Annual report and accounts 2008

• EBITDA margin of 55% for 2008
• Stabilizing ARPU as a function of lower subscriber additions in highly penetrated markets
• 4 million subscriber mark reached in Honduras
• Roll-out of high speed 3G networks and launch of mobile broadband services
• Distribution Management System introduced in El Salvador and Honduras and ongoing installation in Guatemala

In 2008 the operating focus in Central America was on margin improvement in light of the more challenging macroeconomic conditions and as mobile penetration moves towards 100% in our markets. Central America reported an EBITDA margin of 55% in 2008, up two percentage points from 2007 as a result of initiatives to reduce costs and subsidiaries and because of our efforts to focus on the better and more loyal customers in the region. 2008 was also characterized by the deployment of high-speed 3G HSDPA networks across the region to enable Tigo to enter the mobile broadband business and take a share of this important segment. Central America continues to represent the lion’s share of Millicom as a whole and in 2008 reported revenues of $1.4 billion, representing 40% of the Group total, and EBITDA of $759 million, 52% of the Group total.

Tigo maintained its market leadership in Central America in 2008 thanks to efforts to consolidate its first mover advantage by emphasizing the affordability of its prepaid and post-paid offers, increasing the penetration of value added services (VAS), launching widely accepted promotions and expanding the Tigo brand through the introduction of new products. In addition, we have developed a system of target market segmentation, grouping users according to their habits of consumption. These initiatives give us a better understanding of our customers needs and enable us to provide better plans with an aim to improve loyalty and reduce churn.

In all three markets we removed the balance expiration date on prepaid airtime for customers who generate revenue with a 60 day period, giving them greater freedom of usage and we saw a reduction in the average monthly churn as a result. We also launched ´Mini Tariff´ promotions in each market, whereby, for a small monthly fee, the customer can register their top two or three Tigo numbers and call them at a very reduced tariff. In September, we launched an important promotion in Honduras offering calls to the USA and Canada for $0.02 after the first five minutes. By the end of the year, outgoing international minutes of use had increased by 20% as a result.

In terms of VAS, our “Gift and Collect” and “Give me Balance” offerings which were launched in 2007, continued to be extremely popular with our customers. These services allow customers to share their balance or send requests for balance to their friends via a simple handset to handset transaction and have contributed significantly to the strong growth in VAS revenue in 2008. A similar initiative is “Copy a Tune”, which we launched in Honduras, El Salvador and Guatemala in June, expanding the options available to customers to purchase Ring-Back Tones. In El Salvador we launched a Christmas promotion called “Everybody Wins” where customers could claim prizes such as free SMS or balance by sending a text message. As a result SMS traffic grew and reloads increased by 13% in November and December. By the end of the year, VAS had grown by 66% in El Salvador, by 95% in Honduras and by 110% in Guatemala.

Postpaid customers represent a very important segment in Central America and in 2008 they benefitted from improved corporate plans with increased minutes, new bundled plans including minutes and unlimited internet and new roaming destinations.

Another very important development in terms of our product offering in 2008 was the launch of new nationwide 3G broadband and VAS services in each country. Our launch campaign focused on selling the experience rather than the technology and highlighted four main products: broadband internet, video calls, TV Tigo and music and downloads. These services are now available to all our subscribers, prepaid and post-paid alike, who can benefit from our highly trained and skilled customer service representatives in service centers across the region.

In 2008, points of sale increased by 30% in Central America and we ended the year with just under 186,000 as we continued strengthening our commercial alliances with large grocery and electronics stores, restaurants, gas stations and banks. Of this total, some 153,000 are e-PIN points of sale, reflecting the increase in e-PIN as a percentage of prepaid sales. In El Salvador, e-PIN accounted for 75% of prepaid sales at the end of the year and the proportions in Honduras and Guatemala were 67% and 70% respectively.

At these levels of e-PIN penetration, Millicom’s Distribution Management System (DMS), which was introduced in El Salvador and Honduras in the fourth quarter, becomes a crucial tool for managing stock balances at each outlet. DMS helps us to improve our airtime supply through daily remote tracking of the distribution network. It provides us with knowledge of the real sales potential of each point of sale and therefore enables us to generate greater efficiencies in the sales channel, led by our territory managers.

We are increasingly using broadcasting and telemarketing methods to communicate with our customers which allow us to reduce expenditure on BTL marketing. In Guatemala for example, we provide a website through which dealers can reach every customer in their database for the purpose of communicating promotions. Our dealers have also created telemarketing teams in order to have direct contact with customers and this development has led to increased sales as well as adding a further level of customer service. Dealers are awarded with a performance bonus according to the number of points of sales in their database amongst other criteria.

Tigo USA, which was launched in 2007 in collaboration with major prepaid international calling card distributors, grew significantly in 2008 as new distribution channels were added. This service allows customers in the US to buy scratchcards and to reload friends and family members in our networks in Central America. It has proved to be an extremely popular service as it provides a very cost efficient means for international communication and for small money transfers.

In the second half of the year we began a new campaign with the slogan “AQUI ESTOY”, based on our promise to our subscribers that Tigo is everywhere. In accordance with this promise, we continued to invest in our networks to ensure that Tigo remains the leading operator in the region in terms of coverage and capacity.

Most significantly, we rolled out nationwide coverage for 3G HSDPA services, following a regional MIC Latin America tender and ensuring synchronized launches across the region. By adding the 3G network onto our existing infrastructure and within our existing frequencies, we were able to complete the roll out in a very cost effective manner. Tigo is now well positioned to become a key player in the broadband market.

Around 1,100 new cell sites were put into service in Central America in 2008 and we introduced a number of initiatives to reduce the cost of cell site maintenance. In Guatemala for example, we exchanged 24-hour diesel electric generators for over 600 commercial electricity extensions and we installed 10 solar cell systems as part of a pilot program to find and implement alternative power solutions. Renegotiation of vendor contracts has also given us greater control over network costs and contributed to a decrease in operating expenditure of around 50% in El Salvador.

The first phase of our rural fiber optic ring in El Salvador entered production in the fourth quarter. This will improve the quality and availability of our services in rural areas in terms of transmission and will produce significant cost savings which will be reflected in 2009.

In the second and third quarters of 2008, new taxes were introduced on incoming international calls in Honduras and El Salvador, increasing the calling costs from overseas into these markets by 3 cents and 4 cents per minute respectively. This reduced the total international incoming minutes of calling, although overall minutes of use held up well, by promoting outgoing international services as well as more local on-net calling we successfully replaced these incoming minutes.

In January 2009, interconnect rates for both domestic and international calls in Honduras were cut to 6 cents. This change will have an impact on revenues in 2009 as we have a significant level of cross-net calls in Honduras. We anticipate a similar reduction in interconnect rates in El Salvador in 2009.

Competition increased in the region with the launch of a fourth operator in Honduras in November.

The macroeconomic environment in Central America is currently challenging as remittances, which in the last few years have been a key driver of economic growth in the region, accounting for 15-20% of GDP in our markets, have recently seen a slow down in growth. In this environment, increased attention on cost control is required to ensure margin sustainability throughout the year.

Market dynamics have reached a point in Central America where subscriber base segmentation becomes more important than price competition and therefore we will continue to focus on segmented value propositions to respond to the different needs and demands of our various consumer groups. Our marketing plans and new products in 2009 will be specifically targeted towards these segments as we continue to focus on attracting the best and most loyal customers.

We will also continue to develop our value added services in 2009 and with the high speed data capabilities added to the network, we can now offer the market a wider portfolio of content and data services.

Through innovation in products and services, the continuous review of all our operating procedures and practices in search of efficiencies and a focus on attracting and retaining the best talent in the region through our “Employee of choice” initiatives, we are confident we can continue to enhance profitability in these maturing markets.