Millicom International Cellular S.A. (TIGO) Earnings Call Transcript & Summary

Well, hello, everybody. I hope you and your families are safe. Thanks so much for joining our conference -- virtual Barcelona conference. We have the pleasure to have Mauricio Ramos and Michel Morin from Millicom today. We'll be discussing [Audio Gap] near-term trends, outlook, et cetera. [Operator Instructions] With that, Mauricio and Michel, thank you so much for your time.

If it's okay with you, let me start with some near-term questions regarding your performance. When I look at Millicom, you operate in a footprint that has been severely impacted by COVID restrictions. Can you walk us through what are you seeing in terms of the pace of recovery on the mobile side, on the prepaid side, maybe a little bit of color in some of your major markets, please?

Sure. Thanks a lot, Cesar. Thank you for having us, Michel and, I here; and thank you, everybody, for joining today. Again, I hope everyone's safe and so are your families. The premise to your question is absolutely correct. As I'm sure you guys all know, we faced in our markets we operate some of the more severe or strict lockdowns that the world saw during the worst of the pandemic. And as a result of that, our business was significantly impacted. As you may also know, we reacted, knowing these markets as we did, pretty quickly and then pretty robustly, I would say. And then we set out a framework early on, just pretty much in our Q1 call, in which we said we were going to set out to do basically 5 goals for the year. And one was to protect our employees, to keep them safe, and we have done that. And we did that with the purpose that those employees who would indeed continue to build and sustain and maintain those digital highways that are our long-term purpose so that our communities could be connected throughout the pandemic. That was our goal number 2, and I'm very proud to say that our service has been up 24/7 every day during the pandemic. We also said that our third objective during the pandemic would be to keep our customers connected. That was not simply the right thing to do. It was not simply the smart thing to do vis-à-vis regulators that would have -- otherwise would have come to regulators heavily on these matters, but it was also the right thing to do from a customer friendliness and market savvy point of view because by continuing to provide what we call the minimum product, the lifeline service product, we were able to protect our market share and keep our subscribers right there for the time when we were ready to come back. And it has proven to be very, very smart. The fourth thing we did, and we told you right on was, of course, we're going to put a COVID plan, a financial COVID plan in place, which effectively meant we're going to cut back on expenses. We're going to cut back on some of the growth-driven CapEx -- because we knew that growth wasn't going to be there -- while maintaining the long-term strategic network investments, whether it's network modernization in mobile, some significant CapEx to continue to build that fixed and the networks related to some of our new spectrum in El Salvador and Colombia. And while doing all that, we said we can deliver $1.4 billion for the full year, which is going to effectively mean investors are no worse off than they were the last year before this. So we set out a goal to sustain cash flow as a result of this. And the fifth thing we said is, quite obviously, our focus is going to shift. Before the pandemic, we had done a number of acquisitions. We were comfortable with a long-term delivery plan and a shareholder remuneration plan that made sense for those times. Because of the pandemic, we said the risk profile of the company and the markets we operate in and our balance sheet has dramatically shifted, we're now going to focus on delevering the business. And now we've done that for 2 quarters, and we've put a lot of focus on that. So we set out to do those 5 things for the protection of our customers, our employees, our investors, our communities, and it has proven to be the right thing to do. Now specifically, Cesar, and I'm just going to address prepaid because you asked about it, and then we can -- I’m going to stop there -- specifically with prepaid, it was the fastest of our lines of businesses to disappear almost radically because it was completely related to the lockdown. And these were some of the most strict, strict lockdowns. I know people were not out [ available ] with the exception of Guatemala and Nicaragua, people were not allowed out of their homes for very lengthy periods of time. And as a result of that, we saw mobility almost disappear, and with that the prepaid business. But we made that one decision that I was clear on during Q1. I remember when I was asked the question, I said, we're not going to let go our commercial distribution team. We need them there ready on standby because this is a prepaid business to a large degree. So we need them to be ready to be able to sell when the lockdowns come off, ease off. And that happened. And the minute it happened, because our distribution networks were out there, we were on the streets, we've seen our prepaid business rebound extremely well. We now have the -- just about the exact same prepaid subscribers or users that we had before the dynamic, and that's pretty remarkable. So prepaid had certainly has carried the comeback. I'm going to stop there to...

One quick follow-up on the prepaid. I mean we -- as you mentioned, there was a significant sequential improvement in that line item. I know that we are already mid-November to some extent. But that strength that you saw in the third quarter, has it continued in the fourth quarter? What are you seeing of some near-term indications, to the extent that you can comment on that?

Yes. So I mean, we've seen a continued improvement of our business throughout the year, and it has kept on prepaid. And now we see a small -- the beginnings of the recovery in postpaid. Cable, we can talk about separately, has been extremely resilient, nothing other than continued growth. And B2B, we can talk about each segment separately. B2B remains a question mark. So no doubt, Q4 is shaping up strong. But I don't want to get carried away, right, because that's sequential, right? I mean it's a continuation of a trend that we already see. I think the key thing is that we need to be mindful that we're still in the middle of a pandemic. We really are still in the middle of a pandemic, vaccine or no vaccine, right? There will be a vaccine at some point in time, and they will slowly make it to our countries, et cetera, et cetera. But 2021 is still going to be -- when a storm goes by -- I’m a sailor, so I keep making these references -- the winds disappear, the waters remain convoluted for a long period of time. And some say, it's -- you need to pay attention to that because that's when you get thrown off. So I'm cautious about the recovery taking a little longer than just a couple of quarters. And…

All right. So on the -- a good segue into the other parts of the business, you've seen a recovery in the prepaid. But what are you seeing on the B2B side, on the cable part across your main markets?

Yes. So let's go kind of with the more concerns, and then we'll end up on a very positive tone, I think. So B2B is an area in which we remain cautious, and it's going to take the longest, I think, to recuperate. The reason for that is the SME part of our business -- B2B would be at about 15% to 20% of our business, give or take, depending on how you're counting. But about 1/3 of that is -- and we want to grow over time -- is the small and medium enterprises because I think that's where you have the most pricing power and the long-term affinity with the cable footprint that we're building and our business-to-consumer business. But particularly in Panama and, to a lesser degree, in Colombia, we see a lot of those small businesses, restaurants and small little shops, just have taken it really on the chin throughout the pandemic. Liquidity has caused some of them to be permanently closed, maybe temporarily closed. So we haven't yet seen on B2B something that allows me to say it's coming back. It's just -- again, we're in the middle of it. And once you face liquidity crisis as a small shop, it takes a while for you to come back. I'm long term very bullish because I have said these individuals, these families, this economy needs those small businesses. But their recovery is going to be slow. And the second reason I think B2B is going to be slower is simply because, particularly in Panama and Colombia, we're seeing a lot of government contracts, and elsewhere as well, just simply delayed. Governments have other priorities, not B2B. And so I think those are not going to come back very quickly. So those are on the more cautious side of the equation. Then the postpaid side of the business, some of the -- we've lost throughout the year as a result of the pandemic some 400,000 postpaid subscribers. If you recall before the pandemic, we have been adding on a yearly run rate basis around 300,000, 350,000 new postpaid subscribers, which were migrations from prepaid and new subscribers. That was up from 250,000 the year before, up from 150,000 the year before, and from 50,000 the year before. So we were in a nice gliding path, and we had a system. The pandemic caused subscribers to be a lot more cautious, and they migrated to prepaid or they made use of WiFi. So we lost 400,000 at $20 ARPU, give or take. Those we’re not going to recuperate overnight; they’re not like prepaid. It's going to take a longer recovery path, well into the later part of next year. And we're beginning to see cautious signs of postpaid recovering, but people are still very holding on to their wallets and not making long-term commitments, as you do on postpaid. Now the most -- certainly, the most resilient business has been cable. Year-to-date, even through the pandemic, we're up north of 200,000 cable subs or cable net adds, even in a year of the pandemic, which is pretty amazing, pretty resilient. And our ARPU in dollar terms has actually held up, same ARPU. We haven't been able to raise prices, but we've been able to hold ARPU. Now for a quarter, you saw the cable revenue remain positive, but only 1.5%. But that was -- it was largely because for a few months, we weren't billing the lifeline subscribers. So we didn't take that revenue. But that's gone. That was a blip of 1.5 quarters. We now have more subscribers than we did before, and we have the same ARPU. So that business is, as we speak, growing high single digits. And that's just the nature of that business. And we will see it not only very resilient but very robustly growing into the future. You've heard our story. You know that we believe that.

Related to that, let me take one question from the audience on the cable business. How much of the resiliency in revenue growth of the cable part has been related to increases in consumers upgrading their products? And how much capacity do you have to deliver better ARPUs given the network that you have in place?

Yes. Great question. I like the granularity, but it's very good. Listen, this was not a year in which we either took upgrades; if anything, the minimum product was a way to downgrade someone for a period of time, just hold them there, give them something for free. And for us, today, an upgrade is simply bringing someone back into a paying customer. So very little of upgrades this year and 0 price increases this year. And I caution into next year, when I say we look at a robust cable business, I'm going to be very, very cautious. I'm going to err on the side of volume next year, not on the side of ARPU or price increases. Just to put it bluntly, it would be a political error to put our price increase through in the middle of a pandemic next year. So we're not going to invite populist regulation on us when we can [ overarch ] it.

Got it. Speaking on -- about pricing trends, et cetera, another question from the webcast relates to Colombia, which is, you have now the entering of WOM. What are the key challenges? And how do you see these playing out?

Yes. Another really good one, Colombia. When I -- when we get the question of Colombia from our Board, or from an investor or an analyst and anyone, we try to always go a little bit bigger picture. Yes, there's a new entrant. That's not the only thing that has changed in the market. And in order to understand Colombia, you have to bake in all of the things that are making Colombia market in flux, is what I call it. Yes, there's a new entrant. That entrant has replaced an existing player. So the number of players is still 4 in the market. There's not an additional player. Now this player is different in the sense that this player comes in with an aggressive agenda, no doubt, price-driven agenda, volume-driven agenda, and comes with more spectrum than Avantel had because they bought some and they acquired some. But it also comes into a market that is in flux for other reasons and a much more difficult market to cause havoc on. This market is in flux because we ourselves have been building a ton of cable in Colombia. We now have the second largest fiber cable network in our market. There's basically 2, Claro and ourselves. We're not as big in terms of our footprint as they are, but we're pretty meaningful. So this is a market in which convergence will play a role or, at a minimum, uploading will play a role. And we have the second best network to do that. Number two, this is a market in which unlimited already exists -- I mean unlimited world, which we brought into the market, by the way, in which -- in an unlimited world, those with the ability to upload tend to do better than those who do not have the ability to upload. And the guys that can upload are basically Claro and ourselves, much more than others. The next thing that is significantly in flux as you look at Colombia completely is that not only do we have a fixed convergent network now, but we've attained low spectrum -- low frequency spectrum that we didn't have before. That's a new change. We're now the largest holder of 700 megahertz spectrum in Colombia. Effectively, we have an empty network, and we've run like heck to build our network. I think we showed you some statistics. We are significantly built on that network. We put a lot of traffic on that network. And that network allows us to have better indoor coverage, much more indoor coverage than we ever did before. If you were in the building in Medellín or Bogota until a year ago, you really weren't good -- getting good cell service. We're increasing geographic coverage. We're actually in areas today which we were never before, and we can deliver at a price -- at a much lower cost than we did before, because before we only had high frequency spectrum. And if you put all of this, Cesar and everybody on the call today, with the notion that we have 15% to 20% mobile market share in Colombia, all of this does not make us think of ourselves as defending market share in Colombia, as being in a position of being an incumbent, no matter what the advertising from the new player is. The reality is we think of ourselves as challengers in the marketplace. Now I don't kid myself, and I don't want anyone here to think that I'm kidding myself; there is going to be price pressure, no doubt. But with only 15%, we stand to gain on some volume as well and better position ourselves in Colombia. So the question around Colombia is a lot bigger than, "Hey, WOM is going to come in. They're going to do what they did in Chile." I don't really think it's that easy.

A quick follow-up on that. Like can you comment a little bit in terms of the commercial distribution of where do you see yourself relative to where do you see WOM, as in point of sale, this type of...

It's a massive difference, Cesar. I mean I cannot really give you commercial data because I don't want to make it easy on the other guys, and I cannot relay them to you. But one of the things you're seeing in Colombia is everything that we have said in Colombia in terms of efficiencies, of which there were plenty to attain, we've invested now into bigger network and a bigger distribution arm. And you already have begun to see a little bit of that in Q3. We picked up some subscriber bases in Q3. Some of that is the distribution and the new network. There is the commercial distribution and the new network in there. We're not sitting here just thinking we're just going to defend. That is not why we bought the spectrum.

Understood. Switching to Bolivia, there's a couple of things that have changed in that market. Primarily, you have a new government in place, et cetera. What does that mean to your business? And can you give us some color in terms of the competitive trends that you're seeing over there in both businesses, mobile and fixed?

That's a great -- I mean as you know, Bolivia has been a great market for us. When I joined Millicom, one of the good decisions we took was to start building cable there like there was no tomorrow because there was very little cable. And in just a very short period of time, we built a network that passes north of 1 million homes, almost 0.5 million cable subscribers and just a very resilient business we've really created. And we've continued to increase our position in mobile. 2 years ago, we started to see a ton of instability in Bolivia, political instability. First, it was social, then came the elections and, of course, then came COVID. I don't think we have full perfect clarity and visibility and stability just yet. So as always, we're being very cautious. But where we sit here, from where we sat a month or 2 ago, COVID is not anymore out of control in Bolivia than it is anywhere around the world. It sort of seems to have -- I wouldn't say put under control, but it's not an exponentially growing concern, and I'm knocking on wood here because I want to be cautious. But it seems like the country is weathering that. And most importantly, the new government came in whether you like it or not, right? Two things can be said: you can have whatever views you want to have on Evo; he gave the country many years of stability and economic growth. We're not in the business of politics. So President Arce seems to be given, with the strong mandate that he got, the hope of stability for Bolivia. We’ve seen little social unrest. He won clearly and with a strong mandate, and that seems to have calmed down the political sort of tensions. And he also seems to be someone who really gets economics. He was the economy minister for a number of years during the Evo administration. He's more of a technocrat than he is a populist politician. So we've got to believe that he will have the economy, first and foremost. Now Evo is back in Bolivia, as many of you may know. So he may or may not choose to stay in the sidelines. And he may or may not choose to be supported. But where we are today is far better than where we were 2 months ago both in terms of COVID and in terms of political stability. Question mark remains, Cesar, around what the new administration is going to do with regards to Entel. Part of the instability that we faced in Bolivia was not only social, COVID, political instability over the last 18 or so many months, it was also that Entel started to be used as a -- to some extent, as a political tool. It is unclear -- meaning lower prices, populist messages, Evo is showing up in the advertising -- I hope I'm giving you color there -- after many years of a very diligent management of the business, for no political purposes whatsoever. At this point in time, and I want to be very transparent because I'm going to be very balanced, we are uncertain ourselves as to -- yes, there's more political stability, COVID does not seem to be running out of control, but we don't know yet how Entel is going to be managed, with what vision and purpose in mind. And that's partly because the regulator hasn't been named -- the new Head of Entel hasn't been named and the Minister of Public Goods and Telecommunications have yet been named. So we'll know more in the next few weeks.

Got it. I got a few questions regarding Tigo Money. You have seen an increase in transactions. How much is that is COVID induced? How much is that like a structural? What are the growth expectations going forward, and if you have any plans to keep it, monetize it, breaking it out? Or what is the strategic view on that business? Several questions packed into one.

Yes. Told you, Michel. We should have not mentioned Tigo Money.