important in countries where you have multiple SIMs in people's pockets; that's one. Secondly, when you have these offers, people will obviously also use their phone not only for on-net calls but for across-net calls, and you will also be receiving phone calls. So this is all additional traffic you generate as a result of those affordability initiatives, and that is the main reason for the increase in CapEx for the second part of 2008.

For 2009, you will understand that it it's very difficult at this point in time with all the things that are going around – going on around the world to give you the hard number on terms of what CapEx is going to be for 2009. But what I can see is that both Africa and Asia will continue to see very, very strong CapEx because that's where mobile penetration is still very low. That's where we are catching up in terms of market share, and that means that CapEx is going to be high in those regions.

For Latin America, I think the focus on mobile broadband 3G I think is also going to require us to continue making investments, but again I don't have a hard number for you yet. When we get more closer to the end of this year, we should be able to give you a number, but I think it's still going to be a high CapEx number next year, lower CapEx to sales ratio than this year, but still a high absolute number for CapEx.

Operator

Our next question comes from Lena Osterberg with Enskilda. Please go ahead.

Lena Osterberg – SEB Enskilda

Yes, hi. A few questions on the guidance. If I remember correctly, the last conference call – quarterly conference call, you said, Marc, that you thought that Q4 was a trough for African margins and now we should see margins expanding quarter on quarter, and this quarter we actually saw a decline again. It seems, from reading the text, that you are a bit more cautious, or is it still that you expect to grow the margins quarter on quarter? So that's one question on Africa.

And then, also from the last conference call, you said that you were expecting, on average for this year, net intake to be around 2.8 million with a seasonal peak in Q4. Is that still the number we should look for the full year, or do you have something – do you want to revise that somehow? And then Colombia, I think that you previously stated the margin is around 15% for Q4, I think it was, and now you say that you will see it improving next year. Could you give us, maybe, some kind of guidance of where you see margins going for next year?

Marc Beuls

First of all, in terms of the margin, I don't think there's a margin decline. The 42% EBITDA margin is the same as we had for the full 2007. So I don't think this is a decline. What we see is that, in our biggest region, we are holding onto our 55% – in Central America, we're holding onto our 55%.

Lena Osterberg – SEB Enskilda

I'm talking about Africa.

Marc Beuls

You were talking about Africa, okay.

Lena Osterberg – SEB Enskilda

Yes.

Marc Beuls

Okay. I think the 31% is in line with the previous quarters. So, again, there's no decline there either. So we are, as we said in the press release, investing in subscriber acquisition, that we are building network ahead of demand and that creates pressure on the EBITDA margin. But you can also see the result of this. If you look at the subscriber intake in Africa, a million subscribers, you can see the revenue growth. I think it is definitely worthwhile making that marketing investment in order to get those subscribers on board and get the economies of scale. So I think this is the right approach to take. We're committed to continue increasing our margins to the mid 40s, an average for Millicom, as we have said before.

Secondly, in terms of the subscriber intake of 2.8, I think if you were to exclude this correction we had to make in El Salvador, yes, I think there's a possibility we can get to the 2.8. But it will very much depend on what the economic outlook is going to be for the regions and the countries where we are operating, as well as the economic outlook for the developed world. So that statement was made at a point when we thought – when we did not see that kind of melt down in some of the financial markets. And maybe they will not be impact – this meltdown will not be impacting our business. With a 37% revenue growth for the quarter, I think that is still very high and it is still sector leading, so I think the growth is there. But, again, you will understand that I don't have a crystal ball, so I don't know what will be happening between now and year end from a macroeconomic point of view.

Columbia, we are investing in subscriber acquisition there. As you remember, we are and we continue to be the fastest-growing mobile operator in Columbia. That comes at a cost. And we want to build the scale and we want to build the economies of scale in Columbia in order to allow us to increase market share, and in order to increase profitability over time. And that's why we're talking about margin improvements from next year onwards.

Lena Osterberg – SEB Enskilda

Could you give some flavor on where you think margins will go next year?

Marc Beuls

No, I can't give you any guidance there.

Lena Osterberg – SEB Enskilda

Okay. Thank you.

Marc Beuls

Thank you.

Operator

Our next question comes from David Kestenbaum with Morgan Joseph. Please go ahead.

David Kestenbaum – Morgan Joseph

Okay, thanks. Marc, can you give us more color on that, as far as how many homes does this operation pass? What are the plans as far as expanding it? And is this more of a postpaid type of model, traditional cable model, and how does that affect your business plan in the markets?

Marc Beuls

Yes, we made this acquisition in the first place to buy a business that we think is an attractive business because of the asset it currently owns. And I think what is important is that, yes, there are over a million houses that are being passed. And what is important is that you increase the number of customers along those – along that infrastructure in order to increase the revenue against an existing infrastructure, so that is the first priority.

Clearly, today, this is a postpaid model. But, as you will know, David, when we and others got into mobile telephony, people hadn't even heard of prepaid. So, who knows, maybe we will invent a prepaid – broadband prepaid cable, which is not so crazy, because I think people sell electric, power and water on a prepaid basis.

So – but let us first get control over this business, do something great with the assets that are in the business, with the people that are in that business, and then we will see how we can apply a mass-market strategy in order to enhance the revenues against an already well built-out infrastructure. And clearly, we will be looking at how we can multiply, so multiplicate this infrastructure and strategy in Central American markets where we don't have the broadband and the cable TV infrastructure yet.

David Kestenbaum – Morgan Joseph

Okay. So, if I read you, you're going to focus more on capturing more subscribers that are in your footprint than expanding the footprint at this point?

Marc Beuls

I think in some markets, this is very thin. Amnet has a very strong position in El Salvador and Costa Rica. They're market leader in those markets and they have a reasonable presence in Honduras and a tiny presence in Guatemala and Nicaragua. So we will be focusing, in the first place, on the countries where there is the presence, and through our marketing initiatives try to increase the revenue per – versus the CapEx that has been made and then, secondly, try to do similar things.

One should not forget that unlike Europe and the US, very, very little has been done in broadband in Central America, so it is very much a virgin territory. We know that a lot of the broadband companies, if you exclude the incumbent, are owned by – are very small, are owned by very – by private people, private companies. So clearly, there's room for a consolidation, there's room for mergers and acquisitions there going forward.

David Kestenbaum – Morgan Joseph

Okay. Can you update us on what's happening in Ghana with the 6% tax? I know that was delayed and, obviously, Vodafone's going to be entering that market, so can you comment on that?

Marc Beuls

Well, the next – sorry, the tax was on revenues, on outgoing revenues was introduced on June 1. It was a 6% tax. And given that we, as other operators, decided to pass on the tax to the subscribers, I'm sure this must have had a kind of revenue impact for our business. Now, the revenues on the tax – sorry, the tax on the revenues are not booked by us, because this is something we pay straight to the government. But I'm sure there must have been a revenue impact as a result of that.

In terms of Vodafone, yes, I think, for me, whether it's Vodafone or other mobile operator, it doesn't really matter that much for us. We have our strategy which we have been rolling out extremely successful in Ghana, gaining a lot of market share and that's what we will continue to do. So I think we understand, probably better than other operators, the affordability concepts, a concept which is key in emerging markets.

David Kestenbaum – Morgan Joseph

Okay. And then two other things, obviously, one of your competitors almost – there was an offer for it recently during this quarter. Can you comment, has there been interest in Millicom from other parties? And then the last thing, your CFO left during the quarter. Can you just comment on that since there wasn't much said at the time. Thanks.

Marc Beuls

First of all, I can't comment on your first question, as you will understand. Secondly, we decided to hire a new CFO because we thought that's what we were going to be needing in the environment, in the changing environment we are currently in. And also the priorities of the company might be changing going forward.

David Kestenbaum – Morgan Joseph

Okay, thanks.

Marc Beuls

Thank you, David.

Operator

Our next question comes from Bengt Moelleryd from Handelsbanken. Please go ahead.

Bengt Moelleryd – Handelsbanken

Thank you very much. Bengt Moelleryd from Handelsbanken. Just regarding the acquisition, regarding the price, can you say anything here? There's been quite a fierce bidding in the process here. And then, secondly, on your logic and rationale for doing this, is this primarily for the backbone transmission and that leads you – become – makes you then to a broadband operator, media operator? So what is your media strategy going forward here? And then on top of this also, can you say that, as a standalone mobile operator, it's difficult in the long run that you need to become more of an integrated operator? Thank you.

Marc Beuls

First of all, price. I guess you should ask the seller whether they have interest from other buyers. I guess there was interest and the price was the result of a negotiation with the current shareholders. Our objective is not just to buy this business for the backbone. We will, clearly use the backbone for the existing services but also for our wireless and mobile services. So it will go into a more integrated way there, from an infrastructure point of view.

Whether a mobile operator could survive on a standalone basis, I think you can survive on a standalone basis, as a mobile operator. I think what is important to understand, as we said in the press release, is that in Central America, we have more a proportional number of postpaid subscribers. We are leader in the corporate market. We are leader in the high-end market. And that's where today we see a demand for broadband, fixed broadband.

We also see, as I'm sure you know, more and more devices, mobile devices that work on, not only mobile frequencies, but also on WiFi. By us providing this broadband to the house, to the office, it will allow people to use their devices over the different frequencies that we will offer and I think that's an advantage. But I'm sure that within other market segments, there's no need, at this point in time, to go fixed broadband. But that is only at this point in time. 15 years ago, there were very few people that were using mobile phones. Today everybody is using a mobile phone. I can see a scenario that something similar is going to happen with broadband over time.

Bengt Moelleryd – Handelsbanken

If I may follow up, is this driven by the demand from the corporate customers? Do they also need and want to have a fixed broadband as a complement to your mobile services?

Marc Beuls

We see that at this point in time the whole broadband environment is still extremely small. What we've learned over the years of being present in those regions is that technologies, products and services that are being offered today in Europe and the United States are also being offered, and also demand for – by users in our countries. And that's why I think the timing is right to go into this business now when the number of broadband users is extremely low. And with our aggressive approach, I think we can increase the number of broadband users substantially over the years by applying a similar strategy as we have been applying for mobile telephony.

Bengt Moelleryd – Handelsbanken

And my last question, regarding your media strategy, this is also taking you into a new area, if I'm right there, media TV industry in terms of distribution.

Marc Beuls

It's not new, particularly the value-added services we offer over our mobile phones. We don't develop those ourselves. We just buy them off the shelf from other companies. And it's the same when you run a cable TV company. You just buy content from a number of content providers. So we're not going to produce our own soap operas, news, ballads and other stuff like that, so that is not the objective. We will do what we're very good at and that is focusing on the customer needs and then we will buy the content where we can get it at attractive prices, and content that is of interest to our subscribers.

Bengt Moelleryd – Handelsbanken

Right. Thank you very much.

Marc Beuls

Thank you.

Operator

And our next question will come from Sven Skold with Swedbank. Please go ahead.

Sven Skold – Swedbank

Thank you. I think most of my questions have been answered, but I still have one on Africa actually. Can you specify the losses that we currently see in DRC, because I expect that to make losses, so that we know what the margin is excluding the DRC? And could you also discuss margins in Africa excluding DRC compared to, for example, last year and how they are developing over time? And, second, would you consider selling an African asset, for example, if the price is right?

Marc Beuls

So if we were to what – sell an African asset?

Sven Skold – Swedbank

Yes.

Marc Beuls

Okay. Let me first – well, let me answer that question first. None of the 16 assets Millicom currently owns is for sale. So we – our focus is on growing our assets, because we think that all of our assets still have a long way to go, and so we are focusing on maximizing top-line growth and profitability.

When it comes to DRC, as you've seen, the number of subscribers in DRC has been going up very nicely during the second quarter. We hope that that will continue in the two following quarters this year and, of course, continue next year, which will lead to a situation where DRC will become breakeven from an EBITDA point of view. So I don't think, on a quarterly basis, we're that far away from a breakeven point in DRC.

So I think, clearly, if we were to take DRC out, the EBITDA margin for Africa would go up quite a lot. Unfortunately, I can't give you a number at this point in time. But let's not forget that it's not only DRC. We're also making substantial marketing efforts in places like Senegal, where you've seen top line – very strong subscriber intake and top-line growth in places like Tanzania. So that also has an impact on the EBITDA margin. So I think things in DRC are moving in the right direction, still an awful lot of challenges ahead of us, but at least we're moving slowly but surely towards a point of EBITDA on a quarterly basis.

Sven Skold – Swedbank

I think you mentioned previously that network expansion has been a problem or difficulty in DRC. Is that – have you passed some – is it easier now than before or –? I mean you don't mention that anymore.

Marc Beuls

We take the view that you guys all understand how difficult it is now. So, no, this is not something that will go away. We, of course, understand better what the challenges are. We understand how we need to deal with those. But network build-outs will continue to be a challenge in Congo for us as for other operators. But I think we're better at dealing with it and I think we are focusing a lot more on those pockets where you have concentrations of population, so where you can get relatively higher mobile penetration in the more urban areas. Of course, if you were to put this on a nationwide basis then, of course, the mobile penetration comes out down a lot. But I think we're doing pretty well in some of the cities in Congo these days.

Sven Skold – Swedbank

Just a final question there. How much has been invested in The Congo approximately over time, I mean CapEx plus losses, operational losses?

Marc Beuls

I think CapEx, I think we said that we would do $100 million on an annual basis, I think. I think that's – I don't have a hard number for you. But I think we must be doing about close to $100 million on an annual basis. We're now in our third year, I think, of investment.

Sven Skold – Swedbank

Great, thanks.

Marc Beuls

Thank you, Sven.

Operator

And our next question will come from Stefan Pettersson with Nordia [ph]. Please go ahead.

Stefan Pettersson – Nordia

Yes, hello. Also most of my questions have been answered. But I would like to ask a question on the ARPU development in Central America. The ARPU is, again, down 20% year over year and 6% quarter on quarter. Given that we see also increased competition going forward, should we expect this kind of ARPU development also in the coming quarters?

Marc Beuls

Well, I think the ARPU development, first of all, is in line with what I've been telling the market, is that if you want to run a mobile business in the emerging markets you have to focus on affordability that allows you to get into new market segments. And those – and the customers in those market segments, by definition, whether we like it or not, come with lower ARPUs. We happen to like that, so because it creates the economies of scale which allows us, in an environment where tariffs are coming down as a result of all the promotions that are being run by us and by others, to continue operating at very high margins. So I'm not so worried about the ARPU development in Central America.

And look at – the ARPU has come – I don't know by how much – yes, you said 20% of it, I would have to check that number. But the EBITDA margin last year, I think, in Q2 was 53%. The EBITDA margin in Q2 this year was 55%. So clearly lower ARPUs have no impact on – not necessarily a negative impact on EBITDA margins. I think another example there is Sri Lanka, where we continue to operate with very low ARPUs, below $5. We still run a business there with a 50% EBITDA margin. I think we understand how to run businesses with lower ARPUs or ARPUs that are coming down, and also understand how to keep costs under control, including subscriber acquisition costs that will allow us to continue making good money. So –

Stefan Pettersson – Nordia

Yes, thank you. Also one question on the subscriber intake, you're now investing more aggressively in Africa and Asia. And looking at the subscriber intake this quarter now, you had more than one million subscriber intake in Africa. Should we expect this number to increase going forward?

Marc Beuls

Like I said, when somebody asked me the question on what the run rate for subscriber intake is going to be for Millicom, I think the run rate for subscriber intake will, of course, depend on how much we invest in CapEx. And I think we are doing what we need to do there. It also will depend on what the macroeconomic environment will look like over the next couple of quarters, including levels of inflation, fuel price inflation, food price inflation and stuff like that. But our intention in Africa is definitely not to slow down. We see great opportunities in Africa and we want to make sure that we go for those opportunities. And judging from the number of new operators you see in Africa, there are other people that are convinced that Africa is a very attractive region for investment.

Stefan Pettersson – Nordia

Okay, thank you.

Marc Beuls

Thank you.

Operator

Our next question comes from Ivan Kim with Renaissance Capital. Please go ahead.

Ivan Kim – Renaissance Capital

Hi, there. I've several questions regarding Senegal, please. What was the reason for a substantial market share increase in Senegal? What happened to your pricing and usage there in second quarter, and probably in the first half? Do you think that the competitive situation will tighten significantly with the arrival of Sudatel there? And finally, probably, any comments on accelerated growth in penetration which we see in first half '08 compared to 2007? Thank you.

Marc Beuls

For Senegal, I think the move from two to three operators later this year is going to be a positive move. We know by operating 25 years in emerging markets, that probably the worst situation you can have is a duopoly. We've seen that a market typically explodes when a third and a fourth operator is entering the market, why because there are so much more noise in the market in the form of promotions. There's pressure on the tariffs, there's better network, better marketing, better customer care that are being provided to the customers. So I don't see the entrance of a third operator a negative point. I think it could be positive also for existing operators.

Why are we successful in Senegal? It's because we not only have introduced a number of very attractive tariff packages that has allowed us to probably get a number of new subscribers but also poach a number of existing subscribers from the other network. But also what we've done is we have copied, with precision, distribution methods from, for instance, Paraguay into Senegal, where we work a lot harder on distribution, where we try to get a lot better control over the distribution, the points of sale, so that we make sure that the quality of the service is available everywhere. I think those are – this is one of the reasons why we're being so successful in Senegal at this point in time. And I think that's also going to be the reason why I'm very optimistic about us continuing being successful in that country going forward.

Ivan Kim – Renaissance Capital

Thank you.

Marc Beuls

Thank you.

Operator

And our next question comes from Kevin Roe with Roe Equity Research. Please go ahead, sir.

Kevin Roe – ROE Equity Research

Thanks. Marc, can you share an adjusted EBITDA figure for Amnet for last year for 2007?

Marc Beuls

What do you mean by adjusted, Kevin?

Kevin Roe – ROE Equity Research

Well, the number – well, typically, these emerging market cable operators reported an adjusted and a regular EBITDA number. I'm curious if you had –

Marc Beuls

Well, like I said, we can only disclose the financials that you have seen in the press release this morning, because that's what we have agreed with the seller to release at this point in time. Any additional information, operational and financial, you will have to wait until we've closed the deal.

Kevin Roe – ROE Equity Research

Okay. And the closing is expected in two months or so?

Marc Beuls

Yes, a couple of months. So I think we said three months in the release.

Kevin Roe – ROE Equity Research

And you'll have another call, I guess, and more info at that time.

Marc Beuls

Yes. That's, hopefully, around the time of the third quarter call that we can provide you a little bit more – I'll give you a little bit more color on the company.

Kevin Roe – ROE Equity Research

And can you comment on what type of EBITDA growth rate Amnet has been posting or what your expectations are relative to Millicom's EBITDA growth rate?

Marc Beuls

Again in terms of historic numbers for Amnet, I can't say anything there. What we expect is that Amnet will become a company that will be growing at similar rates as our mobile business and also have a profitability that will be similar to the profitability of our mobile business. And we're clearly looking, where possible, at creating synergies and integrating the businesses, which means that, yes, there will be shared parts of infrastructure, shared distribution, shared sales and marketing initiatives. And that means, yes, I think the returns should be similar.

I think Amnet cable and broadband is a business that operates at much higher ARPUs, as I'm sure you'll be able to calculate yourself from the data we have provided, than the ARPUs you see in mobile telephony. But that's because we, at this point in time, are focusing on a relatively small number of subscribers, 350,000 subscribers for a region of, I guess, more than 20 million inhabitants. So there's still a lot of work to do there.

Kevin Roe – ROE Equity Research

So Amnet could post similar type EBITDA growth in, for instance, 2008 that Millicom posts, is that what you're saying?

Marc Beuls

Well, I wouldn't talk too much about 2008. Before we close the deal, we will be almost in the autumn and then there's very little time left for us to do much with that business. So we will brief you a little bit better or more details later on this year once we have closed the deal as to what we think the outlook for the business is going to be for 2009.

Kevin Roe – ROE Equity Research

Okay, thanks.

Marc Beuls

Thank you.

Operator

And our next question will come from Soomit Datta with New Street Research. Please go ahead.

Soomit Datta – New Street Research

Hi, it's Soomit at New Street. Just one question left, actually. You made a comment on the inflationary trends having a small impact on your businesses, but you said it wasn't too significant. But the impact that has been there, can you maybe talk a little bit about how that has trended over the quarter and, perhaps, maybe make a comment about anything or any impact you've seen in the month of July so far? That's all.

Marc Beuls

Like I said, for a high-growth business like ourselves, it's very difficult to see what the impact has been of the high inflation which you’ll see all around the world, so that's nothing new. Would our growth have been higher than 37% in the second quarter if the inflation had been half of what it is – or what it was over the past quarter? Maybe, maybe not. We don't know. Therefore, I can't really give you any guidance as to what is happening this month or in the coming months.

We know that inflation, as Mr. Regan once said, is something very, very dangerous. And we know that it will have an impact on people's purchasing power in developed worlds and in emerging markets. At this point in time, as we said in our release, we have not seen a significant impact on our business. Otherwise we wouldn't have been able to grow – produce the growth rates we produced again over the second quarter.

Soomit Datta – New Street Research

Okay, thanks.

Marc Beuls

Thanks.

Operator

Our next question come from Alexander Vassiouk with Morgan Stanley.

Alexander Vassiouk – Morgan Stanley

Hello.

Marc Beuls

Hi, Alex.

Alexander Vassiouk – Morgan Stanley

Yes, hi. It's Alex Vassiouk from Morgan Stanley. Can you elaborate a little bit on your revenue performance in Central America? Is there any specific reason why you had almost no revenue growth sequentially? And I appreciate the mix effect that – and the fact that new subscribers are coming with lower ARPU etc., but the obvious question is how do you anticipate to grow your revenue going forward? And are you seeing any more pressure on the existing subscribers' ARPU, or is there any migration of your high ARPU subscribers to your competition? Basically, any color that you can give on that, please?

Marc Beuls

Judging from what I saw of the numbers from our major competitor this morning, it doesn't look like we're losing customers to them. So, if anything, it might be – I think it might be the opposite. Clearly there is pressure on the tariffs because of promotions that are being run in order – promotions at all kind of stimulate usage, work on affordability. I'm sure that that has an impact on the revenue per subscriber or the ARPU per subscriber. That is one.

I think in terms of market share, I think we have not lost market share in Central America. If anything, I think we've probably gained a little bit of market share over the past quarter, which is very, very good news. But, yes, lower tariffs, new market segments for customers with lower ARPUs. I think that combined with the fact that probably the second quarter I think was the same last year, I think the second quarter is probably a somewhat weaker quarter than the other quarters in the year. So I think it's a combination of those factors.

Alexander Vassiouk – Morgan Stanley

Right. But, basically, what makes you think that second half will be better in absolute terms than the first half for Central American revenues? What are the drivers that you are seeing for your underlying mobile business, except your 3G and broadband plans?

Marc Beuls

I think the 3G and the broadband plans, and I am not talking about Broadband Amnet, now I am talking about the mobile broadband part of our strategy. And that will definitely allow us to tap into new revenue streams in Central America. That's the reason why we are making those investments as we speak. And then that's why we will be launching those services in the course of this quarter on a soft basis, and then a commercial launch in the fourth quarter. So that will be one of the reasons why we think that the revenue growth in Central America will go up from what we saw in the second quarter. So I remain very positive about Central America.

The tax impact that's always like in Honduras and international calls are important for us in Central America, the incoming international calls. If there's a taxation on that call – on those calls of the order of $0.03 a minute, clearly, that probably in the beginning these things then probably die over time, but in the beginning that will kind of stop people from making calls through Honduras. But, again, these things typically go away and then people then get back to the normal calling volumes again. So, at the end, these are not our customers; these are incoming calls. So I think there was a combination of factors there in the second quarter. Hopefully, we are not going to see any of those in the third quarter and the fourth quarter.

Alexander Vassiouk – Morgan Stanley

Okay. And on the new acquisition, on Amnet, what is the competitive landscape like in this area of business? And how do you estimate the market share that this operator has? Who are the closest competitors? And, basically, what's the broadband penetration on the blended basis in the markets where it operates?

Marc Beuls

Well, the competition today is a combination of first, the incumbents, depending on whether they are owned by Telefonica Spain or America Movil, so they provide ADSL services as we speak. But we all know that when you run ADSL services on low-quality copper, which tends to be the copper you find at times in that part of the world, that the speeds are not as high as what we are used to and the quality of the service might suffer from that. So then there is a company like Amnet, who has built its own – built or bought its own network.

And when it bought the network, it then started upgrading the networks to make sure that they became two-way networks. And I think about 60% of their fiber optic network is two-way today And then you have still a series, as I said, of relatively small broadband/cable companies. This is kind of an old, very small companies, family owned which we think will create some M&A activity going forward, whereby, I guess the bigger players will start to buy some of them or where you will see maybe mergers between the smaller ones. But that's what the landscape is.

I think the advantage Amnet has is that it is not operating on copper. It is operating on fiber optic and coax, which, from a performance point of view and also from a capacity point of view, are lot better than copper. So that definitely is an advantage they have over other companies, either the incumbents and also the very small ones. Again on the other question, again, you will have to wait until we own the company before we will be able to give you somewhat more detailed information on what the broadband penetration is in the different countries for Amnet and for the others. What I can say is that they are leaders in El Salvador and in Costa Rica today.

Alexander Vassiouk – Morgan Stanley

Right. So – and in terms of where it stands on the market share, are you going to disclose that at a later point?

Marc Beuls

We will let you know, we’ll disclose somewhat more information. I can't tell you exactly what that is going to be at this point in time, but we will give you some information that will allow you to get a better understanding as to where we – where that business stands at this point in time, and then also give you some indication as to what our plans are with that business.

Alexander Vassiouk – Morgan Stanley

Right, okay thanks. And the last question, if you don't mind, on Columbia, did I understand correctly that you were saying that you would not expect material EBITDA margin improvement from the current levels in 2008, but only beyond 2008?

Marc Beuls

That's correct, yes.

Alexander Vassiouk – Morgan Stanley

Because previously you were suggesting that you would start the year with around 10% EBITDA margin, and that could potentially go up to around 15% level by the end of 2008. So you think you are now more likely to stay at the current level?

Marc Beuls

Yes, because we've reached –

Alexander Vassiouk – Morgan Stanley

You already reached 15%, how should we read that?

Marc Beuls

No, we have not reached 15%. 12%, yes, we have reached 12%.

Alexander Vassiouk – Morgan Stanley

12%, yes.

Marc Beuls

But we have taken a number of initiatives in terms of flat tariffs on-net and cross-net calls in order to make more people use our services or call to numbers on our network and that, of course, has a cost. But we are the fastest growing mobile telephone company in Columbia, so I think this is money well spent. And then from next year onwards I hope – hopefully we can spend a little bit more – focus a little bit more on margin improvement. But I think at this point in time it's building subscriber base, building the size – scale, sorry, in Columbia.

Alexander Vassiouk – Morgan Stanley

Right. And are you still quite comfortable with your medium-term expectation of mid-40s EBITDA margin for this business? Or do you think that the timing of that maybe a little bit more extended now?

Marc Beuls

Maybe the timing might be a little bit more extended, but we think we can still get to those mid-40s margins, yes.

Alexander Vassiouk – Morgan Stanley

Okay. Thank you for that.

Marc Beuls

Thank you, Alex.

Operator

Our next question comes from Anders Berg with Evli Bank. Please go ahead.

Anders Berg – Evli Bank

Yes, thank you. It's quite late in the call now and most of the questions have been asked and answered, but I have a question regarding procurement power. As you may know, Ericsson reported today, and if we look at the reading of developments there, Latin America is very strong. But I am just curious to know how your procurement power has changed the past three years in terms of price per line or something like that. And if, given the rather depressed supply conditions right now, if you see a larger than usual CapEx opportunity? Thank you.

Marc Beuls

I can't really give you any price on per line or something like that, but what I can tell you is how we have organized ourselves when it comes to procurement. We hired a procurement expert at the end of last year and he has launched a number of initiatives in order to better streamline procurements across Millicom, and also to better coordinate the different procurement initiatives that are being taken. For instance, we – as an example, we launched, for the first time ever, a global 2G procurement process I think a month or two ago.

So previously we would bundle procurements of a couple of countries. We've now gone out to a number of suppliers and said, okay, now this is what we expect to buy for 2G equipment for the next year or two, okay, give me your best price. And by doing that we hope that we can further continue improving the prices we pay for our CapEx. But how much that exactly is – it depends. It's very difficult to say because it depends on whether you buy a car with or without air conditioning, or with or without a power steering or whatever. So it's very difficult to compare these things.

Anders Berg – Evli Bank

Thank you.

Marc Beuls

Thank you.

Operator

And our next question comes from Anders Wennberg with RAM. Please go ahead.

Anders Wennberg – RAM

Just a follow-up question on a previous person asking. In terms of the communication regarding food inflation and disposable income, is a very big change compared to what you wrote in the first quarterly report. Can you explain a little bit the reason why you have changed the communication so? Has there been a deterioration during the quarter?

Marc Beuls

I don't think – I think in the first quarter, we also spoke about this is a challenging environment and we did speak about inflation having gone up in the markets where we operate. But, again, that should not come as a surprise to because inflation has doubled in Europe too and I guess the same in the US. So inflation is going up everywhere. The only difference is that in the emerging market inflation typically is a lot higher than in Europe, and so it has gone up. It has doubled from a much higher level. Again, you can judge yourself, Anders. The numbers we are producing, 37% revenue growth, 58% subscriber growth, doesn't look like we are falling off a cliff, does it? So –

Anders Wennberg – RAM

I am just more thinking about how it's going to look going forward and for the second half and into 2009.

Marc Beuls

We all wish we knew. That's a crystal ball which I guess none of us have. But I clearly don't want to paint a grim picture here about the outlook for our business. I think we are investing the CapEx so we are confident that the demand for mobile services is going to continue being there. Otherwise, we wouldn't have increased our CapEx forecast for this year by 50%.

Anders Wennberg – RAM

My second last question, if I may. Your performance on Central America is of course fantastic in Ghana, Paraguay and a lot of other places. But your acquisition of Columbia, so far must have been significantly below your expectations, particularly in terms of margins sitting at 12% for this year, and cash flow being negative, and there is quite a bit of debt in the company. Can you explain a little bit your reasoning why you are going in for a new acquisition before you have managed to turn around Columbia?

Marc Beuls

I think if we were to look back at our original business plan which we built two years ago or two and half years ago for Columbia, I think we are still on line – and then on that basis we took the decision to go into Columbia. I don't think we – reality today is that different. I think we started off very, very strong, a lot stronger than what we anticipated, and then we had this correction in December last year through the change of interconnect. So I think that brought us back to the original plans, where in the first year I think we had deviated positively quite a lot from the original plan. So we still think that we are very much convinced that having gone into Columbia was the right thing to do. And there is still a lot of opportunities and great opportunities for us in that country. So I don't think you should take this as a country where we are not successful. I think compared to the original plans, we probably still are in line with expectations.

Anders Wennberg – RAM

Okay. Thank you very much.

Marc Beuls

Thank you.

Operator

And our next question comes from Andreas Ekstrom with Carnegie.

Andreas Ekstrom – Carnegie Investment Bank

Yes, I’ve just two follow-up questions. One, maybe the acting CFO can answer that question, and that is the currency impact in the quarter. What was the revenue growth in constant currencies?

Marc Beuls

Across the Millicom you had a number of countries who had positive and negatives. I think the overall impact was slightly positive from a currency point of view.

Andrew Best

South America was the main positive. And then it was, but it washed out pretty much, so we are marginally positive overall.

Andreas Ekstrom – Carnegie Investment Bank

So in constant currencies, if you reported 37%, maybe 35%, something is that –?

Marc Beuls

I don't know. I have not made the calculations, but there was a slight positive impact.

Andreas Ekstrom – Carnegie Investment Bank

Okay. Secondly, Marc, regarding Peter Kurt's question in the beginning regarding the raised CapEx, I am also a little bit puzzled actually when we go back and remember your comments from Q1. Because you haven't really guided up the subscriber intake forecast, and you talked already in Q1 about the mobile broadband coming in in Latin America during the second half. And okay, that volume is growing in countries like in Ghana, but it's not really materializing in higher ARPU. So if you could break out, for example, has there been a component of higher steel prices or higher concrete prices in your CapEx forecast? Has that contributed in any material way to your CapEx upgrade?

Marc Beuls

No, no. We are not upgrading our CapEx because of higher cost. I am not denying that steel prices having gone up, I know certain prices having gone up. But at the same time, as I just mentioned, we are better and we are getting better in organizing our procurement, which should create or should allow us to create a certain number of benefits, so the one might compensate for the other. No, we in Ghana are not standalone countries where we push usage. As I've said before, we want mobile telephony to become at times, to use a dirty word, addictive. And the way you do that is by launching a number of initiatives where people want to get hooked onto it, have great difficulties moving away from. But it means that you see a lot higher minutes of use per subscriber.

In Ghana we spoke about the extreme, but in Central America since, what, a year now, 18 months I guess, they are running the campaigns, us and others, the campaigns of double and triple balance, and quadruple balance, if you reload your account on a certain day of the week. And that means that you see an explosion of usage for existing customers and it also attracts, of course, new customers, and that is what is driving CapEx at this point in time. But I think we have a history where we go in the year with a certain CapEx assumption, and then as we move on the in year, we adjust depending on how successful the year starts. And I think the year 2008, judging from the Q1 and the Q2 numbers, has started extremely well. But it's not the cost of the equipment we are buying, the civils as we call them. We are buying to construct towers and stuff like that. That's not the reason.

Andreas Ekstrom – Carnegie Investment Bank

Okay. I don't know if there is a question in here, but I see that throughout many operators that they are increasing their CapEx and chasing the net adds. But the new subscriber coming in is not really generating any profits for the company, so –

Marc Beuls

That's not true, at least not for us, Andreas. Otherwise, I don't think we would have been able to keep our margin, and we would have seen the deterioration of our margin if that had been the case. We continue to operate at the 42% margin, the same margin as we had for the full-year 2007, so despite a much, much, much higher subscriber intake in 2008 compared to 2007. So I think we manage to keep these subscriber acquisition costs under control based – as a result of our business model, prepaid, focus on prepaid, tried to stay away from foreign subsidies if we can, in order to get a relatively short payback for the customers we acquire.

Andreas Ekstrom – Carnegie Investment Bank

Okay, thank you.

Marc Beuls

Thank you.

Operator

Our next question comes from Bengt Moelleryd with Handelsbanken. Please go ahead.

Bengt Moelleryd – Handelsbanken

Thank you. Bengt Moelleryd from Handelsbanken, just a shot here on Asia. What is your view now currently on expansion there in the region (inaudible) question here regarding Vietnam? And also now with Vimpelcom stepping into Cambodia this year, the market changing there being more fierce competition and what is your ambition in the region there? Thank you.

Marc Beuls

Ambition in the region is to focus on the three businesses we have. And, yes, especially in Cambodia. there are a number of new players about to enter, or that will be entering the market next year, because a number of the companies you read about are companies that don't have network and subscribers as we speak, or if they have, it's just tiny. So but there will be a different competitive environment in Cambodia going forward, but at the same time, mobile penetration is still relatively low, and with all the good things we see happening in that country from a macroeconomic point of view, from a foreign investment point of view, I think it's a good place to be, and it's a good place to invest.

In terms of Vietnam, yes, clearly nothing is going to happen this year. I met some government officials a month ago, some were even talking about the year 2010 before something was going to happen. I think the events in the capital markets in Vietnam, I think the market – the stock market came down by 50% six months ago. I think that's kind of putting things – that put things on the back burner. And they are probably thinking as to how can they create value for themselves, clearly not by IPOing companies the way they have been doing it over the last 12 months. So and that will again create a slowdown when it comes to the privatization of former company, VMS-MobiFone, as well as all the other telephone companies in the country.

Bengt Moelleryd – Handelsbanken

I have a follow up there. Do you see a need to expand in the region to reach more critical size, to get some more economy of scale there in the region or –?

Marc Beuls

No, I think if – we have the economies of scale, we create those, not within the region, but we create them across the world. And we use the same brand in two of the three – the single brand in two of the three markets in Asia, we use the same product and services there. So we don't need to go into more markets in order to create synergies in Asia. We already have them with our African and Asian – sorry, African and Latin American businesses.

Bengt Moelleryd – Handelsbanken

Thank you.

Operator

And our final question comes from Bill Miller with Hartwell. Please go ahead.

Bill Miller – JM Hartwell

taking another question, the question about – that came up that you are aspiring to have 2 to 1 debt equity ratio over time, is that still an aspiration? Is that, even with your ample cash flow, do you still think you can do that and maintain the same discipline that you've exercised in the past, which is a two-year payback on some CapEx and a four-year payback on other CapEx? Are those disciplines still in place, and do you think – how realistic is it to have a goal of 2 to 1 debt equity ratio?

Marc Beuls

Well, first, in terms of the paybacks we still have opted [ph] those paybacks of two years for existing business, and between three to five years for new businesses. That is still there. In terms of the leverage, yes, we are increasing our leverage. I think a couple of quarters ago we were at 0.5. Now we are already at 0.7. I think with the acquisition we are doing in Central America with increased CapEx I would expect that our leverage will improve. We are definitely not going to get to 2 to 1 this year. And even next year, given the good cash flow generation, we expect to have from our existing businesses, we might not get to that 2 to 1, of course, bar any other acquisitions or minority buyouts we might do at a certain point of time.

Bill Miller – JM Hartwell

Marc, the potential to buy out some of the existing minority interest, can you give us a status report on that, as well as the potential for a more recurring dividend, a quarterly or semi-annual or something like that, which I know is in the Board's hands? But I wonder if that is going to play a part in either – in getting towards your 2 to 1.

Marc Beuls

Well, no update to be given on the buyouts for the minority shareholders in Central America. I guess those are the ones you are talking about. So nothing is happening there. I think everybody is extremely happy with the health of the businesses there and the growth outlook of the businesses. So we just continue to work together as we have been doing over the last 15 to 20 years. In terms of our dividend policy, we will be writing a policy there and, as we've said before, that policy will be based on the cash flow generation of the company. Our top priority is to invest in our existing businesses, because we think we still have a long way to go.

Bill Miller – JM Hartwell

Great, thanks very much.

Marc Beuls

Thank you, Bill.

Operator

I will now turn the program over to the presenters for any closing remarks.

Marc Beuls

Well, let me just thank you all for joining the call today. And we look forward to welcoming you to our businesses in Paraguay for our Investor Trip of 2008. So we are planning on going to Paraguay the week starting October 27, which is week 44, I think. We will be getting back to you with an invitation and with a program. So, thank you for being on the call and have a great day. Goodbye.

Andrew Best

Bye.

Operator

This concludes today's teleconference. You may now disconnect your lines. Thank you, and have a great day.

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