Why Millicom Remains a Favorite in Telecom

Millicom significantly improved its margins and returns on capital in Africa in 2016, which we expect to remain a focus. This merger should provide further gains as in-country consolidation almost always improves profitability because duplicate costs can be removed. Additionally, it increases the network coverage of the company in Ghana, which will now cover 80% of the population with a 3G network. It also begins the consolidation of wireless operators. Currently, there are six wireless operators in Ghana, which we believe is too many; operators don't have sufficient scale to be profitable and absorb the needed costs to improve the quality of their networks. We hope this leads to further consolidation in Ghana. Many African countries have too many operators and need to see consolidation.

This move follows Millicom's sale of its Senegalese business in February 2017 and Democratic Republic of Congo operation in 2016 to Orange, which helps consolidate that country's market. We continue to believe Millicom's management will first focus on improving returns in Africa but will sell operations that it can't turn around or is offered a high price for due to another operator's ability to extract more value. We are happy to see these portfolio changes and management's moves to improve profitability in Africa.

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