Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, today’s question-and-answer session will be conducted electronically. [Operator Instructions] We will pause for a moment to allow everyone to signal. David Kestenbaum from Morgan Joseph is on the phone with the question.
David Kestenbaum - Morgan Joseph
Okay, thanks. Nice quarter guys.
Unidentified Company Representative
Thanks.
David Kestenbaum - Morgan Joseph
Can you put more color on the CapEx exactly where you are going to spend incremental 200 million, is that all going to be that color what between Africa and Central America and South America?
Unidentified Company Representative
I think today Africa and South America beside is specifically Columbia are the regions where we are spending the biggest amount of CapEx and that’s how I can see this going forward that also get is an Africa that which is the always mobile penetration rates and that’s where they need for additional infrastructure is the highest.
David Kestenbaum - Morgan Joseph
Okay. And then ARPU I have calculating and I went up a lot of tough to America on a sequential basis, you talk about why the reasons for that was that based on the new success with the services?
Unidentified Company Representative
Definitely as you know our guys is our champion when it comes to value-added services with 25% of the recurring revenues coming from those services and that we also seen continuous part of impact of the second billing which we introduced about three years ago and Paraguay and then the of course with Columbia where we are improving our opposition in the markets as we are going faster than the markets and it all be changes in our fact as we have been over the last couple of quarters that gives us better clients and better revenues from those clients and that explains these ARPU.
David Kestenbaum - Morgan Joseph
Okay. And then what do you think I mean this your view on the effect of second million ARPU can’t change overtime, so where do you think that stands going forward, I mean do you think ARPUs will come back to the point where they were at one point or you think that they will continue to contract now over time?
Unidentified Company Representative
You know my view in terms of ARPU has no change to ARPU is over time will come down and what we have seen now in Central America is that we see stable ARPUs these are things and certain by number of factors increase usage of the result of the effective productions. Secondly we also have value added services as ARPU coming in bigger part of operating new in Central America and there be I think without being into new markets or new markets segments rather in Central America, you know, people who were not able to afford the phone before, now with the second billing can afford a phone and buy minutes on a early basis. I think those are the drivers of ARPUs but again the value-added services will become also much bigger part of revenues in Central America going forward.
David Kestenbaum - Morgan Joseph
Okay, thank you.
Unidentified Company Representative
Thank you, David.
Operator
How you doing [inaudible] from [inaudible] with a question.
Unidentified Analyst
Yeah, terrific quarter I just can’t believe how good it was. I’m delighted however. Two questions, one short-term, one longer term. The? what are your expectations for getting margins in Colombia up to the average of the other contiguous countries? Do you think that’s far fetched, do you think it will happen, if so, when and secondly the longer term question is your last statement about we’re under leveraged as David pointed out in his discussion of CapEx and we expect to be able to generate that outstanding opportunities. Can you talk little bit about some of those and how soon you think it’s going to happen and what the barriers to those happening are or how you feel about that generally? Thank you.
Marc Beauls – President and Chief Executive Officer
So far as Colombia is concerned you know that at this point and time our top priorities is growing the top line and that were to cost a little bit of the EBITDA level that’s fine with us because we know that’s we need to grow our market share and we need to get the better economies of scale in order to grow that margin going forward. We think we are going to need a couple of years to get through the call of Millicom average EBITDA margin in Colombia. In terms of the balance sheet structure and what we are going to do with the cash we have and the ability to raise it is as we said before our top priority is to buyout our local partners but at times, the difference in project expectations are very high and we only want to buy minority shareholders if we think its accretive to our you know office to our share prices.
So that’s in a sense kind of a level as to how much we can pay. Secondly in terms of new markets we continuously looking at new markets primarily focusing on Africa and Latin America where we see new opportunities, new licenses in Central America are just around the corner and we might be looking at some other new markets in order to repeat the success stories that we have seen so far in Colombia and also present day Africa as take advantage of the good to growth outlook we see in our existing businesses. So that’s how we prefer to spend our money and as David said, we also have the option to buyback stock if everything that is the best way to spend the money.
Unidentified Analyst
Marc, in terms of the improvement in the Colombian operations do you think it will be a gradual improvement over those two years, or do you think we’ll see a step function and you didn’t include any Asian activities in your discussion of potential acquisitions of new licenses et cetera, can you comment on both those please?
Marc Beauls – President and Chief Executive Officer
Yeah. I think its going to be gradual improvement in Colombia as you know we have a market share of say around 10% now and we want to grow that market share to like the mid 20s and that will take time and as we grow with a very good distribution network there which we will show to the participants to our capital markets next week in Colombia, you know, we will get there, but it’s going to be gradually. I don’t think they are going to be any big steps that will be taken as a gradual process. In terms of Asia, yeah, at this point and time, we’re not actively looking at new assets in Asia, we don’t really see any attractive opportunities at this point in time, other than of course, we continue to follow the events in Vietnam but I don’t think anything will happen there in the course of 2007.
Unidentified Analyst
Well, since 2007 is open is over, can you see any visibility at all there or is it just more static?
Marc Beauls – President and Chief Executive Officer
Well we don’t know Bill, I think this process is going to go into 2008 and rumors are it could be like by the middle of 2008 before anything is going to happen there given that a number of privatizations apparently have to happen before privatizations in the telecommunications sector which would be started.
Unidentified Analyst
Okay thanks. Just absolutely marvelous quarter, professionally.
Unidentified Company Representative
Thank you, Bill.
Unidentified Company Representative
Thanks.
Operator
[Inaudible] from [inaudible] on the phone with a question.
Unidentified Analyst
Going off basis, great quarter that really shows the strength of the Tigo brand and your concept. Still we have to check and be a little bit can you remind us what competition could be increasing? I’ve heard that entities create fourth and our recent wonder if you confirm that and if you have any new competitors coming in Guatemala or Honduras and now the important countries?
Marc Beauls – President and Chief Executive Officer
Yeah that’s correct NBT bought themself into an existing operator in Ghana so that is not a new operator not an increase in the number of operators but that does near as fresh so, we don’t know what else is going to happen what we will be doing. Just focus on growth and profitability in Ghana and as you have seen the subscriber in take has continuous to be very, or has been very strong again, in Africa so I think that is very encouraging. In terms of other markets, I think Honduras everybody is familiar with that. There’s a process ongoing about the phone operator and I am sure you’ve read the names of the companies interested in Fort Washington and I think they are usual suspects. In Guatemala you have all the kind of rumor as to whether that phone operator is going to be launch service or not. Latest rumor I heard was that it was not going to happen but we don’t know. As a matter of fact, we already sitting there and waiting until this happens and all markets we just continue to take advantage of the growth opportunities and we will see how we can deal with competition so far we have been dealing very successfully with competition in our 16 markets.
Unidentified Analyst
Okay, thanks a lot.
Unidentified Company Representative
Thanks.
Operator
[Inaudible] phone with the question.
Unidentified Analyst
Yeah hi guys. Just two quick questions on Colombia first of all the ARPU number that I have just divide revenues by I think we are picking up nicely on the quarterly basis is stick to reason do you talk about $20 up and above and across Central America is that ARPU number that you will be targeting for the Colombian business and that’s the first question.
Marc Beauls – President and Chief Executive Officer
Okay. For Colombia yeah I think it’s a combination of first of all improving the quality of our subscribers we have number of very low quality subscribers in the subscriber base when entered the business a year ago and due to some changes in the customer base on some customers leaving us and better customers joining us we have been able to increase the quality of our subscriber base, thanks to our much improved distribution network so the accessibility there but also the availability network is really getting a lot better and needless to say that we have taken a number of initiatives in sound affordability that I think is driving that ARPU in Colombia. I can’t give you any guidance as to where we think that ARPU is going to end up but we think that’s we should be able to bring going forward good customers on board in Colombia as we have done in other markets where we call same strategy.
Unidentified Analyst
And just as a quick follow-up on Colombia, can you give us a sense of what the percentage of revenues of the handsets sales?
Marc Beauls – President and Chief Executive Officer
Well it’s a fairly small percentage but I don’t have the number for you, right here, but its not important number.
Unidentified Analyst
Okay. Fine. And then so the second question was just on Africa obviously you are taking a slight hit to OpEx in the short term can you give us a sense of whether you are sort of hurried to get back historic margins of perhaps pay 40% is that going to come in the next couple of quarters are we talking maybe a couple of years?
Marc Beauls – President and Chief Executive Officer
I don’t think its going to be a couple of years away. I think in Africa when we are facing a specific issues which we spoken about before but at the same time we have some fantastic opportunities we want to take advantage of those opportunities we are gaining market share getting more subscribers on our network now that I think we have gotten into a certain momentum but I do think the markets really get back to the historical levels and spent up will be we will report to the market but that remains very positive about Africa both in terms of subscriber and as well as margin development.
Unidentified Analyst
Okay, thanks very much.
Marc Beauls – President and Chief Executive Officer
Thanks.
Operator
Steven Met from Bancroft Capital is on the phone with a question. Yes, Mark.
Unidentified Company Representative
Hi there.
Unidentified Analyst
Hi. Just going back to Central America and the ARPU, I was trying to get a sense on the value added services. You know, what does that ARPU look like and what other services that people are paying for at this point
Marc Beauls – President and Chief Executive Officer
They end up paying for everything they use as value added services so we don’t give the house away for free and about 60% to 70%, depending on one country to the other is SMS. Be it peer to peer SMS, could be premium SMS also ring tone downloads, music downloads, all of those things and we see the brand new coming out of value added services at this point of time growing at a faster rate than we see voice revenue growing so it will become a bigger part of our business going forwards and again some countries like empowered, I can’t remember the exact percent, but its is a very high percentage of our customers, our overall customer base post paid and pre paid that are using value added services because they focus on those services and pay early on.
We now doing the same. That means we are educating, we are teaching people how to use value added services so we expect that also in other Latin American markets we’re going to see more and more of our subscriber base using those services empowered by a number. It’s a very high number today already.
Unidentified Analyst
Do you have a push? I mean, in terms of the ARPU or value added services, typical value added service customer like in Central America what does that ARPU look like?
Marc Beauls – President and Chief Executive Officer
The ARPU, is like you said, the top for value added services market in Paraguay with 25% of recurring revenue. I think it may come as an average today. I think we’re around 10%. I think Central America is probably slightly higher than that a few points higher than that I would think. So you can calculate yourself as to what kind of recurring revenue, sorry, of ARPUs are coming out of value added services in Central America.
Unidentified Analyst
Okay and then can you talk a little bit more about sort of what the conditions on the ground are like in Congo and relative to what we read about in the Economist and stuff like that?
Marc Beauls – President and Chief Executive Officer
What I read in the Economist is that they are all convinced that mobile telephony has a long way to go in Africa and then that’s why we’re here and yet conditions on the ground are challenging but we’ve been focusing on the larger cities and of course that’s the idea of growth to network. We will be going more into the rural areas where these challenges will be bigger.
I think the country is relatively stable at this point in time except for certain areas in the eastern part of the country around Kievl [ph] where we have a small network and overall we see that more or our traffic nowadays is coming from cities other than Kinshasa. Somewhere in the beginning it was primarily focused on Kinshasa. We now see that traffic in other cities is growing faster than in Kinshasa which is good, which requires, as you know, we are rolling out our network which remains challenging that roll out.
Unidentified Analyst
Just going back to Africa in general as you look at the countries, you’re either two or three in those markets in terms of operators and going forward what’s the mix in terms of growth taking market share versus the incremental growth in those markets and just can you comment on that just generally?
Marc Beauls – President and Chief Executive Officer
Yes, focus is on market share not at any price. I said historically that we happy to be a possible number two so we don’t necessarily need to be a number one at any price. We know that a number two in those African markets can be very attractive can give us a lot of traffic and traffic with good approxability.
You’ve seen in our third quarter results we’re now focusing a little bit more on the top line growth. why because I think we now benefit infrastructure wise people wise with some changes we did in the management for example in Tanzania where we see excellent results being produced and that makes us focus a little bit more on the top line growth. But yes, we do want to be a number two at least that’s the lowest position we want to happen in the African markets so that’s what we’re targeting for.
Unidentified Analyst
Then one other question on the ship buy back can you talk about the specifics of the authorization and where would the cash flow come from for repurchases?
Marc Beauls – President and Chief Executive Officer
I can’t really say much about that, Steve, at this point in time, because it’s just one of the ways to use our cash and that where the cash is. There’s about a billion over a billion on our bank accounts, and as you know we have a very low leverage at this point in time. I can’t really say more about that.
Unidentified Analyst
You don’t have an actual authorization? You talked about the 5%?
Marc Beauls – President and Chief Executive Officer
Well, we have an authorization from the shareholders. They gave us an authorization in the month of May at the AGM, and we can buy up to 5% of our outstanding shares provided we distribute the full reserves which we have today.
Unidentified Analyst
And have you bought that many shares?
Marc Beauls – President and Chief Executive Officer
No, otherwise we would have informed the market.
Unidentified Analyst
Okay, thanks Mark.
Marc Beauls – President and Chief Executive Officer
Thanks Steve.
Operator
Kevin [inaudible] from Lowe Equity Research is on the phone with a question.
Unidentified Analyst
Thank you. Terrific quarter, gentlemen.
Marc Beauls – President and Chief Executive Officer
Thank you, Kevin.
Unidentified Analyst
A couple of questions. You’ve spent a lot of time on margins. You told us you expect Central American margins to be a 50% or better so sustainable there, Africa returning to historical levels, up side in margins in Colombia. You didn’t mention anything about Asia. Is there the 43% margin we saw in the quarter is there up side there? Is that level sustainable?
Marc Beauls – President and Chief Executive Officer
I think that’s the level that is sustainable although I don’t see it growing because of for instance the revenue share agreement we have with the government in Colombia and also because of some new taxes that were recently introduced in Sri Lanka so I don’t really see any growth in that EBITDA margin.
Unidentified Analyst
You mean Cambodia not Colombia. Right?
Marc Beauls – President and Chief Executive Officer
Sorry Colombia. Sorry.
Unidentified Analyst
That’s helpful, switching to new license opportunities can you give us any update on the new license opportunity in Panama?
Marc Beauls – President and Chief Executive Officer
As I said before we are following that very closely. We have a team people working out of Central America and you know we will participate and I am sure you guys have seen our name on the lists of interested parties so we will be going into that process the same as we intend to do for Costa Rica and Nicaragua, and may be other markets in South America and in Africa.
Unidentified Analyst
And lastly Colombia and Congo the two big engines of growth for the near term and beyond. We’ve seen nice, sequential net add growth the last several quarters and particularly in the third quarter both countries ramped nicely. Do you expect through into the fourth quarter into 2008 that the absolute number of net adds will continue to grow from these levels? Is there incremental growth up side?
Marc Beauls – President and Chief Executive Officer
I think in Colombia and in Congo I don’t think we have gone all the way yet. I think there is still up side there. That’s as far is Congo is concerned. It will be driven by our network build outs so we need to continue investing which you have seen is always challenging and if we continue to do so I would expect that we are going to continue to see very, very strong subscriber intake. Same in Colombia. I think there it’s a matter of growing that network and also growing our points of distribution and maybe who knows, taking one or the other initiative to improve the affordability of our services combined with of course also value added services, value added services or percentage of value added services of recurring revenues in Colombia is amongst the lowest within the comment at this point in time. So despite Colombia being the country with probably the highest GDP per capita, so these are the things we will be focusing on which makes will make TiVo a very aspirational brand and hopefully that’s going to attract more customers.
Unidentified Analyst
Terrific. To you all in Bogota.
Marc Beauls – President and Chief Executive Officer
See you there.
Unidentified Analyst
See you there.
Operator
Peter Neilson from Chivus on the phone with a question.
Unidentified Analyst
Thank you. A piece of good news. Just two questions at this stage please. Firstly you obviously see if you can repeat your own guidance for customer and given the level of CapEx you are investing at the moment. Is this the current level, not something we should anticipate in the future quarters as well. and secondly just to clarify didn’t understand David corrected the text going forward would be around 30%. Thank you.
Marc Beauls – President and Chief Executive Officer
Yes we’ve now reached a 2 million subscriber mark. We expect the fourth quarter is going to be a very strong quarter and given that our focus will be a lot on Africa whether it’s a lot of subscriber growth ahead of us we expect to continue producing very, very strong subscriber numbers going forward.
David Sach – Chief Financial Officer
We are slightly more optimistic on the tax rate issue. As you can see on the tax slide you know the difference between the operations effective rate and the group rate has come down through the initiatives that I have talked about on several calls that we are implementing and we have been successful there which I think is good news. I have talked about the operating losses in Colombia and in the Congo and the impact that’s had. You know that’s been quite positive. Colombia in particular, the progress we are making there with that net losses has been good so yes I do expect the tax rate to be at 30% approximately and below going forward.
Unidentified Analyst
Thank you very much.
David Sach – Chief Financial Officer
You’re welcome.
Operator
Alex [inaudible] from Morgan Stanley is on the phone with a question.
Unidentified Analyst - Morgan Stanley
Yes hello, just wanted to clarify two points on the African margins. One is do you expect any further dilution of the [inaudible] margin in this region or do you feel the margins have now bottomed out?
Marc Beauls – President and Chief Executive Officer
I think given that we had a very strong quarter of subscriber intake in Africa and that of course impacted the margin. I don’t think we will see a lower margin than what we saw this quarter because this is a combination of high growth and lower margins. I think we will see more margins going forward specially that the subscribers we get, we got into the third quarter they will start regenerating revenue and EBITDA in the fourth quarter and then the subsequent quarters
Unidentified Analyst - Morgan Stanley
I think? and also would it be possible for you to clarify to what extent the margin pressure in Africa currently is coming from DRC as opposed to other established markets? So would you say the pressure is mainly concentrated within DRC and other countries are holding more or less stable?
Marc Beauls – President and Chief Executive Officer
No I think the pressure, and the growth lets put it that way the growth is coming from all of our markets of course some of the markets were a little bit slow because of Ramadan at the end of the third quarter.
But I would say that the impact has been kind of across Africa. There wasn’t really one market that disappointed us during the third quarter different from the second quarter where you know there were couple of square markets that disappointed. That wasn’t the case so it’s good. So it’s a well spread effort here and also well spread costs across the seven markets in Africa.
Unidentified Analyst - Morgan Stanley
Yea because correct me if I’m wrong but I think a few months ago in the investor meetings you were indicating that you would expect DRC to breakeven at the EBITDA level in 2008. How has that expectation changed or are you still confident about 2008 as a breakeven?
Marc Beauls – President and Chief Executive Officer
I think we can see that happening in 2008 it all depends on how hard we will push in terms of network build out and subscriber intake and as you see from this quarter or from the third quarter we at times want to push a little bit harder because we see those opportunities in those markets and without being better prepared to take advantage of the opportunities in Africa largely also because of some great guys we have out there and are running our businesses and at time are very difficult circumstances I think that is making the difference at this point in time. We might not be as well prepared lets say a year ago or two years ago when we really start looking at you know investing more money in Africa.
Unidentified Analyst - Morgan Stanley
Okay, thank you very much.
Unidentified Company Representative
Thank you.
Operator
Ed [inaudible] from MNG [ph] is on the phone with a question.
Unidentified Analyst
Congratulations on a lot of happy shareholders out there.
Unidentified Company Representative
Thank you.
Unidentified Analyst
I have a question just regarding new value added services. Can you just talk a little bit about of what you see in terms of opportunities for music, gambling, and payment talk or banking services?
Marc Beauls – President and Chief Executive Officer
Well I’m sure in the music and in the gambling I’m sure our customers are using those services not that they are offered by ourselves probably music downloads some of them are but not the gambling that I guess they can do themselves but I think the big push for us going forward will be the introduction of 3G where specially for the higher users column the post paid users and not the high end pre paid users we will allow them to get access to high-end speeds when it comes to data downloads and I think that will allow us to take on some new traffic on our network which we don’t have today. At the same time you know we have some very creative [inaudible] in Paraguay who will come up every month almost with some new things nowadays that come up with service that allows people to produce their own ring tone and share it without so you know every time there is something new banking services as such I don’t really see as a big revenue generator in the short term or medium term. I think banking penetration is still very low in most of the markets where we are today. What I can see maybe are some money transfer services that we might introduce and others might introduce all the time but the banking the web banking as we know it here in Europe for instance, I don’t really see that as a major revenue generator going forward or as a big value added service going forward.
Unidentified Analyst
Thanks. And what markets are going to be your first to be upgraded to 3G.
Marc Beauls – President and Chief Executive Officer
For the first one will be Paraguay the order were placed, you know, I think a month or so ago and we expect to start launching our first services in I think second quarter of next year and then the other markets will follow. As you know Paraguay is our best market when it comes to value added services so that’s where we are going to try out some things first and then we will copy them into the other markets as we have done that before with other value added services.
Unidentified Analyst
Thanks.
Marc Beauls – President and Chief Executive Officer
Thank you.
Operator
Thank you. [inaudible] on the phone with a question.
Unidentified Analyst
Thank you very much, congratulations a very strong report there. I just curious on the ARPU, making the calculation error because however big of a share are corporate users in the network there in South and Central America?
Marc Beauls – President and Chief Executive Officer
You can make the assumption that most of our post paid subscribers are coming out of Latin America exception made for I think some in Mauritius and Cambodia I think that all other post paid subscribers are primarily based out of Latin America and they do represent relatively small percentage of the over all subscribers they of course do represent a much bigger part of our revenue and I don’t have the exact number at this point in time but I think post-paid is probably about three times, four times the level of our pre-paid subscribers so you can make the calculation yourself more or less.
Unidentified Analyst
And when it comes to interconnect I mean if you would make a calculation or average been for you sir? Can you say anything on that? I mean revenue is coming from other sources down there or supporting ARPU?
Marc Beauls – President and Chief Executive Officer
Yes, well ARPU represents all of that so ARPU represents all kinds of traffic incoming, outgoing, voice, value-added services all in one and the same.
Unidentified Analyst
Can you give any idea of how big of a share of interconnect in value terms or share in percentage of ARPU that is?
Marc Beauls – President and Chief Executive Officer
Again, it very much varies from one country to another because it all depends on what the cost is of interconnect. We have countries with very low interconnect and we have countries with much higher interconnect so I don’t really have an average for you there.
Unidentified Analyst
Okay. Then comes the CapEx. How important is the transmission to to the base station in your planning horizon, going towards 3G increasing capacity et cetera.
Marc Beauls – President and Chief Executive Officer
As becoming more and more important and that’s one of the reasons why we have been laying ourselves. You know, no fiber optics here, no networks and then the countries starting with Central America and also South America and we have stopped doing the same in Africa in a place like Gana for instance we start doing that so given that the volume of traffic is increasing we are moving in some part of the network away from a microwave to fiber optic but also increases the availability of the network going forward given that we work with risk, so that is important for our growth going forward.
Unidentified Analyst
Are you also as part of your expansion plans considering to go into fixed or in a portfolio not on the mobile but the wireless and IP communication in a broader offering to the customers in different markets?
Marc Beauls – President and Chief Executive Officer
Our core business will be mobile going forward but at the same time we will be doing some wiremax in some of the markets and so that, that works but it’s a niche product at this point in time.
Unidentified Analyst
Okay and finally when it comes to describing accounting? Have you done any changes to the matrix or the standard or procedure you have there? Have you previously in the measuring the numbers of subscribers?
Unidentified Company Representative
Yes as you know we took a few provisions against that PD Mae, CD Mae subscribers in Latin America so there is? we are obviously churning those up and we are going to churn them up all before year end and then in terms of tightening up the definition we have tightened when we were counting new subscribers so we want to make sure that new subscribers actually create a revenue generating activity before they become a subscriber and don’t, you know, in the case of giving a SIM away, we don’t count that as a subscriber unless they actually generate revenue for us. So we tightened up the definition there as well so we want to make sure. Go ahead.
Unidentified Analyst
Is it different applied during the third quarter compared to the second quarter like for example in Colombia? Have you done a different metric here, a different definition?
David Sach – Chief Financial Officer
A slightly different definition was introduced in the third quarter so that yes there was a one time only catch up impact from changing that new subscriber definition slightly in Q3.
Unidentified Analyst
So explaining the 200 plus chance in customers it’s also that you have expanded or changed the definition of what an active customer is.
Marc Beauls – President and Chief Executive Officer
Yes, we have changed it but that has not increased the number of subscribers if that’s what you are trying to say.
Unidentified Analyst
You have come to understand there’s a very strong intake in the quarter if that thought of explanation if a regulator has had a higher number than what you have presented.
Marc Beauls – President and Chief Executive Officer
Yes but regulators are a different definition.
David Sach – Chief Financial Officer
That’s in Colombia and that’s on a 90 day res, and not 60 day. But no the subscriber intake is very genuine so again the only thing we’ve done is we’ve taken some provisions against older technology subscribers in Latin America so that would actually reduce slightly the intake and then obviously we?ve changed the definition of new subscribers slightly which again will slightly reduce the intake.
Unidentified Analyst
I’m just curious there. In the change that could have supported the very strong intake in the quarter.
Marc Beauls – President and Chief Executive Officer
Let me put it very clearly so that there is no misunderstanding there. Had we not changed the definition of our subscribers we would have had a higher subscriber intake in the third quarter.
Unidentified Analyst
Thank you very much.
Operator
Now we have [inaudible] from Carnegie for the following question.
Unidentified Analyst – Carnegie Investment Bank Ab
Yes, hi. My question has already been answered. Thank you.
Operator
[inaudible] from Raymond James Financial is on the phone with the following question.
Unidentified Analyst - Raymond James
Yes good afternoon. Could you probe a little further on the 3G that you mentioned, you mentioned that you were launching in Paraguay I think in the second quarter. Can you talk to us a little bit about the CapEx costs as you look at deploying that into Paraguay and other markets, how much are we looking to spend and also does that lead back to that same IRR hurdle of the 20% to 25% you mentioned earlier in the call?
Marc Beauls – President and Chief Executive Officer
Yes although we look at 3G as a new business so that we apply the same criteria’s we do for a new business that means that we are looking at a IRR at that level for a period up to 5 years and giving that you know we will be tapping into a completely new revenue to the kind of revenue which we don’t have today.
We will be spending an important part of our CapEx next year on 3G although the way technology works nowadays when you buy equipment for what they call low traffic areas when you buy equipment you basically buy two 2G and 3G in one and the same box so going forward its gong to be very difficult to basically kind of split in those things so its only in the high traffic areas where you will buy specifically 3G equipment and put it on top of the 2G equipments.
Unidentified Analyst
Would we expect to be putting the 3G equipment put on there in the high traffic areas or will it be kind of throughout? How do you prioritize where to put 3G?
Marc Beauls – President and Chief Executive Officer
You will you know by definition go for the cities in the high traffic areas but if we were to buy our new network or go into new cities you know there we would probably rely on the new equipments with 2G and 3G in one and the same box but you know for the big cities like Paraguay yes that will be 3G on top of 2G.
Unidentified Analyst
Great, thanks a lot.
Operator
[inaudible] from [inaudible] with a question.
Unidentified Analyst
Mike, I just want to make sure I’ve understood this correctly. The value-added services you’re offering obviously have higher margins, so they’re adopted more widely from what they are now and only 10% is adopted from the company actually increase your margin. That’s I’m afraid the question. Therefore shouldn’t the ARPU margins go up? That’s the first part. Secondly in as much you have already said and knew I think, the per capita income in the various countries does relate to ARPU and does relate to penetration et cetera, and Colombia as you said has a higher per capita income than the other country shouldn’t they both adapt the higher margin services and because they have a [inaudible] higher per capita income shouldn’t they actually eventually have higher margins than the rest of the neighboring countries?
Marc Beauls – President and Chief Executive Officer
By terms of the margins on value added services there are a number of service you offer like SMS which typically is Sandra keeps it all. So it’s like a nomad call so you don’t have to share any of the revenue you generate your customer generates okay different from if you have a cross net call where you have to kind of share their revenue with another operator.
Yes typically countries with a higher GDP per capita should be able to spend more money on value-added services because they had more disposal income and yes they might be doctors of new technology, new value added services however as I said before very much is in our own control in our own hands because we need to make sure that we inform, we train our customers, we develop the services so that you know they can use more and more of those but yes Colombia as the country with the highest GDP per capita should do that but it will also require a lot of effort form our side.
Unidentified Analyst
Okay thanks very much. I just want to make sure that those who should be able to go higher standards, should be able to go higher after that just given the per capita income, et cetera. Thank you.
Marc Beauls – President and Chief Executive Officer
Thanks Bill. Okay anymore questions?
Operator
No there are no further questions.
Marc Beauls – President and Chief Executive Officer
Okay so thank you everybody for being on today’s call for those who will join us on the capital markets day in Colombia Bogot? I hope to see you all on Monday morning 8:00 am for our presentation and to all the others, have a good day and we’ll speak I guess in February for our Q4 and 2007 results. Thank you. Good bye.
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