Millicom International Cellular S.A.
Q3 2016 Earnings Call Transcript

Published: 25 Oct 2016

[Operator:]

Good morning and good afternoon, ladies and gentlemen. And welcome to the Millicom Financial Results Conference Call. Today’s presentation will be hosted by Chief Executive Officer, Mauricio Ramos; and Tim Pennington, Chief Financial Officer. Following the formal presentation by Millicom’s management, an interactive Q&A session will be available. I would now like to hand the call over to David Boyd, Millicom’s Head of Investor Relations. Please go ahead, Sir.

[David Boyd:]

Thank you. And welcome everyone to our third quarter call. This will take the usual format and as usual the presentation can be found on our website. I just like to draw our attention as always to the Safe Harbor Statements. These apply to the presentation and the subsequent Q&A session. So with that, I will now hand over to Mauricio.

[Mauricio Ramos:]

Good day to all and welcome to our Q3 earnings call today a little earlier than usual. And as always, Tim and I will host the call today. We will review on our quarterly results today and update you on the meaningful progress we are making in our strategic journey. In summary, as always, key messages today are summarized on this slide. One as expected, Q3 was a bit weak on revenue, but we have made even faster progress in execution of our strategy to monetize data and build a fixed cable, fiber infrastructure. Indeed, in a nutshell the twofold reconfiguration of both our revenue mix and our cost structure is coming together quite well. You will see in a minute that by now almost 50% of our revenue mix is coming from our areas of key strategic focus, mobile data and cable, as you know. And the reconfiguration of our cost structure is yielding much stronger cash flow for growth and margin that only 12 months ago. So the third key message today is precisely that mobile data continues to grow above 20% year-on-year this quarter. And we added more LTE subscribers this quarter than ever before. The fourth key message here is that as anticipated by Q3 we have now almost reached our full-year target of growing our cable footprint to almost 8 million homes passed. And the last key messages for today are simply that Heat, our long-term transformation project is strongly on track, and lastly, that we are making no changes to our 2016 outlook. So let’s get on to some detail on Q3 subscribers. Q3 was very strong in subscriber intake in both mobile data and cable subscribers. In mobile, we added 1.4 million smartphone users, but more importantly, we added almost 700,000 LTE subscribers in Latin America during the quarter. I will talk about that in a minute in more detail. Needless to say, strong smartphone and 4G adoption are the key building blocks for sustained high mobile data growth, hence the relevance we put on this number. In cable, we ramped up the pace of growth of the cable build. We built 180,000 HFC homes in the quarter; of those we upgraded about 50,000 homes from copper to state-of-the-art HFC. And we also increased the total network footprint by about 130,000 additional homes. And we continue to grow our DTH service, which is now launched in all countries in Latin America with the exception of Paraguay. And as we will show you more details further on, we are filling the network with broadband and payTV subscribers at a pretty strong way; so overall pretty strong subscriber intake in the quarter in the areas of strategic focus. Now on to summary of the Q3 financials on this slide, four specific points I would like to make here. One, as expected we had slower service revenue growth with 0.2% decline year-on-year this quarter. This is largely the short-term effect of the accelerated decline in the legacy voice and SMS businesses. We have talked about that often. And we’ll show you in a minute the progress we are making in reconfiguring our business into the high growth mobile data and cable businesses. But a couple of additional effects also had a short-term impact on the quarter, and Tim will expand on this. One, competition in Colombia remain exceedingly aggressive, and two, we stop recognizing the revenues for the Guatemala camera surveillance contract. Without that specific effect, revenue growth would have been slightly positive at 0.3%. The second key number here is that our adjusted EBITDA grew strongly at 4%, healthy, given the weight of Colombia and Guatemala in our numbers. Indeed, on a proportionate basis, that is on the actual economies to us as a group, our service revenue growth was 1.5% positive and EBITDA grew 7.2% in the quarter. The last two points on this slide are about the increasing improvement in our margins and our cash flow. Remember, that we setup this year to further increase our margins and our cash flow for the year, at the same time as we reconfigure the revenue mix. So our adjusted EBITDA margin was again strong, 36.1%, increasing almost 200 basis points versus the same quarter last year. And our equity free cash flow was $130 million, which is an improvement of almost $50 million over the same quarter last year. So all in all, less growth on the top line in the short-term as we reconfigure the revenue mix, but very strong subscriber intake and increasing the stronger margins and cash flow, just as we said we would at the beginning of the year. Now, let me switch to an update on our long-term strategic journey, which we deem very important. It first makes sense to recap that strategy in brief. As you know, we have undertaken what we call the twofold reconfiguration of the business. On the revenue side, we are squarely focused on quickly building a high-growth mobile data and cable business to offset the decline of the legacy voice and SMS business. Once the inflection point is behind us this strategy will leave us with a high-growth data-centric fixed mobile business for the future. Our strategy is actually no more complicated than that. And on the cost side we have now activated all four levers to reconfigure our cost structure. You know them all, synergy structure from Colombia, corporate cost reductions, operational leverage and Heat are medium-term transformation and efficiency program. We aim to do two things with that

[Tim Pennington:]

Thank you, Mauricio. And I think it’s fair to say that Q3 was a tough quarter. We saw continuing turbulence in Colombia and some specific issues in Guatemala. That made financial progress difficult in the quarter. With that said, we started this year with two very clear objectives. The first was to transition the business to address the undoubted revenue opportunity that we have. And as you’ve just from Mauricio, we’ve made a lot of progress on that. The second, to improve margins by reducing central cost by getting Africa to operate in cash flow positive, by transforming the Latam cost structure and so increasing the cash generation of the group. We’ve also made progress and I think you will see evidence of all these things in our Q3 numbers. So we begin by looking at the financial metrics on which we based on our 2016 guidance. We highlighted in the last quarter that service revenue growth was slower than we’d hoped for at the start of the year. Our traditional voice and SMS is declining at a faster rate as we increased the penetration of data into the base. In Q3, the growth of mobile data and residential cable business continued strongly. As Mauricio mentioned, B2B was partially reflecting that we’ve stopped recognizing income in respect to the Guatemala surveillance contract. Adjusted EBITDA growth was slower than previous quarters on B2B, and at Guatemala and Colombia, and I’ll address that in the coming slides. Throughout the year, though we’ve been more focused on CapEx, last quarter we amended our guidance to around $1.1 billion for the full year, and I expect this to land in that range. Our Q4 CapEx normally runs at sort of north of $400 million. So let’s look at the Latam performance, largely driven by Colombia and Guatemala this year. So let me start first on Colombia. A recent bank report has described 2016 as one of the most challenging years for the Colombian economy so far this century. A little dramatic, but it cited higher inflation and interest rates, lower oil prices, external shocked, this has all led to a weakening GDP growth. And we’ve seen this turbulence and we’ve seen turbulence as well in the mobile market, which has made this a tough year for our Colombian business. However, in the face of this more difficult macro and tough market - mobile market, we’ve been focusing on preserving market share, and secondly, on preserving our margins. This has led us to shift our investment focus to the fixed side of the business. And I think we’ve been broadly successful on that strategy. So whilst adjusted EBITDA was lower in Q3 than last year. And we saw our underlying margin improvement of 110 basis points. And if I add just a note about last year, in the last year Q3 2015 EBITDA we included non-cash gain arising from the completion of the Uni [ph] acquisition program, so that just accounts for why there seems a big shift in EBITDA year-on-year. In Guatemala, the numbers were distorted by the decision we took in Q3 to stop recognizing income from the surveillance contract. Whilst constructive conversations continue to be had with government, as of today no invoices have been settled. Unfortunately, we’re not the only ones in the situation. So we have had little choice, but to stop recognizing income on this contract. And this accounted for around half of the decline in the service revenue and EBITDA. The remaining four reflects low international incoming at its force in the traditional voice and SMS. Elsewhere in Latam, we saw good performance from Paraguay and Bolivia, offset by slightly weaker performance in El Salvador and Honduras. Turning to Africa, it’s been another good quarter for Africa. If you recall, we said 2016 as the year we would return Africa to positive operating cash flow through margin improvement and focused investments. I think these numbers speak for themselves; our organic revenue growth 11%; EBITDA up nearly 4 percentage points to 28.5%; and an operating cash flow of nearly $100 million. We are delighted by this performance. And whilst CapEx will be higher in Q4, there is now no danger of us missing our OCF objective. Now, behind this performance is continued subscriber growth, mobile data is growing at more than 30% per annum. B2B revenues have doubled, and our MFS is up nearly 30%. Also the performance was broadly based, and it was very satisfying to see Rwanda and Senegal both rebound strongly, whilst Ghana is having one of its best years in recent memories. Mauricio highlighted our focus was two-folds, so let me spend a minute on our progress on cost. And there is - there is an awful lot going on. To remind you that our focus this year was to bring our corporate cost into line, to drive savings in Africa that would grow EBITDA. And whilst in Latam, we’ve embarked on the medium-term transformation program, that’s project Heat Mauricio mentioned, which is designed to reposition our cost structure to the revenue lines of the future. In Q3, our operating costs were 50 basis points lower than the same quarter last year, half of that saving commitment corporate, the other half from operations. And to note that our corporate costs are now running at a run-rate of about $164 million, which is much more in line with our targets. So let me turn to EBITDA and our usual EBITDA bridge here. Just a note on the adjustments we made for adjusted EBITDA in the quarter. And essentially, we’ve removed the whole impact of the surveillance contract from Guatemala. That is in both Q3 2015 and Q3 2016. In addition, we moved the non-cash PPA adjustment that I mentioned in Colombia. So we’ve covered most of the movements. And Latam was $10 million lower on an adjusted basis, most of that is related to Guatemala and Colombia as mentioned. However, we did see continued margin improvement and this quarter we nudged just about 36 percentage points, nearly 200 basis points higher than a year ago. You will recall that we set a margin of 35% from the group. And this is the second quarter we’ve achieved this. Still more to do, but satisfying progress is what we’re seeing. Okay, a quick wrap-up now on the P&L, cash flow and net debt position at the yearend. On the P&L, interest is higher than last year on higher rates in Colombia and also higher levels of gross debt in Colombia. It’s worth noting that our local currency debt is linked to CPI, which has been increasing. The held-as-an-associates were affected by usual swings on FX and non-cash fair value adjustments, whilst our minorities were higher as we started to see Colombia swing from negative net income to positive net income. And finally, just to remind you, the discontinued operation relates to the DRC which was sold in April of this year. Also the usual chart on cash flow, note that this is the year-to-date cash flow, and in summary it is on track. In fact in Q3, it was quite a strong quarter for our cash generation. Some of that is timing issues on CapEx, but certainly also in Q4 as I said we would expect the bigger CapEx spend, but we still expect to see a swing back from working capital. So overall, the cash flow is improving, the equity free cash flow for the year now $167 million. Finally, net debt, we stand at $4.2 billion, about $140 million lower than at yearend. Spectrum purchase, M&A and dividends all occurred in the prior quarters and this left us with leverage of 1.95 times on the consolidated basis and 2.30 on a proportionate basis, slightly lower than Q2. So I’d like to sum up and what is it that we the management team are focusing on, Firstly, the reconfiguration of the top-line, building cable as fast as we can, and migrating the mobile base to data and 4G data of that. Second, we’re doing this in the context of strict cost discipline, with short-term cost reductions and longer-term cost transformation. And finally, as you have seen, this is starting to show an improvement in our cash generation. And with that, we will take your questions.

[Operator:]

Thank you. [Operator Instructions] We will pause for just a moment to assemble the queue. We will take the first question today from Lena Österberg from Carnegie. Please go ahead.

[Lena Österberg:]

Yes, good afternoon. One question on - I’m happy to see so much data subscribers getting on to the network. So I was wondering if you could provide a little bit more statistics on sort of what’s the average data usage per subscriber per month, how has that evolved year over year, and also maybe on the price per gigabyte and also how that’s changed from last year. And then also, Tim, I think you mentioned that you are sort of approaching your level - your long-term target level for corporate costs. How much further do you think you can take them down? And then also on Africa you have the strategic review ongoing, could you give some insight on how long using that review will continue?

[Mauricio Ramos:]

Thank you very much. Why don’t I take the one data and a little bit on Africa, and then I’ll pass it over to Tim to complement and also address the corporate cost. On data indeed, we’re very pleased and we’ve given you quite a bit of detail last quarter and this quarter on data usage per subscriber, which you can see on the slide is healthily up. And on mobile it is about 1.5 gigabits per subscriber per month, which is a healthy use. And it is growing up steadily. Importantly, that’s going up and the volume of subscribers as well the usage per subscriber is going up. You see that our data revenues are increasing as well, which is obviously very, very healthy. And you can do some math and [back into our prices were healthy] [ph] and you will see that it’s pretty healthy. We are happy [with I think] [ph] some of that, while retaining price discipline, because we play the game as we should, price elasticity. We want usage up, price a little bit down, but the net result [it goes up in] [ph] higher ARPU per subscriber increased with the volume of subscriber [strategy. prices have been] [ph] very, very disciplined. And as I said earlier, if we are able to continue to do this then this business, that we’d want to keep with us in to the future, will be a healthy business. Moving onto Africa before we talk about corporate costs, we are pretty pleased with the performance in Africa. As Tim said, we set out an objective for this year to turn the company in Africa to be operating cash flow positive. We’ve accomplished and actually surpassed that, so we’re happy to deliver it on that. I think what we’ve done is we’ve aligned the cost structure to the revenue base. And we’ve done that by realigning our strategic focus on the high-volume customer base, deploying fiber in areas where it’d make sense to take advantage of some B2B opportunities that are flourishing and by monetizing strong investment that has been down previously on the network. And as you recall, this is what we’ve always called our Plan A. And we feel pretty good now that we are definitely executing on track on it that we can be pretty confident on it going forward. And we will - as I’ve said before, we will weigh any options that we may strategically around any asset in Africa against our ability to continue to execute on this Plan A. It’s just the way we’ve articulated we’re going to focus on Africa. Tim, I’ll pass it over to you now.

[Tim Pennington:]

Yes. Thanks. On corporate costs, I think we generally got them now back into the right sort of ballpark. They’re around about 2.3%, 2.4% of revenues. I don’t think there is any real magic as to what the right level is, but I feel this is more sustainable level for the business going forward. I wouldn’t want to promise that we’ve got a big sort of change to that run-rate number than we just published. I think that’s probably kind of getting to the business to broadly where it ought to be. Yes, I don’t think I’d add more than that. Back to Ms. Lena.

[Lena Österberg:]

Can I - yes, and just you provide the data consumption for Latam, but could you maybe say something else thinking about the group or could you say something more specifically about Africa just so we know what the potential is in Africa?

[Tim Pennington:]

Yes. Africa is at a much earlier stage, so the group number if you like is very - is almost the same. I think probably is exactly the same as the number we have for Latam. So it’s, yes, early stage for Africa.

[Lena Österberg:]

Thank you.

[Mauricio Ramos:]

Remember, Africa is about 10% of the business, so…

[Operator:]

Thank you. We now move onto our next question from Andreas Joelsson of DNB Bank. Please go ahead.

[Andreas Joelsson:]

Good morning, just a sort of accounting question on how you do your allocation of mobile revenues between the legacy and the new part with being data in terms of when you offer bundled offerings. And secondly, if you could reiterate just how much you see Heat contributing in 2017? And finally on Colombia, your overall - well, how do you plan for the market development in 2017 when it comes to, for instance, competition? And how long can you sort of continue to be disciplined without moving your prices in line with competition? Thank you.

[Mauricio Ramos:]

Sure. There are three questions in there. So, Tim, maybe I will leave the accounting one to you and perhaps a little bit about Heat. And then, I’ll move on over to Colombia.

[Tim Pennington:]

Yes. Let me just deal with it, the accounting one. Bear in mind, Andreas, we still have - the majority of our customers are prepaid customers. To the extent we have postpaid customers, they generally - they’re not bundled at this stage. That is an opportunity for us for the future. To the extent, we do have bundled and we do have some bundling. We just apply standard accounting allocations, which is linking it to usage, so there is nothing unusual in that. But I would argue - I would emphasize to you that we have very little of that allocation at this point in time.

[Mauricio Ramos:]

And on Heat, which we should have a very specific focus. I think that the better update since it’s a project that we just announced last quarter is to give you an idea of the things that are coming in line the fastest or the soonest if you will, because it is a medium-term transformation project. And the three areas that we’re making a lot of early progress on are IT transformation, which as I said earlier, is one of the areas we want to focus our CapEx efficiency and efficacy. By now, we have moved five of the Latin American businesses to our new CBS platform. This is a convergent platform with an OTT structure in place, which obviously allows us to be a company that from an IT point of view is prepared for the future. The second area we’re making a lot of early progress is launching managed service programs, that’s outsourcing our network maintenance and monitoring and becoming a CapEx-light company if you will. And we already announced, I think over the last six months or so, that we have launched those programs in El Salvador, in Honduras and we just did so in Colombia a couple of weeks ago. And the third area where we’re making a lot of progress on Heat early on is our 4PL supply chain initiative, which obviously yield effectively working capital savings on a lot of efficiencies across the system. That’s up and running already for mobile. And the next stage for us is to move that on to cable. I hope that gives you a little bit of flavor for what it is all about and the kind of initiatives that are coming into the system. The Colombia question, again I rather tackle it from a big picture point of view, if you will, rather than timing on when things will or turnaround in Colombia. There is no doubt that the country is undergoing quite a difficult year at a macroeconomic level. Tim highlighted that in his prepared remarks. And that indeed is a short-term concern. I think most people in Colombia are pretty positive about next year. But looking out strategically, I think when we think of Colombia, we did construct our business in Colombia in effectively three business segments. Because in Colombia it’s where our business is the most balanced, as Tim was indicating. It’s about 50% mobile and about 50% fixed. So the three segments if you want to think about them that way are worth spending a little time on. The first is mobile, where indeed we have a short-term headache, no doubt about that. The mobile market in Colombia if you followed it closely has a whole decreased in nominal terms about 9% in the last 12 months. We held market share and we will continue to do that by having a very focused or a digital-based very 4G-based strategy. But holding market share in a declining market in the short-term is nothing other than a false comfort. The fact remains in Colombia that the very dominant player in the market continues to aggressively undertake commercial on pricing practices that take advantage of that position. There should be clarity on that. We are seeing price discrimination on mobile pricing between geographic regions within the country. We’re all seeing aggressive data pricing aimed at transferring that dominance from the mobile voice segment to the mobile data segment. And the result of that, you should note, and this is a matter of public record in Colombia that we have now filed anti-trust lawsuits and complaints against the dominant player, and those behaviors in the Colombian market with the Colombian authorities. And the role, of course, is to protect the long-term health of the milescript [ph] of the market and the consumers in a long-term. The Colombian government is also reviewing pending legislation, precisely aimed at preventing such abuse of a dominant position. In a meantime, of course, we will continue to hold market share, being very-focused on mobile. And duke it out until such a time, as things indeed come back to health and normality. But the second part of business, the fixed part of the business is very robust, and half of that is our B2B business. As I said earlier, we had some delays in signing contracts in the Q3. But that’s just a matter of timing, because we have now signed those contracts. And our B2B business in Colombia is growing healthily, as we use it going forward to provide scale and expertise to our B2B business, everywhere else in the region. It’s a fairly large business, and got a highly sophisticated business that we have in Colombia. And we’re beginning to see the benefits of extending that expertise into Central America. And of course, this growth will continue to benefit from the cable build as we are able to deploy more B2B based services for SOHO and SME. And the other half of the big business is the residential cable business. And as you see growth there have been very strong. We are building. We are building. We’re upgrading the old copper homes. We are increasing the size of the footprint with net HFC additions in Colombia. And subscribers are coming in with increasing ARPUs. So we are very bullish on the long-term prospects of our cable build in Colombia. And this year, we also launched DTH in Colombia. A couple of weeks ago we launched our Netflix partnership there. And we’ve launched or we are planning to launch our next generation TV product next year in Colombia on the back of the deal that we did with TiVo earlier this year. So overall, we are pretty bullish on the fixed market in Colombia. And the reason is, that I’ve said often, because it’s important not to lose sight of the fixed opportunity in Colombia. It’s a population of about 50 million inhabitants, so about 12 million homes depending on how you do the math. And as a result of that, a medium-term prospect of our cable brand in that country that should be around 8 million homes passed and concurrently are only at around 4.5 million. So meaningful opportunity there in a business that is growing. That’s the full story of Colombia in a couple of minutes. Hope that helps.

[Andreas Joelsson:]

Thank you very much. Thank you. It helped a lot.

[Operator:]

Thank you. We now move on to our next question from Thomas Heath from Danske Bank. Please go ahead.

[Thomas Heath:]

Thank you. Thomas Heath here with Danske Bank. A few questions if I may. To follow up the good discussion on Colombia, if you could say something about the overall competitive climate in Guatemala and also perhaps little bit of the macro, given all the political turbulence that’s been there and what the outlook is for that second very large market. Also for Guatemala, on dividends you changed the accounting or sort of your procedures for upstreaming cash from the operating company. Just if you could help us understand how much minority payments we will have to Guatemala minorities in Q4. And then thirdly, if there is anything new on licenses either in Q4 or next year. If there is any license CapEx coming up? Thank you.

[Mauricio Ramos:]

Sure. All right, let’s go in order. I’ll take the Guatemala competitive or bigger picture situation. Tim, will have to help me out with the dividend, because it is indeed interesting. And we’ll talk a little bit about licenses. We’re giving long answers today, so I may just as well give you the full answer on Guatemala. In Guatemala, there is an element of simple macroeconomic matters. The government is extremely constrained fiscally. The investment climate is heavily influenced by the ongoing political turmoil there. And as a result of that there is a big element of macro headwinds. And specifically the constrained fiscal situation of government is causing the effect on the surveillance contract that we discussed earlier. So that’s the macro element in Guatemala, which is impacting results. The second element is the reconfiguration of the revenue mix. That in Guatemala, we’re beginning to see as picking up. It’s the decline of the legacy invoice and SMS business, which in Guatemala has an element of additional impact, which is the relatively important long-distance voice business. That is upsetting and obviously complicated the decline of the legacy voice and SMS business. Importantly, however, the cable growth in Guatemala is increasingly, increasingly very strong. So is our focus on B2B, which remains a very small part of the business there, around 10% only. And mobile data in Guatemala is growing very, very, very strong. So again, there is a reconfiguration of the revenue mix. So in Guatemala, it is macro and revenue reconfiguration, not a competition issue or not significantly a competition issue of this matter. And that’s a meaningful difference with regards to Colombia. I’ll pass it over to Tim on the dividend.

[Tim Pennington:]

Yes. And the dividend, we shouldn’t expect to see any difference. Actually in the dividend, there’s just a timing issue we’ve sort of moved from monthly sort of upstreaming to an annual upstreaming, so there will be a timing difference, but that’s all there is there. And I think on licenses, on new spectrum, I mean, there is a little bit in the pipeline, Colombia 4G 700 to Guatemala 4G, but nothing as specific at this particular time. So we got no visibility on real timing on any of those things. Probably unlikely to be 2016 at this stage, but it’s still - we don’t determine the timetable on those.

[Mauricio Ramos:]

When it comes to license process, there are two distinct stages. One is the proprietary discussion, political reconciliation around the process and when the process actually do launch formally. In no country are we on that second stage yet.

[Tim Pennington:]

Yes.

[Thomas Heath:]

Okay. That’s very helpful. And then on the dividend payout, should we expect the level of 2015 for the full year then in dollar terms, because I believe the year before then was boosted a little bit by sort of one-off payment.

[Tim Pennington:]

Yes, it was. Remember, there was a special dividend from Guatemala that year. And I think we basically said that we expect to be around 120, 150 for this year. So I think that’s the level where we should see.

[Thomas Heath:]

From…

[Tim Pennington:]

…the minorities - I’m sorry, I’m talking about the group as a whole minority, dividends. The shifting sand in our sort of flows, Colombia has started to pay dividends. So we see sending money down to Africa. So generally there has been some shifting sound around there, but around 120, 150, I think is the expectation for the full year for us.

[Thomas Heath:]

That’s very helpful. Thank you.

[Operator:]

Thank you. We now move on to our next question from Michel Morin from Morgan Stanley, please go ahead.

[Michel Morin:]

Thank you. Good morning, good afternoon. Mauricio I was wondering if you could update us a little bit on the process in Colombia around ETB. I know that you’ve stated publically that it’s something that you would be interested in looking at, at least. So if you can update us on kind of where that entity is in terms of their own process and your level of appetite at this stage. Thank you.

[Mauricio Ramos:]

Sure. So from what we understand, the Caldia [ph] and the government - and the management team at Everz [ph] is in the process of engaging the sell-side investment bank. And as a result of that engagement a more clear timeline would be put on the process. It’s definitely is a mid to late 2017 moment, given that there is a very organized, very structured process that needs to be put in place for the effectively what is our privatization of that asset. So we continue to monitor. We continue to pay attention to as that process develops. But it is a little delayed from its initial timeline. The asset itself, we publically said that it is an asset that we would look at with interest. Although, it’s a plain old telephony asset with all that that implies in terms of copper. It does have some fiber built in interesting areas around Bogotá or in Bogotá I should say, about 1 million or so fiber homes that are relatively low penetrated. And that is something I’d like to do quite a bit of diligence on and better understand, how if it feeds our built prospects in Colombia. As I said earlier, there are a lot of homes that can be built in Colombia. And it’s a very good cover, so part of build there. That’s how we look at the asset Michel.

[Michel Morin:]

Great. Thank you very much. And then just on the underlying trends. Now, so just to make sure I understand; so is the situation on the mobile side still deteriorating at this point or is there any sense of seeing some stabilization?

[Mauricio Ramos:]

Well, I’m the eternal optimist. And I think we’ve seen a little bit of stabilization. Don’t know if it will stay there for long or not. But I tell you that our market share was holding pretty strong. And we found a way to protect our cash flow and our margin in Colombia. And I can tell you quite clearly that we intend to duke it up, because the opportunity in Colombia is pretty strong. We remain very committed and I am a strong believer that the situation undergoing there is not healthy for consumers. And it’s not healthy for investment or for the market in the long-term. So I will believe the authorities will take issue with it and help resolve it hopefully sooner rather than later.

[Michel Morin:]

And has the other competitor also filed any antitrust complaints or are you the only one complaining?

[Mauricio Ramos:]

They have been very vocal on the same issues, very, very vocal.

[Michel Morin:]

Great, okay, thank you very much.

[Operator:]

Thank you. Johanna Ahlqvist from SEB has our next question. Please go ahead.

[Johanna Ahlqvist:]

Yes, hello. Three questions if I may. First of all, if you can comment anything on the situation in Tanzania, if things are as tough as it was in Q2. And then, if you can comment anything on ARPU development on the cable side going forward given the strong intake, if you expect some ARPU dilution or not? And then thirdly, if I may, a detailed financial part, that’s how we should think about taxes and that financial for the full-year 2016? Thank you.

[Mauricio Ramos:]

All right, there is a team here, with threefold question. so I’m taking note, Tanzania, cable ARPU and taxes. Tanzania the competitive situation in Tanzania remains difficult. We are used to competition everywhere. But here is the key difference with regards to Tanzania. It’s got a lot of volume growth still in the system. So it balances out the competition with meaningful pickup in subscriber intake and also the ability to continue to bring data subscribers. So that balances out and that’s where you see Tanzania continue to grow the revenue line. And bear in mind that, as I said earlier, what we’ve done in Africa is basically align the cost structure to the revenue scale of the business, so that we now have leverage in the business. Cable ARPU, if you’ve seen and then done the math, we are actually not only holding household ARPU, but actually there is a pick-up in ARPU in the last 12 months. And that as a result of reshaping some of the countries where the household ARPU is I think starts very low, including Colombia. And so in the short-term, [mediums are holding our book,] [ph] because penetrations are still very, very low in these markets, and because historically specifically payTV ARPU has been very low. Going forward indeed as we build further and as we penetrate by definition into lower socioeconomic segments of the income distribution pyramid, and as network penetration increases, then of course, the ARPU on average will tend to trickle down a little bit, because it is a game, of course, of tiering products for the different socioeconomic segments. I hope that gives you a lot of color there on how we evolved in the long-term.

[Tim Pennington:]

I think on taxes, we don’t really except to see any significant difference in 2016. So our tax charge I think we said in the past somewhat between sort of $200 million, $300 million. And we’re in line to get. It’s very difficult to pay that trend up from the quarter-on-quarter moments either on a cash flow - or P&L basis. I think having said that, we are sort of wary of tax in the markets in which we operate. We have seen tax increase and, in fact, in Colombia there is an increase in the VAT and taxes, specific taxes on communication, which haven’t been implemented yet, but which will be implemented. We saw the impact of the cess tax in El Salvador. So these were all taxes on our operations, which generally don’t fall into the text line that hit us in volume terms than the revenue line or otherwise. So we are sort of seeing some moves there which make us a bit more cautious going into 2017. Johanna, is that sufficient for you?

[Johanna Ahlqvist:]

Yes. Thank you very much, absolutely.

[Operator:]

Thank you. We move on to our next question to Luigi Minerva of HSBC. Please go ahead.

[Luigi Minerva:]

Yes. Good afternoon. Thanks for taking my questions. The first one is on the change in - well, the change that you’re driving in mobile data with a hopefully higher contribution from new value-added services and data. I was wondering if that implies necessarily that your business has to become much more postpaid than prepaid? And so, consequently, what would be the impact on the cost of running the business in terms of promotions, handset subsidies? I appreciate every markets to be different. Maybe you can take the two larger markets as an example on how you would deliver this. And my second question is really on the service revenue trend, which is probably the key concern; again many moving parts, macro, regulation, competition. Should we extrapolate what we are seeing and therefore expect a further deterioration in the next two, three quarters or is there any reason to think that this quarter is the trough? Thank you.

[Mauricio Ramos:]

Thank you, Luigi. So on number one and, Tim, feel free to jump in and contribute on network and help me with that there. The change in mobile data, indeed where we’re very with the evolution that we’re getting there, the traction that we have as I said earlier on LTE subscribers and data subscribers overall, the network build. But as you can imagine we’re preparing the business indeed for a more data-centric opportunity. And that has to do a lot with Heat. So whether it’s postpaid or prepaid, we are preparing our business to be increasingly digital not only in the way we deliver the service, but in the way we take care of our customers. So digital care, digital distribution, digital point of sales and you can expect that a lot of our innovation going forward as part of Heat is going to be on those fronts, so that we provide digital care, digital distribution, more digital advertising and even more digital distribution channels. So that, regardless of whether it is postpaid or prepaid our cost structure is in line with everything we do around digital. Having said that, we do like, and we do foresee a little bit more of postpaid. But if you see a lot of the innovation that we’re driving on prepaid it’s precisely to have our subscribers be more focused on digital consumption. We’ve talked the last quarters about All you can app. We have now launched that in El Salvador and we’re pretty happy with the progress there. If you recall, All you can have is basically an all-you-can-eat bundle of apps that our customers can select for a limited time. And that’s a prepaid proposition, which takes us out of the price sensitive, price per gigabit gain that is so common on prepaid, gives our customers choice on what they want. And it allows us to price according to bandwidth consumption per app and eventually even do dynamic pricing. And the results in El Salvador are pretty exciting. We’re getting pick up of around 10% in data usage and then general ARPU when we introduced this kind of innovations. So the change in mobile data is about products, is about deliveries, is about service, is about distribution, it is all encompassing. And that’s probably the more important big picture answer that I can give to you on that point.

[Tim Pennington:]

Mauricio, let me just add also on subsidies, which might be where you’re coming from, Luigi, as well. Subsidies are not a big part of our market. Generally, the subsidies that we incur on the B2B side, the only place where there has been significant subsidy was Colombia, which as you are aware, I won’t repeat now, because of regulation there that becomes a lot more complex as a market. So we don’t see that as impacting us substantially.

[Mauricio Ramos:]

Good point. There is a lot more - while we’re around the point here, there is a lot more postpaid in our business than you would think if you look at our business as a whole. And you add the B2B, the cable, which by definition are postpaid, and the fact that on mobile itself postpaid carries a larger share of the revenue even though it doesn’t on the actual number of subscribers. If you add all of those three things together, somewhere around 55% and Tim can correct me, maybe a little bit higher than that of our business is actually a subscription-based revenue rather than a prepaid or transaction-based revenue. That’s important for you to keep in mind. Moving onto very other important question on the modeling out of the trend here on the revenue, it’s a tough one. This I can tell you with all certainty, there is an inflection point by definition. And we are now 50% of our business, as I showed earlier, is in high-growth strategic areas that we want a business to keep for the long-term, because of our high-growth, mobile data and cable. But I’d rather shy away from short-term predictions, whether it’s going to be this quarter that we saw it bottom out or next quarter, or the quarter after that, because no doubt I’m going to get it wrong. So our focus is and has been rightly so I think on the long-term journey that we’re articulating to you and then showing you how we consistently deliver results on that long-term journey. And we’ll continue to execute on that strategy, because the results that we are having over the last year are pretty consistent and pretty pleased with those.

[Luigi Minerva:]

Okay. Thank you very much.

[Operator:]

Thank you. Our final question today comes from Bill Miller from Hartwell. Please go ahead.

[William Miller:]

Good evening, good morning, whatever it is. Can just you - since you’re about to get to the 8 million homes passed, could you give us what number you think could be achieved in the next three to five years, given the maximum market share, and what it will cost in CapEx to get there?

[Mauricio Ramos:]

Thank you, Bill. So I think our target number was 10 million. I think we last quarter we moved that up to 12 million homes passed. So 8 million will go up to 12 million medium term. We’ve ramped up the build significantly. I articulated that we are now doing somewhere around 700,000 run-rate per year. We’re cranked out the machine. We’re building just about in every country. So we’ve got builds going around in almost all of our markets in Latin America. And we are shooting for a build of around 1 million a year. That’s what we think where the machine is at full capacity. So that gives you an idea of how bullish and how big the opportunity is. Now, if you think of this in terms of the market available, I think I articulated the numbers for Colombia. But today as a group in Latin America we passed somewhere around 26 million, which obviously given that there is household information in our market if you fast-forward a few years, you can make that number 30 million. So 12 million out of 30 million gives you an idea that we would be aiming to cover somewhere around 40% of the homes available in our markets. I think that gives you an idea of the size of the build, 50% pickup. And, yet, we would only reach 40% of all the homes in our markets. The cost of the build, and that’s a great question, because I’ve often made the point of comparison here. Our ARPU per household is around. I could be off by $1 or $2 here. So I’m speaking out of memory, but 25-ish, and I think we’ve shown these numbers before. But the cost of a build in Latin America, we’ve often said is about $100 per home past. So that’s a sliver of the cost in a developed market. And the reason for that is threefold, the cost of a build is, the economics of the build are determined by three things. One is the density. And these are multi-dwelling units in highly populated urban areas that we’re building, like Usiganpa [ph], Bogotá, all those are very, very dense areas. And obviously, the cost of the build is a function of extensity. The second element is simply the fact of the plan being aerial versus underground. And all the plant we build is aerial, which is a fraction of the cost of building an underground plant like is the case in those developed markets. And simply, lastly, the cost of labor, labor is an important part of a cable build. It may be state-of-the-art fiber that we’re building. But it is deployed with an intensive use of labor and that is relatively cheaper in a market. All of those three things put together give you $100 per home passed. And the math is easy to figure out that this will certainly be a very, very manageable CapEx spend within our cash flow profile and can certainly be financed out of our internally generated cash flow, like what we’ve been doing this year.

[William Miller:]

Great. Thanks very much.

[Operator:]

Thank you. We have no further time for any questions. I would like to hand the call back to Mauricio Ramos. Please go ahead.

[Mauricio Ramos:]

Well, thank you very much for you time and focus today. As I have said now often, we are very, very pleased with the progress we’re making on our strategic journey. We [all I think did best] [ph]. We are building cable and the subscribers are coming in. Those two things together are allowing us to now confidently say that we are reconfiguring the revenue mix in our business and you’ve seen the early progress. And the second part of our reconfiguration is also coming through quite well, with a lot of cost cutting and long-term plans that further increase the profile of our cash flow. So we’re very pleased with the progress we’re making on the twofold reconfiguration and we look forward to showing you more progress after our Q4 call. Thank you very much for being with us today.

[Operator:]

This concludes Millicom’s financial results conference call. Thank you for your participation. You may now disconnect.