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Morningstar | Millicom Agrees to Acquire Telefonica's Wireless Operations in Panama, Nicaragua, and Costa Rica

We think Millicom International Cellular is an interesting company. It has tended to focus on smaller and more out-of-the way countries than its larger peers. The firm has long had a core business in Central America that was overlooked by America Movil and Telefonica, the two mega-operators in Latin America, until growth was slowing in the larger markets. In addition to Central America, it has expanded to some of the smaller South American countries and also a few African countries.The firm is the largest wireless operator in Guatemala, El Salvador, Honduras, Paraguay, as well as the largest pay-television operator in Costa Rica. It is the second- or third-largest operator in the rest of the countries it operates in. Because of the smaller size of many of these countries, they have seen much lower competition. The lower competition and Millicom's early entrance have enabled the firm to generate excellent returns on capital in Latin America. While it is only the third-largest wireless operator in Colombia, with its 2014 acquisition of cable television company UNE, it is close to Telefonica in total subscribers today. In several Latin countries, it has been adding pay-TV, broadband, and financial services. We think this is a good strategy, as wireless services are nearing saturation and revenue has slowed as new subscriber growth struggles to offset lower prices for voice and text messaging. However, data services are growing rapidly; when added to these new ventures, we believe this convergence strategy provides significant growth opportunities.Recently, Millicom has enhanced its growth opportunities through acquisitions. In December 2018, it acquired Cable Onda, the largest cable TV operator in Panama. This was followed in January with an agreement to buy Telefonica’s wireless operations in Panama, Nicaragua and Costa Rica. We expect this deal to close and provide the firm with the ability to offer converged fixed-line and wireless services in every country where it operates. In March, Millicom agreed to sell its operations in Chad, and we would expect it to sell the rest of its African operations over the next year or two.