Hello, everyone, and welcome to Millicom's fourth quarter 2021 earnings call. I'm Michel Morin, Head of Strategy and Investor Relations at Millicom, and this event is being recorded. Our speakers today will be our CEO, Mauricio Ramos, and our CFO, Tim Pennington. After their prepared remarks, we will have a Q&A session. By now, you should have received a copy of our earnings release, which is available on our website, and along with the slides that we will be referencing during today's presentation. Now please turn to slide two for our safe harbor disclosure. We will be making forward-looking statements which involve risks and uncertainties, and could have a material impact on our results. We will also be referring to many non-IFRS metrics throughout the presentation, and we define these metrics on slide three.
You can find reconciliation tables in the back of our earnings release and on our website. With those legal disclaimers out of the way, let me turn the call over to Mauricio Ramos, our CEO. Mauricio?
Thanks, Michel. Good morning and good afternoon, everyone. Thank you for joining us today. We had another excellent quarter in Q4 to what was a strong finish to a solid year in 2021. Let's jump right in with the highlights for the year on slide five. First, 2021 was a year of continued strong customer growth. Across all our business lines and in all our countries, we saw strong demand and robust customer growth throughout the year. This continued on in Q4. Second, we were able to convert that healthy customer growth into strong revenue and EBITDA growth of 7%, which gives us good momentum as we enter 2022. Third, in a year when we decided to invest to capture that growth, we delivered strong operating cash flow well ahead of our guidance for the year.
Fourth, and finally, we continued to raise the bar on ESG, which we will discuss later today and at more length at our investor day this coming Monday. Let's look at the details beginning with our home customer growth on slide six. We now serve more than 4.1 million cable customers. We added a record 415,000 new customer relationships in 2021, and roughly 700,000 in the last two years. This customer growth in our home business over the past two years is even more significant when you consider also that we're seeing better pricing, including charging for installation fees in many countries. Our home ARPU was up 2.5% organically in 2021. That's our strongest ARPU growth in the last four years.
In fact, we have raised prices throughout the year in the vast majority of our markets. Now turning to mobile on the next slide, we had our strongest performance in years, adding more than 3 million subscribers, including more than 1 million in post-paid, which is right on the back of our strategy to push post-paid in our markets. This is mostly due to a record performance in Colombia, but practically every country had a solid year in post-paid. Our customer base is up 22%. Finally, we saw steady growth in our B2B customer base throughout 2021, driven primarily by our SME client segment, which grew every quarter and ended the year up 16% year- on- year. On slide nine, you can see how we're translating that customer position into strong service revenue and EBITDA growth, 6.7%.
You can see on the right that every country and every business line reported positive growth for a year in 2021, with our home business leading the way with 10.9% growth. Now let's take a look at our performance in our largest countries, beginning on slide 10 with Guatemala, which had yet another fantastic year. Guatemala provides a good example of a country where we have consistently invested in our network, in our brand, in our distribution, in our customers, and in our team, and the results speak for themselves. Over the past two years, we have made strategic spectrum purchases that have allowed us to drive our NPS scores higher and that continue to add customers. In a country where 80% of our revenues come from mobile, we grew service revenue by 7% and EBITDA by 10%.
As you can see on the next slide, we closed the year ahead of all the targets we set when we announced the acquisition of our minority partner's 45% stake back in November. Take good note of the numbers on this page, both on the left and on the right, because it is not every day that you see a telecom business with an EBITDA margin of more than 50% and an equity-free cash flow margin of 30%, a business that we now own 100% of and that continued to perform very strongly. Now let's take a look at Colombia on the next slide. As you can see, our customer intake was very strong and very consistent throughout the year, and we had a monster year in postpaid with 800,000 net adds.
It used to be that a good year for us in Colombia was something around 100,000 postpaid net adds. We got 800,000 in 2021. You can see on the bottom left that this customer growth is driving our top line, which is clearly inflected, driven by mobile. That is starting to lift our EBITDA, as the incremental revenue is now beginning to offset the higher customer acquisition costs that we have been incurring since Q2 of this year. That sets us up for a solid 2022 in Colombia. Now let's look at Panama. You all know the story here. We bought two leading businesses and our team did the hard work of combining and integrating them throughout the pandemic.
We have emerged as a clear leader in the Panamanian telecom market, with every part of our business growing, along with an economy that is now recovering strongly. As you can see, our three largest countries performed very well in 2021, and we have entered 2022 with excellent momentum. Now let's shift gears a little bit to look at our operating cash flow. We told you at the very beginning of 2021 that we saw an opportunity to invest more than usual this past year in order to capture some additional growth that we saw in the market, and we did just that. We invested. We added record numbers of home and postpaid customers, and we sustained mid-single-digit service revenue growth, consistent with the long-term growth ambition that we had outlined before the pandemic.
We've also told you that we would deliver at least $1.4 billion, and we have come in well ahead of that, even as we invested heavily to support our customer acquisition and as we near completion on some important mobile network projects that have been going for a while. These investments now position us to sustain our strong momentum into 2022. Finally, 2021 was a watershed year for our ESG agenda, and we continue to raise the bar in this area. We take our role as agents of positive change in the region very, very seriously, and we wanna raise the bar even further. Come next Monday, during Investor Day, we're gonna talk a lot more about the commitments we're making for the long term in our ESG agenda for the region.
Now let me turn it over to Tim to go over the financials for the quarter.
Thank you, Mauricio. Let me take you through the Q4 numbers, the balance sheet situation, and how we intend to report in 2022. Starting on slide 16, this is just our usual bridge from the reported IFRS numbers for the quarter to the underlying numbers for LatAm service revenue and EBITDA, which better reflect the way we manage the group. With the consolidation of Guatemala, which took place midway through Q4, this will be the last time we report like this. In future, we will focus our attention on our IFRS results, but for this quarter, we will continue to discuss our performance for the LatAm segment, as we've done in the past several quarters. Let's go to slide 17. We reported positive year-on-year growth in every quarter of 2021. In Q4, we saw 5.7% organic growth.
It was supported by a stable macro. Remittances from the U.S. continued to be exceptionally strong and improved vaccination rates, which are now above 50% in several countries. Now, as you can see from the slide, performance was driven by the home business, up 10% on last year, sustained by record net customer additions, improved penetration, which was up 200 basis points in HFC, and stable ARPU. There was another good performance from our consumer mobile business, maintaining a very healthy 4.2% year-on-year growth, driven by subscriber growth. We're now just under 45 million customers and a more stable ARPU environment. As a reminder, our consumer mobile business has already returned to pre-COVID levels, so the 4.2% growth we reported in Q4 of this year is against the most challenging comparison of last year.
This should give you a better sense of the strong momentum we saw during Q4. Thanks in large part to the additional investment we've made in our mobile networks over the last couple of years. Finally, B2B delivered positive momentum, 3.3% up on a year ago, as the majority of our countries saw performance improvements. Now, drilling down further on slide 18 to service revenue performance by country. Once again, every country performed better in Q4 than they did a year ago. Standout performances were from El Salvador and Panama, while Colombia accelerated. El Salvador continues to sustain a very strong performance, with all three business lines performing well. While in Panama, this was the third consecutive quarter we've grown.
Mobile has been particularly strong over the last couple of quarters, and we saw double-digit growth in B2B, which is a very strong sign that our B2B business is beginning to return to pre-COVID levels. In Colombia, our consumer mobile business accelerated to almost 13% year-on-year, driven by growth in postpaid mobile. We're now approaching 2.5 million postpaid customers in Colombia, and we're starting to see this drive our ARPU higher. It increased sequentially for a second consecutive quarter. The strong mobile performance was the main factor driving the overall acceleration to 6.4% in this quarter. Now, Guatemala, by its standards, had a quieter quarter. Q4 last year was exceptionally strong, so it's always gonna be a tough act to follow. Still, if you look at Guatemala for the full year, it's grown by 7.3% overall.
Okay, I want to turn now to EBITDA on slide 19. LatAm EBITDA of $617 million was down 2.7%, largely on cost impacts. Direct costs were up mostly because bad debt returned to a more normal run rate compared to a year ago. Recall that bad debt charges last year were distorted by the impact of COVID, so our bad debt was $20 million higher this year. With respect to OpEx, Mauricio showed the very strong customer growth, but this comes at a cost, largely reflected by higher commissions, with also costs linked to subscribers like content costs and network costs. In total, this added around $20 million to OpEx compared to last year. We also incurred an additional $8 million of corporate costs to support our Tigo Money investment.
Now we see this level increasing to around $10 million per quarter in 2022, which will be largely reflected in corporate costs. Now, looking more closely at EBITDA performance by country on slide 20. A mixed picture here, as the factors I've just explained on the previous slide had differing impacts at the country level. Starting with Panama, I'm very pleased to report a very strong result, up 19%. Revenue-driven, but also with strong cost control, especially in the second half of the year. Elsewhere, Guatemala, Bolivia, Honduras, and Colombia were affected by the bad debt normalization I referred to earlier. While additionally, Colombia was also affected by higher network maintenance costs. Guatemala was also impacted by lower margins on handsets, which were more expensive due to the global chip shortage. This is the one market where we sell a lot of handsets.
In addition, the growth in customers did put pressure on our network costs. In Honduras, we had very strong subscriber growth in the fourth quarter. This contributed to higher sales and marketing costs. It was also affected by higher electricity costs, dampening the EBITDA performance. Finally, Paraguay, where we saw a decrease, driven by higher costs on commercial activity, particularly a new exclusive soccer contract and also in MFS. Now moving to slide 21, you can see how our operating cash flow, that's our EBITDA less CapEx, compared to the previous year. You can see that we added $129 million to our EBITDA. As Mauricio has already explained, we decided to invest that EBITDA growth into higher CapEx. Largely a catch-up on the lower investments in 2020, to take advantage of the opportunities that Mauricio outlined.
As a result, OCF was 2.6% lower at just over $1.45 billion, but this was still well ahead of the guidance we gave. Finally, let me close on the leverage situation. The major transaction in the quarter was, of course, the acquisition of the remaining 45% in Guatemala for $2.2 billion. This is the reason net debt is $1.7 billion higher than it was a year ago, closing the year with just over $7 billion in net debt and $8.3 billion if we include leases. You will have also seen we've been very active in the debt markets, rebalancing our maturity profile with the Comcel bond announced on the 28th of January. We've now largely concluded the refinancing of the bridge loan.
This gives us a proportionate net debt to EBITDA of 3.36 times at the year-end, which pro forma for the upcoming $750 million rights issue, would leave leverage a fraction over three times. That's lower than the 3.1 times we indicated at the time of the deal. Talking of rights issue, at this point, we would normally give our outlook for the year. Because of the rights issue, we have some legal constraints, and can't comment specifically on 2022. What I can share with you is that we are targeting organic OCF growth of around 10% on average over the next three years, and we will be giving you more detail about our medium-term plans in the Capital Markets Day on Monday. With that, let me pass it back to Mauricio to wrap up.
Thank you, Tim. Before we take your questions, let me recap the key highlights of the year. We had one of our best years ever in terms of customer intake. We added more than 3 million mobile subscribers, 1 million of them on postpaid, and 415,000 net additions to our home cable fiber business. Service revenue and EBITDA grew strongly with both up 7%. In a year in which we chose to invest in the business, operating cash flow came in well ahead of our target. Finally, we completed the acquisition of our minority partner in Guatemala in a transaction that was immediately accretive to our cash flow and to our net income, and that will make it easier for us and for you to model and value our business, as you will see beginning with our Q1 reporting in April.
With that, we're ready for your questions.
Thanks, Mauricio. We'll now proceed with the Q&A session. If you'd like to ask a question, please email us at investors@millicom.com, and we will add you to the queue. You may also email us your question, and we'll answer it live. We'll now go to Diego Aragão from Goldman Sachs. Diego? Just give it one second to tee him up.
Yes. Hey, Michel. Thank you. Thank you, Mauricio. Thank you, Tim. Good to see you. Look, my first question is on the leverage. This should be at around 3x EBITDA, just for the future, you know, right offering, as mentioned by Tim. I just wondering if you can comment on your expectation for the leverage. For instance, what would be a sustainable level for your business, and how long it will take for you to get there?
Thank you, Diego. That's a great question. I have the luxury of having two CFOs. The one thing I'm not gonna do is take the leverage question today, Diego. I'm gonna let them figure out who's gonna take it. With that, I just wanna make sure everybody meets Sheldon to my left. He's the new guy in town. You'll see a lot of him on Monday 'cause he's hit the ground running, and he can answer just about any question that you can throw at him. He's only getting Tim's help today just because he's on apprenticeship for a little while. You guys figure out who's gonna take the leverage question.
Okay. I'll start because then Sheldon can sort of disabuse anything that I say in about a month's time. No, look, you know, I mean, you know we've been very focused on leverage. Very pleased that on a pro forma basis, we're just a fraction above three at the year-end.
You know, we said that we're gonna be below three by the end of 2022. In fact, on Monday, stealing a bit of thunder, we're gonna target 2.5x by 2025. You know, we should be in that sort of ballpark. Diego, I don't want you to misunderstand, we're still targeting that 2x, that leverage target. We think that is the right operating level for us.
Great. Thank you. I guess maybe the second question and first, nice to meet you. Looking forward to see you in person. The second question is regarding Colombia. Versa performance in that market despite a growing competition, right? Just want to get your views on the outlook, actually, for the market, especially because theoretically speaking, I think the competition should continue to, you know, to be tough in that market, you know, considering recent transaction from KKR with Telefónica, you know, recent, let's say, comments from América Móvil about their expectations for Colombia. I think, you know, it will be good to hear from you about that market in particular. Thank you.
Yeah. Thanks, Diego, for that. You'll see a lot more on Monday, but we like the position we're in Colombia for the long term. We got the spectrum. We're the largest holder of 700 GHz spectrum that's strategically very relevant. We're putting it to use with a network that today, for the second year in a row, has been externally validated as the best network on just about every category, in the country. Now on the back of that, we've increased distribution and service layers through the organization. We've invested heavily in our commercial capacities. We've also continued to deploy our fiber cable network in Colombia very successfully, which gives us, on mobile, the ability to offload, to put Wi-Fi, and to converge.
When you look at the strategic picture in Colombia, and yes, it's competitive, and yes, Telefónica has made a partnership with KKR, where we sit strategically is a million miles better than where we were two years ago. It's a very strong position. Now, the thing that has changed, because I've been saying this now for I think a few quarters, right? The thing that has changed is that before I was saying, "Listen, it's coming, we're gonna win." Today, you now have a new, a few set of quarters in which the numbers are really coming our way. It's 1 million postpaid net adds almost that we have in Colombia, 800,000. Our market share has picked up 200, 300 basis points just this year.
In the context of a mobile market that is indeed competitive and which has seen prices come down, our revenue, the overall combination of price and quantity is actually up. As we anticipated, I'm not going to know the quarters, there would be an inflection point for us in Colombia. I said, it's just coming. I don't know whether it's gonna be Q4 or, you know, Q1. This is not comparing quarters last time around. You already see it in Q4, clearly picking up revenue, clearly affecting the EBITDA. Because a lot of the network build up, half of it, two-thirds of it is behind us, then OCF is also picking up in Colombia. For the first time ever, we have market share on mobile that's in the 20s, 21%. That hasn't happened before.
Now, we all know that it's gonna remain tough. Of course, it's gonna remain tough, but I think we're the best positioned because we got the best network, we got the best spectrum, the best team. We can converge. We have Wi-Fi and we have very little mobile market share. On fixed, we continue to build and we continue to add. I'm not saying it's gonna be a walk in the park, but I'm feeling a lot better on Colombia now that we're beginning to deliver the goods.
That's very helpful, Mauricio thank you.
Thanks, Diego. Now we'll go to Stefan Gauffin from DNB. Stefan.
Yes. Hello. First, hi, Sheldon. Nice to see you. I would also like to thank Tim for good cooperation over the last few years. So, a couple of questions. I think you mentioned that corporate cost increased $8 million year-over-year. I have a bigger increase in my numbers if I just deduct the country reporting. So are there any costs relating to the Guatemala transaction in there? Secondly, I'm just thinking about the equity issue, which I think has been putting pressure on the share. You have been talking about showing value by carving out the infrastructure, and you're also doing the full exit from Africa.
Just thinking, would it be possible to look at other ways to finance the transaction? Just finally, Honduras and Paraguay, both markets were having negative growth in EBITDA and weaker margin profile. Should we be concerned around the competition level in any of those markets? Thank you.
All right. We'll, I think we'll have Tim begin, and then I'll address a little bit of the Honduras and Paraguay, and probably make use of your question to give a little bit of the picture just to put everything in context. Let's answer the questions first, then we can go to the big picture.
Yeah. On corporate costs, Stefan, yes, they were higher than the $8 million that I called out. The big change in the quarter was that, you know, we invested $8 million in Tigo Money in the quarter, which wasn't there in the previous quarter. I also flagged that next year, you know, we expect to invest about $2 million per quarter in that business. That will be a change for us. Now, the delta you're looking for is really just a normalization of our corporate costs. You know, kind of last year was particularly low because frankly, we stepped on everything. You know, in 2020 we stopped a lot of things. Obviously, compensation levels were lower. Activity levels were low.
We didn't sort of travel, for instance. You know, our travel budget was next to nothing. You know, a lot of the balance is just a return to a normal run rate.
Should we look for around $40 million corporate costs going forward, or should it be higher?
Well, I think our normal run rate would be just a shade under 40, and then the MFS impact will be on top of that.
Okay. Thank you.
Okay.
On Paraguay and Honduras, and then we'll go a little bigger picture. I think it's a good time to do that. The simple answer, Stefan, is although the EBITDA line looks a little weaker, the reality is that both businesses are actually performing much better in the top line. We're very happy about that. In Honduras, as you recall from the last quarter, you know, we were not particularly happy that it was the one country that we felt we weren't delivering as we could. The reality is that the investments that we have been making in Honduras, we've been putting money into increasing coverage and modernizing the network, are actually beginning to pay off. It's mobile and the cable network, by the way. They're beginning to pay off.
If you look at the intake numbers for Honduras and the quarter pickup in revenue in Honduras seems to be really picking up. I'm actually quite positive that Honduras is on the right track. Paraguay is similar in terms of customer stability and actually positive intake. We're now seeing positive intake both in mobile and more significantly on cable. A pricing environment that is quite stable compared to what it was a couple of years ago. What you see on the EBITDA level line, or toss it over to Tim to comment, is really just the acquisition of the exclusive soccer rights that are a big driver to our problem.
Yeah. Stefan, I think that covers that. I'll come back on your equity issue point, unless you want any more color on Honduras and Paraguay.
No. Well, could you give information on how much the soccer rights were or is that
In your dreams, Stefan.
Yeah.
No, I mean, look, you know that.
No, no, we can.
It's commercially
We can. Extremely valuable.
It is.
That's the answer. Extremely valuable.
It's a bit commercially sensitive, that one.
Yeah.
Look, on the equity issue, and I do take your point, you know, we are grateful for shareholders bearing with us with the rights issue, but we felt, you know, the right thing to do with the Guatemala acquisition was to effectively neutralize the leverage impact, and that meant asking shareholders for equity there. Of course, you know, we have other options in our locker. You mentioned Africa, you mentioned infra. The problem with all of those is that they're uncertain in timing for us. Frankly, you know, we did want to move as fast as we could to get our leverage back to the levels that we were pre the transaction.
The only real way to do that was through the rights issue, notwithstanding that we have to wait till the audit accounts and things like that. You know, kind of put a marker on those other things, though, because, you know, those are things that will accelerate the deleveraging that we haven't really taken into account of because we're not, you know, we're not willing to call the timing impact on them. You know, kind of for us, those are, you know, benefits on top, which will help us with, you know, our leverage targets and hopefully accelerate our leverage targets. You know, I caution that they're not the, with the possible exception of Africa, they're not immediate things. They're probably one to two years out.
Let me perhaps use that question, you know, because every time you talk about capital structure or equity et cetera, it's good to really bake in the big picture into what's happening. We've done the call today separate from the call on Monday on purpose. Today, we can basically say this was the last part of the first term, and on Monday we're gonna show you how we're feeling about the business for its second term, if you will, of the game. That's important. When you look at big picture, what we've done and what we're gonna do, we think the business is, in terms of the way we reshuffled the portfolio, extremely clean. This is what we set out to do when we joined seven years ago.
We're out of Africa, by the way. We're gonna be finishing up in Tanzania in a matter of African time, but soon. We're out of Africa, right? We're big into the strategic location that we wanna be in Central America, Guatemala, Panama. We've done the M&A that we wanted to do. As a result of that, what we have is a portfolio that is highly concentrated on dollar economies or dollar-linked economies. We'll show you on Monday. We estimated about 80% of our operating cash flow is actually dollar-linked or actual dollars. We've made a big bet on cable that's paying off. We got a cable business that's $2 billion in revenue, growing 10%. Our business today is 40% cable, 60% subscription, 80% OCF in the cash flow. This is what we set out to do.
As we sit here today, not only is our cable bet really fulfilling its promise, we put a lot of money to modernize our networks, whether it's El Salvador and it's working, whether it's Nicaragua and it's working, whether it's Guatemala, where we bought some spectrum and it's working. All business lines, all countries are growing. By the way, before we get the B2B question, which I'm sure we're gonna get, B2B, which was the last one, is beginning to show its comeback. The business is growing, all lines, all countries, and I'm not gonna kill the punchline for Monday, we can smell the money. That's what we're saying, operating cash flow growth target for the next three years on average is 10%. On Monday, we're gonna give you more of what the second half is gonna look.
We're very happy where we are because on top of this, which basically means we got cash flow coming our way in the second half of the game. We played the first half to get to where we are. The second half is about scoring the goals on cash flow. We've also used the first half of our game to build this infra asset and to build this Fintech asset, which now gives us the opportunity to play with them to unlock shareholder value, which is hidden in there. Those assets are valued, and we're looking for ways to show that hidden value and capture that opportunity for growth in value for our investor base. All of that hopefully gives you an idea why we still have things to do, like finish up the game in Colombia. We're doing great, but the game's not over.
We do have to get that leverage down for sure, right? The rights offering with the support of our shareholders, and we believe the cash flow that we're gonna show will demonstrate that they should help us bring the leverage down. It's gonna set us up for a phenomenal second half. I'm gonna stop short of that because I'm gonna get the lawyers calling me and telling me you've given a little bit too much. Thanks, guys. Thank you, guys. Thank you.
Thank you, Stefan. All right, next we'll go to Marcelo Santos at JP Morgan. Marcelo?
Hi, good morning to all. Thanks for the presentation. I have two questions. One is on your target to pass 1 million homes, I think, on the next year. Could you discuss a little bit more the breakdown between how much of that would be fiber and how much of that would be cable, and where are you concentrating the fiber investments? The second one is on Guatemala. It was a little bit softer this quarter. You gave some ideas on the presentation why it was, but if you could discuss a little bit deeper, and how to think about this going forward. Thank you.
Let me perhaps, you know, kind of set the record straight. The fourth quarter in Guatemala against the fourth quarter of the prior year was really strong. It's just the fourth quarter of the prior year was phenomenally good, so the comp was really a difficult one. It only looks soft in comparison to the prior quarter, but now when you do the quarter comparison, Guatemala is still very, very strong. I'm glad about the fiber question, Marcelo, because it allows us, and we'll talk about this a lot on Monday as well, so I don't wanna, you know, get ahead of myself. We've been working for a long time and planning and preparing the network for a moment at which fiber transition would be the perfect sweet spot for us.
The procurement team has now been able to find a cost of construction for fiber that is about 30% cheaper for us than building HFC. 30% cheaper because we now set up the procurement teams. In the past, we've been putting a lot of fiber into the network. Going forward, it is both very cost efficient for us to drop additional bits of fiber in the areas where the HFC gets to the nodes with a ton of fiber, and we've got a lot of capillarity. Going forward, we're gonna build cheaper, and we're gonna build with fiber. The message I'm giving you is, we've been working on this for a long time, and we're ready to just switch mentally and say, from here on, it's all fiber. In 2022, the majority, over half of it will be fiber.
After that year, it will effectively be all fiber. You can mentally think that all new greenfields for us from here on are gonna be fiber. I've done it again. I'm killing Monday.
Perfect. Thank you.
You bet.
Thanks, Marcelo. Next we'll go to Sergey Dluzhevskiy at Gabelli Funds.
Good morning, guys. Thank you for taking the questions. Tim, congratulations on your retirement. It has been a pleasure working with you over the years. Sheldon, congratulations on joining Tigo, and good to see you. My first question is on Colombia. Mauricio, you obviously outlined your competitive position in the market, how you feel good about your position and the assets in the market. Obviously, you're taking share and sales and marketing activities have pressured margins in the short term. Maybe it's a question both for you and Tim and Sheldon. If you continue on your share taking activity, at what point do you see more meaningful transformation of the margin profile?
What are some of the things that could drive longer term margin improvement in Colombia? How do you think about kind of more mature margin profile in that market a few years down the road?
Let me give it a crack strategically, and then Tim can bring me down to, you know, reality. In the short term, we're already seeing inflation. I already said that, because we've invested so much on the network and building the distribution and the service layers of the organization. We're now reflecting in terms of margins. Long term, strategically, Sergey, as you very well know, this is a unique opportunity with market disruption for someone that has such a strong strategic position like the one we've built to correct the big problem we have historically had in Colombia, which is acquisition. Once you reach decent scale in mobile, then long term margins go up. That's what the pot of gold is here.
That's why we have to go through this period of price disruption and low ARPU and all of that to think, to get ourselves to a position where we have sufficient scale to have good margins for the long run, like everywhere else we do.
Great. My second question is a follow-up on the previous question on the fiber build. As you look to deploy fiber to the home, what types of markets would be prioritizing in 2022? Maybe you could share what percentage of your homes or what percentage of your footprint you already have passed this fiber.
Yeah. Perhaps the better way to answer that, Sergey, that's, I think, the key point is that we've been planning for this. The network has been prepared to be fiber ready. Going forward, fiber, just think of it's all fiber. By the way, you'll hear on Monday that it's a ton of new homes that we're building, that we're planning to build. Our existing network has a ton of fiber already in it, a ton of fiber. Just to give you an idea, and I know that you know cable extremely well. When you do, we have about 180,000 km of fiber and 12 million homes passed. When we do the number of passes per kilometer of fiber, we stack up really high to the standard math, right? Because that fiber goes really deep into the network.
Our nodes are on average 500, but in many key locations there are 100 or 200 homes. There's a ton of fiber already there. We can be very surgical, and we will be very surgical in taking that fiber deeper to the home. I'm about to tell you the whole thing, but I wanna leave something for Monday 'cause otherwise no one's gonna show up on Monday. We're gonna be very targeted and very surgical in the way we do it, so that we protect ARPU and we protect the relationship with the customers. Most importantly, we do everything as we've been planning for years within. I think we gave the $1 million number for CapEx, right?
Yeah.
Right. Within the $1 million. It's all in there. I am.
I think the key point here is this is evolution for us. I mean, for many operators, it's a major traumatic moment. For us, this really is just a continuation of what we've been doing.
Our network, you know, we've built it over the last five years, so it would have been really darn stupid for us not to build it deep in fiber, right? It's really fiber data center.
Great. My last question is on capital allocation. If I think what pro forma for rights offering after the rights offering is done, how do you guys think about capital allocation and what is the right balance for you in terms of deleveraging, which is obviously one of your top priorities, and repurchasing shares given that the stock is trading under 5x EBITDA?
Yeah. It's a CFO, so I'm gonna let him take a turn at that one.
Again, I mean, a lot more of this on Monday. I mean, we're acutely conscious of the capital allocation question. You know, we think we've got a very good story on it. We set out our stall on what we wanna do on leverage, and we'll give you more sort of visibility and color on the balance on Monday. I mean, clearly buyback's our critical source of shareholder remuneration. You know, I think it's better to give you the whole context of what we think we can see on a three-year view and give you a sense of where we're gonna allocate the capital.
Great. Thank you, guys.
Hold that space till Monday.
Thank you.
By the way, we're gonna put out a press release early Monday with the key messages so that you guys can read that. You know, listen to us for a couple of hours and then have a really robust one hour of questions, because we're gonna lay out the game plan for the next three years on Monday, the second half.
Thanks, Sergey. Now we'll go to Soomit Datta at New Street Research. Soomit?
Yeah. Hi, guys. Welcome, Sheldon and Tim. Thanks very much for your help over the years. Hope you enjoy your retirement. Sadly, mine is some time away. A few questions, please. On Fintech. So you're spending kind of $50 million or so, which is a non-trivial amount of money. I guess we'll hear more on Monday about the details, but in theory, when might we see some of the revenue benefits beginning to come through? Would that be this year or maybe next year? Any steer would be great. Maybe if you answer that and I'll get to the next couple. Thanks.
Yeah. I'm trying to figure out how not to make sure you guys don't dial up on Monday if I start answering all of your questions now. Let me start perhaps with laying out why we're so focused on this. We're convinced, Soomit, that we have unlocked hidden value both in our Fintech assets and in infra assets. I'm not gonna talk about our depressed valuation levels, but I am working very hard to show the world, as is the rest of the team, that we trade as if we were a telco, but in reality, we are a cable company with a Fintech, one of the largest Fintechs in the region, and an infra business that is also one of the largest in the region.
Our tower business is gonna be one of the largest tower businesses in the region, and Tigo Money is already one of the largest Fintechs in the region already today, because we've been building it for the last few years. The opportunity that we see is huge because we have the ability to do two things at the same time that no other Fintech can do. One, we can be digital and Fintech in the already banked percentage of the population. We can also be Fintech in the unbanked unserved part of the population, so we can actually tackle the entire ecosystem. Why? Because in all these markets, just about everyone has a mobile phone and not any financial relationship. Likelier than not, given our market share, they are our subscribers. More importantly, Tigo Money, not Tigo Business.
Tigo Money already has 18,000 cash- in/ cash- outs, so we can provide the services to this unbanked part of the population. No one is in our market, so we can be an exception, really doing Fintech payments to begin with. It's a blue ocean opportunity. There's no Apple Pay, there's no Google Pay, there's none of those guys doing it. We're the trusted bank with the distribution and network already and 5 million users that already do a little bit of it. We've incubated the baby. It's ready to show it to the world, and we're quite clear on this. This will not be a baby that will sit at home by the time he or she is 50 years old. That's not the way we're gonna go.
We're gonna find a suitable Fintech investor that can provide that business with capital to grow the incentive schemes. What we wanna do is capture the economic upside of that. It's non-core to us. If we capture that, we're gonna be giving our investors a lot of the value of what we've been creating. No money again.
Soomit, just, I think I know you know the numbers, but just wanna make them clear for everyone else on the call. The $50 million you talked about, I mean, we spent about $8 million in the fourth quarter. We spent about $2 million the rest of the year. So around $10 million was spent in 2021. You know, we expect to increase the run rate here to about $10 million a quarter, so $40 million in 2022. So those are the numbers. Now, you know, kind of it will be a little bit sort of. It depends on whether we ramp up fast enough, but those are our estimates. The
Okay. That's great. Thanks. Secondly, just on fiber, if we could go back to that, please. Just on cost of home passed and connected, is there a sort of update you can give to that, perhaps under fiber versus HFC? Are those numbers different? I think the last time you gave them publicly, it was around $100 per home passed, maybe a fraction lower, maybe $150 per home connected. Just wondered if those numbers have come down. Again, you know, what sort of penetration do you think you need to hit to get the kind of IRRs you're looking for?
The two sides to that question. The cost to build is indeed a tad below $100. It's actually been coming down over years. Just a tad below $100, just on average. We're estimating that the cost to build greenfield new fiber, as I said, is about 30% lower, so call it $60 or so, $70 or so. By the way, the cost for us to drop fiber where we have existing network is obviously just a fraction of that. It's a tiny fraction of that. That's the first part of the question. The second part of the question, you've seen us over the last year or two really focus on balancing the act between new build and network penetration.
This phenomenon last year, we peaked our penetration plans on our network significantly, so almost 100 basis points of penetration. Now going forward, we're gonna be building more and trying to penetrate, but the long-term target that we have is north of or around mid-30s. A tad more bullish than we were before. I used to say 30-35%. Now I'm saying I'm pretty confident it's gonna be 35%, north of 35%. We're seeing the older nodes really fill up with penetration. We'll show you again. We'll show you on Monday the Bolivia example, and you'll see the penetration from Bolivia. They started in the 10s. Because we know this, it always like this, but we're now at really good penetration levels, so we're a little bit more optimistic with the hindsight now that we can get to mid-30s, high 30s.
Which is actually no drives economics, right?
Yep. Okay. That's great. I look forward to hearing more on that. Just final question, just a detailed one. We're just trying to kind of build up the equity free cash flow profile for 2022. Can you give any steer on cash taxes or cash interest at all for the year coming or would you rather share that on Monday?
I think we'll cover a lot of this on Monday, Soomit. Maybe if you can hold back till then we can put it in context. We'll have more time to put it in context. Sheldon will take you through then.
Okay. That's great. Thanks very much.
Thanks, Soomit. Next we're gonna go to Kevin Roe at Roe Equity Research. Kevin, the floor is yours.
Thank you. Good morning, guys. Tim Pennington.
Yeah, Kevin. Good to see you.
Wow. Wow, what a run, both figuratively and literally. Tim, it's been a great pleasure working with you over the past decades.
Yeah.
Starting with Hutchison to Cable & Wireless to Millicom. It's been, again, a great pleasure working with you, and I wish you the best in the next chapter of your life. Sheldon, I look forward to working with you again. Coming full circle.
Yeah. Kevin, for everyone on the call, is probably the only person that has got the hat trick of my calling cards. The Hutchison, the Cable & Wireless and the Millicom. So well done on that, Kevin.
Yes. I'm an analyst stalker. I do have a couple of questions. This one might be more appropriate for Monday, but I'll throw it out there anyway. CapEx intensity, how should we think about that over the next few years? Within CapEx intensity, if you could comment very high level on fixed broadband versus wireless. Second question for you. One of your competitors, this week highlighted continued handset shortages at the medium and low end of the handset range. What's been your experience and what's your outlook there? Thanks, guys.
The first one's pretty easy. It's $1 billion per year, around $1 billion per year, all in CapEx. The second one is there's been concern and there's been a lot of work done to make sure that there's no disruption on handset availability. There's been bits and pieces here and there in some markets, but we haven't had and looking hard not to have any significant disruption at all.
Yeah. I'd say there's a little bit of. One of the early questions was just on Guatemala. I mean, we sell a lot of handsets in Guatemala, so of all our markets, Guatemala probably was the one that saw some impact, particularly on higher end. It was more to do with the chip shortages than anything else. Generally across the rest of the businesses, number one, we don't sell that many handsets, actually. Two, we, you know, they're generally at low end, so we've not seen too much problem. Again, famous last words, but so far, so good.
Got it. Just a quick follow-up, Mauricio, the billion-dollar CapEx number. Within that number, over the coming years, do you see the mix between broadband and fixed changing materially?
You know.
I mean, broadband and wireless, I'm sorry.
No. A lot of it goes into subscriber-related CapEx, right? Largely, the large increases in home internet subscribers, probably a third goes into that bucket. That's a big chunk, but that's good.
Yeah.
'Cause it's growth CapEx. Then you have just a little sub-$100 million, you know, if you do 1 million homes per year kind of thing at the numbers that we're talking, that is sort of the build of the network. The remaining goes basically into mobile coverage, mobile capacity, and obviously, IT and other expenditures. That's roughly. It has been consistently so now for a few years. It doesn't dramatically change since we basically realigned the business to do these things.
Understood. Thank you.
Thanks, Kevin. Just to be clear that $1 billion, Kevin, is on the new basis as we will be reporting next year. It's our IFRS basis, which includes Guatemala, but excludes Honduras and also excludes Africa, which is in the process of being disposed of. There's some tables in the back of our earnings release that should help you rebase to how we're gonna be reporting in the future. Next up, just the last question now. This one came by email from Andrés Coello at Scotia. I think, Tim, this is one for you. In the earnings release, we said that we've received regulatory approval in Tanzania for the sale of Tanzania. The question is if you can provide additional color on any remaining approvals that are still required.
Yeah. Thanks, Andrés, for that. So we've received approval from the telecom regulator, which clearly is the big one. We've got Fair Competition Commission approval to receive; there should be a meeting next week on that. The Bank of Tanzania, given the size of the mobile money business in Tanzania. You know, both of these we expect to be, you know, standard. Axian has no business in Tanzania currently, so we don't think there'll be any significant impacts from that. You know, kind of we've learned to our cost that things in Tanzania and Africa generally can take a bit longer than you might like or might hope.
Generally we're now very sort of confident we're on the, you know, the final lap of this particular chapter.
Great, Tim. We actually did get a couple of more questions through the chat, so let me just relay those as well. The first was on competition in Colombia. What are we seeing in terms of pricing? The second one may be slightly still sticking with the Colombia part, but what do we think is the long-term potential for broadband penetration? I think that was more of a Colombia question specifically, but maybe we can discuss the region in general.
Sure. I think we've already addressed the Colombia competitive environment and, you know, what our strategic and competitive positioning there is. I don't think there's much that we can add. We'll have Marcelo, our GM from Colombia, present on Monday, so there'll be a lot more color on the fact that, you know, we're making significant progress in Colombia there. I wanna leave a little bit for Monday because I think we've let a lot of goods out of the bag. You'll see on Monday that we're pretty convinced that there's a tremendous broadband opportunity, fixed broadband opportunity still ahead of us. As you saw, we completed this first term, and our cable fiber business is just hitting on all cylinders. We're getting the penetrations, we're getting the growth, they're staying in the ARPU.
The greenfields are working extremely well for us, and we've got a nice easy path into the future. We're upping the ante on broadband come Monday. With that, knowing that it's the hour and people probably have other calls to attend, thank you for joining us today. The business is in the best shape operationally it's ever been. It's just hitting on all cylinders. As I said earlier, we're about to show you guys the money because it's just coming. That will allow us to be more proactive in delivering and in returning capital to shareholders. We look forward to that second half and explaining to you the nuts and bolts this coming Monday. Thank you.