As markets in the U.S., Europe and much of Asia become saturated with wireless phones, an increasing number of telecommunications companies have looked to emerging markets. But this has created a different kind of challenge: squeezing profits out of a population that has little disposable income.

One company that has proved successful at that has been Millicom International Cellular SA, a Luxembourg-based wireless provider that targets markets in Latin America, Africa and Asia. By gearing its pricing and marketing strategies to consumers, some of whom live on as little as a few dollars a day, Millicom has emerged as a top wireless provider in countries like Paraguay and Cambodia.

For example, Millicom offers customers plans in which they are charged on a per-second rather than a per-minute basis. The company also has figured out a way to turn street vendors into sellers of its service. “We’re selling minutes like Coca Cola’s selling soft drinks,” says Marc Beuls, Millicom’s chief executive.

Often operating under the brand name “tigo,” the company now has 18 million subscribers in 16 markets, up from just 2.8 million from continuing operations five years ago. Millicom’s stock price more than tripled from the beginning of 2006 to almost $100 a share last month. Millicom’s stock sold for as little as 12 cents a share in 2002 in the midst of the global telecom slump, which threatened to push the company to the brink of bankruptcy-law protection. In afternoon trading yesterday on the Nasdaq Stock Market, Millicom shares were at $82.82 apiece.

Still, Millicom could find its previous growth rates hard to match, as other telecom companies look to the same developing markets for growth. Its shares lost 12% of their value July 24 after the company’s second-quarter results didn’t meet Wall Street’s lofty expectations. The company added 1.5 million new subscribers in the quarter, for example, compared with the 1.8 million projected by Morgan Joseph & Co.

At the same time, doing business in developing countries is complicated by conflict and politics. For instance, subscriber growth was off during the quarter partly because of a new law in Senegal requiring cellular operators to register new subscribers.

Emerging markets today have a lot of potential. In countries like Chad and the Democratic Republic of the Congo, only about 5% of the population has activated cellphones. Colombia’s ownership level, known in the industry as its penetration rate, is 60%, according to a Millicom report. By comparison, in some Western European markets there are more active mobile subscriptions than people because some have more than one.

Last year, Latin America, Africa and Pacific Asia, including Japan and South Korea, accounted for 69% of wireless growth world-wide, a number expected to rise, according to Wireless Intelligence, which tracks cellphone-industry data.

Wireless revenue in South America, Africa and all of Asia is expected to reach $320 billion this year, close to half of the total global wireless market, according to Insight Research Corp., a research firm. Wireless companies are expected to pull in $431 billion in total revenue from those regions by 2011.

Other companies are also flocking to these markets, and Millicom faces an array of regional rivals. The company is strongest in Latin America, where it has greater market share than its major competitors — América Móvil SAB de C.V., based in Mexico City, and Telefónica SA, based in Madrid — in four of the six markets where they operate. It is facing tougher fights in Africa, which includes some of Millicom’s newer markets, where the company is chasing MTN Group Ltd. of South Africa in Ghana and France Télécom SA in Senegal, among others.

These companies have varied strategies for profiting from consumers who pay as little as $10 or $11 a month for cellphone service. When users buy more phone time, they add an average of $1 or less each time.

Some companies are offering monthly calling plans; more advanced technology known as third generation, or 3G; and new services such as wireless Web access. Millicom has avoided add-ons to focus on keeping prices low, though it is exploring upgrading its networks to 3G in some markets.

Mr. Beuls says his rivals have invested in new technologies that may not be suitable for emerging markets. “Customers at the end of the day in emerging markets don’t care about technology,” he says. “It’s about what benefits you provide. They want accessibility.”

Mr. Beuls prefers to hire employees from fast-moving consumer-goods companies that he believes better understand distribution patterns, like Seagram Co., a unit of Diageo PLC, rather than other telecom companies.

Millicom first introduced prepaid calling cards in its markets in 1997, removing the need for credit checks, which are a major barrier to acquiring a cellphone for people who often lack identity papers.

Since then, Millicom has introduced e-PIN, a way to allow users to add minutes to their phones without having to purchase a prepaid card. A customer pays cash to a vendor, such as a clerk at a corner store, for a specified number of minutes. The vendor then sends a text message to Millicom with the buyer’s phone number and a request to add minutes to the customer’s phone.

By relying more on e-PIN, Millicom has been able to sell fewer calling cards, a more costly way of providing service. The lower expenses have allowed it to lower the minimum amount of airtime available for purchase to roughly 30 cents from $1.30. “Each time we lowered the value of the reload, people were buying more,” Mr. Beuls says.

Also boosting sales: Anyone with a cellphone and several minutes’ worth of airtime can become a tigo vendor. The company allows customers to send a text message to Millicom requesting that minutes be transferred from their phone to another’s. The company also introduced a “share balance” program that lets customers who have exhausted their minutes send a free text message to a friend asking for more. The friend can then send a text message to Millicom requesting a transfer from his or her own phone.

Recently, the company started selling seconds, not minutes, under per-second billing. Instead of rounding up a 30-second call and charging the user for the full minute, Millicom charges for only the exact duration of the call.

By SARAH CHILDRESS
August 28, 2007