Millicom International Cellular SA 15, rue Léon Laval
L-3372 Leudelange
Grand-Duchy of Luxembourg Tel: +352 27 759 101
Fax: +352 27 759 359
www.millicom.com
ional Cellular SA Annual Report and Accounts 2006
today’s world for people in emerging markets.
Millicom’s purpose:
To produce and sell airtime and content in selected emerging markets to three distinct market segments so that:
young people can be collectively cool;
families and friends can control their lives;
and entrepreneurs and corporations can run their businesses more efficiently.
Contents
02 Our businesses at a glance 04 Global presence, local knowledge 06 The Chairman’s and the Chief Executive’s review 08 tigo questions and answers 10 Review of operations Central America 12 South America 14 Africa 16 Asia 18 Senior management 20 Board of Directors 22 Corporate and social responsibility report 23 Directors’ report 26 Management’s report on internal control over financial reporting 27 Report of the independent auditors
28 Consolidated balance sheets 30 Consolidated statements of profit and loss 31 Consolidated statements of cash flows 32 Consolidated statements of changes in equity 34 Notes to the consolidated financial statements 80 Shareholder information
Millicom’s shares are listed on the Nasdaq Stock Market under the symbol MICC and on Stockholmsbörsen under the symbol MIC.
Management team
Finance and IT team
Millicom Management
Conference, Paris, 2007
06 1,576,100
05 922,780
04 665,579
03 420,052
02 348,393
99 %
TOTAL SUBSCRIBERS REACH 14.9 MILLION
+
■
Inclusion of Millicom shares in Nasdaq Global Select Market which has the highest listing standards in the world and in the Nasdaq 100
■
130% share price appreciation from December 2005 to December 2006, making Millicom the second best performing stock on the Nasdaq 100
■
Population under license in Latin America doubled with acquisition of controlling stake in Colombia Movil
■
Capex of $616 million in 2006, reflecting substantial investment in all regions
■
Net debt to full year EBITDA ratio of 1.2:1, enabling significant continuing investment
■
Roll-out of the tigo brand to 14 markets and the triple “A” business model to all 16 markets
■
Total cellular minutes up 82% and prepaid minutes up 92% year-on-year
■
Net profit of $169 million, up from $10 million for 2005
■
Cash upstreaming from operations of $361 million
■
Cash and cash equivalents of $657 million
■
Exit from Pakistan completed with divestment of interest in Paktel to China Mobile for a net gain of approximately $260 million
■
Buy out of minority partners in Tanzania, Sierra Leone, Senegal and Paraguay, bringing ownership to 100% in each of these operations
06 717,148
05 438,094
04 307,549
03 187,117
02 141,307
06 14,945,445 05 7,511,265 04 4,847,613 03 3,830,780 02 2,753,010
06 12,840,568 05 6,277,234 04 3,962,608 03 3,070,399 02 2,132,738
71 %
REVENUES UP TO $1,576M
+ 64
EBITDA UP%
TO $717M
+ 46
EBITDA MARGIN%
+
Millicom Annual Report and Accounts 2006
Our businesses at a glance
Millicom operates in 16 countries with a combined population under license of approximately 278 million people. In 14 of our markets, we operate under
the tigo brand which embodies the values of Affordability, Accessibility and Availability which are so important, both to our customers and to the growth of the Company.
The Central America Cluster comprises Millicom’s operations in El Salvador, Guatemala and Honduras. The population under license in Central America as at December 2006 is 27 million.
Region
Central America South America
The South America Cluster comprises Millicom’s operations in Bolivia, Colombia, and
Paraguay. The population under license in South America as at December 2006 is 59 million.
KPIs
Revenue contribution
Total subscribers
5,164,167
Revenue
796,111
EBITDA
415,430 51 %
of Group revenueTotal subscribers
4,329,973
Revenue
321,038
EBITDA
118,018
20 %
of Group revenueMillicom Annual Report and Accounts 2006
Africa
The Africa Cluster comprises Millicom’s operations in Chad, The Democratic Republic of the Congo, Ghana, Mauritius, Senegal, Sierra Leone, and Tanzania. The population under license in Africa as at December 2006 is 152 million.
Total subscribers
3,425,680
Revenue
312,105
EBITDA
122,572 20 %
of Group revenueAsia
The Asia Cluster comprises Millicom’s operations in
Cambodia, Laos and Sri Lanka.
The population under license in Asia as at December 2006 is 40 million.
Total subscribers
2,025,625
Revenue
146,846
EBITDA
61,128
9 %
of Group revenue into account where customers live and theirdaily work routines. Our brand tigo is visually striking and easily recognizable and can be found at close to 250,000 distribution outlets across our markets. This number, which already
6,000 base stations across our markets.
We live by the principle of these three “A”s which is driving both the acquisition of customers and growth in their minutes of use of our services.
Millicom Annual Report and Accounts 2006
Global presence, local knowledge
CENTRAL AMERICA
TOTAL SUBSCRIBERS BY COUNTRY
■ El SAlvADoR 1,387,395
■ GuATEMAlA 2,223,059
■ HonDuRAS 1,553,713
SOUTH AMERICA
TOTAL SUBSCRIBERS BY COUNTRY
■ BolIvIA 936,374
■ ColoMBIA 2,120,284
■ PARAGuAY 1,273,315 With operations on three continents,
Millicom is one of very few mobile telephony companies with a global emerging market presence, enabling us to create valuable economies of scale and to apply the best practices found in each market across all of our operations.
Asia, which is undoubtedly the most competitive mobile telephony market in the world today, was the birthplace of a number of the most important concepts of the Millicom business model, including mass market distribution, micro prepayment and e-PIN (over-the-air top-up of talk time), contributing to the affordability and accessibility of our services. As well as enabling the cross-fertilization of ideas, a global presence also creates synergies in the procurement of network equipment, facilitating Millicom’s third “A” of availability.
At the same time, we are a local company, employing local management as far as possible and making the most of the distinctive characteristics of our markets in our service offers and promotions. Millicom is, first and foremost, a customer-focused company, working to meet the communications needs of our 15 million customers.
Millicom Annual Report and Accounts 2006
AFRICA
TOTAL SUBSCRIBERS BY COUNTRY
■ CHAD 186,700
■ DRC 50,337
■ GHAnA 1,211,904
■ MAuRITIuS 279,193
■ SEnEGAl 894,617
■ SIERRA lEonE 42,055
■ TAnZAnIA 760,874
ASIA
TOTAL SUBSCRIBERS BY COUNTRY
■ CAMBoDIA 1,075,162
■ lAoS 87,228
■ SRI lAnKA 863,235
El Salvador Telemovil 100.0% 7 one of five
Guatemala Comcel 55.0% 13 two of three
Honduras Celtel 66.7% 7 one of two
Bolivia Telecel 100.0% 9 two of three
Colombia Colombia Movil 50.0% +1 share 44 three of four
Paraguay Telecel 100.0% 6 one of four
Chad Millicom Tchad 87.5% 10 two of two
DRC Oasis 100.0% 63 four of four
Ghana Mobitel 100.0% 23 two of four
Mauritius Emtel 50.0% 1 two of three
Senegal SENTELgsm 100.0% 12 two of two
Sierra leone Millicom Sierra Leone Limited 100.0% 6 four of five
Tanzania Mobitel 100.0% 37 three of four
Cambodia Mobitel 58.4% 14 one of four
laos Millicom Lao Co Limited 74.1% 6 three of five
Sri lanka Celtel 100.0% 20 two of four
* Source: Millicom. Market share derived from active subscribers based on interconnect
Millicom Annual Report and Accounts 2006
The Chairman’s and the Chief Executive’s review
Millicom is a company that manages to combine high growth with strengthening profitability and cash flow.
In the last three years, we have dramatically increased our investment in the coverage and capacity of our networks, first in Latin America and later in Africa and Asia, leading to exceptional growth in most of our markets.
The focus of our triple “A” strategy is on making mobile services Affordable, Accessible and Available to customers, which is vital for success in emerging markets. By the end of 2006, this successful strategy had driven both penetration and revenue growth in our Latin American markets to record levels.
Today, our aim is to continue the process of rolling-out this proven strategy across all our markets to take advantage of their relatively low mobile penetration rates and to continue delivering diversified profitable growth.
2006 was the year when Millcom began to reap the benefit of its triple “A” investment strategy in Latin America, which is today the largest part of the business. Millicom’s overall rate of growth increased sharply in 2006 with revenues up 71% to $1.6 billion compared to a 39% increase in 2005 and EBITDA up by 64% to $717 million compared to a 43% increase in 2005.
Behind these strong financial results was an increase in subscribers of 99%, with Millicom ending the year with 14.9 million subscribers, compared to 7.5 million at the end of 2005. With a population of 278 million under license, there continues to be a unique opportunity in the next few years to build a substantial mobile telephony business in countries with fast growing populations and increasing GDP growth.
It is interesting to note however that this increased growth had only a slight impact on margins, with the EBITDA margin at 46% for 2006 as against 47% in 2005.
For Millicom’s management, retaining this balance between growth and profitability remains a key target.
Mobile penetration rates are moving to a far higher level than had previously been expected in Latin America. In the lower penetration markets of Africa and Asia, penetration rates are also increasing very
rapidly. The key driver of growth is capital investment. In 2006, Millicom’s capital expenditure from continuing operations was $616 million, which is up sequentially from $258 million in 2005 and $166 million in 2004. During 2006, management focus has been on adding capacity and coverage across all 16 countries, but the largest share of capex was in adding capacity to our networks in Central America and adding coverage across our African operations and in Sri Lanka.
Capex increased quarter-on-quarter in 2006 with $247 million invested in the final quarter. With Millicom expecting to invest
$800 million in 2007, this pattern should continue for some time to come, although the capex to sales ratio is expected to fall progressively from hereon.
Millicom had a strong balance sheet at the year end, with net debt of $837 million and cash of $657 million. In total, the Company upstreamed $361 million in cash from its operations. Millicom’s capital structure improved even more in early 2007 following the sale of the Pakistani
operation, Paktel. The Company today has a net debt to EBITDA ratio well below one.
This liquidity will allow us to continue taking advantage of the opportunities in our markets by fuelling network investments and buying out minority shareholders.
Furthermore, the Company will continue to increase the leverage of the operating companies and de-leverage the holding company to lower the consolidated tax rate and remove potential restrictions on payments to shareholders in the future.
We recognise that our capital structure, created by our restructuring in 2003, is not optimal and we are evaluating the different options at our disposal to improve it.
In January 2006, the Board of Millicom entered into a ‘Strategic Review’ and retained Morgan Stanley to advise on the
process, after the Board received a number of approaches to buy the Company. The review process ran until July, enabling the Board to evaluate the offers, but on July 3, the Board took the decision to end the process as the price under offer did not adequately reflect the prospects of the Company. Consequently, the Board concluded that it was in the best interests of the shareholders to remain independent and to exploit the potential within the subsidiary companies.
2006 was also the year that the Company decided to rebalance its portfolio of assets and focus on medium-term profitability and market leadership. This led to the decisions to sell Paktel, a loss-making number five operator in Pakistan (which was sold to China Mobile in February 2007), and to exit from the management contract in Iran. During the year we also sold a number of non-core holdings such as the broadband business in Peru in October, Pakcom, the TDMA business in Pakistan, in June and MIC-USA, Great Universal LLC, Great Universal Inc and Modern Holdings Inc, the investments in the US, in May.
On October 3, Millicom re-entered Colombia after an absence of more than three years, acquiring a controlling stake in Colombia Movil, the third largest operator in a country with a population of 44 million.
This move fits into the strategy Millicom developed for the Latin American market in 2005 to allow the Company to take advantage of opportunities created in certain countries following the period of consolidation that occurred in Latin America a few years ago. This kind of acquisition allows Millicom to leverage its presence, brand and management skills in the region and turn a loss-making business into a profitable, leading mobile operator. By focusing on improving the
Millicom Annual Report and Accounts 2006
visibility of the tigo brand, increasing the number of distribution outlets and implementing the triple “A” strategy, we believe that the prospects in Colombia are excellent for Millicom.
We will be evaluating the Colombia acquisition, together with the acquisition late in 2005 of Oasis in The Democratic Republic of the Congo, in the middle of this year. We will then decide whether to target other acquisitions or start-ups in countries that comply with our criteria of having relatively low mobile penetration, possessing the potential to build tigo as a leading brand, providing an acceptable return on investment and agreeing to accept our code of ethics.
The Company decided to strengthen its executive management team in 2006 to allow it to cope better with the top line growth and increasing levels of network investment. Osmar Coronel was appointed as the Company’s Chief Technical Officer, making his experience of running Millicom’s largest network in Guatemala, available to the entire Company. In Africa, Regis Romero, who had previously worked in Bolivia and Paraguay, took over responsibility for our businesses in Ghana, Tanzania and Sierra Leone from Iain Williams, who continues to oversee our activities in Senegal, The Democratic Republic of the Congo, Chad and Mauritius.
As the success of Millicom in the future will depend on our ability to attract and retain talent, we created the role of Global Head of Human Resources after a successful Human Resources conference in Luxembourg in the summer of 2006.
John Tumelty, having held several General Manager positions in the Company, is working closely with the Chief Executive Officer to recruit, retain and develop the
people that will be running Millicom in the years to come.
Across Millicom we see an increasing number of talented and motivated people volunteering to take on new responsibilities in other countries or regions. They allow us to copy with precision the successful tigo triple “A” concept from the countries that adopted this strategy early, to the ones that followed later in Africa and Asia. This has also allowed us to recruit a new management team internally from our five Latin American operations for Colombia Movil within weeks of the acquisition of the business. We are grateful for the commitment to the overall wellbeing of Millicom shown by these employees.
The Sarbanes Oxley Act of 2002 (SOX), introduced strict rules regarding all US registered companies’ abilities to demonstrate effective internal controls over financial reporting. In August 2003, Millicom took this opportunity to begin a multi-year initiative to significantly enhance its corporate governance, risk management and internal control framework. Millicom has developed a standard framework that has been implemented in all its operational entities and at headquarters. Based on the results of this three-year initiative, Millicom reported no material weaknesses in its internal controls over financial reporting for the financial year ended December 31, 2006, which was the first year of
compliance under SOX for foreign registrants. Based on this success, the company is developing an enhanced program entitled Operational Excellence to attain best-in-class status over its entire internal control environment.
Our vision is “Freedom to access today’s world for people in emerging markets”.
We will produce and sell airtime and
content in selected emerging markets to three distinct market segments so that:
young people can be collectively cool;
families and friends can control their lives;
and corporations can run their businesses more efficiently. In addition we will explore related services that are in short supply and which are aligned with our business model in order to enhance the usage of our core services. By acting according to our values of integrity, respect and commitment, we want to achieve a set of goals working together with our stakeholders: our customers, employees, suppliers, local authorities and shareholders.
Millicom is present in some of the most attractive mobile markets in the world.
Penetration rates are still low and, in Africa and Asia especially, we are only at the beginning of the growth curve. Millicom’s triple “A” strategy of Affordability, Accessibility and Availability will give it competitive advantages and, in particular, its experience and expertise in the mass market distribution of prepaid minutes will enable its tigo brand to continue winning market share as penetration rates rise steeply in the coming years.
DAnIEl JoHAnnESSon MARC BEulS CHAIRMAN CHIEf ExECUTIvE
20 30 40 50
JAN ’06FEB ’06MAR ’06APR ’06MAY ’06
JUN ’06JUL ’06 AUG ’06SEP ’06OCT ’06NOV ’06DEC ’06JAN ’07FEB ’07
Millicom Annual Report and Accounts 2006
tigo questions and answers
Q&A Marc Beuls, CEO (left), Mikael Grahne, COO (right) and David Sach, CFO (centre) answer some important questions about the progress and future of Millicom.
Q. WHY DID MIllICoM REBRAnD To TIGo?
A. In 2004 Millicom started to change technology from TDMA to GSM in Latin America. There was a need to symbolise this change and the benefits that it would bring customers as well as creating a common brand across Latin America with a common set of values in terms of service. The success and adaptability of tigo in Latin America has made it easily exportable to Africa and Asia.
Q. HoW MAnY MARKETS IS TIGo In ToDAY?
A. Fourteen out of our 16 markets are today tigo markets with the most recent launches being in January 2007 in Sri Lanka and Congo and in March 2007 in Laos. The two non-tigo markets are Cambodia and Mauritius.
Q. WHY HAS TIGo BEEn So SuCCESSful SInCE ITS lAunCH In PARAGuAY In 2004?
A. The tigo brand has been successful because it represents what customers desire from their mobile service, and this has made tigo both a youthful and an aspirational brand in its markets.
Customers have come to recognise the value of Millicom’s triple “A” strategy which underpins the brand by focusing on Affordability, Accessibility and Availability.
Q. PlEASE ExPlAIn MIllICoM’S TRIPlE
“A” STRATEGY.
A. Millicom’s triple “A” strategy is focused on three vital and inter-dependent
ingredients that are needed to successfully sell prepaid mobile services in emerging markets – Affordability, Accessibility and Availability. “Affordability” is not simply about tariffs but how minutes are
packaged to consumers. With low income
customers, the price per minute can be low but if the entry cost is too high the minutes are not affordable. It is vital as penetration increases that lower ARPU customers are able to buy small amounts of minutes and so Millicom uses low denomination scratchcards and small e-PIN top-ups to make the minutes affordable. Millicom has also introduced per second billing so that several calls can be made from these small top-ups.
“Accessibility” is about creating a distribution network that makes purchasing minutes easy. Millicom has copied the FMCG sector in creating best-in-class distribution which, in tandem with e-PIN, means that subscribers can easily purchase minutes. “Availability” is about having network coverage, both in terms of covering the geography but also ensuring sufficient capacity to give good network reception and quality.
Millicom Annual Report and Accounts 2006
278m
PEOPLE UNDER LICENSEQ. In THE lAST THREE YEARS CAPEx SPEnDInG To SuPPoRT TIGo HAS BEEn GRoWInG STRonGlY. WIll THIS TREnD ConTInuE AnD WHAT IS YouR ESTIMATE foR 2007?
A. Capex has been increasing strongly over the last three years, up from
$166 million in 2004, to $258 million in 2005 and $616 million in 2006.
Management had seen the opportunity to capture mobile growth as penetration rates rise and has invested to capture this growth. In 2007 Millicom expects to invest a further $800 million as we believe the outlook for growth is good. However, although capex may still increase in absolute terms, the capex to sales ratio is expected to decline going forward.
Q. MoBIlE PEnETRATIon RATES vARY DRAMATICAllY DEPEnDInG on WHICH SouRCE onE uSES. HoW Do You CAlCulATE MoBIlE PEnETRATIon In YouR MARKETS?
A. Regulators publish penetration rates based on information provided by operators. The problem is that each operator has a different way of defining a subscriber, further many operators fail to churn subscribers off their network when they cease making calls, which has the effect of inflating subscriber numbers.
To avoid this Millicom has a strict definition: a Millicom subscriber is someone who makes a call within 60 days.
In calculating penetration and market share data Millicom uses interconnect traffic. It uses mobile numbers that have been active within a 60 day period, so giving a fairer indication of active subscribers across the market.
Q. PER SEConD BIllInG HAS DRIvEn GRoWTH In TIGo In SouTH AMERICA In 2006? WHY HAS THIS HAPPEnED AnD WHAT ARE YouR PlAnS To Roll- ouT PER SEConD BIllInG ACRoSS THE GRouP?
A. Per second billing was introduced in November 2005 in Paraguay. The effect in conjunction with e-PIN has been impressive. Per second billing gave customers more calls for the same cost, in effect a price cut of 23%. However, it only took two months for Millicom to recover lost revenue in Paraguay due to the elasticity in demand, and calls per user rose by 47% and minutes of use by 32%.
What this launch showed was that it was vital to build in extra capacity in the network before launch so in 2006 Millicom invested heavily in extra capacity across Central America ahead of a launch in all three markets in January 2007. The prospects for these three launches are good. Per second billing is also being rolled-out in Africa and Asia.
Q. WHAT BEnEfITS DoES MIllICoM GET BY CREATInG A CoMMon BRAnD In TIGo?
A. The synergies are considerable in operational terms. The tigo concept is well tried and tested in Latin America so for launches in Africa and Asia there are set procedures which can be followed to avoid making mistakes. Also marketing materials can be copied, such as advertising, so costs are saved. The benefits in terms of customer recognition across markets are fewer but in the smaller contiguous markets of Central America there are some benefits as there is some roaming across the region.
Millicom Annual Report and Accounts 2006
Review of operations – Central America
Millicom’s Central America cluster remains the largest contributor to Group revenue and EBITDA, contributing 51% and 58% respectively in 2006.
Revenues for Central America for 2006 were $796.1 million, an increase of 76% year-on-year and EBITDA was $415.4 million, up 74%, driven by the 89%
increase in total subscribers to 5.2 million. Today Millicom holds the number one position in each of it markets in Central America, successfully competing with its two larger competitors in the region through its innovative approach and by applying principles from the fast-moving consumer goods industry.
1. Head of Central America: Mario Zanotti (Mario Zanotti also oversees the Colombia operation) 2. One of the many activities tigo sponsors for young people in Central America 3. Star team: members of the Network Operations Department in El Salvador. L-R: Joel Chavez, Rafael Paredes, Gustavo Romero and Rolando Bonilla
PRoDuCTS AnD PRICInG
Central America is today growing very strongly following the significant investments made in developing the tigo brand and extending its footprint over the last two years. In 2006 the focus was on introducing innovative value-added services and driving their uptake through customer training initiatives which included printing instructions on prepaid cards in Guatemala. The result was year-on-year growth in revenue from value-added services of 164% across the region.
To drive affordability, all Central American operations introduced e-PIN, offering the lowest reloads available in the market.
Over-the-air is proving to be the most popular way for customers to top-up their talk time and reloads via e-PIN grew by over 400% during the year. Scratchcards still play an important role in the Central American market and their denominations are also being lowered. In Guatemala tigo has the lowest scratchcard value today, at US$1.30, and this card has the largest share of sales with more than 30%
of prepaid revenues. Other pricing innovations included the launch of “DAR”
or “gift” in Honduras, allowing prepaid customers to share their balances by direct transfer. The businesses in
El Salvador and Guatemala will launch this service in 2007.
vISIBIlITY of TIGo
2006 also saw the continued increase in the number of points of sale of cards, e-PIN and activations. By the end of the year there were 80,000 tigo points of sale, representing an increase of 60% during the year and giving Millicom the most extensive and efficient distribution network in the region. Façade painting has helped to improve the visibility of the tigo brand as it is rolled-out to more rural areas. We have also implemented a system of territory management in our distribution strategy in Central America, with individuals being given responsibility for distinct regions.
This has helped with the identification of areas where visibility of the tigo brand needs to be improved and identification of the best points of sale for tigo services within these areas.
In 2006 we implemented successful promotions with other consumer brands in Central America. These included the appearance of the tigo brand on 20 million Pepsi bottle tops, 4 million “Progreso”
cement sacks and 875,000 packs of
“Cremy” margarine in Guatemala. They also included strategic alliances with Esso
HIGHLIGHTS
■ Introduction of e-PIN across Central America, enabling tigo to offer the lowest reloads in the market
■ Significant increase in market share in Guatemala
■ Launch of “DAR” (GIFT) in Honduras in December 2006, allowing the direct transfer of credit from one customer to another
■ Central America ended 2006 with 80,000 tigo points of sale, a 60% increase over 2005
■ Continued network build-out and footprint growth ending the year with 1,792 base stations, representing an 80% increase from 2005
1 2 3
Millicom Annual Report and Accounts 2006
“On the Run” convenience stores and HiperPaiz supermarkets in Honduras, all serving to improve brand awareness.
CAPACITY AnD CovERAGE
The push of value-added services combined with improvements in
affordability and accessibility has created a need for additional capacity in Central America to carry the increased traffic generated by new and existing customers.
During 2006 we continued with our network build-out and grew our footprint in Central America to the extent that we ended the year with over 1,700 base stations across the region, representing an increase from 2005 of approximately 80%.
In Honduras particularly we have improved the execution of our construction projects using the “turnkey process” (which allows for faster network deployments). This, together with improvements in technical specifications, has been able to reduce the implementation time for new sites, resulting in a doubling in the number of sites from December 2005 to December 2006.
In Guatemala, we conducted an analysis of the efficiency of our sites and found that amongst all 879 sites, fewer than 15 have a payback period of over
24 months. This analysis is useful in identifying sites with slower traffic and is therefore a valuable tool for targeted marketing.
MARKET DEvEloPMEnTS
In El Salvador, a new competitor, Intelfon, entered the market, America Movil launched Claro, its universal Latin American brand and Digicel, the number four operator, was acquired, thereafter launching much more aggressive marketing campaigns and introducing heavy handset subsidies. In response, tigo in El Salvador used alternative advertising methods and attracted media coverage by sponsoring soccer teams. A third operator is expected to enter the market in
Honduras in the near future. We are confident that tigo in El Salvador will maintain its market leading position despite this increase in competition as today it provides the most desirable mobile telephony product in the market on the basis of its affordability, innovative value-added services, visibility,
accessibility and availability.
Millicom purchased additional spectrum in Guatemala and El Salvador in 2006, to enable the expansion of the cellular business and to ensure technological
upgrades when these become attractive for the mass market.
ouTlooK foR 2007
All Central American operations have today launched per second billing which is likely to create price elasticity and produce increases in minutes of use and, in the short term, average revenue per user (ARPU). In 2007 we will continue to expand tigo into rural areas of Central America, supported by mass media campaigns to ensure it maintains its
“first mover” advantage. Investment in the network will be critical to ensure the continued provision of the best quality services to the customer. Pricing will continue to be driven down for value-added services as well as voice and the roll-out of these services will be supported by educational campaigns to ensure higher levels of penetration.
The challenge for the Sales and Marketing teams is to push the growth of
value-added services and to keep improving market share. Economic indicators in Central America continue to improve, supporting our positive outlook for the region.
Affordable
Accessible
Available
Centre) into service in five days when the process was expected to take four weeks. By working 24 hour days and with the collaboration of the MSC provider, the new switch was put into service in record time, allowing
Millicom to manage the extremely high additional traffic on the network due to very successful sales and
marketing campaigns.
Millicom Annual Report and Accounts 2006
Review of operations – South America
1. Head of South America: Ricardo Maiztegui (Except for Colombia which is managed by Mario Zanotti) 2. Participation of tigo in the world-famous Barranquilla Carnival in Colombia 3. Star performer: Sergio Reartes, Distribution Supervisor
PRoDuCTS AnD PRICInG
The introduction of per second billing and the lowest denomination scratchcards significantly enhanced the perception of tigo’s price leadership in South America.
In Bolivia, we launched a US$1.20 scratchcard in September 2006, the lowest denomination in the market, and three months after its launch, sales of this card had increased by over 300%. This card is also physically smaller than other cards and as such, the cost of production is 58% lower.
The launch of e-PIN in Paraguay, with top-ups starting at US$0.29, has had a dramatic effect on customer behaviour.
Total sales more than doubled from the first quarter to the fourth quarter of 2006, with e-PIN’s share of total sales increasing from 25% to 60% over the same period. e-PIN will be launched in Bolivia in the first quarter of 2007 and similar effects are expected.
Paraguay remains the leader across all Millicom operations in terms of the share of its revenue generated by value-added services. In 2006, in Paraguay we launched, amongst other services, a “Share Balance” service, allowing customers who have used up their
balance to send a free SMS to a friend requesting a top-up. Since the launch of this service in October 2006, the number of such transactions per month has doubled. Other product offerings introduced in Bolivia and Paraguay in 2006 included a new ring back tone service and an international SMS service.
As well as leading the way in value- added services, Paraguay is also the most developed Millicom market in terms of the roll-out of WiMAX. Bolivia also has a WiMAX license, with deployment planned for 2007.
The tigo brand was launched in Colombia in November 2006 with the introduction of the US$1.30 and US$2.20 scratchcards, the lowest denomination cards available in the market. Just two months from launch, we reported a 94% increase in SMS traffic.
After the acquisition of Colombia Movil, we worked hard to improve customer satisfaction and focused on positioning tigo as the most affordable service in the market. According to research findings published by the regulation authority, Colombia Movil moved up from the number three to the number two position by December 2006, in terms of overall service perception in the marketplace.
HIGHLIGHTS
■ Acquisition of a 50% plus one share controlling interest in Colombia Movil, the number three operator in Colombia and subsequent launch of tigo in Q4 2006
■ A 36% year-on-year increase in the number of points of sale in Bolivia and Paraguay
■ 144 new sites added in Bolivia and Paraguay in 2006,
increasing coverage by 43%
■ The discontinuation of the free chip in Bolivia resulted in a lower subscriber acquisition cost, a more stable customer base and increased ARPU
■ 50% EBITDA margin in Paraguay, proof of the positive impact of per second billing and e-PIN
■ Renewal of 800MHz license in Paraguay until October 1, 2011
Millicom acquired a controlling stake in Colombia Movil in October 2006 which more than doubled our population under license across Latin America. Subscribers in South America grew by 224% in 2006 to 4.3 million, following the consolidation of Colombia Movil, or by 65% excluding Colombia. Revenues for South America were $321 million, up 127% or 63% excluding Colombia and EBITDA was $118 million, up 108%.
Excluding Colombia EBITDA growth was still a very impressive 83%, demonstrating the success of tigo in the second year after launch and the roll-out of additional value-added services which continue to drive revenues and enhance earnings.
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Millicom Annual Report and Accounts 2006
vISIBIlITY of TIGo
To coincide with the introduction of e-PIN, the number of points of sale in Paraguay was increased by 60% during the year and more than 1,000 of these, or 12%, were painted with tigo branding to increase visibility. The total number of outlets in Paraguay and Bolivia combined increased from 14,000 to 19,000 or by 36%. Total sales in Bolivia grew by 75% in 2006 as new distribution channels were opened up, rural areas were penetrated more deeply and we ensured that each new outlet fully understood all aspects of the tigo brand and its benefits to the customer.
Visibility was also enhanced through a number of promotional activities including a “tigo Extreme Coverage” advertising campaign, and sponsorship of concerts, carnivals and fashion shows, ensuring that tigo remained “front of mind” for our target market segments. In Paraguay, we sponsored the Asuncion Marathon and ran a SIM Card advertising campaign promoting the benefits of a tigo SIM card, such as coverage, e-PIN and per second billing, successfully countering the aggressive handset subsidy strategy of a competitor.
In Colombia, Millicom is working hard to extend tigo’s distribution network and bring it in line with our other operations in Latin America.
CAPACITY AnD CovERAGE
Our major goal for the cluster in 2006 was to increase the capacity of the GSM network according to marketing forecasts and this was achieved with 43% year-on-year growth in the number of GSM base stations and 250% growth in Erlangs in Bolivia and Paraguay.
In June 2006, we upgraded our SMS platform in Paraguay to meet the high demand for new value-added services based on the SMS function. Since then total SMS volume has grown by 210%.
We are also implementing the largest fiber optic network in Paraguay, in order to meet high voice and data traffic demand.
This backbone capacity will allow us to offer high data rates at low cost, whilst creating capital expenditure savings in microwave.
In Colombia, the network comprised 1,569 base stations at December 2006, with the capacity to accommodate 2.6 million customers.
ouTlooK foR 2007
In 2007, Millicom expects to complete the deployment of a highly competitive network in Colombia and to make significant improvements in the affordability, distribution and visibility of tigo, to improve brand recognition and grow our subscriber base. Through the aggressive promotion of “SIM Only”
connections across South America, Millicom aims to reduce costs associated with handset subsidies which are still far more prevalent here than in other regions.
Value-added services, which are most developed in Paraguay, will be promoted by other operations in order to increase their share of revenues. We are confident that our operations in South America can increase their market shares through the roll-out of new and innovative services and the continued application of the triple
“A” strategy.
project, involving more than 150 sales representatives from dealerships and 35 tigo supervisors. The project had an automated route and stock control as well as brand visibility and cross check controls which led to a 57% year-on-year increase in the number of tigo outlets in Paraguay.
Millicom Annual Report and Accounts 2006
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Review of operations – Africa
for Millicom in Africa, 2006 was characterised by the launch of tigo and the implementation of the triple “A” strategy in several markets, which contributed to growth in total subscribers across the region of 71%. This subscriber growth contributed to revenue growth of 53% to $312.1 million and EBITDA growth of 39% to $122.6 million despite the heavy start up costs of building out the new and extended networks in Africa.
Co-Heads of Africa: 1. Iain Williams (Chad, DRC, Mauritius, Senegal) and 2. Regis Romero (Ghana, Sierra Leone, Tanzania)
3. Star team: Sales and Marketing team in Accra, Ghana. L-R: Gwen Okwabi, Ransford Nyarko, Rosemary Asiedu, John Afriyie, Rita Lumour, Barbara Annan
PRoDuCTS AnD PRICInG
The launch of tigo in five of Millicom’s African markets in 2005 and 2006 provided the impetus for the introduction of new products and services during the year, with a particular focus on affordability.
In Ghana, the Sales and Marketing team offered a US$0.20 electronic reload with the credit lasting for one day, allowing subscribers to make one short call.
This and other reload values below US$1 are the most popular on the market, accounting for 68% of total reload volume.
The implementation of per second billing and other pricing initiatives also contributed to improved affordability in all operations.
In Tanzania, tigo now offers local SMS at a rate of Tsh 38 (US$0.03), the lowest on the market and in Ghana, the reduction of International Direct Dialling (IDD) call rates to popular destinations to match local call rates saw outgoing International Traffic increase by over 180% and International Call Revenue increase by over 150%.
The launch of e-PIN has been a huge success in Africa, with Chad, the poorest country in the cluster leading the way amongst all 16 of Millicom’s markets. We launched tigo in Chad in October 2005 and from day one, 10,000 newly employed distributors have been deployed, offering
e-PIN with minimum top-up values of US$1, sufficient for five minutes of calls or 20 minutes of internet through GPRS.
Today e-PIN accounts for 95% of reloads in Chad and following its success, we launched tigo in The Democratic Republic of the Congo in January 2007 as a totally electronic service, with no scratchcards printed or distributed.
As in all Millicom markets, new value-added services were introduced to strengthen the tigo offering and in Tanzania, the media advertising campaign to promote the launches of GPRS and caller tunes was awarded the Best Outdoor Advertising Campaign in 2006. The uptake of caller tunes has been rapid with capacity more than doubling within the year in Tanzania.
Internet access over the phone via GPRS and EDGE technology was launched in Ghana and Sierra Leone as well as in Chad and Tanzania in 2006. Cellular companies offer the only means of accessing the internet outside the capital cities where there is some fixed line infrastructure and, with such low penetration rates and huge demand, are best placed to capitalise on this opportunity.
HIGHLIGHTS
■ Launch of tigo in Ghana, Tanzania and Sierra Leone in March, April and September 2006 respectively
■ Roll-out “from scratch” of the triple “A” strategy in new markets of Chad and The Democratic Republic of Congo
■ Chad becomes the Millicom Group leader in e-PIN
■ Introduction of internet access via mobile phone using GPRS and EDGE technology in Chad, Ghana, Tanzania and Sierra Leone
■ Millicom Tanzania won the award for “The Best Outdoor Advertising Campaign in 2006” for its launches of GPRS and value-added services
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Millicom Annual Report and Accounts 2006
vISIBIlITY of TIGo
In 2006, a primary focus for Millicom in Africa was the reorganisation of sales and distribution systems to ensure that tigo is
“accessible everywhere’. Accessibility was improved throughout the cluster through growth of the freelance channel, the use of new exclusive dealers and the deployment of more tigo shops in smaller towns. This distribution push was strengthened by the use of cost-efficient marketing campaigns, the themes of which were copied directly from Millicom’s Latin American markets, to portray tigo as a youthful, vibrant brand, capable of delivering a totally “new cellular experience”.
In the English speaking markets of Ghana, Sierra Leone and Tanzania combined, the number of connection outlets was increased by 81% year-on-year to 17,582 and the number of reload outlets was increased by 102% to 37,603.
CAPACITY AnD CovERAGE
The successful launches or roll-outs of tigo across Africa were facilitated by improvements in both network capacity and coverage. In Ghana, Tanzania and Senegal, the 1800 RBS overlay was added to the existing 900 infrastructure to increase capacity and savings were
achieved through group level procurement, allowing faster and farther-reaching network expansion in these operations.
An International Gateway was launched in Ghana, enabling us to send traffic directly to international carriers, which also produced savings in toll charges.
ouTlooK foR 2007
The outlook for Africa is extremely promising. January already marked the launch of tigo in The Democratic Republic of the Congo. Our operations will continue their aggressive network roll-out to increase coverage, capacity and service quality and to improve their competitiveness. A third operator is likely to enter the market in Senegal in the near future and historically, the entry of a third operator has brought an acceleration in penetration. The reshaping of the distribution systems that began in 2006 will continue and, together with a focus on the provision of new as well as the best value services, will enable the operations to take advantage of the many
opportunities for growth that exist in Africa. Millicom has made substantial investments in Africa in 2006 and will continue to do so in 2007. As the triple “A”
strategy becomes embedded, we are
confident that subscriber intake and top line revenue growth will increase, producing higher margins which over time will come into line with the average for the whole Group.
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via e-PIN in 2006. This is the lowest reload
denomination in Ghana, allowing tigo subscribers to make calls without worrying about the money in their pocket. This and several other marketing campaigns launched during the year contributed to Ghana’s impressive performance.
Millicom Annual Report and Accounts 2006
Review of operations – Asia
In 2006 Millicom took the decision to divest its operations in Pakistan in order to focus resources on its 16 other markets where the required returns on investments are already being made or can be made in the future. As a result of this decision and the subsequent sales of Pakcom and Paktel, Millicom’s operations in
Cambodia, Laos and Sri Lanka have been brought together under one Asian cluster. The number of active subscribers in these three operations grew by 42% in 2006 reaching 2 million at the end of 2006 and produced revenues of
$146.9 million and EBITDA of $61.1 million, up by 18% and 13% respectively.
Co-Heads of Asia: 1. Judy Tan and 2. Won-Suck Song
3. Star team: Technical team in Sri Lanka. L-R: Asela Gamage (Planning Engineer), Eask Edirisinghe (Project Manager) and Rasika Mallawa (Senior Manager, Planning)
PRoDuCTS AnD PRICInG
In 2006, all three of Millicom’s Asian operations continued to expand their provision of the best quality and best value services. Millicom in Sri Lanka launched a “Home Zone Prepay package”, offering new customers tariffs as low as fixed rates for cellular usage within a defined geographical zone, with the rates increasing to regular tariffs when the customer travels beyond the perimeter of the zone. Uptake of the package has been extremely strong, contributing to a 68%
year-on-year increase in new subscribers and achieving a level of capacity utilization in just 10 days from launch that we would normally expect to be reached six months after the installation of a new tower.
Reload values via e-PIN were driven down to US$1 in Cambodia and US$0.5 in Laos and Sri Lanka with the result that e-PIN penetration, measured as a percentage of total sales, increased from 6% to 55% in Sri Lanka and from 12% to 28% in Laos during 2006. In Cambodia, new SMS infrastructure was installed to facilitate the growing SMS traffic and personal ring back tones were launched, amongst other value-added services.
vISIBIlITY of PRoDuCTS AnD SERvICES
The number of distribution outlets was increased by 73% in Sri Lanka, by 34%
in Cambodia, and by 62% in Laos, with e-PIN outlets providing the largest contribution to this growth in each market.
Millicom is finding universally that e-PIN is the most attractive top-up method as it enables talk time to be purchased in smaller denomination units. As many customers have no cash flow reserves and top-up frequently, as-and-when they are able, often several times a day, it is essential for Millicom’s operations to provide easy access to their services.
In Cambodia, the market has been split into five regions, with a dedicated sales force allocated to each, and given commission-based incentives to add new connection outlets. Dealer supervisors have been assigned to manage the distribution in each region and they conduct monthly visits to new connection outlets to strengthen business relations and moreover, to ensure that the services are always on hand and well presented.
In Laos, the number of distributors was doubled in 2006 and exclusive freelancers were introduced, allowing subscribers to be reached directly, rather than through
HIGHLIGHTS
■ Heavy investment in the network in Sri Lanka in 2006 enabled the launch of tigo in January 2007
■ Deployment of transmission optimization equipment in Laos doubled the number of cells in remote provinces without increasing leased line or satellite bandwidth costs
■ ISP license and 50MHz of WiMAX spectrum in the 2.5GHz band awarded to Millicom in Laos
■ Renewal of mobile
telecommunications license in Sri Lanka for 10 years
■ Launch of commercial 3G services in Cambodia
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Millicom Annual Report and Accounts 2006
