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July 24, 2009
For Q2 2009, Tigo (the mobile brand of Millicom) reported impressive numbers for its Central America operations: Net additions of 588,000 subscribers (compared with 353,000 in Q1 2009 and 489,000 in Q2 2008), revenue of US$332m (compared with $326m in Q1 2009) and a surprising drop in churn rate to a quarterly 2.5% from 3.5% over the same period in 2008.
On a country basis, it’s remarkable that Tigo was able to add 109,000 subscribers in El Salvador, where the market is practically 100% penetrated and Tigo is already the market leader. In Guatemala, it added 234,000 subscribers and 244,000 in Honduras for the quarter. In terms of profitability, the operator reported a stable EBITDA margin (56%), which means Tigo has been able to keep expanding without hurting its profitability. In addition, a declining churn rate amid intense competition and challenging financial conditions reflects highly on management’s ability to leverage its leadership position.
Still, the challenges for Tigo remain the same: If economic conditions keep worsening, that will likely affect its business — particularly Amnet, where subscribers of pay-TV and broadband, still considered luxury services compared with telecommunications, remain in the top economic segments. In addition, the integration of Amnet into the operation could be a time-consuming distraction for management. Finally, despite being the regional leader and having the best financial performance among the operators reporting this information, the other competitors (Claro, Movistar and Digicel) are formidable rivals.
So far Tigo has been able to navigate all these challenges without a problem and consolidate its leadership in Central America. We still have to wait for Telefónica’s numbers to get a comprehensive picture of the Central American market, but it’s likely that Tigo is widening its lead over its competitors, as we described in our Q2 2009 mobile forecast.
Claro also reported its Q2 operational and financial performance for its Central American operation. Their numbers were OK but colorless compared with Tigo’s. For the quarter, Claro added just 99,000 subscribers (including a loss of 2,000 postpaid users), revenue of $330m (compared with $334m for Q1 2009) and an EBITDA margin of 43.1% (versus 43.5% in Q1 2009). Churn declined to 1.9% from 2.2% in the previous quarter. Another positive was MOUs going up to 110 in Q2 2009 from 106 in Q1, which means that the company’s heavy advertising campaign to increase usage is working. As we described in our Q2 2009 fixed forecast, Claro’s performance was likely dragged down by a declining fixed voice market affecting its operations in Guatemala, El Salvador and Nicaragua. The operator is aggressively trying to expand into broadband and pay-TV, and we believe it’s gaining ground there at the expense of leader Amnet (Tigo). We see these long-term bets as crucial for Claro, with lower margins being the price to be paid in the short term.
— Jose Magana, Senior Analyst
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