Luxembourg-based mobile operator Millicom (Nasdaq: MICC) expects to have its Tigo Cash mobile wallet system up and running in all of its Central American and South American markets by the end of the year, after having first launched the service in 3Q10 in Paraguay, Millicom CEO Mikael Grahne told an investors conference call.
The company is focusing its growth strategy on mobile data, value-added services (VAS) and higher-value customers. It sees mobile wallet - or the ability of customers to make basic cash transactions using their phone balance - as having significant potential given the low bank account penetration in the countries where it operates.
Millicom operates under the Tigo brand. In Central America, it is in Honduras, El Salvador and Guatemala, and in South America the company is in Bolivia, Colombia and Paraguay.
In Paraguay, during March this year alone, Millicom recorded 107,000 transactions.
Paraguay has been Millicom's "test bed," as it has the highest rate of mobile internet adoption among Millicom's Latin American properties.
Grahne said typical transfer amounts in Africa and Paraguay averaged US$50, and that is likely to be repeated in other Latin American markets. Tigo Cash is also up and running in Honduras and Guatemala but at very early stages, he said.
"We hope to be live in the rest of the Latin American markets by the end of 2011.... Tigo Cash will take quite some time to build, so we think this is a product that if you look 3-5 years ahead it's going to bring us a substantial amount of revenues and give us an opportunity also to add other financial service products on top of that," Grahne said.
The executive said that at the moment the amount of revenue generated from the service is not important, and that Millicom is focusing principally on penetration.
"Initially we are more penetration and transaction focused than revenue focused. That's typically how they build revenue and new products in the service category," he said.
The executive said some regulatory issues have to be sorted out first in certain markets.
"Some markets don't really have a regulation that can cope with this kind of a service, and so that might cause a fine delay. But our intent is really to be out fully in Latin America as well as fully in Africa, possibly excluding Senegal and DRC [the Democratic Republic of Congo]," Grahne said.
GROWTH OF VAS
In Q1, VAS for Millicom in Latin America exceeded 30% of total mobile recurring revenues, with non-SMS VAS contributing 18.9%. The company believes that VAS in Latin America and Africa can respectively reach 50% and 25% of recurring revenues by 2015.
SMS is the most important VAS with a penetration of more than 52% of Millicom's customer base. Ringback tones in the entertainment category are enjoyed by 27% of the total customer base and data services have a penetration of 22%, while the Tigo Lends You emergency top-up service has a total penetration of 34% and is growing by almost 20 percentage points year-on-year.
Other balance transfer services Give Me Balance and Gift and Collect have penetrations of more than 23% in Latin America. Combined 2G and 3G data revenues represent 9.4% of all recurring revenues in the region.