• 3.5 million subscribers added in Africa in 2008
  • Acquisition of third license in Rwanda
  • Per second billing introduced in Chad in September
  • GPRS license acquired in Chad
  • 15 year 3G license acquired in Ghana
  • 1 million subscriber milestone reached in DRC

In 2008 Africa received 43% of Millicom’s total capex as the geographical coverage and capacity of the networks across the region were extended. The operating focus during the year was on aligning resources in order to achieve the best return on this investment and on rolling out the Distribution Management System in the more mature markets. This focus on network expansion and distribution efficiency led to a 63% year-on-year growth in subscribers, a 51% growth in revenue to $711 million and a 53% growth in EBITDA to $238 million and resulted in an EBITDA margin of 34% for the region despite more challenging market conditions, particularly in the second half of the year.

Products and pricing

Our African operations continued to focus on product innovation and competitive pricing in order to enhance further the customer’s perception of the Tigo brand as offering value for money. Tigo Chad introduced per-second billing in September giving airtime purchases greatly increased longevity and this very important affordability feature is now present across all of our African operations.

The ‘Xtreme’ product, first introduced in 2007, whereby the customer pays either $1 for free on-net calls for 12 hours or $2 for 24 hours, was developed further in 2008 with regional variations in price according to the affordability and network capacity characteristics of the region. These developments made the offer more inclusive and made better use of spare network capacity in each area.

In DRC, new products and pricing changes included a ‘home zone’ tariff in Kasai, double airtime bonus on certain days, USD$1 SIM packs, and web 2 SMS service. Tigo DRC also launched a corporate offering which resulted in a 136% increase in the post-paid customer base.

In Tanzania, our fastest growth market in Africa, Tigo took action to maintain product and price leadership, in order to grow gross margin while maintaining a high subscriber intake. On-net pricing was decreased from Tsh 3 to Tsh 1, for example, to pre-empt price cuts from competitors. Through these pricing initiatives, which were widely publicized, Tigo succeeded in growing its market share in Tanzania by 9% from the start of the year which was the highest market share gain of any Millicom operation in 2008.

The direct marketing of Value Added Services (VAS) was intensified as freelance sales people were equipped with information on competitors’ tariffs, enabling the customers to make direct comparisons. The use of VAS products continued to grow throughout the year and annual VAS revenues for Africa grew by 49%, driven mainly by SMS.

Visibility of Tigo

Millicom continues to invest heavily in marketing and promotion activities across Africa as it is important to establish a strong presence in terms of brand awareness at this early stage in mobile development when penetration rates are relatively low and in the face of increasing competition from new market entrants. Our operations met the challenge of new competition head on by introducing best in class customer loyalty promotions such as Tigo 4 Life.

The second half of the year was dominated by communication initiatives to create awareness of Tigo's products, services and advantages such as Coverage, Affordability, Entertainment, Ring Back Tones, Internet, Xtreme Value, Text a Lot and Free Nights. Tigo also introduced Customer segmentation techniques in order to retain customers and reduce churn. In Senegal for example, promotions included a wrestling promotion whereby with each US$2 refill, subscribers were entered into a draw to win tickets for a promotional wrestling event. This promotion converted a projected churn in subscriber numbers into an almost equal number of gross additions.

Across the region as a whole we added almost 85,000 new points of sales to our distribution network in 2008 and Tigo’s presence was increased to support push activities that directly impact the level of connections. This has been achieved with new outdoor and POS material such as umbrellas, table tops and stickers.

The Distribution Management System (DMS), which was introduced in Ghana, Tanzania and Sierra Leone in 2007 to ensure maximum product and service delivery throughout the marketplace, has enabled Tigo to improve the management of its distribution networks. In Ghana, a new menu was introduced for territory supervisors which facilitated a reduction in e-PIN commission by half a point in October 2008. In Tanzania, point of sales material is now delivered directly to dealers for downstream distribution, eliminating third parties from the distribution channel and therefore reducing the cost of distribution. DMS was implemented in Senegal in 2008 and two mega dealers were selected to cover almost 80% of the market. Today every single shop is visited regularly to ensure inventory levels and point of sales material remain stocked up and brand visibility is consistently high.

In DRC a direct sales force was established with a focus on high sales, coaching, training and career planning for the team. The number of super dealers was decreased from 33 to 23 to increase dealer focus and efforts were focused mainly on Kinshasa and Bas Congo where 90% of outgoing revenue is earned.

In Mauritius distribution of airtime and subscription by freelancers increased penetration and reduced distribution costs. The number of e-PIN outlets was increased by 68% and the direct sales and retail teams were co-located to facilitate the sharing of market information.

Capacity and coverage

Extensive network expansion was a key activity in Africa in 2008 and Millicom built over 1,000 new cell sites across the region during the year to accommodate the projected growth in the subscriber base, with 399 built in Tanzania and over 200 built in both Ghana and DRC.

Common civil works procurement was implemented for Ghana, Tanzania, DRC and Senegal with improved specifications, quality, payment terms and a good vendor blend to ensure efficient delivery.

Technical improvements made to the network included the introduction of a feature to improve voice quality with little impact on network resources, therefore allowing the network to carry more traffic at no equivalent hardware cost. Measures were also taken to reduce dependence on fuel and, where commercial power was limited, generator switching was introduced during times of low network usage to reduce site operation costs. Deep cycle batteries were introduced and solar panels were used on a limited basis. As a result of these initiatives, the average cost per site was reduced by 45% from October 2008 in Ghana and, in Tanzania, fuel consumption was also reduced by 45% for sites where battery cycling was implemented. Further site cost reductions were realised in DRC where repeater sites are now powered by solar panels and the maintenance of power systems is outsourced.

Our larger operations invested in fiber optic cables, benefitting from cost savings achieved through centralized procurement.

Across Africa, our operations increasingly started site sharing negotiations with competitors. The outcome of these negotiations will be seen in 2009 when site sharing will be put into effect.

Market developments

At the end of 2008, Millicom acquired the third national licence in Rwanda for a fee of $60 million. Rwanda has some 10 million inhabitants and is a country of some 26,000 sq.km, located between our existing operations in DRC and Tanzania, giving potential to create synergies between the three businesses over time. Mobile penetration in Rwanda is low, at some 9%, and there are currently only two operators. The structure of the mobile industry presents us with the opportunity to build a business with a significant market share. We are now planning a network roll-out in 2009 and expect to launch services before the year end.

Millicom also acquired a 15 year 3G license in Ghana and a GPRS license in Chad in 2008.

In the fourth quarter of 2008, Millicom’s operation in Sierra Leone was classified as asset held for sale as it was not performing in line with expectations and was not delivering the required return on investment.

In Senegal, the government continues to challenge the validity of our operating licence and this is currently being disputed at the International Centre for the Settlement of Investment Disputes.

Outlook for 2009

In 2009 the operational focus will be primarily on improving market share and market positions. In our more established operations we will focus on world-class operating systems and processes to drive costs down and to help improve our subscriber offering and retention rate.

In DRC the focus on Kinshasa and Bas Congo, where our market share is strongest, will continue as Tigo aims to become the number two operator in the market through cost reductions in the eastern regions and improved distribution through the implementation of DMS.

In Chad we will continue the aggressive network roll-out. We also plan to launch a post-paid offering and to obtain an additional telephone number prefix from the regulator for 1 million more phone numbers in anticipation of growth.

Across the region emphasis will be placed on further developing our distribution systems and brand association, reinforcing our entire offering to the customer so that we are well equipped to meet the increasing demand for mobile telephone products and services.

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