Oct 19, 2010
Operator
Welcome to the Millicom Q3 2010 results conference call. For your information, this conference is being recorded.
May I also remind you that this call is being audio streamed over the web and is accessible at www.millicom.com together with the presentation summarizing the key features of the results. I would now like to hand you over to the host of today’s call Mr.
Mikael Grahne, President and CEO and François-Xavier Roger, CFO. Please go ahead.
Mikael Grahne
Thank you, operator and welcome to you all. As usual you can find the slides for this call on our Web site.
Please turn to Slide #4. First I would like to make clear that we have consolidated Honduras at 100% since July 1, 2010 as our unconditional call option over 33% stake gives us full control of that business.
The historical numbers are bearing in our press release and this presentation have been restated accordingly in order to give like-for-like comparisons. Turning to the highlights, you can see that Q3 was another quarter of solid top-line growth for Millicom.
Revenues exceeded $1 billion for the first time, increasing organically in local currency by 11.7%. Our EBITDA margin remained strong at 47.5%.
Cash flow generation also continued to be strong, with an operating free cash flow margin of 24.1%. During the quarter we announced our intention to redeem the corporate 2013 or early and preferred to push down debt to operating level.
We also entered into agreement with our partner in Honduras and Guatemala in Q3 in order to align the ownership over our cable operations in each Central American country. These agreements will enable the full integration of our fixed and mobile operations and integration of synergies.
Excluding the adjustments for the re-valuation of our operation in Honduras, earning per share grew by 2% year-on-year to $1.34. Slide #5, Customer numbers were up 18%, and we ended the quarter with 37.4 million customers, one million of whom are 3G customers using data services in Latin America.
Local revenue growth of 13% reflects increase in stability in local currency ARPU and some currency benefits in South America. EBITDA growth at 16% continues to outstrip revenue growth as margins improved, but in coming quarters if we see opportunities to invest further in our brands and services in order to accelerate our top-line growth we will do so and this may reduce EBITDA margins slightly from current high levels.
CapEx of $196 million was 19% of revenues. We are reiterating our CapEx of $700 million for the full year.
Slide #6. On slide six you can see how our year-on-year local currency revenue growth has been moving positively quarter-on-quarter.
The 11.7% growth rate that we had reported for Q3 is the highest rate achieved since the beginning of 2009 and this is being driven by our focus on innovation and ARPU stabilization. Slide #7.
Local currency ARPU declines continued to slow, as you can see on slide 7, as a result of our focus on higher quality customers and developing our non-voice revenue streams. In South America local currency ARPU was up year-on-year for the second quarter in a row.
Part of the decline in the branding group ARPU continues to be down through regional mix impact, with lower ARPU Africa growing faster. If we exclude the impact of country mix, the decline in ARPU was 4%, demonstrating that we are moving closer to stabilization.
We no longer see a total correlation between customer number growth and future revenue growth. Especially now, that 3G is bringing in a larger number of higher ARPU customers into the mix.
Mandatory [decisions ] also continues to cost volatility in net additions in Africa. Slide #8.
Breaking down revenue growth into its component parts. We increased our double digit rates of local currency revenue growth from that achieved in Q1 and Q2, despite the full year impact of additional taxes in El Salvador and Africa and a full consolidation of Honduras, which has slightly reduced the total growth, as Honduras has a lower growth than the group as a whole.
We enjoyed a small benefit from currency movements in Q3, primarily due to the strength of the Columbian peso. Slide #9.
Turning to look at EBITDA growth, the underlying performance excluding the impact of the full consolidation of Honduras was an increase of 14.6%. We are not aiming to increase our margins further as we prepare to invest behind our brands and services.
Slide #10. Voice revenues grew by 10% in the quarter up from 7% last quarter and 5% in Q1.
This is evidence that our branding and distribution focus helps to resist voice commoditization. VAS growth continues to be strong, up by 25.7%.
Breaking down VAS in more detail, we grew non-SMS VAS in other words, most sophisticated and differentiated services at 46% in local currency, showing our commitment to innovation. We still value peer-to-peer SMS, which is a highly effective way introducing customers to a range of new non-voice services.
Slide #11. VAS now represents 23.3% of total voice and VAS revenues delivering a more defendable and higher margin revenues stream that generates greater customer in to voice.
Non-SMS service our main area of focus have increased from 10% to 13% over the last 12 months. Slide #12.
3G continues to be a real success story of for our Latin American business and today 3G revenues represents over 5% of all recording revenues in Latin America. We attracted almost as many 3G customers in Q3 as in the first half of the year in Central America all and we ended a quarter with 2.1 million 3G customer in total for the group.
A 3G customer is defined as a customer who owns a 3G enabled devise, i.e. either a 3G handset or a data card and is producing some revenue in the 3G network.
In addition currently 60% of our customers who own a 3G handset in Latin America are actually using them for data services. So there is an immediate opportunity to increase penetration of usage within this base.
The growth of 3G data consumption is mainly driven by customer acquisition, as prices and ARPU remain stable. Slide #13.
We gained 0.1 point of marker share in each three regions during the quarter but saw margin or decline overall, due to the country mix, as markets where we have a lower market share such as Colombia and some Africa markets are growing faster than those where we have strong market leadership, such a Central America. Guatemala.
Chad and Tanzania all added it 1.1% points of share during the quarter. Market share is also becoming a less relevant indicator of performance, as it can only measure customer market share and we are putting more emphasize of growing our share on higher value customers.
We would prefer to report market share by revenue but unfortunately this data is not readily and consistently available. Slide #14; on slide 14 you can see the that we saw declined in churn in South America and Africa demonstrating the success of our product and services designed to increase customer loyalties.
In Central America our shift of resources away from 2G customer retention towards 3G customer acquisition has caused an increase in churn for the region and for the group as a whole. Slide #16; we turn now to the region at first, starting with Central America.
Encouragingly Honduras returned to positive growth during the quarter as revenues for the region as a whole remained flat and continued to be impacted by the full year impact interconnection rate cuts and taxes on incoming international calls in El Salvador as well as fragile economies. While remittances into Honduras and Guatemala have continued to show year-on-year growth in recent months, in El Salvador where they account for 18% of the GDP, a year-on-year decline was reported in September interrupting the trend, the volatility of our year-on-year growth over recent months.
Our strategy of shifting resources from 2G customer retention to 3G customer acquisitions is particularly relevant for the maturing market of Central America, which explains whey we saw a lower number of net additions in the quarter, but a 27% increase in the number of 3G data users over Q2. Margins remain very strong at 55.9 driven by our focus on quality customers and our disciplined approach to cellular marketing force.
We believe that Central America can return to growth in the mid-term given the significant opportunities in 3G based on pent-up demand for internet access. Slide #17; in South America, revenues increased by 21% in local currency and by 28% on a reported basis, with a strong Colombian peso providing the tailwind.
All three markets reported a strong performance with ARPU up 3% year-on-year and growing for the second quarter in a row, demonstrating the success of customer segmentation and our smart pricing of data and voice services. EBITDA for the quarter was up 34% and the EBITDA margin gained 1.7 percentage point year-on-year to reach 42.4%, once again driven mainly by increase in scale in Bolivia and Colombia where our product mix is proving very successful Cash flow generation for South America was strong with operating free cash flow of $103 million or 29% of revenues.
Slide #18; Revenue growth in local currency was 22% with DRC and Tanzania producing the best performance. In Chad we made a one-off adjustment in the quarter for VAT linked to previous years, without which revenue growth in local currency for the region would have been 24%.
EBITDA for Q3 was $94 million, up 34% year-on-year in local currency and the EBITDA margin was 40.7%. CapEx in Africa in the quarter amounted to $73 million or around 32% of revenues, including $26 million for the capitalization of tower leases as per IFRS rules, which is a non-cash item.
Slide #19; Amnet continued to grow well in the week economic environment in Central America reporting local currency revenue growth of 7% compared to 4% for our combined cable operations Our aim is to continue to increase the take-up of services by our customers, by marketing bundled services and we are seeing encouraging early results in triple and quadruple plays As in our mobile businesses, we are concentrating on the higher value customers who in the case of Amnet are broadband internet customers rather than cable TV customers. During the quarter, we took steps to align the ownership structure of Amnet and Navega with that of our mobile operations, which will enable us to generate synergies more effectively.
The cable business is cash generative and should continue to offer an attractive balance of long-term growth opportunities with positive cash flow. Now, I would like to hand over to François Xavier, who will talk to you briefly through the financials.
François-Xavier Roger
Thank you, Mikael. Slide #21; Our effective tax rate for the quarter was up 29.1% as the traditionally lower cash repatriation in the second half of the year means less withholding tax and therefore less taxes.
We expect the rates for the full year to be around 30%. Slide #22.
You recall the large one-off gain in Q3 of around $1 billion when we were viewing a 66% stake in Honduras when fully consolidating the business. Depreciation increased as we know how to depreciate intangibles followings the revaluations of Honduras, which contributed $67.6 million in the quarter.
Net finance costs have been impacted by the booking of the penalty for early redemption of the 2013, 10% notes and some of the upfront costs relating to the unutilized portion of the notes until expiry. As a consequence of these exceptional items, the EPS was less year-on-year.
Slide #23. Our cash upstreaming continues to improve with $663 million repatriated in the nine months to the end of September an increase of 44% on the total amount for 2009.
Slide #24; Cash generation continues to improve in all regions. We continue to reduce dependency on Central America for cash generation.
Slide #25; Shows a free cash flow for the quarter of $203 million or 19.9% of revenues, demonstrating of sustainable free cash flow position. Slide #26; We’ll redeem our 2013 notes on the December 1, 2010 for a total consideration of $490 million and this would be a criteria to EPS in 2011.
This comprises of $459.6 million for the principals, $23 million for the interest and $7.7 million as the penalty for early redemption. At the end of the year, Milllicom’s entailed debts will be at the operating level, which will both improve our tax efficiency and mitigate operating risks.
Slide #27; We have been making progress with our share buyback program and at the end of September we had acquired over a 1.1 million shares for a cost of $104.7 million representing 75% of the total $300 million program. We intend to complete this $300 million programs by the end of the year.
Slide #28; at the end of Q3 our leverage ratio was the 0.7 times net debt to EBITDA. We will some of them returned to shareholder over the remainder of the year as we complete our buyback program and we would reduce our excess cash as well through the high yield bond redemption.
Slide #29, turning to our debt maturity, we will now see the average maturity of gross at two year and six months. Our funding strategy is based on four elements; to extend maturities, to lower the net cost of debt, to secure sufficient liquidity and to push down debt to operating levels of tax efficiency and to mitigate country risks.
All of the subjective have been achieved during the quarter; through our capital restructuring initiative, with both the planned early redemption of the expensive corporate bond and with the raising of additional tax efficient debt at operating level. At year-end we expect our debt to have an average maturity of around three years.
Slide #30; we have confirmed our EBIDA margin and CapEx guidance for 2010 and we have marginally adjusted or kept our expectation for operating free cash flow to around 20% of revenues. We have not yet finalized our 2011 budget, which means that we will provide guidance for next year in February 2011.
I would now like to hand over to Mikael for his final comments.
Mikael Grahne -- President and CEO
Thank you François-Xavier. I would just like to close with a quick summery.
We are pleased with our profitable top-line growth of 11.7% in the quarter, which is being driven by our focus on innovation and attracting higher vale customers. Our progress towards ARPU stabilization is evident and this is the right approach.
We are also creating shareholder value through the active management of our capital structured and by lowering our finance cost. We would now be happy to take your questions.
Operator may we have the first question please.
Operator
(Operator Instructions) We will take our first question from David Kestenbaum from Morgan Joseph.
David Kestenbaum
Here is the first question. Could you just explain why the corporate cost went up so much to $36 million or $38 million this quarter?
François-Xavier Roger
We have during the quarter to book cost of slightly more than $10 million for the long-term incentive plan given that we have a certain set of objectives and we complied. We believe that we complied for the full year 2010, so we have to accrue for this cost.
David Kestenbaum
Okay. So we won’t see that in the fourth quarter?
François-Xavier Roger
No, we don’t expect to. This is related to the plan for the full year.
David Kestenbaum
Okay. Then for Mikael, can you talk about why haven’t seen more of a positive impact from remittances in Central America and just talk about may be the churn, what you can do about that and it doesn’t seem to be a core focus of yours on Central America but may be just address some things maybe to lower that churn number.
Mikael Grahne
Ok, let me start with the churn number first, I think and you could see from the ARPU stabilization, we are really focusing more on the higher value customers to whom we still offer affordable tariff. So we are more strongly focused on driving growth by selling 3G, focusing on 3G customer acquisition and we have not necessarily cared so much with the 2G voice customers at the lower end of the ARPU scale.
So, my sort of guidance on that, one expects continued churn in Central America of lower ARPU customers but also expect continued intake of higher valued 3G customers. In terms of economic environment, there is no real hard data.
Very difficult to get hard data for Central America. I just think that the current consumers went through quite a big shock in the reduction of their spending power with the decline of the economy, both the remittances and the economic activity in the countries.
So it might take sometime until they are back to higher spending habits.
Operator
We will take our next question from James Rivett from Citi.
James Rivett
Just a quick question on Africa. We’ve seen several additional prices cuts in the recent past.
I think mostly on off-net tariffs. Can you talk about where you guys feel the need to respond and what sort of response were thinking about.
Thank you very much.
Mikael Grahne
Yeah. First of all, I wouldn’t publicly comment on our response, so no response to competitive action and not to give them that advantage.
What I would like to say is that in general in Africa we have extremely competitive on-net tariffs. That really are the key drivers for loyalty and long-term growth.
There has been a quite drastic cuts in both Ghana and Tanzania by our two competitors there. Then we are currently accessing the impact on our business of that and what if any actions we have to put in place.
I think what I would like to say though that, given in Ghana, where we are more dependant on cross-net cost than in any other Latin Africa market we probably will see some impact on the EBITDA margin in that country.
James Rivett
Okay. I know if you correspond directly that would be 70%.
Is it fair to say that with these price cuts you guys still think you are the cheapest players than the others, the best value players in the market for both on-net and off-net calls or do you think your now slightly more expensive than the competition?
Mikael Grahne
We know we are more expensive than the competition on across net call but competitive customers don’t really rate you based on every single revenue segment. It’s more the overall total picture of what you offer.
So that’s still valid.
James Rivett
Then as a follow-up on that, how much of your traffic do you think or how much of your revenue do you think comes from on-net calls versus off-net calls in these markets.
Mikael Grahne
Well, we don’t really want to disclose the full amount but we told you that for total Africa the across net traffic represents about 8% of the minutes.
James Rivett
Very clear, thank you.
Operator
We will take our next question from Peter Nielsen from Cheuvreux.
Peter Nielsen
Yes, thank you. Just one question please, you’ve obviously talked about maybe this morning but also recently that more of your growth will comes from value-added services rather than from subscriber growth going forward and you making some comments here about needing to invest potentially with more in 3G etcetera would have slightly diluted the effect on the margin.
Has anything changed your view here, I mean not the growth that you can expect from the value-added services is safer, but the cost, also the investment requirements needed to drive that growth and the impact on margins. Has there been any changes in this in your view.
Thank you.
Mikael Grahne
No I don’t think there is been any change in that statement. So I think you should expect that going forward we might have some marginal decreases to our EBITDA margins.
Operator
We will now move to Ric Prentiss from Raymond James.
Ric Prentiss
Thanks, a couple of questions guys. First I appreciate the presentation which helped us understand the African market a lot better.
You made a point in the press release also about the TIGO lands and the TIGO cash. Can you update us on how you make money on the TIGO lands on the back of value-added services and then also on the TIGO cash.
François-Xavier Roger
On the TIGO lands basically, it’s a product that designed for people who run out of balance and who either might not have cash in their pockets or been on inconvenient location to buy more air time. So we basically offer them a small air time loan against which we make a fee.
So our revenue that is based on a fee and group that in what we called the solution categories, financial solution. On TIGO cash, similarly we would take the small fee from any sort of in market transfer, which we would share with a distribution networks and that again would be recorded as a revenue in the solution categories.
Ric Prentiss
Okay and solution with fall into the non-SMS VAS area then?
François-Xavier Roger
Yes.
Ric Prentiss
Then on the balance sheet, you have got stock buyback program and intending to complete by year end, your dividend policy if I remember right is 30% normal net income. Can you talk to a little about your thoughts looking into ‘11 and ‘12 as far as leverage levels and use of cash?
François-Xavier Roger
Okay. Regarding the dividends, we stopped giving the dividend policy, a bit more than a year ago, the first dividend that we paid, it comes to about was of 26% thereabout.
Then we increased it to 28%. We did have room to increase it.
So the board will make a decision in due time. In terms of capital structure, we have decided to redeem early the high yield bond in Luxemburg, which is going to reduce an amount of excess cash.
We will as well complete the share buyback program by the end of the year, which will go in the same direction to reduce the cash. After that we will still be left with excess cash of about the amounts of liquidity that we need, that’s about $5.1 million.
So we will need to review with the board the way to move forward, in terms of M&A we don’t see any pressure to go for M&A because we have a lot to do, in terms of organic growth with our new pipeline of our new products and we don’t value international or regional scale but we value only in-market scale and we are already the lead in 12 out of the 13 markets.
Ric Prentiss
Then as far where you would like to keep net debt to EBITDA leverage as you look out long- term?
François-Xavier Roger
We said that we would be comfortable with a ratio of net debt to EBITDA of about 1 and that we would not exceed to.
Operator
We now take our next question from Stephen Mead from Anchor Capital.
Stephen Mead
Will you give just a little bit more color on Honduras terms of what is the difference between 3G customer in terms of ARPU is versus regular customer and what kinds of gain you had in terms of the 3G, in terms of new subscribers, as I look at the loss of 300,000. I’m trying to get a better sort of feel on Honduras?
Mikael Grahne
We don’t provide the breakdown between the countries for competitive reasons. You could just look at one number in the quarter was the first time we had positive revenue growth in Honduras as a whole against last year.
Then also, value-added services has been a very key driver for our revenue performance in Honduras. We have a very high uptake.
I think in Tanzania, we showed you that Honduras was already in Q2 up at 30% of revenues and, so that again gives us higher ARPU customers.
Stephen Mead
What do you think penetration of 3G can be across a country like Honduras in terms of value-added services?
Mikael Grahne
In 3G, we just go back to our experience on 2G was that value could buy a good phone in the market for $25. We had a real explosion of penetration growth and at this stage, we don’t really know what is the similar price point on a sort of smart phone Then we have 15 different models to see if we can find that price point, but, I would believe over a five year period, it should be around 25% or something like that.
Stephen Mead
Then, if I could just, on the dividend question and use of capital, what kind of calculations do you go through in terms of looking at buying back stocks versus paying on the dividend?
François-Xavier Roger
Well, in terms of buying back stock, we look at EPS impacts and then if we look at the share buyback is accretive. So, we are happy to pursue on program on that basis.
Stephen Mead
Then looking at 2010, 2011 what would the share count do if there was no buyback of stock?
François-Xavier Roger
Could you repeat that?
Mikael Grahne
Maybe you heard the share count in 2010 because we haven’t said any thing for 2011.
Stephen Mead
In 2010, what would be additional shares outstanding if there was no repurchases of stock?
François-Xavier Roger
Today we have 109 million of shares and issued and we have brought a little bit more than one million, 1.1 million. So we intent to pursue the program that we announced for one million.
So, we commence to pursue that by the end of the year so we’ll act on prices, we will buy about another two million of shares. So, we had 109 million before starting the program, 108 today after the acquisition of one million and if we pursue the program another two, so 106 million.
Stephen Mead
Okay. I didn’t know what the turn to option impact is in terms of...
François-Xavier Roger
There is hardly any option less in US so there is no dilution with options, hardly any.
Operator
We will now move to Stefan Gauffin from Nordea.
Stefan Gauffin
Couple of questions, please. First of all, regarding food inflation that had some impact on your businesses a couple of years ago and quite recently we have seen both corn and wheat prices drop quite dramatically.
At which markets were you most impacted by food inflation in 2008 and are you seeing any impact now on the business?
Mikael Grahne
I am trying to recall this. Its some time ago in a fast moving environment but I think we had some food inflation in Ghana, as you recall a big deterioration of the currency, the local currency in 2008 and of 2009.
As far as I remember, that was the highest impacted market. In general, because of lack of proper data, we are not that focused on inflation and other sort of things because there’s nothing we can do about that.
So I don’t have any up-to-date base on inflation in our markets.
Stefan Gauffin
Okay, secondly, a couple of questions on the subscriber intake in Africa. There’s been an impact by the mandatory registration processing government in Tanzania.
I believe that your true phase in Tanzania, how does that impact Ghana?
Mikael Grahne
Well. I mean, what we have been doing very early on when this the recession regulation came about is, to focus on ensuring that our high ARPU customers are registered and I think we are quiet advanced on that.
For example in Tanzania, we have 78% of our customers registered and they contribute 88% of the revenues. In Ghana, we have 42% of our customers registered and they contribute 70% of the revenues.
In Ghana we have a time until the end of June 2011 and in Tanzania we have time until the mid, until a few days ago. So what we know from experience is that the good customers when they realize that they have been cutoff, they normally come back very quickly.
So as we said before, we don’t expect a revenue ARPU impact of this legislation. It will though cause some volatility in the customer numbers.
Stefan Gauffin
Then also in Senegal, I know that you have some constraints in the net working, does this affect the subscriber intake in the quarter and given the license situation, if you could maybe provide us with an update on that?. Then are you investing in more capacity today to at least take your fair share of subscribers in that market?
François-Xavier Roger
I don’t want to comment on the license situation because we are in the middle of legal proceedings. We are investing some in keeping the business growing but stronger investments could generate more revenue growth and more and more customers, but we are investing some funds to keep the business going and growing.
Stefan Gauffin
Then finally just a quick question on the margin in Colombia, if you could give some more information on that?
Mikael Grahne
We don’t break it out but you can see from the strong South American performance that we had underlying growth in the EBITDA margin in Colombia.
Operator
We will take our next question from Sven Skold from Swedbank.
Sven Skold
Actually, most of my questions have been answered but I can take one or few more questions. You are very cautious on margins for the forthcoming quarters.
Should we see the first quarter as a start up with 3G services in Latin America? Is that what you are waiting for or?
Mikael Grahne
Well I think we are, we feel we are well advanced on the 3G bandwagon already in Latin America. We are just exploring different ways of sort of accelerating that growth, which means that we would have had probably higher subsidy costs behind things like blackberry if you want to drive that further.
So, that’s why we think it’s fair for the market to assume that probably we will see some marginal decline in our Q4 margins and beyond.
Sven Skold
Okay, great. Thanks.
François-Xavier Roger
Then we have confirmed our guidance for the full year at 47%.
Operator
We will take our next question from Kevin Roe from Roe Equity Research. Please go ahead.
Kevin Roe
Thank you. A couple of questions, gentlemen.
First, could you give us an update on the license process in Costa Rica, and secondly on Columbia, local ARPU up sequentially, up year-over-year. I think it was the highest net-add growth we’ve seen in more than two years.
What’s driving the improvement there and can you maintain that momentum in the fourth quarter?
Mikael Grahne
Let me first comment about Costa Rica. There is a license process undergoing on and that final bids to be submitted by November 5.
We are in a process of evaluating a business plan that will lead to a go/no-go decision ahead of that lead time. In terms of Columbia, our strategy really on focusing on the urban young and cool with value-added services is really working.
So, it’s just a continuation of doing things well. Then we are also quite strong on the 3G side in Columbia.
So, it’s just the continuation of the strategy of the past we set out to do.
Kevin Roe
The bump that you saw this last quarter, did it cost a competitive response from comp sale or anyone else?
Mikael Grahne
Not, as far as we know today. No.
Operator
We will take our next question from Andreas Joelsson from SEB Enskilda.
Andreas Joelsson
Good after noon. Just a question on your strategy in a Central America, did you see a trigger this quarter to move to emphasis the shift from 2G to 3G or why were the subscriber takes so weak this quarter?
Mikael Grahne
No. I don’t think it was a real trigger, it was just a continuation of the focus on the 3G customers and when you start from a lower base it takes some time due to lack of momentum so we think we have that momentum now.
Andreas Joelsson
So the strategy will go on?
Mikael Grahne
Yes. We are looking for growth from Central America primarily driven by 3G data services.
Andreas Joelsson
Is it possible for you to discus how far you think or we can go in Central America as a group, so to say from these levels due to the strategy?
Mikael Grahne
Well. We have said publicly that as a company, as a whole we are trying through and that’s an aim rather than a guidance that we are aiming for ARPU stabilization.
So naturally, our target would be the same in Central America.
Operator
We will take our next question from Mathieu Robilliard from Exane BNP Paribas. Please go ahead.
Mathieu Robilliard
Good afternoon. Two questions please.
First with regards to South America, kind of a fill out on Colombia. There is a strong performance overall.
Are you surprised by this performance and what is it that is behind? Is it you’re taking a bit more markets share to customers or is it in general a macro and industry context that is more positive than it was in the past?
The second question and if I understand rightly with regards to the comment on the EBITDA margin, if I read the press release, you said that you may invest more in 3G and that may lead to a slower or rather lower EBITDA margin in the next few quarters. Now, it seems from the last time that you made that was a given basically you are going through invest more and hence the lower EBITDA margin, just to clarify if it’s just the case or it’s a potential evaluation.
Thanks.
Mikael Grahne
Okay. I will start with the Columbia question and François-Xavier will add to this EBITDA.
As I said to the previous caller, there is just the culmination of a very strong focus on the urban, young and cool customers with value added services and also a strong focus on data services within that. So there hasn’t been really cut value say, it’s just the sum of excellence, operational excellence across all band of different activities from distribution to tariff to marketing and the quality delivery behind the services.
François-Xavier Roger
Regarding EBITDA margins no, it does not effect, there is nothing certain at this stage. First of all, we are in the process of finalizing our budget for 2011.
So we are looking at the firm options. We see that 3G is really taking out very nicely with good return by the way.
So we see an opportunity there and we are reviewing on a country-by-country basis, There are opportunities to accelerate the costs by investing a little bit more, mainly in subsidies, but its not only on 3G, it’s the new services, around services like TIGO and Jean Bosco NKUSI today but if we take product like TIGO cash that we are going to market in other terms for using in Q4 as well, we see an opportunity to invest behind this services as well. So we are evaluating the business in confirmative, but if we see opportunities we are analyzing them always with the idea of having assured payback and good return.
Andreas Joelsson
Thanks for that, with regards with that, I was really looking some insights apart from Colombia, in the two other markets.
Mikael Grahne
Well, the comment will be same in the two other markets, I mean continued drive behind VAS, excellence in distribution, excellence in pricing. We have this concept of packet TIGOs, which is selling small pockets of services lets say $0.50 for two hours unlimited usage of on-net calls.
So it is basically a combination of the strategy we are pursuing that is driving that.
Operator
We will now move to Sergey Fedoseev from HSBC.
Sergey Fedoseev
Actually I have couple of questions, one question is on new subscribers, the usage discrepancy between what the consensus was expected around one million and 700 that you recorded. How do you explain this discrepancy and second would you give a guidance for the use of subscribers for the end of the year?
Then the second question is with number of African countries they regulate their MTR prices, do you expect any MTR cuts in any of the countries in Africa?
François-Xavier Roger
Regarding the subscribers we are below consensus, it happened that last quarter, I think we were 100,000 thousand above consensus, so we see a lot of volatility there? Once again we don’t see a co-relation between the revenue growth, which in Q3 had been the highest that we had seen since the beginning of 2009 and the net adds?
Mikael Grahne
Let me just one more time points out that the definition of the subscriber is not a constant equal measure. First of all we define a castaway, defined as a subscriber for somebody who generates a value within sixty days.
Some other operators have ninety days. Then second, there is a huge difference between let’s say a subscriber that generates $1 in ARPU, and somebody who generates $15 and so that’s why we are not so focused on the absolute number of customer intake.
We are more focused on the quality of that customer in take and that’s how we really build our delivery platforms and our services.
Sergey Fedoseev
Could you give any guidance for the new subscribers at the end of the year?
Mikael Grahne
No. I don’t think we are in a position to do that.
In terms of interconnect cuts, I think there is some lobbying in Ghana from some industry players to reduce the interconnect but that’s as far as we know at this stage.
Sergey Fedoseev
Do you know how far that has been gone? Just, as an idea phase has there been any…?
Mikael Grahne
I don’t know that, that’s very difficult to in our markets sometimes to clearly pinpoint them. A regulatory body actually is in a position to take a decision.
Sergey Fedoseev
Okay. So, the other African markets, they don’t have any MTR cards in the their plans?
Mikael Grahne
As far as we know, but again, that could all of a sudden tomorrow there. So, but as I said in the beginning, Ghana is the one market where we faced very active price competitors and also where we have a proportionately higher share of our revenues and minutes across net than in the other markets where we faced this price competitors.
Operator
We will take our next question from Thomas Heath from Öhman Equities. Please go ahead.
Thomas Heath
Three questions, firstly on Central America, just a little perplexed why you have to not get 2G customers when you want 3G customers, so why they have to choose between them doesn’t seem clear cut to me. The second question about Africa and the very impressive margin, is there any thing that’s unsustainable or do we expect the margin to continue up from this level?
The n thirdly, do you have any sort of little bit of information on launch of TIGO cash in Tanzania? Thanks.
Mikael Grahne
Okay. Let me take you on the first question of 2G versus 3G.
As you know, in many of our markets, we have this multi SIM phenomenon. So you have customers who have two or three SIMs and depending on who they call, they keep switching the SIMs and in fact, in Latin America we are number one customer issue is broken or lost SIM and that nobody doesn’t have and if you never take it out to the phone.
So, these customers are not loyal to us, we shared their ARPU and normally they are not high spenders, their ARPU is very lower to start with. So, we are not really focusing on fighting to ensure that the TIGO SIM is the number one SIM among these customers.
So, we let our competitors do that. We are rather as I said we think there is much more value in attracting the active customer to whom his or her number is very important.
Thomas Heath
Okay.
François-Xavier Roger
Regarding the multi in Africa we are very pleased to see that we have exceeded 40% now for sometime. This is we believe a very good level in Africa.
Looking ahead, we are looking at the margin, not in a price we need to work, but we need to find the right balance between top line growth and margin and from the growth of like total cash flow generation as well. So, we don’t have an objective really to increase the EBITDA margin in Africa free cash flow in where it is today but we want to find the right balance between top-line growth on margin.
Given that in terms of margin, we think more globally for Millicom, we said that we would target mid 40’s level or medium term.
Mikael Grahne
In terms of the TIGO cash flow for competitive reasons, we are not in a position to disclose some key data but it has started well and we are sort of in the process of ensuring that we can continuously build out the distribution network where our customers can go in and either input money or take out money, so that they have the ability to send it around and so that’s basically is in progress.
Operator
We will take our next question from [Miller from JMC Texas].
Unidentified Analyst
[Technical Difficulty]
Mikael Grahne
Bill there is an eco in your line so we didn’t get your questions. So I don’t know if the operator, did you get the questions?
Operator. Now he is live again the eco has gone please go ahead.
Unidentified Analyst
[Technical Difficulty]
Mikael Grahne
There we have the echo again we can’t hear you.
Unidentified Analyst
[Technical Difficulty]
Mikael Grahne
Bill we can’t get any of your questions you have to basically close down the webcast when you call in. I think maybe you can get off the line and call in again and we take some other question in the meanwhile.
Operator
We will now move to our next question from Lena Osterberg from Carnegie.
Lena Osterberg
Yes good afternoon, a few questions on Africa first of all in those countries where you had significant price cuts, what was the corresponding increase in minutes of use been? Have you seen full compensation in more than one in impact the price elasticity of low end band in price elasticity?
Also I was wondering if you could say something, when you were saying there will be any of the time impact on Ghana. May be if you could quantify that?
Then finally you currently say Ghana is the only country where you expect to see any significant impact from this price pressure, because this is where you have a lot of off-net traffic, but don’t you think that if the balance between on-net and off-net changes to messages signal that maybe alters the traffic pattern to a change and that you will have more gross net-traffic in the future?
Mikael Grahne
Just to answer that last question first, we have not seen that shift in our Latin American markets whereby we’ve gone through these reduction in impact on net. So haven’t really seen a strong shift in the behavior of our customers.
Nobody will much less elasticity on across net cost than you have on-net calls. So we haven’t seen any of our market the drastic shift on the call pattern.
Commenting on Africa today for competitive reasons we can’t really disclose and are not in a position to disclose any behavior we’ve seen, either what happened to the traffic from our competitors in to our network or any action we have taken and the impact of that in order not to give away to our competitor any inside information. So I would go back again in all the market where we faced this price competitors, Ghana is the one way we have highest amount across net traffic and that’s why at this stage we feel there is going to be an EBITDA impact.
We don’t know how big or how small that will be because they are so many variables that can impact that. Including for example the regulatory body decides to lower the interconnect costs from its current level.
Lena Osterberg
In Latin America the charge cuts that you have seen, there have been sort of between 20% and 30%. Now you are seeing price cuts in Africa about 50%.
So there is a significant dissents in price cuts. Do you think that when these price cuts are that big between on and offset costs, that is actually as big an impact in traffic?
Mikael Grahne
Well, I want go back to the experience we had in Colombia where the main operator, I was asked to cut to their across net call to be the on net tariff plus the interconnect. So they went from a $0.40 across net call to around $0.15 and over a period of six months, I think we saw an increase of 8% more calls coming in from that operator.
Operator
We will take our next question from Ric Prentiss. Please go ahead.
Ric Prentiss
I want to follow-up with the question maybe on the subscriber growth obviously volatile. As you look at, I think Mikael, you talked about stable ARPU from 3G.
Are you talking about stable ARPU on a corporate level or with 3G, I’m just trying to understand what kind of revenue growth we might expect if subscriber growth is volatile?
Mikael Grahne
Well, again. I’ll go back to the example.
I mean if we had a $15 subscriber and we loose a $1 subscriber that has a very positive impact on our revenue. So in fact we could afford to loose fifteen $1 ARPUs to equal one $15 ARPU.
Ric Prentiss
All right. Then would an ARPU do better than stabilized.
Could we see increasing ARPU trends?
Mikael Grahne
Well. Yes, you can see we have increasing ARPU’s trends in South America.
We have increasing ARPU trends in Colombia. So it is possible.
Ric Prentiss
Okay. Then, when we were in Tanzania, they were showing one of the smart phone devices, the Chinaberry or I think was the [MePhone].
Can you talk a little bit about that device price points and if you will deploy it in to more markets?
Mikael Grahne
I don’t have any up to date information on that. I would just state that in general, people in emerging markets have the same inspirations than people in developed markets.
So if Blackberry is in and hot in the developed market then its also in and hot in the emerging markets. So, I think probably we would have more success with something like Blackberry than with the lower end smart phone.
Operator
(Operators Instructions). That will conclude today’s question and answer session.
I would now like to turn the call over to you for any additional or closing remarks.
Mikael Grahne
Thank you, operator. I would just like to thank you all for joining the call today and we look forward to seeing you soon.
Thank you very much everybody.
Operator
That will conclude today’s conference call. Thank you for your participation ladies and gentlemen.