Major African Mobile Markets: Future Growth Prospects 2006-2011

Major Operator - Millicom

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Company Overview

Business Strategy

Financial and Operational Performance

Recent Developments

Future Outlook
Figure 1: Revenue from the Mobile sector in Africa (2002-2004)

Figure 2: Mobile Subscribers (2002-2005)

Figure 3: Mobile Subscribers in Africa - by Geography (June 2005)

Table 1: Millicom - Mobile Operations in Africa

Company Overview

Millicom is a group of companies offering mobile services to a population coverage of 392 million people worldwide and 75.3 million people in Africa. It was established in 1990 and has expanded globally by offering services through partnerships and joint ventures. The company is headquartered in Luxembourg and has operations in 17 countries in Asia, Africa and Latin America. In Africa, its key markets are Senegal, Tanzania, Ghana and Mauritius. Other markets served by the company in Africa are Sierra Leone, DRC and Chad. The gross mobile subscriber base of the company worldwide was 7.21 million, with 1.43 million subscribers in Africa at the end of June 2005.
Table 1: Millicom - Mobile Operations in Africa

Source: Company Reports
Apart from this, Millicom also began its mobile operations in DRC and Chad in September and October 2005, under the network brand names 'Oasis' and 'Tigo', respectively.
Business Strategy

Millicom aims to expand its mobile operations in Africa by focussing on areas with low mobile penetration and comparatively less developed basic telephony services. The company is increasing its subscriber base in its existing mobile markets by increasing the geographic reach and by offering services at competitive rates. It is also adopting alternate cost-effective modes of marketing and distribution.
Specifically, Millicom has the following strategies:
Expanding geographic scope
Millicom plans to expand its operations in Africa and is exploring economically viable network expansion opportunities in countries with low mobile penetration and inadequate basic telephony services. For instance, it recently commenced mobile operations in Chad, which has a mobile penetration rate of just two percent. It has also obtained an operating licence in Congo.
In addition, Millicom also aims to increase its market share in the existing countries of operation. Following this strategy, it has increased its network coverage to include regional capitals and local towns in Ghana, and the provinces of Kono and Makeni in Sierra Leone. It has also been increased its number of BTS (base stations) in countries such as Mauritius and Tanzania. The capital expenditure (CAPEX) of the company in Africa for the financial year 2004 increased by 221 percent over the CAPEX in 2003.
Offering services at competitive rates
Millicom is focussed upon offering services at competitive rates. It has introduced low denomination cards in local currency in several markets and these have become very popular. Further, it aims to generate revenue from data services by increasing the SMS penetration rate in the region and by offering more value-added services.
Changes in marketing and distribution strategy
Millicom is pursuing a cost-cutting exercise for its marketing and distribution activities. It has adopted non-traditional modes of distribution, such as e-PIN (an electronic mobile transaction tool, which enabled electronic purchasing of airtime by dealers and transfer of credit from one mobile to another), in order to reduce its distribution cost. These changes in distribution activities resulted in an annual cost saving of about USD 1.5 million in 2004. Further, the company has adopted a strategy to share network sites with other operators, resulting in additional cost savings. However, the company has simultaneously continued marketing its services through more traditional modes, such as billboards, marketing campaigns, sponsoring horse races, etc.
Financial and Operational Performance

Revenue
The revenue of the company from its worldwide operations, for the financial year ending December 2004 was USD 922 million, registering an increase of 42 percent over the revenue of the previous year. The growth in revenue was due to the company's network expansion in Latin America and the introduction of GSM services in many of its existing markets, such as in Pakistan. The revenue from African mobile operations accounted for 16.3 percent of the total revenue of the company.
Performance in Africa
The company's revenues from African operations in 2004 amounted to USD 150 million, an increase of 77 percent over the previous year. This increase was a result of an increase in the number of mobile subscribers which grew by 93.3 percent in the same period as a result of the company's strategy of aggressive network expansion.
Profitability
In terms of profitability, the EBITDA margin of the operator in Africa increased from 24 percent to 43 percent in 2003, and further reached 44 percent at the end of 2004.
Figure 1 shows the revenue and EBITDA margin for Miliicom's African operations from 2002 to 2004.
Figure 1: Revenue from the Mobile sector in Africa (2002-2004)

Source: Source: Company Reports
Capital Expenditure
The company incurred a CAPEX of USD 76.6 million on its African mobile operations in the financial year 2004. The capital expenditure in 2004 was 221 percent more than that incurred in the previous financial year due to the company's aggressive network expansion strategy.
Operating KPIs
Millicom's total proportionate number of mobile subscribers in Africa at the end of December 2004 was 895,000, an increase of 93.3 percent from the end of 2003. Further, the number of proportionate subscribers continued to increase in the first half of 2005 and had reached 1.14 million at the end of June 2005, registering an increase of 27.5 percent over the subscribers at the end of 2004. In terms of gross values, the number of subscribers had reached 1.43 million by the end of June 2005 in Africa.
Figure 2 shows the total proportionate mobile subscribers of Millicom in Africa from 2002 to end June 2005. Figure 3 depicts the break-up, by geography, of gross mobile subscribers, as at 30th June 2005.
Figure 2: Mobile Subscribers (2002-2005)

Source: Source: Company Reports
(Details of ARPU and Churn Rate were not available from the operator)
Figure 3: Mobile Subscribers in Africa - by Geography (June 2005)

Ownership Structure
As on 31st December 2004, Kinnevik, a Swedish holding company, owned a 35.6 percent stake in Millicom International Cellular S.A.
Recent Developments

The following are some recent developments for Millicom:
Network and Service Expansion
Millicom has been continuously bidding to get licences in countries with a low penetration rate. Some of the recent developments in this regard are:
The company acquired a 10-year GSM licence to provide mobile services in Chad in 2004. Finally in October 2005, Millicom commercially launched its network services.
The company obtained a licence to offer GSM services in the Democratic Republic of Congo in September 2005. In the same month, it started its operations in the country by acquiring Oasis, the mobile network operation of Orascom.
The company obtained a licence to offer 3G services in Mauritius, through its operator Emtel, in 2004, thus becoming the first such operator in Africa. Emtel also got a licence for providing Internet services.
The operating licence of Mobitel in Ghana was renewed for the next 15 years in 2004. Mobitel was also given the option to launch its own international gateway at a cost of USD 2 million.
The company has been offering attractive packages to increase the subscriber base in the existing countries under its service:
In 2004, low denomination cards were launched in Sierra Leone, which were bought by 75 percent of the subscribers. The company also increased affordability of the cards by issuing top-up cards and payment of tariffs in the local currency, Leone. A similar card was later launched in Senegal as well.
The company reduced its mobile service tariffs in the African region. For example, in Ghana the tariffs for international GSM calls and post-paid tariffs were reduced by half.
In 2004, more and more value-added services were introduced in Africa. For example, a 'beep me' service was introduced in Tanzania in which an SMS triggered the recipient to call back to the sender of the message.
In 2004, Millicom adopted e-PIN, which allows electronic purchasing of airtime by dealers and transfer of credit from one mobile to another. It also entered into agreements with banks in Ghana and Mauritius, which enabled the subscribers to retail PINs through their ATMs.
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Future Outlook

Millicom has adopted an aggressive network expansion strategy in Africa. So far, it is not the market leader in most of its countries of operation and as such, it aims to expand its network in existing markets, as well as explore new investment opportunities. The company will likely continue to buy out partners and small competitors as and when the opportunity arises. With the current strong growth rate of 65 percent in proportional subscriber base during the first half of 2005, and favourable economic conditions in the markets, the company's subscriber base is expected to continue growing rapidly. The future outlook for the company's main markets of operations in Africa is as follows:
Senegal
Senegal is the biggest market for Millicom and the number of proportional mobile subscribers in Senegal had increased by 81 percent during the first half of 2005 as compared to the same period in the previous year. The company has been offering innovative and cost-effective services in Senegal to grab a major share in the mobile market.
Ghana
Millicom renewed its operating licence in Ghana in 2004. The number of proportional mobile subscribers in Ghana had increased by 78 percent during the first half of 2005. It has also increased its network to regional capitals and towns. Its market share is expected to rise in Ghana.
Mauritius
The mobile market in Mauritius is well-positioned for the development of the mobile operations of Millicom. With the economy depending on foreign tourists, the number of foreign mobile network operators venturing into international roaming agreements is expected to rise. Further, with the telecom market becoming fully opened, more operators are expected to offer services in the country. Millicom has already launched 3G services in the country, and indeed the UMTS network of Emtel was the first commercially launched 3G network in Africa in November 2004, and the company has focused on network expansion in the country, by deploying more cell sites and offering innovative services to its customers. With this growth in mind, Millicom's subscriber base in Mauritius is expected to grow in 2006.
Chad
Millicom has recently launched its network in Chad. The country's mobile market has good potential for Millicom, as 67 percent of the population of the country is under 25 years of age, and mobile penetration is less than two percent, so a large, untapped youth market should be ripe for growth.
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