Annual report and accounts 2008

• EBITDA margin of 35% for 2008 and strengthening margin in Colombia
• Roll-out of high speed 3G networks and launch of mobile broadband services
• Strong growth in VAS and postpaid offering
• 877 new cell sites installed
• 5 points of market share gain in Paraguay

For Millicom’s South American operations, 2008 was characterized by a focus on four key areas; the launch of 3G services coupled with network expansion, strengthening of distribution channels, growth in value added services (VAS) and enhancing the postpaid offering. Revenues for South America were $1.0 billion, up 26% from 2007 but impacted in the second half of the year by the devaluation of local currencies against the dollar, partly as a result of the fall in prices of agricultural commodities. EBITDA was $352 million, up 27% and the EBITDA margin was 35%, up one percentage point from 2007, but up more strongly in the third and fourth quarters, reflecting the benefit of our initiatives to reduce costs across the businesses and helped by the improved EBITDA margin in Colombia which was 17% in Q4.

Our South American operations continued to drive the affordability of services through price reductions and promotions to maintain the market perception of Tigo as a price leader. In Bolivia, we reduced the e-PIN denomination recharge to 1 Boliviano (US$0.15) while our competitors have a 5 Boliviano minimum recharge. We expect them to follow our lead however and bring their prices down in the coming months. In Colombia, we launched a US$0.25 recharge, the lowest denomination recharge available in the market and we offer the best tariff to any network in the prepaid market, including long distance calling to the USA, Canada and Puerto Rico. In Paraguay, our on-net rate was reduced in September, resulting in progressive price elasticity which reached almost 100% by the end of the second month.

Given our aim to increase significantly the share of VAS in our recurring revenue, we focused our marketing efforts and promotions towards the ‘young and cool’, to build on the attractiveness and success of our innovative services in this large market segment. In Paraguay, we launched Ring Back Tones promotions in December using the most frequent downloads which resulted in a 42% increase in usage from November. Ring Back Tones have proved to be a hugely popular product, particularly in rural areas where our customers make regular, recurrent purchases. Our SMS top-up service is also growing strongly, facilitated by the low denomination top-ups available through e-PIN. In Paraguay, SMS reached 89% penetration as we are able to offer top-ups for as little as US$0.2, an offering our competitors cannot replicate with scratchcards. By the end of the year, VAS had grown by 78% in Paraguay and accounted for 59% of recurring revenue growth in the country. In Colombia VAS grew by 112% year on year and in Bolivia the growth in VAS was 145%.

Tigo Cash is a new VAS product which we introduced in Paraguay in 2008 to enable our customers to make payments electronically using their existing handsets. Tigo Cash is effectively an electronic wallet within the cell phone where money can be stored separately from the mobile phone service balance and can be used to make purchases in participating outlets. The objective of Tigo Cash for Millicom is to increase loyalty and reduce churn. It is our intention to roll-out Tigo Cash progressively in other markets.

In the third quarter we launched 3G services across the region and our prepaid and post-paid customers now have access to broadband internet, video calls, TV Tigo and music and other downloads. In Paraguay, Tigo was already the market leader in internet through the WiMax network but mobility has opened up a new opportunity for growth in this business and since November we have benefitted from lower modem prices which provide subsidy savings.

Across the region we also restructured our postpaid offering. In Colombia, we saw a 48% increase in our postpaid customer base and sales of postpaid plans more than doubled in the second half of the year as we introduced more specific market segment targeting. In Paraguay we have developed sophisticated and tailor-made solutions for our corporate customers, helping them to create efficiencies in their businesses.

Tigo products and services are today readily accessible at approximately 193,000 points of sale in South America, a 50% year on year increase, as a result of our concerted efforts further to improve our distribution channels in 2008. Our Distribution Management System (DMS) is now well established in Paraguay and Bolivia with dedicated territories assigned to dealers and the frequency of sales, stock levels and the presence of trade materials at points of sale constantly monitored. We started the roll-out of DMS in Colombia in the latter part of the year and expect to complete it before end of the second quarter of 2009.

Of the total number of points of sale in the region, 75% are e-PIN outlets. In Colombia, we increased our e-PIN outlets from 1,800 at the start of the year to 22,500 by year end and we increased the share of electronic reloads (the various formats of e-PIN available in Colombia) from 36% to 64%, thanks to an initiative we have named ‘Sowing’ whereby market developers hired by Tigo are sent out to source and secure new outlets which are then rewarded with airtime according to the e-PIN sales they generate. Door to door selling, which currently represents 30% of activations in Colombia, and joint marketing activity with SAB Miller also contributed to the increase in Tigo’s visibility in the country. In Paraguay, we developed a new, 24 hour e-PIN activation through our call center which has reduced our back office costs and created further improvements in efficiency.

We achieved better marketing efficiency in 2008 and we were able to achieve discounts in advertising in Colombia through negotiations with central media. Despite aggressive marketing campaigns by our competitors in South America during the year, we succeeded, through our steadfast focus on our triple A strategy, in maintaining our market share in Bolivia and Colombia and most impressively, in growing our market share in Paraguay by five points.

Network expansion was a key activity in 2008 coupled with the roll-out of the 3G network onto our existing infrastructure and the allocation of GSM capacity according to market growth. We added 877 cell sites across the region in our efforts to improve the availability of Tigo, with 224 new sites installed in Bolivia, 371 in Colombia and 282 in Paraguay and we ended the year with 4,008 sites across the region, an increase of 28% over 2007. Tigo now covers 74% of the addressable market in Colombia and over 85% in Bolivia and Paraguay.

In Colombia, a new telecom infrastructure solution was introduced for greenfield sites, consisting of reusable components that can be installed and deployed more rapidly and producing capex savings of 6% over traditional methods for greenfield site development. Given the extent of coverage in Colombia, the data transmission required to link all network points is crucial in the delivery of an efficient service and in 2008 we implemented a nationwide data network through long term contracts with existing local vendors to ensure consistency in transmission whilst allowing for the anticipated growth in data services following the launch of 3G. Across the region we are in continuous negotiations with providers in order to secure better prices for civil works, towers and network maintenance.

In Paraguay, the implementation of our fiber optic backbone network produces cost efficiencies for high capacity requirements, improves availability in the main trunks and produces direct cost reductions. In 2008 we launched Fiber to the Home (FTTH) services in Paraguay, with an initial phase of 25 nodes and an initial capacity of 2000 ports covering the metropolitan areas of Asuncion, Ciudad del Este and Encarnacion.

In Bolivia, the number one mobile operator was nationalized in 2008 and the government is encouraging the other market operators to focus on the provision of communication services in rural areas, an objective that is closely aligned with Tigo’s triple A strategy.

In Colombia, the Ministry of Communications awarded Tigo with 10 MHz of additional spectrum, renewable in 2013 along with our license, which was instrumental in the launch of 3G services. Tigo was also awarded a new International Gateway License, enabling us to offer international gateway services and capture the majority of the international traffic of Tigo users.

In Paraguay, Tigo’s license to provide mobile services was approved by the Regulator for a further five years and an additional investment for a data transmission license for FTTH and ADSL was also approved. An ISP License renewal request has been submitted and is awaiting approval from the Regulator.

The focus for our South American operations in 2009 will be on continued coverage and capacity expansion, utilizing shared sites, poles and rooftops as much as possible, to accommodate the anticipated growth in voice, VAS and data services as we increasingly segment our market and target specific customer groups. We will also continue to enhance our postpaid offering with a distinctive customer service strategy.

In Colombia and Bolivia, we will continue to strengthen our direct sales force and we will finalize the implementation of the Distribution Management System, replicating the key features of this proven model from Paraguay by dividing the market up into territories to be managed by dedicated dealers responsible for their commercial performance.

In the context of a deteriorating macro economic environment, it will be increasingly important to focus on cost control in order to improve profitability. We recognize that subscriber growth will be cumulatively slower in South America going forward due to the higher penetration rates in the region, but we expect margins to continue to improve gradually in 2009 and beyond towards the Group average, helped in part by a strengthening margin in Colombia and Bolivia as we gain critical mass.