Annual Reports

  • 20-F (Mar 2, 2012)
  • 20-F (Mar 7, 2011)
  • 20-F (Mar 5, 2010)
  • 20-F (Mar 31, 2009)
  • 20-F (Apr 3, 2008)
  • 20-F (Apr 20, 2007)

 
Other

Millicom International Cellular S.A. 20-F 2006

Documents found in this filing:

  1. 20-F
  2. Ex-1.1
  3. Ex-12.1
  4. Ex-12.2
  5. Ex-13.1
  6. Ex-13.2
  7. Ex-13.2

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

 

o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

 

OF 1934

For the fiscal year ended December 31, 2005

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

OR

o

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number    000-22828

MILLICOM INTERNATIONAL CELLULAR S.A.

(Exact name of Registrant as specified in its charter)

GRAND-DUCHY OF LUXEMBOURG

(Jurisdiction of incorporation or organization)

75 Route de Longwy, L-8080 Bertrange, Grand-Duchy of Luxembourg

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act: None

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Common shares with a par value of $1.50 each:  99,703,598 as of December 31, 2005

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes   No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o   No x

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   x

Accelerated filer   o

Non-accelerated filer   o

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o   Item 18 x

 




TABLE OF CONTENTS

 

 

 

 

 

Page

FORWARD-LOOKING STATEMENTS

 

3

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

 

3

PART I

 

5

 

 

ITEM 1.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

5

 

 

ITEM 2.

 

OFFER STATISTICS AND EXPECTED TIMETABLE

 

5

 

 

ITEM 3.

 

KEY INFORMATION

 

5

 

 

ITEM 4.

 

INFORMATION ON THE COMPANY

 

20

 

 

ITEM 5.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

62

 

 

ITEM 6.

 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

92

 

 

ITEM 7.

 

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

100

 

 

ITEM 8.

 

FINANCIAL INFORMATION

 

102

 

 

ITEM 9.

 

THE OFFER AND LISTING

 

102

 

 

ITEM 10.

 

ADDITIONAL INFORMATION

 

103

 

 

ITEM 11.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

110

 

 

ITEM 12.

 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

114

PART II

 

115

 

 

ITEM 13.

 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

115

 

 

ITEM 14.

 

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

115

 

 

ITEM 15.

 

CONTROLS AND PROCEDURES

 

115

 

 

ITEM 16A.

 

AUDIT COMMITTEE FINANCIAL EXPERT

 

116

 

 

ITEM 16B.

 

CODE OF ETHICS

 

116

 

 

ITEM 16C.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

116

 

 

ITEM 16D.

 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

116

 

 

ITEM 16E.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES

 

116

PART III

 

117

 

 

ITEM 17.

 

FINANCIAL STATEMENTS

 

117

 

 

ITEM 18.

 

FINANCIAL STATEMENTS

 

117

 

 

ITEM 19.

 

EXHIBITS

 

117

 

2




FORWARD-LOOKING STATEMENTS

Certain of the statements made in this document may be considered to be “forward-looking statements” as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995, such as statements that include the words “expect”, “estimate”, “believe”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “may”, “target”, “goal”, “objective” and similar expressions or variations on such expressions. These statements appear in a number of places throughout the document including, but not exclusively, “Information on the Company”, and “Operating and Financial Review and Prospects”. These statements concern, among other things, trends affecting the Company’s financial condition or results of operations, capital expenditure plans, the potential for growth and competition in areas of the Company’s business, the potential for new agreements or extensions of existing agreements to be signed with business partners or governmental entities or licenses to be granted by governmental authorities, and the supervision and regulation of the telecommunications’ markets. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties; actual results may differ materially as a result of various factors.

These factors include, but are not limited to:

·       general economic conditions, government and regulatory policies and business conditions in the markets served by the Company and its affiliates;

·       telecommunications usage levels, including traffic and customer growth;

·       competitive forces, including pricing pressures, technological developments and the ability of the Company to retain market share in the face of competition from existing and new market entrants;

·       regulatory developments and changes, including with respect to the level of tariffs, the terms of interconnection, customer access and international settlement arrangements, and the outcome of litigation related to regulation;

·       the success of business, operating and financing initiatives, the level and timing of the growth and profitability of new initiatives, start-up costs associated with entering new markets, costs of handsets and other equipment, the successful deployment of new systems and applications to support new initiatives, and local conditions; and

·       the availability, terms and use of capital, the impact of regulatory and competitive developments on capital outlays, the ability to achieve cost savings and realize productivity improvements, and the success of the Company’s investments, operations and alliances.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of filing hereof with the U.S. Securities and Exchange Commission. Millicom International Cellular S.A. undertakes no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in Millicom International Cellular S.A.’s business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Unless the context otherwise requires, the term the “Company” refers only to Millicom International Cellular S.A., a stock corporation organized under the laws of the Grand-Duchy of Luxembourg, and the term the “Group”, “Millicom”, “we”, “us” or “our” refers to Millicom and its subsidiaries, joint ventures and affiliates. Unless the context otherwise requires, when used herein with respect to a licensed area, “persons”, “population” and “pops” are interchangeable and refer to the aggregate number of persons located in such licensed area and “equity pops” refers to the number of such persons in a licensed area multiplied by the Group’s ownership interest in the licenses for such licensed area. The term “Attributable

3




Subscribers” refers to the 100% of subscribers in the Group’s subsidiaries and the Group’s percentage ownership of subscribers in each subsidiary and joint venture. Persons, population and pops data for 2005 and 2004 have been extracted from the “CIA—The World Factbook” for 2005 for countries where the license area covers the entire country except Guatemala where the population data for 2005 has been extracted from the National Institute of Statistics (INE). In addition, information on the countries in which Millicom operates has been extracted from the “CIA—The World Factbook” for 2005 with updates, where appropriate, from the U.S. Department of State’s website. Market share data and penetration rates have been obtained from EMC, a cellular market research firm. EMC is aware of, and has consented to being named, in this report, which consent may be incorporated by reference into registration statements we file with the SEC.

Unless otherwise indicated, all financial data and discussions thereon in this annual report are based upon financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) and subscriber figures represent the total number of mobile subscribers of systems in which the Group has an ownership interest. In this report, references to “dollars” or “$” are to U.S. dollars, references to “SEK” are to Swedish krona and references to “Euro” or “” are to the Euro.

As a foreign private issuer, the Company is exempt from the proxy rules of Section 14 under the Securities Act of 1934, as amended (the “Exchange Act”), and the reporting requirements of Section 16 under the Exchange Act.

4




PART I

ITEM 1.                IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable for Annual Report filing

ITEM 2.                OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable for Annual Report filing

ITEM 3.                KEY INFORMATION

Selected Financial Information

The Group reports under International Financial Reporting Standards, as adopted by the European Union (“IFRS”). The following tables present comparative information under IFRS and U.S. generally accepted accounting principles (“U.S. GAAP”). For a reconciliation of our IFRS net profit and balance sheet to U.S. GAAP and a discussion of the principal differences between the accounting policies applied by us under IFRS and U.S. GAAP, please see Note 37 of the “Notes to the Consolidated Financial Statements”.

The following table sets forth summary financial data of the Group as of and for the years ended December 31, 2005, 2004, 2003, 2002, and 2001. The data are based upon the Group’s audited consolidated balance sheets as of December 31, 2005, 2004, 2003, 2002 and 2001 and audited consolidated statements of profit and loss for the years then ended. The following information is qualified in its entirety by, and should be read in conjunction with, such statements.

Unless otherwise indicated all financial data and discussions in this document are based upon financial statements prepared in accordance with IFRS.

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

 

 

Year Ended December 31,

 

 

 

2005

 

2004

 

2003

 

2002

 

2001

 

 

 

(in thousands of U.S. dollars, except per share data)

 

Amounts in accordance with IFRS

 

 

 

 

 

 

 

 

 

 

 

Profit and Loss Statement Data:

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

1,083,669

 

917,492

 

640,363

 

600,518

 

642,286

 

Operating profit

 

202,173

 

247,189

 

164,372

 

121,519

 

93,080

 

Valuation movement on investment securities

 

(63,356

)

(127,158

)

246,760

 

(299,963

)

(15,931

)

Profit/(loss) for the period from continuing operations(1)

 

9,368

 

66,016

 

180,329

 

(501,269

)

(136,198

)

Profit/(loss) for the period

 

10,043

 

65,891

 

176,921

 

(385,143

)

(138,053

)

Basic earnings (loss) from continuing operations per common share

 

$

0.09

 

$

0.79

 

$

2.76

 

$

(7.68

)

$

(2.09

)

Basic earnings (loss) per common share

 

$

0.10

 

$

0.79

 

$

2.71

 

$

(5.90

)

$

(2.12

)

Weighted average number of shares in basic computation (in thousands)(2)

 

98,803

 

83,335

 

65,312

 

65,272

 

65,256

 

Diluted earnings (loss) from continuing operations per common share

 

$

0.09

 

$

0.74

 

$

2.28

 

$

(7.68

)

$

(2.09

)

Diluted earnings (loss) per common share

 

$

0.10

 

$

0.74

 

$

2.24

 

$

(5.90

)

$

(2.12

)

Weighted average number of shares in diluted computation (in thousands)(2)

 

99,921

 

90,312

 

80,500

 

65,272

 

65,256

 

Dividends per share

 

 

 

 

 

 

 

5




 

 

 

As of December 31,

 

 

 

2005

 

2004

 

2003

 

2002

 

2001

 

 

 

(in thousands of U.S. dollars)

 

Amounts in accordance with IFRS:

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

671,774

 

575,649

 

487,695

 

456,320

 

509,247

 

Intangible assets, net

 

373,253

 

317,968

 

83,818

 

99,562

 

232,801

 

Financial assets at fair value through profit or loss

 

327,803

 

397,137

 

375,583

 

265,571

 

659,440

 

Investments in associates(3)

 

5,367

 

2,220

 

1,340

 

1,013

 

52,858

 

Total assets

 

2,559,422

 

2,046,213

 

1,522,949

 

1,203,119

 

1,870,930

 

Current liabilities

 

909,008

 

505,884

 

399,351

 

375,862

 

469,191

 

Non-current liabilities

 

1,070,140

 

1,259,892

 

1,182,207

 

1,098,783

 

1,322,583

 

Minority interest

 

34,179

 

43,351

 

26,571

 

23,733

 

10,262

 

Shareholders’ equity/(deficit)

 

299,371

 

237,086

 

(85,180

)

(295,259

)

68,894

 

 

 

 

As of and for Year Ended December 31,

 

 

 

2005

 

2004

 

2003

 

2002

 

2001

 

Operating Data (unaudited)(4):

 

 

 

 

 

 

 

 

 

 

 

Total Subscribers

 

 

 

 

 

 

 

 

 

 

 

Prepaid

 

8,426,308

 

6,739,559

 

4,956,257

 

3,448,269

 

2,525,279

 

Postpaid

 

502,677

 

973,642

 

734,285

 

554,642

 

604,327

 

Monthly churn (%)(5):

 

 

 

 

 

 

 

 

 

 

 

Prepaid

 

4.3

 

4.4

 

4.7

 

4.2

 

4.0

 

Postpaid

 

1.7

 

1.7

 

2.1

 

3.2

 

4.1

 

 

 

 

Year Ended December 31,

 

 

 

2005

 

2004(7)

 

2003

 

2002

 

2001

 

 

 

(in thousands of U.S. dollars, except per share data)

 

Amounts in accordance with U.S. GAAP(6):

 

 

 

 

 

 

 

 

 

 

 

Profit and Loss Statement Data:

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

1,262,239

 

9846,965

 

404,801

 

326,123

 

312,602

 

Operating profit

 

281,878

 

244,876

 

76,166

 

1,973

 

74,730

 

Valuation movement on investment
securities

 

 

 

5,597

 

(299,963

)

(15,931

)

Profit (loss) for the period from continuing operations(1)

 

112,349

 

192,658

 

(58,014

)

(341,507

)

(123,276

)

Profit (loss) for the period

 

82,329

 

188,871

 

(50,357

)

(322,563

)

(172,176

)

Basic earnings (loss) from continuing operations per common share

 

$

1.14

 

$

2.31

 

$

(0.89

)

$

(5.23

)

$

(1.89

)

Basic earnings (loss) per common share

 

$

0.83

 

$

2.27

 

$

(0.77

)

$

(4.94

)

$

(2.64

)

Weighted average number of shares in basic computation (in thousands)(2)

 

98,803

 

83,335

 

65,312

 

65,272

 

65,256

 

Diluted earnings (loss) from continuing operations per common share

 

$

1.12

 

$

2.13

 

$

(0.89

)

$

(5.23

)

$

(1.89

)

Diluted earnings (loss) per common share

 

$

0.82

 

$

2.09

 

$

(0.77

)

$

(4.94

)

$

(2.64

)

Weighted average number of shares in diluted computation (in thousands)(2)

 

99,921

 

90,312

 

65,312

 

65,272

 

65,256

 

 

6




 

 

 

As of December 31,

 

 

 

2005

 

2004(7)

 

2003

 

2002

 

2001

 

 

 

(in thousands of U.S. dollars)

 

Amounts in accordance with U.S. GAAP(6):

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

754,178

 

619,786

 

359,365

 

286,372

 

376,676

 

Intangible assets, net

 

492,843

 

382,497

 

131,482

 

55,562

 

213,189

 

Financial assets at fair value through profit or loss

 

327,803

 

397,137

 

375,583

 

265,571

 

659,440

 

Investments in associates

 

20,527

 

44,646

 

96,727

 

175,007

 

187,114

 

Total assets

 

2,842,460

 

2,237,561

 

1,508,987

 

1,133,721

 

1,727,079

 

Current liabilities

 

987,213

 

575,713

 

374,421

 

270,910

 

339,311

 

Non-current liabilities

 

1,151,061

 

1,296,870

 

1,173,075

 

1,033,743

 

1,302,088

 

Minority interest

 

180,786

 

103,598

 

27,870

 

23,733

 

10,262

 

Shareholders’ equity/(deficit)

 

275,830

 

260,070

 

(68,201

)

(286,575

)

72,778

 


(1)          Under IFRS, Millicom Peru S.A., MIC Systems, disposed of in 2002 and FORA Telecom BV, disposed of in 2001 have been reported as discontinued operations in our consolidated financial statements. Under U.S. GAAP, MIC Systems, Liberty Broadband Limited (formerly Tele2 (UK)), Celcaribe S.A. Millicom Peru S.A., Pakcom Limited and Millicom Argentina S.A. have been reported as discontinued operations. A more complete description of discontinued operations is contained in Notes 5, 12 and 37 of the “Notes to the Consolidated Financial Statements”.

(2)          The average number of shares disclosed above has been adjusted for each year presented to reflect the reverse share split effected in February 2003, whereby three existing shares with a par value of $2 each were exchanged for one new share with a par value of $6 each; and the share split effected in February 2004, whereby one existing share with a par value of $6 each was exchanged for four new shares with a par value of $1.50 each. The average number of shares, which is calculated on a weighted average basis, does not include shares held by us that have no voting, dividend or other rights (654,852 shares at December 31, 2005). These shares have been allocated to holders of stock options on January 18, 2005 upon the exercise of some of their stock options.

(3)          Investments in associates under IFRS represented as at December 31, 2005, Navega.com S.A. and Metrored S.A.; as at December 31, 2004, 2003 and 2002, Navega.com S.A.; and as at December 31, 2001, Millicom’s operation in El Salvador. See “Operating and Financial Review and Prospects—Results of Operations”. Under U.S. GAAP, investments in associates also includes Emtel Limited.

(4)          Operating data excludes divested operations.

(5)          We calculate churn rates by dividing the number of subscribers whose service is disconnected during a period, whether voluntarily or involuntarily (such as when a subscriber fails to pay a bill) by the average number of subscribers during the period. We believe that we apply conservative policies in calculating customer totals and the related churn rates. However, these policies may result in different churn rates and market share figures than if we had used criteria employed by some other operators in calculating customer churn and market share.

(6)          As described in Note 37 of the “Notes to the Consolidated Financial Statements”, under U.S. GAAP, we should consolidate our investment in Great Universal, Inc. and Modern Holdings Incorporated. The U.S. GAAP Selected Financial Data in the table above for the years ended December 31, 2005, 2004 and 2003 for the profit and loss data and as of December 31, 2005, 2004, and 2003 for the balance sheet data include the effect of their consolidation but for 2002 and 2001 do not include the effect of their consolidation. See Note 37 of the “Notes to the Consolidated Financial Statements”.

7




(7)          Millicom adopted FIN 46R (Financial Interpretation No. 46, revised 2003 Consolidation of Variable Interest Entities) on March 31, 2004 for entities created prior to February 1, 2003 and, as a result, began consolidating its interest in the following Variable Interest Entities: (i) Cam GSM Company Limited, a joint venture of Millicom in Cambodia, (ii) Royal Telecam International Limited, a joint venture of Millicom in Cambodia, (iii) Millicom Argentina S.A. (sold in September 2004), a former joint venture of Millicom in Argentina and (iv) Comunicaciones Celulares S.A., a joint venture of Millicom in Guatemala. The impact of adopting FIN 46R is disclosed in Note 37 to the Consolidated Financial Statements.

8




RISK FACTORS

Strategic Review and Possible Imminent Change of Control

On January 19, 2006, our Board of Directors announced that following recent receipt of a high number of unsolicited approaches, the Board decided to conduct a review of strategic options for the Company and appointed Morgan Stanley as financial advisor. As of the date of filing this Form 20-F, the strategic review is ongoing and since that announcement, the Company has solicited and received non-binding offers for the acquisition of the entire share capital of the Company. However, there is no certainty as to whether any of these offers will lead to a transaction, and, if any transaction is agreed, there is no certainty as to the timing, structure or terms of any transaction.

Our stock price has increased significantly since the announcement of the strategic review. If upon completion of the strategic review, a transaction does not occur, it is not known how the markets will interpret such an event and it is possible that the market reaction could cause our share price to decrease.

In the event that any transaction does occur, it may result in the possible de-listing of the Company from the NASDAQ National Market and the Stockholm Stock Exchange.

Risks Relating to our Business

This report contains “forward looking” statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward looking statements. Factors that might cause such differences include those discussed below and elsewhere in this report. See “Forward Looking Statements”.

Country Risks

We operate in some markets that are politically unstable, and this instability may negatively affect our operations.

We have interests in mobile telephone licenses in 16 countries around the world and are subject to government regulation in each market. Most of the countries in which we operate are emerging economies and are, therefore, subject to greater political and economic risks than developed countries. The governments of the 16 countries differ widely with respect to type of government, constitution and stability, and most of these countries lack mature legal and regulatory systems. Some of the countries in which we operate are suffering from political instability and civil unrest, such as Sri Lanka and Chad currently, and these problems may continue, worsen or arise in the future. As a result, we face the risk that our networks may be disrupted in particular countries, which would adversely affect our revenues or results of operations.

In order for our operations to provide mobile services, they must receive a license from the government of the countries in which they operate. Our ability to operate is dependent on the licenses granted by the government of each country. These licenses generally allow our operations to operate for a number of years after which they are subject to renewal. To the extent that our operations depend on governmental approval and regulatory decisions, the operations may be adversely affected by changes in the political structure or government representatives in the relevant market. For instance, if a government decides to revoke a license, our recourse is to the legal system of the relevant country. Because the legal and court systems of most countries in which we operate are not highly developed and are subject to political influence and other inherent uncertainties, it might be difficult to obtain a fair or unbiased resolution. Recent political and economic changes have resulted in political and regulatory uncertainty in certain countries in which we operate. There is also a risk that a country in which we operate may arbitrarily decide to expropriate the assets of one of our operations, in which case it is possible that we will receive no adequate compensation for the expropriation.

9




In addition, some of the countries in which our operations operate have volatile economies. Downturns in the economies of any particular country, or of a region generally, may adversely affect demand for our services, which would result in reduced revenues.

We have operations in Iran and may exercise an option to acquire equity in an Iranian company, which may subject us to political and regulatory risk.

In 2004, we entered into agreements with Rafsanjan Industrial Complex Islamic Cooperative Company (RIC), an Iranian company, under which we manage a mobile telephone network in Iran developed and owned by RIC.

We are a non-U.S. company and our management contract in Iran is not subject to the Iran-Libya Sanctions Act of 1996 nor to other U.S. restrictions on U.S. or non-U.S. companies operating in Iran although we are subject to OFAC (U.S. Department of the Treasury—Office of Foreign Assets Control) regulations. We do not employ U.S. citizens or permanent U.S. residents in our Iranian business.

There have recently been discussions between the Government of Iran and representatives of the international community about Iran’s nuclear research program and its potential application to nuclear weapons. It is possible that U.S. sanctions may be amended or further extended or new regulations may be introduced by the U.S., the European Union, the United Nations or by any other country or international organization, with the effect of prohibiting or adversely affecting our operations in Iran. Our only contractual obligation in Iran is to provide management services to the RIC, at a cost which is not expected to be material. We also have an option to acquire up to 47% of the equity in the Iranian company that will operate the network. If we were to exercise our option, we would acquire a substantial equity investment in an Iranian company. Any amendment or new regulation prohibiting or adversely affecting our operations in Iran or a dispute with the representatives of the Rafsanjan Industrial Complex or the Iranian government may have a material effect on our results of operations.

We operate in a number of jurisdictions which may effect changes to their respective laws that may unfavorably affect our financial status.

We hold interests in our mobile telephone companies through our subsidiaries and affiliates in various jurisdictions in and outside Luxembourg. The laws or administrative practices relating to taxation (including the current position as to withholding taxes on dividends from the operations, and tax concessions in certain operations), foreign exchange or otherwise in these jurisdictions are periodically subject to change. For instance, countries may impose restrictions or other restraints on the conversion of local currencies and the transfer of funds or dividends by our venture companies to our holding company in Luxembourg. For example, according to the rules of the State Bank of Pakistan there is a restriction on the amount of royalty fees that a Pakistani company can remit abroad. The limit is 5% of annual net sales excluding sales tax, divided into two elements—technical service of 4.75% and royalty of 0.25% of net sales, in order to respect the restrictions imposed by the SBP. Any such change could have a material adverse effect on our financial affairs and on our ability to receive funds from the venture.

Most of our operations receive revenue denominated in the local currency of the venture’s country of operation. In the future, any of the countries in which these operations are located may impose foreign exchange controls, which may restrict our ability to receive funds from the operations.

Most of the operations in which we have interests receive substantially all of their revenues in the currency of the markets in which they operate. We derive substantially all of our revenues through funds generated by the operations and, therefore, we rely on the ability of the operations to transfer funds to the Company. Although there are foreign exchange controls in some of the countries in which our mobile telephone companies operate which could significantly restrict the ability of these operations to pay interest and dividends and repay loans by exporting cash, instruments of credit or securities in foreign currencies, we have experienced no material difficulty in obtaining permits to allow our operations to

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export cash to the Company. This may not, however, always be the case in the future. In addition, in some countries, it may be difficult to convert large amounts of local currency into foreign currency because of limited foreign exchange markets. The practical effect of this are time delays in accumulating significant amounts of foreign currency. In addition, a few countries in which we operate restrict the export of cash in local currencies. Additional foreign exchange control restrictions may be introduced in the future and the Company’s ability to receive funds from the operations will subsequently be restricted.

Currency fluctuations or devaluations would reduce the amount of profit and assets that we are able to report.

Exchange rates for currencies of the countries in which our operations operate fluctuate in relation to the U.S. dollar and such fluctuations may have a material adverse effect on our earnings, assets or cash flows when translating local currency into U.S. dollars. For each venture that reports in a currency other than the U.S. dollar, a decrease in the value of that currency against the U.S. dollar reduces our profits while also reducing both our assets and liabilities. A relevant example is the devaluation of the Guarani in Paraguay in 2002 which had an adverse effect on the results of our operations. To the extent that our operations retain earnings or distribute dividends in local currencies, the amount of U.S. dollars we receive is affected by fluctuations of exchange rates for such currencies against the U.S. dollar. We generally do not hedge our foreign currency exposure. For the year ended December 31, 2005 we had an exchange gain of $ 52,446,000. For the years ended December 31, 2004 and 2003, we had exchange losses of $26,782,000 and $45,649,000, respectively. These gain and losses were mainly due to the exchange variation on the 5% Mandatory Exchangeable Notes denominated in Swedish Krona.

Our ability to reduce our foreign currency exposure may be limited by restrictions on borrowings in local currency.

At the operations level, we seek to reduce our foreign exchange exposure arising from transactions through a policy of matching, as far as possible, cash inflows and outflows. Where possible and financially viable, we borrow in local currency to help hedge against local currency net inflows. Our ability to reduce our foreign currency exchange exposure may be limited by restrictions on borrowings in local currency. For example, under the State Bank of Pakistan regulations in Pakistan, foreign controlled services sector companies, such as our Pakistan operations, are required to meet certain financial ratios to engage in long-term borrowing in the local market. Paktel does not meet all applicable ratios but has received a waiver from the State Bank of Pakistan in respect of its borrowings for the initial phases of its GSM network build-out. If we fail to meet the applicable requirements or obtain a waiver, we expect to finance the later stages of the build-out from cash flows from operations, short-term borrowing or other financing arrangements. Also, we may not be able to fund Paktel’s capital expenditure needs or reduce our foreign exchange exposure by borrowing in local currency.

Potential inflation in local economies may affect some customers’ ability to pay for our operations’ services and it may also adversely affect the stability of the mobile operations market in those countries.

Our operations are dependent on the economies of the markets in which we operate. These markets are in countries with economies in various stages of development or structural reform, most of which are subject to rapid fluctuations in terms of consumer prices, employment levels, gross domestic product and interest and foreign exchange rates. These fluctuations affect the ability of customers to pay for our operations’ services. In addition, these fluctuations affect the ability of the market to support our existing mobile telephone interests or any growth in mobile telephone operations. Also, periods of significant inflation in any of our markets adversely affects our costs and financial condition.

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We are subject to foreign taxes in the countries in which we operate, which reduces amounts we receive from our operations or may increase our tax costs.

Many of the foreign countries in which we operate have increasingly turned to new taxes, as well as aggressive interpretations of current taxes, as a method of increasing revenue. In addition, the provisions of new tax laws may prohibit us from passing these taxes on to our local customers. Consequently, these taxes may reduce the amount of earnings that we can generate from our services.

Risks Related to our Operations

We face intense competition in the mobile telephone operator market.

The mobile systems in which we have interests face competition from other mobile telephone operators in the markets in which they operate as well as fixed line operators.

Additional licences will be granted in some of our existing markets. Moreover, additional licenses may be awarded in markets where we already face competition from other communications technologies that are being or may be developed and/or perfected in the future. In some of our markets, there may be more mobile telephone operators than the market is likely to sustain. In addition, in some of our markets, our competitors may have a greater coverage area than us, or both. The mobile telephone operators in each market compete for customers principally on the basis of services offered, quality of service, coverage area and price. Many of our competitors have substantially greater capital resources than we do. Price competition is significant.

In addition, new competitors, such as mobile and fixed line operators in developed markets that are able to leverage their existing networks, may enter emerging markets. The level of competition is influenced by the continuous and swift technological advances that characterize the industry, the regulatory developments that affect competition and alliances between market participants.

There is also a risk that, as new competitors enter our markets and price competition intensifies, our customers may move to another mobile telephone operator. This may result in our revenue declining, which would adversely affect our results of operations.

Any failure by us to compete effectively or aggressive competitive behavior by our competitors in pricing their services or acquiring new customers could have a material adverse effect on our revenues and overall results of operations.

The mobile telephone operations market is heavily regulated.

The licensing, construction, ownership and operation of mobile telephone networks, and the grant, maintenance and renewal of mobile telephone licenses, as well as radio frequency allocations and interconnection arrangements, are regulated by national, state, regional or local governmental authorities in the markets that we service. In addition, such matters and certain other aspects of mobile telephone operations, including rates charged to customers and the resale of mobile telephone services, may be subject to public utility regulation in the relevant market. Our operations also typically require governmental permits, including permits for the construction and operation of cell sites. We do not believe that compliance with these permit requirements generally has a material adverse effect on our company. However, we may become subject to claims or regulatory actions relating to any past or future noncompliance with permit requirements.

A number of regulators have, or are expected to, reduce interconnection rates. Because we are often one of the larger suppliers of mobile telephone services in the countries we service, this may have the effect of reducing our revenue. Changes in the regulation of our activities, such as increased or decreased regulation affecting prices, the terms of interconnect arrangements with landline telephone networks or mobile operators or requirements for increased capital investments, may materially adversely affect us.

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We face substantial competition for obtaining, funding and renewing mobile telephone licenses.

We may pursue new license opportunities within existing financial guidelines and group-wide synergy potential. In each market we face competition for licenses from major international telecommunications entities as well as from local competitors. While we typically try not to pay large amounts for mobile licenses, the competition for the granting or renewal of licenses is increasingly intense worldwide. As such, we anticipate that we might have to pay substantial license fees in certain markets, as well as meet specified network build out requirements. We may not be successful in obtaining or renewing any mobile telephone licenses or, if licenses are awarded, in obtaining those licenses on terms acceptable to us. If we obtain further licenses or renew existing ones, we may need to seek future funding through additional borrowings or equity offerings, and we may not obtain such funding on satisfactory terms or at all.

Our markets are characterized by rapid technological change, which could render our products obsolete and cause us to make substantial expenditures to replace our products.

Fixed network and other system equipment used in the mobile telephone industry have a limited life and must be replaced frequently due to damage or as a result of ordinary wear and tear. In addition, substantial expansion of existing networks is required to remain competitive. We are building out networks based on the GSM standard due to increased competition from other GSM providers as well as the existing benefits of migrating to the GSM standard, including lower repair and maintenance costs, greater availability of handsets and increased functionality. Furthermore, as new technologies develop, such as if our competitors were to introduce third generation systems, equipment may need to be replaced or upgraded or a mobile telephone network may need to be rebuilt in whole or in part, at substantial cost, to remain competitive. Unforeseeable technological developments may also render our services unpopular with customers or obsolete. To the extent our equipment or systems become obsolete, we may be required to recognize an impairment charge to such assets, which may have a material adverse effect on our results of operations.

If we cannot successfully develop and manage our networks, we will be unable to expand our subscriber base and will lose market share and revenues.

Our ability to increase our subscriber base depends upon the success of the expansion and management of our networks. The build-out of our networks is subject to risks and uncertainties which may delay the introduction of service in some areas and increase the cost of network construction. To the extent we fail to expand our network on a timely basis, we may experience difficulty in expanding our subscriber base. In addition, our ability to manage our operations successfully is dependent upon our ability to implement sufficient operational resources and infrastructure. The failure or breakdown of key components of our infrastructure, including our billing systems, may have a material negative effect on our profits and results of operations.

Rapid growth and expansion may cause us difficulty in obtaining adequate managerial and operational resources and restrict our ability to expand successfully our operations.

Our future operating results depend, in significant part, upon the continued contributions of key senior management and technical personnel. Management of growth will require, among other things:

·       stringent control of network build-out and other costs;

·       continued development of financial and management controls and information technology systems;

·       implementation of adequate internal controls;

·       hiring and training of new personnel; and

·       coordination among our logistical, technical, accounting, legal and finance personnel.

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Our success will also depend, in part, on our ability to continue to attract, retain and motivate qualified personnel. Competition for personnel in our markets is intense due to the relatively small number of qualified individuals. Our failure to manage successfully our growth and personnel needs may have a material negative effect on our business and results of operations.

In some of our markets our licenses and frequency allocations are subject to ongoing review, which may result in modification or early termination of licenses.

While we would not usually expect any of our mobile telephone companies to be required to cease operations at the end of the term of its business arrangement, license or permit, we cannot be sure that business arrangements or licenses will be renewed on equivalent or satisfactory economic terms, or at all. A relevant example is the expiration of the Business Cooperation Contract in Vietnam which expired on May 18, 2005 without an equivalent agreement having been found to date. Upon termination, the license and the assets of the mobile telephone company associated with the system may revert to the government or local telecommunications agency, in some cases without any, or adequate, compensatory payment being made to us.

Our operations are dependent upon interconnection agreements and transmission and leased lines.

Our operations are dependent upon access to networks not controlled by us, primarily networks controlled by current or former government owned public telecommunications operators or competing mobile telephone operators. Our financial results are affected by the cost of transmission and leased lines to effect interconnection. We may not be able to maintain interconnection or leased line agreements on appropriate terms to maintain or grow our business. A number of regulators have, or are expected to, reduce interconnection rates. Because we are often one of the larger suppliers of telephone services in the countries we service, this could have the effect of reducing our revenue.

The current concerns about the actual or perceived health risks relating to electromagnetic and radio frequency emissions, as well as the attendant publicity or possible resultant litigation, may have a negative effect on the market price of our shares, our financial position or the results of our operations.

Media and other reports have suggested that electromagnetic and radio frequency emissions from mobile telephone handsets and base stations may cause health problems, including cancer. There is also some concern that these emissions may interfere with the operation of certain electronic equipment, including aircraft, and automobile braking and steering systems. The actual or perceived risks relating to mobile communications devices and base stations, or press reports about these risks, would adversely affect us, including by reducing our subscriber growth rate, subscriber base or average use per subscriber, and would have a negative impact on the market price of our shares. In addition, if a link between electromagnetic or radio frequency emissions and adverse health concerns is demonstrated, government authorities would increase regulation of mobile handsets and base stations as a result of these health concerns. Mobile telephone operators, including us, would be held liable for costs or damages associated with these concerns. Any such regulation or litigation would also have a materially adverse effect on our financial position and results of operations.

The agreement under which we conducted our operations in Vietnam, which was our largest contributor to revenue, expired on May 18, 2005. We hope to replace this agreement with an equity interest in the operating company in Vietnam but there are no assurances that this will materialize or that the terms and conditions will be economically viable for us.

In 1994, Comvik International Vietnam AB (“CIV”), in which we have an 80% interest, Kinnevik, and Vietnam Mobile Services Co. (“VMS”), a Vietnamese government-owned company, entered into a Business Cooperation Contract (“BCC”) to operate a nationwide mobile GSM system in Vietnam known as Mobifone. The BCC provided for, among other things, 50:50 revenue sharing between CIV and VMS.

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Our operation in Vietnam, CIV, which derived all of its revenue from the BCC, was our largest contributor to revenue. The BCC had a 10-year term from May 19, 1995 which expired on May 18, 2005. Upon final closure of the BCC, legal title to all equipment of the Vietnam operation contributed by us will be transferred to VMS at a price of $1.

At the present time an extension of the BCC in form it was in before it expired is not acceptable to the Vietnamese government. The Vietnamese government, in connection with steps by Vietnam to become a member of the World Trade Organization, is under pressure to rapidly take steps to liberalize its economy. The Vietnamese government has announced its intention to initiate an equitization of VMS, our former partner under the BCC. Once VMS is equitized, the Vietnamese government may open the equity to new investors including foreign strategic investors. The opening of the telecommunications sector to foreign investors may require changes in the Vietnamese legislation. In two Memoranda of Understanding dated February 4 and November 8, 2004, respectively, VMS and CIV agreed to continue their business relationship in the form of a joint stock company (“JSC”). Furthermore, in December 2004, the European Community and the government of the Socialist Republic of Vietnam entered into a market access agreement whereby European Union investors in the telecommunications sector operating under a BCC arrangement would, subject to agreement between the parties, be allowed to renew or convert such arrangement into another legal form with conditions no less favourable than those under the BCC.

CIV and VMS/VNPT (the Vietnam Posts and Telecommunications Corporation) are in the process of negotiating an agreement that would allow CIV to become a shareholder of VMS once it is equitized. Although we believe that we may be able to extend our relationship with VMS in 2006 under the legal form of a JSC, we have received no assurance from the Vietnamese government as to when or whether such an agreement will be signed, nor do we know the terms and conditions of the agreement.

Millicom has entered into an agreement to sell Pakcom, its CDMA business in Pakistan, to its local partners. As part of the transaction, the litigation and arbitration between Millicom and the partner will be withdrawn. The change of control of Pakcom is subject to regulatory approval which has not yet been received and there is a risk that approval may not be received. Therefore, there is a risk that the transaction may not close.

On March 20, 2006, Millicom signed an agreement to sell its shareholding in Pakcom, one of Millicom’s operations in Pakistan, to the Arfeen group for a nominal amount. As part of the agreement, Millicom also sold 10% of Paktel, Millicom’s other operation in Pakistan to Millitel Limited, an entity controlled by the Arfeen group.

A disagreement arose during the third quarter of 2005 between Millicom and the local shareholders in Pakistan based on conflicting interpretations of a series of agreements relating to Pakcom and Paktel signed in January and February 2004. Millicom and the local shareholders have been in negotiations since September 2005 regarding a resolution of their disagreement and the sale of Millicom’s entire shareholding in Pakcom to the local shareholders. The disagreement led the local shareholders in December 2005 to bring two lawsuits in the Pakistan courts against Millicom and certain of its affiliates, requiring among other things specific performance of the transfer to them of 30% of Millicom’s shareholding in Paktel and damages in relation to the local shareholders’ investment in Pakcom due to Millicom’s alleged mismanagement of and fraud in relation to Pakcom. To defend themselves, Millicom and certain of its affiliates commenced arbitral proceedings against the local shareholders and certain of their affiliates in February 2006 before the International Court of Arbitration of the International Chamber of Commerce in Paris, France. The negotations continued and resulted in the signature on March 20, 2006 of a series of agreements between Millicom and certain of its affiliates and the local shareholders and certain of their affiliates to the effect that:

·       The local shareholders agreed to acquire all of Millicom’s interest in Pakcom for a symbolic dollar, whereby Millicom agreed to pay off Pakcom’s outstanding external bank loans of approximately

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$17 milllion and the local shareholders agreed to assume the balance of the license obligations, including the payment of the license instalment of approximately $14.5 million, plus late interest thereon, due by Pakcom since mid-October 2005.

·       The local shareholders agreed to acquire 10% of Paktel and would obtain no rights other than what Pakistan company law provides for 10% shareholders.

·       The local shareholders and Millicom agreed to terminate and withdraw the lawsuits and arbitration proceeding they have brought against each other and terminate all of the existing agreements ever entered into among them in relation to Paktel and Pakcom, including the January and February 2004 agreements.

The closing of the above transaction is subject to regulatory approval by the Pakistan Telecommunications Authority (PTA) of the change of control in Pakcom. There is no indication as to when the approval will be received. We have been informed that the PTA is seeking additional comfort that the local shareholders will be financially able to assume the payment of the overdue license instalment and of the remaining payments under Pakcom’s license.

If the transaction closes and 10% in Paktel is sold to the Arfeen group, Millicom will retain full management and operational control of Paktel.

General Risks

Our ability to generate cash depends on many factors beyond our control.

Our ability to generate cash is dependent on our future operating and financial performance. This will be affected by our ability to implement successfully our business strategy, as well as general economic, financial, competitive, regulatory, technical and other factors beyond our control. If we cannot generate sufficient cash, we may, among other things, need to refinance all or a portion of our debt, obtain additional financing, delay capital expenditures or sell assets. This could impact the operating performance of our business.

Our debt may have an adverse effect on our financial health and prevent us from fulfilling our obligations under such debt.

As of December 31, 2005, Millicom’s total consolidated indebtedness was $1,232,623,000. Of this amount, $1,016,242,000 represented the Company’s and Millicom Telecommunications S.A.’s indebtedness and $216,381,000 represented our consolidated share of the indebtedness of our subsidiaries and joint ventures. As of December 31, 2005, $315,359,000 of our indebtedness related to Millicom Telecommunications S.A.’s 5% Mandatory Exchangeable Notes, which are mandatorily exchangeable into Tele2 AB B shares and in respect of which no repayment in cash of principal is required. See “Operating and Financial Review and Prospects—Description of Certain Indebtedness Millicom Telecommunications S.A.’s 5% Mandatory Exchangeable Notes”.

Corporate guarantees, cash deposits and standby letters of credit (issued at our request and guaranteed by us) secured $119,124,000 of the indebtedness of our operations at December 31, 2005. The Group’s share of total debt and financing secured by either pledged assets, pledged deposits issued to cover letters of credit or guarantees issued by the Company is $445,776,000.

We experienced liquidity concerns resulting from our substantial indebtedness in 2002. Although we implemented a restructuring program that improved our liquidity by reducing our overall indebtedness and debt service obligations, we may incur additional indebtedness that may result in liquidity concerns or other negative consequences in the future. In January 2005 we issued 4% convertible bonds due 2010 for a total principal amount of $200 million.

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If we substantially increase our level of indebtedness, it may have important negative consequences for us. For example, it may:

·       require us to dedicate a large portion of our cash flow from operations to fund payments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

·       increase our vulnerability to adverse general economic or industry conditions, the termination of licenses or the loss of significant operations;

·       limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;

·       limit our ability to raise additional debt or equity capital in the future or increase the cost of such funding;

·       restrict us from making strategic acquisitions or exploiting business opportunities;

·       make it more difficult for us to satisfy our obligations with respect to the notes and our other debt; and

·       place us at a competitive disadvantage compared to our competitors who have less debt.

Restrictions imposed by the indentures governing our outstanding debt contain covenants that limit our ability to take certain actions.

The indentures governing our outstanding debt contain various covenants that limit our flexibility in operating our business. For example, these agreements restrict the ability of Millicom and certain of its subsidiaries to, among other things:

·       borrow money;

·       pay dividends or make other distributions;

·       create liens;

·       make asset dispositions;

·       make loans or investments;

·       issue or sell share capital of our subsidiaries;

·       issue certain guarantees;

·       enter into transactions with affiliates; and

·       merge, consolidate, or sell, lease or transfer all or substantially all of our assets.

The operating and financial restrictions and covenants in these agreements may adversely affect our ability to finance our future operations or capital needs, engage in other business activities that may be in our interest or to react to adverse market developments.

Our ability to receive funds from, and to exercise management control over, our operations is usually dependent upon the consent of our partners who are not under our control. Disagreements or unfavorable terms in the agreements governing our joint ventures may adversely affect our operations.

We participate in 17 mobile operations in 16 countries. Our participation in each operation differs from market to market and we do not have a controlling interest in some operations. Often our ability to withdraw funds, including dividends, from our participation in, and to exercise management control over our partners therein depends on receiving the consent of the other participants. While the precise terms of

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the arrangements vary, our operations may be negatively affected if disagreements develop with our partners.

We rely upon dividends and other payments from our operations to generate the funds necessary to meet the Company’s obligations, including the Company’s debt obligations. The operations are legally distinct from the Company and have no obligation to pay amounts due with respect to the Company’s obligations or to make funds available for such payments. Our operations do not guarantee the Company’s obligations. The ability of our operations to make such payments to the Company will be subject to, among other things, the availability of funds, the agreement of our partners, the terms of each operation’s indebtedness and local law. The majority of our operations have entered into financing facilities, most of which are guaranteed by the Company, many of which restrict and some of which prohibit the payment of dividends by those operations to the Company. Claims of creditors of our operations, including trade creditors, will generally have priority over our claims and the holders of our indebtedness. At December 31, 2005, the consolidated debt and other financing of our operations was $626,410,000 (including trade creditors, non-current and current license payables).

Certain insiders own significant amounts of our shares, giving them a substantial amount of management control.

As of April 28, 2006, Kinnevik and subsidiaries, together with the non-independent directors, the Stenbeck estate, and certain Stenbeck Trusts, beneficially owned about 40.34% of the outstanding shares of our common stock. Kinnevik and its affiliates, having a significant ownership in Millicom, have significant influence over our management and affairs. The influence that they have may not always be consistent with your interests.

A substantial number of our directors hold positions with Kinnevik or Tele2 AB, which may present conflicts that may be resolved in a manner unfavorable to us.

Four Millicom board members hold or held executive positions with Kinnevik, our largest shareholder. Cristina Stenbeck, a member of our Board of Directors, is also Vice Chairwoman of the Board of Directors of Kinnevik and subsidiaries. In addition, a number of our directors hold executive positions with or are directors of Tele2 AB, a pan-European telecommunications company offering fixed and mobile telephony, as well as data network and Internet services. Tele2 AB is controlled by Kinnevik and certain of its affiliates. These positions may create, or appear to create, potential conflicts of interest when these directors are faced with decisions that may have different implications for us, Kinnevik or Tele2 AB. There is a risk that these conflicts may ultimately be resolved in a manner unfavorable to us. Moreover, a portion of certain of our directors’ and officers’ time is spent on matters relating to Kinnevik and Tele2 AB, and not us. While it is the current consensus and has been the practice to date that we have the initial right to consider any telecommunications opportunity that arises in the emerging non-European markets that we target, there is no contractual arrangement to this effect among us, Kinnevik and Tele2 AB and we may in fact not receive such right of first refusal over any such business opportunity.

Due to the insufficient equity of the parent holding company, there is a risk our shareholders may vote not to continue our business.

Under Luxembourg company law, when the parent holding company has accumulated losses equal to or greater than half of the amount of its issued share capital, a shareholders’ meeting must be convened for the shareholders to determine whether to dissolve the company or to continue the business. Although the audit of our Luxembourg statutory 2005 accounts has not yet been completed, as of December 31, 2005, we may have accumulated losses on a parent company stand-alone basis equal to more than half our subscribed share capital. If this is the case, the shareholders will vote on whether to continue or dissolve our operations at the annual shareholders’ meeting on May 30, 2006. At such shareholders’ meeting a quorum of 50% of the shareholders must be present or represented to consider a resolution to liquidate or

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continue the company. If there is no quorum at the initial shareholders’ meeting, a second meeting must be convened at which no quorum is required. We consider it remote that the shareholders will vote to dissolve the company in the event accumulated losses do make up half or more than the amount of our issued share capital.

U.S. investors will be subject to special tax rules if we are considered to be a passive foreign investment company.

Special U.S. tax rules apply to U.S. taxpayers who own stock in a “Passive Foreign Investment Company,” or “PFIC”, or in a “Foreign Personal Holding Company,” or “FPHC”. We may be or may become, a PFIC. Our status under the PFIC rules for each year depends upon our income and assets from time to time during that year. Our substantial investments in associated companies’ securities and other “passive assets” result in a risk that we are a PFIC or may become a PFIC in the future. If we are determined to be a PFIC, then shareholders who are U.S. persons under U.S. tax laws will be subject to specific unfavorable tax rules.

The ability of investors to enforce civil liabilities under U.S. securities laws may be limited.

We are incorporated under the laws of the Grand Duchy of Luxembourg (European Union). Most of our directors and executive officers are residents of Luxembourg or other countries other than the United States. Most or a substantial portion of our assets and those of most of our directors and executive officers are located outside the United States. As a result, it may not be possible for investors in our securities to effect service of process within the United States upon such persons or upon us or to enforce in U.S. courts or outside the United States judgments obtained against such persons outside the United States. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, liabilities predicated upon the civil liability provisions of the U.S. securities laws. We have been advised by our Luxembourg counsel, Allen & Overy, that the United States and Luxembourg do not have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by a federal or state court in the United States based on civil liability, whether or not predicated solely upon United States federal securities laws, is not enforceable in Luxembourg. However, if the party in whose favor such final judgment is rendered brings a new suit in a competent court in Luxembourg, the party may submit the final judgment that has been rendered in the United States to a Luxembourg court for the purpose of recognition by such court and enforcement in Luxembourg. A judgment by a federal or state court of the United States against us will be regarded by a Luxembourg court only as evidence of the outcome of the dispute to which such judgment relates, and a Luxembourg court may choose to rehear the dispute.

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ITEM 4—INFORMATION ON THE COMPANY

Background

Overview

We are a global mobile telecommunications operator with operations in the world’s emerging markets over which we typically exercise management and voting control. Our strategy of being a low cost provider, focused on prepaid services using mass market distribution methods, has enabled us to continue to pursue high growth while delivering operating profitability.

We have interests in 17 mobile systems in 16 countries, focusing on emerging markets in Central America, South America, Africa, South Asia and South East Asia. As of December 31, 2005, the countries where we had mobile operations had a combined population of approximately 390 million. This means that 390 million is the number of people covered by our licenses, representing the number of people who could receive mobile services under the terms of our licenses if our networks covered the entire population. Our total subscribers reached 8.9 million (7.7 million on attributable basis) as of December 31, 2005.

Our markets are attractive for mobile services due to low fixed and mobile penetration. Usage of mobile services has historically been low in the countries in which we operate due to poor or insufficient infrastructure, the high costs of such services and low levels of disposable income. We believe there is a significant opportunity for further growth of mobile services in our markets due to the reduction in the cost of providing mobile services to the consumer, and due to rising disposable personal income levels.

Summary of Highlights and recent developments

In January 2005 Millicom issued an aggregate principal amount of $200 million of 4% Convertible Bonds due 2010 convertible into Ordinary Shares and/or SDRs. The net proceeds of the offering were paid on January 7, 2005 in the amount of $195,875,000.

On April 18, 2005 Pakcom reached agreement with the Pakistan Telecommunications Authority (PTA) for the renewal of its license for 15 years. The license is for CDMA services. The payment terms are similar to those agreed in 2004 by Paktel, Millicom’s other venture in Pakistan. Pakcom will pay a license fee of $291 million, of which 50% is payable over the first three years and the remaining 50% over 10 years. Pakcom is still in negotiations with the PTA regarding the allocation of the spectrum. The $14.5 million license fee instalment due October 18, 2005 has not yet been paid by Pakcom. Millicom executed a series of agreements in relation to, among other things, the sale to the local partner of its interest in Pakcom on March 20, 2006. The closing of such sale is pending subject to regulatory approval of the change of control in Pakcom.

On May 25, 2005, the Rafsanjan Industrial Complex Islamic Cooperative Company (RIC) launched its network in Iran. We have a management contract to operate the network for two million prepaid subscribers. The network is owned by RIC under a build, operate and transfer contract between RIC and Telecommunication Company of Iran (“TCI”). Millicom has an option to acquire 47% of the joint stock company expected to be formed between RIC and us and that will operate the network.

On May 26, 2005 Millicom announced the acquisition of additional shares of its subsidiary Telefonica Celullar S.A (“Celtel”) in Honduras from Motorola, Inc., bringing Millicom’s ownership to two thirds of the total outstanding shares in Celtel. Motorola divested  its entire equity stake in Celtel. The remaining Motorola stake in Celtel was acquired by local minority shareholders.

On September 13, 2005, the Group acquired 100% control of the voting shares of Oasis SPRL (“Oasis”), a mobile operation in the Democratic Republic of Congo. Millicom expects to complete the allocation of the purchase price to the assets acquired, liabilities assumed, and contingent liabilities in the second quarter of 2006.

20




On October 17, 2005 Millicom launched its network in Chad. Services are available in the capital city of N’Djamena and will be rolled out to 6 other major cities.

On November 21, 2005, Millicom reached an agreement with its former partner to cancel a call option on a 30% equity interest in Millicom Ghana Limited.

On January 16, 2006, Millicom delisted its equity shares from the Luxembourg stock exchange.

On January 19, 2006 Millicom announced that its Board had received a high number of unsolicited approaches and that the Board had decided to conduct a review of the strategic options for the Company. It appointed a financial advisor in this respect. The strategic review is ongoing as of April 28, 2006 and may be concluded imminently either by the end of the negotiations or a transaction with a bidder.

On January 23, 2006, Millicom purchased the remaining 15.6% ownership interest in Millicom Tanzania Limited, its operation in Tanzania, in which Millicom now has a 100% ownership.

On February 1, 2006, Millicom completed the purchase of the 30% ownership interest of its local partner in Millicom (Sierra Leone) Limited.

On February 27, 2006, Millicom’s subsidiary in Sri Lanka, Celltel, extended the term of its mobile license in Sri Lanka until 2018 at a cost of approximately US$4 million.

On March 14, 2006, Millicom purchased the remaining 25% ownership interest of its local partner in Sentel GSM, its operation in Senegal in which Millicom now has a 100% ownership.

On March 20, 2006, Millicom signed an agreement to sell its shareholding in Pakcom one of Millicom’s two operations in Pakistan, to the Arfeen group for a nominal amount. As part of the agreement, Millicom also agreed to sell 10% of Paktel, Millicom’s other operation in Pakistan to Millitel Limited, an entity controlled by the Arfeen group. The change of control in Pakcom in subject to regulatory approval and, unless such approval is obtained, the overall transaction may not close.

In April 2006, Millicom signed an agreement to purchase the remaining 4% ownership interest in Telecel Paraguay, its operation in Paraguay, in which Millicom now has 100% ownership. The closing of the transaction is subject to local regulatory approval.

Strategy

Our strategy is to operate with the lowest possible cost base from which we can offer the consumer better value for money through lower tariffs and better quality network and distribution. We believe that, given the low mobile penetration in our markets, we can continue to achieve significant growth in our subscriber base while continuing to improve our operating margins and cash flows by rolling out our new Tigo brand across most operations and by focusing on the three ‘A’s:

·       Affordability—means having low prices and prepaid payment terms in small denominations so that our services are suitable for the less well off. This is vital in order to increase penetration and increase the rate of Millicom’s subscriber acquisition and minutes of use.

·       Accessibility—means providing easy access to prepaid services, whether by scratchcards or by the new e-PIN, which enables customers to top-up over the air. Millicom has over 170,000 distribution outlets which places it far ahead of all of its competitors in providing greater accessibility to and visibility of its prepaid services.

·       Availability—means having an extensive network with sufficient capacity so that mobile services are available at all times. Millicom has invested substantially in its networks installing GSM and more recently GPRS and EDGE, and taking these networks out into rural as well as the urban areas.

21




Focusing on growth.   We believe there is a significant opportunity for rapid growth in our markets due to low mobile penetration in economies with high growth potential and substantial pent up demand for basic voice telephony services. We believe we can grow our subscriber base and revenue by continuing to focus on prepaid services while controlling costs and maintaining our position with postpaid customers. We will also continue to invest in our existing mobile operations, where we believe we can generate attractive returns. In addition, we intend to increase our equity ownership in our operations through opportunistic buy-outs of local partners. We may participate in consolidation within our markets through the careful evaluation, selection and pursuit of strategic opportunities. We may pursue new license opportunities in our adjacent markets within existing financial guidelines and offering group-wide synergy potential.

Improving cost efficiencies and capturing synergies.   We continue to seek ways to further reduce our cost base by rationalizing our operations since initiating, in 2002, a stricter centralized cost reduction program across our operations, which lowered our costs and which we continue to apply today. In addition, we expect to realize additional synergies across our operations, such as sharing of information, human resources, best practices and technologies and centralized negotiations of financing and of supply contracts for network and equipment handsets.

Benefit from migration to the GSM standard.   In 2005, we completed the migration of all of our operations to GSM networks. The equipment costs relating to GSM have decreased significantly over the last few years. GSM has increased our revenues and returns by enabling us to introduce new value-added services and roaming services while lowering our infrastructure and maintenance costs. GSM also offers our customers greater choice of handsets at a lower cost with improved functionality.

Sales, marketing and distribution.   We pursue low-cost, innovative and high-impact approaches to sales, marketing and distribution. In the majority of our markets, we typically are not involved in the distribution of handsets and typically do not provide handset subsidies for our prepaid subscribers. As a result, we have low overall subscriber acquisition costs. In addition, we are focused on strengthening our distribution footprint and expanding our mass market customer reach by distributing prepaid cards through mass market outlets such as local convenience stores, newspaper stands and street vendors. In some of our markets, we are also developing a number of non-traditional distribution channels such as freelance distributors, including students and housewives.

In 2005, we also introduced E-pin, a system that allows making airtime recharges electronically. The main objective is to facilitate a mechanism for Airtime distribution in order to complement the actual channels of distribution for prepaid cards.

The main advantages are that:

·       Airtime can be given at any denomination (starting at very low amounts),

·       It facilitates the distribution through new points of sale, and

·       It is a safe option for distribution as it eliminates the handling of physical inventory (prepaid cards); reduces inventory costs.

We believe that our focus on branded prepaid services and non-traditional distribution channels will enable us to expand our market share and reduce our operating costs. We focus our advertising on cost-effective promotions. Furthermore, we are in the process of rebranding almost all of our products to the new Tigo brand.

22




Competitive Strengths

We believe that our competitive strengths will enable us to benefit from the increasing demand for the services provided by mobile operators in emerging markets. Our competitive strengths include:

Established prepaid operator.   Our focus on prepaid mobile services for the mass market offers the advantage of lower subscriber acquisition and operating costs, which results in higher margins and a faster average payback time (on average, approximately three months). In addition, prepaid customers offer the advantage of eliminating bad debt, billing and collection costs. The introduction of prepaid mobile services has also opened up the market for mobile services to customers who have previously been denied access to mobile service. Increased demand for prepaid mobile services is also arising from business users and those customers who purchase prepaid credits in order to control their telephone costs, creating a new segment of the market.

Delivering profitable growth.   One of our key strengths is our ability to grow our businesses while enhancing our operating profitability. As the first or second operator in most of the markets in which we have operations, we have typically been able to acquire our licenses at low cost with minimum build-out requirements. We have consistently achieved strong subscriber growth while decreasing subscriber acquisition costs through the creation of well known, perceived price leading brands. Additionally, we have developed an extensive distribution network at low cost that provides our customers with broad service coverage, further leveraging our strong brand names in most of our operations. The use of handset subsidies is not part of our prepaid strategy.

Track record of innovation.   We believe that innovation is another key to our success. In nearly all of our markets, we were the first to launch branded prepaid mobile services, which now predominate in our markets. We have been the first to focus on non-traditional distribution channels to increase our mass market prepaid customer reach in our markets. For example, we have used freelance distributors, such as street vendors, and sold prepaid cards in mass market outlets, which has reduced our sales and marketing costs. In addition, because we focus on prepaid services and low costs, we believe we are perceived as a price leader.

Low operating costs and high capital efficiencies.   We have established service in markets that we believe offer high potential financial returns and substantial operational leverage. While we have always had a strategy to control costs, we initiated a stricter centralized cost reduction program for all of our operations in 2002 that we continue to apply today. We operate sizeable networks covering areas of the highest population and business activity. Any future build out of our network infrastructure will be demand driven. In addition, our migration to GSM will lower our investment per capacity minute with faster payback. Historically, our operations have generated an operating profit before depreciation and amortization within 12 to 18 months of start up.

Integrated strategy.   We have rigorously pursued the many synergies inherent in our multi country operations and the increasing scale in our existing markets. Such synergies include sharing information and best practices about services, human resources, technologies and market strategies; centralized negotiation of financing and of supply contracts for network and subscriber equipment; and rolling out a single brand, Tigo, to most operations. For example, our operation in Laos has been able to draw on the operational and managerial experiences and resources of our operations in Cambodia, which allows us to operate in Laos with a low cost base.

Diversified operations.   We believe our 17 operations in 16 countries on three continents provide a balance of established cash flow generation and high-growth potential. Our diversification across countries and continents also lessens our exposure to unfavorable changes in a single market or currency. For example, we have continued to grow our total subscriber base and operating profitability over the last years despite increased competition in Pakistan and the expiry of our BCC contract in Vietnam.

23




Highly skilled senior management.   Our highly skilled senior management combines the extensive experience of senior managers from the telecommunications industry with experienced executives from the fast-moving consumer goods sector, whom we recruited over the last years. Many of our senior executives have spent more than 10 years working in emerging markets and have demonstrated their ability to manage costs while rapidly growing the business and to start up and successfully integrate new businesses.

License Acquisition

As we established an early presence in most of the markets in which we operate, we have been able in most cases to secure our licenses at low cost. Historically, we have been successful in renewing our maturing licenses, generally on terms similar to the original licenses, although we may not be able to do so in the future. In some cases, we operate with prominent local business partners through companies over which we typically exercise management control.

In obtaining our licenses, we generally establish a venture with one or more prominent local business partners to apply for a mobile telephone license. We consider that the selection of the local partner, the technical and financial expertise that we provide to the license application and our successful track record as an international provider of mobile telephone services are the critical factors for a successful license bid. In most cases, the local partner is instrumental in obtaining the license and maintaining contact with the local telecommunications agency, post office, or relevant government department or otherwise plays an important role in ensuring the success of the venture. In some markets, after the award of the license, the local partner continues to take an active interest in the management of the venture.

Licenses are generally sought through a competitive application process in which the license is awarded on the merits of the application. We generally avoid cash auctions for mobile telephone licenses. In some cases, our operations pay royalties on revenue or income to governments, and all of our mobile operations pay interconnection fees to other telecommunications operators during the license period. Although the pursuit of mobile telephone licenses is usually highly competitive, our venture companies have been successful in obtaining licenses in preference to other license applicants whose participants often included major international telecommunications companies.

Management Structure

The Millicom management team is based out of Luxembourg and is led by the Chief Executive Officer, Marc Beuls who has overall responsibility for the business. The Chief Financial Officer, David Sach, looks after the financial, administrative and accounting areas and the Chief Operating Officer, Mikael Grahne, is responsible for managing and coordinating the day-to-day operations.

We operate in five major geographic regions of the world: Central America, South America, Africa, South Asia and South East Asia. We manage these regional operations through five cluster managers, each of whom is responsible for between two to seven countries. Each cluster manager reports directly to Millicom’s Chief Operating Officer. We believe this structure allows us to maintain a high degree of coordination, cooperation and cross sharing of information among the various cluster managers while providing a degree of regional responsibility that ensures quick and effective decision making.

The Industry

Mobile Telephone Industry Overview

Mobile Telephone Technology.   Mobile telephone systems are capable of providing high quality, high capacity voice and data communications to and from vehicle-mounted and hand-held radiotelephones. Mobile telephone systems are capable of handling thousands of calls at any one time and providing service to hundreds of thousands of subscribers in any particular area.

24




Mobile telephone technology is based upon the division of a given geographical area into a number of cells and the simultaneous use of radio channels in non-contiguous cells within the system. Each cell contains a low power transmitter/receiver at a base station that communicates by radio signal with mobile telephones in that cell. Each cell is connected by fixed-line or microwave to a central switching point or Mobile Switching Center (“switch”) that controls the routing of calls and which, in turn, is connected to the public switched telephone network. It is the switch mobility software that allows mobile telephone users to move freely from cell to cell while continuing their calls through a process called hand-off.

Mobile telephone systems generally offer subscribers the features offered by the most up-to-date fixed-line telephone services. Mobile telephone systems are interconnected with both the fixed-line telephone network and other mobile networks. As a result, subscribers can receive and originate local, long-distance and international calls from their mobile telephones. Mobile telephone system operators therefore require an interconnect arrangement with the local fixed-line telephone companies and/or other mobile network operators, and the terms of such arrangements are material to the economic viability of the system.

A mobile telephone system’s capacity can be increased in various ways. Increasing demand may be satisfied, in the first instance, by adding available channel capacity to cells through the addition of extra transmitters. When all available channels are used, further growth can be accomplished through a process known as cell splitting. Cell splitting entails dividing a single cell into a number of smaller cells, through the construction of additional base stations, thereby allowing for greater channel reuse and hence increasing the number of calls that can be handled in a given area.

The Company uses analog and digital technologies that are widely used throughout the world. GSM is a digital standard for mobile telephone systems that the majority of European Union countries have adopted as a common standard. Commercial launch in several European countries commenced in 1992. GSM offers increased value-added services and enables transmissions to be made in encrypted form so that conversations cannot easily be intercepted. The GSM system allows subscribers to use their mobile telephones in any country where the GSM system has been adopted and where appropriate roaming agreements were implemented, providing increased mobility and flexibility. GSM systems are being used in over 200 countries and territories.

Advanced Mobile Phone System (AMPS) is the analog standard developed for and used in North America. Total Access Communication System (TACS), or Time Division Multiple Access (TDMA), is the system that was the most widely used in North and South America and works by dividing a radio frequency into time slots and then allocating slots to multiple calls. TDMA is one of the world’s most widely deployed digital wireless systems and it provides a common evolutionary path for analog AMPS networks. In the United States, a number of digital standards have been developed and are being deployed in existing AMPS networks. One of them is CDMA or Code Division Multiple Access, which is also popular in South America and in the Asia-Pacific region. An enhanced version of CDMA is the technology used for the third generation mobile systems (3G) called WCDMA and CDMA2000 1X. What all 3G networks have in common is that they support high data bandwidth applications such as full motion video, video conferencing and full Internet access to mobile devices. Universal Mobile Telecommunications System (UMTS) is a type of 3G mobile technology which allows, besides voice and data, the delivery of audio and video to wireless devices anywhere through fixed, wireless and satellite systems.

Competing Technologies.   Some niche technologies are available for certain services. One of these technologies consist of Trunking services that are also deployed using radio communications with a cell technology and allows mobility for the user, but that do not provide full duplex communication among users. The latest limitation makes this service less desirable and low competition is observed. Another technology being deployed is Push to talk or Push over Cellular, that utilizes the mobile telephony network capability of handling data to allow a service similar to Trunking service using more sophisticated mobile

25




handsets. These services are more complementary to mobile services than competitive as are deployed as an additional product within mobile services.

Some other voice technologies are gaining more adherence like VoIP (Voice over Internet Protocol), that allows voice communication sending data packages with voice encapsulated over data networks. These services are increasing their presence to compete with fixed-line services and international calls rather than mobile services.

Operating Characteristics.   The mobile telephone industry is typically characterized by high fixed costs and low variable costs. Until technological limitations on total capacity are approached, additional mobile telephone system capacity can usually be added in increments that closely match demand and at less than the proportionate cost of the initial capacity. The industry has also seen declining equipment prices in real terms. Once revenues exceed fixed costs, incremental revenues are expected to yield a high incremental operating profit, giving mobile telephone system operators an incentive to stimulate and satisfy demand for service in the market. The amount of profit, if any, under such circumstances is dependent on, among other things, prices and variable marketing costs, which, in turn, are affected by the amount and extent of competition. As competition increases in markets, prices have fallen with the result that revenues and operating profits increase at a lower rate than subscriber growth. In addition, as penetration rates increase there is a tendency for a higher proportion of new subscribers to use prepaid cards. Prepaid subscribers tend to have lower usage than credit subscribers, however, the operating margin is generally higher than with credit subscribers as the risk of bad debt is eliminated and there is no subsidizing of handsets.

As these services are using radio spectrum, which are generally monitored and regulated by the country governments, the utilization of frequencies generally requires that appropriate licenses are obtained from pertinent authorities. The granting of licenses may involve significant fees, either paid as a fixed upfront amount or as variable charges.

Development of the Mobile Telephone Industry

Mobile Telephony in Developed Countries.   The first mobile telephone networks were introduced in Scandinavia in the early 1980s and experienced modest growth for the first few years. Over the last 10 years, however, mobile telephony has grown rapidly. All developed countries now have mobile telephone service and levels of penetration increased substantially in these countries. Worldwide subscribers at December 31, 2005 were nearly 2.2 billion according to EMC.

Given the rapid growth of mobile telephone subscribers in developed countries and high levels of penetration, the industry is increasingly introducing new technology that will expand capacity and improve service, including the introduction of digital mobile telephone networks and the ability to access the Internet from handsets. In industrialized nations, mobile operators are in the process of introducing “third generation” mobile technology that will permit always-on faster access to the Internet and voice and data transmissions.

Mobile Telephony in Developing Countries.   While the mobile telephone industry is well-established in the developed world, the mobile telephone industry in the developing world is still in its infancy. Millicom believes that mobile telephony will continue to grow rapidly in developing countries because of the poor quality of the existing fixed-line service, the unsatisfied demand for basic telephone service and the increasing demand from users who want the convenience of mobile telephones. In some countries the mobile telephone network provides significantly improved access to the local and international fixed-line network compared with the existing fixed-line service. In addition, developing countries are expected to benefit both from better technology and lower equipment costs than those at comparable stages of market development in developed countries. Penetration rates (the number of subscribers per 100 people) are substantially lower in developing countries than in developed countries. Consequently, Millicom believes that its markets offer high growth potential.

26




For developing countries, mobile telephone networks can represent a faster and more cost-effective method of expanding telecommunications infrastructure than traditional fixed-line networks. Fixed-line networks involve extensive outside infrastructure in the form of buried or overhead cable networks, while mobile telephone networks require only minimal construction activities.

Competitive Position in the Market

The following table shows certain estimated information regarding Millicom’s competitive position in each of its markets as at December 31, 2005. This information was compiled based on data provided by EMC, an independent mobile market research firm. Millicom operates in developing economies and markets and believes that the data research available in these countries is not always accurate, consistent or verifiable. Therefore, the information provided here is given in ranges of market share to indicate the relative size and market position of Millicom in comparison to its competitors.

 

 

Estimated Range of

 

 

 

 

 

Estimated

 

 

 

Market Share Ranking

 

 

 

 

 

Market

 

 

 

at December 31, 2005(1)

 

 

 

 

 

Position at

 

Market

 

Greater
than 50%

 

Between 25%
and 50%

 

Between 10%
and 25%

 

Less
than 10%

 

December 31,
2005(1)

 

Central America

 

 

 

 

 

 

 

 

 

 

 

El Salvador

 

 

Millicom America Movil Telefonica

 

 

Digicel Intelfon

 

1 of 5

 

Guatemala

 

 

America Movil Millicom

 

Telefonica

 

 

2 of 3

 

Honduras

 

Millicom

 

America Movil

 

 

 

1 of 2

 

South America

 

 

 

 

 

 

 

 

 

 

 

Bolivia

 

 

Millicom
Movil de Entel

 

Nueva Tel

 

 

2 of 3

 

Paraguay

 

 

Millicom Telecom Italia

 

Vox

 

America Movil

 

1 of 4

 

Africa

 

 

 

 

 

 

 

 

 

 

 

Chad

 

Celtel

 

Millicom

 

 

 

2 of 2

 

DR Congo

 

Celtel

 

Vodacom

 

 

CCT
Millicom

 

4 of 4

 

Ghana

 

Investcom

 

 

Millicom Ghana Telecom

 

Kasapa

 

2 of 4

 

Mauritius

 

Mauritius Telecom

 

Millicom

 

 

 

2 of 2

 

Senegal

 

France Telecom

 

Millicom

 

 

 

2 of 2

 

Sierra Leone

 

Celtel

 

Comium

 

Millicom

 

Africell

 

3 of 4

 

Tanzania

 

 

Vodacom
Celtel

 

Millicom

 

Zantel

 

3 of 4

 

South Asia

 

 

 

 

 

 

 

 

 

 

 

Pakistan—Pakcom

 

Orascom

 

 

Ufone
Warid

 

Millicom Telenor

 

6 of 6

 

Pakistan—Paktel

 

Orascom

 

 

Ufone
Warid

 

Millicom Telenor

 

5 of 6

 

Sri Lanka

 

Malaysia Telecom

 

 

Millicom
Sri Lanka Telecom

 

Hutchison

 

2 of 4

 

South East Asia

 

 

 

 

 

 

 

 

 

 

 

Cambodia

 

Millicom

 

 

Shinawatra Casacom

 

Camtel

 

1 of 4

 

Lao People’s Democratic Republic

 

Lao Telecom

 

 

ETL
Millicom

 

LAT

 

3 of 4

 


(1)           Based on number of subscribers. Source: EMC, an independent cellular market research firm.

27




Operations

Description of operations

Descriptions of each of our operations and other related businesses are provided below. The description of our mobile operations has been divided into the following sub-sections:

Central America—Millicom’s mobile operations in Central America, comprising El Salvador, Guatemala and Honduras.

South America—Millicom’s mobile operations in South America, comprising Bolivia and Paraguay.

Africa—Millicom’s mobile operations in Africa, comprising Chad, Democratic Republic of Congo, Ghana, Mauritius, Senegal, Sierra Leone and Tanzania.

South Asia—Millicom’s mobile operations in South Asia, comprising Pakistan and Sri Lanka and the management contract in Iran.

South East Asia—Millicom’s mobile operations in South East Asia, comprising Cambodia and Lao People’s Democratic Republic, and the terminated BCC in Vietnam.

The table below sets forth our revenue by geographical segment, in percent of total revenues, for the periods indicated.

 

 

2005

 

2004

 

2003

 

Central America

 

 

42

%

 

 

34

%

 

 

27

%

 

South America

 

 

13

%

 

 

12

%

 

 

15

%

 

Africa

 

 

19

%

 

 

16

%

 

 

13

%

 

South Asia

 

 

11

%

 

 

12

%

 

 

16

%

 

South East Asia

 

 

15

%

 

 

25

%

 

 

27

%

 

Other

 

 

0

%

 

 

1

%

 

 

2

%

 

Total

 

 

100

%

 

 

100

%

 

 

100

%

 

 

28




Subsidiaries and their Market Presence

The following table shows certain information for each of Millicom’s mobile operations as at December 31, 2005.

Market

 

 

 

Company Name

 

Ownership

 

Method of
Consolidation(1)

 

Start-Up
Date

 

Estimated
Population
of Area
under
License(2)

 

Mobile
Penetration
as of
December 31,
2005(3)

 

 

 

 

 

(percent)

 

 

 

 

 

(millions)

 

(percent)

 

Central America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

El Salvador

 

Telemóvil El
Salvador SA

 

 

100.0

%

 

 

S

 

 

 

1993

 

 

 

6.7

 

 

 

33.7

%

 

Guatemala

 

Comunicaciones
Celulares SA

 

 

55.0

%

 

 

JV

 

 

 

1990

 

 

 

12.8

 

 

 

32.5

%

 

Honduras

 

Telefónica
Cellular SA

 

 

66.7

%

 

 

JV

 

 

 

1996

 

 

 

7.0

 

 

 

16.2

%

 

South America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bolivia

 

Telefonica Celular
de Bolivia SA

 

 

100.0

%

 

 

S

 

 

 

1991

 

 

 

8.9

 

 

 

27.6

%

 

Paraguay

 

Telefonica Celular
del Paraguay SA

 

 

96.0

%

 

 

S

 

 

 

1992

 

 

 

6.3

 

 

 

24.2

%

 

Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad

 

Millicom
Tchad S.A.

 

 

87.5

%

 

 

S

 

 

 

2004

 

 

 

9.8

 

 

 

3.4

%

 

DR of Congo

 

Oasis S.P.R.L

 

 

100.0

%

 

 

S

 

 

 

2005

 

 

 

60.1

 

 

 

4.7

%

 

Ghana

 

Millicom (Ghana)
Limited

 

 

100.0

%

 

 

S

 

 

 

1992

 

 

 

21.0

 

 

 

12.2

%

 

Mauritius

 

Emtel Limited

 

 

50.0

%

 

 

JV

 

 

 

1989

 

 

 

1.2

 

 

 

48.9

%

 

Senegal

 

Sentel GSM, S.A.

 

 

75.0

%

 

 

S

 

 

 

1999

 

 

 

11.1

 

 

 

14.1

%

 

Sierra Leone

 

Millicom (SL)
Limited

 

 

100.0

%

 

 

S

 

 

 

2001

 

 

 

6.0

 

 

 

5.0

%

 

Tanzania

 

Millicom Tanzania
Limited

 

 

84.4

%

 

 

S

 

 

 

1994

 

 

 

36.8

 

 

 

7.9

%

 

South Asia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pakistan—Pakcom

 

Pakcom Limited

 

 

61.3

%

 

 

S

 

 

 

1990

 

 

 

 

 

 

12.2

%

 

Pakistan—Paktel

 

Paktel Limited

 

 

98.9

%

 

 

S

 

 

 

1990

 

 

 

162.4

 

 

 

12.2

%

 

Sri Lanka

 

Celltel Lanka
Limited

 

 

99.9

%

 

 

S

 

 

 

1989

 

 

 

20.1

 

 

 

17.0

%

 

South East Asia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambodia

 

Cam GSM
Company Limited

 

 

58.4

%

 

 

JV

 

 

 

1997

 

 

 

13.6

 

 

 

8.3

%

 

Lao People’s Democratic Rep

 

Millicom Lao
Co. Ltd.

 

 

74.1

%

 

 

S

 

 

 

2003

 

 

 

6.2

 

 

 

7.7

%

 

Grand Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

390

 

 

 

 

 

 


(1)          JV = Joint Ventures. Under IFRS, joint ventures are consolidated using the proportional method of accounting which combines our assets, liabilities, income and expenses with our share of the assets, liabilities, income and expenses of the joint ventures in which we have an interest. Millicom determines the existence of joint control by reference to the joint venture agreements, articles of

29




association, structures and voting protocols of the Boards of Directors, as well as the influence it has over the day-to-day operations.

S = Subsidiary. Subsidiaries are entities over which we have control and are fully consolidated.

(2)          Source: U.S. Central Intelligence Agency’s “The World Factbook” for 2005 except population data for Guatemala for which the source is the National Institute of Statistics of Guatemala (INE).

(3)          Based on number of subscribers. Source: EMC, an independent cellular market research firm.

Selected Operating Data

The following table presents, at the dates and for the periods indicated, selected operating data for each of Millicom’s mobile operations.

 

 

As at December 31,

 

 

 

Total Subscribers

 

Prepaid Subscribers
as Percentage of
Total Subscribers

 

Market

 

 

 

2005

 

2004

 

2003

 

2005

 

2004

 

2003

 

Central America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

El Salvador

 

738.980

 

534,288

 

465,150

 

 

80

%

 

 

73

%

 

 

70

%

 

Guatemala

 

1,164,050

 

672,734

 

596,078

 

 

91

%

 

 

86

%

 

 

84

%

 

Honduras

 

834,096

 

490,014

 

351,285

 

 

92

%

 

 

87

%

 

 

83

%

 

Subtotal Central America

 

2,737,126

 

1,697,036

 

1,412,513

 

 

88

%

 

 

82

%

 

 

79

%

 

South America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bolivia

 

645,418

 

414,088

 

334,319

 

 

96

%

 

 

95

%

 

 

93

%

 

Paraguay

 

692,321

 

523,309

 

605,057

 

 

86

%

 

 

85

%

 

 

89

%

 

Subtotal South America

 

1,337,739

 

937,397

 

939,376

 

 

91

%

 

 

89

%

 

 

91

%

 

Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad

 

91,159

 

 

 

 

100

%

 

 

 

 

 

 

 

DR Congo

 

60,638

 

 

 

 

100

%

 

 

 

 

 

 

 

Ghana

 

448,438

 

277,045

 

117,816

 

 

100

%

 

 

99

%

 

 

99

%

 

Mauritius

 

221,100

 

167,565

 

136,620

 

 

91

%

 

 

89

%

 

 

89

%

 

Senegal

 

679,914

 

339,884

 

206,506

 

 

100

%

 

 

100

%

 

 

100

%

 

Sierra Leone

 

29,606

 

33,409

 

31,699

 

 

100

%

 

 

100

%

 

 

100

%

 

Tanzania

 

475,379

 

302,712

 

168,863

 

 

100

%

 

 

100

%

 

 

100

%

 

Subtotal Africa

 

2,006,634

 

1,120,615

 

661,504

 

 

99

%

 

 

98

%

 

 

97

%

 

South Asia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pakistan—Pakcom

 

421,242

 

534,734

 

491,011

 

 

97

%

 

 

96

%

 

 

97

%

 

Pakistan—Paktel

 

996,478

 

481,566

 

333,169

 

 

98

%

 

 

96

%

 

 

93

%

 

Sri Lanka

 

579,430

 

442,546

 

368,102

 

 

99

%

 

 

98

%

 

 

97

%

 

Subtotal South Asia

 

1,997,150

 

1,458,846

 

1,192,282

 

 

98

%

 

 

97

%

 

 

96

%

 

South East Asia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambodia

 

773,608

 

609,704

 

431,911

 

 

99

%

 

 

99

%

 

 

99

%

 

Lao People’s Democratic Republic

 

76,728

 

40,315

 

17,374

 

 

100

%

 

 

100

%

 

 

100

%

 

Vietnam

 

0

 

1,849,288

 

1,035,582

 

 

0

%

 

 

73

%

 

 

73

%

 

Subtotal South East Asia

 

850,336

 

2,499,307

 

1,484,867

 

 

99

%

 

 

80

%

 

 

81

%

 

Total

 

8,928,985

 

7,713,201

 

5,690,542

 

 

94

%

 

 

87

%

 

 

87

%

 

 

 

30




CENTRAL AMERICA

Central America consists of Millicom’s cellular operations in El Salvador, Guatemala and Honduras. Millicom Central America’s licenses covered approximately 26.5 million people as of December 31, 2005.

El Salvador

El Salvador’s government system is a democratic republic. Following deterioration in the country’s democratic institutions in the 1970s, a civil war took place between 1980 and 1992 and came to an end as the two opposing sides signed a peace accord. The current president, Elías Antonio Saca González of the right-wing Arena political party, was elected in 2004 for a five-year term. He recently re-affirmed his commitment to a political and economic reform agenda in El Salvador ending on June 1, 2009.

In order to drive economic growth, the government of El Salvador continues to focus on opening new export markets (exports grew by 5.6% in 2004), encouraging foreign investment and maintaining a tax regime that promotes corporate investment. Implementation of the Central America-Dominican Republic Free Trade Agreement, ratified by El Salvador in 2004, is viewed as a key policy to help achieve these objectives. El Salvador became member of the World Trade Organisation in 1995. As the country does not have control over its monetary policies following the adoption of the US Dollar in 2001, the government is committed to maintaining tight fiscal policies. The economy has grown significantly since the early 1990’s but close to 50% of the population remains under the poverty line. El Salvador had a population of about 8.9 million at the end of 2005.

El Salvador’s telecommunications market is among the most liberalized in Central America. In 1996, the government passed a telecommunications law designed to encourage competition in all areas of the sector and permitted foreign investment for the first time. The law controls all activities of the telecommunications sector, with particular emphasis on the regulation of the public telephony service, utilisation of radio spectrum, access to essential resources and numbering plans. Since the sector privatisation in 1998, foreign and local operators have made significant investments in infrastructure improvement. This has resulted in considerable growth of mobile connections, partly as a result of the underdeveloped fixed-line network with waiting time for connections often running into several years. Mobile operators have capitalized on this by offering fast, high quality service with nationwide coverage.

Millicom has a 100.0% equity interest in Telemovil. Millicom accounts for this operation as a subsidiary, i.e. using the full consolidation accounting method.

Telemovil launched its operations in 1993 and was the only mobile services provider until 1999, operating an analogue and a digital TDMA network. Since market entry, Telemovil has expanded its coverage of the main cities rapidly and has remained the market leader. The full overlay GSM network was launched in August 2004. Services offered also include broadband internet, fixed wireless telephony and public telephony.

Currently there are five mobile services providers in the country. Telefonica and Telecom (at the time owned by France Telecom) entered the market as the second and third operator respectively, in 1999. In 2001, Digicel (privately owned) entered the market with a GSM network as the fourth operator. In 2003, America Movil acquired France Telecom’s interest in Telecom, and increased its market share mainly as a result of strong GSM handset subsidies and heavy advertisement. In October 2005, Intelfon (privately owned) entered the market as the fifth operator, offering services based on the iDen push-to-talk technology. Intelfon has a negligible market share.

Telemovil’s strategy is based on offering a combination of market leading network coverage, high-quality services and low prices. Leveraging Telemovil’s distribution capabilities through ePIN and other electronic means further enhances this strategy. Telemovil also aims to expand its value-added services and further strengthen its market leading customer services operations.

31




Telemovil was initially awarded a 15 year mobile license in September 1991 which was subsequently extended up to 2018.

The GSM network comprises 221 base stations with a maximum capacity of handling 469,000 concurrent subscribers. The network covers 84% of the total population. The network is GPRS/EDGE enabled.

Guatemala

Guatemala’s government system is a constitutional democratic republic. In 1996, peace accords were signed which brought an end to 36-year of civil war. Although Guatemala has completed a successful transition from military to civilian government, the military retains considerable political power. The president, Oscar Berger of the centre-right Gran Alianza Nacional political party, who came to power in January 2004, has managed to impose fiscal discipline and to advance important legislative reforms. His pro-business economic programme encourages investor confidence, although the lack of a working majority in the legislature and tight public finances represent potential challenges.

Guatemala is the largest and most populous of the Central American countries with a population of about 12.8 million at the end of 2005. Its economic growth continued to increase in recent years (estimated real GDP growth of 3.1% in 2005). The distribution of income remain very unequal, with half the population living under the poverty line, of which 15% live in extreme poverty. Agriculture accounts for approximately 25% of GDP, 66% of exports and 50% of the labour force. The end of the civil war removed a major obstacle to foreign investment. Overall economic outlook is positive given the government’s anti-corruption and pro-business stance, which underpins investor confidence, and rising inflows of foreign direct investment. The extension of the EU’s generalised system of preferences, under which Guatemalan exports enjoy preferential access to EU markets, will also have a positive impact on the economy going forward. Guatemala joined the GATT in 1991 and became member of the World Trade Organisation in 1995.

Between 1996 and 1998, Guatemala implemented an ambitious liberalisation and privatisation programme. The General Telecommunications Law was passed in 1996 and opened the sector to competition with immediate effect, including the removal of all regulatory restrictions on prices and quality of service, and also prepared the ground for privatisation of the incumbent operator Guatel, now named Telgua, which took place in 1998. The law also created a regulatory authority, the Superintendencia de Telecomunicaciones (SIT), which is primarily responsible for the allocation of radio spectrum, resolving access disputes and administering the national numbering plan.

Millicom has a 55.0% equity interest in Comcel Guatemala (Comcel). The remaining 45.0% of the company is owned by Miffin Associates Corp. (privately owned) owning 35.0% and Arkade International Inc. (privately owned) owning 10.0%. The shareholders in Comcel jointly control the company. Millicom accounts for this operation as a joint venture, i.e. using the proportionate accounting method.

Comcel was the first mobile operator in Guatemala when it launched commercial operations in 1990. The company enjoyed a monopoly position until 1999 when Telefonica and Telgua (owned by America Movil) entered the market as the second and third operators. In 2001, BellSouth entered the market as the fourth operator but Telefonica acquired BellSouth’s operations in 2004. America Movil offers an integrated telecommunications solution, from fixed and mobile telephony to Cable TV and internet services. Telefonica is currently attempting to improve its pre-paid brand with airtime promotions and is highly competitive in the corporate fixed-line market segment. During 2003, another two mobile licenses were granted, although no commercial services have been launched.

Comcel is currently operating a GSM/GPRS/EDGE network and a TDMA network. The GSM/GPRS/EDGE network was launched in August 2004. Comcel also provides international long-distance services, internet services and local telephony services.

32




In January 1990, Comcel was awarded its initial 20-year license to operate a nationwide 800MHz network in Guatemala. In March 2003, the company was awarded a revised license to operate 10MHz of frequency for a period of 15 years until 2018. In August 1998, as validated in October 2001, the license to operate another 4MHz spectrum was awarded for the period until 2013. The license can then be extended for a further 15-year period.

The GSM network comprises 546 base stations with a maximum capacity of handling 951,000 concurrent subscribers. The network covers 71% of the total population. The network is GPRS/EDGE enabled.

Honduras

Honduras’ government system is a democratic constitutional republic. Since the regional peace process that took place in the late 1980s, democracy in Honduras has been strengthened. Jose Manuel Zelaya Rosales of the Partido Liberal party was re-elected President in January 2006. The new government will take office in January 2006 and is expected to maintain the prudent, broadly market-oriented policies of the previous leadership.

Although GDP per capita in Honduras is one of the lowest in Latin America, it has increased since the 1990s and overall economic growth (as measured by real GDP) is higher than in many other countries in the region (estimated at 4.0% in 2004). Honduras continues to focus on pursuing the economic and reform programme agreed with the International Monetary Fund (IMF) under the poverty reduction and growth facility since February 2004 two-thirds of Hondurans continue to live in poverty. As the country has met most of its macroeconomic targets, it has achieved debt relief under the IMF-World Bank’s heavily indebted poor countries initiative. The US has become Honduras’ largest trading partner (over 54% of exports in 2005) with the country becoming a member of the US-Central America Free Trade Agreement in May 2004. Sugar, coffee, textiles, clothing and wood products are the key industries in the country. Honduras had a population of about 7 million in 2005.

The Comisión Nacional de Telecomunicaciones (Conatel) was created in October 1995 as the national regulatory authority and reports directly to the Ministry of Telecommunications. It operates a licensing system for all telecommunication services in Honduras and is in charge of promoting the modernization and development of the sector by encouraging private investment, free competition and improved quality of service. Although Empresa Hondurena de Telecomunicaciones (Hondutel), the state-owned national incumbent operator, has monopoly over local and long-distance telephony services, the government has opened value-added services and mobile telephony to competition. Both mobile operators (Millicom’s Celtel, the market leader, and Megatel) have the right to carry international traffic for their own customer base. Full liberalisation was scheduled for the end of 2005 with the approval of the Congress of a new General Telecommunications Law.

Millicom has a 66.67% equity interest in Celtel. The remaining 33.33% of Celtel is owned by Proempres Panama S.A. which is privately owned. Millicom and Proempres entered into a revised shareholder agreement following the buy-out of a third shareholder, Motorola, in 2005, under which the two companies exercise joint control of Celtel. Millicom accounts for this operation as a joint venture, i.e., using the proportionate accounting method.

Celtel launched commercial operations in 1996 as the first mobile operator in Honduras and today operates a GSM, AMPS and CDMA network. Until late 2003, Celtel enjoyed a monopoly status in the mobile market, when Megatel (owned by local Honduras investors) entered the market with a GSM network as the second operator. Megatel was acquired by America Movil in 2004. A third mobile license has been issued in Honduras to Hondutel, but no operations have been launched to date.

33




In June 1996, Celtel was awarded a 10-year license to operate a nationwide mobile network at a cost of US$5.1 million. In March 2005, the license was transformed into a 25-year license with an expiry date of June 2021 at a cost of US$4.8 million.

The GSM network comprises 227 base stations with a maximum capacity of handling 863,000 concurrent subscribers. The network covers 57.2% of the total population. The network is GPRS/EDGE enabled.

SOUTH AMERICA

Millicom’s cellular operations in South America are located in Bolivia and Paraguay. Our South American licenses covered approximately 15.2 million people as of December 31, 2005.

Bolivia

Bolivia’s Government System is a Unitary Democratic Republic. Since the beginning of the 1990s, the Government has pursued an economic and social reform agenda. The most significant change undertaken was a Privatisation Programme under which private investors acquired 50% ownership and management control of state-owned companies such as the state oil, telecommunications and electricity companies. A representative of the left, Evo Morales, was elected president of Bolivia on December 18 2005. Although he has stated that the tax system for foreign oil and gas investors will be reviewed, he has also expressed his intention to protect foreign investment in the country.

Although Bolivia has one of the lowest GDPs per capita in Latin America, the economic reforms of the 1990s resulted in an average real GDP growth rate of approximately 4% p.a. However, given some global economic slowdown and domestic unrest growth slowed down somewhat from 1999. About 50% of Bolivians lived below the poverty line in 2005, with about 15% in extreme poverty. Bolivia is a beneficiary of the World Bank and the IMF’s initiative for heavily indebted poor countries and continues to enjoy the support of international financial institutions and donors. By helping to finance the fiscal deficit, these funds should allow the government to maintain capital spending, largely on public infrastructure projects, which are expected to help improve long-term growth prospects. Oil and gas, mining, smelting, food and beverages, tobacco and clothing are the most important industries in Bolivia. The country became member of the World Trade Organisation in 1995 and is negotiating its membership of Mercosur (the Southern Common Market with Argentina, Brazil, Paraguay and Uruguay). Bolivia had a population of about 8.9 million at the end of 2005.

The Superintendence of Telecommunications (Sittel) is part of the Sirese system, an autonomous government agency responsible for regulating the five basic utility sectors: telecommunications, electricity, transport, oil and gas and water. Sittel is responsible for implementing the 1995 Telecommunications Law and other decrees and regulations and carries out the basic regulatory functions, including the granting of licenses and concessions, the setting of some rates and the supervision of monopolistic practices in the telecommunications sector. All services within the Bolivian telecommunications market have been opened up to competition following the market liberalisation in 2001.

Millicom has a 100.0% equity interest in Telecel. In addition to offering mobile services on a nationwide basis, Telecel has also offers limited long-distance fixed-line telecommunication services since December 2001. Millicom accounts for this operation as a subsidiary, i.e. using the full consolidation accounting method.

Telecel launched commercial operations in 1991 through an offering of analogue mobile services in Bolivia’s three main cities of La Paz, Santa Cruz and Cochabamba. In 1997, the network was extended to the rest of the country. At the same time, the government of Bolivia privatised the national incumbent fixed-line operator, Entel, by selling a 50.9% stake to Telecom Italia and allowing it to launch a mobile network. This was also the time when a Calling Party Pays system was introduced in Bolivia. Building on its

34




strong market position, Telecel introduced the first pre-paid mobile offering at the end of 1996 and launched digital services through its TDMA network in 1997. Millicom rolled out GSM networks in its other Latin American markets in 2004, and as Telecel represented Millicom’s smallest market in the region, and still showed growth in TDMA subscribers, it was decided that Millicom would assess the results of the GSM roll-out in the other Latin American countries before launching such services in Bolivia. Telecel started offering nationwide GSM services in December 2005. As such, it was the last remaining operation in the Millicom group to adopt this technology platform.

From 1991 to 1996, Telecel was the only mobile operator in Bolivia. However, Móvil de Entel (the mobile subsidiary of the incumbent operator Entel) launched its mobile services in 1996 following changes in concession agreements, and in 2001 NuevaTel (a joint venture between Alltel of the US, with a 72% stake, and Cooperativa de Telecomunicaciones Cochabamba, one of Bolivia’s largest telecommunication co-operatives, with a 28% shareholding) entered the market with a GSM network. By 2002, Móvil de Entel also started offering heavily subsidised GSM services. Consequently, Móvil de Entel became the leading operator in terms of subscriber numbers with Telecel retaining a clear number two market position despite its lack of a GSM offering until December 2005.

Telecel’s new GSM services use the TIGO brand to clearly distinguish it from the company’s TDMA and small-scale analogue offerings.

In September 1990, and subsequently modified in 1995, Telecel was awarded a 20 year license to operate a mobile network in Bolivia’s three main cities (La Paz, Santa Cruz and Cochabamba). In May 1997, the company’s license was extended to cover the rest of the country for a period of 20 years. In December 2002, Telecel was also awarded a 40-year license to provide fixed-line long-distance telecommunication services in Bolivia. This license is mainly used to carry Telecel’s mobile traffic.

The recently launched GSM network comprises 149 base stations with a maximum capacity of handling 133,000 concurrent subscribers. The network covers 26.3% of the total population. The network is GPRS/EDGE enabled.

Paraguay

Paraguay’s Government System is a Constitutional Republic. The 35-year military dictatorship of Alfredo Stroessner was overthrown in 1989, and despite a marked increase in political infighting in recent years, relatively free and regular presidential elections have been held since then. President Nicanor Duarte Frutos of the ruling Partido Colorado political party has overseen a period of economic recovery and has brought greater stability to the public finances since taking office in 2003. The next municipal and presidential elections are due to take place in 2006 and 2008, respectively.

Paraguay has a market economy characterised by a large informal sector. The informal sector features both re-export of imported consumer goods to neighbouring countries as well as the activities of thousands of micro-enterprises and urban street vendors. A large proportion of the population derives their living from agricultural activity, often on a subsistence basis. In the late 1990s, about 33% of the population lived in extreme poverty and about 37% lived in poverty, making it one of the poorest countries in South America. During the 1990s, the average annual growth rate in GDP per capita was negative with growth of only 0.5% between 1990 and 1995, 2003 per capita GDP was about the same as in 1976. The GDP real growth rate is estimated to have been 3.4% in 2005. Although Paraguay’s per capita income remains very low compared to most Latin American countries, the economy has regained growth momentum since 2003. Following an improvement in fiscal management and the adoption of public banking reform, the country is expected to benefit from a new IMF stand-by arrangement that will run until 2008. It is anticipated that this will increase confidence in the government’s economic management and provide more time for structural reforms to be implemented, while gaining support from more international financial institutions. Paraguay had a population of about 6.3 million in 2005.

35




The Telecommunications Law of 1995 was aimed at liberalising the sector through the creation of the Comisión Nacional de Telecomunicaciones (Conatel), the regulatory authority. Although the law succeeded in opening up the mobile and value-added sectors, including the internet service provider market, state-owned Copaco has retained its monopoly position in the fixed-line market. Conatel has announced that new operators would be allowed to enter the local and long-distance telecommunications markets from December 2004, but no new fixed-line licenses have been issued to date.

As at December 31, 2005 Millicom had a 96.0% equity interest in Telecel Paraguay. The remaining 4.0% of the company is owned by a local partner Mr. Angel Auad, a well known businessman in the Paraguayan construction industry. On April 4, 2006, an agreement was signed with Mr. Auad for Millicom to purchase his equity ownership. The closing of the transaction is subject to regulatory approval. Millicom accounts for this operation as a subsidiary, i.e. using the full consolidation accounting method.

Telecel entered the market in 1992 as the first mobile operator in the country and currently operates a GSM network and a digital TDMA network (as well as a small residual analogue network). Telecel currently owns four operating licenses (800MHz and 1900MHz, as well as licenses for WLL and internet services). Telecel introduced pre-paid services in 1997 which lead to a strong increase in penetration.

Until 1998, Telecel enjoyed a monopoly position in the mobile market, when Personal (owned by Telecom Italia) entered the market as the second operator. Personal currently has the largest network coverage in the country. In 1999, Vox (a joint venture between KDDI Corporation from Japan and Mr. Toyotosi, a local businessman) entered the market with a GSM network as the third operator. Vox currently features coverage of the capital city only, competitive airtime prices and some handset subsidies. In 2001, Porthable (owned by Hutchison Whampoa) entered the market as the fourth operator with coverage in the capital city and main cities in the interior of the country. In 2005, America Movil acquired the company (currently called CTI). The new CTI positioning features higher tariffs combined with low handset prices, and further network coverage is currently being established. In 1991, Telecel was awarded a 10-year license for an 800MHz network. In October 2001, the license was renewed until October 2006 and is renewable for successive five-year periods. In 1997, Telecel was awarded a 1900MHz PCS license which was renewed in 2002, expires in November 2007, and is renewable for successive five-year periods. The WLL and the internet service licenses were awarded in 1999, renewed in 2005/2004 and will expire in 2010 and 2009, respectively.

Renewal fees are based on the amount to be invested during the respective next five-year license period (3.5% to 5% of the planned investment amount). The regulator is in the process of considering a different renewal fee structure.

Telecel GSM network comprises 187 base stations with a maximum capacity of handling 360,000 concurrent subscribers. The network covers about 76% of the total population. The network is GPRS/EDGE enabled.

36




AFRICA

Million’s Africa cluster consists of Millicom’s cellular operations in Chad, Democratic Republic of Congo, Ghana, Mauritius, Senegal, Sierra Leone and Tanzania. Our African licenses covered approximately 146 million people as of December 31, 2005.

Chad

Chad’s government system is a unitary republic based on the amended constitution of June 2005. The country endured three decades of civil war as well as an invasion by Libya before peace was restored in 1990 and the government eventually suppressed or came to terms with most political-military groups, settled a territorial dispute with Libya on terms favourable to Chad, and held democratic elections. Having successfully held a referendum in June 2005 to legitimise amendments to the constitution, the president, Idriss Déby, is expected to seek a third term in office in the 2006 elections. In April 2006 an attempted coup against Mr. Deby’s government was defeated. The coup attempt was initiated by rebels of the United Front for change apparently with the support of the government of neighbouring Sudan.

Chad’s primarily agricultural economy continues to be supported by major oil and gas projects that began in 2000. Over 80% of the country’s population relies on subsistence farming and livestock for its livelihood. Although cotton, cattle and rubber are important industries in Chad, around 97% of the country’s exports are derived from the oil and gas industry. Oil production started in 2003, and a consortium led by ExxonMobil has already invested significant amounts to develop reserves in southern Chad. Following the resumption of IMF assistance in early 2005, a new poverty reduction and strategy paper has began to broadly shape future economic policy. Although poverty remains a key issue in Chad with approximately 80% of the population living below the poverty line, economic growth has been very strong in recent years, with real GDP growth peaking at 29.7% in 2004. Chad became member of the World Trade Organisation in 1996. Chad had a population of about 9.8 million in 2005 and has hundreds of thousands of refugees from Sudan and Centratrigue on its soil.

The Ministère des Postes et Télécommunications was responsible for regulation of the sector until the Telecommunications Act was passed in 1998. The enactment of the law paved the way for the creation of a new regulatory authority, the Office Tchadien de Régulation des Télécommunications (OTRT), in 2000. In the same year, the Société des Télécommunications du Tchad (Sotel Tchad) was established to operate basic fixed-line telephony services in the country during a five-year exclusivity period. The government is planning to privatise Sotel Tchad in the near term.

Millicom has an 87.5% equity interest in Millicom Tchad. The remaining 12.5% of the company is owned by a local business man, Mr. David Abtour. Millicom accounts for this operation as a subsidiary, i.e. using the full consolidation accounting method.

Millicom Tchad launched commercial operations in the capital city, N’Djamena, in October 2005, only nine months after the arrival of the local management team. The company offers TIGO-branded pre-paid services over its GSM network and, from launch, services included GPRS, EDGE, MMS and ePIN (electronic top-up). It also has an international gateway.

Celtel Tchad, in which Kuwait-based MTC is the 80% majority shareholder, is the only other mobile operator in Chad.

In November 2004, Millicom Tchad was awarded a 10-year license to operate a nationwide GSM network in Chad and in July 2005 the company’s license was amended to allow for international gateway operations.

The GSM network comprises 11 base stations with a maximum capacity of handling 150,000 concurrent subscribers. The network covers 12% of the total population.

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Democratic Republic of Congo (DRC)

DRC’s government system is a unitary republic. Following the withdrawal of Rwandan forces from eastern DRC in 2002, the Pretoria Accord was signed by all relevant parties to end the four years of regional war involving Angola, Chad, Namibia, Sudan and Zimbabwe supporting the Congolese regime being challenged by Rwanda and Uganda, and establish a government of national unity. A transitional government was set up in July 2003 with Joseph Kabila as president and head of government. He was joined by four vice-presidents representing the former government, former rebel groups and the political opposition. New elections had been due by June 2005 after a transition period of two years, but are now to take place during the first half of 2006. The international community is maintaining pressure on the various parties to adhere to this transition timetable.

Economic growth (as measured by real GDP) in DRC has remained above 5.5% p.a. since 2002, largely driven by the country’s main industries such as mining (49% of exports in 2000), mineral processing and textiles. The government has tightened its economic policy in a bid to achieve a successful conclusion of the fifth review of its performance under the IMF’s three-year poverty reduction and growth facility which expired in October 2005. The IMF and the World Bank are expected to remain closely engaged with the government and to proceed towards negotiations for a new three-year poverty reduction and growth facility. The economic environment in DRC favours growth as the authorities have retained their overall commitment to macroeconomic stabilisation which continues to be supported by donor assistance. Furthermore, corporate taxes and investment laws are being revised to liberalise the business environment and attract foreign direct investment in DRC. An increasing number of foreign investors are entering the country. Nevertheless, the country suffers from severe lack of infrastructure and from continued instability and attacks by rebels in the eastern parts of the country (Ituri region). DRC became member of the World Trade Organisation in 1997. DRC had a population of estimated at about 60.1 million in early 2006.

DRC’s national telecommunications operator, the Office Congolais des Postes et des Télécommunications (OCPT), was converted from a government department to a corporation in 1968. It operates an outdated, poorly managed analogue fixed-line network of approximately 10,000 lines which is mainly concentrated in the capital city of Kinshasa. The ARPTC (Autorite de Regulation de la Poste et des Telecommunications du Congo) is responsible for regulating the telecommunications sector. Legislation has been prepared but not yet implemented which will formally end the OCPT’s monopoly and pave the way for market liberalisation. The government has no developed telecommunications policy, and consequently no strategy for rural telecommunications development. As the DRC lacks the funds to invest in a modern fixed-line infrastructure, the country’s mobile sector has boomed in recent years.

Millicom has a 100.0% equity interest in Oasis and accounts for this operation as a subsidiary, i.e., using the full consolidation accounting method.

Oasis launched commercial operations in January 2001 as the second GSM mobile operator in DRC. Although Oasis had built a market share of around 33% by the end of 2002, the entry of two new competitors during 2002 and lack of capital investment resulted in a significant decline in Oasis’ market position. Millicom acquired Oasis from Orascom Telecom in September 2005 for a total consideration of US$35 million and is in the process of fully rebuilding the company’s network coverage, product and service offering, marketing strategy and distribution network. On completion of this turnaround, planned during 2006, the operation will be re-launched using the TIGO brand. Oasis also has an international gateway operation.

In 2001 three operators (Starcel, Comcel and Afritel) offered limited analogue and CDMA mobile services in DRC when Oasis entered the market with its GSM offering. These operators had ceased to exist by the end of 2003. Initially Celtel Congo, owned by Kuwait-based MTC, was the only other GSM operator in the market, becoming the leading provider of mobile services in DRC with coverage in almost 100 cities and towns. In October 2001, Congolese Wireless Networks (CWN) entered into a joint venture

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with South African mobile operator Vodacom, creating a new operator called Vodacom Congo. This company launched GSM services in DRC in April 2002 and has extended its coverage to a large number of cities and towns across the country. The fourth operator, CCT, jointly owned by the governments of ZTE (51%) and the government of DRC (49%), launched its GSM network in January 2002. After several years of underinvestment in its network, distribution channels, product and service offering and lack of marketing, Oasis’ market position had declined to a number four position in terms of subscribers. However, with the new investment programme launched by Millicom following the acquisition of Oasis, the company is expected to gain market share going forward.

Millicom’s strategy for Oasis is to re-launch the operation by offering a combination of optimal coverage and quality of mobile voice services, innovative products and services, a direct distribution network and a new pricing strategy. TIGO will become the new customer brand from the time of the re-launch scheduled for the third quarter of 2006.

In November 1997 Oasis was awarded a 20-year license to operate a fixed-line network in DRC and an amendment was signed in October 1999 which allows the company to construct a nationwide GSM network.

The GSM network comprises 62 base stations with a maximum capacity of handling 100,000 concurrent subscribers. The network covers 16.7% of the total population.

Ghana

Rich in natural resources, Ghana has around double the per capita output of the poorer countries in West Africa. Close to 80% of Ghanians live under the poverty line, with more than 40% living in extreme poverty. The country’s key industries include mining, lumbering, light manufacturing, aluminium smelting and food processing. Gold, timber and cocoa production are major sources of foreign exchange. Ghana remains dependent on international financial and technical assistance. The country opted for debt relief under the IMF-World Bank’s heavily indebted poor countries programme in 2002 and in July 2004 it satisfied the programme’s conditions and the election was taken to give Ghana debt relief of approximately US$3.5 billion on debt it owed to international institutions resulting in debt service savings of approximately US$100 million per annum for the following 20 years. Policy priorities include tighter monetary and fiscal policies, accelerated privatisation and improvement of social services. The country has experienced an average of 4% growth during the 1990s and strong economic growth (as measured by real GDP) in recent years and although inflation was high until the late 1990s it has declined to 15.0% (estimated) in 2005 as a consequence of the financial assistance of the IMF and the World Bank and tighter budget and monetary policies. Ghana had a population of about 21 million in 2005.

Ghana has been at the forefront of liberalising its telecommunications sector. In the early 1990s, the government recognised that the industry was underdeveloped but had the potential to stimulate wider growth in the economy. It consequently implemented the Telecom Sector Reform Policy in 1996, which introduced liberalisation and competition to accelerate infrastructure improvement and expansion. The National Communications Authority (NCA), Ghana’s telecommunications regulator, was established in the same year. Ghana Telecom, the state-owned operator of fixed-line services, has been managed by Telenor of Norway since 2003.

In addition to Millicom’s operation, three other companies offer mobile services in the country: Kasapa, Scancom and Ghana Telecom. After nearly a decade of slow growth, the mobile market started seeing considerable growth from 2001 with the number of mobile subscribers having grown by approximately 91% p.a. over recent years as a result of several favourable factors, including the development of a regulatory framework, increasing competition and the improving macroeconomic environment. However, despite recent rapid growth in the mobile sector, penetration is still low compared to other emerging markets and the number of mobile subscribers is expected to continue to grow going forward.

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Millicom has a 100.0% equity interest in Millicom (Ghana) Limited (“Mobitel Ghana”) and accounts for this operation as a subsidiary, i.e. using the full consolidation accounting method.

Mobitel Ghana entered the market in 1992 as the first mobile operator in the country. The company initially operated an analog cellular (ETACS) network and currently operates a GSM network. In addition to its mobile license, Mobitel Ghana also has a local fixed wireless service license in Ghana. Although Mobitel Ghana applied for a GSM license in 2000, it was not allowed to launch GSM services for approximately two years. Following the launch of Mobitel Ghana’s GSM offering in 2002, growth in its subscriber base has gained significant momentum.

Until 1995, Mobitel Ghana enjoyed a monopoly position in the mobile market, when Kasapa (owned by Hutchison Telecom) entered as the second operator with an AMPS network. Its market share remained low for a long period and the company recently launched a CDMA network with limited coverage.

In 1996, Scancom (owned by Investcom) entered the market as the third operator with the launch of a GSM network. Mobitel Ghana experienced erosion in its market share mainly due to the fact that it was not in a position to offer GSM services until 2002. This lead to Mobitel Ghana’s loss of its number one market position to Scancom. Scancom currently has the largest network coverage in Ghana and offers a range of value-added services including EDGE.

In 2000, government-owned Ghana Telecom entered the market as the fourth operator with the launch of a GSM network under the One Touch brand. In the same year, Mobitel Ghana applied for its GSM licence, but was not allowed to launch commercial operations until June 2002. An aggressive strategy based on low pre-paid tariffs saw Mobitel Ghana reclaiming the number two market position.

In December 2004, the government awarded GSM licenses to all four mobile operators in Ghana. Before this date, the operations were run based on a permission to use an allocated frequency. Mobitel Ghana’s license is valid for 15 years from December 2004 and is technology neutral, authorising it to provide mobile and local fixed wireless services. The license cost was $22.5 million and is payable over five years. In June 2005, Mobitel Ghana was also granted a 10-year international gateway license.

The GSM network comprises 153 base stations with a maximum capacity of handling 700,000 concurrent subscribers. The network covers 35% of the total population. GPRS services are planned for launch in the second quarter of 2006, and Mobitel Ghana expects to roll out EDGE services in July 2006.

Mauritius

Mauritius’ government system is a parliamentary democracy. After almost five centuries under Dutch, French and British control, the country gained its independence in 1968. A stable democracy with regular free elections, Mauritius has attracted considerable foreign investment and has earned one of Africa’s highest per capita incomes. Sir Anerood Jugnauth has been president since 2003, and Navinchandra Ramgoolam of the Labour Party was elected prime minister in the July 2005 elections.

Since 1968 Mauritius has developed from a low-income, agriculturally based economy to a middle-income diversified economy with growing industrial, financial and tourist sectors. For most of the period, economic growth (as measured by real GDP) has been between 5% and 6% p.a. which has resulted in more equitable income distribution, increased life expectancy and significantly improved infrastructure. Less than 10% of the Mauritius population lived under the poverty line in 2005. Sugarcane is grown on approximately 90% of the cultivated land area and accounts for 25% of export earnings. The government’s development strategy centres on foreign investment, expanding local financial institutions and expanding the domestic telecommunications industry. Mauritius, with its strong textile sector, remains well positioned to take advantage of the Africa Growth and Opportunity Act. Mauritius had a population of about 1.2 million in 2005.

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The Information and Communication Technology Authority (ICTA) is the country’s telecommunications regulator. Mauritius has the highest fixed-line penetration rate and the highest number of mobile subscribers in sub-Saharan Africa. The domestic telecommunications market is dominated by the monopoly of Mauritius Telecom and, although the government has made a commitment to the World Trade Organisation to achieve full liberalisation of the sector, it will be introduced gradually in order to ensure that competition does not inhibit the successful privatisation of the incumbent operator. Moreover, the government intends to introduce competition based on services rather than infrastructure, leaving Mauritius Telecom with control over the fixed-line infrastructure.

Millicom has a 50.0% equity interest in Emtel. The remaining 50.0% of the company is owned by a local partner, Currimjee Jeewanjee & Co. Ltd, a subsidiary of one of the leading diversified groups in Mauritius. The two shareholders in Emtel jointly control the company. Millicom accounts for this operation as a joint venture, i.e. using the proportionate accounting method.

Emtel entered the market in 1989 as the first mobile operator in the country. Until 1996 Emtel enjoyed a monopoly position, when Cellplus (owned by incumbent Mauritius Telecom) entered the market as the second operator with the launch of a GSM network. As Emtel launched its GSM service offering in 1999, three years after its competitor, Emtel experienced significant market share declines at the end of the 1990s. However, Emtel is now well positioned to regain market share and drive subscriber growth going forward. Emtel launched 3G services in Mauritius in November 2004, making it the first mobile operator to offer such services in Africa. A third mobile operator is expected to enter the market in 2006 using CDMA technology.

Emtel currently operates a GSM network and a UMTS/3G network. Emtel owns licenses for mobile services, international long-distance and internet services.

Emtel was awarded a 10-year license in 1989, including a seven year exclusivity period. Emtel’s license was modified in November 2000 and is valid for a period of 15 years. Furthermore, Emtel obtained additional spectrum for UMTS/3G services in November 2004, an international long-distance license in December 2003 (valid until 2017) and an internet service license in May 2004 (valid until 2019).

The GSM network comprises 114 base stations with a maximum capacity of handling 225,000 concurrent subscribers. The network covers 98% of the total population. The network is GPRS/UMTS enabled.

A condition of the 3G licence is that Emtel has to migrate its subscribers to the 3G network within five years. The regulator is in discussions with the ministry to possibly waive this requirement or to extend the duration of the migration period.

Senegal

Senegal’s government system is a unitary republic under multiparty democratic rule, having gained its independence in 1960. The political environment in the country passed a key milestone when the opposition socialist party led by Abdoulaye Wade came to power in the 2000 presidential elections and considerable democratic consolidation continues.

In 1994 Senegal undertook an economic reform programme with the support of the international donor community, beginning with a 50% devaluation of Senegal’s currency, which was linked at a fixed rate to the French Franc and government price controls and subsidies that have been steadily dismantled. As a result of the reform programme real GDP growth recovered to 5.8% (estimated) in 2005 and inflation was only 1.6% (estimated). The government continues to support the New Partnership for Africa’s Development which, with the backing of the G8, aims to increase donor support and inflows of foreign direct investment to African countries in exchange for improvements in governance. Senegal also continues to pursue a donor-supported economic reform programme as outlined in the IMF’s three-year

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poverty reduction and growth facility which was approved in April 2003. The country’s key industries include agriculture and fishing, mining, fertiliser production and petroleum refining.

Senegal became member of the World Trade Organisation in 1995. In September 2005, the World Bank and the IMF agreed to support Senegal’s accelerated growth strategy, combining the goals fixed under the poverty reduction and growth facility with the goal of increasing real GDP growth from its current level to 8% p.a. by 2015 slightly less than 70% of the population of Senegal lived under the poverty line in 2005, of which about 25% lived in extreme poverty. Senegal had a population of about 11.1 million in 2005.

The telecommunications sector in Senegal was reformed in 1985 with the creation of state-owned Sonatel. The country made commitments under the World Trade Organisation’s Basic Telecommunications Agreement to introduce a regulatory structure promoting competition by the end of 1997 and a new legislation was adopted in 1996, providing for the opening up of Sonatel’s capital to private foreign and national partners and liberalisation of some segments of the telecommunications market. Consequently, France Telecom acquired a 33% stake in Sonatel in 1997 and later increased the holding to 42.3%. In 2001 the government passed an updated Telecommunications Law aimed at bringing about further liberalisation of the sector, mainly through the establishment of a new regulatory authority, the Agence de Régulation des Télécommunications (ART). ART is responsible for licensing, spectrum management, tariff approval, interconnection rates and frequency allocation. The law also paved the way for the opening of rural telephony to private investment as a means of achieving universal service.

Senegal has developed one of the most extensive and modern telecommunication infrastructures in Africa. Mobile services were introduced in 1996 and since the introduction of competition the number of mobile subscribers has grown substantially. Sonatel is the only other mobile operator in Senegal in addition to Millicom’s Sentel.

As of December 31, 2005 Millicom had a 75.0% equity interest in Sentel. The remaining 25.0% of the company was owned by a local business partner, Mr. Pape Abdoul Ba, whose participation Millicom purchased in March 2006. Millicom accounts for this operation as a subsidiary, i.e. using the full consolidation accounting method.

Sentel launched its commercial operations in 1999 as the second mobile operator in the country and it was the first mobile operator to introduce GPRS services. Sentel launched the TIGO brand in December 2005.

The Senegalese mobile market features certain specific characteristics such as strong international traffic due to Senegal’s position as a regional hub. Roaming services are also frequently used as Senegal has become a popular tourist destination. Although a third mobile license is likely to be granted during 2006, services are not expected to be launched by a new operator until 2007.

Sonatel, the partly privatised incumbent operator owned by France Telecom (42.3%) and the Senegalese government (57.7%), was the only other mobile operator in Senegal when Sentel entered the market in 1999. Sentel was awarded a 20-year license to operate a nationwide network in July 1998. The license is renewable every five years after the expiry of the original license. At the time the government had announced certain amendments to the license, which amendments were never implemented. The government that took office in 2000 repeatedly questioned publicly the status and the validity of Sentel’s license until August 2002, when the government acknowledged the validity of Sentel’s 1998 license.

The GSM network comprises 167 base stations with a maximum capacity of handling 850,000 concurrent subscribers. The network covers 53% of the total population. A programme to extend the current network is underway, and the company plans to increase the number of base stations to 250 by the end of 2006.

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Sierra Leone

Sierra Leone’s government system is a constitutional democracy. The civil war between 1991 and 2002 between the government and the Revolutionary United Front (RUF) party resulted in the displacement of more than 2 million people, many of whom are now refugees in neighbouring countries. With the support of the United Nations peacekeeping forces and contribution from the World Bank and the international community, demobilisation and disarmament of the RUF has been completed. National elections were held in May 2002 and the government continues to re-establish its authority.

Sierra Leone is rich in minerals, agricultural and fishery resources. However, approximately two-thirds of the working-age population engages in subsistence agriculture. The country’s infrastructure is severely lacking, partly as a result of the civil war. Manufacturing consists mainly of the processing of raw materials and light manufacturing for the domestic market. Diamond mining, representing 86% of the country’s exports in 2003, remains the major source of foreign currency. International financial institutions contributed over US$0.6 billion in development aid and budgetary support in 2003.

Sierra Leone’s poverty reduction and growth facility expired in June 2005. A new agreement is not yet in place, but one is expected to be agreed soon given the IMF’s satisfaction with the review of the latest programme. In the meantime, economic policy is expected to remain consistent with the previous poverty reduction and growth facility but with the emphasis shifting more strongly from post-conflict resolution to poverty reduction. The country’s economic policy will also be influenced by World Bank involvement and is expected to include a focus on decentralisation, developing agriculture, promoting the private sector and developing infrastructure. Sierra Leone is also expected to become eligible for substantial debt relief from mid-2006. About 75% of the population of Sierra Leone lived under the poverty line in 2005, of which about 57% lived in extreme poverty. Sierra Leone had a population of about 6 million in 2005.

The Ministry of Transport and Communications is responsible for regulating the telecommunications market in Sierra Leone. Its responsibilities include the issue of licenses, supervision of the incumbent fixed-line operator (Sierratel) and overseeing all technical issues pertaining to the sector. The Ministry has set out a five-year plan covering its key goals, which include increasing the number of fixed-line customers to 80,000, replacing all analogue switches and transmission links with digital technologies and introducing broadband services for business customers. The government is expected to establish an independent regulatory authority in 2006 that will take over the current responsibilities of the Ministry of Transport and Communications. It is also expected to introduce other measures to liberalise the country’s telecommunications sector, such as the privatisation of Sierratel, allowing new international gateway operators, encouraging private sector involvement in the provision of telecommunication services for both domestic and international traffic and encouraging competition across the sector.

The fixed-line telecommunications market in Sierra Leone is highly underdeveloped as a result of the civil war. Consequently, mobile services have become the main telecommunications platform. In addition to Millicom, there are three other mobile operators in Sierra Leone: Celtel, Comium and Africell.

Millicom has a 100.0% equity interest in Millicom (Sierra Leone), following the buy-out of its local partner, Comtech (SL) Ltd, in December 2005. Millicom accounts for this operation as a subsidiary, i.e. using the full consolidation accounting method.

Millicom (Sierra Leone) launched commercial operations in 2001 as the second mobile operator and today operates a GSM 900 network. Sierra Leone currently operates under a Calling Party Pays regime and interconnection among operators is compulsory.

When Millicom’s (Sierra Leone) service was launched, coverage was restricted and there was intermittent service failure in several important high-density areas. Millicom (Sierra Leone) is currently in the process of modifying, expanding and upgrading its network. The company aims to have a network

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which is competitive with that of Celtel, the market leader, and to that of Comium and Africell by the end of 2006.

Celtel (formerly owned by MSI International, currently owned by Kuwait-based MTC) was the only other mobile operator in Sierra Leone when Millicom (Sierra Leone) entered the market in 2001. Celtel currently provides GSM mobile services and also has an international gateway license.

In 2005, Comium (owned by the Luxembourg-based Comium Group) and Africell (owned by the Lebanese network operator Lintel) entered the market as the third and fourth operators. Comium, with its affordable tariffs and wide range of value-added services, achieved a strong entrance into the market. An additional entrant (Datatel) is expected to launch services in early 2006, covering the western part of the country.

In August 2000, Millicom (Sierra Leone) was awarded a 15-year license to operate a nationwide GSM network. Furthermore, Millicom (Sierra Leone) was awarded a 10-year international gateway license in February 2003.

The GSM network comprises 20 base stations with a maximum capacity of handling 91,000 concurrent subscribers. The network covers 27% of the total population. Millicom (Sierra Leone) has recently contracted ZTE for a network modification project. At the completion of the project, the company’s network capacity will be increased to 115,000 subscribers. Millicom (Sierra Leone) also expects to provide full GPRS/EDGE capability from Mid-2006.

Tanzania

Tanzania’s government system is a federal republic formed by the 1964 union of Tanganyika and Zanzibar. The country’s one party rule came to an end in 1995 with the first democratic elections held since the 1970s. President Jakaya Kikwete came to power after winning by a clear majority at the last elections on December 14, 2005. He is expected to carry on with the economic reforms that have gathered pace during the two terms in office of the previous president, Benjamin Mkapa.

Tanzania’s economy is highly dependant on agriculture, which accounts for almost half of the country’s GDP, provides 85% of exports and employs 80% of the workforce. The key industries in Tanzania include processing of agricultural products and light consumer products. The World Bank, the IMF and bilateral donors have provided funds to develop Tanzania’s economic infrastructure and recent banking reforms have helped increase private sector investment. Solid macroeconomic policies and continued donor assistance supported real GDP growth of 6.3% in 2003/04 and 6.8% (estimated) in 2005 against a background of low and stable inflation in recent years. Tanzania became member of the World Trade Organisation in 1995.

On the expiry of Tanzania’s current poverty reduction and growth facility with the IMF in August 2006, the government is expected to agree a new policy support programme which would provide extensive external monitoring of government reform efforts. At the heart of the government’s policy objectives is real GDP growth of between 8% and 10% p.a. going forward. About 60% of the Tanzanian population lived in poverty in 2005, of which about 20% lived in extreme poverty. Tanzania had a population of about 36.8 million in 2005.

Tanzania was among the first African countries to liberalise its telecommunications sector, with all segments except fixed-line services now accessible to the private sector. In 1997 the government introduced its National Telecommunications Policy covering the period until 2020. Key goals of the policy initiative are to increase teledensity, develop fixed-line service coverage of rural areas, facilitate investments by domestic and international companies and institutions, provide a regulatory framework to encourage private sector involvement and competition, with the government gradually divesting its shareholding in the incumbent operator TTCL. The Tanzania Communications Regulatory Authority (TCRA) was

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established in 2003. TCRA is responsible for the allocation and management of radio spectrum in Tanzania.

At December 31, 2005, Millicom had an 84.4% equity interest in Millicom Tanzania Ltd (Mobitel). Following the buy-out of a minority shareholder, Ultimate Communications Limited, in January 2006, Millicom owns 100% of Mobitel. Millicom accounts for this operation as a subsidiary, i.e., using the full consolidation accounting method.

Mobitel was the first mobile operator in Tanzania, launching commercial analogue services in 1994 using an ETACS network initially covering Dar es Salaam, Zanzibar, Arusha and Mwanza. In 1999, it introduced its first GSM service offering, and analogue services were fully discontinued in October 2005. Although Mobitel experienced decreasing market share historically due to limited investment in network coverage and capacity, the company now focuses on offering best value services to its subscribers, expanding network coverage to all regions of Tanzania and investing in network capacity. These initiatives provide a solid base to ensure continued strong growth going forward. Mobitel expects to launch an international gateway operation in the first half of 2006.

Other operators in Tanzania are as follows:

·       Tritel (a joint venture between two local industrial companies) launched GSM services in the country in 1996, but the company went bankrupt and its license was revoked in January 2003.

·       Vodacom Tanzania (65% owned by South African mobile operator Vodacom and 35% owned by local Planetel Communications) entered the market in August 2000 and has become the leading provider of mobile services in Tanzania in terms of subscribers.

·       Celtel Tanzania (in which Kuwait-based MTC has a 60% shareholding and the government of Tanzania has a 40% shareholding) launched GSM services in the country in November 2001.

·       Zantel (jointly owned by the government of Zanzibar, Emirate Telecommunication Company, Kintbury Investment of the Channel Islands and a local technology firm) introduced GSM services in Zanzibar and the islands of Unguja and Pemba in August 1999, and entered the Tanzanian mainland in June 2005 through a national roaming agreement with Vodacom Tanzania.

Mobitel experienced an erosion of its market share during this period, mainly due to the fact that Vodacom Tanzania and Celtel Tanzania launched GSM services ahead of Mobitel. Mobitel is now implementing an investment programme in order to enhance network coverage and capacity.

In January 1994 Mobitel was awarded a 15-year license to operate a nationwide mobile network and in January 2004 the company’s license was extended to a 25-year license expiring in January 2019.

The GSM network comprises 287 base stations with a maximum capacity of handling 502,362 concurrent subscribers. The network covers 70% of the total population.

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SOUTH ASIA

South Asia comprises three cellular operations in Pakistan (two operations) and Sri Lanka, and a management contract in Iran. Our South Asian operations (excluding the management contract) cover approximately 182.5 million people as of December 31, 2005.

Pakistan

Pakistan’s government system is a federal parliamentary democracy although the military retains a major role. General Pervez Musharraf is president and chief of army staff. Elections for the national and provincial assemblies were held in October 2002 with each assembly being elected for a five-year term. It is generally expected that General Musharraf will remain in power until the next elections in 2006 and beyond, as he has the support of a majority in parliament.

Although Pakistan has traditionally been an underdeveloped country, IMF-approved government policies and a US$1.3 billion poverty reduction and growth facility programme complemented by foreign assistance and renewed access to global markets since 2001 have generated solid economic recovery over the last several years. The government has made substantial macroeconomic reforms since 2000 and development prospects are currently considered to be the best in nearly a decade. Pakistan became member of the World Trade Organisation in 1995. Real GDP growth, mainly driven by double-digit gains in industrial production, has become less dependent on agriculture with textiles and apparel, food processing, pharmaceuticals, construction materials and paper products being some of Pakistan’s key industries. The country’s policymakers have in the past few years created an environment within which the private sector has begun to thrive and poverty reduction will depend on a continuation in this trend. About 66% of Pakistanis lived below the poverty line in 2005, of which about 13% lived in extreme poverty. Pakistan had a population of about 162.4 million in 2005.

The promulgation of the Pakistan Telecommunications Act in 1996 led to a shake-up in the organisation of the country’s telecommunications sector and provided for the establishment of two new regulatory agencies: the Pakistan Telecommunication Authority (PTA) and the Frequency Allocation Board (FAB). The PTA has regulated the telecommunications industry since 1996, focusing on pursuing a programme of sector liberalisation. It issued two new mobile licenses in April 2004 and has put on offer additional local loop and international and long-distance permits. FAB manages the allocation of radio frequencies and monitors the use of allotted frequencies. In June 2005 the United Arab Emirates incumbent Etisalat bought a 26% shareholding in Pakistan Telecommunications Co. Ltd (PTCL) for US$2.6 billion, the first step in the privatisation of the incumbent fixed-line operator.

The number of mobile subscribers passed that of fixed-line customers in 2004. In addition to Millicom’s Paktel and Pakcom (with Millicom’s Shareholding in the latter in the process of being sold), four other operators are present in the Pakistani mobile market: Mobilink, Ufone, Telenor and Warid Telecom.

As of December 31, 2005, Millicom had two separate mobile operations in Pakistan, Paktel and Pakcom, which were managed separately and address different market segments with different brands.

Due to the practical difficulties of owning and managing two competing operators in the same market and the incompatibility of Pakcom’s network technology with the rest of the Millicom group, Millicom has taken the view that this operation, based on AMPS/TDMA network technology and due to launch CDMA services in 2006, is no longer a core asset.

On March 20, 2006, Millicom signed an agreement to sell its shareholding in Pakcom to the Arfeen group for a nominal amount. As part of the agreement, Millicom also agree to transfer 10% of Paktel, Millicom’s other operation in Pakistan to Millitel Limited, to an entity controlled by the Arfeen group.

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A disagreement arose during the third quarter of 2005 between Millicom and the local shareholders in Pakistan based on conflicting interpretations of a series of agreements relating to Pakcom and Paktel signed in January and February 2004. Millicom and the local shareholders have been in negotiations since September 2005 regarding a resolution of their disagreement and the sale of Millicom’s entire shareholding in Pakcom to the local shareholders. The disagreement led the local shareholders in December 2005 to bring two lawsuits in the Pakistan courts against Millicom and certain of its affiliates, requiring among other things specific performance of the transfer to them of 30% of Millicom’s shareholding in Paktel and damages in relation to the local shareholders’ investment in Pakcom due to Millicom’s alleged mismanagement of and fraud in relation to Pakcom. To defend themselves, Millicom and certain of its affiliates commenced arbitral proceedings against the local shareholders and certain of their affiliates in February 2006 before the International Court of Arbitration of the International Chamber of Commerce in Paris, France. The negotations continued and resulted in the signature on March 20, 2006 of a series of agreements between Millicom and certain of its affiliates and the local shareholders and certain of their affiliates to the effect that:

·       The local shareholders agreed to acquire all of Millicom’s interest in Pakcom for a symbolic dollar, whereby Millicom agreed to pay off Pakcom’s outstanding external bank loans of approximately $17 milllion and the local shareholders agreed to assume the balance of the license obligations, including the payment of the license instalment of approximately $14.5 million, plus late interest thereon, initially due by Pakcom in mid-October 2005.

·       The local shareholders agreed to acquire 10% of Paktel and obtain no rights other than what Pakistan company law provides for 10% shareholders. Millicom will retain full management and operational control of Paktel.

·       The local shareholders and Millicom agreed to terminate and withdraw the lawsuits and arbitration proceeding they have brought against each other and terminate all of the existing agreements ever entered into among them in relation to Paktel and Pakcom, including the January and February 2004 agreements.

The closing of the sale to the Arfeen group of Millicom’s interest in Pakcom is subject to regulatory approval by the Pakistan Telecommunications Authority (PTA) of the change of control in Pakcom. There is no indication as to when the approval will be received. We have received indications that the PTA is seeking additional comfort that the local shareholders will be financially able to assume the payment of the overdue license instalment and of the remaining payments under Pakcom’s license.

Millicom has a 98.9% equity interest in Paktel and accounts for this operation as a subsidiary, i.e., using the full consolidation accounting method. If 10% of Millicom’s shareholding in Paktel was transferred to the Arfeen group as a result of the above transactions, we would continue to account for Paktel as a subsidiary.

Paktel launched commercial operations in 1990, simultaneously with the only other mobile operator at the time, Pakcom. Millicom acquired Cable & Wireless’s 98.6% shareholding in Paktel in December 2000. Following a capital increase through the conversion of certain shareholder loans in 2001, Millicom’s ownership increased to 98.9%. In the same year, the company also extended its service offering from AMPS to TDMA. Paktel was granted a change to its license in October 2002 allowing it to offer GSM services. After lengthy negotiations with the PTA, which delayed Paktel from launching its GSM service earlier and causing it to lose significant market share, Paktel launched its GSM services in October 2004.

Paktel was a joint first mobile entrant in Pakistan together with Pakcom in 1990. In subsequent years, four new GSM operators entered the market. Mobilink (majority owned by Orascom Telecom) launched commercial operations in 1994 and became the leading mobile operator in Pakistan mainly due to the fact that it was the first operator to exclusively offer GSM services. Ufone (wholly-owned by the incumbent

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PTCL) launched operations in 2001 and is the second largest mobile company in Pakistan. Two new operators, Telenor (the Norwegian incumbent operator) and Warid Telecom (wholly-owned by the Abu Dhabi Group of the United Arab Emirates) launched GSM services in Pakistan in February 2005 and May 2005, respectively. The latter two have become the third and fourth largest operators in terms of subscribers, respectively.

Paktel’s GSM network comprises 669 base stations with a maximum capacity of handling 2,040,000 concurrent subscribers. The GSM network covers 27% of the total population. Paktel is seeking to increase the number of base stations significantly by the end of 2006 and is also planning to introduce GPRS/EDGE capability during 2006.

Paktel pays a royalty to the PTA of 2.5% of gross revenues (net of leased circuit and public switched telephone network charges paid to PTCL, another government entity), payable in arrears.

On October 23, 2004, Paktel signed agreements with the PTA to operate its GSM network with immediate effect and to renew its license for 15 years from October 23, 2004 for a license fee of $291,000,000. Paktel and the PTA have agreed deferred payment terms under which 50% of the license fee will be paid in installments over the first three years of the license. The second 50% of the license fee will be payable in ten yearly payments from 2008 to 2017. Payments already made by Paktel for the GSM migration since 2002, totaling approximately $14 million, were treated as payments towards Paktel’s new license fee. Paktel has been awarded additional 1800 spectrum, increasing its total spectrum for its GSM network from 10MHz to 13.6MHz. The agreement followed an earlier failure by the PTA to comply with an agreement to operate Paktel’s GSM network.

Sri Lanka

Sri Lanka’s government system is a republic based on the French model. The country achieved independence in 1948 following decades of occupation by Portugal, the Netherlands and Britain. Tensions between the Sinhalese majority and Tamil separatists erupted into a war in 1983, but the government formalised a cease-fire in February 2002. Increased activity by Tamil separatists in early 2006 has raised fears about a breach of the cease-fire. Presidential elections were held in November 2005 with the next presidential and parliamentary elections due in 2011 and 2010, respectively.

Sri Lanka abandoned its import substitution trade policies for market-oriented and export-driven trade policies in 1977. The most dynamic sectors in the country are food processing, textiles and apparel, food and beverages, telecommunications and insurance and banking. Tea made up only 13% of total exports in 2004, compared to 93% in 1970 while textile and garments now account for 49% of total exports. The economy has shown strong growth in recent years. Sri Lanka had a population of about 20.1 million in 2005.

Expansion of telecommunication services in Sri Lanka first gained momentum after the liberalisation of the sector in 1991 with the establishment of the Office of the Director General of Telecommunications, the country’s regulatory authority. Further momentum was gained after the part-privatisation of Sri Lanka Telecom (SLT) in 1997. In the same year, the government also established the Telecommunications Regulatory Commission (TRC), which took over from the Office of the Director General of Telecommunications to implement the targets of the National Telecommunications Policy of 1994/95. The provision of basic telephone services in Sri Lanka was the sole responsibility of monopoly provider SLT until 1996, but to achieve the aggressive targets detailed in the National Telecommunications Policy private-sector participation in the telecommunications market has been encouraged. The TRC has been tasked with the responsibility of facilitating and monitoring the operational aspects of the various service providers, settling interconnection issues, recommending new licenses to operators, allocating radio frequencies and promoting the general interest of the customer.

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Sri Lanka’s telecommunications sector has been lagging behind in the development of a modern network infrastructure following almost two decades of violent political conflict until early 2002, which conflict has again increased in early 2006 through a series of bomb attacks by the Tamil Tigers. Due to the lack of nationwide fixed-line telecommunications services, mobile services have played a key role in the development of the telecommunications sector in Sri Lanka. Mobile penetration passed fixed-line penetration in 2003.

In addition to Millicom’s Celltel, three other operators service the Sri Lankan mobile market: Dialog, Mobitel and Hutchison Telecom. There are four mobile operators in Sri Lanka - one dominant fixed-line operator and two Wireless Local Loop service operators (Suntel and Lanka Bell).

With the current improved political stability and social and economic advances, Sri Lanka has seen mobile subscriber growth of more than 60% p.a. over the last few years, Sri Lanka has a Mobile Party Pays system and is moving to adopt a Calling Party Pays system.

Millicom has a 100% equity interest in Celltel and accounts for this operation as a subsidiary, i.e., using the full consolidation accounting method.

Celltel entered the market in 1989 as the first mobile operator in the country and today operates two mobile networks, a GSM 900 network and the original ETACS network. Celltel owns three different licenses :mobile, internet services and external gateway operations.

There was no other mobile operator in Sri Lanka when Celltel entered the market in 1989. Until 1993, Celltel enjoyed a monopoly position when Call Link (owned by Singapore Telecom) and Mobitel (owned by Telstra) entered the market as the second and third operators. In 1995, Dialog (owned by Malaysia Telecom) entered the market as the fourth operator. After the privatisation of Sri Lanka Telecom in 1997, it acquired 100% of Mobitel from Telstra. In 1998, Hutchison Telecom acquired Call Link from Singapore Telecom.

There are four mobile operators in Sri Lanka - one dominant fixed-line operator and two Wireless Local Loop service operators (Suntel and Lanka Bell). In recent years, Celltel has underinvested in its network coverage and capacity compared to its competitors. In 2005, Celltel began a significant network upgrade programme. Once this is complete, Celltel intends to relaunch with the Tigo brand.

Celltel’s strategy is based on a low-price mobile service offering primarily to the pre-paid subscriber segment, driving new subscriber acquisitions and increased usage. All services are priced to offer the best value proposition in the market. This strategy is further enhanced by Celltel’s ongoing programme to extend network coverage and build additional capacity.

Celltel is planning to further expand GSM services by freeing up spectrum through the migration of analogue customers to the GSM network during 2006. The full termination of analogue services is scheduled for 2007.

Celltel was granted the first mobile license in Sri Lanka in 1988. This license expired in 1995, at which point it was renewed. In February 2006, Cellel obtained an early 10-year license extension applicable from September 2008 to 2018 at a cost of approximately US$4 million.

The GSM network comprises 180 base stations with a maximum capacity of handling 642,000 concurrent subscribers. The network covers 47% of the total population. GPRS and EDGE services are expected to be launched by mid-2006.

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