Executive Summary / Key Takeaways

• Structural Margin Expansion: The 2024 efficiency program permanently transformed Millicom's cost structure, driving EBITDA margins to a record 48.9% in Q3 2025 and creating a "Club 50" of operations with 50%+ margins—demonstrating that this isn't cyclical improvement but durable competitive advantage.

• Strategic Portfolio Upgrade: The $975 million tower monetization and acquisitions of Telefónica (TEF)'s Uruguay and Ecuador operations—adding an investment-grade country and dollarized economy—have de-risked the geographic footprint while unlocking synergies and scale benefits.

• Convergence as Growth Engine: The integration of mobile, home, and B2B segments is driving tangible results—one-third of home customers are now convergent (up from 25% a year ago), delivering 50% lower churn and higher lifetime value, while digital services grow 35% annually.

• Mobile Postpaid Migration Accelerates: The strategy to shift prepaid customers to postpaid is working—14% growth in postpaid base with a target of 50% penetration from current 20%—driving ARPU expansion and reducing churn in a region where postpaid remains underpenetrated.

• Cash Flow Generation Supports Capital Returns: Record equity free cash flow of $728 million in 2024, with $750 million targeted for 2025 despite Bolivia currency headwinds, has enabled leverage reduction below 2.5x and resumption of shareholder dividends, signaling management's confidence in sustainability.

Setting the Scene

Millicom International Cellular S.A., founded in 1990 and headquartered in Luxembourg with principal executive offices in Doral, Florida, has evolved from a regional mobile operator into a leading provider of fixed and mobile telecommunications services across Latin America. The company operates under its Tigo and Tigo Business brands in 11 countries, serving approximately 45 million customers through three integrated segments: Mobile, Home, and Business-to-Business (B2B). This isn't merely a collection of telecom assets; it's a deliberately reshaped portfolio focused on convergence, operational excellence, and cash generation in markets where fixed-mobile bundling remains underpenetrated and postpaid mobility is still emerging.

The company's current positioning reflects a deliberate pivot from its historical expansion phase. The 2019 acquisition of its Panama business more than tripled its postpaid customer base in that market, establishing a template for growth through strategic M&A. However, Millicom also carried legacy baggage, most notably the Comcel bribery scandal in Guatemala that culminated in a $118.2 million deferred prosecution agreement with the U.S. Department of Justice in November 2025. While the misconduct occurred during a joint venture period when Millicom lacked operational control, the resolution—achieving a 50% penalty discount, the highest ever granted in an FCPA-related agreement—reflects the company's extensive cooperation and strengthened global compliance program. The resolution of this legal overhang eliminates a key risk that had shadowed the stock and demonstrates management's commitment to governance standards.

The period from 2024-2025 represents a transformational inflection point. Millicom implemented a major efficiency program that permanently altered its cost structure, enabling record equity free cash flow and operating margins. Simultaneously, the company executed strategic portfolio moves: monetizing tower assets for $975 million, acquiring Telefónica's operations in Uruguay and Ecuador, and advancing toward full ownership of its Colombian operations through the pending Coltel and EPM transactions. These moves add an investment-grade country (Uruguay) and a dollarized economy (Ecuador) to a portfolio that already benefited from Panama's dollarized stability, creating a more balanced macroeconomic risk profile.

Industry structure in Latin America favors integrated operators with scale. The region's mobile markets remain predominantly prepaid, with postpaid penetration averaging just 20% across Millicom's footprint—far below developed market levels. Fixed broadband penetration is similarly low in many markets, creating runway for growth. Competitors include América Móvil (AMX) (Claro), which dominates with 50-70% market share in key countries through scale-driven cost advantages, and Liberty Latin America (LILA), which focuses on premium cable content and fixed-mobile convergence. Millicom's differentiation lies in its agile, customer-centric approach and its integrated fintech platform, Tigo Money, which addresses the large unbanked population across its markets. This positions Millicom to capture value from digital financial services while traditional competitors focus solely on connectivity.

Technology, Products, and Strategic Differentiation

Millicom's competitive moat rests on three pillars: network infrastructure optimized for convergence, a simplified commercial playbook executed with discipline, and digital services that create sticky, high-margin revenue streams. The company's technology strategy isn't about being first to 5G or deploying the most spectrum—it's about building the most efficient integrated network that supports the convergence of mobile, fixed broadband, and digital services.

The core network advantage lies in granular capacity management. Management notes that 27% of municipalities account for 80% of revenues, enabling targeted capital deployment rather than blanket coverage. This approach keeps capital intensity disciplined—CapEx stabilized at 11-12% of revenues—while competitors like América Móvil spend more broadly to maintain market share. In Guatemala, where the market is purely prepaid, Millicom fights "point of sale by point of sale" with targeted infrastructure investments in high-share areas like Quetzaltenango, countering Claro's expansion without engaging in economy-wide price wars. This surgical approach preserves margins while defending market position.

The commercial playbook centers on four elements: pre-to-post migration, network upgrades, convergence, and simplified offers. Postpaid penetration currently sits at 20% of the mobile base, with management targeting 50% across all territories. Postpaid customers deliver 50% higher ARPU and significantly lower churn, which is why this strategy is working. Postpaid net additions reached 262,000 in Q1 2025 (up nearly 50,000 year-over-year) and nearly 250,000 in Q2 2025, while the postpaid base grew 14% to 8.9 million customers in Q3 2025. Each migrated customer increases lifetime value and reduces acquisition costs, creating a self-reinforcing cycle of margin expansion.

Convergence is the glue that binds the segments. One-third of home customers now take convergent packages, up from one-quarter a year ago, and convergent customers exhibit half the churn rate of standalone home subscribers. This transforms Millicom from a commodity bandwidth provider into an integrated service provider with pricing power. The Home business, which declined nearly 5% in Q3 2024, was essentially flat in Q3 2025—a marked improvement driven by bundling mobile with fixed broadband and pay-TV. In B2B, the revamped Fixed Mobile Convergence offer for entrepreneurs has been well-received, with digital services revenue rising 10% and cloud/cybersecurity/SD-WAN growing 35% year-over-year.

Simplification of commercial offers—from dozens of options to no more than 10 per country—reduces operational complexity and improves channel productivity. This lowers the cost to serve while making the value proposition clearer to customers. Combined with digitalization of the customer journey and internal processes using machine learning and AI agents, Millicom is building a lower-cost, higher-productivity commercial engine that competitors with legacy systems will struggle to replicate.

Financial Performance & Segment Dynamics

The financial results provide compelling evidence that Millicom's strategy is working. Q3 2025 organic service revenue grew 3.5% year-over-year, but the composition reveals the real story: mobile service revenue accelerated to 5.5%—its strongest growth since 2021—while home service revenue was essentially flat, a dramatic improvement from the nearly 5% decline a year prior. B2B service revenue reached $231 million, up 5.3% in constant currency, with digital services growing 35%. This segment mix shift is significant because mobile and B2B carry higher margins and growth potential than the mature home business.

Adjusted EBITDA hit a record $695 million in Q3 2025, with an all-time high margin of 48.9%. The year-over-year increase of 23.8% included a $73 million one-off benefit from 2024 restructuring costs, but even normalizing for this, EBITDA grew 10%—demonstrating underlying operational leverage. This margin expansion is structural, driven by the efficiency program that management states has "permanently transformed the company's financial profile." More than half of operations achieved margins above 50% in Q2 2025, with Honduras and Nicaragua joining Guatemala, Panama, and Paraguay in "Club 50." This demonstrates the playbook is repeatable across markets with different competitive dynamics and macro conditions.

Equity free cash flow (EFCF) of $243 million in Q3 2025 brought the nine-month total to $638 million, up 18.1% year-over-year. The $750 million full-year target is achievable despite headwinds: a $66 million working capital drag from the Telefónica litigation settlement and Bolivia currency impacts. This resilience demonstrates the cash-generating power of the business model. In 2024, Millicom generated $728 million in EFCF (excluding $49 million in tower proceeds), significantly exceeding guidance of $650 million, and used it to reduce net debt by $230 million in Q4 alone.

Segment performance validates the convergence thesis. The mobile business added nearly 250,000 net postpaid customers in Q2 2025, up from 178,000 a year prior, while prepaid ARPU expanded through inflation-aligned pricing. The home business added 62,000 customers in Q1 2025 (versus a 13,000 decline in Q1 2024) and 60,000 in Q3 2025, with the HFC/FTTH base back above 4 million and growing almost 5% year-over-year. B2B growth of 5.3% in Q3 2025 was led by digital services, where small business clients grew 10% to over 400,000. The fact that 95% of B2B revenues are recurring provides visibility that competitors with project-based revenue lack.

Country-level performance highlights portfolio quality improvements. Colombia delivered 6.5% service revenue growth with EBITDA margins expanding 447 basis points to 43.5% in Q3 2025, reflecting successful turnaround execution. Guatemala's operating cash flow grew 22% to a record $204 million, while Panama achieved a record 52.2% EBITDA margin. These results demonstrate the strategy works in both large, competitive markets (Colombia) and smaller, more stable ones (Panama), de-risking the geographic concentration that historically worried investors.

Outlook, Guidance, and Execution Risk

Management's guidance for 2025—$750 million in EFCF and leverage below 2.5x—appears achievable but not without execution risk. The target assumes mobile service revenue growth accelerates in the second half, home revenue turns positive (expected in Q4 2025), and B2B maintains mid-single-digit growth despite tough comparisons from Panama's 2024 government projects. These assumptions are reasonable given Q3 momentum but depend on continued commercial execution.

The Bolivia currency situation represents a material headwind. With the Boliviano pegged at 6.91 but requiring commissions as high as 70% to acquire dollars, Millicom will adopt IAS 21 hyperinflation accounting in 2026. This will create a significant hit to reported USD revenues and EBITDA, though the cash flow impact is mitigated by $25 million in commission costs that will disappear from the P&L. Management estimates Bolivia generated around $100 million in EFCF in 2024, so the devaluation could impact group EFCF by low-to-mid double-digit millions. This situation tests the resilience of the overall model—can Millicom absorb this shock while still hitting its $750 million target? The Q3 performance suggests yes, but it leaves little margin for error.

The M&A pipeline adds both opportunity and execution risk. The Uruguay and Ecuador acquisitions closed in Q3 2025, adding $246 million and $490 million in annual revenues respectively, with combined adjusted EBITDA of $254 million. These deals are expected to add approximately 0.1x to leverage each, bringing pro forma leverage to 2.3x—still below the 2.5x target. However, integration risks are real: Uruguay requires ARPU development through prepaid-to-postpaid migration, while Ecuador needs network quality improvements and coastal expansion. The Colombia transactions (Coltel and EPM) expected to close in Q1 2026 could add significant scale but will require management attention that might distract from operational excellence elsewhere.

Management's capital allocation framework appears disciplined. CapEx is stabilized at $650-700 million (11-12% of revenues), with a granular approach targeting high-return municipalities. The $3 per share annual dividend, representing roughly two-thirds of projected EFCF, is sustainable at current leverage levels. The remaining one-third of cash flow allocated to deleveraging or strategic projects provides flexibility without overextending the balance sheet. This demonstrates capital discipline that competitors like Liberty Latin America, with higher leverage and negative free cash flow, cannot match.

Risks and Asymmetries

The central thesis faces three primary risks: regulatory intervention, competitive pressure, and macroeconomic volatility. The blocked Costa Rica merger with Liberty Latin America exemplifies regulatory risk. Despite proposing remedies and working with external consultants, Sutel prohibited the transaction in Q3 2025, arguing no remedies could make it acceptable. Millicom is appealing, but the decision suggests regulators may prioritize four-operator markets over consolidation benefits. This limits Millicom's ability to achieve scale economies in a market where the two largest operators are "very aggressive" with convergence offers, directly impacting customer base and ARPU. If the appeal fails, Millicom must compete organically in a structurally less profitable market.

Competitive pressure is intensifying. In Colombia, WOM launched an unlimited prepaid offer for $7, with Telefónica offering even more aggressive pricing. In Guatemala, Claro targeted Quetzaltenango where Millicom holds high market share, forcing point-of-sale competition. While management dismisses these as "tactic offers" that lack network quality and distribution strength, they can still pressure ARPU and acquisition costs. The risk is that sustained aggressive pricing forces Millicom to choose between market share and margins—a trade-off the current strategy avoids through quality and convergence.

Currency devaluation in Bolivia and Paraguay represents ongoing macro risk. The Boliviano's peg requires commissions up to 70% to access dollars, creating a natural hedge but also capping cash flow upside. In Paraguay, where Millicom competes with a state-owned operator and Claro, currency volatility can erode USD-reported results. While Millicom has mitigated this by converting costs to local currency and issuing local debt, the risk remains that macro instability could offset operational gains.

The Comcel settlement, while resolved, highlights governance risks that could resurface. The $118.2 million penalty, though discounted 50% off the sentencing guideline minimum, represents a material cash outflow. More importantly, it reminds investors that legacy joint venture structures created compliance gaps. With full operational control now established, Millicom has strengthened its compliance program, but any future issues could damage the brand and regulatory relationships.

On the positive side, asymmetries exist. If the Colombia acquisitions close successfully, Millicom could achieve 40%+ market share in a market of 50 million people, creating a regional powerhouse with significant pricing power. If convergence adoption accelerates beyond one-third of home customers, churn could fall further, unlocking additional margin expansion. And if digital services maintain 35% growth, B2B could become a more material profit driver, diversifying away from consumer connectivity.

Valuation Context

Trading at $51.98 per share, Millicom carries a market capitalization of $8.69 billion and an enterprise value of $15.50 billion. The valuation multiples reflect a company in transition: price-to-free-cash-flow of 9.71 and EV/EBITDA of 6.11 suggest reasonable valuation relative to cash generation, while the 5.86% dividend yield indicates a shareholder return commitment uncommon in emerging market telecoms.

Comparing to peers reveals Millicom's unique positioning. América Móvil trades at 17.3x earnings with 15.7% ROE but lower EBITDA margins (21.5% operating margin vs. Millicom's 26.5% and 48.9% EBITDA margin). Telefónica trades at a negative P/E due to losses, with -2.31% ROE and 13% operating margins, reflecting its shrinking Latin American footprint. Liberty Latin America shows negative margins (-16.57% profit margin) and higher leverage (7.67 debt-to-equity), making Millicom's 2.56 debt-to-equity and positive cash flow generation stand out.

The key valuation driver is whether Millicom's margins are sustainable. At 48.9% EBITDA margin, Millicom operates at a level that suggests either significant operational leverage or underinvestment. Management's guidance that CapEx will remain at 11-12% of revenues and that margins can be sustained implies the former. If true, the EV/EBITDA multiple of 6.11 undervalues the business relative to its cash-generating potential. However, if competitive pressure forces increased investment or pricing concessions, margins could revert toward the 38-42% range typical of the industry, making the current valuation fair but not compelling.

The dividend payout ratio of 38.32% on a 5.86% yield suggests the dividend is well-covered by earnings and sustainable by EFCF. This provides a floor for the stock while investors wait for the growth and margin thesis to fully play out. The return on equity of 32.68% significantly exceeds peers, reflecting both leverage and operational efficiency. If Millicom can maintain ROE above 25% while reducing leverage below 2.5x, the valuation should re-rate toward premium emerging market telecom multiples.

Conclusion

Millicom has engineered a remarkable transformation from a scandal-plagued regional operator into a lean, converged connectivity provider generating record margins and sustainable cash flows. The 2024 efficiency program wasn't a temporary cost-cutting exercise—it permanently reshaped the cost structure, enabling EBITDA margins of nearly 49% that rival the best telecom operators globally. This operational excellence, combined with strategic portfolio moves that added higher-quality markets and monetized passive infrastructure, has created a more resilient and profitable business.

The investment thesis hinges on whether Millicom can continue executing its convergence playbook while integrating major acquisitions and navigating macro headwinds. The evidence from Q3 2025 is encouraging: mobile postpaid growth accelerating, home revenue stabilizing, B2B digital services expanding at 35%, and cash flow generation remaining robust despite Bolivia's currency challenges. Management's guidance for $750 million in EFCF appears achievable, and the dividend resumption signals confidence in sustainability.

The critical variables to monitor are competitive intensity in core markets, execution of the Colombia integration, and the pace of convergence adoption. If Millicom can maintain its "Club 50" margin profile while growing the convergent customer base beyond one-third of homes, the stock's valuation at 9.7x free cash flow offers significant upside. If competitive pressure forces margin concessions or integration costs exceed synergies, the downside is cushioned by a well-covered dividend and manageable leverage. For investors, Millicom represents a rare combination of emerging market exposure with developed-market operational discipline—a story of transformation that is just reaching its inflection point.