Millicom International Cellular SA (MICC)
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distribution and price leadership are driving success for Millicom International Cellular
Mr. Beuls: When I took over in 1998, we were at the stage where we had collected quite a number of licenses across a large number of countries including a number of operations where we only had the minority interest. What we have done since is we have been focusing on a smaller number of markets, and those markets where we have a majority stake and we are the managing partners of the joint venture. As a result, we are now in the position to drive those businesses harder and increase the growth faster than before. If you look at our most recent results, you will see that the growth rates of subscribers and revenue as well as EBITDA (Earnings before interest, tax, depreciation and amortization) have been increasing for quite a number of quarters now.
CEOCFOinterviews: You have had a phenomenal year this past year; what has happened?
Mr. Beuls: A year ago Millicom had sixteen fantastic businesses that were doing well, although we were financially constrained at that time, so we were not able to go as fast as we wanted because we had too much debt on our corporate balance sheet. We started with our balance sheet with a combination of asset sales; we got rid of a number of money losing assets. We also went into negotiation with bond holders who obtained 27% percent of the company through a convertible, and in exchange they reduced the interest cost as well as the principle amount. Following that event, which closed in May 2003, we then did an exchangeable in August against our Tele2 shares, which allowed us to raise cash at a lower interest cost than our debt, so we lowered our interest expense again, so that from that point on, we became cash flow positive. The last piece of the puzzle was the refinancing in November and December where we took out bonds at an average cost of around 12% and bonds for the cost of 10% and that has cut our interest cost at the corporate level from around one hundred and thirty five million dollars eighteen months ago to sixty million dollars today. We have become cash flow positive and we can now invest much more than we have been able to do over the last two years and this has been fueling the business. I think this is just the beginning.
CEOCFOinterviews: Will you tell us about the areas you are involved in and what is the common thread other than all of them being emerging markets?
Mr. Beuls: Because
of the emerging markets we are a high growth market. Penetration levels are still
relatively low in the markets where we are and we see a need for basic telephony that is
not being provided by fixed telephony networks because they are not there and if they are
there, they are in a poor state. Where we provide telephony services, we also tend to
become the telephony company in the country.
CEOCFOinterviews: What infrastructure will you need for this?
Mr. Beuls: We have
to start from scratch because when we go in, we have to buy our switches, build our base
stations and microwave systems, billing systems and prepaid systems. We have to decide if
we are going to change all of our networks into GSM (Global Systems for Mobile
Communications) networks. We think GSM is a better technology than CDMA (Code-Division
Multiple Access), but GSM allows us to separate the hardware from the telephone number to
the sim card concept, which we think is a great concept. That has allowed us to stay out
of the hardware business; we dont want to be in the business of selling phones, we
want to be in the business of selling minutes. That is what we are currently doing from a
technological point of view. We recently signed a contract with Ericsson to exchange all
of our TDMA networks into GSM networks.
Mr. Beuls: Definitely! We typically lead at first or second position in the market place and we see ourselves as a consolidator and we have taken some initiatives in the recent past; these things take their time.
CEOCFOinterviews: You mentioned you are the leader in your areas, how do you maintain that position, and what is the advantage of doing business with you from the customers point of view?
Mr. Beuls: We think that the choice of technology is not necessarily a determining factor here; what is important is branding, distribution and leadership. Those are the three pillars of our strategy in all three markets. That is why we are one of the leaders in those markets and we will be able to stay a leader in those markets.
CEOCFOinterviews: Is this all under one name?
Mr. Beuls: We dont have a common trade name. We use Tango as a brand name in Asia in all of our operations except Vietnam but we dont see the immediate need for a common brand because I think there are very few people that will be going from Paraguay to Vietnam, and from Pakistan to Guatemala. We want to build strong companies in the countries where we are active and then maybe by introducing some new brands, we might evolve to a common brand, but at this point in time we dont see a need for that.
CEOCFOinterviews: Are you working mostly with local people in the various countries, and since there are many cultures involved, how does that work for you?
Mr. Beuls: We typically team up with a local partner; we never go in by ourselves because we are always the foreigners in those countries and we feel that we need the support of local business people in the country. Although we are operating in three different continents and different cultures, we tend to run our companies in the exact same way. Mobile telephony is a straight forward business and we want to operate the services at low cost and the only way to achieve that is by standardization and by the best practices that we have developed across all of our markets. You will see our businesses run in a very similar way from one continent to the other.
CEOCFOinterviews: Are there areas that you plan to go into that you are not now?
Mr. Beuls: Our first priority is focusing on the countries and the businesses that we have. What we want to do is increase our ownership in the businesses. By buying out local partners, we want to increase our market share. Secondly, I would like to look at green fields or acquisitions in adjacent markets. Our plan is not to go into completely new regions, but to focus on the five regions, which are South East Asia, South Asia, Africa, Central America and South America. Those will be the five regions, where we will be focusing as we go forward. We might want to set up a new business in those regions, but essentially focusing on Asia and Africa because that is where we see the highest amount of growth coming from these days.
CEOCFOinterviews: You talked about starting from scratch and building the infrastructure, what is involved in the maintenance of the infrastructure and is it a big part of your expense?
Mr. Beuls: No not really, the biggest cost, are the license fees to the suppliers. That tends to be the biggest cost for the upgrades of the systems. Other than that, it is proven technology and standard equipment and it doesnt require much maintenance.
CEOCFOinterviews: Will you tell us about your phenomenal growth and how you maintain your success?
Mr. Beuls: The growth is accelerating so what we saw in the fourth quarter, where we had record subscriber growth in Asia and Africa, those are the results of us accelerating our investments in all of our markets. You will see more of that accelerated growth in the course of 2004. We are going to be growing a pipeline faster than we have been doing it so far and that is done all by a very consistent and focused roll out of our business concept. Given that we are doing the same thing in all of our markets, we have noticed that it works in all of our markets. Some people will try to copy us and they are welcome to do so, but it is the consistent focused approach, which makes us successful.
CEOCFOinterviews: Have you been successful at retaining your customer base?
Mr. Beuls: Typically a prepaid subscriber stays more than two years on our network. Our post paid subscribers stay about four years. We are using all the techniques that we have seen coming out of the fast moving consumer goods sector. Over the last few years, we have recruited a number of people coming out of that business segment. We bring these practices and that is why we will be able to increase the retention of our customers.
CEOCFOinterviews: Is advertising a big factor, or is it more of a word-of-mouth approach?
Mr. Beuls: It is advertising; we use the same advertising techniques as in the western world. We use television, radio, newspaper and billboards. We outsource our own shops and distribution, so that allows us to keep costs low.
CEOCFOinterviews: What do you have to be on the lookout for in the technology area?
Mr. Beuls: Of course technologies change and we have been upgrading. We have been in the business for about twenty years. We have gone from analog to TDMA (Time Division Multiple Access) networks, to GSM, and we will be going to 3G at some point, which is a third generation of mobile telephony that is about to be implemented and some people have started rolling out in Europe. We will be rolling out those new technologies in the markets where we are. The advantage we have is our involvement in Tele2 A.B., a sister company; we have a six percent share holding in that company. We follow closely the development of these new technologies and how the new technologies including the products, are being brought to the market. We can go through that learning curve and by the time the cost of technologies have come down somewhat we can then begin thinking about rolling them out in our markets. These, things dont just show up overnight and then surprise us, these are things that are happening in Europe, and they will be happening in emerging markets. We will by then know how to deal with those issues, both from a technology point of view as well as from a product offering point of view.
CEOCFOinterviews: What do you see are your biggest challenges going forward and how are you ready?
Mr. Beuls: The biggest challenge for us is to cope with this increased growth. We really see great opportunities in the countries where we are now present. We want to seize the opportunities. We are a relatively small organization, so we will have to work hard to cope with that growth but I am very much convinced that we can do that. The other thing that would keep us awake has more to do with the economic environment; we are operating in countries where the economies are growing very rapidly, and we see from time to time corrections as we have seen in South America over the last few years because of the issues in Brazil and Argentina. Those are the things, which are outside our control and could influence our business. The growth is there in Asia and Africa and is moving as we speak. We will be there to take advantage of that.
CEOCFOinterviews: Is the stability of the government an issue in any of the companies where you are present?
Mr. Beuls: The perception is that there is not much stability in these countries. The reality is that there is much stability in these countries. What we see is that mobile telephony, given the lack of fixed telephony, has become part of the infrastructure of the country, irrespective of who is in power in that country. We want the people to have access to telephony and we just happen to be one of those providers. That is why the concern we have is not because the president or prime minister changes, but that the telephony industry accelerates or slows down. In most of the countries nowadays, which wasnt the case twenty years ago, there is a relatively good regulatory environment although not perfect. The good regulatory environment gives much more security to operators such as Millicom International Cellular.
CEOCFOinterviews: Your stock price has appreciated through the roof this year. Why should investors be interested now, and what should they know that they may not realize when they look at the surface?
Mr. Beuls: First of all, you are correct, our stock price has had a fantastic ride. When I talk to analysts and people that have been following our company very closely, they say that we still trade at a discount compared to our peers; 25% to 50%. Clearly there is an upside. The peers people compare us to are operators that are active in markets that are lower growth; people that are operating in more mature markets. We are operating in high growth markets and that is an upside. That is why I think there is still a great opportunity in the stock. Secondly, because of one business we acquired and reacquired in September of last year, some people dont realize the real size of the business; it is only going to be in the fourth quarter numbers that we are going to publish on February, 10th that people are going to see what the real size of the business is, in terms of revenue and operating profit. On top of that, given all the restructuring we had been doing in 2003, the balance sheet doesnt necessarily reflect the real level of debt which we have today; the balance sheets always reflect the past, so at the end of the year people will see a clean balance sheet after the restructuring. I think that is going to open some eyes in Europe and here in the United States.
CEOCFOinterviews: What is your focus as CEO?
Mr. Beuls: I talk to my people that are running the businesses on a day-to-day basis to make sure they run the businesses in the way we want them to run them. I deal with our partners around the world, and I deal with the important issues such as the license deals in Pakistan and Vietnam. Those are the issues where I am focusing, other than the financial markets, and dealing with our investors and trying to get more shareholders on board. I keep busy with those things all day.
CEOCFOinterviews: In closing, what would you say people dont understand about your industry and the markets that you are in?
Mr. Beuls: I think what most people dont understand is what is currently happening in Asia. When people talk about telephony, it is an industry that is coming out of Canada, and most people forget about what is going on in Asia. As much success that there is in China; we are not active in that market, however that is being replicated in some of the markets where we are active today like Vietnam. We see a great presence in Pakistan as a result of the negotiations between the Pakistani president and the Indian prime minister. We clearly can see a free trade zone being created there, which will grow those economies faster than they will be growing in the past and I think that is what most people fail to understand.
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