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Africa Growth Boosts Millicom's Q3

Encouraged by strong third-quarter revenue growth in its African operations, emerging-markets mobile carrier Millicom International Cellular SA (Nasdaq: MICC) is upping its capital spending in the region, which it expects to become its fastest-growing market.

Millicom, which operates in 16 countries in Africa, Latin America, and the Asia/Pacific, reported a 77 percent year-on-year increase in revenues to $686 million, and a triple-digit increase in profits to $138 million, up from $52 million in the same quarter last year. (See Millicom Ups Q3 Revenues.)

Subscriber numbers also increased 77 percent to reach 20 million.

EBITDA rose from $186 million to $296 million, beating analysts' forecasts of $285 million, while pre-tax profit climbed from $102 million to $169 million, beating forecasts of $153 million according to Reuters Research .

The results sent the carrier's share price soaring; the stock was up $19.25 (22%) to $105.96 in early afternoon trading on the Nasdaq, down from a day's high of $108.66.

In Africa, subscribers grew by 44 percent over the third quarter of 2006, driving revenues up 52 percent. In its earnings call Tuesday, Millicom president and CEO Marc Beuls said the carrier is increasing its capex from $800 million to over $1 billion this year as it focuses on building out its networks in Africa.

"In Africa, along with all operators, we are facing challenges owing to the lack of basic infrastructure, which at times slows development and leads to higher opex in the near term," Beuls said. But, he added, "we continue to see great opportunities in Africa, as mobile penetration is low and growth prospects are exciting... We expect that Africa will become our fastest growing region."

CFO David Sach sounded a similar note, commenting: "Africa presents some particularly difficult challenges in building out the networks, with inadequate roads and infrastructure, limited electricity, uncertain regulatory environments, and a lack of highly qualified, experienced personnel." Those challenges would make it hard to predict capex, he said, although the company expects spending, which increased to $347 million during the third quarter, would remain "over $250 million over the next five quarters."

In Millicom’s two newest African markets, Chad and the Democratic Republic of Congo, revenues grew by 117 percent and 150 percent, respectively, and in its two largest African markets, Ghana and Tanzania, revenue increased by 43 percent and 51 percent.

Millicom is also expanding rapidly in the Central and Latin America region, where revenues leaped by 245 percent during the third quarter, driven by an acquisition in Colombia last year. Without the Colombian operations, revenue growth would have been 53 percent. Beuls said that spending in Latin America would focus on expansion in Colombia and the cost of launching 3G services next year, for which it's closing down its CDMA network to free up spectrum.

Millicom’s Asian operations, which include Sri Lanka, Cambodia, and Laos, saw a growth rate of 30 percent, and, according to Beuls, "we expect to see Asia performing in line with the two other regions."

— Nicole Willing, Reporter, Light Reading

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