**UNITED STATES**SECURITIES AND EXCHANGE COMMISSION

**WASHINGTON, D.C. 20549**

**FORM 20-F**

| **(Mark  One)**                                       | ** **                                                                                                                      |
|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
| **o**                                                 | **REGISTRATION  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE**** ****SECURITIES EXCHANGE ACT OF 1934** |
| **OR**                                                |
| **x**                                                 | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT**                                    |
| ** **                                            | **OF  1934**                                                                                                                    |
| **For the fiscal year ended  December 31, 2005** |
| **OR**                                                |
| **o**                                                 | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT  OF 1934**                        |
| **OR**                                                |
| **o**                                                 | **SHELL  COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**                |

 

**Commission file number    000-22828**

**MILLICOM INTERNATIONAL CELLULAR S.A.**

(Exact name of Registrant as specified in itscharter)

**GRAND-DUCHY OF LUXEMBOURG**

(Jurisdiction of incorporation or organization)

**75 Route de Longwy, L-8080 Bertrange,Grand-Duchy of Luxembourg**

(Address of principal executive offices)

**Securities registered or to beregistered pursuant to Section 12(b) of the Act:**None

**Securities registered or to be registeredpursuant to Section 12(g) of the Act:**None

**Securities for which there is areporting obligation pursuant to Section 15(d) of the Act:**None

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report:

**Commonshares with a par value of $1.50 each:**  99,703,598 as of December 31, 2005

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

x Yes   No o

Ifthis report is an annual or transition report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.

Yes o   No x

Note—Checkingthe box above will not relieve any registrant required to file reports pursuantto Section 13 or 15(d) of the Securities Exchange Act of 1934 fromtheir obligations under those Sections.

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

x Yes   No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

| Large accelerated filer   x | Accelerated filer   o | Non-accelerated  filer   o |
|---------------------------------------|---------------------------------|--------------------------------------|

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

Indicate by check markwhich financial statement item the registrant has elected to follow.

Item17o   Item18x

 

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**TABLEOF CONTENTS**

|                                                  | ** ** | ** ** | ** ** | ** **                                                                    | ** ** | **Page** |
|--------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------|------------|----------|
| FORWARD-LOOKING STATEMENTS                       |       | 3          |
| PRESENTATION OF FINANCIAL  AND OTHER INFORMATION |       | 3          |
| PART I                                      |       | 5          |
|                                             |       | ITEM 1.    |       | IDENTITY OF DIRECTORS,  SENIOR MANAGEMENT AND ADVISERS                        |       | 5        |
|                                             |       | ITEM 2.    |       | OFFER STATISTICS AND  EXPECTED TIMETABLE                                      |       | 5        |
|                                             |       | ITEM 3.    |       | KEY INFORMATION                                                               |       | 5        |
|                                             |       | ITEM 4.    |       | INFORMATION ON THE COMPANY                                                    |       | 20       |
|                                             |       | ITEM 5.    |       | OPERATING AND FINANCIAL  REVIEW AND PROSPECTS                                 |       | 62       |
|                                             |       | ITEM 6.    |       | DIRECTORS, SENIOR MANAGEMENT  AND EMPLOYEES                                   |       | 92       |
|                                             |       | ITEM 7.    |       | MAJOR SHAREHOLDERS AND  RELATED PARTY TRANSACTIONS                            |       | 100      |
|                                             |       | ITEM 8.    |       | FINANCIAL INFORMATION                                                         |       | 102      |
|                                             |       | ITEM 9.    |       | THE OFFER AND LISTING                                                         |       | 102      |
|                                             |       | ITEM 10.   |       | ADDITIONAL INFORMATION                                                        |       | 103      |
|                                             |       | ITEM 11.   |       | QUANTITATIVE AND QUALITATIVE  DISCLOSURE ABOUT MARKET RISK                    |       | 110      |
|                                             |       | ITEM 12.   |       | DESCRIPTION OF SECURITIES  OTHER THAN EQUITY SECURITIES                       |       | 114      |
| PART II                                     |       | 115        |
|                                             |       | ITEM 13.   |       | DEFAULTS, DIVIDEND  ARREARAGES AND DELINQUENCIES                              |       | 115      |
|                                             |       | ITEM 14.   |       | MATERIAL MODIFICATIONS TO  THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |       | 115      |
|                                             |       | ITEM 15.   |       | CONTROLS AND PROCEDURES                                                       |       | 115      |
|                                             |       | ITEM 16A.  |       | AUDIT COMMITTEE FINANCIAL  EXPERT                                             |       | 116      |
|                                             |       | ITEM 16B.  |       | CODE OF ETHICS                                                                |       | 116      |
|                                             |       | ITEM 16C.  |       | PRINCIPAL ACCOUNTANT FEES AND  SERVICES                                       |       | 116      |
|                                             |       | ITEM 16D.  |       | EXEMPTIONS FROM THE LISTING  STANDARDS FOR AUDIT COMMITTEES                   |       | 116      |
|                                             |       | ITEM 16E.  |       | PURCHASES OF EQUITY  SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES        |       | 116      |
| PART III                                    |       | 117        |
|                                             |       | ITEM 17.   |       | FINANCIAL STATEMENTS                                                          |       | 117      |
|                                             |       | ITEM 18.   |       | FINANCIAL STATEMENTS                                                          |       | 117      |
|                                             |       | ITEM 19.   |       | EXHIBITS                                                                      |       | 117      |

 

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**FORWARD-LOOKINGSTATEMENTS**

Certain of the statements made in this document may beconsidered to be “forward-looking statements” as that term is defined inthe U.S. Private Securities Litigation Reform Act of 1995, such as statementsthat include the words “expect”, “estimate”, “believe”, “project”, “anticipate”,“should”, “intend”, “probability”, “risk”, “may”, “target”, “goal”, “objective”and similar expressions or variations on such expressions. These statementsappear in a number of places throughout the document including, but notexclusively, “Information on the Company”, and “Operating and Financial Reviewand Prospects”. These statements concern, among other things, trends affectingthe Company’s financial condition or results of operations, capital expenditureplans, the potential for growth and competition in areas of the Company’sbusiness, the potential for new agreements or extensions of existing agreementsto be signed with business partners or governmental entities or licenses to begranted by governmental authorities, and the supervision and regulation of thetelecommunications’ markets. Such forward-looking statements are notguarantees of future performance and involve risks and uncertainties; actualresults may differ materially as a result of various factors.

These factorsinclude, but are not limited to:

·       generaleconomic conditions, government and regulatory policies and business conditionsin the markets served by the Company and its affiliates;

·       telecommunicationsusage levels, including traffic and customer growth;

·       competitiveforces, including pricing pressures, technological developments and the abilityof the Company to retain market share in the face of competition from existingand new market entrants;

·       regulatorydevelopments and changes, including with respect to the level of tariffs, theterms of interconnection, customer access and international settlementarrangements, and the outcome of litigation related to regulation;

·       thesuccess of business, operating and financing initiatives, the level and timingof the growth and profitability of new initiatives, start-up costs associatedwith entering new markets, costs of handsets and other equipment, thesuccessful deployment of new systems and applications to support new initiatives,and local conditions; and

·       theavailability, terms and use of capital, the impact of regulatory andcompetitive developments on capital outlays, the ability to achieve costsavings and realize productivity improvements, and the success of the Company’sinvestments, operations and alliances.

Readers are cautioned notto place undue reliance on these forward-looking statements, which speakonly as of the date of filing hereof with the U.S. Securities and ExchangeCommission. Millicom International Cellular S.A. undertakes no obligation torelease publicly the result of any revisions to these forward-lookingstatements which may be made to reflect events or circumstances after the datehereof, including, without limitation, changes in Millicom InternationalCellular S.A.’s business or acquisition strategy or planned capitalexpenditures, or to reflect the occurrence of unanticipated events.

**PRESENTATION OFFINANCIAL AND OTHER INFORMATION**

Unless the context otherwise requires, the term the “Company”refers only to Millicom International Cellular S.A., a stock corporationorganized under the laws of the Grand-Duchy of Luxembourg, and the termthe “Group”, “Millicom”, “we”, “us” or “our” refers to Millicom and itssubsidiaries, joint ventures and affiliates. Unless the context otherwiserequires, when used herein with respect to a licensed area, “persons”, “population”and “pops” are interchangeable and refer to the aggregate number of personslocated in such licensed area and “equity pops” refers to the number of suchpersons in a licensed area multiplied by the Group’s ownership interest in thelicenses for such licensed area. The term “Attributable 

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Subscribers” refers to the100% of subscribers in the Group’s subsidiaries and the Group’s percentageownership of subscribers in each subsidiary and joint venture. Persons,population and pops data for 2005 and 2004 have been extracted from the “CIA—TheWorld Factbook” for 2005 for countries where the license area covers the entirecountry except Guatemala where the population data for 2005 has been extractedfrom the National Institute of Statistics (INE). In addition, information onthe countries in which Millicom operates has been extracted from the “CIA—TheWorld Factbook” for 2005 with updates, where appropriate, from the U.S.Department of State’s website. Market share data and penetration rates havebeen obtained from EMC, a cellular market research firm. EMC is aware of, andhas consented to being named, in this report, which consent may be incorporatedby reference into registration statements we file with the SEC.

Unless otherwise indicated, all financial data anddiscussions thereon in this annual report are based upon financial statementsprepared in accordance with International Financial Reporting Standards (“IFRS”)and subscriber figures represent the total number of mobile subscribers ofsystems in which the Group has an ownership interest. In this report,references to “dollars” or “$” are to U.S. dollars, references to “SEK” are toSwedish krona and references to “Euro” or “€”are to the Euro.

As a foreign private issuer, the Company is exemptfrom the proxy rules of Section 14 under the Securities Act of 1934,as amended (the “Exchange Act”), and the reporting requirements of Section 16under the Exchange Act.

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**PART I**

**ITEM 1.**                IDENTITYOF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable for AnnualReport filing

**ITEM 2.**                OFFERSTATISTICS AND EXPECTED TIMETABLE

Not applicable for AnnualReport filing

**ITEM 3.**                KEYINFORMATION

**Selected FinancialInformation**

The Group reports under International FinancialReporting Standards, as adopted by the European Union (“IFRS”). The followingtables present comparative information under IFRS and U.S. generally acceptedaccounting principles (“U.S. GAAP”). For a reconciliation of our IFRS netprofit and balance sheet to U.S. GAAP and a discussion of the principaldifferences between the accounting policies applied by us under IFRS and U.S.GAAP, please see Note 37 of the “Notes to the Consolidated FinancialStatements”.

The following table sets forth summary financial dataof the Group as of and for the years ended December 31, 2005, 2004, 2003,2002, and 2001. The data are based upon the Group’s audited consolidatedbalance sheets as of December 31, 2005, 2004, 2003, 2002 and 2001 andaudited consolidated statements of profit and loss for the years then ended.The following information is qualified in its entirety by, and should be readin conjunction with, such statements.

Unless otherwise indicatedall financial data and discussions in this document are based upon financialstatements prepared in accordance with IFRS.

**SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA**

| ** **                                                                       | ** ** | **Year Ended December 31,**                                                        | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2005**                                                                                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                       | ** ** | **(in thousands of U.S. dollars, except per share data)** | ** ** |
| **Amounts in accordance with IFRS**                                              |       |                                                                                              |       |   |   |   |   |   |   |   |   |
| Profit and Loss Statement Data:                                                  |       |                                                                                              |       |   |   |   |   |   |   |   |   |
| Revenues                                                                         |       | 1,083,669                                                                                         |       | 917,492 |   | 640,363 |   | 600,518 |   | 642,286 |   |
| Operating profit                                                                 |       | 202,173                                                                                           |       | 247,189 |   | 164,372 |   | 121,519 |   | 93,080 |   |
| Valuation movement on  investment securities                                     |       | (63,356                                                                                           | )          | (127,158 | ) | 246,760 |   | (299,963 | ) | (15,931 | ) |
| Profit/(loss) for the  period from continuing operations(1)                 |       | 9,368                                                                                             |       | 66,016 |   | 180,329 |   | (501,269 | ) | (136,198 | ) |
| Profit/(loss) for the  period                                                    |       | 10,043                                                                                            |       | 65,891 |   | 176,921 |   | (385,143 | ) | (138,053 | ) |
| Basic earnings (loss)  from continuing operations per common share               |       | $                                                                                                 | 0.09       |   | $ | 0.79 |   | $ | 2.76 |   | $ | (7.68 | ) | $ | (2.09 | ) |
| Basic earnings (loss)  per common share                                          |       | $                                                                                                 | 0.10       |   | $ | 0.79 |   | $ | 2.71 |   | $ | (5.90 | ) | $ | (2.12 | ) |
| Weighted average number  of shares in basic computation (in thousands)(2)   |       | 98,803                                                                                            |       | 83,335 |   | 65,312 |   | 65,272 |   | 65,256 |   |
| Diluted earnings (loss)  from continuing operations per common share             |       | $                                                                                                 | 0.09       |   | $ | 0.74 |   | $ | 2.28 |   | $ | (7.68 | ) | $ | (2.09 | ) |
| Diluted earnings (loss)  per common share                                        |       | $                                                                                                 | 0.10       |   | $ | 0.74 |   | $ | 2.24 |   | $ | (5.90 | ) | $ | (2.12 | ) |
| Weighted average number  of shares in diluted computation (in thousands)(2) |       | 99,921                                                                                            |       | 90,312 |   | 80,500 |   | 65,272 |   | 65,256 |   |
| Dividends per share                                                              |       | —                                                                                            |       | — |   | — |   | — |   | — |   |

 

5

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| ** **                                                  | ** ** | **As of December 31,**                  | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                               | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                  | ** ** | **(in thousands of U.S. dollars)** | ** ** |
| **Amounts in accordance with  IFRS:**                       |       |                                                   |       |   |   |   |   |   |   |   |   |
| Balance Sheet Data:                                         |       |                                                   |       |   |   |   |   |   |   |   |   |
| Property, plant  and equipment, net                         |       | 671,774                                                |       | 575,649 |   | 487,695 |   | 456,320 |   | 509,247 |   |
| Intangible  assets, net                                     |       | 373,253                                                |       | 317,968 |   | 83,818 |   | 99,562 |   | 232,801 |   |
| Financial assets  at fair value through profit or loss |       | 327,803                                                |       | 397,137 |   | 375,583 |   | 265,571 |   | 659,440 |   |
| Investments in  associates(3)                               |       | 5,367                                                  |       | 2,220 |   | 1,340 |   | 1,013 |   | 52,858 |   |
| Total assets                                                |       | 2,559,422                                              |       | 2,046,213 |   | 1,522,949 |   | 1,203,119 |   | 1,870,930 |   |
| Current  liabilities                                        |       | 909,008                                                |       | 505,884 |   | 399,351 |   | 375,862 |   | 469,191 |   |
| Non-current  liabilities                                    |       | 1,070,140                                              |       | 1,259,892 |   | 1,182,207 |   | 1,098,783 |   | 1,322,583 |   |
| Minority interest                                           |       | 34,179                                                 |       | 43,351 |   | 26,571 |   | 23,733 |   | 10,262 |   |
| Shareholders’  equity/(deficit)                        |       | 299,371                                                |       | 237,086 |   | (85,180 | ) | (295,259 | ) | 68,894 |   |

 

| ** **                         | ** ** | **As of and for Year Ended December 31,** | ** ** |
|------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                                                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Operating Data (unaudited)(4):** |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Total Subscribers                  |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Prepaid                            |       | 8,426,308                                                                    |       | 6,739,559 |   | 4,956,257 |   | 3,448,269 |   | 2,525,279 |   |
| Postpaid                           |       | 502,677                                                                      |       | 973,642 |   | 734,285 |   | 554,642 |   | 604,327 |   |
| Monthly churn (%)(5):              |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Prepaid                            |       | 4.3                                                                          |       | 4.4 |   | 4.7 |   | 4.2 |   | 4.0 |   |
| Postpaid                           |       | 1.7                                                                          |       | 1.7 |   | 2.1 |   | 3.2 |   | 4.1 |   |

 

| ** **                                                                     | ** ** | **Year Ended December 31,**                                                        | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2005**                                                                                          | ** ** | **2004(7)** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                     | ** ** | **(in thousands of U.S. dollars, except per share data)** | ** ** |
| **Amounts in accordance with U.S.  GAAP(6):**                                  |       |                                                                                              |       |   |   |   |   |   |   |   |   |
| Profit and Loss  Statement Data:                                               |       |                                                                                              |       |   |   |   |   |   |   |   |   |
| Revenues                                                                       |       | 1,262,239                                                                                         |       | 9846,965 |   | 404,801 |   | 326,123 |   | 312,602 |   |
| Operating profit                                                               |       | 281,878                                                                                           |       | 244,876 |   | 76,166 |   | 1,973 |   | 74,730 |   |
| Valuation  movement on investment  securities                                  |       | —                                                                                            |       | — |   | 5,597 |   | (299,963 | ) | (15,931 | ) |
| Profit (loss) for  the period from continuing operations(1)                    |       | 112,349                                                                                           |       | 192,658 |   | (58,014 | ) | (341,507 | ) | (123,276 | ) |
| Profit (loss) for  the period                                                  |       | 82,329                                                                                            |       | 188,871 |   | (50,357 | ) | (322,563 | ) | (172,176 | ) |
| Basic earnings  (loss) from continuing operations per common share             |       | $                                                                                                 | 1.14       |   | $ | 2.31 |   | $ | (0.89 | ) | $ | (5.23 | ) | $ | (1.89 | ) |
| Basic earnings  (loss) per common share                                        |       | $                                                                                                 | 0.83       |   | $ | 2.27 |   | $ | (0.77 | ) | $ | (4.94 | ) | $ | (2.64 | ) |
| Weighted average  number of shares in basic computation (in thousands)(2) |       | 98,803                                                                                            |       | 83,335 |   | 65,312 |   | 65,272 |   | 65,256 |   |
| Diluted earnings  (loss) from continuing operations per common share           |       | $                                                                                                 | 1.12       |   | $ | 2.13 |   | $ | (0.89 | ) | $ | (5.23 | ) | $ | (1.89 | ) |
| Diluted earnings  (loss) per common share                                      |       | $                                                                                                 | 0.82       |   | $ | 2.09 |   | $ | (0.77 | ) | $ | (4.94 | ) | $ | (2.64 | ) |
| Weighted average number  of shares in diluted computation (in thousands)(2)    |       | 99,921                                                                                            |       | 90,312 |   | 65,312 |   | 65,272 |   | 65,256 |   |

 

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| ** **                                             | ** ** | **As of December 31,**                  | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                               | ** ** | **2004(7)** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                             | ** ** | **(in thousands of U.S. dollars)** | ** ** |
| **Amounts in accordance with U.S.  GAAP(6):**          |       |                                                   |       |   |   |   |   |   |   |   |   |
| Balance Sheet Data:                                    |       |                                                   |       |   |   |   |   |   |   |   |   |
| Property, plant  and equipment, net                    |       | 754,178                                                |       | 619,786 |   | 359,365 |   | 286,372 |   | 376,676 |   |
| Intangible  assets, net                                |       | 492,843                                                |       | 382,497 |   | 131,482 |   | 55,562 |   | 213,189 |   |
| Financial assets  at fair value through profit or loss |       | 327,803                                                |       | 397,137 |   | 375,583 |   | 265,571 |   | 659,440 |   |
| Investments in  associates                             |       | 20,527                                                 |       | 44,646 |   | 96,727 |   | 175,007 |   | 187,114 |   |
| Total assets                                           |       | 2,842,460                                              |       | 2,237,561 |   | 1,508,987 |   | 1,133,721 |   | 1,727,079 |   |
| Current  liabilities                                   |       | 987,213                                                |       | 575,713 |   | 374,421 |   | 270,910 |   | 339,311 |   |
| Non-current  liabilities                               |       | 1,151,061                                              |       | 1,296,870 |   | 1,173,075 |   | 1,033,743 |   | 1,302,088 |   |
| Minority interest                                      |       | 180,786                                                |       | 103,598 |   | 27,870 |   | 23,733 |   | 10,262 |   |
| Shareholders’  equity/(deficit)                   |       | 275,830                                                |       | 260,070 |   | (68,201 | ) | (286,575 | ) | 72,778 |   |

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(1)          Under IFRS, MillicomPeru S.A., MIC Systems, disposed of in 2002 and FORA Telecom BV, disposed of in2001 have been reported as discontinued operations in our consolidatedfinancial statements. Under U.S. GAAP, MIC Systems, Liberty Broadband Limited(formerly Tele2 (UK)), Celcaribe S.A. Millicom Peru S.A., Pakcom Limited andMillicom Argentina S.A. have been reported as discontinued operations. A morecomplete description of discontinued operations is contained in Notes 5, 12 and37 of the “Notes to the Consolidated Financial Statements”.

(2)          The average number ofshares disclosed above has been adjusted for each year presented to reflect thereverse share split effected in February 2003, whereby three existingshares with a par value of $2 each were exchanged for one new share with a parvalue of $6 each; and the share split effected in February 2004, wherebyone existing share with a par value of $6 each was exchanged for four newshares with a par value of $1.50 each. The average number of shares, which iscalculated on a weighted average basis, does not include shares held by us thathave no voting, dividend or other rights (654,852 shares at December 31,2005). These shares have been allocated to holders of stock options on January 18,2005 upon the exercise of some of their stock options.

(3)          Investments inassociates under IFRS represented as at December 31, 2005, Navega.com S.A.and Metrored S.A.; as at December 31, 2004, 2003 and 2002, Navega.comS.A.; and as at December 31, 2001, Millicom’s operation in El Salvador.See “Operating and Financial Review and Prospects—Results of Operations”. UnderU.S. GAAP, investments in associates also includes Emtel Limited.

(4)          Operating data excludesdivested operations.

(5)          We calculate churn ratesby dividing the number of subscribers whose service is disconnected during aperiod, whether voluntarily or involuntarily (such as when a subscriber failsto pay a bill) by the average number of subscribers during the period. Webelieve that we apply conservative policies in calculating customer totals andthe related churn rates. However, these policies may result in different churnrates and market share figures than if we had used criteria employed by someother operators in calculating customer churn and market share.

(6)          As described inNote 37 of the “Notes to the Consolidated Financial Statements”, underU.S. GAAP, we should consolidate our investment in Great Universal, Inc.and Modern Holdings Incorporated. The U.S. GAAP Selected Financial Data in thetable above for the years ended December 31, 2005, 2004 and 2003 for theprofit and loss data and as of December 31, 2005, 2004, and 2003 for thebalance sheet data include the effect of their consolidation but for 2002 and2001 do not include the effect of their consolidation. See Note 37 of the “Notesto the Consolidated Financial Statements”.

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(7)          Millicom adopted FIN 46R(Financial Interpretation No. 46, revised 2003 Consolidation of VariableInterest Entities) on March 31, 2004 for entities created prior to February 1,2003 and, as a result, began consolidating its interest in the followingVariable Interest Entities: (i) Cam GSM Company Limited, a joint ventureof Millicom in Cambodia, (ii) Royal Telecam International Limited, a jointventure of Millicom in Cambodia, (iii) Millicom Argentina S.A. (sold in September 2004),a former joint venture of Millicom in Argentina and (iv) ComunicacionesCelulares S.A., a joint venture of Millicom in Guatemala. The impact ofadopting FIN 46R is disclosed in Note 37 to the Consolidated FinancialStatements.

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**RISK FACTORS**

**Strategic Reviewand Possible Imminent Change of Control**

On January 19, 2006, our Board of Directorsannounced that following recent receipt of a high number of unsolicitedapproaches, the Board decided to conduct a review of strategic options for theCompany and appointed Morgan Stanley as financial advisor. As of the date offiling this Form 20-F, the strategic review is ongoing and sincethat announcement, the Company has solicited and received non-bindingoffers for the acquisition of the entire share capital of the Company. However,there is no certainty as to whether any of these offers will lead to atransaction, and, if any transaction is agreed, there is no certainty as to thetiming, structure or terms of any transaction.

Our stock price has increased significantly since theannouncement of the strategic review. If upon completion of the strategicreview, a transaction does not occur, it is not known how the markets willinterpret such an event and it is possible that the market reaction could causeour share price to decrease.

In the event that anytransaction does occur, it may result in the possible de-listing of the Companyfrom the NASDAQ National Market and the Stockholm Stock Exchange.

**Risks Relating toour Business**

*This report contains “forward looking” statements thatinvolve risks and uncertainties. Our actual results may differ significantlyfrom the results discussed in the forward looking statements. Factors thatmight cause such differences include those discussed below and elsewhere inthis report. See “Forward Looking Statements”.*

***Country Risks***

*We operate in somemarkets that are politically unstable, and this instability may negativelyaffect our operations.*

We have interests in mobile telephone licenses in 16countries around the world and are subject to government regulation in eachmarket. Most of the countries in which we operate are emerging economies andare, therefore, subject to greater political and economic risks than developedcountries. The governments of the 16 countries differ widely with respect totype of government, constitution and stability, and most of these countrieslack mature legal and regulatory systems. Some of the countries in which weoperate are suffering from political instability and civil unrest, such as SriLanka and Chad currently, and these problems may continue, worsen or arise inthe future. As a result, we face the risk that our networks may be disrupted inparticular countries, which would adversely affect our revenues or results ofoperations.

In order for our operations to provide mobileservices, they must receive a license from the government of the countries inwhich they operate. Our ability to operate is dependent on the licenses grantedby the government of each country. These licenses generally allow ouroperations to operate for a number of years after which they are subject torenewal. To the extent that our operations depend on governmental approval andregulatory decisions, the operations may be adversely affected by changes inthe political structure or government representatives in the relevant market.For instance, if a government decides to revoke a license, our recourse is tothe legal system of the relevant country. Because the legal and court systemsof most countries in which we operate are not highly developed and are subjectto political influence and other inherent uncertainties, it might be difficultto obtain a fair or unbiased resolution. Recent political and economic changeshave resulted in political and regulatory uncertainty in certain countries inwhich we operate. There is also a risk that a country in which we operate mayarbitrarily decide to expropriate the assets of one of our operations, in whichcase it is possible that we will receive no adequate compensation for theexpropriation.

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In addition, some of the countries in which ouroperations operate have volatile economies. Downturns in the economies of anyparticular country, or of a region generally, may adversely affect demand forour services, which would result in reduced revenues.

*We have operationsin Iran and may exercise an option to acquire equity in an Iranian company,which may subject us to political and regulatory risk.*

In 2004, we entered into agreements with RafsanjanIndustrial Complex Islamic Cooperative Company (RIC), an Iranian company, underwhich we manage a mobile telephone network in Iran developed and owned by RIC.

We are a non-U.S. company and our management contractin Iran is not subject to the Iran-Libya Sanctions Act of 1996 nor to otherU.S. restrictions on U.S. or non-U.S. companies operating in Iran althoughwe are subject to OFAC (U.S. Department of the Treasury—Office of ForeignAssets Control) regulations. We do not employ U.S. citizens or permanent U.S.residents in our Iranian business.

There have recently been discussions between theGovernment of Iran and representatives of the international community aboutIran’s nuclear research program and its potential application to nuclearweapons. It is possible that U.S. sanctions may be amended or further extendedor new regulations may be introduced by the U.S., the European Union, theUnited Nations or by any other country or international organization, with theeffect of prohibiting or adversely affecting our operations in Iran. Our onlycontractual obligation in Iran is to provide management services to the RIC, ata cost which is not expected to be material. We also have an option to acquireup to 47% of the equity in the Iranian company that will operate the network.If we were to exercise our option, we would acquire a substantial equityinvestment in an Iranian company. Any amendment or new regulation prohibitingor adversely affecting our operations in Iran or a dispute with therepresentatives of the Rafsanjan Industrial Complex or the Iranian governmentmay have a material effect on our results of operations.

*We operate in anumber of jurisdictions which may effect changes to their respective laws thatmay unfavorably affect our financial status.*

We hold interests in our mobile telephone companiesthrough our subsidiaries and affiliates in various jurisdictions in and outsideLuxembourg. The laws or administrative practices relating to taxation(including the current position as to withholding taxes on dividends from theoperations, and tax concessions in certain operations), foreign exchange orotherwise in these jurisdictions are periodically subject to change. Forinstance, countries may impose restrictions or other restraints on theconversion of local currencies and the transfer of funds or dividends by ourventure companies to our holding company in Luxembourg. For example, accordingto the rules of the State Bank of Pakistan there is a restriction on theamount of royalty fees that a Pakistani company can remit abroad. The limit is5% of annual net sales excluding sales tax, divided into two elements—technicalservice of 4.75% and royalty of 0.25% of net sales, in order to respect therestrictions imposed by the SBP. Any such change could have a material adverseeffect on our financial affairs and on our ability to receive funds from theventure.

*Most of ouroperations receive revenue denominated in the local currency of the venture’scountry of operation. In the future, any of the countries in which theseoperations are located may impose foreign exchange controls, which may restrictour ability to receive funds from the operations.*

Most of the operations in which we have interestsreceive substantially all of their revenues in the currency of the markets inwhich they operate. We derive substantially all of our revenues through fundsgenerated by the operations and, therefore, we rely on the ability of theoperations to transfer funds to the Company. Although there are foreignexchange controls in some of the countries in which our mobile telephonecompanies operate which could significantly restrict the ability of theseoperations to pay interest and dividends and repay loans by exporting cash,instruments of credit or securities in foreign currencies, we have experiencedno material difficulty in obtaining permits to allow our operations to 

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export cash to theCompany. This may not, however, always be the case in the future. In addition,in some countries, it may be difficult to convert large amounts of localcurrency into foreign currency because of limited foreign exchange markets. Thepractical effect of this are time delays in accumulating significant amounts offoreign currency. In addition, a few countries in which we operate restrict theexport of cash in local currencies. Additional foreign exchange controlrestrictions may be introduced in the future and the Company’s ability toreceive funds from the operations will subsequently be restricted.

*Currencyfluctuations or devaluations would reduce the amount of profit and assets thatwe are able to report.*

Exchange rates for currencies of the countries inwhich our operations operate fluctuate in relation to the U.S. dollar and suchfluctuations may have a material adverse effect on our earnings, assets or cashflows when translating local currency into U.S. dollars. For each venture thatreports in a currency other than the U.S. dollar, a decrease in the value ofthat currency against the U.S. dollar reduces our profits while also reducingboth our assets and liabilities. A relevant example is the devaluation of theGuarani in Paraguay in 2002 which had an adverse effect on the results of ouroperations. To the extent that our operations retain earnings or distributedividends in local currencies, the amount of U.S. dollars we receive isaffected by fluctuations of exchange rates for such currencies against the U.S.dollar. We generally do not hedge our foreign currency exposure. For the yearended December 31, 2005 we had an exchange gain of $ 52,446,000. For theyears ended December 31, 2004 and 2003, we had exchange losses of$26,782,000 and $45,649,000, respectively. These gain and losses were mainlydue to the exchange variation on the 5% Mandatory Exchangeable Notes denominatedin Swedish Krona.

*Our ability toreduce our foreign currency exposure may be limited by restrictions onborrowings in local currency.*

At the operations level, we seek to reduce our foreignexchange exposure arising from transactions through a policy of matching, asfar as possible, cash inflows and outflows. Where possible and financiallyviable, we borrow in local currency to help hedge against local currency netinflows. Our ability to reduce our foreign currency exchange exposure may belimited by restrictions on borrowings in local currency. For example, under theState Bank of Pakistan regulations in Pakistan, foreign controlled servicessector companies, such as our Pakistan operations, are required to meet certainfinancial ratios to engage in long-term borrowing in the local market. Pakteldoes not meet all applicable ratios but has received a waiver from the StateBank of Pakistan in respect of its borrowings for the initial phases of its GSMnetwork build-out. If we fail to meet the applicable requirements or obtain awaiver, we expect to finance the later stages of the build-out from cash flowsfrom operations, short-term borrowing or other financing arrangements. Also, wemay not be able to fund Paktel’s capital expenditure needs or reduce ourforeign exchange exposure by borrowing in local currency.

*Potential inflationin local economies may affect some customers’ ability to pay for our operations’services and it may also adversely affect the stability of the mobileoperations market in those countries.*

Our operations are dependent on the economies of themarkets in which we operate. These markets are in countries with economies invarious stages of development or structural reform, most of which are subjectto rapid fluctuations in terms of consumer prices, employment levels, grossdomestic product and interest and foreign exchange rates. These fluctuationsaffect the ability of customers to pay for our operations’ services. Inaddition, these fluctuations affect the ability of the market to support ourexisting mobile telephone interests or any growth in mobile telephoneoperations. Also, periods of significant inflation in any of our marketsadversely affects our costs and financial condition.

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*We are subject to foreign taxes in the countries inwhich we operate, which reduces amounts we receive from our operations or mayincrease our tax costs.*

Many of the foreigncountries in which we operate have increasingly turned to new taxes, as well asaggressive interpretations of current taxes, as a method of increasing revenue.In addition, the provisions of new tax laws may prohibit us from passing thesetaxes on to our local customers. Consequently, these taxes may reduce theamount of earnings that we can generate from our services.

***Risks Related to our Operations***

*We face intensecompetition in the mobile telephone operator market.*

The mobile systems in which we have interests facecompetition from other mobile telephone operators in the markets in which theyoperate as well as fixed line operators.

Additional licences will be granted in some of ourexisting markets. Moreover, additional licenses may be awarded in markets wherewe already face competition from other communications technologies that arebeing or may be developed and/or perfected in the future. In some of ourmarkets, there may be more mobile telephone operators than the market is likelyto sustain. In addition, in some of our markets, our competitors may have agreater coverage area than us, or both. The mobile telephone operators in eachmarket compete for customers principally on the basis of services offered,quality of service, coverage area and price. Many of our competitors havesubstantially greater capital resources than we do. Price competition issignificant.

In addition, new competitors, such as mobile and fixedline operators in developed markets that are able to leverage their existingnetworks, may enter emerging markets. The level of competition is influenced bythe continuous and swift technological advances that characterize the industry,the regulatory developments that affect competition and alliances betweenmarket participants.

There is also a risk that, as new competitors enterour markets and price competition intensifies, our customers may move toanother mobile telephone operator. This may result in our revenue declining,which would adversely affect our results of operations.

Any failure by us to compete effectively or aggressivecompetitive behavior by our competitors in pricing their services or acquiringnew customers could have a material adverse effect on our revenues and overallresults of operations.

*The mobiletelephone operations market is heavily regulated.*

The licensing, construction, ownership and operationof mobile telephone networks, and the grant, maintenance and renewal of mobiletelephone licenses, as well as radio frequency allocations and interconnectionarrangements, are regulated by national, state, regional or local governmentalauthorities in the markets that we service. In addition, such matters andcertain other aspects of mobile telephone operations, including rates chargedto customers and the resale of mobile telephone services, may be subject topublic utility regulation in the relevant market. Our operations also typicallyrequire governmental permits, including permits for the construction andoperation of cell sites. We do not believe that compliance with these permitrequirements generally has a material adverse effect on our company. However,we may become subject to claims or regulatory actions relating to any past orfuture noncompliance with permit requirements.

A number of regulators have, or are expected to,reduce interconnection rates. Because we are often one of the larger suppliersof mobile telephone services in the countries we service, this may have theeffect of reducing our revenue. Changes in the regulation of our activities,such as increased or decreased regulation affecting prices, the terms ofinterconnect arrangements with landline telephone networks or mobile operatorsor requirements for increased capital investments, may materially adverselyaffect us.

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*We face substantialcompetition for obtaining, funding and renewing mobile telephone licenses.*

We may pursue new license opportunities withinexisting financial guidelines and group-wide synergy potential. In each marketwe face competition for licenses from major international telecommunicationsentities as well as from local competitors. While we typically try not to paylarge amounts for mobile licenses, the competition for the granting or renewalof licenses is increasingly intense worldwide. As such, we anticipate that wemight have to pay substantial license fees in certain markets, as well as meetspecified network build out requirements. We may not be successful in obtainingor renewing any mobile telephone licenses or, if licenses are awarded, inobtaining those licenses on terms acceptable to us. If we obtain furtherlicenses or renew existing ones, we may need to seek future funding throughadditional borrowings or equity offerings, and we may not obtain such fundingon satisfactory terms or at all.

*Our markets arecharacterized by rapid technological change, which could render our productsobsolete and cause us to make substantial expenditures to replace our products.*

Fixed network and other system equipment used in themobile telephone industry have a limited life and must be replaced frequentlydue to damage or as a result of ordinary wear and tear. In addition,substantial expansion of existing networks is required to remain competitive.We are building out networks based on the GSM standard due to increasedcompetition from other GSM providers as well as the existing benefits ofmigrating to the GSM standard, including lower repair and maintenance costs,greater availability of handsets and increased functionality. Furthermore, asnew technologies develop, such as if our competitors were to introduce thirdgeneration systems, equipment may need to be replaced or upgraded or a mobiletelephone network may need to be rebuilt in whole or in part, at substantialcost, to remain competitive. Unforeseeable technological developments may alsorender our services unpopular with customers or obsolete. To the extent ourequipment or systems become obsolete, we may be required to recognize animpairment charge to such assets, which may have a material adverse effect onour results of operations.

*If we cannotsuccessfully develop and manage our networks, we will be unable to expand oursubscriber base and will lose market share and revenues.*

Our ability to increase our subscriber base dependsupon the success of the expansion and management of our networks. The build-outof our networks is subject to risks and uncertainties which may delay theintroduction of service in some areas and increase the cost of networkconstruction. To the extent we fail to expand our network on a timely basis, wemay experience difficulty in expanding our subscriber base. In addition, ourability to manage our operations successfully is dependent upon our ability toimplement sufficient operational resources and infrastructure. The failure orbreakdown of key components of our infrastructure, including our billingsystems, may have a material negative effect on our profits and results of operations.

*Rapid growth andexpansion may cause us difficulty in obtaining adequate managerial andoperational resources and restrict our ability to expand successfully ouroperations.*

Our futureoperating results depend, in significant part, upon the continued contributionsof key senior management and technical personnel. Management of growth willrequire, among other things:

·       stringentcontrol of network build-out and other costs;

·       continueddevelopment of financial and management controls and information technologysystems;

·       implementationof adequate internal controls;

·       hiringand training of new personnel; and

·       coordinationamong our logistical, technical, accounting, legal and finance personnel.

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Our success will also depend, in part, on our abilityto continue to attract, retain and motivate qualified personnel. Competitionfor personnel in our markets is intense due to the relatively small number ofqualified individuals. Our failure to manage successfully our growth andpersonnel needs may have a material negative effect on our business and resultsof operations.

*In some of ourmarkets our licenses and frequency allocations are subject to ongoing review,which may result in modification or early termination of licenses.*

While we would not usually expect any of our mobiletelephone companies to be required to cease operations at the end of the termof its business arrangement, license or permit, we cannot be sure that businessarrangements or licenses will be renewed on equivalent or satisfactory economicterms, or at all. A relevant example is the expiration of the BusinessCooperation Contract in Vietnam which expired on May 18, 2005 without anequivalent agreement having been found to date. Upon termination, the licenseand the assets of the mobile telephone company associated with the system mayrevert to the government or local telecommunications agency, in some caseswithout any, or adequate, compensatory payment being made to us.

*Our operations aredependent upon interconnection agreements and transmission and leased lines.*

Our operations are dependent upon access to networksnot controlled by us, primarily networks controlled by current or formergovernment owned public telecommunications operators or competing mobiletelephone operators. Our financial results are affected by the cost oftransmission and leased lines to effect interconnection. We may not be able tomaintain interconnection or leased line agreements on appropriate terms to maintainor grow our business. A number of regulators have, or are expected to, reduceinterconnection rates. Because we are often one of the larger suppliers oftelephone services in the countries we service, this could have the effect ofreducing our revenue.

*The currentconcerns about the actual or perceived health risks relating to electromagneticand radio frequency emissions, as well as the attendant publicity or possibleresultant litigation, may have a negative effect on the market price of ourshares, our financial position or the results of our operations.*

Media and other reports have suggested thatelectromagnetic and radio frequency emissions from mobile telephone handsetsand base stations may cause health problems, including cancer. There is also someconcern that these emissions may interfere with the operation of certainelectronic equipment, including aircraft, and automobile braking and steeringsystems. The actual or perceived risks relating to mobile communicationsdevices and base stations, or press reports about these risks, would adverselyaffect us, including by reducing our subscriber growth rate, subscriber base oraverage use per subscriber, and would have a negative impact on the marketprice of our shares. In addition, if a link between electromagnetic or radiofrequency emissions and adverse health concerns is demonstrated, governmentauthorities would increase regulation of mobile handsets and base stations as aresult of these health concerns. Mobile telephone operators, including us,would be held liable for costs or damages associated with these concerns. Anysuch regulation or litigation would also have a materially adverse effect onour financial position and results of operations.

*The agreement underwhich we conducted our operations in Vietnam, which was our largest contributorto revenue, expired on May 18, 2005. We hope to replace this agreementwith an equity interest in the operating company in Vietnam but there are noassurances that this will materialize or that the terms and conditions will beeconomically viable for us.*

In 1994, Comvik International Vietnam AB (“CIV”), inwhich we have an 80% interest, Kinnevik, and Vietnam Mobile Services Co. (“VMS”),a Vietnamese government-owned company, entered into a Business CooperationContract (“BCC”) to operate a nationwide mobile GSM system in Vietnam known asMobifone. The BCC provided for, among other things,50:50 revenue sharing between CIV and VMS.

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Our operation in Vietnam, CIV, which derived all ofits revenue from the BCC, was our largest contributor to revenue. The BCC had a10-year term from May 19, 1995 which expired on May 18, 2005.Upon final closure of the BCC, legal title to all equipment of the Vietnamoperation contributed by us will be transferred to VMS at a price of $1.

At the present time an extension of the BCC in form itwas in before it expired is not acceptable to the Vietnamese government. TheVietnamese government, in connection with steps by Vietnam to become a memberof the World Trade Organization, is under pressure to rapidly take steps toliberalize its economy. The Vietnamese government has announced its intentionto initiate an equitization of VMS, our former partner under the BCC. Once VMSis equitized, the Vietnamese government may open the equity to new investorsincluding foreign strategic investors. The opening of the telecommunicationssector to foreign investors may require changes in the Vietnamese legislation.In two Memoranda of Understanding dated February 4 and November 8,2004, respectively, VMS and CIV agreed to continue their business relationshipin the form of a joint stock company (“JSC”). Furthermore, in December 2004,the European Community and the government of the Socialist Republic of Vietnamentered into a market access agreement whereby European Union investors in thetelecommunications sector operating under a BCC arrangement would, subject toagreement between the parties, be allowed to renew or convert such arrangementinto another legal form with conditions no less favourable than those under theBCC.

CIV and VMS/VNPT (the Vietnam Posts andTelecommunications Corporation) are in the process of negotiating an agreementthat would allow CIV to become a shareholder of VMS once it is equitized.Although we believe that we may be able to extend our relationship with VMS in2006 under the legal form of a JSC, we have received no assurance from theVietnamese government as to when or whether such an agreement will be signed,nor do we know the terms and conditions of the agreement.

*Millicom hasentered into an agreement to sell Pakcom, its CDMA business in Pakistan, to itslocal partners. As part of the transaction, the litigation and arbitrationbetween Millicom and the partner will be withdrawn. The change of control of Pakcomis subject to regulatory approval which has not yet been received and there isa risk that approval may not be received. Therefore, there is a risk that the transactionmay not close.*

On March 20, 2006, Millicom signed an agreementto sell its shareholding in Pakcom, one of Millicom’s operations in Pakistan,to the Arfeen group for a nominal amount. As part of the agreement, Millicomalso sold 10% of Paktel, Millicom’s other operation in Pakistan to MillitelLimited, an entity controlled by the Arfeen group.

A disagreementarose during the third quarter of 2005 between Millicom and the localshareholders in Pakistan based on conflicting interpretations of a series ofagreements relating to Pakcom and Paktel signed in January and February 2004.Millicom and the local shareholders have been in negotiations since September 2005regarding a resolution of their disagreement and the sale of Millicom’s entireshareholding in Pakcom to the local shareholders. The disagreement led thelocal shareholders in December 2005 to bring two lawsuits in the Pakistancourts against Millicom and certain of its affiliates, requiring among otherthings specific performance of the transfer to them of 30% of Millicom’sshareholding in Paktel and damages in relation to the local shareholders’investment in Pakcom due to Millicom’s alleged mismanagement of and fraud inrelation to Pakcom. To defend themselves, Millicom and certain of itsaffiliates commenced arbitral proceedings against the local shareholders andcertain of their affiliates in February 2006 before the InternationalCourt of Arbitration of the International Chamber of Commerce in Paris, France.The negotations continued and resulted in the signature on March 20, 2006of a series of agreements between Millicom and certain of its affiliates andthe local shareholders and certain of their affiliates to the effect that:

·       Thelocal shareholders agreed to acquire all of Millicom’s interest in Pakcom for asymbolic dollar, whereby Millicom agreed to pay off Pakcom’s outstandingexternal bank loans of approximately 

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$17 milllion and thelocal shareholders agreed to assume the balance of the license obligations,including the payment of the license instalment of approximately $14.5 million,plus late interest thereon, due by Pakcom since mid-October 2005.

·       Thelocal shareholders agreed to acquire 10% of Paktel and would obtain no rightsother than what Pakistan company law provides for 10% shareholders.

·       Thelocal shareholders and Millicom agreed to terminate and withdraw the lawsuitsand arbitration proceeding they have brought against each other and terminateall of the existing agreements ever entered into among them in relation toPaktel and Pakcom, including the January and February 2004agreements.

The closing of the above transaction is subject toregulatory approval by the Pakistan Telecommunications Authority (PTA) of thechange of control in Pakcom. There is no indication as to when the approvalwill be received. We have been informed that the PTA is seeking additionalcomfort that the local shareholders will be financially able to assume thepayment of the overdue license instalment and of the remaining payments underPakcom’s license.

If the transaction closesand 10% in Paktel is sold to the Arfeen group, Millicom will retain fullmanagement and operational control of Paktel.

***General Risks***

*Our ability togenerate cash depends on many factors beyond our control.*

Our ability to generate cash is dependent on ourfuture operating and financial performance. This will be affected by ourability to implement successfully our business strategy, as well as generaleconomic, financial, competitive, regulatory, technical and other factorsbeyond our control. If we cannot generate sufficient cash, we may, among otherthings, need to refinance all or a portion of our debt, obtain additionalfinancing, delay capital expenditures or sell assets. This could impact theoperating performance of our business.

*Our debt may havean adverse effect on our financial health and prevent us from fulfilling ourobligations under such debt.*

As of December 31, 2005, Millicom’s totalconsolidated indebtedness was $1,232,623,000. Of this amount, $1,016,242,000represented the Company’s and Millicom Telecommunications S.A.’s indebtednessand $216,381,000 represented our consolidated share of the indebtedness of oursubsidiaries and joint ventures. As of December 31, 2005, $315,359,000 ofour indebtedness related to Millicom Telecommunications S.A.’s 5% MandatoryExchangeable Notes, which are mandatorily exchangeable into Tele2 AB B sharesand in respect of which no repayment in cash of principal is required. See “Operatingand Financial Review and Prospects—Description of Certain Indebtedness MillicomTelecommunications S.A.’s 5% Mandatory Exchangeable Notes”.

Corporate guarantees, cash deposits and standbyletters of credit (issued at our request and guaranteed by us) secured $119,124,000of the indebtedness of our operations at December 31, 2005. The Group’sshare of total debt and financing secured by either pledged assets, pledgeddeposits issued to cover letters of credit or guarantees issued by the Companyis $445,776,000.

We experienced liquidity concerns resulting from oursubstantial indebtedness in 2002. Although we implemented a restructuringprogram that improved our liquidity by reducing our overall indebtedness anddebt service obligations, we may incur additional indebtedness that may resultin liquidity concerns or other negative consequences in the future. In January 2005we issued 4% convertible bonds due 2010 for a total principal amount of$200 million.

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If we substantiallyincrease our level of indebtedness, it may have important negative consequencesfor us. For example, it may:

·       requireus to dedicate a large portion of our cash flow from operations to fundpayments on our debt, thereby reducing the availability of our cash flow tofund working capital, capital expenditures and other general corporatepurposes;

·       increaseour vulnerability to adverse general economic or industry conditions, thetermination of licenses or the loss of significant operations;

·       limitour flexibility in planning for, or reacting to, changes in our business or theindustry in which we operate;

·       limitour ability to raise additional debt or equity capital in the future orincrease the cost of such funding;

·       restrictus from making strategic acquisitions or exploiting business opportunities;

·       makeit more difficult for us to satisfy our obligations with respect to the notesand our other debt; and

·       placeus at a competitive disadvantage compared to our competitors who have lessdebt.

*Restrictionsimposed by the indentures governing our outstanding debt contain covenants thatlimit our ability to take certain actions.*

The indenturesgoverning our outstanding debt contain various covenants that limit ourflexibility in operating our business. For example, these agreements restrictthe ability of Millicom and certain of its subsidiaries to, among other things:

·       borrowmoney;

·       paydividends or make other distributions;

·       createliens;

·       makeasset dispositions;

·       makeloans or investments;

·       issueor sell share capital of our subsidiaries;

·       issuecertain guarantees;

·       enterinto transactions with affiliates; and

·       merge,consolidate, or sell, lease or transfer all or substantially all of our assets.

The operating and financial restrictions and covenantsin these agreements may adversely affect our ability to finance our futureoperations or capital needs, engage in other business activities that may be inour interest or to react to adverse market developments.

*Our ability toreceive funds from, and to exercise management control over, our operations isusually dependent upon the consent of our partners who are not under ourcontrol. Disagreements or unfavorable terms in the agreements governing ourjoint ventures may adversely affect our operations.*

We participate in 17 mobile operations in 16countries. Our participation in each operation differs from market to marketand we do not have a controlling interest in some operations. Often our abilityto withdraw funds, including dividends, from our participation in, and toexercise management control over our partners therein depends on receiving theconsent of the other participants. While the precise terms of 

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the arrangements vary, ouroperations may be negatively affected if disagreements develop with ourpartners.

We rely upon dividends and other payments from ouroperations to generate the funds necessary to meet the Company’s obligations,including the Company’s debt obligations. The operations are legally distinctfrom the Company and have no obligation to pay amounts due with respect to theCompany’s obligations or to make funds available for such payments. Ouroperations do not guarantee the Company’s obligations. The ability of ouroperations to make such payments to the Company will be subject to, among otherthings, the availability of funds, the agreement of our partners, the terms ofeach operation’s indebtedness and local law. The majority of our operationshave entered into financing facilities, most of which are guaranteed by theCompany, many of which restrict and some of which prohibit the payment ofdividends by those operations to the Company. Claims of creditors of our operations,including trade creditors, will generally have priority over our claims and theholders of our indebtedness. At December 31, 2005, the consolidated debtand other financing of our operations was $626,410,000 (including tradecreditors, non-current and current license payables).

*Certain insidersown significant amounts of our shares, giving them a substantial amount ofmanagement control.*

As of April 28, 2006, Kinnevik and subsidiaries,together with the non-independent directors, the Stenbeck estate, and certainStenbeck Trusts, beneficially owned about 40.34% of the outstanding shares ofour common stock. Kinnevik and its affiliates, having a significant ownershipin Millicom, have significant influence over our management and affairs. Theinfluence that they have may not always be consistent with your interests.

*A substantialnumber of our directors hold positions with Kinnevik or Tele2 AB, which maypresent conflicts that may be resolved in a manner unfavorable to us.*

Four Millicom board members hold or held executivepositions with Kinnevik, our largest shareholder. Cristina Stenbeck, a memberof our Board of Directors, is also Vice Chairwoman of the Board of Directors ofKinnevik and subsidiaries. In addition, a number of our directors holdexecutive positions with or are directors of Tele2 AB, a pan-Europeantelecommunications company offering fixed and mobile telephony, as well as datanetwork and Internet services. Tele2 AB is controlled by Kinnevik and certainof its affiliates. These positions may create, or appear to create, potentialconflicts of interest when these directors are faced with decisions that mayhave different implications for us, Kinnevik or Tele2 AB. There is a risk thatthese conflicts may ultimately be resolved in a manner unfavorable to us.Moreover, a portion of certain of our directors’ and officers’ time is spent onmatters relating to Kinnevik and Tele2 AB, and not us. While it is the currentconsensus and has been the practice to date that we have the initial right toconsider any telecommunications opportunity that arises in the emergingnon-European markets that we target, there is no contractual arrangement to thiseffect among us, Kinnevik and Tele2 AB and we may in fact not receive suchright of first refusal over any such business opportunity.

*Due to theinsufficient equity of the parent holding company, there is a risk ourshareholders may vote not to continue our business.*

Under Luxembourg company law, when the parent holdingcompany has accumulated losses equal to or greater than half of the amount ofits issued share capital, a shareholders’ meeting must be convened for theshareholders to determine whether to dissolve the company or to continue thebusiness. Although the audit of our Luxembourg statutory 2005 accounts has notyet been completed, as of December 31, 2005, we may have accumulatedlosses on a parent company stand-alone basis equal to more than half oursubscribed share capital. If this is the case, the shareholders will vote onwhether to continue or dissolve our operations at the annual shareholders’meeting on May 30, 2006. At such shareholders’ meeting a quorum of 50% of theshareholders must be present or represented to consider a resolution toliquidate or 

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continue the company. Ifthere is no quorum at the initial shareholders’ meeting, a second meeting mustbe convened at which no quorum is required. We consider it remote that theshareholders will vote to dissolve the company in the event accumulated lossesdo make up half or more than the amount of our issued share capital.

*U.S. investors willbe subject to special tax rules if we are considered to be a passiveforeign investment company.*

Special U.S. tax rules apply to U.S. taxpayerswho own stock in a “Passive Foreign Investment Company,” or “PFIC”, or in a “ForeignPersonal Holding Company,” or “FPHC”. We may be or may become, a PFIC. Ourstatus under the PFIC rules for each year depends upon our income andassets from time to time during that year. Our substantial investments inassociated companies’ securities and other “passive assets” result in a riskthat we are a PFIC or may become a PFIC in the future. If we are determined tobe a PFIC, then shareholders who are U.S. persons under U.S. tax laws will besubject to specific unfavorable tax rules.

*The ability ofinvestors to enforce civil liabilities under U.S. securities laws may belimited.*

We are incorporated under thelaws of the Grand Duchy of Luxembourg (European Union). Most of our directorsand executive officers are residents of Luxembourg or other countries otherthan the United States. Most or a substantial portion of our assets and thoseof most of our directors and executive officers are located outside the UnitedStates. As a result, it may not be possible for investors in our securities toeffect service of process within the United States upon such persons or upon usor to enforce in U.S. courts or outside the United States judgments obtainedagainst such persons outside the United States. In addition, it may bedifficult for investors to enforce, in original actions brought in courts injurisdictions located outside the United States, liabilities predicated uponthe civil liability provisions of the U.S. securities laws. We have beenadvised by our Luxembourg counsel, Allen & Overy, that the UnitedStates and Luxembourg do not have a treaty providing for reciprocal recognitionand enforcement of judgments in civil and commercial matters. Therefore, afinal judgment for the payment of money rendered by a federal or state court inthe United States based on civil liability, whether or not predicated solelyupon United States federal securities laws, is not enforceable in Luxembourg.However, if the party in whose favor such final judgment is rendered brings anew suit in a competent court in Luxembourg, the party may submit the finaljudgment that has been rendered in the United States to a Luxembourg court forthe purpose of recognition by such court and enforcement in Luxembourg. Ajudgment by a federal or state court of the United States against us will beregarded by a Luxembourg court only as evidence of the outcome of the disputeto which such judgment relates, and a Luxembourg court may choose to rehear thedispute.

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**ITEM 4—INFORMATIONON THE COMPANY**

**Background**

***Overview***

We are a global mobiletelecommunications operator with operations in the world’s emerging marketsover which we typically exercise management and voting control. Our strategy ofbeing a low cost provider, focused on prepaid services using mass marketdistribution methods, has enabled us to continue to pursue high growth whiledelivering operating profitability.

We have interests in 17mobile systems in 16 countries, focusing on emerging markets in CentralAmerica, South America, Africa, South Asia and South East Asia. As of December 31,2005, the countries where we had mobile operations had a combined population ofapproximately 390 million. This means that 390 million is the numberof people covered by our licenses, representing the number of people who couldreceive mobile services under the terms of our licenses if our networks coveredthe entire population. Our total subscribers reached 8.9 million(7.7 million on attributable basis) as of December 31, 2005.

Our markets are attractivefor mobile services due to low fixed and mobile penetration. Usage of mobileservices has historically been low in the countries in which we operate due topoor or insufficient infrastructure, the high costs of such services and lowlevels of disposable income. We believe there is a significant opportunity forfurther growth of mobile services in our markets due to the reduction in thecost of providing mobile services to the consumer, and due to rising disposablepersonal income levels.

***Summary ofHighlights and recent developments***

In January 2005Millicom issued an aggregate principal amount of $200 million of 4%Convertible Bonds due 2010 convertible into Ordinary Shares and/or SDRs. Thenet proceeds of the offering were paid on January 7, 2005 in the amount of$195,875,000.

On April 18, 2005Pakcom reached agreement with the Pakistan Telecommunications Authority (PTA)for the renewal of its license for 15 years. The license is for CDMAservices. The payment terms are similar to those agreed in 2004 by Paktel,Millicom’s other venture in Pakistan. Pakcom will pay a license fee of$291 million, of which 50% is payable over the first three years and theremaining 50% over 10 years. Pakcom is still in negotiations with the PTAregarding the allocation of the spectrum. The $14.5 million license feeinstalment due October 18, 2005 has not yet been paid by Pakcom. Millicomexecuted a series of agreements in relation to, among other things, the sale tothe local partner of its interest in Pakcom on March 20, 2006. The closingof such sale is pending subject to regulatory approval of the change of controlin Pakcom.

On May 25, 2005, theRafsanjan Industrial Complex Islamic Cooperative Company (RIC) launched itsnetwork in Iran. We have a management contract to operate the network for twomillion prepaid subscribers. The network is owned by RIC under a build, operateand transfer contract between RIC and Telecommunication Company of Iran (“TCI”).Millicom has an option to acquire 47% of the joint stock company expected to beformed between RIC and us and that will operate the network.

On May 26, 2005Millicom announced the acquisition of additional shares of its subsidiaryTelefonica Celullar S.A (“Celtel”) in Honduras from Motorola, Inc.,bringing Millicom’s ownership to two thirds of the total outstanding shares inCeltel. Motorola divested  its entireequity stake in Celtel. The remaining Motorola stake in Celtel was acquired bylocal minority shareholders.

On September 13,2005, the Group acquired 100% control of the voting shares of Oasis SPRL (“Oasis”),a mobile operation in the Democratic Republic of Congo. Millicom expects tocomplete the allocation of the purchase price to the assets acquired,liabilities assumed, and contingent liabilities in the second quarter of 2006.

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On October 17, 2005 Millicom launched its networkin Chad. Services are available in the capital city of N’Djamena and will berolled out to 6 other major cities.

On November 21, 2005, Millicom reached anagreement with its former partner to cancel a call option on a 30% equityinterest in Millicom Ghana Limited.

On January 16, 2006, Millicom delisted its equityshares from the Luxembourg stock exchange.

On January 19, 2006 Millicom announced that itsBoard had received a high number of unsolicited approaches and that the Boardhad decided to conduct a review of the strategic options for the Company. Itappointed a financial advisor in this respect. The strategic review is ongoingas of April 28, 2006 and may be concluded imminently either by the end ofthe negotiations or a transaction with a bidder.

On January 23, 2006, Millicom purchased theremaining 15.6% ownership interest in Millicom Tanzania Limited, its operationin Tanzania, in which Millicom now has a 100% ownership.

On February 1, 2006, Millicom completed thepurchase of the 30% ownership interest of its local partner in Millicom (SierraLeone) Limited.

On February 27, 2006, Millicom’s subsidiary inSri Lanka, Celltel, extended the term of its mobile license in Sri Lanka until2018 at a cost of approximately US$4 million.

On March 14, 2006, Millicom purchased theremaining 25% ownership interest of its local partner in Sentel GSM, itsoperation in Senegal in which Millicom now has a 100% ownership.

On March 20, 2006, Millicom signed an agreementto sell its shareholding in Pakcom one of Millicom’s two operations inPakistan, to the Arfeen group for a nominal amount. As part of the agreement,Millicom also agreed to sell 10% of Paktel, Millicom’s other operation inPakistan to Millitel Limited, an entity controlled by the Arfeen group. Thechange of control in Pakcom in subject to regulatory approval and, unless suchapproval is obtained, the overall transaction may not close.

In April 2006,Millicom signed an agreement to purchase the remaining 4% ownership interest inTelecel Paraguay, its operation in Paraguay, in which Millicom now has 100%ownership. The closing of the transaction is subject to local regulatoryapproval.

***Strategy***

Our strategy is tooperate with the lowest possible cost base from which we can offer the consumerbetter value for money through lower tariffs and better quality network anddistribution. We believe that, given the low mobile penetration in our markets,we can continue to achieve significant growth in our subscriber base whilecontinuing to improve our operating margins and cash flows by rolling out ournew Tigo brand across most operations and by focusing on the three ‘A’s:

·       *Affordability*—means having low prices and prepaid paymentterms in small denominations so that our services are suitable for the lesswell off. This is vital in order to increase penetration and increase the rateof Millicom’s subscriber acquisition and minutes of use.

·       *Accessibility*—means providing easy access to prepaidservices, whether by scratchcards or by the new e-PIN, which enables customersto top-up over the air. Millicom has over 170,000 distribution outlets whichplaces it far ahead of all of its competitors in providing greateraccessibility to and visibility of its prepaid services.

·       *Availability—*means having an extensive network withsufficient capacity so that mobile services are available at all times.Millicom has invested substantially in its networks installing GSM and morerecently GPRS and EDGE, and taking these networks out into rural as well as theurban areas.

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*Focusing on growth.*   Webelieve there is a significant opportunity for rapid growth in our markets dueto low mobile penetration in economies with high growth potential andsubstantial pent up demand for basic voice telephony services. We believe wecan grow our subscriber base and revenue by continuing to focus on prepaidservices while controlling costs and maintaining our position with postpaidcustomers. We will also continue to invest in our existing mobile operations,where we believe we can generate attractive returns. In addition, we intend toincrease our equity ownership in our operations through opportunistic buy-outsof local partners. We may participate in consolidation within our marketsthrough the careful evaluation, selection and pursuit of strategic opportunities.We may pursue new license opportunities in our adjacent markets within existingfinancial guidelines and offering group-wide synergy potential.

*Improving costefficiencies and capturing synergies.*   Wecontinue to seek ways to further reduce our cost base by rationalizing ouroperations since initiating, in 2002, a stricter centralized cost reductionprogram across our operations, which lowered our costs and which we continue toapply today. In addition, we expect to realize additional synergies across ouroperations, such as sharing of information, human resources, best practices andtechnologies and centralized negotiations of financing and of supply contractsfor network and equipment handsets.

*Benefit from migration tothe GSM standard.*   In 2005, we completed themigration of all of our operations to GSM networks. The equipment costsrelating to GSM have decreased significantly over the last few years. GSM hasincreased our revenues and returns by enabling us to introduce new value-addedservices and roaming services while lowering our infrastructure and maintenancecosts. GSM also offers our customers greater choice of handsets at a lower costwith improved functionality.

*Sales, marketing anddistribution.*   Wepursue low-cost, innovative and high-impact approaches to sales, marketing anddistribution. In the majority of our markets, we typically are not involved inthe distribution of handsets and typically do not provide handset subsidies forour prepaid subscribers. As a result, we have low overall subscriberacquisition costs. In addition, we are focused on strengthening ourdistribution footprint and expanding our mass market customer reach bydistributing prepaid cards through mass market outlets such as localconvenience stores, newspaper stands and street vendors. In some of ourmarkets, we are also developing a number of non-traditional distributionchannels such as freelance distributors, including students and housewives.

In 2005, we alsointroduced E-pin, a system that allows making airtime recharges electronically.The main objective is to facilitate a mechanism for Airtime distribution inorder to complement the actual channels of distribution for prepaid cards.

Themain advantages are that:

·       Airtimecan be given at any denomination (starting at very low amounts),

·       Itfacilitates the distribution through new points of sale, and

·       Itis a safe option for distribution as it eliminates the handling of physicalinventory (prepaid cards); reduces inventory costs.

We believe that our focuson branded prepaid services and non-traditional distribution channels willenable us to expand our market share and reduce our operating costs. We focusour advertising on cost-effective promotions. Furthermore, we are in theprocess of rebranding almost all of our products to the new Tigo brand.

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***CompetitiveStrengths***

We believe that our competitive strengths will enableus to benefit from the increasing demand for the services provided by mobileoperators in emerging markets. Our competitive strengths include:

*Establishedprepaid operator.*   Our focus on prepaid mobileservices for the mass market offers the advantage of lower subscriberacquisition and operating costs, which results in higher margins and a fasteraverage payback time (on average, approximately three months). In addition, prepaidcustomers offer the advantage of eliminating bad debt, billing and collectioncosts. The introduction of prepaid mobile services has also opened up themarket for mobile services to customers who have previously been denied accessto mobile service. Increased demand for prepaid mobile services is also arisingfrom business users and those customers who purchase prepaid credits in orderto control their telephone costs, creating a new segment of the market.

*Deliveringprofitable growth.*   One of our key strengths isour ability to grow our businesses while enhancing our operating profitability.As the first or second operator in most of the markets in which we haveoperations, we have typically been able to acquire our licenses at low costwith minimum build-out requirements. We have consistently achieved strongsubscriber growth while decreasing subscriber acquisition costs through thecreation of well known, perceived price leading brands. Additionally, we havedeveloped an extensive distribution network at low cost that provides ourcustomers with broad service coverage, further leveraging our strong brandnames in most of our operations. The use of handset subsidies is not part ofour prepaid strategy.

*Trackrecord of innovation.*   We believe that innovationis another key to our success. In nearly all of our markets, we were the firstto launch branded prepaid mobile services, which now predominate in ourmarkets. We have been the first to focus on non-traditional distribution channelsto increase our mass market prepaid customer reach in our markets. For example,we have used freelance distributors, such as street vendors, and sold prepaidcards in mass market outlets, which has reduced our sales and marketing costs.In addition, because we focus on prepaid services and low costs, we believe weare perceived as a price leader.

*Lowoperating costs and high capital efficiencies.*   Wehave established service in markets that we believe offer high potentialfinancial returns and substantial operational leverage. While we have alwayshad a strategy to control costs, we initiated a stricter centralized costreduction program for all of our operations in 2002 that we continue to applytoday. We operate sizeable networks covering areas of the highest populationand business activity. Any future build out of our network infrastructure willbe demand driven. In addition, our migration to GSM will lower our investmentper capacity minute with faster payback. Historically, our operations havegenerated an operating profit before depreciation and amortization within 12 to18 months of start up.

*Integratedstrategy.*   We have rigorously pursued the manysynergies inherent in our multi country operations and the increasing scale inour existing markets. Such synergies include sharing information and bestpractices about services, human resources, technologies and market strategies;centralized negotiation of financing and of supply contracts for network andsubscriber equipment; and rolling out a single brand, Tigo, to most operations.For example, our operation in Laos has been able to draw on the operational andmanagerial experiences and resources of our operations in Cambodia, whichallows us to operate in Laos with a low cost base.

*Diversifiedoperations.*   We believe our 17 operations in 16countries on three continents provide a balance of established cash flowgeneration and high-growth potential. Our diversification across countries andcontinents also lessens our exposure to unfavorable changes in a single marketor currency. For example, we have continued to grow our total subscriber baseand operating profitability over the last years despite increased competitionin Pakistan and the expiry of our BCC contract in Vietnam.

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*Highly skilled seniormanagement.*   Our highly skilled senior managementcombines the extensive experience of senior managers from thetelecommunications industry with experienced executives from the fast-movingconsumer goods sector, whom we recruited over the last years. Many of our seniorexecutives have spent more than 10 years working in emerging markets andhave demonstrated their ability to manage costs while rapidly growing thebusiness and to start up and successfully integrate new businesses.

***License Acquisition***

As we established an early presence in most of themarkets in which we operate, we have been able in most cases to secure ourlicenses at low cost. Historically, we have been successful in renewing ourmaturing licenses, generally on terms similar to the original licenses, althoughwe may not be able to do so in the future. In some cases, we operate withprominent local business partners through companies over which we typicallyexercise management control.

In obtaining our licenses, we generally establish aventure with one or more prominent local business partners to apply for amobile telephone license. We consider that the selection of the local partner,the technical and financial expertise that we provide to the licenseapplication and our successful track record as an international provider ofmobile telephone services are the critical factors for a successful licensebid. In most cases, the local partner is instrumental in obtaining the licenseand maintaining contact with the local telecommunications agency, post office,or relevant government department or otherwise plays an important role inensuring the success of the venture. In some markets, after the award of thelicense, the local partner continues to take an active interest in themanagement of the venture.

Licenses are generallysought through a competitive application process in which the license isawarded on the merits of the application. We generally avoid cash auctions formobile telephone licenses. In some cases, our operations pay royalties onrevenue or income to governments, and all of our mobile operations payinterconnection fees to other telecommunications operators during the licenseperiod. Although the pursuit of mobile telephone licenses is usually highlycompetitive, our venture companies have been successful in obtaining licensesin preference to other license applicants whose participants often includedmajor international telecommunications companies.

***Management Structure***

The Millicom management team is based out ofLuxembourg and is led by the Chief Executive Officer, Marc Beuls who hasoverall responsibility for the business. The Chief Financial Officer, DavidSach, looks after the financial, administrative and accounting areas and theChief Operating Officer, Mikael Grahne, is responsible for managing andcoordinating the day-to-day operations.

We operate in five majorgeographic regions of the world: Central America, South America, Africa, SouthAsia and South East Asia. We manage these regional operations through fivecluster managers, each of whom is responsible for between two to sevencountries. Each cluster manager reports directly to Millicom’s Chief OperatingOfficer. We believe this structure allows us to maintain a high degree ofcoordination, cooperation and cross sharing of information among the variouscluster managers while providing a degree of regional responsibility thatensures quick and effective decision making.

**The Industry**

***Mobile Telephone Industry Overview***

*MobileTelephone Technology.**  *Mobiletelephone systems are capable of providing high quality, high capacity voiceand data communications to and from vehicle-mounted and hand-heldradiotelephones. Mobile telephone systems are capable of handling thousands ofcalls at any one time and providing service to hundreds of thousands ofsubscribers in any particular area.

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Mobile telephone technology is based upon the divisionof a given geographical area into a number of cells and the simultaneous use ofradio channels in non-contiguous cells within the system. Each cell contains alow power transmitter/receiver at a base station that communicates by radiosignal with mobile telephones in that cell. Each cell is connected byfixed-line or microwave to a central switching point or Mobile Switching Center(“switch”) that controls the routing of calls and which, in turn, is connectedto the public switched telephone network. It is the switch mobility softwarethat allows mobile telephone users to move freely from cell to cell whilecontinuing their calls through a process called hand-off.

Mobile telephone systems generally offer subscribersthe features offered by the most up-to-date fixed-line telephone services.Mobile telephone systems are interconnected with both the fixed-line telephonenetwork and other mobile networks. As a result, subscribers can receive andoriginate local, long-distance and international calls from their mobiletelephones. Mobile telephone system operators therefore require an interconnectarrangement with the local fixed-line telephone companies and/or other mobilenetwork operators, and the terms of such arrangements are material to theeconomic viability of the system.

A mobile telephone system’s capacity can be increasedin various ways. Increasing demand may be satisfied, in the first instance, byadding available channel capacity to cells through the addition of extratransmitters. When all available channels are used, further growth can beaccomplished through a process known as cell splitting. Cell splitting entailsdividing a single cell into a number of smaller cells, through the constructionof additional base stations, thereby allowing for greater channel reuse andhence increasing the number of calls that can be handled in a given area.

The Company uses analog and digital technologies thatare widely used throughout the world. GSM is a digital standard for mobiletelephone systems that the majority of European Union countries have adopted asa common standard. Commercial launch in several European countries commenced in1992. GSM offers increased value-added services and enables transmissionsto be made in encrypted form so that conversations cannot easily beintercepted. The GSM system allows subscribers to use their mobile telephonesin any country where the GSM system has been adopted and where appropriateroaming agreements were implemented, providing increased mobility andflexibility. GSM systems are being used in over 200 countries and territories.

Advanced Mobile Phone System (AMPS) is the analogstandard developed for and used in North America. Total Access CommunicationSystem (TACS), or Time Division Multiple Access (TDMA), is the system that wasthe most widely used in North and South America and works by dividing a radiofrequency into time slots and then allocating slots to multiple calls. TDMA isone of the world’s most widely deployed digital wireless systems and itprovides a common evolutionary path for analog AMPS networks. In the UnitedStates, a number of digital standards have been developed and are beingdeployed in existing AMPS networks. One of them is CDMA or Code DivisionMultiple Access, which is also popular in South America and in the Asia-Pacificregion. An enhanced version of CDMA is the technology used for the thirdgeneration mobile systems (3G) called WCDMA and CDMA2000 1X. What all 3Gnetworks have in common is that they support high data bandwidth applicationssuch as full motion video, video conferencing and full Internet access tomobile devices. Universal Mobile Telecommunications System (UMTS) is a type of3G mobile technology which allows, besides voice and data, the delivery ofaudio and video to wireless devices anywhere through fixed, wireless andsatellite systems.

*CompetingTechnologies.*   Some niche technologies areavailable for certain services. One of these technologies consist of Trunkingservices that are also deployed using radio communications with a celltechnology and allows mobility for the user, but that do not provide fullduplex communication among users. The latest limitation makes this service lessdesirable and low competition is observed. Another technology being deployed isPush to talk or Push over Cellular, that utilizes the mobile telephony networkcapability of handling data to allow a service similar to Trunking serviceusing more sophisticated mobile 

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handsets. These servicesare more complementary to mobile services than competitive as are deployed asan additional product within mobile services.

Some other voice technologies are gaining moreadherence like VoIP (Voice over Internet Protocol), that allows voicecommunication sending data packages with voice encapsulated over data networks.These services are increasing their presence to compete with fixed-lineservices and international calls rather than mobile services.

*OperatingCharacteristics.*   The mobile telephone industryis typically characterized by high fixed costs and low variable costs. Untiltechnological limitations on total capacity are approached, additional mobiletelephone system capacity can usually be added in increments that closely matchdemand and at less than the proportionate cost of the initial capacity. Theindustry has also seen declining equipment prices in real terms. Once revenuesexceed fixed costs, incremental revenues are expected to yield a highincremental operating profit, giving mobile telephone system operators anincentive to stimulate and satisfy demand for service in the market. The amountof profit, if any, under such circumstances is dependent on, among otherthings, prices and variable marketing costs, which, in turn, are affected bythe amount and extent of competition. As competition increases in markets,prices have fallen with the result that revenues and operating profits increaseat a lower rate than subscriber growth. In addition, as penetration ratesincrease there is a tendency for a higher proportion of new subscribers to useprepaid cards. Prepaid subscribers tend to have lower usage than creditsubscribers, however, the operating margin is generally higher than with creditsubscribers as the risk of bad debt is eliminated and there is no subsidizingof handsets.

As these services areusing radio spectrum, which are generally monitored and regulated by thecountry governments, the utilization of frequencies generally requires thatappropriate licenses are obtained from pertinent authorities. The granting oflicenses may involve significant fees, either paid as a fixed upfront amount oras variable charges.

***Development of the Mobile Telephone Industry***

*MobileTelephony in Developed Countries.**  *The first mobile telephone networkswere introduced in Scandinavia in the early 1980s and experienced modest growthfor the first few years. Over the last 10 years, however, mobile telephonyhas grown rapidly. All developed countries now have mobile telephone serviceand levels of penetration increased substantially in these countries. Worldwidesubscribers at December 31, 2005 were nearly 2.2 billion according toEMC.

Given the rapid growth of mobile telephone subscribersin developed countries and high levels of penetration, the industry isincreasingly introducing new technology that will expand capacity and improveservice, including the introduction of digital mobile telephone networks andthe ability to access the Internet from handsets. In industrialized nations,mobile operators are in the process of introducing “third generation” mobiletechnology that will permit always-on faster access to the Internet and voiceand data transmissions.

*MobileTelephony in Developing Countries.**  *While the mobile telephone industryis well-established in the developed world, the mobile telephone industry inthe developing world is still in its infancy. Millicom believes that mobiletelephony will continue to grow rapidly in developing countries because of thepoor quality of the existing fixed-line service, the unsatisfied demand forbasic telephone service and the increasing demand from users who want theconvenience of mobile telephones. In some countries the mobile telephonenetwork provides significantly improved access to the local and internationalfixed-line network compared with the existing fixed-line service. In addition,developing countries are expected to benefit both from better technology andlower equipment costs than those at comparable stages of market development indeveloped countries. Penetration rates (the number of subscribers per 100people) are substantially lower in developing countries than in developedcountries. Consequently, Millicom believes that its markets offer high growthpotential.

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For developing countries, mobile telephone networkscan represent a faster and more cost-effective method of expandingtelecommunications infrastructure than traditional fixed-line networks.Fixed-line networks involve extensive outside infrastructure in the form ofburied or overhead cable networks, while mobile telephone networks require onlyminimal construction activities.

***Competitive Position in the Market***

Thefollowing table shows certain estimated information regarding Millicom’scompetitive position in each of its markets as at December 31, 2005. Thisinformation was compiled based on data provided by EMC, an independent mobilemarket research firm. Millicom operates in developing economies and markets andbelieves that the data research available in these countries is not alwaysaccurate, consistent or verifiable. Therefore, the information provided here isgiven in ranges of market share to indicate the relative size and marketposition of Millicom in comparison to its competitors.

| ** **                             | ** ** | **Estimated Range of**           | ** ** | ** **                        | ** ** | ** **                             | ** ** | **Estimated**      |       |
|----------------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|----------------------------------------|------------|--------------------|------------|
| ** **                             | ** ** | **Market Share Ranking**         | ** ** | ** **                        | ** ** | ** **                             | ** ** | **Market**         |       |
| ** **                             | ** ** | **at December 31, 2005(1)** | ** ** | ** **                        | ** ** | ** **                             | ** ** | **Position at**    |       |
| **Market**                             | ** ** | **Greater  than 50%**            | ** ** | **Between 25%  and 50%**          | ** ** | **Between 10%  and 25%**               | ** ** | **Less  than 10%** | ** ** | **December 31,  2005(1)** |   |
| **Central America**                    | ** ** | ** **                       | ** ** | ** **                        | ** ** | ** **                             | ** ** | ** **         | ** ** | ** ** | ** ** |
| El Salvador                            |       | —                           |       | Millicom America Movil Telefonica |       | —                                 |       | Digicel Intelfon   |       | 1 of 5 |   |
| Guatemala                              |       | —                           |       | America Movil Millicom            |       | Telefonica                             |       | —             |       | 2 of 3 |   |
| Honduras                               |       | Millicom                         |       | America Movil                     |       | —                                 |       | —             |       | 1 of 2 |   |
| **South America**                      | ** ** | ** **                       | ** ** | ** **                        | ** ** | ** **                             | ** ** | ** **         | ** ** | ** ** | ** ** |
| Bolivia                                |       | —                           |       | Millicom   Movil de Entel         |       | Nueva Tel                              |       | —             |       | 2 of 3 |   |
| Paraguay                               |       | —                           |       | Millicom Telecom Italia           |       | Vox                                    |       | America Movil      |       | 1 of 4 |   |
| **Africa**                             | ** ** | ** **                       | ** ** | ** **                        | ** ** | ** **                             | ** ** | ** **         | ** ** | ** ** | ** ** |
| Chad                                   |       | Celtel                           |       | Millicom                          |       | —                                 |       | —             |       | 2 of 2 |   |
| DR Congo                               |       | Celtel                           |       | Vodacom                           |       | —                                 |       | CCT  Millicom      |       | 4 of 4 |   |
| Ghana                                  |       | Investcom                        |       | —                            |       | Millicom Ghana Telecom                 |       | Kasapa             |       | 2 of 4 |   |
| Mauritius                              |       | Mauritius Telecom                |       | Millicom                          |       | —                                 |       | —             |       | 2 of 2 |   |
| Senegal                                |       | France Telecom                   |       | Millicom                          |       | —                                 |       | —             |       | 2 of 2 |   |
| Sierra Leone                           |       | Celtel                           |       | Comium                            |       | Millicom                               |       | Africell           |       | 3 of 4 |   |
| Tanzania                               |       | —                           |       | Vodacom   Celtel                  |       | Millicom                               |       | Zantel             |       | 3 of 4 |   |
| **South Asia**                         | ** ** | ** **                       | ** ** | ** **                        | ** ** | ** **                             | ** ** | ** **         | ** ** | ** ** | ** ** |
| Pakistan—Pakcom                   |       | Orascom                          |       | —                            |       | Ufone   Warid                          |       | Millicom Telenor   |       | 6 of 6 |   |
| Pakistan—Paktel                   |       | Orascom                          |       | —                            |       | Ufone   Warid                          |       | Millicom Telenor   |       | 5 of 6 |   |
| Sri Lanka                              |       | Malaysia Telecom                 |       | —                            |       | Millicom   Sri Lanka Telecom |       | Hutchison          |       | 2 of 4 |   |
| **South East Asia**                    |       |                             |       |                              |       |                                   |       |               |       |   |   |
| Cambodia                               |       | Millicom                         |       | —                            |       | Shinawatra Casacom                     |       | Camtel             |       | 1 of 4 |   |
| Lao People’s  Democratic Republic |       | Lao Telecom                      |       | —                            |       | ETL   Millicom                         |       | LAT                |       | 3 of 4 |   |

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(1)           Based on number of subscribers. Source:EMC, an independent cellular market research firm.

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**Operations**

***Description of operations***

Descriptions of each of our operations and otherrelated businesses are provided below. The description of our mobile operationshas been divided into the following sub-sections:

*Central America*—Millicom’s mobileoperations in Central America, comprising El Salvador, Guatemala and Honduras.

*South America*—Millicom’s mobileoperations in South America, comprising Bolivia and Paraguay.

*Africa*—Millicom’s mobileoperations in Africa, comprising Chad, Democratic Republic of Congo, Ghana,Mauritius, Senegal, Sierra Leone and Tanzania.

*South Asia*—Millicom’s mobileoperations in South Asia, comprising Pakistan and Sri Lanka and the managementcontract in Iran.

*South East Asia*—Millicom’s mobileoperations in South East Asia, comprising Cambodia and Lao People’s DemocraticRepublic, and the terminated BCC in Vietnam.

Thetable below sets forth our revenue by geographical segment, in percent of totalrevenues, for the periods indicated.

| ** **      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------|------------|----------|------------|----------|------------|----------|------------|
| Central America |       |     | 42         | %        |       |     | 34         | % |   |   | 27 | % |   |
| South America   |       |     | 13         | %        |       |     | 12         | % |   |   | 15 | % |   |
| Africa          |       |     | 19         | %        |       |     | 16         | % |   |   | 13 | % |   |
| South Asia      |       |     | 11         | %        |       |     | 12         | % |   |   | 16 | % |   |
| South East Asia |       |     | 15         | %        |       |     | 25         | % |   |   | 27 | % |   |
| Other           |       |     | 0          | %        |       |     | 1          | % |   |   | 2 | % |   |
| Total           |       |     | 100        | %        |       |     | 100        | % |   |   | 100 | % |   |

 

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***Subsidiaries and their Market Presence***

Thefollowing table shows certain information for each of Millicom’s mobileoperations as at December 31, 2005.

| **Market**                        | ** ** | ** **                           | ** ** | **Company Name** | ** ** | **Ownership** | ** ** | **Method of  Consolidation(1)** | ** ** | **Start-Up  Date** | ** ** | **Estimated  Population  of Area  under  License(2)** | ** ** | **Mobile  Penetration  as of  December 31,  2005(3)** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|-----------------------|------------|---------------|------------|--------------------------------------|------------|--------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                        | ** ** | ** **                           | ** ** | **(percent)**         | ** ** | ** **    | ** ** | ** **                           | ** ** | **(millions)**     | ** ** | **(percent)**                                              | ** ** |
| **Central  America**              | ** ** | ** **                           | ** ** |                  | ** ** | ** **    |       |                                 | ** ** | ** **         |       |                                                       | ** ** | ** **                                                      |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| El Salvador                       |       | Telemóvil  El  Salvador SA      |       |                  | 100.0      | %             |       |                                 | S          | ** **         |       |                                                       | 1993       | ** **                                                      |       |   | 6.7 | ** ** |   |   | 33.7 | % |   |
| Guatemala                         |       | Comunicaciones  Celulares SA         |       |                  | 55.0       | %             |       |                                 | JV         | ** **         |       |                                                       | 1990       | ** **                                                      |       |   | 12.8 | ** ** |   |   | 32.5 | % |   |
| Honduras                          |       | Telefónica  Cellular SA         |       |                  | 66.7       | %             |       |                                 | JV         | ** **         |       |                                                       | 1996       | ** **                                                      |       |   | 7.0 | ** ** |   |   | 16.2 | % |   |
| **South  America**                | ** ** | ** **                           | ** ** |                  | ** ** | ** **    |       |                                 | ** ** | ** **         |       |                                                       | ** ** | ** **                                                      |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Bolivia                           |       | Telefonica  Celular  de Bolivia SA   |       |                  | 100.0      | %             |       |                                 | S          | ** **         |       |                                                       | 1991       | ** **                                                      |       |   | 8.9 | ** ** |   |   | 27.6 | % |   |
| Paraguay                          |       | Telefonica  Celular  del Paraguay SA |       |                  | 96.0       | %             |       |                                 | S          | ** **         |       |                                                       | 1992       | ** **                                                      |       |   | 6.3 | ** ** |   |   | 24.2 | % |   |
| **Africa**                        | ** ** | ** **                           | ** ** |                  | ** ** | ** **    |       |                                 | ** ** | ** **         |       |                                                       | ** ** | ** **                                                      |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Chad                              |       | Millicom  Tchad S.A.                 |       |                  | 87.5       | %             |       |                                 | S          | ** **         |       |                                                       | 2004       | ** **                                                      |       |   | 9.8 | ** ** |   |   | 3.4 | % |   |
| DR of Congo                       |       | Oasis  S.P.R.L                       |       |                  | 100.0      | %             |       |                                 | S          | ** **         |       |                                                       | 2005       | ** **                                                      |       |   | 60.1 | ** ** |   |   | 4.7 | % |   |
| Ghana                             |       | Millicom  (Ghana)  Limited           |       |                  | 100.0      | %             |       |                                 | S          | ** **         |       |                                                       | 1992       | ** **                                                      |       |   | 21.0 | ** ** |   |   | 12.2 | % |   |
| Mauritius                         |       | Emtel  Limited                       |       |                  | 50.0       | %             |       |                                 | JV         | ** **         |       |                                                       | 1989       | ** **                                                      |       |   | 1.2 | ** ** |   |   | 48.9 | % |   |
| Senegal                           |       | Sentel  GSM, S.A.                    |       |                  | 75.0       | %             |       |                                 | S          | ** **         |       |                                                       | 1999       | ** **                                                      |       |   | 11.1 | ** ** |   |   | 14.1 | % |   |
| Sierra Leone                      |       | Millicom  (SL)  Limited              |       |                  | 100.0      | %             |       |                                 | S          | ** **         |       |                                                       | 2001       | ** **                                                      |       |   | 6.0 | ** ** |   |   | 5.0 | % |   |
| Tanzania                          |       | Millicom  Tanzania  Limited          |       |                  | 84.4       | %             |       |                                 | S          | ** **         |       |                                                       | 1994       | ** **                                                      |       |   | 36.8 | ** ** |   |   | 7.9 | % |   |
| **South  Asia**                   |       |                                 |       |                  |       |          |       |                                 |       | ** **         |       |                                                       |       | ** **                                                      |       |   |   | ** ** |   |   |   |   |   |
| Pakistan—Pakcom              |       | Pakcom  Limited                      |       |                  | 61.3       | %             |       |                                 | S          | ** **         |       |                                                       | 1990       | ** **                                                      |       |   | — | ** ** |   |   | 12.2 | % |   |
| Pakistan—Paktel              |       | Paktel  Limited                      |       |                  | 98.9       | %             |       |                                 | S          | ** **         |       |                                                       | 1990       | ** **                                                      |       |   | 162.4 | ** ** |   |   | 12.2 | % |   |
| Sri Lanka                         |       | Celltel  Lanka  Limited              |       |                  | 99.9       | %             |       |                                 | S          | ** **         |       |                                                       | 1989       | ** **                                                      |       |   | 20.1 | ** ** |   |   | 17.0 | % |   |
| **South  East Asia**              |       |                                 |       |                  |       |          |       |                                 |       | ** **         |       |                                                       |       | ** **                                                      |       |   |   | ** ** |   |   |   |   |   |
| Cambodia                          |       | Cam  GSM  Company Limited            |       |                  | 58.4       | %             |       |                                 | JV         | ** **         |       |                                                       | 1997       | ** **                                                      |       |   | 13.6 | ** ** |   |   | 8.3 | % |   |
| Lao People’s  Democratic Rep |       | Millicom  Lao  Co. Ltd.              |       |                  | 74.1       | %             |       |                                 | S          | ** **         |       |                                                       | 2003       | ** **                                                      |       |   | 6.2 | ** ** |   |   | 7.7 | % |   |
| **Grand Total**                   |       |                                 |       |                  |       |          |       |                                 |       | ** **         |       |                                                       |       | ** **                                                      |       |   | **390** | ** ** |   |   |   |   |   |

----

(1)          JV = JointVentures. Under IFRS, joint ventures are consolidated using the proportionalmethod of accounting which combines our assets, liabilities, income andexpenses with our share of the assets, liabilities, income and expenses of thejoint ventures in which we have an interest. Millicom determines the existenceof joint control by reference to the joint venture agreements, articles of 

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association, structuresand voting protocols of the Boards of Directors, as well as the influence ithas over the day-to-day operations.

S = Subsidiary. Subsidiariesare entities over which we have control and are fully consolidated.

(2)          Source: U.S. CentralIntelligence Agency’s “The World Factbook” for 2005 except population data for Guatemalafor which the source is the National Institute of Statistics of Guatemala(INE).

(3)          Basedon number of subscribers. Source: EMC, an independent cellular market researchfirm.

***Selected Operating Data***

Thefollowing table presents, at the dates and for the periods indicated, selectedoperating data for each of Millicom’s mobile operations.

| ** **                             | ** ** | **As at December 31,** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|
| ** **                             | ** ** | **Total Subscribers**            | ** ** | **Prepaid Subscribers  as Percentage of  Total Subscribers** | ** ** |
| **Market**                             | ** ** | ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Central  America**                   | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| El Salvador                            |       | 738.980                               |       | 534,288 |   | 465,150 |   |   | 80 | % |   |   | 73 | % |   |   | 70 | % |   |
| Guatemala                              |       | 1,164,050                             |       | 672,734 |   | 596,078 |   |   | 91 | % |   |   | 86 | % |   |   | 84 | % |   |
| Honduras                               |       | 834,096                               |       | 490,014 |   | 351,285 |   |   | 92 | % |   |   | 87 | % |   |   | 83 | % |   |
| Subtotal Central  America              |       | 2,737,126                             |       | 1,697,036 |   | 1,412,513 |   |   | 88 | % |   |   | 82 | % |   |   | 79 | % |   |
| **South  America**                     | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Bolivia                                |       | 645,418                               |       | 414,088 |   | 334,319 |   |   | 96 | % |   |   | 95 | % |   |   | 93 | % |   |
| Paraguay                               |       | 692,321                               |       | 523,309 |   | 605,057 |   |   | 86 | % |   |   | 85 | % |   |   | 89 | % |   |
| Subtotal South  America                |       | 1,337,739                             |       | 937,397 |   | 939,376 |   |   | 91 | % |   |   | 89 | % |   |   | 91 | % |   |
| **Africa**                             | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Chad                                   |       | 91,159                                |       | — |   | — |   |   | 100 | % |   |   | — |   |   |   | — |   |   |
| DR Congo                               |       | 60,638                                |       | — |   | — |   |   | 100 | % |   |   | — |   |   |   | — |   |   |
| Ghana                                  |       | 448,438                               |       | 277,045 |   | 117,816 |   |   | 100 | % |   |   | 99 | % |   |   | 99 | % |   |
| Mauritius                              |       | 221,100                               |       | 167,565 |   | 136,620 |   |   | 91 | % |   |   | 89 | % |   |   | 89 | % |   |
| Senegal                                |       | 679,914                               |       | 339,884 |   | 206,506 |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |
| Sierra Leone                           |       | 29,606                                |       | 33,409 |   | 31,699 |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |
| Tanzania                               |       | 475,379                               |       | 302,712 |   | 168,863 |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |
| Subtotal Africa                        |       | 2,006,634                             |       | 1,120,615 |   | 661,504 |   |   | 99 | % |   |   | 98 | % |   |   | 97 | % |   |
| **South  Asia**                        | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Pakistan—Pakcom                   |       | 421,242                               |       | 534,734 |   | 491,011 |   |   | 97 | % |   |   | 96 | % |   |   | 97 | % |   |
| Pakistan—Paktel                   |       | 996,478                               |       | 481,566 |   | 333,169 |   |   | 98 | % |   |   | 96 | % |   |   | 93 | % |   |
| Sri Lanka                              |       | 579,430                               |       | 442,546 |   | 368,102 |   |   | 99 | % |   |   | 98 | % |   |   | 97 | % |   |
| Subtotal South  Asia                   |       | 1,997,150                             |       | 1,458,846 |   | 1,192,282 |   |   | 98 | % |   |   | 97 | % |   |   | 96 | % |   |
| **South  East Asia**                   |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cambodia                               |       | 773,608                               |       | 609,704 |   | 431,911 |   |   | 99 | % |   |   | 99 | % |   |   | 99 | % |   |
| Lao People’s  Democratic Republic |       | 76,728                                |       | 40,315 |   | 17,374 |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |
| Vietnam                                |       | 0                                     |       | 1,849,288 |   | 1,035,582 |   |   | 0 | % |   |   | 73 | % |   |   | 73 | % |   |
| Subtotal South  East Asia              |       | 850,336                               |       | 2,499,307 |   | 1,484,867 |   |   | 99 | % |   |   | 80 | % |   |   | 81 | % |   |
| **Total**                              |       | 8,928,985                             |       | 7,713,201 |   | 5,690,542 |   |   | 94 | % |   |   | 87 | % |   |   | 87 | % |   |
|                                        |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

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**CENTRAL AMERICA**

Central America consistsof Millicom’s cellular operations in El Salvador, Guatemala and Honduras.Millicom Central America’s licenses covered approximately 26.5 millionpeople as of December 31, 2005.

**El Salvador**

El Salvador’s government system is a democraticrepublic. Following deterioration in the country’s democratic institutions inthe 1970s, a civil war took place between 1980 and 1992 and came to an end asthe two opposing sides signed a peace accord. The current president, ElíasAntonio Saca González of the right-wing Arena political party, was elected in2004 for a five-year term. He recently re-affirmed his commitment to apolitical and economic reform agenda in El Salvador ending on June 1, 2009.

In order to drive economic growth, the government ofEl Salvador continues to focus on opening new export markets (exports grew by5.6% in 2004), encouraging foreign investment and maintaining a tax regime thatpromotes corporate investment. Implementation of the Central America-DominicanRepublic Free Trade Agreement, ratified by El Salvador in 2004, is viewed as akey policy to help achieve these objectives. El Salvador became member of theWorld Trade Organisation in 1995. As the country does not have control over itsmonetary policies following the adoption of the US Dollar in 2001, thegovernment is committed to maintaining tight fiscal policies. The economy hasgrown significantly since the early 1990’s but close to 50% of the population remainsunder the poverty line. El Salvador had a population of about 8.9 million atthe end of 2005.

El Salvador’s telecommunications market is among themost liberalized in Central America. In 1996, the government passed atelecommunications law designed to encourage competition in all areas of thesector and permitted foreign investment for the first time. The law controlsall activities of the telecommunications sector, with particular emphasis onthe regulation of the public telephony service, utilisation of radio spectrum,access to essential resources and numbering plans. Since the sectorprivatisation in 1998, foreign and local operators have made significant investmentsin infrastructure improvement. This has resulted in considerable growth ofmobile connections, partly as a result of the underdeveloped fixed-line networkwith waiting time for connections often running into several years. Mobileoperators have capitalized on this by offering fast, high quality service withnationwide coverage.

Millicom has a 100.0% equity interest in Telemovil.Millicom accounts for this operation as a subsidiary, i.e. using the fullconsolidation accounting method.

Telemovil launched its operations in 1993 and was theonly mobile services provider until 1999, operating an analogue and a digitalTDMA network. Since market entry, Telemovil has expanded its coverage of themain cities rapidly and has remained the market leader. The full overlay GSMnetwork was launched in August 2004. Services offered also includebroadband internet, fixed wireless telephony and public telephony.

Currently there are five mobile services providers inthe country. Telefonica and Telecom (at the time owned by France Telecom)entered the market as the second and third operator respectively, in 1999. In2001, Digicel (privately owned) entered the market with a GSM network as thefourth operator. In 2003, America Movil acquired France Telecom’s interest in Telecom,and increased its market share mainly as a result of strong GSM handsetsubsidies and heavy advertisement. In October 2005, Intelfon (privatelyowned) entered the market as the fifth operator, offering services based on theiDen push-to-talk technology. Intelfon has a negligible market share.

Telemovil’s strategy is based on offering acombination of market leading network coverage, high-quality services and lowprices. Leveraging Telemovil’s distribution capabilities through ePIN and otherelectronic means further enhances this strategy. Telemovil also aims to expandits value-added services and further strengthen its market leading customerservices operations.

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Telemovil was initiallyawarded a 15 year mobile license in September 1991 which was subsequentlyextended up to 2018.

The GSM network comprises221 base stations with a maximum capacity of handling 469,000 concurrentsubscribers. The network covers 84% of the total population. The network isGPRS/EDGE enabled.

**Guatemala**

Guatemala’s governmentsystem is a constitutional democratic republic. In 1996, peace accords weresigned which brought an end to 36-year of civil war. Although Guatemala hascompleted a successful transition from military to civilian government, themilitary retains considerable political power. The president, Oscar Berger ofthe centre-right Gran Alianza Nacional political party, who came to power in January 2004,has managed to impose fiscal discipline and to advance important legislativereforms. His pro-business economic programme encourages investor confidence,although the lack of a working majority in the legislature and tight publicfinances represent potential challenges.

Guatemala is the largestand most populous of the Central American countries with a population of about 12.8million at the end of 2005. Its economic growth continued to increase in recentyears (estimated real GDP growth of 3.1% in 2005). The distribution of incomeremain very unequal, with half the population living under the poverty line, ofwhich 15% live in extreme poverty. Agriculture accounts for approximately 25%of GDP, 66% of exports and 50% of the labour force. The end of the civil warremoved a major obstacle to foreign investment. Overall economic outlook ispositive given the government’s anti-corruption and pro-business stance, whichunderpins investor confidence, and rising inflows of foreign direct investment.The extension of the EU’s generalised system of preferences, under whichGuatemalan exports enjoy preferential access to EU markets, will also have apositive impact on the economy going forward. Guatemala joined the GATT in 1991and became member of the World Trade Organisation in 1995.

Between 1996 and 1998,Guatemala implemented an ambitious liberalisation and privatisation programme.The General Telecommunications Law was passed in 1996 and opened the sector tocompetition with immediate effect, including the removal of all regulatory restrictionson prices and quality of service, and also prepared the ground forprivatisation of the incumbent operator Guatel, now named Telgua, which tookplace in 1998. The law also created a regulatory authority, theSuperintendencia de Telecomunicaciones (SIT), which is primarily responsiblefor the allocation of radio spectrum, resolving access disputes andadministering the national numbering plan.

Millicom has a 55.0%equity interest in Comcel Guatemala (Comcel). The remaining 45.0% of thecompany is owned by Miffin Associates Corp. (privately owned) owning 35.0% andArkade International Inc. (privately owned) owning 10.0%. The shareholders inComcel jointly control the company. Millicom accounts for this operation as ajoint venture, i.e. using the proportionate accounting method.

Comcel was the firstmobile operator in Guatemala when it launched commercial operations in 1990.The company enjoyed a monopoly position until 1999 when Telefonica and Telgua(owned by America Movil) entered the market as the second and third operators.In 2001, BellSouth entered the market as the fourth operator but Telefonicaacquired BellSouth’s operations in 2004. America Movil offers an integratedtelecommunications solution, from fixed and mobile telephony to Cable TV andinternet services. Telefonica is currently attempting to improve its pre-paidbrand with airtime promotions and is highly competitive in the corporatefixed-line market segment. During 2003, another two mobile licenses weregranted, although no commercial services have been launched.

Comcel is currently operating a GSM/GPRS/EDGE networkand a TDMA network. The GSM/GPRS/EDGE network was launched in August 2004.Comcel also provides international long-distance services, internet services andlocal telephony services.

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In January 1990, Comcel was awarded its initial 20-yearlicense to operate a nationwide 800MHz network in Guatemala. In March 2003,the company was awarded a revised license to operate 10MHz of frequency for aperiod of 15 years until 2018. In August 1998, as validated in October 2001,the license to operate another 4MHz spectrum was awarded for the period until2013. The license can then be extended for a further 15-year period.

The GSM network comprises546 base stations with a maximum capacity of handling 951,000 concurrentsubscribers. The network covers 71% of the total population. The network isGPRS/EDGE enabled.

**Honduras**

Honduras’ government system is a democraticconstitutional republic. Since the regional peace process that took place inthe late 1980s, democracy in Honduras has been strengthened. Jose Manuel ZelayaRosales of the Partido Liberal party was re-elected President in January 2006.The new government will take office in January 2006 and is expected tomaintain the prudent, broadly market-oriented policies of the previousleadership.

Although GDP per capita in Honduras is one of thelowest in Latin America, it has increased since the 1990s and overall economicgrowth (as measured by real GDP) is higher than in many other countries in theregion (estimated at 4.0% in 2004). Honduras continues to focus on pursuing theeconomic and reform programme agreed with the International Monetary Fund (IMF)under the poverty reduction and growth facility since February 2004two-thirds of Hondurans continue to live in poverty. As the country has metmost of its macroeconomic targets, it has achieved debt relief under theIMF-World Bank’s heavily indebted poor countries initiative. The US has becomeHonduras’ largest trading partner (over 54% of exports in 2005) with thecountry becoming a member of the US-Central America Free Trade Agreement in May 2004.Sugar, coffee, textiles, clothing and wood products are the key industries inthe country. Honduras had a population of about 7 million in 2005.

The Comisión Nacional de Telecomunicaciones (Conatel)was created in October 1995 as the national regulatory authority andreports directly to the Ministry of Telecommunications. It operates a licensingsystem for all telecommunication services in Honduras and is in charge ofpromoting the modernization and development of the sector by encouragingprivate investment, free competition and improved quality of service. AlthoughEmpresa Hondurenade Telecomunicaciones (Hondutel), the state-owned national incumbent operator,has monopoly over local and long-distance telephony services, the governmenthas opened value-added services and mobile telephony to competition. Bothmobile operators (Millicom’s Celtel, the market leader, and Megatel) have theright to carry international traffic for their own customer base. Fullliberalisation was scheduled for the end of 2005 with the approval of theCongress of a new General Telecommunications Law.

Millicom has a 66.67% equity interest in Celtel. Theremaining 33.33% of Celtel is owned by Proempres Panama S.A. which is privatelyowned. Millicom and Proempres entered into a revised shareholder agreementfollowing the buy-out of a third shareholder, Motorola, in 2005, under whichthe two companies exercise joint control of Celtel. Millicom accounts for thisoperation as a joint venture, i.e., using the proportionate accounting method.

Celtel launched commercial operations in 1996 as thefirst mobile operator in Honduras and today operates a GSM, AMPS and CDMAnetwork. Until late 2003, Celtel enjoyed a monopoly status in the mobile market,when Megatel (owned by local Honduras investors) entered the market with a GSMnetwork as the second operator. Megatel was acquired by America Movil in 2004.A third mobile license has been issued in Honduras to Hondutel, but nooperations have been launched to date.

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In June 1996, Celtelwas awarded a 10-year license to operate a nationwide mobile network at acost of US$5.1 million. In March 2005, the license was transformedinto a 25-year license with an expiry date of June 2021 at a cost ofUS$4.8 million.

The GSM network comprises227 base stations with a maximum capacity of handling 863,000 concurrentsubscribers. The network covers 57.2% of the total population. The network isGPRS/EDGE enabled.

**SOUTHAMERICA**

Millicom’s cellularoperations in South America are located in Bolivia and Paraguay. Our SouthAmerican licenses covered approximately 15.2 million people as of December 31,2005.

**Bolivia**

Bolivia’s GovernmentSystem is a Unitary Democratic Republic. Since the beginning of the 1990s, theGovernment has pursued an economic and social reform agenda. The mostsignificant change undertaken was a Privatisation Programme under which privateinvestors acquired 50% ownership and management control of state-ownedcompanies such as the state oil, telecommunications and electricity companies.A representative of the left, Evo Morales, was elected president of Bolivia on December 182005. Although he has stated that the tax system for foreign oil and gasinvestors will be reviewed, he has also expressed his intention to protectforeign investment in the country.

Although Bolivia has oneof the lowest GDPs per capita in Latin America, the economic reforms of the1990s resulted in an average real GDP growth rate of approximately 4% p.a.However, given some global economic slowdown and domestic unrest growth slowed downsomewhat from 1999. About 50% of Bolivians lived below the poverty line in2005, with about 15% in extreme poverty. Bolivia is a beneficiary of the WorldBank and the IMF’s initiative for heavily indebted poor countries and continuesto enjoy the support of international financial institutions and donors. Byhelping to finance the fiscal deficit, these funds should allow the governmentto maintain capital spending, largely on public infrastructure projects, which areexpected to help improve long-term growth prospects. Oil and gas, mining,smelting, food and beverages, tobacco and clothing are the most importantindustries in Bolivia. The country became member of the World TradeOrganisation in 1995 and is negotiating its membership of Mercosur (theSouthern Common Market with Argentina, Brazil, Paraguay and Uruguay). Boliviahad a population of about 8.9 million at the end of 2005.

The Superintendence ofTelecommunications (Sittel) is part of the Sirese system, an autonomousgovernment agency responsible for regulating the five basic utility sectors:telecommunications, electricity, transport, oil and gas and water. Sittel isresponsible for implementing the 1995 Telecommunications Law and other decreesand regulations and carries out the basic regulatory functions, including the grantingof licenses and concessions, the setting of some rates and the supervision ofmonopolistic practices in the telecommunications sector. All services withinthe Bolivian telecommunications market have been opened up to competitionfollowing the market liberalisation in 2001.

Millicom has a 100.0%equity interest in Telecel. In addition to offering mobile services on anationwide basis, Telecel has also offers limited long-distance fixed-linetelecommunication services since December 2001. Millicom accounts for thisoperation as a subsidiary, i.e. using the full consolidation accounting method.

Telecel launchedcommercial operations in 1991 through an offering of analogue mobile servicesin Bolivia’s three main cities of La Paz, Santa Cruz and Cochabamba. In 1997,the network was extended to the rest of the country. At the same time, thegovernment of Bolivia privatised the national incumbent fixed-line operator,Entel, by selling a 50.9% stake to Telecom Italia and allowing it to launch amobile network. This was also the time when a Calling Party Pays system wasintroduced in Bolivia. Building on its 

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strongmarket position, Telecel introduced the first pre-paid mobile offering at theend of 1996 and launched digital services through its TDMA network in 1997.Millicom rolled out GSM networks in its other Latin American markets in 2004,and as Telecel represented Millicom’s smallest market in the region, and stillshowed growth in TDMA subscribers, it was decided that Millicom would assessthe results of the GSM roll-out in the other Latin American countries beforelaunching such services in Bolivia. Telecel started offering nationwide GSMservices in December 2005. As such, it was the last remaining operation inthe Millicom group to adopt this technology platform.

From 1991 to 1996, Telecelwas the only mobile operator in Bolivia. However, Móvil de Entel (the mobilesubsidiary of the incumbent operator Entel) launched its mobile services in1996 following changes in concession agreements, and in 2001 NuevaTel (a jointventure between Alltel of the US, with a 72% stake, and Cooperativa deTelecomunicaciones Cochabamba, one of Bolivia’s largest telecommunication co-operatives,with a 28% shareholding) entered the market with a GSM network. By 2002, Móvilde Entel also started offering heavily subsidised GSM services. Consequently,Móvil de Entel became the leading operator in terms of subscriber numbers withTelecel retaining a clear number two market position despite its lack of a GSMoffering until December 2005.

Telecel’s new GSM servicesuse the TIGO brand to clearly distinguish it from the company’s TDMA andsmall-scale analogue offerings.

In September 1990,and subsequently modified in 1995, Telecel was awarded a 20 year license tooperate a mobile network in Bolivia’s three main cities (La Paz, Santa Cruz andCochabamba). In May 1997, the company’s license was extended to cover therest of the country for a period of 20 years. In December 2002, Telecelwas also awarded a 40-year license to provide fixed-line long-distancetelecommunication services in Bolivia. This license is mainly used to carryTelecel’s mobile traffic.

The recently launched GSMnetwork comprises 149 base stations with a maximum capacity of handling 133,000concurrent subscribers. The network covers 26.3% of the total population. Thenetwork is GPRS/EDGE enabled.

**Paraguay**

Paraguay’s GovernmentSystem is a Constitutional Republic. The 35-year military dictatorship ofAlfredo Stroessner was overthrown in 1989, and despite a marked increase inpolitical infighting in recent years, relatively free and regular presidentialelections have been held since then. President Nicanor Duarte Frutos of theruling Partido Colorado political party has overseen a period of economicrecovery and has brought greater stability to the public finances since takingoffice in 2003. The next municipal and presidential elections are due to takeplace in 2006 and 2008, respectively.

Paraguay has a marketeconomy characterised by a large informal sector. The informal sector featuresboth re-export of imported consumer goods to neighbouring countries as well asthe activities of thousands of micro-enterprises and urban street vendors. Alarge proportion of the population derives their living from agriculturalactivity, often on a subsistence basis. In the late 1990s, about 33% of thepopulation lived in extreme poverty and about 37% lived in poverty, making itone of the poorest countries in South America. During the 1990s, the averageannual growth rate in GDP per capita was negative with growth of only 0.5%between 1990 and 1995, 2003 per capita GDP was about the same as in 1976. TheGDP real growth rate is estimated to have been 3.4% in 2005. Although Paraguay’sper capita income remains very low compared to most Latin American countries,the economy has regained growth momentum since 2003. Following an improvementin fiscal management and the adoption of public banking reform, the country isexpected to benefit from a new IMF stand-by arrangement that will run until2008. It is anticipated that this will increase confidence in the government’seconomic management and provide more time for structural reforms to beimplemented, while gaining support from more international financial institutions.Paraguay had a population of about 6.3 million in 2005.

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The Telecommunications Lawof 1995 was aimed at liberalising the sector through the creation of theComisión Nacional de Telecomunicaciones (Conatel), the regulatory authority.Although the law succeeded in opening up the mobile and value-added sectors,including the internet service provider market, state-owned Copaco has retainedits monopoly position in the fixed-line market. Conatel has announced that newoperators would be allowed to enter the local and long-distancetelecommunications markets from December 2004, but no new fixed-linelicenses have been issued to date.

As at December 31,2005 Millicom had a 96.0% equity interest in Telecel Paraguay. The remaining4.0% of the company is owned by a local partner Mr. Angel Auad, a wellknown businessman in the Paraguayan construction industry. On April 4,2006, an agreement was signed with Mr. Auad for Millicom to purchase his equityownership. The closing of the transaction is subject to regulatory approval.Millicom accounts for this operation as a subsidiary, i.e. using the fullconsolidation accounting method.

Telecel entered the marketin 1992 as the first mobile operator in the country and currently operates aGSM network and a digital TDMA network (as well as a small residual analoguenetwork). Telecel currently owns four operating licenses (800MHz and 1900MHz,as well as licenses for WLL and internet services). Telecel introduced pre-paidservices in 1997 which lead to a strong increase in penetration.

Until 1998, Telecelenjoyed a monopoly position in the mobile market, when Personal (owned byTelecom Italia) entered the market as the second operator. Personal currentlyhas the largest network coverage in the country. In 1999, Vox (a joint venturebetween KDDI Corporation from Japan and Mr. Toyotosi, a local businessman)entered the market with a GSM network as the third operator. Vox currentlyfeatures coverage of the capital city only, competitive airtime prices and somehandset subsidies. In 2001, Porthable (owned by Hutchison Whampoa) entered themarket as the fourth operator with coverage in the capital city and main citiesin the interior of the country. In 2005, America Movil acquired the company(currently called CTI). The new CTI positioning features higher tariffscombined with low handset prices, and further network coverage is currentlybeing established. In 1991, Telecel was awarded a 10-year license for an800MHz network. In October 2001, the license was renewed until October 2006and is renewable for successive five-year periods. In 1997, Telecel was awardeda 1900MHz PCS license which was renewed in 2002, expires in November 2007,and is renewable for successive five-year periods. The WLL and the internetservice licenses were awarded in 1999, renewed in 2005/2004 and will expire in2010 and 2009, respectively.

Renewal fees are based onthe amount to be invested during the respective next five-year license period (3.5%to 5% of the planned investment amount). The regulator is in the process ofconsidering a different renewal fee structure.

Telecel GSM network comprises 187 base stations with amaximum capacity of handling 360,000 concurrent subscribers. The network coversabout 76% of the total population. The network is GPRS/EDGE enabled.

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**AFRICA**

Million’s Africa cluster consistsof Millicom’s cellular operations in Chad, Democratic Republic of Congo, Ghana,Mauritius, Senegal, Sierra Leone and Tanzania. Our African licenses coveredapproximately 146 million people as of December 31, 2005.

**Chad**

Chad’s government system is a unitary republic basedon the amended constitution of June 2005. The country endured threedecades of civil war as well as an invasion by Libya before peace was restoredin 1990 and the government eventually suppressed or came to terms with mostpolitical-military groups, settled a territorial dispute with Libya on termsfavourable to Chad, and held democratic elections. Having successfully held areferendum in June 2005 to legitimise amendments to the constitution, thepresident, Idriss Déby, is expected to seek a third term in office in the 2006elections. In April 2006 an attempted coup against Mr. Deby’s government wasdefeated. The coup attempt was initiated by rebels of the United Front forchange apparently with the support of the government of neighbouring Sudan.

Chad’s primarily agricultural economy continues to besupported by major oil and gas projects that began in 2000. Over 80% of thecountry’s population relies on subsistence farming and livestock for itslivelihood. Although cotton, cattle and rubber are important industries inChad, around 97% of the country’s exports are derived from the oil and gasindustry. Oil production started in 2003, and a consortium led by ExxonMobilhas already invested significant amounts to develop reserves in southern Chad.Following the resumption of IMF assistance in early 2005, a new povertyreduction and strategy paper has began to broadly shape future economic policy.Although poverty remains a key issue in Chad with approximately 80% of thepopulation living below the poverty line, economic growth has been very strongin recent years, with real GDP growth peaking at 29.7% in 2004. Chad becamemember of the World Trade Organisation in 1996. Chad had a population of about9.8 million in 2005 and has hundreds of thousands of refugees from Sudan andCentratrigue on its soil.

The Ministère des Postes et Télécommunications wasresponsible for regulation of the sector until the Telecommunications Act waspassed in 1998. The enactment of the law paved the way for the creation of anew regulatory authority, the Office Tchadien de Régulation desTélécommunications (OTRT), in 2000. In the same year, the Société des Télécommunicationsdu Tchad (Sotel Tchad) was established to operate basic fixed-line telephonyservices in the country during a five-year exclusivity period. The governmentis planning to privatise Sotel Tchad in the near term.

Millicom has an 87.5% equity interest in MillicomTchad. The remaining 12.5% of the company is owned by a local business man, Mr. DavidAbtour. Millicom accounts for this operation as a subsidiary, i.e. using thefull consolidation accounting method.

Millicom Tchad launched commercial operations in thecapital city, N’Djamena, in October 2005, only nine months after thearrival of the local management team. The company offers TIGO-branded pre-paidservices over its GSM network and, from launch, services included GPRS, EDGE,MMS and ePIN (electronic top-up). It also has an international gateway.

Celtel Tchad, in which Kuwait-based MTC is the 80%majority shareholder, is the only other mobile operator in Chad.

In November 2004, Millicom Tchad was awarded a 10-yearlicense to operate a nationwide GSM network in Chad and in July 2005 thecompany’s license was amended to allow for international gateway operations.

The GSM network comprises11 base stations with a maximum capacity of handling 150,000 concurrentsubscribers. The network covers 12% of the total population.

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**Democratic Republicof Congo (DRC)**

DRC’s government system is a unitary republic.Following the withdrawal of Rwandan forces from eastern DRC in 2002, thePretoria Accord was signed by all relevant parties to end the four years ofregional war involving Angola, Chad, Namibia, Sudan and Zimbabwe supporting theCongolese regime being challenged by Rwanda and Uganda, and establish agovernment of national unity. A transitional government was set up in July 2003with Joseph Kabila as president and head of government. He was joined by fourvice-presidents representing the former government, former rebel groups and thepolitical opposition. New elections had been due by June 2005 after atransition period of two years, but are now to take place during the first halfof 2006. The international community is maintaining pressure on the variousparties to adhere to this transition timetable.

Economic growth (as measured by real GDP) in DRC hasremained above 5.5% p.a. since 2002, largely driven by the country’s mainindustries such as mining (49% of exports in 2000), mineral processing andtextiles. The government has tightened its economic policy in a bid to achievea successful conclusion of the fifth review of its performance under the IMF’sthree-year poverty reduction and growth facility which expired in October 2005.The IMF and the World Bank are expected to remain closely engaged with thegovernment and to proceed towards negotiations for a new three-year povertyreduction and growth facility. The economic environment in DRC favours growthas the authorities have retained their overall commitment to macroeconomicstabilisation which continues to be supported by donor assistance. Furthermore,corporate taxes and investment laws are being revised to liberalise thebusiness environment and attract foreign direct investment in DRC. Anincreasing number of foreign investors are entering the country. Nevertheless,the country suffers from severe lack of infrastructure and from continuedinstability and attacks by rebels in the eastern parts of the country (Ituriregion). DRC became member of the World Trade Organisation in 1997. DRC had apopulation of estimated at about 60.1 million in early 2006.

DRC’s national telecommunications operator, the OfficeCongolais des Postes et des Télécommunications (OCPT), was converted from agovernment department to a corporation in 1968. It operates an outdated, poorlymanaged analogue fixed-line network of approximately 10,000 lines which is mainlyconcentrated in the capital city of Kinshasa. The ARPTC (Autorite de Regulationde la Poste et des Telecommunications du Congo) is responsible for regulatingthe telecommunications sector. Legislation has been prepared but not yetimplemented which will formally end the OCPT’s monopoly and pave the way formarket liberalisation. The government has no developed telecommunicationspolicy, and consequently no strategy for rural telecommunications development. Asthe DRC lacks the funds to invest in a modern fixed-line infrastructure, thecountry’s mobile sector has boomed in recent years.

Millicom has a 100.0% equity interest in Oasis andaccounts for this operation as a subsidiary, i.e., using the full consolidationaccounting method.

Oasis launched commercial operations in January 2001as the second GSM mobile operator in DRC. Although Oasis had built a marketshare of around 33% by the end of 2002, the entry of two new competitors during2002 and lack of capital investment resulted in a significant decline in Oasis’market position. Millicom acquired Oasis from Orascom Telecom in September 2005for a total consideration of US$35 million and is in the process of fullyrebuilding the company’s network coverage, product and service offering,marketing strategy and distribution network. On completion of this turnaround,planned during 2006, the operation will be re-launched using the TIGO brand.Oasis also has an international gateway operation.

In 2001 three operators(Starcel, Comcel and Afritel) offered limited analogue and CDMA mobile servicesin DRC when Oasis entered the market with its GSM offering. These operators hadceased to exist by the end of 2003. Initially Celtel Congo, owned by Kuwait-basedMTC, was the only other GSM operator in the market, becoming the leadingprovider of mobile services in DRC with coverage in almost 100 cities and towns.In October 2001, Congolese Wireless Networks (CWN) entered into a jointventure 

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withSouth African mobile operator Vodacom, creating a new operator called VodacomCongo. This company launched GSM services in DRC in April 2002 and hasextended its coverage to a large number of cities and towns across the country.The fourth operator, CCT, jointly owned by the governments of ZTE (51%) and thegovernment of DRC (49%), launched its GSM network in January 2002. Afterseveral years of underinvestment in its network, distribution channels, productand service offering and lack of marketing, Oasis’ market position had declinedto a number four position in terms of subscribers. However, with the newinvestment programme launched by Millicom following the acquisition of Oasis,the company is expected to gain market share going forward.

Millicom’s strategy forOasis is to re-launch the operation by offering a combination of optimalcoverage and quality of mobile voice services, innovative products andservices, a direct distribution network and a new pricing strategy. TIGO willbecome the new customer brand from the time of the re-launch scheduled for thethird quarter of 2006.

In November 1997Oasis was awarded a 20-year license to operate a fixed-line network inDRC and an amendment was signed in October 1999 which allows the companyto construct a nationwide GSM network.

The GSM network comprises62 base stations with a maximum capacity of handling 100,000 concurrentsubscribers. The network covers 16.7% of the total population.

**Ghana**

Rich in natural resources,Ghana has around double the per capita output of the poorer countries in WestAfrica. Close to 80% of Ghanians live under the poverty line, with more than40% living in extreme poverty. The country’s key industries include mining,lumbering, light manufacturing, aluminium smelting and food processing. Gold,timber and cocoa production are major sources of foreign exchange. Ghanaremains dependent on international financial and technical assistance. Thecountry opted for debt relief under the IMF-World Bank’s heavily indebted poorcountries programme in 2002 and in July 2004 it satisfied the programme’sconditions and the election was taken to give Ghana debt relief ofapproximately US$3.5 billion on debt it owed to international institutionsresulting in debt service savings of approximately US$100 million perannum for the following 20 years. Policy priorities include tighter monetaryand fiscal policies, accelerated privatisation and improvement of social services.The country has experienced an average of 4% growth during the 1990s and strongeconomic growth (as measured by real GDP) in recent years and althoughinflation was high until the late 1990s it has declined to 15.0% (estimated) in2005 as a consequence of the financial assistance of the IMF and the World Bankand tighter budget and monetary policies. Ghana had a population of about 21million in 2005.

Ghana has been at theforefront of liberalising its telecommunications sector. In the early 1990s,the government recognised that the industry was underdeveloped but had thepotential to stimulate wider growth in the economy. It consequently implementedthe Telecom Sector Reform Policy in 1996, which introduced liberalisation andcompetition to accelerate infrastructure improvement and expansion. TheNational Communications Authority (NCA), Ghana’s telecommunications regulator,was established in the same year. Ghana Telecom, the state-owned operator offixed-line services, has been managed by Telenor of Norway since 2003.

In addition to Millicom’s operation, three othercompanies offer mobile services in the country: Kasapa, Scancom and GhanaTelecom. After nearly a decade of slow growth, the mobile market started seeingconsiderable growth from 2001 with the number of mobile subscribers havinggrown by approximately 91% p.a. over recent years as a result of severalfavourable factors, including the development of a regulatory framework,increasing competition and the improving macroeconomic environment. However,despite recent rapid growth in the mobile sector, penetration is still lowcompared to other emerging markets and the number of mobile subscribers isexpected to continue to grow going forward.

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Millicom has a 100.0% equity interest in Millicom(Ghana) Limited (“Mobitel Ghana”) and accounts for this operation as asubsidiary, i.e. using the full consolidation accounting method.

Mobitel Ghana entered the market in 1992 as the firstmobile operator in the country. The company initially operated an analogcellular (ETACS) network and currently operates a GSM network. In addition toits mobile license, Mobitel Ghana also has a local fixed wireless servicelicense in Ghana. Although Mobitel Ghana applied for a GSM license in 2000, itwas not allowed to launch GSM services for approximately two years. Followingthe launch of Mobitel Ghana’s GSM offering in 2002, growth in its subscriberbase has gained significant momentum.

Until 1995, Mobitel Ghana enjoyed a monopoly positionin the mobile market, when Kasapa (owned by Hutchison Telecom) entered as thesecond operator with an AMPS network. Its market share remained low for a longperiod and the company recently launched a CDMA network with limited coverage.

In 1996, Scancom (owned by Investcom) entered themarket as the third operator with the launch of a GSM network. Mobitel Ghanaexperienced erosion in its market share mainly due to the fact that it was notin a position to offer GSM services until 2002. This lead to Mobitel Ghana’sloss of its number one market position to Scancom. Scancom currently has thelargest network coverage in Ghana and offers a range of value-added servicesincluding EDGE.

In 2000, government-owned Ghana Telecom entered themarket as the fourthoperatorwith the launch of a GSM network under the One Touch brand. In the same year,Mobitel Ghana applied for its GSM licence, but was not allowed to launchcommercial operations until June 2002. An aggressive strategy based on lowpre-paid tariffs saw Mobitel Ghana reclaiming the number two market position.

In December 2004, the government awarded GSMlicenses to all four mobile operators in Ghana. Before this date, theoperations were run based on a permission to use an allocated frequency. MobitelGhana’s license is valid for 15 years from December 2004 and is technologyneutral, authorising it to provide mobile and local fixed wireless services.The license cost was $22.5 million and is payable over five years. InJune 2005, Mobitel Ghana was also granted a 10-year internationalgateway license.

The GSM network comprises153 base stations with a maximum capacity of handling 700,000 concurrentsubscribers. The network covers 35% of the total population. GPRS services areplanned for launch in the second quarter of 2006, and Mobitel Ghanaexpects to roll out EDGE services in July 2006.

**Mauritius**

Mauritius’ government system is a parliamentarydemocracy. After almost five centuries under Dutch, French and British control,the country gained its independence in 1968. A stable democracy with regularfree elections, Mauritius has attracted considerable foreign investment and hasearned one of Africa’s highest per capita incomes. Sir Anerood Jugnauth hasbeen president since 2003, and Navinchandra Ramgoolam of the Labour Party waselected prime minister in the July 2005 elections.

Since 1968 Mauritius has developed from a low-income,agriculturally based economy to a middle-income diversified economy withgrowing industrial, financial and tourist sectors. For most of the period,economic growth (as measured by real GDP) has been between 5% and 6% p.a. whichhas resulted in more equitable income distribution, increased life expectancyand significantly improved infrastructure. Less than 10% of the Mauritiuspopulation lived under the poverty line in 2005. Sugarcane is grown onapproximately 90% of the cultivated land area and accounts for 25% of exportearnings. The government’s development strategy centres on foreign investment,expanding local financial institutions and expanding the domestictelecommunications industry. Mauritius, with its strong textile sector, remainswell positioned to take advantage of the Africa Growth and Opportunity Act.Mauritius had a population of about 1.2 million in 2005.

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The Information and Communication Technology Authority(ICTA) is the country’s telecommunications regulator. Mauritius has the highestfixed-line penetration rate and the highest number of mobile subscribers insub-Saharan Africa. The domestic telecommunications market is dominated by themonopoly of Mauritius Telecom and, although the government has made acommitment to the World Trade Organisation to achieve full liberalisation ofthe sector, it will be introduced gradually in order to ensure that competitiondoes not inhibit the successful privatisation of the incumbent operator.Moreover, the government intends to introduce competition based on servicesrather than infrastructure, leaving Mauritius Telecom with control over thefixed-line infrastructure.

Millicom has a 50.0% equity interest in Emtel. Theremaining 50.0% of the company is owned by a local partner, Currimjee Jeewanjee &Co. Ltd, a subsidiary of one of the leading diversified groups in Mauritius.The two shareholders in Emtel jointly control the company. Millicom accountsfor this operation as a joint venture, i.e. using the proportionate accountingmethod.

Emtel entered the market in 1989 as the first mobileoperator in the country. Until 1996 Emtel enjoyed a monopoly position, when Cellplus(owned by incumbent Mauritius Telecom) entered the market as the secondoperator with the launch of a GSM network. As Emtel launched its GSM serviceoffering in 1999, three years after its competitor, Emtel experiencedsignificant market share declines at the end of the 1990s. However, Emtel isnow well positioned to regain market share and drive subscriber growth goingforward. Emtel launched 3G services in Mauritius in November 2004, makingit the first mobile operator to offer such services in Africa. A third mobileoperator is expected to enter the market in 2006 using CDMA technology.

Emtel currently operates a GSM network and a UMTS/3Gnetwork. Emtel owns licenses for mobile services, international long-distanceand internet services.

Emtel was awarded a 10-year license in 1989,including a seven year exclusivity period. Emtel’s license was modified in November 2000and is valid for a period of 15 years. Furthermore, Emtel obtained additionalspectrum for UMTS/3G services in November 2004, an internationallong-distance license in December 2003 (valid until 2017) and an internetservice license in May 2004 (valid until 2019).

The GSM network comprises 114 base stations with amaximum capacity of handling 225,000 concurrent subscribers. The network covers98% of the total population. The network is GPRS/UMTS enabled.

A condition of the 3Glicence is that Emtel has to migrate its subscribers to the 3G network withinfive years. The regulator is in discussions with the ministry to possibly waivethis requirement or to extend the duration of the migration period.

**Senegal**

Senegal’s government system is a unitary republicunder multiparty democratic rule, having gained its independence in 1960. Thepolitical environment in the country passed a key milestone when the oppositionsocialist party led by Abdoulaye Wade came to power in the 2000 presidentialelections and considerable democratic consolidation continues.

In 1994 Senegal undertook an economic reform programmewith the support of the international donor community, beginning with a 50%devaluation of Senegal’s currency, which was linked at a fixed rate to theFrench Franc and government price controls and subsidies that have beensteadily dismantled. As a result of the reform programme real GDP growthrecovered to 5.8% (estimated) in 2005 and inflation was only 1.6% (estimated).The government continues to support the New Partnership for Africa’sDevelopment which, with the backing of the G8, aims to increase donor supportand inflows of foreign direct investment to African countries in exchange forimprovements in governance. Senegal also continues to pursue a donor-supportedeconomic reform programme as outlined in the IMF’s three-year 

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poverty reduction and growthfacility which was approved in April 2003. The country’s key industriesinclude agriculture and fishing, mining, fertiliser production and petroleumrefining.

Senegal became member of the World Trade Organisationin 1995. In September 2005, the World Bank and the IMF agreed to supportSenegal’s accelerated growth strategy, combining the goals fixed under thepoverty reduction and growth facility with the goal of increasing real GDPgrowth from its current level to 8% p.a. by 2015 slightly less than 70% of thepopulation of Senegal lived under the poverty line in 2005, of which about 25%lived in extreme poverty. Senegal had a population of about 11.1 million in2005.

The telecommunications sector in Senegal was reformedin 1985 with the creation of state-owned Sonatel. The country made commitmentsunder the World Trade Organisation’s Basic Telecommunications Agreement tointroduce a regulatory structure promoting competition by the end of 1997 and anew legislation was adopted in 1996, providing for the opening up of Sonatel’scapital to private foreign and national partners and liberalisation of somesegments of the telecommunications market. Consequently, France Telecomacquired a 33% stake in Sonatel in 1997 and later increased the holding to42.3%. In 2001 the government passed an updated Telecommunications Law aimed atbringing about further liberalisation of the sector, mainly through theestablishment of a new regulatory authority, the Agence de Régulation desTélécommunications (ART). ART is responsible for licensing, spectrummanagement, tariff approval, interconnection rates and frequency allocation.The law also paved the way for the opening of rural telephony to privateinvestment as a means of achieving universal service.

Senegal has developed one of the most extensive andmodern telecommunication infrastructures in Africa. Mobile services wereintroduced in 1996 and since the introduction of competition the number ofmobile subscribers has grown substantially. Sonatel is the only other mobileoperator in Senegal in addition to Millicom’s Sentel.

As of December 31, 2005 Millicom had a 75.0%equity interest in Sentel. The remaining 25.0% of the company was owned by alocal business partner, Mr. Pape Abdoul Ba, whose participation Millicompurchased in March 2006. Millicom accounts for this operation as asubsidiary, i.e. using the full consolidation accounting method.

Sentel launched its commercial operations in 1999 asthe second mobile operator in the country and it was the first mobile operatorto introduce GPRS services. Sentel launched the TIGO brand in December 2005.

The Senegalese mobile market features certain specificcharacteristics such as strong international traffic due to Senegal’s positionas a regional hub. Roaming services are also frequently used as Senegal hasbecome a popular tourist destination. Although a third mobile license is likelyto be granted during 2006, services are not expected to be launched by a newoperator until 2007.

Sonatel, the partly privatised incumbent operatorowned by France Telecom (42.3%) and the Senegalese government (57.7%), was theonly other mobile operator in Senegal when Sentel entered the market in 1999. Sentelwas awarded a 20-year license to operate a nationwide network inJuly 1998. The license is renewable every five years after the expiry ofthe original license. At the time the government had announced certainamendments to the license, which amendments were never implemented. Thegovernment that took office in 2000 repeatedly questioned publicly the statusand the validity of Sentel’s license until August 2002, when thegovernment acknowledged the validity of Sentel’s 1998 license.

The GSM network comprises167 base stations with a maximum capacity of handling 850,000 concurrentsubscribers. The network covers 53% of the total population. A programme toextend the current network is underway, and the company plans to increase thenumber of base stations to 250 by the end of 2006.

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**Sierra Leone**

Sierra Leone’s government system is a constitutionaldemocracy. The civil war between 1991 and 2002 between the government and theRevolutionary United Front (RUF) party resulted in the displacement of morethan 2 million people, many of whom are now refugees in neighbouringcountries. With the support of the United Nations peacekeeping forces andcontribution from the World Bank and the international community,demobilisation and disarmament of the RUF has been completed. Nationalelections were held in May 2002 and the government continues tore-establish its authority.

Sierra Leone is rich in minerals, agricultural andfishery resources. However, approximately two-thirds of the working-agepopulation engages in subsistence agriculture. The country’s infrastructure isseverely lacking, partly as a result of the civil war. Manufacturing consistsmainly of the processing of raw materials and light manufacturing for thedomestic market. Diamond mining, representing 86% of the country’s exports in2003, remains the major source of foreign currency. International financialinstitutions contributed over US$0.6 billion in development aid and budgetarysupport in 2003.

Sierra Leone’s poverty reduction and growth facilityexpired in June 2005. A new agreement is not yet in place, but one isexpected to be agreed soon given the IMF’s satisfaction with the review of thelatest programme. In the meantime, economic policy is expected to remainconsistent with the previous poverty reduction and growth facility but with theemphasis shifting more strongly from post-conflict resolution to poverty reduction.The country’s economic policy will also be influenced by World Bank involvementand is expected to include a focus on decentralisation, developing agriculture,promoting the private sector and developing infrastructure. Sierra Leone isalso expected to become eligible for substantial debt relief from mid-2006.About 75% of the population of Sierra Leone lived under the poverty line in2005, of which about 57% lived in extreme poverty. Sierra Leone had apopulation of about 6 million in 2005.

The Ministry of Transport and Communications isresponsible for regulating the telecommunications market in Sierra Leone. Itsresponsibilities include the issue of licenses, supervision of the incumbentfixed-line operator (Sierratel) and overseeing all technical issues pertainingto the sector. The Ministry has set out a five-year plan covering its keygoals, which include increasing the number of fixed-line customers to 80,000,replacing all analogue switches and transmission links with digitaltechnologies and introducing broadband services for business customers. Thegovernment is expected to establish an independent regulatory authority in 2006that will take over the current responsibilities of the Ministry of Transportand Communications. It is also expected to introduce other measures toliberalise the country’s telecommunications sector, such as the privatisationof Sierratel, allowing new international gateway operators, encouraging privatesector involvement in the provision of telecommunication services for bothdomestic and international traffic and encouraging competition across thesector.

The fixed-line telecommunications market in SierraLeone is highly underdeveloped as a result of the civil war. Consequently,mobile services have become the main telecommunications platform. In additionto Millicom, there are three other mobile operators in Sierra Leone: Celtel,Comium and Africell.

Millicom has a 100.0% equity interest in Millicom(Sierra Leone), following the buy-out of its local partner, Comtech (SL) Ltd,in December 2005. Millicom accounts for this operation as a subsidiary,i.e. using the full consolidation accounting method.

Millicom (Sierra Leone) launched commercial operationsin 2001 as the second mobile operator and today operates a GSM 900 network. SierraLeone currently operates under a Calling Party Pays regime and interconnectionamong operators is compulsory.

When Millicom’s (Sierra Leone) service was launched,coverage was restricted and there was intermittent service failure in severalimportant high-density areas. Millicom (Sierra Leone) is currently in theprocess of modifying, expanding and upgrading its network. The company aims tohave a network 

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which is competitive withthat of Celtel, the market leader, and to that of Comium and Africell by theend of 2006.

Celtel (formerly owned by MSI International, currentlyowned by Kuwait-based MTC) was the only other mobile operator in Sierra Leonewhen Millicom (Sierra Leone) entered the market in 2001. Celtel currently providesGSM mobile services and also has an international gateway license.

In 2005, Comium (owned by the Luxembourg-based ComiumGroup) and Africell (owned by the Lebanese network operator Lintel) entered themarket as the third and fourth operators. Comium, with its affordable tariffsand wide range of value-added services, achieved a strong entrance into themarket. An additional entrant (Datatel) is expected to launch services in early2006, covering the western part of the country.

In August 2000, Millicom (Sierra Leone) wasawarded a 15-year license to operate a nationwide GSM network.Furthermore, Millicom (Sierra Leone) was awarded a 10-year internationalgateway license in February 2003.

The GSM network comprises20 base stations with a maximum capacity of handling 91,000 concurrentsubscribers. The network covers 27% of the total population. Millicom (SierraLeone) has recently contracted ZTE for a network modification project. At thecompletion of the project, the company’s network capacity will be increased to115,000 subscribers. Millicom (Sierra Leone) also expects to provide fullGPRS/EDGE capability from Mid-2006.

**Tanzania**

Tanzania’s government system is a federal republicformed by the 1964 union of Tanganyika and Zanzibar. The country’s one party rule cameto an end in 1995 with the first democratic elections held since the 1970s.President Jakaya Kikwete came to power after winning by a clear majority at thelast elections on December 14, 2005. He is expected to carry on with theeconomic reforms that have gathered pace during the two terms in office of theprevious president, Benjamin Mkapa.

Tanzania’s economy is highly dependant on agriculture,which accounts for almost half of the country’s GDP, provides 85% of exportsand employs 80% of the workforce. The key industries in Tanzania includeprocessing of agricultural products and light consumer products. The WorldBank, the IMF and bilateral donors have provided funds to develop Tanzania’s economicinfrastructure and recent banking reforms have helped increase private sectorinvestment. Solid macroeconomic policies and continued donor assistancesupported real GDP growth of 6.3% in 2003/04 and 6.8% (estimated) in 2005against a background of low and stable inflation in recent years. Tanzaniabecame member of the World Trade Organisation in 1995.

On the expiry of Tanzania’s current poverty reductionand growth facility with the IMF in August 2006, the government isexpected to agree a new policy support programme which would provide extensiveexternal monitoring of government reform efforts. At the heart of thegovernment’s policy objectives is real GDP growth of between 8% and 10% p.a.going forward. About 60% of the Tanzanian population lived in poverty in 2005,of which about 20% lived in extreme poverty. Tanzania had a population of about36.8 million in 2005.

Tanzania was among the first African countries toliberalise its telecommunications sector, with all segments except fixed-lineservices now accessible to the private sector. In 1997 the governmentintroduced its National Telecommunications Policy covering the period until2020. Key goals of the policy initiative are to increase teledensity, developfixed-line service coverage of rural areas, facilitate investments by domesticand international companies and institutions, provide a regulatory framework toencourage private sector involvement and competition, with the governmentgradually divesting its shareholding in the incumbent operator TTCL. TheTanzania Communications Regulatory Authority (TCRA) was 

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established in 2003. TCRAis responsible for the allocation and management of radio spectrum in Tanzania.

At December 31, 2005, Millicom had an 84.4%equity interest in Millicom Tanzania Ltd (Mobitel). Following the buy-out of aminority shareholder, Ultimate Communications Limited, in January 2006,Millicom owns 100% of Mobitel. Millicom accounts for this operation as asubsidiary, i.e., using the full consolidation accounting method.

Mobitel was the first mobile operator in Tanzania,launching commercial analogue services in 1994 using an ETACS network initiallycovering Dar es Salaam, Zanzibar, Arusha and Mwanza. In 1999, it introduced itsfirst GSM service offering, and analogue services were fully discontinued in October 2005.Although Mobitel experienced decreasing market share historically due tolimited investment in network coverage and capacity, the company now focuses onoffering best value services to its subscribers, expanding network coverage toall regions of Tanzania and investing in network capacity. These initiativesprovide a solid base to ensure continued strong growth going forward. Mobitelexpects to launch an international gateway operation in the first half of 2006.

Other operators inTanzania are as follows:

·       Tritel(a joint venture between two local industrial companies) launched GSM servicesin the country in 1996, but the company went bankrupt and its license wasrevoked in January 2003.

·       VodacomTanzania (65% owned by South African mobile operator Vodacom and 35% owned bylocal Planetel Communications) entered the market in August 2000 and hasbecome the leading provider of mobile services in Tanzania in terms ofsubscribers.

·       CeltelTanzania (in which Kuwait-based MTC has a 60% shareholding and the governmentof Tanzania has a 40% shareholding) launched GSM services in the country in November 2001.

·       Zantel(jointly owned by the government of Zanzibar, Emirate Telecommunication Company,Kintbury Investment of the Channel Islands and a local technology firm)introduced GSM services in Zanzibar and the islands of Unguja and Pemba in August 1999,and entered the Tanzanian mainland in June 2005 through a national roamingagreement with Vodacom Tanzania.

Mobitel experienced an erosion of its market shareduring this period, mainly due to the fact that Vodacom Tanzania and CeltelTanzania launched GSM services ahead of Mobitel. Mobitel is now implementing aninvestment programme in order to enhance network coverage and capacity.

In January 1994 Mobitel was awarded a 15-yearlicense to operate a nationwide mobile network and in January 2004 thecompany’s license was extended to a 25-year license expiring in January 2019.

The GSM network comprises287 base stations with a maximum capacity of handling 502,362 concurrentsubscribers. The network covers 70% of the total population.

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**SOUTH ASIA**

South Asia comprises threecellular operations in Pakistan (two operations) and Sri Lanka, and a managementcontract in Iran. Our South Asian operations (excluding the managementcontract) cover approximately 182.5 million people as of December 31,2005.

**Pakistan**

Pakistan’s government system is a federalparliamentary democracy although the military retains a major role. GeneralPervez Musharraf is president and chief of army staff. Elections for thenational and provincial assemblies were held in October 2002 with eachassembly being elected for a five-year term. It is generally expected thatGeneral Musharraf will remain in power until the next elections in 2006 andbeyond, as he has the support of a majority in parliament.

Although Pakistan has traditionally been anunderdeveloped country, IMF-approved government policies and a US$1.3 billionpoverty reduction and growth facility programme complemented by foreignassistance and renewed access to global markets since 2001 have generated solideconomic recovery over the last several years. The government has madesubstantial macroeconomic reforms since 2000 and development prospects arecurrently considered to be the best in nearly a decade. Pakistan became memberof the World Trade Organisation in 1995. Real GDP growth, mainly driven bydouble-digit gains in industrial production, has become less dependent onagriculture with textiles and apparel, food processing, pharmaceuticals,construction materials and paper products being some of Pakistan’s keyindustries. The country’s policymakers have in the past few years created anenvironment within which the private sector has begun to thrive and povertyreduction will depend on a continuation in this trend. About 66% of Pakistanislived below the poverty line in 2005, of which about 13% lived in extremepoverty. Pakistan had a population of about 162.4 million in 2005.

The promulgation of the Pakistan TelecommunicationsAct in 1996 led to a shake-up in the organisation of the country’stelecommunications sector and provided for the establishment of two newregulatory agencies: the Pakistan Telecommunication Authority (PTA) and theFrequency Allocation Board (FAB). The PTA has regulated the telecommunicationsindustry since 1996, focusing on pursuing a programme of sector liberalisation.It issued two new mobile licenses in April 2004 and has put on offeradditional local loop and international and long-distance permits. FAB managesthe allocation of radio frequencies and monitors the use of allottedfrequencies. In June 2005 the United Arab Emirates incumbent Etisalatbought a 26% shareholding in Pakistan Telecommunications Co. Ltd (PTCL) forUS$2.6 billion, the first step in the privatisation of the incumbent fixed-lineoperator.

The number of mobile subscribers passed that offixed-line customers in 2004. In addition to Millicom’s Paktel and Pakcom (withMillicom’s Shareholding in the latter in the process of being sold), four otheroperators are present in the Pakistani mobile market: Mobilink, Ufone, Telenorand Warid Telecom.

As of December 31, 2005, Millicom had twoseparate mobile operations in Pakistan, Paktel and Pakcom, which were managedseparately and address different market segments with different brands.

Due to the practical difficulties of owning andmanaging two competing operators in the same market and the incompatibility ofPakcom’s network technology with the rest of the Millicom group, Millicom hastaken the view that this operation, based on AMPS/TDMA network technology anddue to launch CDMA services in 2006, is no longer a core asset.

On March 20, 2006, Millicom signed an agreementto sell its shareholding in Pakcom to the Arfeen group for a nominal amount. Aspart of the agreement, Millicom also agree to transfer 10% of Paktel, Millicom’sother operation in Pakistan to Millitel Limited, to an entity controlled by theArfeen group.

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A disagreementarose during the third quarter of 2005 between Millicom and the localshareholders in Pakistan based on conflicting interpretations of a series ofagreements relating to Pakcom and Paktel signed in January and February 2004.Millicom and the local shareholders have been in negotiations since September 2005regarding a resolution of their disagreement and the sale of Millicom’s entireshareholding in Pakcom to the local shareholders. The disagreement led thelocal shareholders in December 2005 to bring two lawsuits in the Pakistancourts against Millicom and certain of its affiliates, requiring among otherthings specific performance of the transfer to them of 30% of Millicom’sshareholding in Paktel and damages in relation to the local shareholders’investment in Pakcom due to Millicom’s alleged mismanagement of and fraud inrelation to Pakcom. To defend themselves, Millicom and certain of itsaffiliates commenced arbitral proceedings against the local shareholders andcertain of their affiliates in February 2006 before the InternationalCourt of Arbitration of the International Chamber of Commerce in Paris, France.The negotations continued and resulted in the signature on March 20, 2006of a series of agreements between Millicom and certain of its affiliates andthe local shareholders and certain of their affiliates to the effect that:

·       Thelocal shareholders agreed to acquire all of Millicom’s interest in Pakcom for asymbolic dollar, whereby Millicom agreed to pay off Pakcom’s outstandingexternal bank loans of approximately $17 milllion and the local shareholdersagreed to assume the balance of the license obligations, including the paymentof the license instalment of approximately $14.5 million, plus late interestthereon, initially due by Pakcom in mid-October 2005.

·       Thelocal shareholders agreed to acquire 10% of Paktel and obtain no rights otherthan what Pakistan company law provides for 10% shareholders. Millicom willretain full management and operational control of Paktel.

·       Thelocal shareholders and Millicom agreed to terminate and withdraw the lawsuitsand arbitration proceeding they have brought against each other and terminateall of the existing agreements ever entered into among them in relation toPaktel and Pakcom, including the January and February 2004agreements.

The closing of the sale to the Arfeen group of Millicom’sinterest in Pakcom is subject to regulatory approval by the PakistanTelecommunications Authority (PTA) of the change of control in Pakcom. There isno indication as to when the approval will be received. We have receivedindications that the PTA is seeking additional comfort that the localshareholders will be financially able to assume the payment of the overduelicense instalment and of the remaining payments under Pakcom’s license.

Millicom has a 98.9% equity interest in Paktel andaccounts for this operation as a subsidiary, i.e., using the full consolidationaccounting method. If 10% of Millicom’s shareholding in Paktel was transferredto the Arfeen group as a result of the above transactions, we would continue toaccount for Paktel as a subsidiary.

Paktel launched commercial operations in 1990,simultaneously with the only other mobile operator at the time, Pakcom.Millicom acquired Cable & Wireless’s 98.6% shareholding in Paktel in December 2000.Following a capital increase through the conversion of certain shareholderloans in 2001, Millicom’s ownership increased to 98.9%. In the same year, thecompany also extended its service offering from AMPS to TDMA. Paktel wasgranted a change to its license in October 2002 allowing it to offer GSM services.After lengthy negotiations with the PTA, which delayed Paktel from launchingits GSM service earlier and causing it to lose significant market share, Paktellaunched its GSM services in October 2004.

Paktel was a joint first mobile entrant in Pakistantogether with Pakcom in 1990. In subsequent years, four new GSM operators enteredthe market. Mobilink (majority owned by Orascom Telecom) launched commercialoperations in 1994 and became the leading mobile operator in Pakistan mainlydue to the fact that it was the first operator to exclusively offer GSMservices. Ufone (wholly-owned by the incumbent 

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PTCL) launched operationsin 2001 and is the second largest mobile company in Pakistan. Two newoperators, Telenor (the Norwegian incumbent operator) and Warid Telecom (wholly-ownedby the Abu Dhabi Group of the United Arab Emirates) launched GSM services inPakistan in February 2005 and May 2005, respectively. The latter twohave become the third and fourth largest operators in terms of subscribers,respectively.

Paktel’s GSM network comprises 669 base stations witha maximum capacity of handling 2,040,000 concurrent subscribers. The GSMnetwork covers 27% of the total population. Paktel is seeking to increase thenumber of base stations significantly by the end of 2006 and is also planningto introduce GPRS/EDGE capability during 2006.

Paktel pays a royalty to the PTA of 2.5% of grossrevenues (net of leased circuit and public switched telephone network chargespaid to PTCL, another government entity), payable in arrears.

On October 23, 2004,Paktel signed agreements with the PTA to operate its GSM network with immediateeffect and to renew its license for 15 years from October 23, 2004 for alicense fee of $291,000,000. Paktel and the PTA have agreed deferred paymentterms under which 50% of the license fee will be paid in installments over thefirst three years of the license. The second 50% of the license fee will bepayable in ten yearly payments from 2008 to 2017. Payments already made byPaktel for the GSM migration since 2002, totaling approximately $14 million, weretreated as payments towards Paktel’s new license fee. Paktel has been awardedadditional 1800 spectrum, increasing its total spectrum for its GSM networkfrom 10MHz to 13.6MHz. The agreement followed an earlier failure by the PTA tocomply with an agreement to operate Paktel’s GSM network.

**Sri Lanka**

Sri Lanka’s government system is a republic based onthe French model. The country achieved independence in 1948 following decadesof occupation by Portugal, the Netherlands and Britain. Tensions between theSinhalese majority and Tamil separatists erupted into a war in 1983, but thegovernment formalised a cease-fire in February 2002. Increased activity byTamil separatists in early 2006 has raised fears about a breach of the cease-fire.Presidential elections were held in November 2005 with the nextpresidential and parliamentary elections due in 2011 and 2010, respectively.

Sri Lanka abandoned its import substitution tradepolicies for market-oriented and export-driven trade policies in 1977. The mostdynamic sectors in the country are food processing, textiles and apparel, foodand beverages, telecommunications and insurance and banking. Tea made up only13% of total exports in 2004, compared to 93% in 1970 while textile andgarments now account for 49% of total exports. The economy has shown stronggrowth in recent years. Sri Lanka had a population of about 20.1 million in 2005.

Expansion of telecommunication services in Sri Lankafirst gained momentum after the liberalisation of the sector in 1991 with theestablishment of the Office of the Director General of Telecommunications, thecountry’s regulatory authority. Further momentum was gained after thepart-privatisation of Sri Lanka Telecom (SLT) in 1997. In the same year, thegovernment also established the Telecommunications Regulatory Commission (TRC),which took over from the Office of the Director General of Telecommunicationsto implement the targets of the National Telecommunications Policy of 1994/95.The provision of basic telephone services in Sri Lanka was the soleresponsibility of monopoly provider SLT until 1996, but to achieve theaggressive targets detailed in the National Telecommunications Policyprivate-sector participation in the telecommunications market has beenencouraged. The TRC has been tasked with the responsibility of facilitating andmonitoring the operational aspects of the various service providers, settlinginterconnection issues, recommending new licenses to operators, allocatingradio frequencies and promoting the general interest of the customer.

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Sri Lanka’s telecommunications sector has been laggingbehind in the development of a modern network infrastructure following almosttwo decades of violent political conflict until early 2002, which conflict hasagain increased in early 2006 through a series of bomb attacks by the TamilTigers. Due to the lack of nationwide fixed-line telecommunications services,mobile services have played a key role in the development of thetelecommunications sector in Sri Lanka. Mobile penetration passed fixed-linepenetration in 2003.

In addition to Millicom’s Celltel, three otheroperators service the Sri Lankan mobile market: Dialog, Mobitel and HutchisonTelecom. There are four mobile operators in Sri Lanka - one dominant fixed-lineoperator and two Wireless Local Loop service operators (Suntel and Lanka Bell).

With the current improved political stability andsocial and economic advances, Sri Lanka has seen mobile subscriber growth ofmore than 60% p.a. over the last few years, Sri Lanka has a Mobile Party Payssystem and is moving to adopt a Calling Party Pays system.

Millicom has a 100% equity interest in Celltel andaccounts for this operation as a subsidiary, i.e., using the full consolidationaccounting method.

Celltel entered the marketin 1989 as the first mobile operator in the country and today operates twomobile networks, a GSM 900 network and the original ETACS network. Celltel ownsthree different licenses :mobile, internet services and external gatewayoperations.

There was no other mobileoperator in Sri Lanka when Celltel entered the market in 1989. Until 1993,Celltel enjoyed a monopoly position when Call Link (owned by Singapore Telecom)and Mobitel (owned by Telstra) entered the market as the second and thirdoperators. In 1995, Dialog (owned by Malaysia Telecom) entered the market asthe fourth operator. After the privatisation of Sri Lanka Telecom in 1997, itacquired 100% of Mobitel from Telstra. In 1998, Hutchison Telecom acquired CallLink from Singapore Telecom.

There are four mobileoperators in Sri Lanka - one dominant fixed-line operator and two WirelessLocal Loop service operators (Suntel and Lanka Bell). In recent years, Celltelhas underinvested in its network coverage and capacity compared to itscompetitors. In 2005, Celltel began a significant network upgrade programme.Once this is complete, Celltel intends to relaunch with the Tigo brand.

Celltel’s strategy isbased on a low-price mobile service offering primarily to the pre-paidsubscriber segment, driving new subscriber acquisitions and increased usage.All services are priced to offer the best value proposition in the market. Thisstrategy is further enhanced by Celltel’s ongoing programme to extend networkcoverage and build additional capacity.

Celltel is planning tofurther expand GSM services by freeing up spectrum through the migration ofanalogue customers to the GSM network during 2006. The full termination ofanalogue services is scheduled for 2007.

Celltel was granted thefirst mobile license in Sri Lanka in 1988. This license expired in 1995, atwhich point it was renewed. In February 2006, Cellel obtained an early 10-yearlicense extension applicable from September 2008 to 2018 at a cost ofapproximately US$4 million.

The GSM network comprises180 base stations with a maximum capacity of handling 642,000 concurrentsubscribers. The network covers 47% of the total population. GPRS and EDGE servicesare expected to be launched by mid-2006.

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**Iran**

Iran had a population of approximately71.5 million at the end of 2005. Less than 10% of Iranian lived below thepoverty line in 2005.The capital of Iran is Tehran (9.0 millioninhabitants). Persian (Farsi) is the official language. The country’s currencyis the Rial. Population density is 41 people per sq km and urban populationrepresents around 60% of the country’s total population.

Iran’s government system is a theocratic republicbased on the constitution of 1979 which was amended in 1989. Following theelections of a reformist president and national assembly (Majlis) in the late1990s, attempts to foster political reform in response to popular demand havebeen indecisive as conservative politicians have prevented reform measures frombeing enacted. Ayatollah Ali Khamenei is the chief of state and the currentpresident, Mahmoud Ahmadinejad, was elected in June 2005. PresidentAhmadinejad is widely considered to be a conservative hardliner who will focuson fighting poverty in the country and supporting the development of Iran’scivil nuclear program, which has caused concern in the United States and Europeabout Iran’s potential breach of its obligations under the nuclear non-proliferationtreaty to which Iran is a partly and possible use of civil nuclear technologyfor military ends.

Most economic activity in Iran is controlled by thestate. Private sector enterprises are typically small-scale workshops. Althoughlittle is known about the new president’s economic policies, the previousleadership of Mohammed Khatami continued to follow market reform plans,although with limited progress. Higher oil prices in recent years have enabledIran to amass some US$30 billion in foreign exchange reserves, but have notmeaningfully eased economic conditions such as high unemployment and inflation.The country’s important role as an oil exporting nation (accounting forapproximately 93% of exports in 2003) is the main reason for Iran’s high GDPper capita compared to other emerging markets. Textiles, construction materials,food processing and metal fabrication are other key national industries.Despite the country’s political and economic challenges, Iran continues toexperience strong growth.

Ratification of the Foreign Investment Promotion andProtection Act in May 2002, explicitly allowing foreign direct investmentin the telecommunications sector, has paved the way for critical foreigninvolvement in the industry’s development. The legislation was followed by theauction of a 15-year operating license awarded to Turkcell in February 2004.However, intervention by the new conservative parliament resulted in extrarestrictions being applied to the license, cutting Turkcell’s permitted sharein the venture from 70% to 40%. An end to the full government-controlled monopolyover the telecommunications sector has been outlined in a new economic plan.The government is also in the process of setting up a regulatory body under theguidance of the Ministry of Post, Telegraph and Telephone. Parliamentarycommittees play a meaningful role in the sector, and other governmental andpara-governmental bodies influence policies that affect telecommunicationsoperators.

State-owned Mobile Communications of Iran (MCI, themobile subsidiary of the incumbent fixed-line operator TCI) is currently theonly nationwide provider of GSM services in Iran and a further two nationaloperators, Telecommunication Kish Company (TKC) and Mobile TelecommunicationsCompany of Esfahan (MTCE), offer limited local mobile services. The governmenthas been making moves to overcome the main barrier to take-up of mobileservices in Iran, limited network capacity, during the last few years. At thecurrent subscription level, capacity is fully utilised, but demand for mobileservices remains significantly underserved with long waiting lists for SIMcards. In May 2005, the Rafsanjan Industrial Complex Islamic CooperativeCompany (RIC) was given the right to provide pre-paid GSM services to2 million customers. Millicom is RIC’s international partner.

Millicom entered into a management agreement with RICin the fourth quarter of 2003. Under this agreement Millicom has agreed toprovide management services for a mobile network developed and owned by RIC.The network is subject to a “build, operate and transfer” agreement between RICand the Telecommunications Company of Iran (TCI, the national incumbentfixed-line operator which is wholly-owned by the government of Iran). Under theterms of this agreement, RIC will build and operate a 

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nationwide GSM network for2 million pre-paid customers. During a 10-year period which startedin February 2005, RIC is to pay 57% of revenues generated by the networkto TCI as a license royalty. Due to this high royalty rate, RIC is innegotiations with TCI to wave any interconnection fees which would otherwise bepayable for accessing the TCI network. RIC needs this concession to generate areasonable rate of return. At the end of the 10-year period, ownership ofthe network will be transferred to TCI at zero cost. RIC, with the help of Millicom,launched pre-paid GSM services in greater Tehran in May 2005 and hasslightly less than half a million subscribers. There is a possibility that theIranian government could agree to increase the size of the pre-paid network to6 million subscribers.

RIC is to pay Millicom for its management services ata rate of 2.2% of revenues generated by the network, although so far nopayments have yet been received. From February 2007 RIC is to make, aminimum payment of US$8 million per annum to Millicom.

In the first quarter of 2004, Millicom signed anoption agreement with RIC that gives Millicom the right to acquire ashareholding of up to 47% in the joint stock company to be set up to operatethe network before February 2007. In the two-year period commencing in February 2007,Millicom has the right to acquire a maximum equity stake of 30% in addition toany shares acquired before that date, provided that the total percentageacquired never exceeds 47%. Consideration due by Millicom for this stake is tobe calculated based on the book value of the assets at the time of exercise ofthe call option. Millicom intends to exercise the option if RIC can obtain thewaiver of the interconnection fees and if Millicom is satisfied that it cangenerate a reasonable rate of return.

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**SOUTH EAST ASIA**

South East Asia comprisesour cellular operations in Cambodia and Lao People’s Democratic Republic, andthe terminated BCC in Vietnam. In South East Asia we also operate aninternational gateway, a high-speed data business and a TV station in Cambodia.Our South East Asia licenses cover approximately 19.8 million people as ofDecember 31, 2005.

**Cambodia**

Cambodia’s government system is a multiparty democracyunder a constitutional monarchy instated in 1993 following decades of ruling bythe Khmer Rouge, a Vietnamese occupation and civil war. The general electionsof 2003 resulted in a coalition government between the Cambodian People’s Partyof Prime Minister Hun Sen and the National United Front for an Independent,Neutral, Peaceful and Co-operative Cambodia.

Economic growth (as measured by real GDP) in Cambodiahas remained above 5% p.a. since 2002, largely driven by the garment sector andtourism, but was estimated to fall in 2005 due to slower industry growth. Otherkey industries include rice milling, fishing, wood and wood products, rubberand cement manufacturing. The US is the country’s main export partner. The twocountries signed the Bilateral Textile Agreement in 1999, which gave Cambodia aguaranteed quota of US textile imports. In October 2005 the government ofCambodia announced a range of new initiatives to attract foreign investmentthrough, for example, a more favourable corporate tax environment. AlthoughCambodia has higher GDP growth rates than many countries in Asia, it isestimated that at least 40% of the Cambodian population lived below the povertyline in 2005. Cambodia had a population of about 13.6 million in 2005.

Cambodia’s telecommunications sector is controlled bythe Ministry of Posts and Telecommunications (MPTC), which has the dual role ofa regulator and monopoly fixed-line operator. A number of other serviceproviders are active in the market, an arrangement which was made possiblethrough joint ventures with the MPTC or under MPTC-issued licenses. While therehave been plans to restructure the sector, the market has remained relativelyunregulated thus far.

Due to decades of war, there is very little telecommunicationsinfrastructure remaining from pre-Khmer Rouge days. As a result, Cambodiabypassed rebuilding fixed-line infrastructure and launched into digital mobiletechnology.

Millicom has a 58.4% equity interest in CamGSM. Theremaining 41.6% of the company is owned by a Cambodian company, Royal Group ofCompanies (RGC, a communication and industrial conglomerate) (38.5%) and,indirectly, by a private business partner, Mr. Muhammed Akhtar Zaman(3.1%), who is a Senior Vice President of Millicom. Millicom and RGC jointlycontrol CamGSM. Furthermore, RGC is responsible for the provision of businessfacilities and assisting the joint venture in obtaining government licenses andapprovals. Millicom accounts for this operation as a joint venture, i.e., usingthe proportionate accounting method.

Although CamGSM launched commercial operations in 1997as the fourth operator, it gained market leadership through early deployment ofpre-paid services and rapid network roll-out, starting with servicesexclusively in Phnom Penh that have since then been expanded to cover fiveregional capitals as well as all provinces and major towns. CamGSM led themarket with the introduction of new services and development of indirectdistribution channels. In 2003, CamGSM succeeded in gaining a license tooperate mobile broadband services in Cambodia.

There were three other mobile operators in Cambodiawhen CamGSM entered the market in 1997: Casacom (joint venture between Thaioperator Samart and Telekom Malaysia), CamTel (wholly-owned by Thaiconglomerate CP and only offering analogue post-paid mobile services) and Tri(Malaysian). CamGSM established a leading market position through theintroduction of quality services, development 

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of distribution outletsand branding aimed at the youth market segment. As a result, Tri exited themarket and CamTel has become unable to compete effectively with its AMPSplatform.

Shinawatra, a Thai company, entered the market in 1999and has competed primarily based on price, providing lower quality services andcoverage for lower-end users. Casacom has experienced erosion in its marketshare mainly due to slow adoption of pre-paid services, failing to respond toprice competition from Shinawatra, and lack of innovation.

Millicom estimates that in 2005 CamGSM, Shinawatra andCasacom controlled market shares of approximately 71%, 20% and 9%,respectively. CamTel has an insignificant position in the Cambodian mobilemarket.

In April 1996 CamGSM was awarded a 25-year licenseto operate a nationwide GSM network, the first such license granted inCambodia, and in July 1999 the company’s license was extended to 35 years.On March 3, 2006 the MPTC advised CamGSM that it was increasing therevenue share associated with the license. CamGSM appealed the originalsub-decree and on March 22, 2006 satisfactorily resolved this issue withthe regulator. It has been concluded that the revenue share and related taxes associatedwith the license will be increased from 34% to 43% and, should the ministryprovide better terms to another operator in the future, the revenue share willbe adjusted to match, in the spirit of a “most favored nations” clause.

The GSM network comprises461 base stations with a maximum capacity of handling 1,100,000 concurrentsubscribers. The network covers 44% of the total population. The network isGPRS enabled and a programme to activate EDGE throughout the network isexpected to be completed in mid-2006.

**People’s DemocraticRepublic of Lao (Laos)**

Laos’ government system is a one-party communist rule whichtook control in 1975. Initial closer ties to Vietnam and socialisation werereplaced with a gradual return to private enterprise, a liberalisation offoreign investment laws and the admission to ASEAN in 1997.

The government of Laos started decentralising controland encouraging private enterprise in 1986. Economic growth (as measured byreal GDP) averaged approximately 6% p.a. since the late 1980s except during theAsian financial crisis in 1997. The economy continues to benefit from aid fromthe IMF and other international sources and from new foreign investment. In2004, Laos gained normal trade relations status with the US, allowingLaos-based producers to face lower tariffs on their exports which is expectedto help fuel growth going forward. The government continues to focus onattracting foreign investment, having introduced its revised Law on ForeignInvestment Promotion in 2004 which included the introduction of new tax andemployment incentives for foreign investors. Laos is currently negotiating itsaccession to the World Trade Organisation. Key industries in the countryinclude mining, timber, electricity generation, agricultural processing,construction, garments and tourism. Despite strong economic growth, over 70% ofLaos’ population was estimated to live below the poverty line in 2005, of whichabout 26% lived in extreme poverty. Laos had a population of about 6.2 millionin 2005.

In April 2001, the Lao National Assembly adopteda new Telecommunications Act. One of the most significant changes has been thecreation of a separate regulatory unit in the Ministry of Communications,Transport, Post and Construction which has been regarded as a first step in thesetting up of an independent regulator. In late 2002 two consultancy projectswere initiated in the country, one funded by the Asian Development Bank and theother by the World Bank, for the purpose of assisting the government inpreparing more detailed telecommunications regulations.

Millicom has a 74.1% equity interest in Millicom Lao.The remaining 25.9% of the company is owned by the government of Laos (22.0%)and indirectly by a private business partner, Mr. Muhammed Akhtar 

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Zaman (3.9%), who is aSenior Vice President of Millicom. Millicom accounts for this operation as asubsidiary, i.e. using the full consolidation accounting method.

Following Millicom’s entry into neighbouring Cambodiaand Vietnam, Millicom launched commercial operations in Laos through itssubsidiary Millicom Lao in April 2003. Although Millicom Lao entered themarket as the fourth GSM operator, it had established a market share of 11% asit targeted the younger population. As Laos has one of the youngest averagepopulation ages in Asia. Millicom Lao is currently the third largest mobileoperator in the country.

There were three other mobile operators in Laos whenMillicom Lao entered the market in 2003: Lao Telecom (the incumbent operatorwhich is 51% owned by the government of Laos and 49% owned by Shinawatra ofThailand), ETL (a spin-off from Lao Telecom and wholly-owned by the governmentof Laos) and LAT Mobile (wholly-owned by the Laos Ministry of Defence).

LAT Mobile has not been a true commercial operationhistorically as it almost exclusively served the country’s army and governmentofficials, but it is currently trying to enter the consumer market. In 2005,the government of Laos also issued a new CDMA and WiMax (2.5GHz and 3.5GHz)license to Skytel & Net, a Thai consortium. The consortium has yet tolaunch commercial operations and it is unclear whether it will use the CDMAlicense to offer fixed or mobile telephony services.

Millicom Lao’s strategy is based on remaining a highquality network in key populated areas and areas popular with the fast growingnumber of tourists focusing on expanding coverage in areas adjacent topopulated regions and on major motorways. For the time being Millicom Lao doesnot intend to compete on coverage in low population density areas due to thehigh level of capital expenditure and operating costs associated with such astrategy. Millicom Lao is considering launching a post-paid service offering tocapture revenues in the corporate and high-usage residential segments and it isalso in the process of applying for an international gateway license to be ableto offer similar discounted international services to its subscribers as thoseof its competitors.

In January 2002, Millicom Lao was awarded a 20-yearlicense to operate a nationwide GSM network. The company is also currently inthe process of applying for an international gateway license and is negotiatinga 90MHz spectrum license for the 2.5GHz WiMax band.

The GSM network comprises80 base stations with a maximum capacity of handling 122,000 concurrentsubscribers. The network covers 11% of the total population.

**Vietnam**

Vietnam’s government system is a one-party communist rule whichtook control between 1973 and 1975. In recent years the country establishedstrong economic and diplomatic links with key trade organisations,supranational political institutions and individual countries, including the USand China, both on a regional and global level. Vietnam’s diplomatic profilewill also benefit from hosting the Asia-Pacific Economic Co-operation (APEC)summit and a number of other APEC ministerial meetings during 2006.

Vietnam achieved substantial economic progress from sincethe mid-1980s until the Asian crisis in 1997, moving forward from a low levelof development and significantly reducing poverty. Economic growth (as measuredby GDP per capita) averaged around 9% p.a. between 1993 and 1997. Althoughgrowth slowed during the Asian financial crisis in 1997, with real GDP growthfalling to 6% in 1998 and 5% in 1999, growth quickly recovered thereafter evenagainst a background of global economic slowdown. Since 2001, the Vietnamesegovernment has reaffirmed its commitment to economic liberalisation andinternational integration. The country has moved to implement the structuralreforms needed to modernise the economy and to produce more competitive,export-driven industries. About 30% of 

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Vietnamese lived under thepoverty line in 2005, of which 15% lived in extreme poverty. Vietnam had apopulation of about 84 million at the end of 2005.

Vietnam’s membership in the ASEAN free trade area andentry into force of the US-Vietnam Bilateral Trade in December 2001 haveled to further rapid changes in Vietnam’s trade and economic environment.Vietnam’s exports to the US now account fo a significant share (over 20%) oftotal exports. The economic outlook remains positive, underlined by thegovernment’s determination to accede to the World Trade Organisation. Thegovernment has been making solid progress in pushing ahead with trade andinvestment reforms and bilateral and multilateral negotiations over World TradeOrganisation entry have been positive. It is generally expected that Vietnamwill become a member of the World Trade Organisation during 2006.

Privatisation of state-owned enterprises isprogressing gradually. The Vietnamese government has given its approval for thepart-privatisation of one large state-owned commercial bank, the Bank ofForeign Trade of Vietnam (Vietcombank), to proceed in 2006. Assuming thisprivatisation process is successful, it is believed that further privatisationswill follow.

The telecommunications sector in Vietnam has startedto undergo substantial structural change, even though the sector remainsregulated by the state. The Directorate General of Posts &Telecommunications (DGPT) was the only telecommunications organisation in thecountry until 1993, when two separate organisations were created. The DGPT wasmade responsible for the management of the national network, regulation of thetelecommunications sector as well as planning and strategy and VNPT, theincumbent operator, was made responsible for the operation of the nationaltelecommunications service and co-ordination of operations in all 61 provincesand cities. In November 2002 the DGPT was replaced by the Ministry ofPosts and Telematics (MPT) which has taken over the responsibility as Vietnam’sregulatory authority in the telecommunications sector.

In its effort to achieve full competition in thesector, the government has to a certain extent opened up the domesticfixed-line, mobile and internet markets. Although VNPT remains the dominantoperator in the market, more companies have started to providetelecommunication services. In addition to VNPT, five more operators haveobtained licenses: Saigon Postel, USA TeleCom (a joint venture between US-basedTelecommunications American International and Saigon Postel), Viettel (owned bythe Vietnamese Army), VP Telecom (a subsidiary of the Vietnam ElectricityCorporation) and Hanoi Telecom. Moreover, the government has approved a plan toabolish the state monopoly in the telecommunications sector by opening up 50%of the market to new operators by 2010. The plan also includes targets to makeVietnam’s telecommunications infrastructure as modern as that of more developedcountries in the region.

To date, foreign companies have not been permitted toown or manage telecommunications networks in Vietnam, but they can be involvedin the market as investors by establishing Business Co-operation Contracts(BCC) under which the foreign operator provides the telecommunicationsequipment and financing while state-owned VNPT manages the operation of thenetwork. Foreign investors are lobbying the Vietnamese government to adoptstructures that would enable foreign partners to participate in the managementand operations of telecommunications companies, including alternativeinvestment forms such as Joint Stock Companies, build-operate-transfer andbuild-transfer structures.

There are four mobile operators in Vietnam: Mobifone(owned by VNPT), VinaPhone (owned by VNPT), S-Fone (a joint venture betweenSaigon Postel and Korea Telecom) and Viettel (owned by the Vietnamese Army).

The mobile telecommunications market in Vietnam hasbeen growing at more than 61% per annum in terms of subscribers over the last years.However, despite recent rapid growth, penetration is still low compared todeveloped markets.

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Millicom has an 80% interest in Comvik InternationalVietnam (CIV), which entered into a BCC agreement for a nationwide GSM networkin Vietnam through Mobifone, the remaining 20% interest in CIV is heldindirectly by Millicom’s private business partner, Mr. Muhammed AkhtarZaman, who is a senior Vice-President of Millicom. CIV, together with Kinnevikand Vietnam Mobile Services Co. (VMS), wholly-owned by VNPT, entered into theBCC in 1994. In 1995, the Vietnamese State Committee gave final approval forthis agreement, and a license to provide GSM mobile services throughout theentire country was issued to VMS. The BCC expired on May 18, 2005. Upon finalclosure of the BCC, which is expected to occur during 2006, all assets held byMobifone will be transferred to VMS at the depreciated book value of theassets, i.e. US$1.

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**OTHERINVESTMENTS**

**Tele2 AB (formerly named NetCom AB)**

Tele2 AB is an alternativepan-European telecommunications company offering fixed and mobile telephony, aswell as data network and Internet services. In August 2003, MillicomTelecommunications S.A., our wholly owned subsidiary through which we hold ourinterest in Tele2 AB, issued 5% Mandatory Exchangeable Notes which areexchangeable on or before August 7, 2006 into substantially all of ourshares of Tele2 AB. For a more detailed description of the offering and theterms of the 5% Mandatory Exchangeable Notes and the related securities lendingarrangement entered into in connection with the offering of the 5% MandatoryExchangeable Notes, see “Operating and Financial Review and Prospects—Liquidityand Capital Resources—Millicom Telecommunications S.A.’s 5% MandatoryExchangeable Notes”.

As at December 31,2005, the Company held 6.1% (2004: 6.1%) of Tele2 AB with a market value of$288,526,000 (2004: $351,882,000).

The Tele2 AB series Bshares underlying the 5% Mandatory Exchangeable Notes have been lent toDeutsche Bank AG London under a securities lending arrangement. MillicomTelecommunications S.A. is obligated to deliver Tele2 AB series B sharesupon exchange of the 5% Mandatory Exchangeable Notes even in the event of afailure of Deutsche Bank AG London to redeliver to Millicom TelecommunicationsS.A. Tele2 AB series B shares.

Tele2 AB is listed on theStockholm Stock Exchange under TEL2A and TEL2B.

**Peru**

In July 2000,Millicom was awarded a 3.5 Ghz license to provide fixed wireless access fordata transmission, Internet Access and fixed telephony in Peru. The licensecovers the main coastal cities and is valid for a 20-year period withrenewal for a similar period.

Millicom entered into aconcession agreement with the Peruvian government in 2002 to provide domesticand international long-distance carrier services in the same cities as theprevious concession and the new concession is valid for a 20-year period.We intend to exit our business in Peru and negotiations leading to the sale ofMillicom Peru S.A. are expected to be concluded in the second quarter of 2006.

**Modern Holdings Inc. and Great Universal Inc.**

As of December 31,2005, the Group, through its subsidiary MIC USA Inc. (“MIC-USA”), had a 100%temporary and restricted shareholding in Great Universal LLC, a trustestablished to hold two separate investments: Great Universal Inc. (“GreatUniversal”) and Modern Holdings Inc. (“Modern Holdings”).

Great Universal LLC holds100% of common shares in Great Universal and 52.7% of common shares in ModernHoldings. Millicom also has a direct ownership of 11.6% of the share capital ofModern Holdings. These investments are recorded as non-currentavailable-for-sale securities (see note 14 of the “Notes to the ConsolidatedFinancial Statements”). Great Universal continues to indemnify Millicom againstcertain contingent liabilities. Great Universal and Modern Holdings are mainlyengaged in the communications, information technology, teleservices and mediaindustries primarily.

Partlyas a result of the ongoing strategic review process, our Board has decided todivest Millicom’s shareholding in the group of U.S. companies, comprising:

·  MIC-USA, Inc. and all of its subsidiaries,which includes Great Universal Inc. and a 52.7% holding in Modern Holdings; and

·  a 11.6% direct interest in Modern HoldingsIncorporated.

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We expect to sell the group of U.S. companies to arelated party for a symbolic price in exchange for the purchaser assumingcertain potential tax liabilities of the group of U.S. companies. The saleagreement is in the final stages of negotiation and completion of thetransaction is expected to occur by the end of May 2006.

Under IFRS, Millicom doesnot consolidate its investments in Great Universal and Modern Holdings as dueto the existence of warrants, enabling the warrant holders to obtain controlover Great Universal and Modern Holdings, Millicom does not control thesecompanies.

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**OTHER**

**Property, Plant andEquipment**

We own, or control through long-term leases orlicenses, properties consisting of plant and equipment used to provide mobiletelephone services. In addition, we and our operating companies own, or controlthrough leases, properties used as administrative office buildings and otherfacilities. These properties include land, interior office space and space onexisting structures of various types used to support equipment used to providemobile telephone services. The leased properties are owned by private andmunicipal entities.

Plant and equipmentused to provide mobile telephone services consist of:

·       switching,transmissions and receiving equipment;

·       connectinglines (cables, wires, poles and other support structures, conduits and similaritems);

·       landand buildings;

·       easements;and

·       othermiscellaneous properties (work equipment, furniture and plants underconstruction).

Millicom’s principalexecutive offices are located in Bertrange, the Grand Duchy of Luxembourg,where it leases approximately 1,000 square meters from a related party, 3CCommunications International S.A. The lease is automatically renewable fromyear to year unless terminated by Millicom or the lessor upon three monthsadvance written notice. The current monthly rent is $19,503 resulting in anannual total of $234,031. Water, electricity, heating, cleaning and maintenanceand security expenses are included in the rent. Millicom believes that theterms of the lease are no less beneficial than those it would have been able tonegotiate with a third party. Millicom believes its principal executive officesare suitable and adequate for its operations.

**Insurance**

We and our operationsmaintain the types and amounts of insurance which we believe to be customary inthe industries and countries in which we and our operations operate, includingcoverage for employee accidents and injuries and property damage. We considerour insurance coverage and that of our operations to be adequate both as torisks and amounts for the business conducted by us and our operating companies.We have recently conducted a survey of our worldwide insurance coverage, whichmay lead us to centralize insurance coverage management so as to improveinsurance terms, coverage, and decrease or optimize insurance premiums.

**History**

Millicom InternationalCellular S.A., a stock corporation (*sociétéanonyme*) organized under the laws of the Grand Duchy of Luxembourg,was formed in December 1990 by two of the mobile industry’s earlypioneers, Kinnevik and Millicom Incorporated, a Delaware corporation (“Mil-Inc”),to hold certain of their mobile interests in 12 countries.

Mil-Inc was formed in 1979to pursue opportunities in the nascent American mobile telephone industry. In1982, the U.S. Federal Communications Commission (the “FCC”) awarded Mil-Incone of only three developmental licenses for mobile telephony. Also in 1982,Mil-Inc founded, with Racal Electronics Plc, a joint venture that evolved intoVodafone Group Plc, now the largest mobile telephone operator in the world. Theinterest in this joint venture was sold to finance Mil-Inc’s furtherdevelopment. Mil-Inc, after initially pursuing U.S. mobile opportunities,decided in 1992 to concentrate on non-U.S. 

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markets,in which licenses generally could be obtained, at that time, without the costof acquiring interests in licenses awarded by the FCC lottery system.

From early 1983, Kinnevikand Mil-Inc began jointly applying for mobile telephone licensesinternationally. The first successful joint application resulted in the awardof a mobile license for Hong Kong in 1983. In 1990, after approximately sevenyears of co-operation, 12 successful license bids and the establishment ofmobile operations in a number of markets, Kinnevik and Mil-Inc agreed to formMillicom for the purposes of managing the development of these operations andpursuing new licenses. At the date of formation, the Millicom common stock wasowned approximately 49% by Kinnevik and 46% by Mil-Inc. Millicom subsequentlydisposed of the joint venture in Hong Kong to fund its continuing development.

**The Merger**

In 1993, it was determinedthat a merger of Mil-Inc and Millicom could accomplish goals sought by bothcompanies.

Under an Agreement andPlan of Merger and Reorganization (the “Merger Agreement”), dated September 21,1993, as amended, between Millicom, MIC-USA Inc (MIC-USA”), a wholly ownedsubsidiary of Millicom, and Mil-Inc, Mil-Inc was merged (the “Merger”) with andinto MIC-USA on December 31, 1993 (the “Effective Date”). The outstandingshares of Mil-Inc common stock were exchanged for approximately 46.5% of theMillicom common stock (exclusive of the additional merger shares describedbelow). Kinnevik held the remaining 53.5% of Millicom common stock.

Immediately prior to theMerger, substantially all of the operations other than the mobile telephoneoperations and certain related liabilities of Mil-Inc were transferred to GreatUniversal, Inc., a Delaware corporation, at that date an indirect whollyowned subsidiary of Millicom (“Great Universal”). Both Millicom and GreatUniversal have separate management and transactions between Great Universal,Millicom and our affiliates are subject to certain restrictions as describedbelow.

Following the EffectiveDate, Millicom contributed to the capital of Great Universal an aggregate of211,864 shares of Millicom common stock, par value $2 each, calculated at thetime of issuance as having an aggregate value of $5,027,000. Great Universalsubsequently sold these shares.

***Merger Warrants***

Immediately prior to theMerger, Mil-Inc stockholders received from MIC-USA warrants to purchase fromMIC-USA 100% of the shares (3,867,287 shares) of Great Universal common stockfor a purchase price equal to $1.30 per share (the “Warrants”). The purpose ofthe warrant distribution was to afford Mil-Inc stockholders theopportunity to participate in the future prospects of such non-mobilebusinesses and to reduce or eliminate Millicom’s interests in such businessesin the event the Warrants are exercised. The Warrants are not transferableexcept in certain limited circumstances. They became exercisable on January 1,1999 and expire six months after an initial public offering of Great Universalon a public market in the United States, unless extended under certaincircumstances (the “Warrant Expiration Date”). At present, no registrationstatement relating to the shares of Great Universal (and, subsequent to thereorganization described below, Modern Holdings) underlying the Warrants hasbeen filed with the U.S. Securities and Exchange Commission.

On December 31, 1993,Great Universal and Millicom entered into an agreement under which, as aninducement to Millicom to contribute its common stock to Great Universal, asdescribed above, Great Universal granted to MIC-USA an option (the “Put Option”)to require Great Universal to purchase from MIC-USA the shares of GreatUniversal common stock not acquired by exercise of the Warrants. Additionally,Millicom granted to Great Universal the option (the “Call Option”) to purchasefrom MIC-USA the Great Universal common stock. The purchase price for theGreat Universal common stock upon exercise of either the Put Option or the CallOption is an amount equal to the difference between the 

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aggregateexercise price of such Warrants ($5,027,473) and the actual aggregate exerciseprice of the Warrants exercised prior to their expiration. The Put Option andthe Call Option are exercisable as to all of the remaining Great Universalcommon stock for a period of 20 days commencing on the day following theWarrant Expiration Date. Great Universal may pay the purchase price for theGreat Universal, Inc. common stock by delivering to MIC-USA that number ofthe shares of Millicom common stock which in the aggregate equals the purchaseprice, based upon the last sale price of Millicom common stock as quoted on theNASDAQ National Market on the Warrant Expiration Date.

If all of the Warrants areexercised or all of the shares of Great Universal common stock not acquired byexercise of the Warrants are repurchased by Great Universal, will have nofurther ownership interest in Great Universal. Certain of Millicom’s managementand shareholders who became holders of Warrants as part of the Merger maybecome shareholders of Great Universal or may participate in the management ofGreat Universal if they choose to exercise the Warrants. From December 30,1993, the date on which the Warrants were issued, until the Warrant ExpirationDate, Millicom may not consummate a transaction with Great Universal or any ofits affiliates that involves the sum of $1,000,000 or more unless Millicom andGreat Universal shall have received an opinion from an independent investmentbank that such transaction is on terms at least as favorable as those that canbe obtained from an unrelated third party. In the event that the Warrants arenot exercised prior to the Warrant Expiration Date, management will evaluateother plans to dispose of Great Universal upon the expiration of the Warrants.

In June 1999, GreatUniversal effected a reorganization of itself and its subsidiaries. In thisreorganization, Great Universal was merged into Great Universal LLC andoperations were spun-off into two separate businesses: Great Universal, Inc.and Modern Holdings Incorporated (formerly known as XSource Corporation). GreatUniversal, Inc. holds the subsidiaries in teleservices, television andmedia and specialized electronics industries, and Modern Holdings Incorporatedholds the subsidiaries in the integrated network services industries.

Great Universal LLC holds100% of common shares in Great Universal, Inc. and 52.7% of common sharesin Modern Holdings Incorporated. Millicom also has a direct ownership of 11.6%of the share capital of Modern Holdings. These investments are recorded asnon-current available-for-sale securities. As of December 31, 2005 and2004 the shares in Modern Holdings were not listed on a public market. Thecarrying value of this investment is $6,258,000 as of December 31, 2005(2004: $2,950,000). In 2005, management recognised a fair value adjustment of$3,308,000 in equity (2004: $nil) under the caption “Revaluation reserve”. Thefair value of GU was estimated by management at $nil.

Millicom does notconsolidate its investments in Modern Holdings and GU as due to the existenceof warrants, enabling the warrant holders to obtain control over ModernHoldings and GU, Millicom does not control or have significant influence overthese companies. The warrants will expire six months after the date aregistration statement of GU is declared effective by the U.S. Securities andExchange Commission.

Following thisreorganization and under the Warrant agreement, each warrant entitles theholder to purchase one share of Great Universal, Inc. common stock and2.0721 shares of Modern Holdings Incorporated common stock at an exercise priceof $1.30 per Warrant, subject to adjustment. Following this reorganization, therights and obligations of MIC-USA arising from the Warrant agreement and thePut Option and the Call Option agreement referred to above were assigned toGreat Universal LLC. Under the terms of the Merger, Great Universal LLCcontinues to indemnify Millicom against certain contingent liabilities.

On December 31, 1999,MIC-USA transferred its 100% ownership and related rights in Great Universal, Inc.to Great Universal LLC 1999 Trust for a consideration of $5,027,000,corresponding to the net book value of Millicom’s investment in Great Universal, Inc.This amount is recorded in “Investment 

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in othersecurities”. During 2002, Millicom recorded an impairment loss for 100% of thisasset due to uncertainty concerning its recoverability.

Great Universal, Inc.is contingently liable for any liabilities in respect of the representationsand warranties made by Mil-Inc to Millicom under the Merger Agreement and inrespect of any United States federal, state and local income tax in excess of$13,544,000 which may be payable by Mil-Inc for 1993 and prior years.

**Partlyas a result of the ongoing strategic review process, our Board has decided todivest Millicom’s shareholding in the group of U.S. companies, comprising:**

**· **MIC-USA, Inc. and all of its subsidiaries,which includes Great Universal Inc. and a 52.7% holding in Modern Holdings; and

**· **a 11.6% direct interest in Modern HoldingsIncorporated.

**Weexpect to sell the group of U.S. companies to a related party for a symbolicprice in exchange for the purchaser assuming certain potential tax liabilitiesof the group of U.S. companies. The sale agreement is in the final stages ofnegotiation and completion of the transaction is expected to occur by the endof May 2006.**

**ITEM4A,   UNRESOLVED STAFF COMMENTS**

Not applicable.

**ITEM 5.**                OPERATINGAND FINANCIAL REVIEW AND PROSPECTS

*The followingdiscussion should be read in conjunction with and is qualified in its entiretyby reference to our consolidated financial statements and the related notesthereto included in this report. The following discussion should be read inconjunction with “Presentation of Financial and Other Information” and“Selected Consolidated Financial and Operating Data”. Except for the historicalinformation contained in this report, the discussions in this section containforward looking statements that involve risks and uncertainties. Actual resultscould differ materially from those discussed below. See “Forward LookingStatements”.*

*Unless otherwise indicated, all financial data anddiscussions relating thereto in this discussion and analysis are based uponfinancial statements prepared in accordance with IFRS. See Note 37 of the“Notes to the Consolidated Financial Statements” for certain reconciliationsbetween IFRS and U.S. GAAP.*

**Overview of Results**

***Subscriber Growth***

As of December 31, 2005, our worldwide totalmobile subscriber base increased to 8,928,985 mobile subscribers from 7,713,201mobile subscribers as of December 31, 2004. Total mobile subscribersincreased by 16% in the year ended December 31, 2005. Particularlysignificant percentage increases were recorded in Guatemala, Senegal, Laos andPakistan.

Our attributablesubscriber base increased to 7,694,953 mobile subscribers as atDecember 31, 2005 from 5,903,552 mobile subscribers as of December 31,2004, an increase of 30%. Of the 7,694,953 attributable mobile subscribersreported as of December 31, 2005, 7,275,187 or 95% were prepaid customers.Total mobile minutes increased by 28% in the year ended December 31, 2005compared with 2004.

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***Revenue and Operating Profit***

Forthe year ended December 31, 2005, revenues increased by 18% to $1,083.7million, representing strong growth, particularly in underlying revenuesexcluding our Vietnamese business as follows:

| **Revenue**                         | ** ** | **2005**               | ** ** | **2004**               | ** ** | **Growth**             | ** ** |
|-------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                          | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Central America                     |       | 452,600                |       | 304,816                |       |                   | 48         | % |   |
| South America                       |       | 141,194                |       | 114,006                |       |                   | 24         | % |   |
| Africa                              |       | 204,397                |       | 149,802                |       |                   | 36         | % |   |
| South Asia                          |       | 120,718                |       | 113,131                |       |                   | 7          | % |   |
| South East Asia,  excluding Vietnam |       | 87,472                 |       | 68,535                 |       |                   | 28         | % |   |
| Other                               |       | 3,237                  |       | 4,395                  |       |                   | -26        | % |   |
| Subtotal                            |       | 1,009,618              |       | 754,685                |       |                   | 34         | % |   |
| Vietnam                             |       | 74,051                 |       | 162,807                |       |                   | -55        | % |   |
| Total                               |       | 1,083,669              |       | 917,492                |       |                   | 18         | % |   |

 

We derive revenues from the provision of telecommunicationsservices such as monthly subscription fees, airtime usage fees, roaming fees,interconnect fees and other services, connection fees and equipment sales.

Revenues from the provision of telecommunicationsservices increased to $1,026.2 million in 2005 from $881.4 million in2004. This was due to a combination of factors. Firstly, the subscriber base incontinuing operations continued to grow. Secondly, the total number of minutesof airtime increased. Thirdly, airtime persubscriber increased. Connection revenues increased to $15.1 million in2005 from $10.1 million in 2004 due to the increase inthe number of new subscribers. Revenues from equipment sales increased to$42.3 million in 2005 from $26 million in 2004 following the launchof GSM in the operations.

A number of telecommunications regulators in thecountries where we operate have, or are expected to, reduce interconnectionrates. Because we are often one of the larger suppliers of telephone servicesin the countries we service, this could have the effect of reducing ourrevenue. Nonetheless, we believe that lower cost to customers may have theeffect of expanding our markets over time.

Operating profit for theyear ended December 31, 2005 was $202.2 million but included $53 millionof one-time asset impairments. Excluding these one-off charges, operatingprofit would have been higher than that of 2004.

***Costs***

The primary cost of sales incurred by us in relationto the provision of telecommunication services relate to interconnection costs,roaming costs, depreciation and impairment of network equipment. Our other mainoperating costs include commissions payable to agents for obtaining customerson our behalf, commissions for selling prepaid cards, advertising and promotioncosts, staff costs and depreciation of non-network equipment.

We will continue to seekways to further reduce our overall cost base by rationalizing our operations.In addition, we expect to realize additional synergies across our multi countryoperations, such as sharing information, human resources, best practices andtechnologies and centralized negotiations of financing and of supply contractsfor network equipment and handsets.

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**Operating Results**

***Years Ended December 31, 2005 and 2004***

Thefollowing table sets forth certain profit and loss statement items fromcontinuing operations for the periods indicated.

| ** **                                                             | ** ** | **Year Ended**                                                                  | ** ** | **Impact on  Comparative  Results for Period** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **December 31,**                                                                | ** ** | **Amount of**                                            | ** ** | **Percent** | ** ** |
| ** **                                                             | ** ** | **2005**                                                                             | ** ** | **2004**                                                      | ** ** | **Variation** | ** ** | **Change** | ** ** |
| ** **                                                             | ** ** | **(in thousands of U.S. dollars, except percentages)** | ** ** |
| Revenues                                                               |       | 1,083,669                                                                            |       | 917,492                                                       |       | 166,177 |   |   | 18 | % |   |
| Cost of sales                                                          |       | (511,919                                                                             | )          | (386,150                                                      | )          | (125,769 | ) |   | 33 | % |   |
| Sales and  marketing                                                   |       | (162,050                                                                             | )          | (122,216                                                      | )          | (39,834 | ) |   | 33 | % |   |
| General and  administrative expenses                                   |       | (200,448                                                                             | )          | (127,792                                                      | )          | (72,656 | ) |   | 57 | % |   |
| Other operating  expenses                                              |       | (24,091                                                                              | )          | (35,225                                                       | )          | 11,134 |   |   | (32 | )% |   |
| Other operating  income                                                |       | 15,743                                                                               |       | 3,287                                                         |       | 12,456 |   |   | 379 | % |   |
| Gain(loss) from  sale of subsidiaries and joint ventures,  net         |       | 1,269                                                                                |       | (2,207                                                        | )          | 3,476 |   |   | (157 | )% |   |
| Operating profit                                                       |       | 202,173                                                                              |       | 247,189                                                       |       | (45,016 | ) |   | (18 | )% |   |
| Valuation  movement on investment securities                           |       | (63,356                                                                              | )          | (127,158                                                      | )          | 63,802 |   |   | (50 | )% |   |
| Interest expense                                                       |       | (143,740                                                                             | )          | (108,514                                                      | )          | (35,226 | ) |   | 32 | % |   |
| Interest and  other income                                             |       | 25,013                                                                               |       | 7,697                                                         |       | 17,316 |   |   | 225 | % |   |
| Fair value result  on financial instruments                            |       | (5,297                                                                               | )          | 148,816                                                       |       | (154,113 | ) |   | (104 | )% |   |
| Exchange gain  (loss), net                                             |       | 52,446                                                                               |       | (26,782                                                       | )          | 79,228 |   |   | (296 | )% |   |
| Charge for taxes                                                       |       | (65,299                                                                              | )          | (59,449                                                       | )          | (5,850 | ) |   | 10 | % |   |
| Net profit for  the year attributable to equity holders of the company |       | 10,043                                                                               |       | 65,891                                                        |       | (55,848 | ) |   | (85 | )% |   |

 

*Subscribers:*   Ourworldwide total mobile subscribers increased by 16% to 8,928,985 as of December 31,2005 from 7,713,201 December 31, 2004. Of the total subscribers as of December 31,2005, 8,426,308, or 94%, were prepaid, an increase of 25% over the 6,739,559prepaid subscribers as of December 31, 2004. Our attributable subscribersincreased by 30% to, 7,694,953 as of December 31, 2005 from 5,903,552 asof December 31, 2004. The four largest contributors to subscriber growthin the year ended 2005 were the operations in Pakistan (Paktel), Guatemala,Honduras and Senegal with a total of 1,690,340 net new subscribers.

*Revenues:*   Totalrevenues for the year ended 2005 were $ 1,083,669, 000 an increase of 18% over$917,492,000 for the year ended December 31, 2004. The increase is mainlydue to revenue growth throughout Millicom’s operations, and especiallythroughout Central American operations. The four largest contributors torevenues during the year ended December 31, 2005 were our operations in El Salvador,Guatemala, Honduras and Paraguay. Revenues were impacted by the expiration ofthe BCC in Vietnam in May 2005.

*Costof sales:*   Cost of sales increased by 33% for theyear ended December 31, 2005 to $511,919,000 from $386,150,000 for theyear ended December 31, 2004. The increased cost of sales is mainlyexplained by growth throughout the operations.

*Salesand marketing:**  *Salesand marketing expenses increased by 33% for the year ended December 31,2005 to $162,050,000 from $122,216,000 for the year ended December 31,2004. This increase was largely due to the rollout of the Tigo brand in most ofour operations and the growth in the 

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operations. Sales andmarketing expenses as a percentage of total revenues were 15% and 13% for theyears ended December 31, 2005 and 2004 respectively.

*Generaland administrative expenses:*   General andadministrative expenses increased by 57% for the year ended December 31,2005 to $200,448,000 from $127,792,000 for the year ended December 31,2004, mainly due to our operations’ expansion.

*Otheroperating expenses:*   Other operating expenses decreasedby 32% for the year ended December 31, 2005 to $24,091,000 from$35,225,000 for the year ended December 31, 2004. The decrease is mainlyexplained by the discontinuation of amortization of goodwill as a result of theadoption of IFRS3 “Business Combination”.

*Gain(loss) from sale of subsidiaries and joint ventures, net:*   Forthe year ended December 31, 2005, we made a net gain of $1,269,000,reflecting mainly the gain on the sale of several non-operating entities, upfrom a net loss of $2,207,000 for the year ended December 31, 2004,resulting mainly from the disposal of our operation in Argentina.

*Operatingprofit:**  *Totaloperating profit for the year ended December 31, 2005 was $202,173,000compared with $247,189,000 for the year ended December 31, 2004 for thereasons stated above. In addition, operating profit in 2005 was impacted by thehigh level of one-time asset impairments of $53,027,000 and the expirationof the BCC in Vietnam in May 2005, which generated a higher than averageoperating margin.

*Valuationmovement on investment securities:*   For the yearended December 31, 2005 valuation movement on investment in securities wasa loss of $63,356,000 representing the variation in the share price of theTele2 AB shares and the variation in the SEK/USD exchange rate since December 31,2004. For the year ended December 31, 2004 valuation movement onsecurities was a loss of $127,158,000.

*Interestexpense:**  *Interestexpense for the year ended December 31, 2005 increased by 32% to$143,740,000 from $108,514,000 for the year ended December 31, 2004. Thisincrease arose primarily from additional borrowings, in particular, the 4%convertible notes and licenses payable in Pakistan.

*Interestand other income:**  *Interestand other income for the year ended December 31, 2005 increased by 225% to$25,103, 000. This increase was mainly due to the interest income on the highercash balances.

*Fairvalue result on financial instruments:**  *For the year ended December 31,2005, the fair value result on financial instruments was a loss of $5,297,000representing mainly the change in fair value of the embedded derivative on the5% Mandatory Exchangeable Notes. For the year ended December 31, 2004, thefair value result on financial instruments was a gain of $148,816,000.

*Exchangegain (loss), net:**  *Millicomhad a net exchange gain for the year ended December 31, 2005 of$52,446,000 compared to a loss of $26,782,000 for the year ended December 31,2004. In 2005 and 2004, the exchange gain and loss are mainly explained by therevaluation at the period-end exchange rate of the 5% Mandatory ExchangeableNotes.

*Chargefor taxes:**  *Thenet tax charge for the year ended December 31, 2005 increased to$65,299,000 from $59,449,000 in the year ended December 31, 2004. Thisincrease is mainly due to the increased profitability of our operations in2005. The Group’s effective tax rate increased from 41% in 2004 to 95% in 2005,mainly as a result of higher non taxable items.

*Net profit for the yearattributable to equity holders of the company:*   Thenet profit for the year ended December 31, 2005 was $10,043,000 comparedto a profit of $65,891,000 for the year ended December 31, 2004 for the reasonsstated above.

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***Years Ended December 31, 2004 and 2003***

Millicomregained control and began consolidating Telemóvil El Salvador at 100% since September 15,2003. In 2004, our results of operation include 100% of the results of ouroperation in El Salvador for the entire year ended December 31, 2004 andfor 2003, for the period from September 15, 2003 to December 31, 2003only.

| ** **                                                             | ** ** | **Year Ended**                                                                  | ** ** | **Impact on  Comparative  Results for Period** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **December 31,**                                                                | ** ** | **Amount of**                                            | ** ** | **Percent** | ** ** |
| ** **                                                             | ** ** | **2004**                                                                             | ** ** | **2003**                                                      | ** ** | **Variation** | ** ** | **Change** | ** ** |
| ** **                                                             | ** ** | **(in thousands of U.S. dollars, except percentages)** | ** ** |
| Revenues                                                               |       | 917,492                                                                              |       | 640,363                                                       |       | 277,129 |   |   | 43 | % |   |
| Cost of sales                                                          |       | (386,150                                                                             | )          | (254,442                                                      | )          | (131,708 | ) |   | 52 | % |   |
| Sales and  marketing                                                   |       | (122,216                                                                             | )          | (87,110                                                       | )          | (35,106 | ) |   | 40 | % |   |
| General and  administrative expenses                                   |       | (127,792                                                                             | )          | (103,876                                                      | )          | (23,916 | ) |   | 23 | % |   |
| Other operating  expenses                                              |       | (35,225                                                                              | )          | (32,776                                                       | )          | (2,449 | ) |   | 7 | % |   |
| Other operating  income                                                |       | 3,287                                                                                |       | —                                                        |       | 3,287 |   |   | — |   |   |
| Gain (loss) from  sale of subsidiaries and joint ventures,  net        |       | (2,207                                                                               | )          | 2,213                                                         |       | (4,420 | ) |   | — |   |   |
| Operating profit                                                       |       | 247,189                                                                              |       | 164,372                                                       |       | 82,817 |   |   | 50 | % |   |
| Gain (loss) and  valuation movement on investment in securities        |       | (127,158                                                                             | )          | 246,760                                                       |       | (373,918 | ) |   | — |   |   |
| Gain on disposal  of investment securities                             |       | 193                                                                                  |       | —                                                        |       | 193 |   |   | — |   |   |
| Interest expense                                                       |       | (108,514                                                                             | )          | (135,130                                                      | )          | 26,616 |   |   | (20 | )% |   |
| Interest and  Other Income                                             |       | 7,697                                                                                |       | 4,836                                                         |       | 2,861 |   |   | 59 | % |   |
| Other Financial  Income                                                |       | —                                                                               |       | 96,748                                                        |       | (96,748 | ) |   | (100 | )% |   |
| Fair value result  on financial instruments                            |       | 148,816                                                                              |       | (84,578                                                       | )          | 233,394 |   |   | — |   |   |
| Exchange loss,  net                                                    |       | (26,782                                                                              | )          | (45,649                                                       | )          | 18,867 |   |   | (41 | )% |   |
| Profit form  associates                                                |       | 814                                                                                  |       | 380                                                           |       | 434 |   |   | 114 | % |   |
| Charge for taxes                                                       |       | (59,449                                                                              | )          | (52,715                                                       | )          | (6,734 | ) |   | 13 | % |   |
| Net profit for the year  attributable to equity holders of the company |       | 65,891                                                                               |       | 176,921                                                       |       | (111,030 | ) |   | (63 | )% |   |

 

*Subscribers:*   Ourworldwide total mobile subscribers increased by 36% to 7,713,201 as of December 31,2004 from 5,690,542 as of December 31, 2003. Of the total subscribers asof December 31, 2004, 6,739,559, or 87%, were prepaid, an increase of 36%over the 4,956,257 prepaid subscribers as of December 31, 2003. Ourattributable subscribers increased by 34% to 5,903,552 as of December 31,2004 from 4,412,370 as of December 31, 2003. The four largest contributorsto subscriber growth in the year ended 2004 were the operations in Vietnam,Ghana, Tanzania and Pakistan (Paktel) with a total of 1,255,181 net newsubscribers.

*Revenues:*   Totalrevenues for the year ended 2004 were $917,492,000, an increase of 43% over$640,363,000 for the year ended December 31, 2003. The increase was mainlydue to revenue growth throughout the Group’s operations, the reconsolidation ofEl Salvador since September 15, 2003 offset by the divestment of ouroperation in Colombia in February 2003. Included in total revenues for theyear ended December 31, 2004 are revenues of $148,905,000 (2003:$39,052,000) from our operation in El Salvador, and included in totalrevenues for the year ended December 31, 2003 are revenues of $5,926,000from our divested operation in Colombia. The four largest contributors torevenue during the year ended December 31, 2004 were our operations inVietnam, El Salvador, Guatemala and Pakistan.

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*Costof sales:*   Cost of sales increased by 52% for theyear ended December 31, 2004 to $386,150,000 from $254,442,000 for theyear ended December 31, 2003. The increased cost of sales is mainlyexplained by the growth throughout the operations and the reconsolidation of ElSalvador.

*Salesand marketing:*   Sales and marketing expensesincreased by 40% for the year ended December 31, 2004 to $122,216,000 from$87,110,000 for the year ended December 31, 2003. This increase waslargely due to the reconsolidation of El Salvador from September 15, 2003and the growth in operations. Sales and marketing expenses as a percentage oftotal revenues were 13% and 14% for the years ended December 31, 2004 and2003 respectively.

*Generaland administrative expenses:*   General andadministrative expenses increased by 23% in the year ended December 31,2004 to $127,792,000. The increase was largely due to the reconsolidation of El Salvadorin September 2003 which had general and administrative expenses of$14,236,000 for the year ended December 31, 2004 (December 31, 2003:$4,773,000).

*Otheroperating expenses:*   Other operating expensesincreased by 7% for the year ended December 31, 2004 to $35,225,000 from$32,776,000 for the year ended December 31, 2003.

*Gainfrom sale of subsidiaries and joint ventures, net:*   Inthe year ended December 31, 2004 we made a net loss of $2,207,000,reflecting mainly the loss on the sale of our operation in Argentina, down froma net gain of $2,213,000 in the year ended December 31, 2003, resultingfrom the disposal of our operation in Colombia.

*Operatingprofit:*   Total operating profit for the yearended December 31, 2004 was $247,189,000, compared with $164,372,000 forthe year ended December 31, 2003 for the reasons stated above.

*Valuationmovement on investment securities:*   For the yearended December 31, 2004 valuation movement on investment in securities wasa loss of $127,158,000 representing the variation in the share price of theTele2 AB shares and the variation in the exchange rate SEK/USD since December 31,2003. For the year ended December 31, 2003 valuation movement onsecurities was a gain of $246,760,000.

*Interestexpense:*   Interest expense for the year ended December 31,2004 decreased by 20% to $108,514,000 from $135,130,000 for the year ended December 31,2003. This decrease arose primarily from the debt reduction plan implemented in2003.

*Otherfinancial income:*   For the year ended December 31,2003, Millicom realized a gain on the debt restructuring of $96,748,000.

*Fairvalue result on financial instruments:*   For theyear ended December 31, 2004, the fair value result on financialinstruments was a gain of $148,816,000 representing the change in fair value ofthe embedded derivative on the 5% Mandatory Exchangeable Notes. For the yearended December 31, 2003, the fair value result on financial instrumentswas a loss of $84,578,000.

*Exchangeloss, net:*   Millicom had a net exchange loss forthe year ended December 31, 2004 of $26,782,000 compared to a loss of $45,649,000for the year ended December 31, 2003. In 2004 and 2003, the exchange losswas mainly due to the revaluation at the period-end exchange rate of the 5%Mandatory Exchangeable Notes.

*Chargefor taxes:*   The net tax charge for the year endedDecember 31, 2004 increased to $59,449,000 from $52,715,000 in the yearended December 31, 2003. This increase was mainly due to the increasedprofitability of our operations in 2004. The Group’s effective tax rateincreased from 21% in 2003 to 41% in 2004, mainly as a result of higher nondeductible items.

*Net profit for the year:*   Thenet profit attributable to equity holders of the company for the year ended December 31,2004 was $65,891,000 compared to a profit of $176,921,000 for the year ended December 31,2003 for the other reasons stated above. For the year ended December 31,2004, the net profit was mainly 

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affected by thevaluation movement on securities of $(127,158,000) and the fair value result onfinancial instruments of $148,816,000. For the year ended December 31,2003 the net profit was mainly affected by the valuation movement on securitiesof $246,760,000 and the other financial income of $96,748,000 as a result ofdebt restructuring.

***Other significant items***

*Expiration of BCCin Vietnam*

The Business Co-operation Contract (“BCC”) between oursubsidiary, Comvik International (Vietnam) AB (“CIV”) and Vietnam MobileServices Co (“VMS”) expired on May 18, 2005. Millicom is negotiating withVMS and the Vietnamese government to continue their long-term cooperation.

CIV continues to operate under the terms of a serviceagreement between CIV and VMS to provide strategic consulting services forMobifone’s operations. Furthermore, Millicom signed an agreement in August 2005with VMS for the distribution of Mobifone products.

CIV’s revenues under theBCC for the period from January 1, 2005 to May 18, 2005 were$74,051,000 and for the year ended December 31, 2004 were $162,807,000.Net profit from January 1, 2005 to May 18, 2005 was $3,799,000 andfor the year-ended December 31, 2004 reached $45,573,000.

*Acquistions*

On September 13, 2005, the Group acquired 100% ofthe voting shares of Oasis SPRL, a mobile telephony provider in the DemocraticRepublic of Congo.

In May 2005, Millicomacquired 16.67% in the capital of its operation in Honduras, Telefonica Celular(“Celtel”), taking its ownership level from 50.00% to 66.67%. Due to the existenceof joint control, Millicom continues to account for Celtel as a joint ventureusing proportional consolidation. The results of Celtel have beenproportionally consolidated at 50.00% for the period from January 1, 2005to May 26, 2005 and at 66.67% afterwards.

*Divestitures*

Millicom actively negotiated the sale of its Peruvianoperation, Millicom Peru S.A., throughout 2005 and expects to conclude the salein the second quarter of 2006.

On March 20, 2006,Millicom entered into an agreement to sell its TDMA operation in Pakistan,Pakcom, subject to regulatory approval.

Partlyas a result of the ongoing strategic review process, our Board has decided todivest Millicom’s shareholding in the group of U.S. companies, comprising:

·  MIC-USA, Inc. and all of its subsidiaries,which includes Great Universal Inc. and a 52.7% holding in Modern Holdings; and

·  a 11.6% direct interest in Modern HoldingsIncorporated.

We expect to sell the group of U.S. companies to arelated party for a symbolic price in exchange for the purchaser assumingcertain potential tax liabilities of the group of U.S. companies. The saleagreement is in the final stages of negotiation and completion of thetransaction is expected to occur by the end of May 2006.

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*Effect of Tele 2 ABShares*

On August 7, 2003, Millicom TelecommunicationsS.A., Millicom’s wholly-owned subsidiary, issued for an aggregate valueof SEK 2,555,994,000 (approximately $310 million) Mandatory ExchangeableNotes which are exchangeable into a maximum of 8,968,400 Tele2 AB series Bshares. Millicom Telecommunications S.A. could retain up to 30% of the increasein value of the Tele2 AB series B shares over the designated referenceprice of SEK 285 per share. Unless otherwise previously redeemed and exchangedor purchased and cancelled, each 5% Mandatory Exchangeable Note will bemandatorily exchanged by Millicom Telecommunications S.A. on August 7,2006.

The market price valuation of the Tele 2 ABseries B shares has fluctuated significantly over the past several yearsresulting in significant gains/losses through the profit and loss account. SeeNote 13 of the “Notes to the Consolidated Financial Statements” forinformation on Millicom’s holdings of Tele 2 AB series B shares. Thevariation in the share price of the Tele 2 AB series B shares held byMillicom is recorded under the caption “valuation movement on investmentsecurities.”

The gains/losses due to the movement in the shareprice of the Tele2 shares is attributable to two factors: the underlying valueof the shares and an exchange element since the shares are in Swedish Krona(SEK). There is a similar and offsetting exchange movement on the 5% MandatoryExchangeable Notes but this movement is recorded in the Exchange Gains/Lossesline. See below for further information.

The 5% MandatoryExchangeable Notes include an embedded derivative, which is valued separately.The variation in the value of the embedded derivative is recorded under thecaption “fair value result on financial instruments.” The embedded derivative,which reflects Millicom’s limited right to participate in the increase in valueof the Tele2 AB series B shares, is recorded at fair value, taking intoaccount time and volatility factors. Because the Tele 2 AB series B shareprice is a primary determinant in the value of the embedded derivative, anyvaluation movement on the Tele2 share price will be partially offset by acorresponding movement in the value of the embedded derivative.

*Effect of ExchangeRate Fluctuations*

Exchange rates forcurrencies of the countries in which our operations operate may fluctuate inrelation to the U.S. dollar, and such fluctuations may have a material adverseeffect on our earnings, assets or cash flows when translating local currencyinto U.S. dollars. For each operation that reports in a currency other than theU.S. dollar, a decrease in the value of that currency against the U.S. dollarwould reduce our profits while also reducing both our assets and liabilities.To the extent that our operations upstream cash in the future, the amount ofU.S. dollars we will receive will be affected by fluctuations of exchange ratesfor such currencies against the U.S. dollar. The exchange rates obtained whenconverting local currencies into U.S. dollars are set by foreign exchangemarkets over which we have no control. We usually do not enter into hedgingtransactions to limit our foreign currency exposure. Millicom had a netexchange gain for the year ended December 31, 2005 of $52,446,000 comparedto a loss of $26,782,000 for the year ended December 31, 2004. In 2005,2004 and 2003, the exchange gain and losses were mainly due to the revaluationat the period-end exchange rate of the 5% Mandatory Exchangeable Notes.

*Expiration ofTelephone Licenses*

In each of our markets wemay face competition for business arrangements or licenses from majorinternational telecommunications entities as well as from local competitors.While we have not typically paid significant amounts in connection with ourbusiness arrangements or for mobile licenses, the competition for the grantingor renewal of business arrangements or licenses is increasingly intense. As such,we anticipate that we may have to pay substantial renewal fees in certainmarkets, as well as meet specified network build out requirements. We cannotassure you that we will be successful in obtaining or renewing any profit sharingarrangement or mobile telephone licenses, or if they are awarded that they are 

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on termsacceptable to us. In addition, we may need to seek future funding throughadditional borrowings or equity offerings, and we cannot assure you that suchfunding will be obtained on satisfactory terms or at all.

**Liquidity andCapital Resources**

***Overview***

We believe our working capital is sufficient for ourpresent requirements.

As of December 31, 2005, Millicom’s totalconsolidated outstanding debt and other financing was $1,232,623,000 (2004:$1,114,413,000). Of this amount, $1,016,242,000 (2004: $901,635,000)represented the Company’s and Millicom Telecommunications S.A. indebtedness and$216,381,000 (2004: $212,778,000) represented our consolidated share of theindebtedness of our subsidiaries and joint ventures. In addition, of ourconsolidated indebtedness, $315,359,000 ($365,006,000 in 2004) relates to the5% Mandatory Exchangeable Notes, which are mandatorily exchangeable into Tele2AB B shares and in respect of which no repayment in cash is required.

As at December 31, 2005, we had totalconsolidated outstanding debt and other financing of $1,232,623,000 (2004:$1,114,413,000). Of this amount,

·  $537,599,000 ($536,629,000 in 2004), net ofdeferred financing fees, was in respect of the 10% Senior Notes;

·  $163,284,000 ($nil in 2004), net of deferredfinancing fees, was in respect to the 4% Convertible Notes;

·  $315,359,000 ($365,006,000 in 2004), net ofdeferred financing fees, was in respect of the 5% Mandatory Exchangeable Notes—debtcomponent;

·  $ 216,381,000 ($212,778,000 in 2004) was inrespect of the indebtedness of our operations.

At the venture level, we seek, in the long term, tofinance the costs of developing and expanding mobile operations on a project-by-projectbasis. Operations are typically financed initially by contributions fromMillicom in the form of equity and, in some cases, debt. In many cases, we seekto replace such debt with third party financing, which after the initial stagesof a venture’s development, is typically non-recourse to Millicom. Sources offinancing at the venture level have included vendor financing provided byequipment suppliers, project financing from commercial banks and internationalagencies such as the International Finance Corporation (“IFC”) and the OverseasPrivate Investment Corporation (“OPIC”), bank lines of credit and sales ofequity and debt issued by the venture companies.

We seek to obtainfinancing at a venture level in the relevant local currency so as to limit theimpact of currency fluctuations, although this is not always possible.

***Cash Upstreaming***

The continued improvementin the operating and financial performance of our operations has allowed us tocontinue to upstream excess cash to the Company. For the year endedDecember 31, 2005, we upstreamed $163.2 million from 15 of the 17countries in which we operate. This upstreamed cash will be used to service ourcorporate debt obligations and for further investment. In 2004, we upstreamed$171.0 million from 13 of 15 countries in which we operated. In 2003, weupstreamed $129.3 million from 14 of 15 countries in which we operated.

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***Cash Flows***

For the year ended December 31, 2005, cashprovided by operating activities was $407,165,000, compared to $303,243,000 forthe year ended December 31, 2004. The increase is mainly due to increasedcash flows from operating profits.

Cash used by investing activities was $443,659,000 forthe year ended December 31, 2005, compared to $187,147,000 for the yearended December 31, 2004. In the year ended December 31, 2005 Millicomused cash to purchase $323,524,000 of property, plant and equipment compared to$197,873,000 for the same period in 2004. Furthermore, during 2005, Millicomused $72,250,000 to purchase operating investments in Congo, Ghana andHonduras.

Financing activities provided total cash of$221,399,000 for the year ended December 31, 2005, compared to$149,842,000 for the year ended December 31, 2004. In the year ended December 31,2005, we repaid debt of $119,886,000 while raising an additional $339,732,000through financing and $3,553,000 through the issuance of shares.

The net cash inflow in year ended December 31,2005 was 183,186,000 compared to an inflow of $264,552,000 for the year ended December 31,2004. Millicom had a closing cash and cash equivalents balance of $596,567,000as of December 31, 2005 compared to $413,381,000 as of December 31,2004.

For the year ended December 31, 2004, cashprovided by operating activities was $303,243,000 compared to $184,322,000 forthe year ended December 31, 2003. The increase is mainly due to increasedoperating profits and lower interest payments.

Cash used by investing activities was $187,147,000 forthe year ended December 31, 2004, compared to $95,551,000 for the yearended December 31, 2003. In the year ended December 31, 2004 Millicomused cash to purchase $197,873,000 of property, plant and equipment compared to$86,452,000 for the same period in 2003. Time deposits decreased by $32,418,000net in 2004 compared to a net increase of $17,796,000 in 2003.

Financing activities provided total cash of$149,842,000 for the year ended December 31, 2004, compared with a use of$(11,638,000) for the year ended December 31, 2003. In the year ended December 31,2004, we repaid debt of $155,071,000 while raising an additional $102,156,000through financing and $205,920,000 through the issuance of shares.

The net cash inflow inyear ended December 31, 2004 was $264,552,000 compared to an inflow of$78,378,000 for the year ended December 31, 2003. Millicom had a closingcash and cash equivalents balance of $413,381,000 as of December 31, 2004compared to $148,829,000 as of December 31, 2003.

***Investments, Divestments and Capital Expenditures***

*Investments*

Millicom will continue to invest in its existingmobile operations, where we believe we can generate attractive returns. Inaddition, we intend to increase our equity ownership in certain existingoperations through opportunistic buy-outs of local partners. We may participatein consolidation within our markets through the careful evaluation, selectionand pursuit of strategic opportunities. We may pursue new license opportunitiesin our adjacent markets where the investment offers group-wide synergypotential. Such synergies include sharing information and best practices aboutservices, human resources, technologies, market strategies, and the centralizednegotiation of financings and supply contracts for network and subscriberequipment.

On September 13, 2005, the Group acquired 100% controlof Oasis SPRL (“Oasis”), a mobile telephony provider in the Democratic Republicof Congo.

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On May 26, 2005 Millicom acquired an additional16.67% in the capital of its operation in Honduras, Telefonica Celular (“Celtel”),for a total consideration of $20,000,000, bringing its ownership from 50.00% to66.67%. Due to the existence of joint control, Millicom continues to accountfor Celtel as a joint venture using proportional consolidation. The results ofCeltel have been proportionally consolidated at 50.00% for the period from January 1,2005 to May 26, 2005 and at 66.67% afterwards.

In 2004, we set up a subsidiary in Chad which obtaineda 10 year GSM license. The commercial operations of Millicom Tchad S.A.started in October 2005.

On February 3, 2004 Millicom acquired 25% ofMillicom Tanzania Ltd from the Government of Tanzania, bringing itsownership to 84.4%. In January 2006 we bought out our local partner, UltimateCommunications Limited, with the result that MIC Tanzania Limited is now fully controlledby us.

On September 15,2003, Millicom’s operation in El Salvador, Telemovil, entered into a sharepurchase agreement (the “Agreement”) with the minority shareholders ofTelemovil. The Agreement provided for the acquisition by Telemovil of 30% ofits own shares for a consideration of $70 million payable over a period ofa maximum of 6 years and an annual dividend premium of $1 million,with a corresponding net present value of $67,371,000. Of this amount$16 million was paid in cash at the closing of the transaction. Beforefull settlement, Telemovil had the ownership interest of 30% of its own shares,while the record title remained with an escrow agent for the benefit of theminority shareholders pending final settlement. Based on this Agreement,Millicom regained control and started reconsolidating Telemovil at 100% since September 15,2003. The legal ownership interest of Millicom remained at 70% until the dateof the full settlement. In December 2004, Millicom settled the fullacquisition price, bringing its legal ownership interest in the operation in ElSalvador to 100%.

***Divestments***

On September 22, 2004, Millicom completed thesale of Millicom Argentina S.A., its high speed wireless data joint venture inArgentina, realizing a loss of $2,061,000 on net proceeds of $2,000,000.

Following the restructuring of Millicom’s holding inMillicom Lao Co., Ltd in December 2004, Millicom disposed of 3,9% ofthis operation in Laos realizing a net gain of $55,000.

In 2004, Millicom disposed or liquidated a number ofsubsidiaries realizing a loss of $201,000.

In February 2003, we sold our interest inCelcaribe (Colombia) for consideration of $9,876,000, realizing a gain of$3,305,000.

In the first half of 2003,we sold 1,044,129 B shares in Tele2 AB to Kinnevik realizing proceeds of$33,291,000.

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***Capital Expenditure***

Our capital expenditure ofproperty, plant and equipment and licenses by geographical region has been asfollows during the periods indicated:

| ** **              | ** ** | **For the Years Ended  December 31,** | ** ** |
|-------------------------|------------|-----------------------------------------------------------|------------|
| ** **              | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **              | ** ** | **(in thousands of U.S. dollars)**    | ** ** |
| Central America         |       | 82,197                                                    |       | 65,656 |   | 14,165 |   |
| South America           |       | 31,094                                                    |       | 23,503 |   | 9,841 |   |
| Africa                  |       | 114,133                                                   |       | 80,152 |   | 24,263 |   |
| South Asia              |       | 300,042                                                   |       | 291,761 |   | 13,558 |   |
| South East Asia         |       | 49,177                                                    |       | 32,879 |   | 44,839 |   |
| Other                   |       | 410                                                       |       | 3,485 | * * | *—* | * * |
| Unallocated items       |       | 784                                                       |       | 131 |   | 521 |   |
| Discontinued operations |       | 11                                                        |       | 185 |   | 210 |   |
| Total                   |       | 577,848                                                   |       | 497,752 |   | 107,397 |   |

 

The main capital expenditures were for the expansionof existing networks in terms of areas covered and capacity in most otheroperations, and for the acquisition of licence in Pakistan.

We expect to direct ourcapital expenditures towards the roll out of the Tigo GSM brand across Africanand South American regions, as well as to continue network expansion (coverageand capacity) in each cluster.

***Disposal ofoperations***

| **Market** | ** ** | ** ** | ** ** | **Ownership**  | ** ** | **Approximate  Population  Covered** | ** ** | **Number of  Subscribers** | ** ** | **Price(1)** | ** ** | **Debt  Assumed by  Purchaser** | ** ** | **Date of Sale** | ** ** |
|------------|------------|------------|------------|----------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------|------------|--------------------------------------|------------|----------------------------|------------|
| ** ** | ** ** | ** ** | ** ** | **(millions)** | ** ** | ** **                           | ** ** | **($ millions)**           | ** ** | ** **   | ** ** | ** **                           | ** ** |
| Argentina  |       |       | 100        | %              |       |                                 | —     |                            |       |         | —     |                                 |       |                       | 2.0        |   |   |   | — |   |   | September 2004 |   |
| Colombia   |       |       | 95.4       | %              |       |                                 | 8.7        |                            |       |         | 237,686    |                                 |       |                       | 99.0       |   |   |   | 86.5 |   |   | February 2003 |   |

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(1)          Includesdebt assumed by purchaser.

***Financing***

We finance our operationson a project-by-project basis at both the operational and parent entity level.Once a license is awarded, we make an initial investment in the form of equityand, in some cases, debt. The local operation typically is granted between sixand 12 months to build out its initial mobile telephone network. Duringthis initial phase, we frequently supplement our investment with financingprovided by equipment suppliers for the purchase of network equipment.Generally, such financing covers a period of 18 months to three years andis often guaranteed by Millicom. We seek to refinance the vendor financing withlonger-term borrowing from commercial banks and international agencies. Wherepracticable, we endeavor to obtain financing in local currencies and withoutrecourse to Millicom. However, Millicom may guarantee such project financingfor an initial period until certain performance targets are achieved. We intendto continue to pursue a project-by-project approach to fund our systems. Ifadditional investment is required, we seek, whenever possible, to fund suchinvestment through shareholder loans from the Company. As our local operationsbecome more established and local financial markets become more developed, weare increasingly able to finance at the operational level in the local currencyon a non-recourse basis. As of December 31, 2005, approximately 35% of ourdebt at the operational level was denominated in local currency.

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Millicom’s totalconsolidated indebtedness as of December 31, 2005 was $1,232,623,000 andour total consolidated net indebtedness (representing total consolidatedindebtedness after deduction of cash, cash equivalents, short-term time depositsand excluding the 5% Mandatory Exchangeable Notes of $315,359,000 which will beexchanged for Tele2 shares) was $320,589,000. In 2003, we implemented arestructuring plan to improve our liquidity by reducing our debt serviceobligations. Our annual interest expense for the years ended December 31,2005 and 2004 was $144 million and $109 million, respectively. Ourinterest obligations of $15,490,000 per annum in respect of the 5% MandatoryExchangeable Notes have been secured by U.S. Treasury STRIPS, which wepurchased with a portion of the net proceeds from the offering of the 5%Mandatory Exchangeable Notes, and which will be settled by their sale.

***Other Non-Current Liabilities***

**Othernon-current liabilities are mainly comprised of unpaid portion of license feesof Paktel Limited and Millicom (Ghana) Ltd. amounting to $150,729,000 as of December 31,2005 (2004: $187,635,000) representing thenon-current portion of the net present value of the cash settlements agreed inthese licenses, and asset retirement obligations of $3,451,000 (2004:2,243,000).**

***Current Liabilities***

As of December 31, 2005, Millicom had a total of$909,008,000 of current liabilities, including $315,359,000 of 5% MandatoryExchangeable Notes—debt component and $96,340,000 of current debt and otherfinancing. Apart from the 5% Mandatory Exchangeable Notes which will be settledby the exchange of Tele2 shares, management expects a substantial portion ofsuch short-term debt to be extended prior to maturity.

As of December 31,2004, Millicom had a total of $505,884,000 of current liabilities, including$88,511,000 of current debt and other financing.

***Commitments to Purchase Network Equipment within OneYear***

As of December 31, 2005, we had commitments topurchase network equipment, land and buildings and other fixed assets with avalue of $136,783,000 from a number of suppliers, of which $91,788,000 withinone year.

As of December 31,2004, we had commitments to purchase network equipment, land and buildings andother fixed assets with a value of $91,848,000 from a number of suppliers, ofwhich $72,479,000 within one year.

***Secured Debt and Financing***

As of December 31, 2005, Millicom’s share of thecarrying amount of total pledged assets held by operating entities securingGroup debt and financing was $193,711,000 (2004: $267,391,000) includingpledged deposits for $3,202,000 (2004: $10,529,000).

The carrying amount of pledged assets held bynon-operating entities at December 31, 2005 securing Group debt andfinancing was $346,545,000 (2004: $399,013,000) represented by Tele2 shares,pledged deposits and pledged US Treasury strips.

As of December 31,2005 the guarantees issued by the Company to cover debt and financing in theoperations amounted to $ 76,834,000 (2004: $43,085,000).

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**Description ofBorrowings**

***4% Convertible Notes***

As of December 31, 2005, the debt portion of the carryingamount of the 4% Convertible Bonds is $163,284,000.

In December 2004 and January 2005, Millicomraised $200 million aggregate principal amount of 4% Convertible Bonds due2010 (the “4% Convertible Bonds”). The closing and settlement date of the 4%Convertible Notes was January 7, 2005.

The 4% Convertible Notes are direct, unsecuredobligations of Millicom. The rate of interest payable on the bonds is 4% perannum. Interest is payable semi-annually in arrear in equal installments on January 7and July 7 of each year commencing on July 7, 2005.

Unless previously redeemed or converted, the bondswill be redeemed on January 7, 2010 at their principal amount.

Each bond will entitle the holder to convert such bondinto shares or SDRs at the then applicable conversion price at any time on orafter February 17, 2005 and up to December 28, 2009.

The initial conversion price will be $34.86 per share.

If Millicom experiences a change of control, duringthe 60 days period following such change of control, each note will entitle theholder to convert such note into shares or Swedish Depository Receipts ofMillicom at a conversion price ranging from $25.56 to $34.86 per share.

If Millicom experiences a Change of Control TriggeringEvent, defined as a rating decline and a change in control, each holder willhave the right to require Millicom to redeem its notes at their principalamount plus accrued and unpaid interest and all other amounts due, if any.

The 4% Convertible Noteswere constituted by a trust deed dated January 7, 2005 between Millicomand The Bank of New York, as Trustee for the holders of bonds.

***10% Senior Notes***

As of December 31, 2005, the carrying amount ofthe 10% Senior Notes is $537,599,000.

On November 24, 2003, Millicom issued$550 million aggregate principal amount of 10% Senior Notes due 2013. The10% Senior Notes were issued under an indenture dated November 24, 2003between Millicom and The Bank of New York, as Trustee (the “10% Senior NotesIndenture”).

The 10% Senior Notes are senior, unsecured obligationsof Millicom. The 10% Senior Notes bear interest at 10% per annum, payablesemiannually in arrears on June 1 and December 1 of each year, with afinal maturity on December 1, 2013. The interest on the 10% Senior Notesis payable in cash.

Under a registration rights agreement datedNovember 24, 2003 we were under an obligation to offer to exchange the 10%Senior Notes issued on that date for notes with identical terms that wereregistered under the Securities Act of 1933. Because the registration statementfor the exchange offer was not declared effective by the date set in theregistration rights agreement, a special interest charge was added to theinterest rate of 10% of 0.25% from May 23, 2004 to August 20, 2004,of 0.5% from August 21, 2004 to November 18, 2004 of 0.75% fromNovember 19, 2004 to February 16, 2005 and of 1% fromFebruary 17, 2005 until March 2, 2005 at which date the registrationstatement was declared effective and special interest ceased to accrue. Uponclosing of the exchange offer on April 4, 2005, Millicom exchangedapproximately 99.9% of the 10% Senior Notes for notes with identical terms thatwere registered under the Securities Act.

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At any time and from timeto time on or after December 1, 2008, Millicom may redeem the 10% SeniorNotes, in whole or in part, at a redemption price equal to the percentage ofprincipal amount set forth below plus accrued and unpaid interest to theredemption date.

| **12-month period commencing December 1 in Year** | ** ** | ** ** | ** ** | **Percentage** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|
| 2008                                                                            |       |       | 105.000    | %              |       |
| 2009                                                                            |       |       | 103.333    | %              |       |
| 2010                                                                            |       |       | 101.667    | %              |       |
| 2011 and thereafter                                                             |       |       | 100.000    | %              |       |

 

At any time andfrom time to time prior to December 1, 2006, Millicom may redeem 10% SeniorNotes with the net cash proceeds received by it from any sale of its commonstock at a redemption price equal to 110% of the principal amount plus accruedand unpaid interest to the redemption date, in an aggregate principal amountfor all such redemptions not to exceed 35% of the original aggregate principalamount of the 10% Senior Notes (including additional notes, if any, issuedunder the 10% Senior Notes Indenture); provided that

(1)         in each case theredemption takes place not later than 90 days after the closing of suchsale, and

(2)         not less than 65% of theoriginal principal amount of the 10% Senior Notes (including additional notes,if any, issued under the 10% Senior Notes Indenture) remains outstandingimmediately thereafter.

The 10% Senior Notes may also be redeemed at Millicom’soption in whole at any time at a price equal to the principal amount thereof,together with accrued and unpaid interest, and other amounts due to the date ofredemption, if Millicom (or its successor) becomes obligated to pay certainadditional amounts as a result of any change in the laws of Luxembourg (or anysuccessor’s jurisdiction) or their respective political subdivisions or taxingauthorities, or any change in the application or official interpretation ofsuch laws, which change or amendment becomes effective after the issue date ofthe 10% Senior Notes (or the date on which the successor assumes Millicom’sobligations under the 10% Senior Notes).

The 10% SeniorNotes Indenture contains certain covenants that, among others, restrict ourability to:

·       incuradditional debt;

·       makecertain payments, including dividends or other distributions, with respect toour capital stock, or prepayments of subordinated debt;

·       makecertain investments or sell assets;

·       createcertain liens or engage in sale and leaseback transactions;

·       provideguarantees for certain debt;

·       enterinto restrictions on the payment of dividends and other amounts;

·       engagein certain transactions with affiliates;

·       incurindebtedness other than at the Millicom or operating subsidiary levels;

·       consolidate,merge or transfer all or substantially all our assets; and

·       enterinto other lines of business.

Upon the occurrence of a change of control triggeringevent, which is defined in the 10% Senior Notes Indenture as a rating declineand change of ownership, holders of the 10% Senior Notes may 

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require Millicom topurchase all or a portion of the 10% Senior Notes at a purchase price of 101%of the stated principal amount of the 10% Senior Notes, plus accrued and unpaidinterest, if any, on the 10% Senior Notes to the date of purchase.

Under the 10% Senior NotesIndenture, Millicom may not incur indebtedness unless the “leverage ratio”would be less than 4 to 1. The leverage ratio is the ratio of the consolidatedprincipal amount of net debt outstanding to four times operating income. Evenif Millicom ceases to meet the leverage ratio requirement, it may incur debtunder several “debt baskets” as set forth in the 10% Senior Notes Indenture.

***Millicom Telecommunications S.A.’s 5% MandatoryExchangeable Notes***

As of December 31, 2005, the carrying amount ofthe 5% Notes was $315,359,000.

On August 7, 2003, Millicom Telecommunications,Millicom’s wholly owned subsidiary, issued for an aggregate value of SEK 2,555,994,000(approximately $310 million) 5% Mandatory Exchangeable Notes, which areexchangeable into Tele2 AB class B shares. The 5% Mandatory ExchangeableNotes may be exchanged either voluntarily at the option of the noteholders ormandatorily by Millicom Telecommunications as described below. The 5% MandatoryExchangeable Notes will be exchangeable for an aggregate of up to 26,905,200 ofthe 26,905,242 Tele2 AB class B shares which Millicom beneficially ownedthrough Millicom Telecommunications at the time of the offering of the 5%Mandatory Exchangeable Notes. The number of Tele2 AB class B shares thatMillicom Telecommunications is obligated to deliver upon exchange of the 5%Mandatory Exchangeable Notes is based on a formula that takes into account the marketprice of the Tele2 AB class B shares prior to any exchange. Under theformula, Millicom Telecommunications could retain up to 30% of the increase invalue of the Tele2 AB class B shares over the designated reference priceof SEK 95 per share. As a result, at August 7, 2006 or earlier, if all ofthe 5% Mandatory Exchangeable Notes have been redeemed and exchanged prior tothat date, Millicom Telecommunications could own up to approximately 23% of the26,905,200 Tele2 AB class B shares underlying the 5% MandatoryExchangeable Notes.

The 5% Mandatory Exchangeable Notes bear interest onthe U.S. dollar equivalent amount of each note at a rate of 5% per annum. Theaggregate U.S. dollar equivalent amount at the time of issuance of the 5%Mandatory Exchangeable Notes was approximately $310 million.

The 5% Mandatory Exchangeable Notes may be exchangedvoluntarily at the option of the noteholder at any time during the periodcommencing on September 17, 2003 and ending on the 25th trading day priorto August 7, 2006, which is expected to be July 11, 2006. Inaddition, the 5% Mandatory Exchangeable Notes may be exchanged voluntarily atthe option of the holder in the event of certain changes in tax laws and in theevent of a takeover offer in respect of Tele2 AB.

Unless otherwise previously redeemed and exchanged orpurchased and canceled, each 5% Mandatory Exchangeable Note will be mandatorilyexchanged by Millicom Telecommunications on August 7, 2006. If an event ofdefault occurs under the trust deed governing the 5% Mandatory ExchangeableNotes, Millicom Telecommunications will be required to redeem and exchange theoutstanding 5% Mandatory Exchangeable Notes in their entirety.

MillicomTelecommunications’ obligations in respect of the exchange of the 5% MandatoryExchangeable Notes have been secured by, among other things:

·       anassignment of all of Millicom Telecommunications’ rights, title and interest inand to the securities lending agreement described below under which MillicomTelecommunications has loaned to Deutsche Bank AG London 26,905,242 Tele2 ABclass B shares;

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·       apledge agreement and a first fixed charge over all Tele2 AB class B sharesredelivered to Millicom Telecommunications by Deutsche Bank AG London under thesecurities lending agreement; and

·       afixed charge over Millicom Telecommunications’ rights, title and interest inall other property delivered to Millicom Telecommunications by Deutsche Bank AGLondon under the securities lending agreement.

Millicom Telecommunications has secured its obligationsin respect of interest payments under the 5% Mandatory Exchangeable Notes bygranting a security interest in certain U.S. Treasury STRIPS which werepurchased by Millicom Telecommunications with a portion of the net proceeds ofthe offering. Millicom Telecommunications may not dispose of such securitieswithout the consent of the trustee under the trust deed governing the 5%Mandatory Exchangeable Notes. Millicom Telecommunications’ obligations to payinterest on the 5% Mandatory Exchangeable Notes, including additional amountspayable to noteholders if cash dividends or other cash distributions are madein respect of the Tele2 AB class B shares, have been guaranteed byMillicom. Under the terms of the 5% Mandatory Exchangeable Notes, MillicomTelecommunications will be required to pay to the noteholders an amount equalto the amount of any cash dividend or distribution on the Tele2 AB class Bshares underlying the exchangeable notes.

Of the net proceeds of the offering of 5% MandatoryExchangeable Notes, which amounted to SEK 2,483 million($300.3 million), Millicom Telecommunications used $45.3 million topurchase U.S. Treasury STRIPS for purposes of securing the payment of intereston the 5% Mandatory Exchangeable Notes and approximately $60 million torepay borrowings under a short-term credit facility which had been used torefinance Millicom Telecommunications’ facility with Toronto DominionSecurities.

Based on thesecurities lending agreement entered into with Deutsche Bank AG London (the “SecuritiesLending Agreement”), Millicom Telecommunications agreed to lend to anddelivered to Deutsche Bank AG London, on or about July 22, 2003,26,905,242 Tele2 AB class B shares, of which 26,905,200 remain borrowed.Deutsche Bank AG London may sell or on-lend the Tele2 AB class B shares ithas borrowed from Millicom Telecommunications under the Securities LendingAgreement, subject to compliance with applicable securities laws. MillicomTelecommunications may require Deutsche Bank AG London to deliver to it Tele2AB class B shares by providing requisite notice to Deutsche Bank AGLondon, if:

·       MillicomTelecommunications requires Tele2 AB class B shares to satisfy itsobligations from time to time to deliver Tele2 AB class B shares uponexchange of the 5% Mandatory Exchangeable Notes by the noteholders, or

·       specifiedbankruptcy related events with respect to Deutsche Bank AG London or defaultsin the performance by Deutsche Bank AG London of its obligations under theSecurities Lending Agreement have occurred.

Under the Terms andConditions of the Notes, each Note entitles the relevant Noteholder to receivean additional interest payment equal to the net amount of any dividends orother distributions made in relation to the pledged Tele2 AB Class Bshares. We have been informed by our advisors that, while the issue is not freefrom doubt, the Securities Lending Agreement may have inadvertently resulted ina technical breach of certain negative covenants relating to transfers ofassets contained in the respective indentures governing the 11% Senior Notesand the 2% Senior Convertible PIK Notes. On November 13, 2003, weannounced that, under a tender offer and consent solicitation in respect of the11% Senior Notes and a consent solicitation in respect of the 2% SeniorConvertible PIK Notes, we had received the requisite consents of the holders ofthe relevant notes to the waiver of this possible past default arising from the5% Mandatory Exchangeable Notes and the Securities Lending Agreement. See “RecentDevelopments—Results of Tender Offer and Consent Solicitations”.

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***Millicom Operations B.V.’s $100.0 million RevolvingCredit***

On June 29, 2005, Millicom InternationalOperations B.V., Millicom’s wholly-owned subsidiary, entered into a$100,000,000 one year revolving credit with a one year extension option. Thisloan was provided by a syndicate of banks consisting of Citibank N.A., Calyon,Nordea Bank AB (publ), ABN Amro Bank N.V. Stockholm Branch and SvenskaHandelsbanken AB (publ). Amounts borrowed under the facility will bear interestat LIBOR + 2.5% p.a. and the repayment of such amounts is guaranteed byMillicom, Millicom International Operations S.A., Millicom International B.V,Millicom Holding B.V., MIC Latin America B.V. and MIC Africa B.V..

As of December 31,2005, no amounts had been drawn under the facility, nor have any amounts havebeen drawn to date.

***Other Debt***

A portion of Millicom’sshare of the indebtedness of its operations is secured by pledged assets,pledged deposits issued to cover letters of credit and guarantees. The Group’sshare of total debt and financing secured by either pledged assets, pledgeddeposits issued to cover letters of credit or guarantees issued by the Companyis $445,776,000 (2004: $514,027,000). As of December 31, 2005 theguarantees issued by the Company to cover debt and financing in the operationsamounted to $ 76,834,000 (2004: $43,084,000).

***Debt of Operations***

*Bolivia*

In June 2001, Telefonica Celular de Bolivia SA (“TelecelBolivia”) signed an agreement for additional financing in the amount of $25.0million with the International Finance Corporation (IFC) and $10.0 million withthe Nederlandse Financieringsmaatschappij Voor Ontwikkelingslanden, N.V. (FMO),also known as the Netherlands Development Finance Company. In addition, in November 2001,Telecel Bolivia signed an agreement with Bayerische Landesbank (“BLB”) for anaggregate amount of $10,361,228. Among other things, the financing requires TelecelBolivia to maintain certain financial covenants such as a debt ratio, long-termdebt service coverage, and debt-to-equity ratio. As of December 31, 2003, TelecelBolivia was in breach of certain covenants on the IFC, FMO and BLG loans andthe outstanding balances had been reclassified as current financing. In 2004,the lenders agreed to amend the terms of the loan and Telecel Bolivia istherefore no longer in breach of any covenants and has accordingly reclassifiedthe non-current portion of the outstanding balances to non-current otherdebt and financing. The IFC and FMO financing bears interest at LIBOR plus3.75% and the BLB financing bears interest at LIBOR plus 1.15%.

As of December 31,2005, $15.1 million (2004: $21.0 million) were drawn under these financings.These financings have helped to fund the expansion and further digitalizationof the Group’s mobile telecommunications network in Bolivia. These financingsare repayable in tranches until 2007. In addition to the above, Telecel Boliviaalso had $3.5 million of other debt and financing outstanding as at December 31,2005 (2004: $5.7 million).

*El Salvador*

In November 2004,Telemovil entered into a $40.0 million five year loan from a syndicateconsisting of ABN Amro, Citibank and Scotiabank. This loan bears interest forthe advances in U.S. dollars at 3 month LIBOR plus 2.5% and is repayable over18 quarterly installments commencing in 2005. As of December 31, 2005,$35.6 million (2004: $40 million) of this facility was outstanding.

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*Ghana*

In July 2005,Millicom (Ghana) Ltd entered into a $20.0 million loan agreement with CitibankN.A., 75% guaranteed by the Overseas Private Investment Corporation (“OPIC”)and 100% guaranteed by the Company. This loan bears interest at 6 month LIBOR +2.5% and is repayable in 8 semi-annual installments commencing in January 2007.As of December 31, 2005, $10.0 million of this facility was outstanding.In addition to the above Millicom’s operation in Ghana also had $1.5 million(2004: $ nil) of other debt and financing outstanding as at December 31,2005.

*Guatemala*

In connection with the purchase of GSM equipment,Millicom’s operation in Guatemala entered into a facility agreement in September 2003with a syndicate of banks led by Banco G&T Continental. The facilityagreement provided for a seven-year term loan facility in a maximum aggregateprincipal amount of Quetzal 400.0 million of which Quetzal 320.0 million weredrawn down. Amortisation payments were payable semi-annually in the fixedamount of Quetzal 33.3 million each and were scheduled to begin in March 2006.For the first year of the loan interest was fixed at an annual rate of 8.00%after which it became subject to semi-annual adjustment and as at December 31,2004 was 8.75%.

In October 2005, Millicom’s operation inGuatemala refinanced the above facility with a new loan for a total amount ofQuetzal 200.0 million. The facility was provided by Banco Industrial S.A. andBanco G&T Continental S.A.. The purpose of this debt restructuring was tobenefit from lower interest rates. The facility bears interest at a rate of 7%,subject to semi-annual adjustments. The facilty dated October 7, 2005 isrepayable semi-annually starting in March 2006 and matures in October 2012.This facility was fully drawn as of December 31, 2005.

As of December 31,2005, the Group share of the debt was $14.5 million (2004: $22.7 million).

*Honduras*

In 2005, Telefonica Celular S.A. entered into 7promissory note facilities maturing in 2010 and one maturing in 2015 with localbanks. These facilities are in dollars and in Lempiras. As of December 31,2005, outstanding amounts under each of these facilities ranged betweenapproximately $0.8 million and $3.6 million. These facilities are unsecured andinterest rates are either fixed or variable, ranging as of December 31,2005 between 7% and 13%.

These facilities togetherwith a $6 million promissory note facility signed in 2002 and maturing in 2007totalled $20.6 million as of December 31, 2005. The Group share of thedebt was $13.7 million (2004: $1.3 million) as of December 31, 2005.

*Pakistan*

In 2003, Pakcom entered into a long-term financingagreement with National Bank of Pakistan for an amount of PKR 1,250.0 million($21.0 million) bearing interest equal to the six month Pakistani Treasury Billplus 2.4% (approximately 10.5% for the year ended December 31, 2005)repayable in equal installments until 2007. In 2004, Pakcom signed a three yearloan agreement for PKR 250.0 million ($4.2 million) from the UBL Bank. The loanbears interest equal to the six month Pakistani Treasury Bill plus 2.5%(approximately 10.6% for the year ended December 31, 2005).

Among other things these financings require Pakcom tomaintain certain financial covenants such as current ratio, debt to equity anddebt service coverage ratio. As of December 2005, Pakcom was in breach ofcertain covenants in both financings. As a result of the pending sale of Millicom’sshareholding in Pakcom (the closing of which is subject to regulatoryapproval), the outstanding balances have been 

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classified as currentliabilities and will be settled by Millicom as part of the disposal of Pakcom(see note 38).

In 2003, Paktel entered into a PKR 962.7 million($16.1m) long term financing agreement with a syndicate of local banks, withStandard Chartered Bank as Agent. The purpose of this loan was to refinanceletters of credit issued by United Bank Limited in 2003, at their maturity. Thefirst drawdown under this loan was made in 2005 and as of December 31,2005, $13.7 million is outstanding. Theloan bears interest equal to the prevailing discount rate as set by the StateBank of Pakistan plus 3% (approximately 12% for the year ended December 31,2005).

In September and October 2005, Paktelentered into four short term overdraft facilities totaling PKR 1,745.0 million($29.2 million) with two local banks, United bank Limited and Allied BankLimited. These facilities bear interest at KIBOR + 0.75% (approximately 9.65%for the year ended December 31, 2005) and are secured by stand by lettersof credit. As of December 31, 2005, $28.6 million was drawn under thesefacilities.

In addition to the above,Paktel also had $4.5 million of other debt and financing outstanding as at December 31,2005 (2004: $5.8 million).

*Paraguay*

In May 2005, Millicom’s operation in Paraguayentered into a $15.0 million loan agreement with the International FinanceCorporation, 100% guaranteed by the Company. This loan bears interest at 6month LIBOR + 3% and is repayable in 6 semi-annual installments commencing in September 2007.As of December 31, 2005, $5.0 million of this facility was outstanding.

In December 2004, Millicom’s operation inParaguay issued local bonds for a total of $6.0 million through the local stockexchange, $4.5 million in USD and the equivalent of approximately $ 1.5 millionin PYG. These bonds have maturities ranging between 6 months and 2 years withinterest rates varying from 4% to 15%. As of December 31, 2005, $4.7million was outstanding under this issue.

In addition to the above,Millicom’s operation in Paraguay also had $3.7 million of other debt andfinancing outstanding as at December 31, 2005 (2004: $11.7 million).

*Senegal*

In December 2005, Millicom’s operation in Senegalentered into a XAF 12,500.0 million (approximately $22.5 million) loanagreement with Crédit Lyonnais Sénégal. This loan bears a fixed interest rateof 8% and is fully repayable at maturity, in December 2010. As of December 31,2005, $7.2 million (XAF 4,000.0 million) of this facility was outstanding.

In September 2005, Millicom’s operation inSenegal entered into a XAF 2,000.0 million bridge loan with the CompagnieBancaire de l’Afrique Orientale (CBAO). This loan bore a 6% interest rate andmatured in March 2006. As of December 31, 2005 $3.6 million (XAF2,000 million) of this facility was outstanding.

In addition to the above,Millicom’s operation in Senegal also had $1.8 million of other debt andfinancing outstanding as at December 31, 2005 (2004: $18.2 million).

*Sri Lanka*

In 2004, ABN-Amro arrangeda six year syndicated loan of LKR 2,000.0 million for Celltel LankaLimited. The facilty was fully drawn down as of December 31, 2005 for anamount outstanding of $19.2 million (2004: $8.6 million). One tranche,representing LKR 427.0 million is guaranteed and carries interest equal to theSri Lankan Weighted Average Treasury Bill rate plus 0.75% (approximately 10.54%

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for theyear ended at December 2005). The unsecured tranche carries interest equalto the Sri Lankan Weighted Average Treasury Bill rate plus 3%. The company willrepay the loan between 2006 and 2009.

*Tanzania*

In June 2003,Millicom Tanzania Ltd. entered into a three year syndicated loan relating to aterm loan facility and a revolving loan facility with Standard Chartered BankTanzania Limited as arranger, pursuant to which MIC Tanzania Ltd. borrowed anaggregate of $15.0 million ($6.0 million in U.S. dollars and $9.0 million inTanzanian Shillings). This facility bears interest for the advances in U.S.dollars at LIBOR plus 4.50% and for the advances in Tanzanian Shillings at theTreasury Bill Rate plus 4.50%, with a minimum applicable interest rate of 12%per annum. In 2004, the aggregateamount of the facility was increased by $7.7 million (TZS 8,000.0 million). Asof December 31, 2005, $13.4 million (2004: $19.1 million) of this facilitywas outstanding.

**Trend Information**

We believe there is asignificant opportunity for rapid growth in our markets due to low mobilepenetration in economies with high growth potential and substantial pent-updemand for basic voice telephony services. We believe we can grow oursubscriber base and revenue by continuing to focus on prepaid services whilecontrolling costs and maintaining our position with postpaid customers. We aredeveloping a number of non-traditional distribution channels in our operationsto expand our market share and reduce our operating costs. There is, however, arisk that, as new competitors enter our prepaid markets and price competitionintensifies, our prepaid customers may be more likely to move from one mobileoperator to another than our postpaid customers. In that event, we believe ourstrong service coverage and increasing use of non-traditional distributionchannels, competitive tariffs and brand awareness will enable us to competeeffectively in our prepaid markets.

**Research andDevelopment, Patents and Licenses, etc.**

As we have established an early presence in most ofthe markets in which we operate, we have been able to secure our licenses atlow cost. Historically, we have been successful in renewing our maturinglicenses, generally on terms similar to the original licenses, although we maynot be able to do so in the future. When necessary, we enter into partnershipswith prominent local business partners through companies over which wetypically exercise management control.

We do not engage inresearch and development and we do not own any patents.

**Off-balance Sheetand Other Arrangements**

The Tele2 ABclass B shares underlying the 5% Mandatory Exchangeable Notes have beenlent to Deutsche Bank AG London under a securities lending arrangement.Deutsche Bank AG London may sell or on-lend the Tele2 AB class B shares itborrowed from Millicom Telecommunications under the securities lendingagreement. Deutsche Bank AG London is required to deliver to MillicomTelecommunications such Tele2 AB class B shares upon notice to DeutscheBank AG London by Millicom Telecommunications, if:

·       MillicomTelecommunications requires Tele2 AB class B shares to satisfy itsobligations from time to time to deliver Tele2 AB class B shares uponexchange of the 5% Mandatory Exchangeable Notes by the noteholders, or

·       specifiedbankruptcy related events with respect to Deutsche Bank AG London or defaultsin the performance by Deutsche Bank AG London of its obligations under thesecurities lending agreement have occurred.

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Millicom Telecommunications is obligated to deliverTele2 class B shares upon exchange of the 5% Mandatory Exchangeable Noteseven in the event of a failure of Deutsche Bank AG London to redeliver toMillicom Telecommunications Tele2 class B shares. MillicomTelecommunications’ obligations in respect of the delivery of those shares arenot guaranteed by Millicom. See “Operating and Financial Review and Prospects—Descriptionof Certain Indebtedness—Millicom Telecommunications S.A.’s 5% MandatoryExchangeable Notes”.

Millicom has a number ofcommitments and contingencies, as described in Note 35 to the consolidatedfinancial statements.

**Critical AccountingPolicies**

The consolidated financial statements as of December 31,2005 are prepared in accordance with consolidation and accounting policiesconsistent with those of the previous financial year except that the Group hasadopted those International Financial Reporting Standards and revisedInternational Accounting Standards mandatory for financial years beginning onor after January 1, 2005 and changed its accounting policy for connectionrevenues and costs.

In preparing theconsolidated financial statements, management needs to make assumptions,estimates and judgments, which are often subjective and may be affected bychanging circumstances or changes in its analysis. Material changes in theseassumptions, estimates and judgments have the potential to materially alter ourresults of operations. We have identified below those of our accountingpolicies that we believe could potentially produce materially different resultsif we were to change our underlying assumptions, estimates and judgments. For adetailed discussion of these and other accounting policies, see Note 2 ofthe “Notes to the Consolidated Financial Statements”.

***Basis of Consolidation***

Entities over which wehave control are fully consolidated. Entities over which we have joint controlare consolidated using the proportional method that combines our proportionalshare of assets, liabilities, income and expenses. The definition of control isthe power to govern the financial and operating policies of an entity so as toobtain benefits from it and is based on criteria such as the ability to votethrough items at the shareholder and board level. The method of consolidationused for each entity is based on management’s assessments as to whether theyhave full or joint control.

***Collectability of Assets***

Management is required toestimate the collectability of trade debtors. As of December 31, 2005,these totaled $139,402,000, of which management estimated that $30,237,000 wasunlikely to be collected. These estimates are based on knowledge of the localmarkets, prior credit history and estimates of future cash flows generated fromthese receivables. The basis for the impairment made will vary betweensubscribers and amounts due from other telephone companies and are management’sbest estimates.

***Impairment of Non-current Assets***

Millicom records significant intangible and tangibleassets relating to mobile and non-mobile operations. Intangible assets mainlyrelate to goodwill and license values and tangible assets mainly relate tonetwork value recorded as property, plant and equipment. Significant estimates,assumptions and judgments are required to decide the useful expected lives ofthese assets and whether these assets are impaired. These estimates are made ona regular basis throughout the year as they can be significantly affected bychanges in competition, technology and other similar factors. When certainoperational, financial or other factors indicate an impairment of value,management evaluates the carrying value of property, plant and equipment aswell as other assets including licenses and goodwill, in relation to the 

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operating performance andfuture cash flows of the underlying assets. When indicated, the impairmentlosses are measured based on the difference between the estimated recoverable amountand the carrying amount of the asset. Management’s estimates of recoverableamounts for the individual asset or, if not possible, the cash-generating unit,are based on prices of similar assets, to the extent available in thecircumstances, and the result of valuation techniques. These include netpresent values of estimated future cash flows and valuations based on markettransactions in similar circumstances. In addition to the evaluation ofpossible impairment to the assets carrying value, the foregoing analysis alsoevaluates the appropriateness of the expected useful lives of the assets. Anynegative change in relation to the operating performance or the expected futurecash flow of individual assets or of a cash generating unit will change the expectedrecoverable amount of the underlying assets and therefore will decrease thefair value of the underlying assets.

Forthe year ended December 31, 2005, Millicom recorded an impairment chargeof $16.6 million relating to the network equipment in its operation in Vietnamand impairment charges of $29.9 million and $4.6 million relating,respectively, to the analogue equipment of Pakcom and Paktel, Millicom’soperations in Pakistan. The Vietnam asset impairment is due to a late approvalof investments required under the Business Cooperation Contract (“BCC”)preventing Millicom from generating revenues on these fixed assets as the BCCexpired on May 18, 2005. During the first quarter of 2005, Pakcomrecognized an asset impairment of $5.2 million as a result of a decrease in therecoverable amount of the analogue equipment following increased competition bynew entrants in the market. In September 2005, the assets of Pakcom havebeen classified as assets held for sale. Therefore, Millicom recorded additionalasset impairments of $6.0 million and $18.7 million in September 2005 and December 2005respectively, in order to reflect the fair value less costs to sell of Pakcom’sanalogue equipment. In 2005, we also reversed a previous impairment of licencein Peru in order to reflect the fair value less costs to sell of the Peru’sassets.

***Investments in Securities***

Millicom holds significantinvestments in marketable and non-marketable securities. Marketable securitiesare carried at fair value with unrealized changes in market value beingrecorded within the statement of profit and loss under the heading “Valuationmovement on investment securities”. Prior to the change in accounting policyfor available-for-sale securities on January 1, 2003, where securitiesclassified as available-for-sale were sold or impaired or when there was asignificant or prolonged decline in the fair value below acquisition cost, theaccumulated fair value adjustments were included in the profit and lossstatement as “ Valuation movement on investment in securities”. Prior to thechange in accounting policy for available-for-sale securities on January 1,2003, on a regular basis the Company compared the market value of itsinvestments to their cost in order to identify potential impairment issues. Inconsidering whether the investment has been impaired, the Company consideredall available evidence such as, among other things, significant financialdifficulties of the issuer, breaches or default in loan agreements, therecognition of prior impairment losses on that asset or the extent and durationof a decline in fair value below cost. In 2005, Millicom recorded an unrealizedloss of $63,356,000 (2004: loss of $127,158,000) resulting from the change infair value of the Tele 2 AB shares.

***Revenue Recognition***

Our revenue comprises the following:

*Revenues fromprovision of telecom services—*theserecurring revenues consist of monthly subscription fees, airtime usage fees,interconnection fees, roaming fees and other telecommunications services suchas data services and short message services. Recurring revenues are recognizedon an accrual basis, i.e. as the related services are rendered. Unbilledrevenues for airtime usage and subscription fees resulting from servicesprovided from the billing cycle date to the end of each month are estimated andrecorded.

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*Connectionrevenues—**Until*December 31, 2004initial connection revenues were recognized when the subscriber connected tothe network for the first time. On January 1, 2005, Millicom changed its accountingpolicy for connection revenues and costs. Connections revenues are deferred andamortised over the estimated life of the customer relationship. Relatedconnection costs are also deferred, to the extent of the connection revenuesdeferred and amortised over the estimated life of the customer relationship.The estimated life of the customer relationship is calculated based on thepercentage of disconnections for the same type of customer which has occurredhistorically. Management believes that the new accounting policy for connectionrevenues and costs better reflects the economic reality of connection revenuesand costs and is also consistent with current practices within thetelecommunication industry. The adoption of the new accounting policy wasretrospective and therefore the comparative figures have been restated.

*Equipment revenues—*these revenues consist of the sale of handsets andaccessories. Revenue is recognised when the significant risks and rewards ofownership of handsets and accessories have been passed to the buyer.

***Functional Currency***

Millicom’s functionalcurrency is the U.S. dollar because of the significant influence of the U.S.dollar on its operations. Millicom is located in Luxembourg and itssubsidiaries, joint ventures and associated companies operate in differentcurrencies. The functional currency of each subsidiary, joint venture andassociated company, where these are foreign entities, is determined inaccordance with the requirements of IAS 21 revised.

***Derivatives***

IAS 39 requires that all financial assets andfinancial liabilities, including derivatives, be recognized on the balancesheet. Derivatives are initially recorded at cost either in other currentassets or other financial liabilities as applicable and then are subsequentlymeasured to fair value through the statement of profit and loss under thecaption “Fair value result on financial instruments”.

A derivative embedded in afinancial instrument, such as the embedded derivative on the 5% MandatoryExchangeable Notes in Tele2 AB series B shares, is treated as a separatederivative when its economic risks and characteristics are not closely relatedto those of the host contract, a separate instrument with the same terms as theembedded derivative would qualify as a derivative, and the combined instrument(derivative and host contract) is not carried at fair value with unrealizedgains and losses reported in the profit and loss.

***Goodwill***

Goodwill represents the excess of cost of anacquisition over the Group’s share in the fair value of the identifiable assetsless the liabilities and contingent liabilities of the acquired subsidiary,joint venture or associate at the date of transaction. If the fair value of theidentifiable assets, liabilities or contingent liabilities or the cost of theacquisition can be determined only provisionally, then Millicom initiallyaccounts for the goodwill using these provisional values. Within twelve monthsof the acquisition date, Millicom then recognises any adjustments to theseprovisional values once the fair value of the identifiable assets, liabilitiesand contingent liabilities and the cost of the acquisition have been finallydetermined. Adjustments to the provisional fair values are made as if theadjusted fair values had been recognised from the acquisition date. If the costof acquisition is less than the fair value of the identifiable net assets ofthe subsidiary acquired, the difference is recognised directly to theconsolidated statements of profit and loss, after initial reassessment of thepurchase price allocation. Goodwill on acquisition of subsidiaries and jointventures is included in ‘intangible assets’. Goodwill on acquisition ofassociates is included in ‘investments 

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in associates’. Followinginitial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Gains or losses on the disposal of an entity include thecarrying amount of goodwill relating to the entity sold.

Goodwill is tested for impairment annually or morefrequently if events or changes in circumstances indicate that the carryingvalue may be impaired. Impairment losses on goodwill are not reversed.

For the purpose ofimpairment testing, goodwill acquired in a business combination is, fromacquisition date, allocated to each of the Group’s cash generating units orgroups of cash-generating units that are expected to benefit from the synergiesof the combination, irrespective of whether other assets or liabilities of theGroup are assigned to those units or groups of units. Each unit or group ofunits to which the goodwill is so allocated:

·       Representsthe lowest level within the Group at which the goodwill is monitored forinternal management purposes; and

·       Isnot larger than a segment based on either the Group’s primary or the Group’ssecondary reporting format determined in accordance with IAS 14 SegmentReporting.

Impairment is determined by assessing the recoverableamount of the cash-generating unit (group of cash-generating units), to whichthe goodwill relates. Where the recoverable amount of the cash-generating unit(group of cash-generating units) is less than the carrying amount, an impairmentloss is recognised. Where goodwill forms part of a cash-generating unit (groupof cash-generating units) and part of the operation within that unit isdisposed of, the goodwill associated with the operation disposed of is includedin the carrying amount of the operation when determining the gain or loss ondisposal of the operation. Goodwill disposed of in this circumstance ismeasured based on the relative values of the operation disposed and the portionof the cash-generating unit retained.

Before January 1,2005, goodwill was amortised using the straight-line method over its estimateduseful life but not longer than 20 years and assessed for an indication ofimpairment at each balance sheet date. In accordance with IFRS 3—*Business Combinations*, Millicom ceased amortization ofgoodwill from January 1, 2005 and eliminated the carrying amount ofaccumulated amortization existing on that date with a corresponding decrease inthe cost of goodwill.

***Equity Compensation Benefits***

**Share optionsare granted to Directors, senior executives officers and selected employees.**The exercise price of the granted options is equalto or higher than the market price of the shares on the date of grant. Optionsare conditional on the employee or Director completing one to five yearsservice (the vesting period). The options are exercisable starting from oneyear to three years from the grant date. The options have a contractual optionterm of six years from the grant date for employees and from 2005, of twentyyears for directors. Share options grants for directors before 2005 had anindefinite life. Shares issued when stock options are exercised benefit fromthe same rights as common shares.

The adoption of IFRS 2 “Share-basedpayment” resulted in a change in the accounting policy for share-basedpayments. Prior to its adoption on January 1, 2005 stock options grantedto Directors and employees did not result in a charge to the income statement.Subsequent to that date, Millicom charges the cost of stock options to the incomestatement for options granted after November 7, 2002 which had not yetvested on January 1, 2005. On the date of grant, Millicom computes thefair value of the stock options, using an option pricing model, and recognizesthe so determined fair value over the vesting period. The adoption of IFRS 2was retrospective and therefore Millicom restated comparative figures.

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**Changes inAccounting Policies**

The consolidated financial statements as of December 31,2005 are prepared in accordance with consolidation and accounting policiesconsistent with those of the previous financial year except that the Group hasadopted those International Financial Reporting Standards and revisedInternational Accounting Standards mandatory for financial years beginning onor after January 1, 2005 and changed its accounting policy for connectionrevenues and costs.

The Amendment to IAS 39,Financial Instruments: Recognition and Measurement, which is effective on January 1,2005, changed the measurement of available-for-sale (AFS) securities byrequiring the change in fair value to be recognised directly in equity (exceptfor impairment losses and foreign exchange gain and losses). As a consequence,Millicom decided to change the classification of its Tele2 AB shares from AFSsecurities to financial assets at fair value through profit or loss (see note13). Accordingly, Millicom continues to recognise the change in fair value ofits Tele2 AB shares in the consolidated statements of profit and loss. Inaddition, on January 1, 2005 Millicom adopted the revised InternationalAccounting Standards IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 31, 32, 33, 36and 38 which did not result in substantial changes to the Group’s accountingpolicies. IAS 1 resulted in changes to the presentation of minority interest inthe consolidated statements of profit and loss, consolidated balance sheets andconsolidated statements of changes in equity.

***Connection revenues***

Until December 31, 2004 initial connectionrevenues were recognized when the subscriber connected to the network for thefirst time. On January 1, 2005, Millicom changed its accounting policy forconnection revenues and costs. Connections revenues are deferred and amortisedover the estimated life of the customer relationship. Related connection costsare also deferred, to the extent of the connection revenues deferred andamortised over the estimated life of the customer relationship. The estimatedlife of the customer relationship is calculated based on the percentage ofdisconnections for the same type of customer which has occurred historically.Management believes that the new accounting policy for connection revenues andcosts better reflects the economic reality of connection revenues and costs andis also consistent with current practices within the telecommunicationindustry. The adoption of the new accounting policy was retrospective andtherefore the comparative figures have been restated.

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Theeffect of the change in accounting policy for connection revenues andconnection costs to the line items of the consolidated balance sheets andconsolidated statements of profit and loss are summarised below:

| ** **                                          | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Consolidated  statements of profit and loss**     |       |                   |       |                   |       |                   |       |
| Revenues                                            |       | (509                   | )          | (973                   | )          | (2,368                 | )          |
| Cost of sales                                       |       | 704                    |       | 475                    |       | 909                    |       |
| Profit for the  year from continuing operations     |       | 195                    |       | (498                   | )          | (1,459                 | )          |
| Net profit for  the year                            |       | 195                    |       | (498                   | )          | (1,459                 | )          |
| **Consolidated balance sheets**                     |       |                   |       |                   |       |                   |       |
| Prepayments and  accrued income                     |       | 2,088                  |       | 1,384                  |       | 909                    |       |
| Total current assets                                |       | 2,088                  |       | 1,384                  |       | 909                    |       |
| Total assets                                        |       | 2,088                  |       | 1,384                  |       | 909                    |       |
| Accumulated losses brought forward                  |       | (1,957                 | )          | (1,459                 | )          | —                 |       |
| Profit for the  year attributable to equity holders |       | 195                    |       | (498                   | )          | (1,459                 | )          |
| Total equity                                        |       | (1,762                 | )          | (1,957                 | )          | (1,459                 | )          |
| Other current  liabilities                          |       | 3,850                  |       | 3,341                  |       | 2,368                  |       |
| Total liabilities                                   |       | 3,850                  |       | 3,341                  |       | 2,368                  |       |
| Total equity and  liabilities                       |       | 2,088                  |       | 1,384                  |       | 909                    |       |
| Effect on earnings per share                        |       |                   |       |                   |       |                   |       |
| (expressed in  US$per common share)                 |       |                   |       |                   |       |                   |       |
| —Basic,  attributable to equity holders        |       | 0.00                   |       | (0.01                  | )          | (0.02                  | )          |
| —Diluted, attributable  to equity holders      |       | 0.00                   |       | (0.01                  | )          | (0.02                  | )          |

 

***Adoption of new standards***

The following newstandards are applicable for the Group’s accounting periods beginning on orafter January 1, 2005:

***IFRS 2—Share-based payment***

The adoption of IFRS 2 resulted in a change in theaccounting policy for share-based payments. Prior to its adoption on January 1,2005 stock options granted to Directors and employees did not result in acharge to the profit and loss statement. Subsequent to that date, as per thetransitional provisions of IFRS 2, Millicom charges the cost of stockoptions to the profit and loss statement for options granted after November 7,2002 which had not yet vested on January 1, 2005. On the date of grant,Millicom computes the fair value of the stock options, using an option pricingmodel, and recognizes the so determined fair value over the vesting period. Theadoption of IFRS 2 was retrospective and therefore Millicom restatedcomparative figures.

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Theeffect of the adoption of IFRS 2 to the line items of the consolidated balancesheets and consolidated statements of profit and loss are summarised below:

| ** **                                          | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Consolidated statements of profit and loss**      |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| General and  administrative expenses                |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| Profit before tax                                   |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| Profit for the year from  continuing operations     |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| Net profit for the year                             |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| **Consolidated balance sheets**                     |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| Share premium                                       |       |                   | 462        |                   |       |                   | —     |   |   |   | — |   |   |
| Other reserves                                      |       |                   | 4,910      |                   |       |                   | 2,297      |   |   |   | 445 |   |   |
| Accumulated losses  brought forward                 |       |                   | (2,297     | )                      |       |                   | (445       | ) |   |   | (2 | ) |   |
| Profit for the year  attributable to equity holders |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| Effect on earnings per share                        |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| (expressed in US$per common share)                  |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| —Basic, attributable to  equity holders        |       |                   | (0.03      | )                      |       |                   | (0.02      | ) |   |   | (0.01 | ) |   |
| —Diluted, attributable to equity holders       |       |                   | (0.03      | )                      |       |                   | (0.02      | ) |   |   | (0.01 | ) |   |

 

***IFRS 3—Business Combinations***

The adoption of IFRS 3resulted in a change in the accounting policy of goodwill. Until December 31,2004 goodwill was amortised on a straight line basis over its estimated usefullife but not longer than 20 years and assessed for an indication of impairmentat each balance sheet date. In accordance with the provisions of IFRS 3,Millicom ceased amortisation of goodwill from January 1, 2005 andeliminated the carrying amount of accumulated amortisation on that date with acorresponding decrease in the cost of goodwill. On that date Millicom alsoderecognised negative goodwill of $8.2 million, resulting in an increase of$8.2 million in the consolidated balance sheets captions “Goodwill” and “Accumulatedlosses brought forward”.

**Significant RecentAccounting Developments**

***U.S. GAAP Developments***

In May 2005, the Financial Accounting StandardsBoard (FASB) issued Statement 154, *“Accounting Changes andError Corrections”* (“SFAS 154”), a replacement of APB Opinion 20, *“Accounting Changes”* (“APBO 20”) and FASB Statement 3, *“Reporting Accounting Changes in Interim Financial Statements”*(“SFAS 3”). SFAS 154 applies to all voluntary changes in accounting principleand changes the accounting for and reporting of a change in accountingprinciple. SFAS 154 requires retrospective application to prior periods’financial statements of a voluntary change in accounting principle unless it isimpracticable. APBO 20 previously required that most voluntary changes inaccounting principle be recognized by including in net income of the period ofthe change the cumulative effect of changing to the new accounting principle. SFAS154 also requires that a change in method of depreciation, amortization, ordepletion for long-lived, nonfinancial assets be accounted for as a change inaccounting estimate that is effected by a change in accounting principle. APBO20 previously required that such a change be reported as a change in accountingprinciple. SFAS 154 carries forward many provisions of APBO 20 without change,including the provisions related to the reporting of a change in accountingestimate, a change in the reporting entity, and the correction of an error. SFAS154 also carries forward the provisions of SFAS 3 that govern reportingaccounting changes in interim financial statements. SFAS 154 is effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005. We do not expect the adoption of SFAS 154 tohave a material impact on our consolidated financial position, results ofoperations, or cash flows.

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In December, 2004 the FASB issued Statement 123(revised 2004) (“SFAS 123(R)”), *“Share-BasedPayment.”* Statement 123(R) replaces FASB Statement 123, *“Accounting for Stock-Based Compensation,”* supersedesAPB Opinion 25, *“Accounting for Stock Issued to Employees”*and amends FASB Statement No. 95, *“Statement of Cash Flows.”*SFAS 123(R) requires all share-based awards to employees,including grants of employee stock options, to be recognized in the financialstatements based on their grant-date fair values. The related compensationcosts are to be recognized over the period during which an employee is requiredto provide service in exchange for the award. Excess tax benefits are to berecognized as an addition to paid-in capital and reflected as financing cash inflowsin the statement of cash flows. We will adopt the prospective provisions ofSFAS 123(R) to new and existing plans as of January 1, 2006. Thegrant-date fair values of unvested awards that are outstanding on the date ofadoption will be charged to expense over their remaining vesting periods. Weare currently assessing the impact that the implementation of SFAS 123(R) willhave on our consolidated financial position, results of operations or cashflows.

 In December 2004, theFinancial Accounting Standards Board (“FASB”) issued Statement 153 (“SFAS 153”),“Exchanges of Nonmonetary Assets—an amendment of APB Opinion 29.” The guidancein Accounting Principles Board Opinion 29 (“APBO 29”), “Accounting forNonmonetary Transactions,” is based on the general principle that exchanges ofnon-monetary assets should be measured based on the fair value of the assetsexchanged. The guidance in APBO 29 included certain exceptions to thatprinciple. SFAS 153 amends APBO 29 to eliminate the narrow exception fornonmonetary exchanges of similar productive assets and replaces it with abroader exception for exchanges of nonmonetary assets that do not havecommercial substance (that is, transactions where future cash flows are notexpected to significantly change as a result of the exchange). We will adoptthe provisions of SFAS 153 for non-monetary asset exchange transactionsafter December 31, 2005. We do not expect the adoption of SFAS 153 tohave a material impact on our consolidated financial position or results of operations.

In March 2004, theEITF reached a consensus on EITF Issue 03-1 (“EITF 03-1”), *“The Meaning of Other-Than-Temporary Impairment and its Application toCertain Investments.”* EITF 03-1 addresses the meaning ofother-than-temporary impairment and its application to investments in debt andequity securities accounted for under Statement of Financial AccountingStandards 115 (“SFAS 115”), “*Accounting for CertainInvestments in Debt and Equity Securities,”* and to investments inequity securities accounted for using the cost method, as well as newdisclosure requirements for investments that are deemed to be temporarilyimpaired. EITF 03-1 currently provides a multi-step model for determiningwhether an impairment of an investment is other-than-temporary, and requiresthat an impairment charge be recognized in earnings in the period in which another-than-temporary impairment has occurred based on the difference betweenthe adjusted cost basis of the investment and its fair value at the balance-sheetdate. EITF 03-1 requires certain quantitative and qualitative disclosuresabout unrealized losses pertaining to certain investments and beneficialinterests, in addition to certain disclosures about cost method investmentswhen the fair value of such investments is not currently estimable. While thedisclosure requirements for specified debt and equity securities and costmethod investments are effective for annual periods ending after December 15,2003, the FASB has delayed the effective date for the application of multi-stepmeasurement and recognition guidance until issuance of implementation guidancecontained in FSP EITF 03-1-1, *“Effective Date ofParagraphs 10-20 of EITF Issue No. 03-1, `The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments.”‘*We do not expect the adoption of EITF No. 03-1 to have a materialimpact on our consolidated financial position or results of operations.

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***IFRSDevelopments***

At the date these consolidated financial statementswere prepared, several new IFRS, Amendments and IFRIC Interpretations wereissued but not yet effective, being the following the most relevant to Millicom’sconsolidated financial statements:

Per the Amendment to IAS21, *The Effects of Changes in Foreign Exchange Rates,*exchange differences arising from intragroup monetary items, which insubstance, form part of the net investment in a foreign operation, areclassified as equity until the disposal of the foreign operation, irrespectiveof the currency in which the monetary item is denominated. An entity shallapply this Amendment for annual periods beginning on or after 1 January 2006.We do not anticipate that the adoption of this Amendment at the requiredeffective date will have a significant effect on our financial position, resultsof operations, or cash flows.

**Tabular Disclosureof Contractual Obligations**

***ContractualObligations***

Wehave various contractual obligations to make future payments, including debtagreements, payables for license fees and lease obligations. The followingtable summarizes our obligations under these contracts due by period as of December 31,2005.

| ** **                                | ** ** | **Within  1 year**                                | ** ** | **Within  2-3 years** | ** ** | **Within  4-5 years** | ** ** | **After  5 years** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------------|------------|-----------|------------|
| ** **                                | ** ** | **(in thousands of U.S. dollars)** | ** ** |
| Debt (before  unamortized financing fees) |       | 418,035                                                |       | 77,098                     |       | 242,847                    |       | 550,338                 |       | 1,288,318 |       |
| Unpaid portion of  license fees           |       | 48,760                                                 |       | 71,592                     |       | 22,926                     |       | 56,211                  |       | 199,489   |       |
| Operating leases                          |       | 10,084                                                 |       | 10,789                     |       | 9,016                      |       | 14,840                  |       | 44,729    |       |
| Financial leases                          |       | 258                                                    |       | 528                        |       | 223                        |       | 0                       |       | 1,009     |       |
| Capital  expenditure                      |       | 92,042                                                 |       | 44,741                     |       | —                     |       | —                  |       | 136,783   |       |
| Total                                     |       | 569,179                                                |       | 204,748                    |       | 275,012                    |       | 621,389                 |       | 1,670,328 |       |

 

Thefollowing table summarizes our obligations under these contracts due by periodas of December 31, 2004.

| ** **                                | ** ** | **Within  1 year**                                | ** ** | **Within  2-3 years** | ** ** | **Within  4-5 years** | ** ** | **After  5 years** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------------|------------|-----------|------------|
| ** **                                | ** ** | **(in thousands of U.S. dollars)** | ** ** |
| Debt (before  unamortized financing fees) |       | 88,511                                                 |       | 470,402                    |       |                       | 34,348     |                    |       | 554,229   |       | 1,147,490 |   |
| Unpaid portion of  license fees           |       | 32,347                                                 |       | 100,171                    |       |                       | 24,667     |                    |       | 62,797    |       | 219,982 |   |
| Operating leases                          |       | 7,035                                                  |       | 9,823                      |       |                       | 6,873      |                    |       | 9,784     |       | 33,515 |   |
| Financial leases                          |       | 214                                                    |       | 409                        |       |                       | 428        |                    |       | —    |       | 1,051 |   |
| Capital  expenditure                      |       | 72,479                                                 |       | 19,369                     |       |                       | —     |                    |       | —    |       | 91,848 |   |
| Total                                     |       | 200,586                                                |       | 600,174                    |       |                       | 66,316     |                    |       | 626,810   |       | 1,493,886 |   |

 

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**ITEM 6.   DIRECTORS,SENIOR MANAGEMENT AND EMPLOYEES**

**Board of Directors**

***Directors***

Millicom’sdirectors are as follows:

| **Name**               | ** ** | ** ** | ** ** | **Position** | ** ** | **Independent** | ** ** | **Year  Elected** | ** ** | **Date of  Expiration  of Term** |
|------------------------|------------|------------|------------|--------------|------------|-----------------|------------|-------------------|------------|----------------------------------|
| Vigo Carlund           |       |       | Member     |         |       | No              |       | 2002              |       | May 2006                    |
| Donna Cordner          |       |       | Member     |         |       | Yes             |       | 2004              |       | May 2006                    |
| Ernest Cravatte        |       |       | Member     |         |       | Yes             |       | 2003              |       | May 2006                    |
| Lars-Johan  Jarnheimer |       |       | Member     |         |       | No              |       | 2001              |       | May 2006                    |
| Daniel Johannesson     |       |       | Chairman   |         |       | Yes             |       | 2003              |       | May 2006                    |
| Raymond Kirsch         |       |       | Member     |         |       | Yes             |       | 1994              |       | May 2006                    |
| Michel Massart         |       |       | Member     |         |       | Yes             |       | 2003              |       | May 2006                    |
| Cristina Stenbeck      |       |       | Member     |         |       | No              |       | 2003              |       | May 2006                    |
| Tope Lawani            |       |       | Member     |         |       | Yes             |       | 2005              |       | May 2006                    |

 

*DanielJohannesson (born 1943)-Non-executive Chairman, Member of the Nomination andCompensation Committees.**  *DanielJohannesson was appointed to the Board of Millicom in May 2003. He becameChairman on March 8, 2004. He has held a number of executive positions atmajor Swedish companies including Senior Executive of the construction companySkanska, where he was responsible for telecommunications and facilitiesmanagement interests and Chief Executive Officer of Investment AB Kinnevik andnational railway operator, SJ. He is also Non-executive Chairman of CarmenSystems AB.

*VigoCarlund (born 1946)-Non-executive Director, Member of the CompensationCommittee.  *Vigo Carlund has worked for theKinnevik Group companies since 1968. He was previously Vice President ofInvestment AB Kinnevik and became President and CEO in May 1999. He isChairman of Metro International S.A. and Korsnas AB and is Vice Chairman of Tele2AB. He was appointed to the Board of Millicom in 2002 and is also a member ofthe Board of Invik & Co. AB, Modern Times Group MTG AB and TranscomWorldwide S.A.

*MichelMassart*(*born 1951)-Non-executiveDirector, Chairman of the Audit Committee*.   Michel Massart wasappointed to the Board in May 2003. Up to June 2002, he was a Partnerof PricewaterhouseCoopers in Belgium, where he set up the corporate financedepartment in 1997. He was a former member of the Board of the Institute ofStatutory Auditors. He is currently a professor at Solvay Business School inBrussels, Belgium.

*TopeLawani (born 1970)-Non-executive Director, Member of the Audit Committee.*   TopeLawani was elected to the Board of Millicom in May 2005. He is co-founderand Managing Director of Helios Investment Partners, a private investment firmformed to pursue private equity investments in Sub-Saharan Africa. From 1996 toJanuary 2004 he was Principal in Texas Pacific Group, a global privateinvestment firm. He is a member of the Board of Directors of Finacity, a formermember of the Board of Directors of Debenhams and a former alternate member ofthe Boards of J Crew and Burger King Corp.

*DonnaCordner (born 1956)-Non-executive Director, Member of the Nomination andCompensation Committees.*   Donna Cordner waselected to the Board of Millicom in May 2004. She was formerly ManagingDirector and Global Head of Telecommunications and Media Structured Financegroup at Citigroup. She has also held senior management positions at SociétéGénérale and ABN AMRO Bank N.V. in the U.S. and Europe, including as theDirector of ABN’s Latin American Telecommunications Project Finance andAdvisory Group. Mrs. Cordner was until July 2005 CEO of 

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HOFKAM Limited, which isthe largest rural microfinance company in Uganda and she continues to advise HOFKAMon a consultant basis.

*CristinaStenbeck (born 1977)-Non-executive Director, Member of the CompensationCommittee.*   Cristina Stenbeck became a Director of Millicom in May 2003. Sheis Vice Chairman of the Board of Directors of Investment AB Kinnevik,Invik & Co AB and Metro International S.A. and a member of the Boardof Directors of Modern Times Group MTG AB, Tele2 AB and Transcom WorldWide S.A.

*Lars-JohanJarnheimer (born 1960)-Non-executive Director.*   Lars-Johan Jarnheimer became a Director ofMillicom in May 2001. He has been President and CEO of Tele2 AB since March 1999.He previously held various posts at IKEA, Hennes & Mauritz,SARA Hotels and SAAB Opel Sverige AB and was President of ZTV for a short timebefore joining Comviq. He was president of Comviq from 1993 to 1997. He is alsoon the Boards of Modern Times Group MTG AB, Arvid Nordquist Handels AB andINGKA Holding B.V., the parent company of the IKEA Group of Companies.

*RaymondKirsch (born 1943)-Non-executive Director, Member of the Audit Committee.*   RaymondKirsch became a Director of Millicom in May 1994. He is the formerPresident and Chief Executive Officer of Banque et Caisse d’Epargne de l’EtatLuxembourg. He was appointed Chairman of the Board of the Luxembourg StockExchange in February 2004 and is Chairman of the Board of Governors of theUniversity of Luxembourg. Mr. Kirsch is also a board member of CLT-UFA HoldingS.A., the parent company of the RTL television and radio channels (Luxembourg,Belgium, Germany).

*Ernest Cravatte (born1949)-Non-executive Director, Member of the Audit and Nomination Committees.*ErnestCravatte was appointed to the Board of Millicom in May 2003. He is the CEOof Banque Raiffeisen Luxembourg and was formerly a member Board of Directorsand of the Executive Management of Banque Generale du Luxembourg. He iscurrently a Board member in a number of companies including Pioneer AssetManagement S.A., RBC (Royal Bank of Canada) Capital Markets Arbitrage S.A. andOTTO Finance AG.

***BoardPractices***

The Board has developed and continuously evaluates itswork procedures in line with the corporate governance rules of NASDAQ inthe United States of America regarding reporting, disclosure and otherrequirements applicable to NASDAQ-listed companies. The Board received confirmationin early 2006 from the Stockholm Stock Exchange that it is exempt from the new SwedishCode of Corporate Governance so long as it adheres to NASDAQ corporategovernance rules. The Board’s work procedures also take into account therequirements of the U.S. Sarbanes-Oxley Act of 2002 to the extent it applies toforeign private issuers.

At the 2005 Annual General Meeting of Shareholders(the “AGM”) in May, Mr. Tope Lawani was elected as a new member of theBoard of Directors.

The Board met 15 times during 2005.

The work of theBoard is divided between the Board and its committees:

·       theAudit Committee,

·       theCompensation Committee and

·       theNominations Committee.

The Board also creates “ad hoc” committees to work onspecific projects when the need arises. In connection with our ongoingstrategic review, an “ad hoc” committee has been formed comprised of DanielJohannesson, Donna Cordner, Michel Massart and Tope Lawani. Any “ad hoc”committee reports back to the full Board.

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The main task of the Board committees is to work onbehalf of the Board within their respective areas of responsibility.

The Board has adopted work procedures to establish adivision of work between the Board and the President and Chief ExecutiveOfficer (the “CEO”). The Chairman has discussions with each member of the Boardregarding the work procedures of the Board and the yearly evaluation of theBoard’s work. The other members of the Board evaluate the performance of theChairman each year. The Board also evaluates yearly the performance of the CEO.

*AuditCommittee.*   Millicom’s directors have establishedan Audit Committee that convenes at least four times a year, comprising fourdirectors, Mr. Michel Massart (Chairman and financial expert), Mr. ErnestCravatte, Mr. Raymond Kirsch and Mr. Tope Lawani. This committee hasresponsibility for planning and reviewing the financial reporting processtogether with the preparation of the annual and quarterly financial reports andaccounts and the involvement of external auditors in that process. The AuditCommittee focuses particularly on compliance with legal requirements andaccounting standards, independence of external auditors, audit fees, theinternal audit function, the fraud risk assessment and ensuring that aneffective system of internal financial controls exists. The ultimateresponsibility for reviewing and approving Millicom’s annual and quarterlyfinancial reports and accounts remains with the Board. The Audit Committee met12 times during 2005 and Millicom’s external auditors participated in each suchmeeting.

*CompensationCommittee.*   Millicom’s directors have establisheda Compensation Committee comprising Mr. Johannesson (Chairman of thecommittee), Ms. Cordner, Ms. Stenbeck and Mr. Carlund. Thiscommittee reviews and makes recommendations to the Board regarding the compensationof the CEO and the other senior executives as well as the management successionplanning. The grant of stock options are recommended by the CEO, reviewed andapproved  by the Compensation Committeeand the Board and voted on by the shareholders at the Annual General Meeting ofShareholders (“AGM”).

*NominationsCommittee.*   Following the AGM of May 2005, aNominations Committee was established comprising Mr. Johannesson(Chairman), Mr. Cravatte and Ms Cordner. This committee makesrecommendations for the election of Directors to the AGM. The NominationsCommittee had its first meeting on October 26, 2005. At the AGM, shareholdersmay vote for or against the directors proposed for election or may electdifferent directors. The Nominations Committee reviews and recommends thedirector’s fees which are voted on by the shareholders at the AGM.

*CorporatePolicy Manual.*   The Board has adopted the MillicomCorporate Policy Manual, Millicom’s central reference for all matters relatingto its corporate governance policy. Regional policies that are more stringentor detailed than those set out in the Millicom Corporate Policy Manual areadopted as necessary.****The Code ofEthics is a part of the Millicom Corporate Policy Manual. All seniorexecutives, as well as every member of the Board, must sign a statementacknowledging that they have read, understood and will comply with the Code ofEthics.

*Directors’ ServiceAgreements.*   None of Millicom’s directors haveentered into service agreements with Millicom or any of its subsidiariesproviding for benefits upon termination of their respective directorships.

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**Senior Management**

| **Name**          | ** ** | ** **                                    | ** ** | **Position** |
|-------------------|------------|-----------------------------------------------|------------|--------------|
| Marc Beuls        |       | President and Chief  Executive Officer        |
| Mikael Grahne     |       | Chief Operating Officer                       |
| David Sach        |       | Chief Financial Officer                       |
| Mario Zanotti     |       | Cluster General  Manager—Central America |
| Ricardo Maiztegui |       | Cluster General  Manager—South America   |
| Iain Williams     |       | Cluster General Manager—Africa           |
| Won-Suck Song     |       | Cluster General  Manager—South Asia      |
| Judy Tan          |       | Cluster General  Manager—South East Asia |

 

*MarcBeuls,***born 1956, President and ChiefExecutive Officer, was promoted to his current position in January 1998from his position as Senior Vice President Finance. Mr. Beuls joinedMillicom in March 1992. Prior to joining Millicom he held severalpositions with Generale Banque Belgium, both as branch manager and senior tradefinance manager for emerging markets. Mr. Beuls is also a non-executivedirector of Tele2 AB and a non-executive director at Banque Invik.

*MikaelGrahne,*born 1953, joined Millicom inFebruary 2002, having previously been President of Seagram Latin America.Prior to joining Seagram, he held various senior management positions atPepsiCo and at Procter & Gamble. Mr. Grahne has an MBA from theSwedish School of Economics in Helsinki.

*DavidSach,*born 1961, joined Millicom inSeptember 2005. He started his career with PricewaterhouseCoopers in NewYork and later in London. He then moved to the Thomson Corporation as VicePresident and CFO of the Professional Publishing division in America and joinedthe Emi Group in 1995, first as Vice President of EMI Music, then as GroupFinancial Controller. Before joining Millicom, he worked for Equant as SeniorVice President of Finance and Chief Accounting Officer and left after it wasacquired by France Telecom. David Sach is a CPA and has BSc in Accounting fromthe State University of New York.

*MarioZanotti,*born 1962*,*joined Millicom in 1992 as a General Manager of Telecel Paraguay. In 1998 hebecame Managing Director of Tele2 Italy and in 2000 he was appointed CEO of YXKSystems. Before joining Millicom he worked as an electrical engineer at theItaipu Hydroelectric Power Plant and later as Chief Engineer of the biggestelectrical contractor company in Paraguay. He has a degree in ElectricalEngineering from the Pontificia Universidade Catolica in Porto Alegre, Braziland an MBA from INCAE and the Universidad Catolica de Asuncion, Paraguay.

*Ricardo Maiztegui,*born 1963, joined Millicom in 1998 as Managing Director of Telecel Paraguay.Prior to joining the Company he was Marketing Director in CTI (Verizon), andpreviously at Telintar (Telefonica). Mr Maiztegui has an Executive MBA fromUniversidad Austral in Argentina and a Master in Physics from Universidad deBuenos Aires.

*Iain Williams**,* born 1964*,*has been with Millicom since 1996, previously as Vice-PresidentOperations for Sanbao (Millicom Asia) and initially as the first CEO ofMillicom’s Cambodian operation, CamGSM. Prior to this he held various seniorinternational commercial and general management roles with Coats Viyella. IainWilliams is also our Country Manager in Pakistan and the CEO of Pakcom. He hasa Masters in Economics from St Andrews University.

*Won-Suck Song**,* born 1967, was appointed to his current position inSeptember 2005 and also has a Group-wide operations role as Executive VicePresident of Operations. He started his career with the Kinnevik Group in 1997,when he held the position of Chief Operating Officer of Metro Internationalbefore being transferred in June 2001 to Tele2 AB as Executive VicePresident. He studied Mechanical engineering at the Royal Institute ofTechnology.

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*JudyTan**,* born 1970,joined Millicom in 1998 She was appointed to her current position inSeptember 2005 and she also has a Group-wide operations role as Chief ofFinance-Global Operations. Judy Tan qualified as a Certified Public accountantwith PricewaterhouseCoopers, Singapore and has an MBA from Imperial College,London.

**Remuneration ofDirectors and Senior Executives**

***Principles***

The remuneration of the members of the board ofdirectors of the Company (the “Board”) is comprised of an annual fee and stockoptions. The annual fee and the number of stock options granted are proposed bythe Board and approved by the shareholders at the Annual General Meeting ofShareholders (the “AGM”).

The remuneration of theCEO and other senior executives comprises one or more of the following: anannual base salary, bonus, stock options, private medical insurance, pension, lifeinsurance, certain other benefits such as housing allowance or payment ofschool fees, and social security contributions. Other senior executives includethe Chief Operating Officer, the Chief Financial Officer and the ClusterManagers for Central America, South America, Africa, South Asia and South EastAsia. The bonus and stock options programmes are based on actual performance comprisinga mix of individual and Millicom performance. Option grants are approved once ayear by the shareholders at the AGM following the recommendation of the Board. For2005, the annual base salary and other benefits of the CEO was approved by theChairman, and the annual base salary and other benefits of other seniorexecutives were set by the CEO and approved by the Compensation Committee.

***Remuneration and pensions***

*2005*

The remuneration charge for 2005 of the Chairman was$75,000 and a total of $455,000 for the other members of the Board. In 2005,25,000 stock options were granted to the Chairman and 175,000 to the othermembers of the Board at an exercise price equal to the market price at date ofgrant plus a mark-up of 15%. The charge for 2005 for stock based compensationwas $137,000 for the Chairman and $854,000 for the other members of the Board.As of December 31, 2005, the Chairman held 45,000 stock options and theother members of the Board held 636,054 stock options.

The remuneration charge of the CEO for 2005 was about $2,139,000of which bonus amounted to $602,000. On December 31, 2005 the pensioninsurance plan of the CEO was changed from a defined benefit plan to a definedcontribution plan. As a result the net pension liability of $974,000, resultingfrom the valuation of the defined benefit obligations less the plan assets, wasreversed. The amount recorded in the consolidated statements of profit and lossfor pension insurance of the CEO for 2005 amounted to an income of $573,000 ofwhich $401,000 related to the 2005 charge for service cost and interest and anincome of $974,000 for the reversal of the net pension liability. In 2005,75,000 options were granted to the CEO at an exercise price equal to the marketprice at date of grant plus a mark-up of 15%. The charge for 2005 for stockbased compensation was $553,000 for the CEO. As of December 31, 2005, theCEO held 1,636,100 stock options.

The remuneration chargefor the other senior executives (7 executives) for 2005 was a total of $3.6million of which bonuses amounted to $1.0 million and other benefits amountedto $0.7 million. The pension insurance charge for senior executives for 2005amounted to $19,000. In 2005, 203,100 options were granted to the other seniorexecutives at an exercise price equal to the market price at date of grant plusa mark-up of 15%. The charge for 2005 for stock based compensation was $0.7million for the other senior executives. As of December 31, 2005, theother senior executives held 645,241 stock options.

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*2004*

The remuneration charge for 2004 of the Chairman was$56,000 and a total of $315,000 for the other members of the Board. In 2004,20,000 stock options were granted to the Chairman and 120,000 to the othermembers of the Board at an exercise price equal to the market price at date ofgrant plus a mark-up of 10%. As of December 31, 2004, the Chairman held20,000 stock options and the other members of the Board held 465,600 stockoptions.

The total salary of the CEO in 2004 was $1,988,000,including a bonus of $497,300. The pension insurance charge of the CEO for 2004amounted to $1,370,000 of which $396,000 related to the 2004 service cost andinterest and $974,000 represented the difference between the actuarialliability and the plan assets. During 2005 contributions to the pensioninsurance of the CEO were based on a service cost and interest paid to a thirdparty insurance company. The yearly contribution is based on the projectedentitlement at the time of retirement and is based on an average of the annualbase salary of previous years and length of service with the Company. As of December 31,2004, the pension actuarial liability amounted to $3,827,000 and the pensionplan assets amounted to $2,853,000. The net pension liability of $974,000 isrecorded under the caption “Other non-current liabilities”. In 2004, 50,000options were granted to the CEO at an exercise price equal to the market priceat date of grant plus a mark-up of 10%. As of December 31, 2004, the CEOheld 1,561,100 stock options.

The remuneration chargefor the other senior executives (9 executives) for 2004 was a total of $3,612,300,which included bonuses totaling $953,700 and other benefits totaling $682,800.No contributions to any pension funds were made for other senior executives. In2004, 152,100 options were granted to the other senior executives at anexercise price equal to the market price at date of grant plus a mark-up of10%. As of December 31, 2004, the other senior executives held a total of710,000 stock options.

***Severance Payments***

If the employment of any of the eight key seniorexecutives of Millicom is terminated, severance of up to 12 months salary ispayable.

The eight keysenior executives (Marc Beuls, David Sach, Mikael Grahne, Mario Zanotti,Ricardo Maiztegui, Judy Tan, Won-Suck Song and Iain Williams) have each enteredinto a Change of Control Agreement effective January 1, 2006, whereby ifthe executive’s employment is terminated during the period commencing on achange of control of Millicom and ending on the second anniversary of suchevent, either by the Millicom entity employing the executive without cause(other than by reason of disability or death) or by the executive for “goodreason”, in lieu of any other severance benefits to which the executive wouldbe entitled under any other plans or programs of his employer or Millicom, theexecutive will be entitled to the following benefits:

·       Immediatelypreceding the change of control event each stock option then held by theexecutive and each share of restricted stock issued to the executive under anyRestricted Stock Plan will become fully vested and each such fully vestedoption shall be cancelled in exchange for a cash payment to the executive in anamount determined by multiplying the number of option shares by the positivedifference between the price per share of Millicom common stock payable afterconsummation of any change of control and the per share exercise price of suchoption, net of any applicable withholding tax;

·       Theexecutive will receive the sum of accrued unpaid base salary through thetermination date, any prior year bonus earned but not paid and the full valueof all vacation accrued but not used as of the termination date.

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·       Theexecutive will receive an amount equal to one time the sum of the executive’sbase salary and bonus amount (calculated as the average of the bonuses of thelast three years).

·       Theexecutive will receive an amount in cash equal to the total of the executive’sentitlement based on his employment agreement to a car allowance, housing andschool fees benefits, if applicable; the executive’s pro-rated participation inany pension and long-term incentive plans that Millicom may have maintainedimmediately prior to the change of control event as if the executive hadremained employed for 12 additional complete months of service from the terminationdate, assuming the executive’s annual compensation comprised of base salaryplus final year amount during such period is equal to his compensationimmediately prior to the change of control event; and the executive’s pro-ratedshare in any employer contributions (including employer matching contributions)that Millicom made during such period to any defined contribution plan in whichthe executive was a participant immediately prior to the change of controlevent in an amount equal to the amount of such contribution for the plan yearimmediately preceding the occurrence of the change of control event, in eachcase assuming that the executive is fully (100%) vested under any retirementplan in which he was a participant immediately prior to the change of controlevent.

·       Theexecutive will receive any other benefits under other plans and programs ofMillicom in accordance with their terms.

Each employee of Millicomworldwide and each of the nine members of Millicom’s Board of Directors whoowns options to purchase Millicom stock has entered into an agreement effectiveas of March 1, 2006 with Millicom which gives the employee/director thesame benefits as those given to the eight key senior executives in respect ofimmediate vesting of stock options in the event of a change of control, asoutlined in the first bullet point above.

***Other***

From time to time,Millicom has allowed its senior executives to participate in its operations. InMillicom’s operations in Vietnam, Mr. Muhammed Akhtar Zaman, a senior vicepresident of Millicom, owns 20% of Comvik International (Vietnam) AB. InMillicom’s operations in Cambodia, Mr. Zaman owns 3.1% of CamGSM CompanyLimited and 3% of Royal Telecam International Limited. In Laos, Mr. Zamanowns 3.9% of Millicom Laos. Mr. Zaman holds the right to acquire a part ofthe equity ownership in the local company or its immediate parent in the eventhe is able to obtain a mobile telephony license for Millicom to offer itsservices in that country.

***Options***

The following options topurchase shares of Millicom common stock with a par value of $1.50 each, issuedto directors, officers and employees of Millicom were outstanding as of December 31,2005.

| **Date issued**                                                                                                                                                                                           | ** ** | ** ** | ** ** | **Number of  options** | ** ** | **Exercise  price $**                                                                    | ** ** | **Terms of option** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|-----------------------------------------------------------------------------------------------|------------|---------------------|
| May 1994,  May 1995, May 1996, May 1997, January 1998,  May 1998, August 1999, May 2000, December 2001,  December 2002, May 2003 and May 2004 |       | 1,992,158  |       | 3.32 - 35.91           |       | Exercisable over a three-year period in equal  installments. Options have an indefinite life. |
| May 2005                                                                                                                                                                                             |       | 200,000    |       | 20.56                  |       | Exercisable over a  three-year period in equal installments. Options have a twenty year life. |

 

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| **Date issued**                                                          | ** ** | ** ** | ** ** | **Number of  options** | ** ** | **Exercise  price $**                                                                                                                                                                                                                                       | ** ** | **Terms of option** |
|--------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|
| December 2001,  December 2002, May 2003 and May 2004 |       | 935,449    |       | 3.32 - 25.05           |       | Exercisable over a  three-year period in equal installments. Options expire after six years from  date of grant.                                                                                                                                                 |
| May 2005                                                            |       | 484,240    |       | 20.56                  |       | Exercisable over a five  year period (1¤5 vested  after one year, 2¤5  vested after two years, 3¤5  vested after 3 years, 4¤5  vested after four years, 100% vested after 5 years). Options expire after six  years from date of grant. |
| May 2000,  June 2000 and July 2005                        |       | 200,540    |       | 20.56 - 31.88          |       | Exercisable over a  five-year period (1¤3 vested  after three years, 2¤3  vested after four years, 100% vested after five years). Options expire after  six years from date of grant.                                                             |

 

*Share and OptionOwnership of Directors and Members of Senior Management*

Thefollowing table sets out, as at December 31, 2005, the total amount of Millicomcommon stock and options beneficially owned by the directors, the CEO and theother members of senior management of Millicom. Options are recommended once ayear by the Board of Directors and are approved at the annual shareholdersmeeting. In 2005, 740,740 options were granted at an exercise price of $20.56,representing the market price at date of grant plus a mark-up of 15%.

| ** **                               | ** ** | **Common  Stock** | ** ** | **Total number of  options(1)** | ** ** | **Of which Options  granted in 2005** | ** ** |
|------------------------------------------|------------|-------------------|------------|-------------------------------------------|------------|-----------------------------------------------------------|------------|
| Chairman of the  Board of Directors      |       | 0                 |       |                                      | 45,000     |                                                      |       |   | 25,000 |   |   |
| Other members of  the Board of Directors |       | 2,075,875         | (2)        |                                      | 636,054    |                                                      |       |   | 175,000 |   |   |
| CEO                                      |       | 154,032           |       |                                      | 1,636,100  | (3)                                                       |       |   | 75,000 |   |   |
| Other members of the  senior management  |       | 631,559           |       |                                      | 645,241    |                                                      |       |   | 203,100 |   |   |

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(1)          Further informationregarding stock options is included in Note 23 of the Notes to theconsolidated financial statements.

(2)          This includes 2,032,932shares owned by the 1980 Stenbeck Trust.

(3)          OnJanuary 2, 2006, the CEO exercised 844,440 options.

**Employees**

On an attributable basis,Millicom employed an average of 2,938 employees in 2005, of which 610 wereemployed in Central America, 541 in South America, 605 in Africa, 693 in SouthAsia 464 in South East Asia and 25 in Europe. On an attributable basis,Millicom employed an average of 2,470 employees during the year ended December 31,2004. Of these, 568 were employed in Central America, 513 in South America, 443in Africa, 657 in South Asia, 273 in South East Asia and 16 in Europe.

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**ITEM 7.**                MAJORSHAREHOLDERS AND RELATED PARTY TRANSACTIONS

**PrincipalShareholders**

The table belowsets out certain information known to Millicom as of December 31, 2005,unless indicated otherwise, with respect to beneficial ownership of Millicomcommon stock, par value $1.50 each (after the stock split effected in February 2004),by:

·       eachperson who beneficially owns more than 5% of Millicom common stock, and

·       significant related partiesto Millicom.

| **Shareholder**            | ** ** | ** ** | ** ** | **Amount of Shares** | ** ** | **Percentage** | ** ** |
|----------------------------|------------|------------|------------|--------------------------------|------------|----------------|------------|
| Investment AB  Kinnevik    |       |       | 37,835,438 |                           |       |           | 38         | % |   |
| The 1980 Stenbeck Trust(1) |       |       | 2,032,932  |                           |       |           | 2          | % |   |

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(1)   The 1980Stenbeck Trust is an irrevocable trust that was created under the laws of theState of New York exclusively for the benefit of the wife and children of Mr. JanH. Stenbeck. The sole and exclusive voting control of the Millicom common stockheld by the 1980 Stenbeck Trust is vested in the trustees. The trustees of the1980 Stenbeck Trust are Leonard Gubar, Henry Guy and David Marcus. Mr. Gubaris an attorney in New York State. Mr. Guy is the Chief Executive Officerof Modern Holdings. Mr. Marcus is the Chairman of both Modern Holdings andGreat Universal, Inc. The trustees have disclaimed beneficial ownership ofthe shares owned by the 1980 Stenbeck Trust.

Except as otherwiseindicated, the holders listed above have sole voting and investment power withrespect to all shares beneficially owned by them. The holders listed above havethe same voting rights as all other holders of Millicom common stock. Forpurposes of this table, a person or group of persons is deemed to have “beneficialownership” of any shares as of a given date which such person or group ofpersons has the right to acquire within 60 days after such date. Forpurposes of computing the percentage of outstanding shares held by each person,or group of persons, named above on a given date, any security which suchperson or persons has the right to acquire within 60 days after such date(including shares which may be acquired upon exercise of vested portions ofstock options) is deemed to be outstanding, but is not deemed to be outstandingfor the purpose of computing the percentage ownership of any other person.

***Related Party Transactions***

*Kinnevik*

The Company’s principal shareholder is Investment ABKinnevik and subsidiaries (“Kinnevik”). Kinnevik is a Swedish holding companywith interests in the telecommunications, media, publishing and paperindustries. As of December 31, 2005, Kinnevik owned approximately 38% ofMillicom.

During 2005, Kinnevik purchased 2,692,903 Millicomshares of the Company (2004: 5,600,000).

The Group maintainscorporate bank accounts at Banque Invik, a subsidiary of Kinnevik, throughwhich it makes payments and receives cash in the normal course of business. Asof December 31, 2005, the Group had current accounts, time deposits,blocked deposits and a bank facility of $3.0 million at Banque Invik.

*Services purchasedand sold to related companies*

The following sales and purchases and outstandingbalances occurred with companies related to Millicom. The services purchasedand supplied covered fraud detection, network and IT support, acquisition ofassets and customer care systems.

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Millicomhad the following payables to related parties and made purchases from relatedparties as follows:

| ** **             | ** ** | **Purchases in year** | ** ** | **Amount payable as of  December 31,** | ** ** |
|------------------------|------------|---------------------------------|------------|------------------------------------------------------------|------------|
| ** **             | ** ** | **2005**                        | ** ** | **2004**                                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **             | ** ** | **US$ ‘000**          | ** ** | **US$ ‘000**                                     | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| 3C Communications      |       |                            | 236        |                                                       |       |   | 233 |   |   |   | 10 |   |   |   | — |   |   |
| Applied Value          |       |                            | —     |                                                       |       |   | 81 |   |   |   | — |   |   |   | — |   |   |
| AVI                    |       |                            | 45         |                                                       |       |   | 403 |   |   |   | — |   |   |   | 70 |   |   |
| Banque Invik           |       |                            | 665        |                                                       |       |   | 665 |   |   |   | 3,783 |   |   |   | 57 |   |   |
| Bassett                |       |                            | 2,142      |                                                       |       |   | 376 |   |   |   | 22 |   |   |   | 130 |   |   |
| Foreign Value          |       |                            | 1,246      |                                                       |       |   | 1,859 |   |   |   | — |   |   |   | — |   |   |
| Fischer Partners       |       |                            | 56         |                                                       |       |   | 37 |   |   |   | 4 |   |   |   | — |   |   |
| Great Universal        |       |                            | —     |                                                       |       |   | 192 |   |   |   | 214 |   |   |   | 78 |   |   |
| Kinnevik               |       |                            | 6          |                                                       |       |   | 5 |   |   |   | 1 |   |   |   | — |   |   |
| Metro                  |       |                            | —     |                                                       |       |   | 21 |   |   |   | — |   |   |   | — |   |   |
| Modern Treuhand        |       |                            | 390        |                                                       |       |   | 569 |   |   |   | 293 |   |   |   | 415 |   |   |
| Modern Times  Group    |       |                            | 25         |                                                       |       |   | 5 |   |   |   | — |   |   |   | 1 |   |   |
| Netcom  Consultants(i) |       |                            | 217        |                                                       |       |   | 1,129 |   |   |   | — |   |   |   | — |   |   |
| Praesidium(ii)         |       |                            | —     |                                                       |       |   | 13 |   |   |   | — |   |   |   | — |   |   |
| Procure-it-right       |       |                            | 1,584      |                                                       |       |   | 978 |   |   |   | 155 |   |   |   | 8 |   |   |
| Search Value           |       |                            | 370        |                                                       |       |   | 257 |   |   |   | — |   |   |   | — |   |   |
| Shared Services        |       |                            | 218        |                                                       |       |   | 146 |   |   |   | 33 |   |   |   | 34 |   |   |
| Shared Value           |       |                            | 653        |                                                       |       |   | 680 |   |   |   | 34 |   |   |   | 5 |   |   |
| Tele2 AB               |       |                            | 260        |                                                       |       |   | 234 |   |   |   | 231 |   |   |   | 177 |   |   |
|                   |       |                            | 8,113      |                                                       |       |   | 7,883 |   |   |   | 4,780 |   |   |   | 975 |   |   |

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*(i)**              Nolonger a related party as at December 31, 2005.*

*(ii)**           Nolonger a related party as at December 31, 2005 and 2004.*

As of December 31,2005 and 2004, Millicom had the following receivables from related parties:

| ** **                 | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Kinnevik                   |       |                   | 154        |                   |       |   | 154 |   |   |
| Millicom  Technologies Ltd |       |                   | 84         |                   |       |   | 83 |   |   |
| Modern Holdings            |       |                   | 1,093      |                   |       |   | 1,383 |   |   |
| Modern Times  Group        |       |                   | 268        |                   |       |   | 265 |   |   |
| Netcom                     |       |                   | 8          |                   |       |   | 8 |   |   |
| Shared Value               |       |                   | 18         |                   |       |   | 18 |   |   |
| Stonebrook  Enterprises    |       |                   | 156        |                   |       |   | 156 |   |   |
|                       |       |                   | 1,781      |                   |       |   | 2,067 |   |   |

 

In the opinion ofmanagement, the transactions described above have been entered on terms similarto those that would have been obtained from independent parties.

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**ITEM 8.**                FINANCIALINFORMATION

**Financial Statements andOther Information**

We file our financialstatements under Item 18.

**Legal Proceedings**

We are a party to variouslitigation matters in almost each jurisdiction in which we operate, but inmanagement’s opinion these matters will not, either singly or taken together,have a material negative impact on our financial position or operations.

**Dividend Policy**

Holders of Millicom commonstock are entitled to receive dividends ratably when, as and if declared by theCompany’s Board of Directors, subject to Luxembourg legal reserve requirements.Millicom has not paid any cash dividends on its common stock since inception.Millicom anticipates that it will retain any earnings for use in the operationand expansion of its business and does not anticipate paying any cash dividendson Millicom common stock in the foreseeable future. In addition, the ability ofMillicom to make dividend payments or other payments on its common stock islimited by the Indenture for Millicom’s new Notes. Management will consider anytax consequences to Millicom before declaring a dividend.

**ITEM9.**                THE OFFER ANDLISTING

The principal tradingmarket of Millicom common stock is the NASDAQ National Market.

On February 16, 2004,an Extraordinary General Meeting of Millicom passed a resolution approving astock split of the issued shares of Millicom by exchanging one existingordinary share with a par value of $6.00 for four new ordinary shares with apar value of $1.50 each, which became effective on February 20, 2004.

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Allprices quoted below have been adjusted to reflect the reverse stock spliteffected in February 2003 and the one effected in February 2004. Allfigures presented are based upon a par value of $1.50 each.

| ** **                             | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------------------------------|------------|----------|------------|---------|------------|
| **Year ended December 31,  2000** |       | $        | 61.12      |    | $          | 16.08 |   |
| **Year ended December 31,  2001** |       | $        | 25.69      |    | $          | 6.87 |   |
| **Year ended December 31,  2002** |       | $        | 10.44      |    | $          | 0.29 |   |
| **Year ended December 31,  2003** |       | $        | 19.88      |    | $          | 16.20 |   |
| **Year ended December 31, 2004**  |       |     |       |    |       |
| First Quarter 2004                     |       | $        | 22.92      |    | $          | 17.35 |   |
| Second Quarter 2004                    |       | $        | 27.80      |    | $          | 20.52 |   |
| Third Quarter 2004                     |       | $        | 22.00      |    | $          | 14.58 |   |
| October 2004                      |       | $        | 20.53      |    | $          | 17.34 |   |
| November 2004                     |       | $        | 23.30      |    | $          | 20.00 |   |
| December 2004                     |       | $        | 24.05      |    | $          | 22.07 |   |
| **Year ended December 31, 2005**  |       |     |       |    |       |
| First Quarter 2005                     |       | $        | 23.15      |    | $          | 19.77 |   |
| Second Quarter 2005                    |       | $        | 20.86      |    | $          | 15.91 |   |
| Third Quarter 2005                     |       | $        | 21.55      |    | $          | 18.10 |   |
| October 2005                      |       | $        | 19.49      |    | $          | 17.89 |   |
| November 2005                     |       | $        | 23.04      |    | $          | 18.89 |   |
| December 2005                     |       | $        | 26.84      |    | $          | 23.11 |   |
| January 2006                      |       | $        | 39.93      |    | $          | 27.86 |   |
| February 2006                     |       | $        | 42.48      |    | $          | 39.86 |   |
| March 2006                        |       | $        | 47.59      |    | $          | 41.23 |   |

 

On April 28, 2006, the closing market price forMillicom common stock on the NASDAQ National Market was $49.18.

Our shares are also tradedon the *Stockholmsbörsen*(the Stockholm Stock Exchange)*.*

**NASDAQ CorporateGovernance Exemption**

The NASDAQ Stock Marketgranted an exemption to Millicom with respect to the quorum requirement under Rule 4350(f),which requires each issuer to provide for a quorum specified in its by-laws forany meeting of the holders of common stock, which may not be less than 33 1¤3% of the outstanding shares ofthe company’s common voting stock. Our articles of association do not provideany quorum requirement that is generally applicable to general meetings of ourshareholders. This absence of a quorum requirement is in accordance withLuxembourg law and generally accepted business practice in Luxembourg.

**ITEM 10.**         ADDITIONALINFORMATION

**Articles ofAssociation**

***Registration and Object***

Millicom International Cellular is a public liabilitycompany (*société anonyme*)governed by the Luxembourg law of August 10, 1915 on Commercial Companies,incorporated on June 16, 1992, and registered with the Luxembourg Tradeand Companies’ Register (*Registre deCommerce et des Sociétés de Luxembourg*) under number B 40.630.

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*Thearticles of incorporation of Millicom define its purpose as follows:*“[...]to engage in all transactions pertaining directly or indirectly to theacquisition of participating interests in any business enterprise, includingbut not limited to, the administration, management, control and development ofany such enterprise, and to engage in all other transactions in which a companycreated under the laws of Luxembourg may engage”.

***Directors***

*Restrictionson voting—**In*case a director has a personalmaterial interest in a proposal, arrangement or contract to be decided byMillicom, the articles of incorporation provide that the validity of thedecision of Millicom is not affected by a conflict of interest existing withrespect to a director. However, any such personal interest must be disclosed tothe board of directors ahead of the vote and the relevant director may not voteon the relevant issue. Such conflict of interest must be reported to the nextgeneral meeting of shareholders.

*Compensationand Nomination—**The*decision on the annualremuneration of the directors (“*tantièmes*”)is reserved by the articles of incorporation to the general meeting ofshareholders. Directors are therefore prevented from voting on their owncompensation. However, the directors may vote on the amount of shares they maybe allotted under any share option scheme. Following the annual general meetingof shareholders in May 2004, a Nominations Committee was establishedcomprising Ms. Stenbeck (Chairwoman), Mr. Johannesson and Mr Carlund.This committee makes recommendations for the election of directors to the AGM.At the AGM, shareholders may vote for or against the directors proposed or mayelect different directors. The Nominations Committee reviews and recommends thedirector’s fees which are approved by the shareholders at the AGM.

*Borrowingpowers—**The*directors generally haveunrestricted borrowing powers on behalf of and for the benefit of Millicom.

*Agelimit—**There*is no age limit for being adirector of Millicom. Directors are elected for a one year term with a maximumof six years and are re-eligible.

*Share ownershiprequirements—**Directors*need not be shareholders.

***Shares***

*Rightsattached to the shares—*Millicom has only one class ofshares, each share entitling its holder to (i) one vote at the generalmeeting of shareholders, (ii) receive dividends out of distributableprofits when such distributions are decided, and (iii) share in anysurplus left after the payment of all the creditors in the event ofliquidation. There is a preferential subscription right under any share orrights issue for cash, unless the board of directors restricts the exercisethereof.

*Redemptionof shares—*The articles of incorporation provide forthe possibility and the terms of the repurchase by Millicom of its own shares,solely at Millicom’s initiative.

*Sinkingfunds—*Millicom’s shares are not subject to any sinkingfund.

*Liabilityfor further capital calls—*All of the issued shares inMillicom’s capital are fully paid. Accordingly none of Millicom’s shareholdersare liable for further capital calls.

*Principal shareholderrestrictions—*There are no provisions in the articlesof incorporation that discriminate against any existing or prospective holderof Millicom’s shares as a result of such shareholder owning a substantialnumber of shares.

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***Changes to Shareholder Rights***

In order to change therights attached to the shares of Millicom, a general meeting of shareholdersmust be duly convened and held before a Luxembourg notary, as under Luxembourglaw such change requires an amendment of the articles of incorporation. Aquorum of presence of at least 50% of the shares present or represented isrequired at a meeting held after the first convening notice, and any decisionmust be taken by a majority of two thirds of the shares present or represented.Any change to the obligations attached to shares may be adopted only with theunanimous consent of all shareholders.

***Shareholders’ Meetings***

General meetings ofshareholders are convened by convening notice published in the Luxembourgofficial Gazette and in a Luxembourg newspaper, twice at an interval of eightdays, at least eight days prior to the meeting. If all the shares areregistered shares, a convening notice may, as an alternative to thepublication, be sent to each shareholder by registered mail at least eight daysbefore the annual general meeting (“AGM”). According to article 17 of thearticles of incorporation of Millicom, the board of directors determines in theconvening notice the formalities to be observed by each shareholder for admissionto the AGM. An AGM must be convened every year on the date provided for in thearticles of incorporation, which is the last Tuesday in May each year. The2006 AGM will take place in Luxembourg on May 30, 2006 at 4:00 p.m.Other meetings can be convened as necessary.

***Limitation on Securities Ownership***

There are no limitationsunder Luxembourg law or the articles of incorporation on the rights fornon-resident or foreign entities to own shares in Millicom.

***Change of Control***

There are no provisions inthe articles of incorporation of Millicom that would have the effect ofdelaying, deferring or preventing a change in control of Millicom and thatwould operate only with respect to a merger, acquisition or corporaterestructuring involving Millicom, or any of its subsidiaries. Luxembourg lawsimpose the mandatory disclosure of an important participation in Millicom andany change in such participation.

***Disclosure of Shareholder Ownership***

There are no provisions ofthe articles of incorporation by which a certain ownership threshold must bedisclosed. However, Luxembourg laws provide that any entity or person holdingmore than certain thresholds (10%, 20%, 33 1¤3%, 50% and 66 2¤3%) of a company listed on the LuxembourgStock Exchange must declare such shareholding to the Luxembourg Stock Exchangeand to Millicom itself. Such disclosure is mandatory also in case of a decreasebeyond such respective thresholds.

**Material Contracts**

In December 2004 and January 2005, Millicomraised $200 million aggregate principal amount of 4% Convertible Bonds due2010 (the “4% Convertible Bonds”). The closing and settlement date of the 4%Convertible Bonds was January 7, 2005.

The 4% Convertible Bonds are direct, unsecured obligationsof Millicom. The rate of interest payable on the bonds is 4% per annum.Interest is payable semi-annually in arrear in equal installments on January 7and July 7 of each year commencing on July 7, 2005.

Unless previously redeemed or converted, the bondswill be redeemed on January 7, 2010 at their principal amount.

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Each bond will entitle the holder to convert such bondinto shares or SDRs at the then applicable conversion price at any time on orafter February 17, 2005 and up to December 28, 2009.

The initial conversion price will be $34.86 per share.

If Millicom experiences a change of control, duringthe 60 days period following such change of control, each note will entitle theholder to convert such note into shares or Swedish Depository Receipts ofMillicom at a conversion price ranging from $25.56 to $34.86 per share.

If Millicom experiences a Change of Control TriggeringEvent, defined as a rating decline and a change in control, each holder willhave the right to require Millicom to redeem its notes at their principalamount plus accrued and unpaid interest and all other amounts due, if any.

The 4% Convertible Bonds were constituted by a trustdeed dated January 7, 2005 between Millicom and The Bank of New York, asTrustee for the holders of bonds.

In November 2003, Millicom issued$550 million aggregate amount of 10% Senior Notes due 2013 (the “10% Notes”)under an indenture dated November 24, 2003 between Millicom and The Bankof New York.

The 10% Notes are senior, unsecured obligations ofMillicom. The 10% Notes bear interest at 10% per annum, payable semiannually inarrears on June 1 and December 1 of each year, with a final maturityon December 1, 2013. The interest on the 10% Notes is payable in cash.

At anytime and from time to time on or after December 1, 2008, Millicom mayredeem the 10% Notes, in whole or in part, at a redemption price equal to thepercentage of principal amount set out below plus accrued and unpaid interestto the redemption date.

| **12-month period commencing December 1 in Year** | ** ** | ** ** | ** ** | **Percentage** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|
| 2008                                                                            |       |       | 105.000    | %              |       |
| 2009                                                                            |       |       | 103.333    | %              |       |
| 2010                                                                            |       |       | 101.667    | %              |       |
| 2011 and thereafter                                                             |       |       | 100.000    | %              |       |

 

At any time andfrom time to time prior to December 1, 2006, Millicom may redeem 10% Noteswith the net cash proceeds received by it from any sale of its common stock ata redemption price equal to 110% of the principal amount plus accrued andunpaid interest to the redemption date, in an aggregate principal amount forall such redemptions not to exceed 35% of the original aggregate principalamount of the 10% Notes (including additional notes, if any, issued under the10% Notes Indenture); provided that:

(1)         in each case theredemption takes place not later than 90 days after the closing of suchsale, and

(2)         not less than 65% of theoriginal principal amount of the 10% Notes (including additional notes, if any,issued under the indenture governing the 10% Notes) remains outstandingimmediately thereafter.

The 10% Notes may also be redeemed at Millicom’soption in whole, but not in part, at any time at a price equal to the principalamount thereof, together with accrued and unpaid interest, if any, and otheramounts due to the date of redemption, if Millicom (or its successor) becomesobligated to pay certain additional amounts as a result of any change in, oramendment to, the laws (or any regulations or rulings promulgated thereunder)of Luxembourg (or such successor’s jurisdiction) or their respective politicalsubdivisions or taxing authorities, or any change in the application orofficial interpretation of such laws, regulations or rulings, which change oramendment becomes effective after the issue date of the 10% Notes (or the datesuch successor assumes Millicom’s obligations under the 10% Notes).

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The indenturegoverning the 10% Notes contains certain covenants that, among others, restrictour ability to:

·       incuradditional debt;

·       makecertain payments, including dividends or other distributions, with respect toour capital stock, or prepayments of subordinated debt;

·       makecertain investments or sell assets;

·       createcertain liens or engage in sale and leaseback transactions;

·       provideguarantees for certain debt;

·       enterinto restrictions on the payment of dividends and other amounts;

·       engagein certain transactions with affiliates;

·       incurindebtedness other than at the Company or operating subsidiary levels;

·       consolidate,merge or transfer all or substantially all our assets; and

·       enterinto other lines of business.

Upon the occurrence of achange of control triggering event, which is defined in the indenture governingthe 10% Notes as a rating decline and change of ownership, holders of the 10%Notes may require Millicom to purchase all or a portion of the 10% Notes at apurchase price of 101% of the stated principal amount of the 10% Notes, plusaccrued and unpaid interest, if any, on the 10% Notes to the date of purchase.

Under the indenturegoverning the 10% Notes, Millicom may not incur indebtedness unless the “leverageratio” would be less than 4 to 1. The leverage ratio is the ratio of theconsolidated principal amount of net debt outstanding to four times operatingincome. Even if Millicom ceases to meet the leverage ratio requirement, it mayincur debt under several “debt baskets” set out in the indenture governing the10% Notes.

On August 7, 2003,Millicom Telecommunications S.A., Millicom’s wholly-owned subsidiary,issued for an aggregate value of SEK 2,555,994,000 (approximately$310 million) Mandatory Exchangeable Notes (the “5% Mandatory ExchangeableNotes”), which are exchangeable into Tele2 AB series B shares. The 5%Mandatory Exchangeable Notes may be exchanged either voluntarily at the optionof the noteholders or mandatorily by Millicom Telecommunications S.A. asdescribed below. The 5% Mandatory Exchangeable Notes will be exchangeable foran aggregate of up to 26,905,200 Tele2 AB series B shares which Millicombeneficially owned through Millicom Telecommunications. The number of Tele2shares that Millicom Telecommunications is obligated to deliver is based on a formulathat takes into account the market price of the Tele2 shares prior to anyexchange. Under the formula, Millicom Telecommunications could retain up to 30%of the increase in value of the Tele2 shares over the designated referenceprice of SEK 95 per share. As a result, at August 6, 2006 or earlier ifall of the 5% Mandatory Exchangeable Notes have been redeemed and exchangedprior to that date, Millicom Telecommunications may own up to approximately 23%of the 26,905,200 Tele2 AB series B shares underlying the 5% MandatoryExchangeable Notes.

The 5% MandatoryExchangeable Notes may be exchanged voluntarily at the option of thenoteholders at any time during the period commencing on September 17, 2003and ending on the 25th trading day prior to August 7, 2006, which isexpected to be July 11, 2006. In addition, the 5% Mandatory ExchangeableNotes may be exchanged voluntarily at the option of the holder in the event ofcertain changes in tax laws and in the event of a takeover offer in respect ofTele2 AB. Dividends, if any, paid by Tele2 AB would be attributed to the 5%Mandatory Exchangeable Notes holders.

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Unless otherwisepreviously redeemed and exchanged or purchased and cancelled, each 5% MandatoryExchangeable Note will be mandatorily exchanged by Millicom Telecommunicationson August 7, 2006.

The 5% MandatoryExchangeable Notes bear interest on the U.S. dollar equivalent amount of eachnote at a rate of 5% per annum payable semi-annually on February 7 andAugust 7 of each year. The effective interest rate is 8.45%. As ofDecember 31, 2004 the carrying amount of the 5% Mandatory ExchangeableNotes net of unamortized financing fees was $365,006,000 (2003: $327,635,000).In 2004, an exchange loss of $27,550,000 (2003: $41,820,000) was recognized onthe 5% Mandatory Exchangeable Notes.

As part of the financing,Millicom purchased U.S. treasury strips with a nominal value of $46,470,000which will be used to settle the interest payments.

The 5% MandatoryExchangeable Notes include an embedded derivative, which is valued separately.The embedded derivative, which reflects Millicom’s limited right to participatein the increase in value of the Tele2 shares, is recorded at fair value, takinginto account time and volatility factors. As of December 31, 2004 and 2003,the fair value of the embedded derivative amounted to an asset of $45,255,000and a liability of $103,457,000 respectively, with the variation for the yearended December 31, 2004 amounting to a gain of $148,712,000 and for theperiod from August 7, 2003 to December 31, 2003 amounting to a gainof $84,578,000, each recorded under the caption “Fair value result on financialinstruments”.

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**Exchange Controls**

There are nogovernmental laws, decrees, regulations or other legislation of Luxembourg thatmay affect:

·       theimport or export of capital including the availability of cash and cashequivalents for use by the Group, and

·       the remittance ofdividends, interests or other payments to non-resident holders of the Company’ssecurities other than those deriving from the U.S.-Luxembourg doubletaxation treaty.

**Taxation**

The following paragraphsdescribe very generally the tax laws of Luxembourg as they apply to investorsin the Company, which is a Luxembourg corporation, and also the taxation ofinvestors who are citizens, residents or domiciliaries of the United States.The following is intended merely as a general summary of the principal tax consequencesof the receipt, holding and disposition of shares of Millicom common stock, andis not intended as a substitute for professional tax advice that takes intoaccount the particular circumstances relevant to a specific investor.Accordingly, investors should consult their own professional advisors on thepossible tax consequences of holding or disposing of shares of Millicom commonstock, under the laws of their countries of citizenship, residence or domicile.

***Luxembourg Taxation***

Because the Company is aLuxembourg corporation, domestic Luxembourg law generally imposes a 20%withholding tax on dividends paid by the Company under certain circumstances.Certain reduced rates of withholding tax, or exemptions from withholding tax,are available under provisions of domestic Luxembourg law and bilateral taxtreaties entered into between Luxembourg and various other countries. Investorsshould consult their tax advisors with respect to the possible availability ofsuch reduced rates or exemptions.

***United States Investors***

*(a)*  Luxembourg Taxation.   The UnitedStates and Luxembourg are party to the Convention between the United States ofAmerica and the Grand-Duchy of Luxembourg with Respect to Taxes on Incomeand Property (the “Treaty”) for the purpose of avoiding double taxation. TheTreaty provides that dividends received from the Company by a U.S. Holder (asdefined below) are subject to a tax of 15% in most cases. Dividends receivedfrom the Company by a U.S. Holder are subject to tax at a reduced rate of 5% ifthe U.S. Holder is a company that owns directly at least 10% of the Company’svoting stock. In addition, the Treaty exempts from Luxembourg taxationdividends paid to U.S. Holders that are treated as corporations for U.S.federal income tax purposes, that are residents of the United States under theTreaty, and that directly hold at least 25% of the Company’s voting stock foran uninterrupted period of two years. This exemption only applies todistributions made from an effective industrial or commercial activity inLuxembourg (other than investment activities unless such investment activitiesare carried out by a bank or insurance company). These reduced rates areavailable only for dividends that are not attributable to a permanentestablishment through which the U.S. Holder conducts a business in Luxembourg.The benefits of the Treaty are available to U.S. Holders that are “qualifiedresidents” of the United States, as defined in the Treaty.

*(b)* Special Considerations.   UnfavorableU.S. tax rules apply to U.S. shareholders of a “passive foreign investmentcompany” (“PFIC”). There can be no assurance that we presently are not, or willnot become, a PFIC. Our substantial investment in associated companies’securities and other “passive assets” result in a risk that we are a PFIC orcould become a PFIC in the future. See “—PFIC Considerations.”

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*(c)*  Taxation of Distributions on Millicom commonstock.   Distributions made by the Company with respect to Millicomcommon stock (including the amount of any Luxembourg taxes withheld there from)will generally be includable in the gross income of a United States person whois an individual citizen or resident of the United States for U.S. federalincome tax purposes, a corporation or a partnership created or organized in theUnited States or under the laws of the United States or of any state, or anestate or trust (other than a foreign estate or trust) that holds Millicomcommon stock (a “U.S. Holder”) as dividend income to the extent that suchdistributions are paid out of the Company’s current or accumulated earnings andprofits as determined under U.S. federal income tax principles. A corporationorganized in the United States or under the laws of the United States that owns10% of the Company’s voting stock, however, may be entitled to a deduction forUnited States income tax purposes for a portion of a distribution treated asdividend income. To the extent, if any, that the amount of any suchdistribution exceeds the Company’s current or accumulated earnings and profitsas so computed, it will first reduce the U.S. Holder’s tax basis in itsMillicom common stock to the extent thereof, and, to the extent in excess ofsuch tax basis, will be treated as a gain from the sale or exchange ofproperty.

Under present law, the maximum tax rate applicable todividends in the U.S. is 35%. The maximum tax rate applicable to “qualifieddividends” received by individuals is 15%. Dividends paid by the Company to aU.S. Holder will not be eligible for this “qualified dividend” tax rate if theCompany is a PFIC or a for its tax year in which the dividend is paid, or forits previous tax year. See “—PFIC Considerations”.

Future distributions of rights to subscribe toMillicom common stock, or of Millicom common stock that are made as part of apro rata distribution to all shareholders generally will not be subject to U.S.federal income tax.

Subject to certain conditions and limitations, theamount of any Luxembourg taxes (other than taxes with respect to which a U.S.Holder is entitled to a refund under the Treaty, even if such refund is notclaimed or received) withheld on a distribution by the Company will becreditable against such holder’s U.S. federal income tax liability.Distributions with respect to Millicom common stock that are taxable asdividends will generally constitute foreign source income for purposes of theforeign tax credit limitation. The limitation on foreign taxes eligible forcredit is calculated separately with respect to specific classes of income. Forthis purpose, dividends distributed by the Company with respect to Millicomcommon stock will generally constitute “passive income” or, in the case of certainU.S. Holders, “financial services income.”

A U.S. Holder must hold Millicom common stock for aminimum holding period in order to claim a foreign tax credit with respect toLuxembourg tax withheld from a dividend distribution on Millicom common stock. Theminimum holding period for common stock is 16 days, and such holdingperiod must be satisfied within the 31-day period beginning on the datethat is 15 days prior to the ex-dividend date. Any period for which theU.S. Holder protects itself from risk of loss is not includable in the minimum16-day holding period. Amounts not creditable against U.S. tax mayinstead be deducted at the election of the U.S. Holder.

*(d)* Taxation on Disposition of Millicom commonstock.   U.S. Holders will recognize gain or loss for U.S. federalincome tax purposes on the sale or other disposition of Millicom common stockin the same manner as on the sale or other disposition of any other shares.Such gain or loss will be a capital gain or loss if Millicom common stock isheld as a capital asset. Gains, if any, generally will be U.S. source gain.

Net capital gains (*i.e.*generally capital gains in excess of capital losses) recognized by anindividual U.S. Holder upon the sale of a capital asset that has been held formore than 12 months will generally be subject to tax at a rate not toexceed 15%. Net capital gains recognized by an individual from the sale of acapital asset that had been held for 12 months or less will be subject totax at ordinary income tax rates. In addition, capital gains recognized by acorporate U.S. Holder will continue to be subject to tax at the ordinary incometax rates applicable to corporations.

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*(e)*  PFIC Considerations.   A foreigncorporation is a PFIC for any taxable year if either (i) at least 75% ofits gross income is “passive income” or (ii) at least 50% of its assetsproduce, or are held for the production of, “passive income.” For purposes ofdetermining whether it is a PFIC, a foreign corporation is treated as holdingits share of the assets, and receiving its share of the income, of any othercorporation in which it owns (directly or indirectly) 25% or more of the stock(by value). Our substantial investment in “passive assets” as well as thepossibility that the Company may generate significant amounts of passive incomefrom time to time, could cause us to be a PFIC or to become a PFIC in thefuture.

If the Company is a PFIC in any taxable year, a U.S.Holder who beneficially owns Millicom common stock, during such year must makean annual return on IRS Form 8621 that describes the distributionsreceived with respect to Millicom common stock and any gain realized on the dispositionof such Millicom common stock. Furthermore, if the Company is a PFIC for anytaxable year during which a U.S. Holder holds Millicom common stock, such U.S.Holder generally will be subject to special rules (regardless of whetherthe Company continued to be a PFIC) with respect to (i) any “excessdistribution” made with respect to the Millicom common stock (generally, anydistributions received by the U.S. Holder on Millicom common stock in a taxableyear that is greater than 125% of the average annual distributions received bythe U.S. Holder in the three preceding taxable years, or, if shorter, the U.S.Holder’s holding period for Millicom common stock) and (ii) any gainrealized on the sale or other disposition of Millicom common stock. Under theserules, (a) the excess distribution or gain would be allocated ratably overthe U.S. Holder’s holding period for Millicom common stock, (b) the amountallocated to the current taxable year would be taxed as ordinary income and (c) theamount allocated to each of the other taxable years would be subject to tax atthe highest rate of tax in effect for the applicable class of taxpayer for thatyear and an interest charge for the deemed deferral benefit would be imposedwith respect to the resulting tax attributable to each such other year.

A U.S. Holder could avoid the imposition of theinterest charge with respect to such shares by making certain elections (eithera mark-to-market election or a qualified electing fund (“QEF”) election). Tomake the mark-to-market election, Millicom common stock must be consideredmarketable under U.S. income tax rules. For a U.S. Holder to make the QEFelection, the Company would have to satisfy certain reporting requirements.

Neither we nor our advisors have the duty to or willundertake to inform U.S. Holders whether or not we are a PFIC. We do notcurrently intend to make available the information necessary for a U.S. Holderto make a QEF election in the event we are determined to be a PFIC.

Because of the complexityof these rules regarding ownership of stock in a PFIC by a U.S. Holder,U.S. Holders of Millicom common stock should consult with their own taxadvisors regarding any potential reporting or tax obligations, as well as theirpotential election options.

**Documents onDisplay**

It is possible to read andcopy documents referred to in this annual report on Form 20-F thathave been filed with the Securities and Exchange Commission at the Securitiesand Exchange Commission’s public reference room located at 450 Fifth Street,NW, Washington D.C. 20549. Please call the Securities and Exchange Commissionat 1-800-SEC-0330 for further information on the publicreference rooms and their copy charges.

**ITEM 11.**         QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The principal market risksto which we are exposed are interest rate risk and foreign currency exchangerisk.

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***Interest Rate Risk***

The interest rate risk to which we are exposed isprincipally a function of our long-term debt. To alleviate this risk, we obtainboth fixed-rate and floating-rate debt.

Thetable below summarizes, as at December 31, 2005, our fixed rate debt andfloating rate debt.

| ** **          | ** ** | **Amounts due within**                                                     | ** ** |
|---------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **          | ** ** | **1 year**                                                                      | ** ** | **1-2 years** | ** ** | **2-3 years** | ** ** | **3-4 years** | ** ** | **4-5 years** | ** ** | **>5 years** | ** ** | **Total** | ** ** |
| ** **          | ** ** | **(in thousands of U.S. Dollars, except percentages)** | ** ** |
| **Fixed rate:**     |       |                                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US dollar           |       | 10,740                                                                               |       |   | 2,916 |   |   |   | 321 |   |   |   | 321 |   |   | 163,439 |   | 537,599 |   | 715,336 |   |
| Av Int rate         |       | 5.2                                                                                  | %          |   | 4.7 | % |   |   | 7.1 | % |   |   | 7.1 | % |   | 4.0 | % | 10.0 | % | 8.5 | % |
| Ghana               |       | 1,533                                                                                |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 1,533 |   |
| Guatemala           |       | 2,892                                                                                |       |   | 2,895 |   |   |   | 2,896 |   |   |   | 2,895 |   |   | 2,895 |   | — |   | 14,473 |   |
| Honduras            |       | 247                                                                                  |       |   | 247 |   |   |   | 247 |   |   |   | 247 |   |   | 123 |   | — |   | 1,111 |   |
| Mauritius           |       | 43                                                                                   |       |   | 48 |   |   |   | 38 |   |   |   | 9 |   |   | — |   | — |   | 138 |   |
| MTSA (SEK)          |       | 315,359                                                                              |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 315,359 |   |
| Paktel              |       | 1,505                                                                                |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 1,505 |   |
| Paraguay            |       | 2,869                                                                                |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 2,869 |   |
| Senegal             |       | 5,411                                                                                |       |   | — |   |   |   | — |   |   |   | — |   |   | 7,194 |   | — |   | 12,605 |   |
| Local currency      |       | 329,859                                                                              |       |   | 3,190 |   |   |   | 3,181 |   |   |   | 3,151 |   |   | 10,212 |   | — |   | 349,593 |   |
| Av Int rate         |       | 5.2                                                                                  | %          |   | 7.5 | % |   |   | 7.5 | % |   |   | 7.5 | % |   | 7.8 | % | 0.00 | % | 5,3 | % |
| Total fixed rate    |       | 340,599                                                                              |       |   | 6,106 |   |   |   | 3,502 |   |   |   | 3,472 |   |   | 173,651 |   | 537,599 |   | 1,064,929 |   |
| **Floating rate:**  |       |                                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US dollar           |       | 26,006                                                                               |       |   | 23,350 |   |   |   | 16,016 |   |   |   | 15,147 |   |   | 4,170 |   | 338 |   | 85,027 |   |
| Av Int rate         |       | 6.9                                                                                  | %          |   | 6.7 | % |   |   | 6.3 | % |   |   | 6.3 | % |   | 4.7 | % | 10.7 | % | 6.5 | % |
| Honduras            |       | 961                                                                                  |       |   | 961 |   |   |   | 961 |   |   |   | 961 |   |   | 553 |   | — |   | 4,397 |   |
| Mauritius           |       | 3,882                                                                                |       |   | 881 |   |   |   | 518 |   |   |   | — |   |   | — |   | — |   | 5,281 |   |
| Pakistan            |       | 31,629                                                                               |       |   | 5,367 |   |   |   | 5,367 |   |   |   | 2,952 |   |   | — |   | — |   | 45,315 |   |
| Sri Lanka           |       | 3,749                                                                                |       |   | 5,091 |   |   |   | 5,141 |   |   |   | 5,198 |   |   | — |   | — |   | 19,179 |   |
| Tanzania            |       | 4,269                                                                                |       |   | 3,622 |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 7,891 |   |
| Other               |       | 604                                                                                  |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 604 |   |
| Local currency      |       | 45,094                                                                               |       |   | 15,922 |   |   |   | 11,987 |   |   |   | 9,111 |   |   | 553 |   | — |   | 82,667 |   |
| Av Int rate         |       | 8.8                                                                                  | %          |   | 10.5 | % |   |   | 12.3 | % |   |   | 12.4 | % |   | 12.7 | % | 0.0 | % | 10.1 | % |
| Total floating rate |       | 71,100                                                                               |       |   | 39,272 |   |   |   | 28,003 |   |   |   | 24,258 |   |   | 4,723 |   | 338 |   | 167,694 |   |
| Total               |       | 411,699                                                                              |       |   | 45,378 |   |   |   | 31,505 |   |   |   | 27,730 |   |   | 178,374 |   | 537,937 |   | 1,232,623 |   |

 

Included in the total for US dollar and MTSA (SEK)fixed-rate balances in 2005 above is $1,016,242,000 in respect of the bookvalue of the 10% Senior Notes, the 4% Convertible Notes and the 5% MandatoryExchangeable Notes for which the fair value as of December 31, 2005 is$1,005,289,000. For all other amounts the fair value is taken to be the bookvalue as stated above.

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The table belowsummarizes, as at December 31, 2004, our fixed rate debt and floating ratedebt.

| ** **           | ** ** | **Amounts due within**                                                     | ** ** |
|----------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **           | ** ** | **1 year**                                                                      | ** ** | **1-2 years** | ** ** | **2-3 years** | ** ** | **3-4 years** | ** ** | **4-5 years** | ** ** | **>5 years** | ** ** | **Total** | ** ** |
| ** **           | ** ** | **(in thousands of U.S. Dollars, except percentages)** | ** ** |
| **Fixed  rate:**     |       |                                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US dollar            |       | 10,545                                                                               |       | 10,077 |   |   | 997 |   |   |   | — |   |   |   | — |   |   | 536,629 |   | 558,248 |   |
| Av Int rate          |       | 5.7                                                                                  | %          | 5.8 | % |   | 3.8 | % |   |   | — |   |   |   | — |   |   | 10.0 | % | 9.8 | % |
| MTSA (SEK)           |       | —                                                                               |       | 365,006 |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   | 365,006 |   |
| Mauritius            |       | 8                                                                                    |       | 21 |   |   | 23 |   |   |   | 21 |   |   |   | — |   |   | — |   | 73 |   |
| Paraguay             |       | 11,543                                                                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   | 11,543 |   |
| Senegal              |       | 16,148                                                                               |       | 673 |   |   | 769 |   |   |   | 646 |   |   |   | — |   |   | — |   | 18,236 |   |
| Local currency       |       | 27,699                                                                               |       | 365,700 |   |   | 792 |   |   |   | 667 |   |   |   | — |   |   | — |   | 394,858 |   |
| Av Int rate          |       | 10.2                                                                                 | %          | 5.0 | % |   | 11.5 | % |   |   | 11.5 | % |   |   | — |   |   | — |   | 5.4 | % |
| Total fixed rate     |       | 38,244                                                                               |       | 375,777 |   |   | 1,789 |   |   |   | 667 |   |   |   | — |   |   | 536,629 |   | 953,106 |   |
| **Floating  rate:**  |       |                                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US dollar            |       | 21,125                                                                               |       | 17,614 |   |   | 16,434 |   |   |   | 9,218 |   |   |   | 8,347 |   |   | 447 |   | 73,185 |   |
| Av Int rate          |       | 5.2                                                                                  | %          | 5.7 | % |   | 6.1 | % |   |   | 4.9 | % |   |   | 4.9 | % |   | 7.4 | % | 5.5 | % |
| Guatemala            |       | —                                                                               |       | 4,728 |   |   | 4,728 |   |   |   | 4,728 |   |   |   | 4,728 |   |   | 3,782 |   | 22,694 |   |
| Mauritius            |       | 1,436                                                                                |       | 929 |   |   | 1,853 |   |   |   | 325 |   |   |   | — |   |   | — |   | 4,543 |   |
| Pakistan             |       | 13,345                                                                               |       | 9,241 |   |   | 8,414 |   |   |   | — |   |   |   | — |   |   | — |   | 31,000 |   |
| Sri Lanka            |       | 485                                                                                  |       | 1,628 |   |   | 2,171 |   |   |   | 2,171 |   |   |   | 2,171 |   |   | — |   | 8,626 |   |
| Tanzania             |       | 5,213                                                                                |       | 3,295 |   |   | 2,348 |   |   |   | 1,740 |   |   |   | — |   |   | — |   | 12,596 |   |
| Vietnam              |       | 8,663                                                                                |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   | 8,663 |   |
| Local currency       |       | 29,142                                                                               |       | 19,821 |   |   | 19,514 |   |   |   | 8,964 |   |   |   | 6,899 |   |   | 3,782 |   | 88,122 |   |
| Av Int rate          |       | 8.7                                                                                  | %          | 7.5 | % |   | 7.2 | % |   |   | 8.3 | % |   |   | 9.3 | % |   | 8.8 | % | 8.1 | % |
| Total floating  rate |       | 50,267                                                                               |       | 37,435 |   |   | 35,948 |   |   |   | 18,182 |   |   |   | 15,246 |   |   | 4,229 |   | 161,307 |   |
| Total                |       | 88,511                                                                               |       | 413,212 |   |   | 37,737 |   |   |   | 18,849 |   |   |   | 15,246 |   |   | 540,858 |   | 1,114,413 |   |

 

We have not historically used interest rate swaps,forward rate agreements or other futures contracts but instead have mainlymanaged our interest exposure by diversifying our debt between fixed andfloating-rate loans. In the future, we may use such instruments to manage ourinterest exposure. There can be no assurance, however, that the use of any suchinstruments will be effective.

Included in the total forU.S. dollar and MTSA (SEK) fixed-rate balances in 2004 above is $901,635,000 inrespect of the book value of 10% Senior Notes and the 5% Mandatory ExchangeableNotes for which the fair value as of December 31, 2004 is $892,823,000.For all other amounts, the fair value is taken to be the book value as statedabove.

***Exchange Rate Risk***

We are exposed to fluctuations of the U.S. dollaragainst certain other currencies. We publish our financial statements in U.S.dollars while a significant proportion of our assets, liabilities, sales andcosts are denominated in other currencies. We conduct our business in 16different currencies.

We seek to protect our reported earnings from fallingin U.S. dollar terms, from currency depreciation, by periodically adjusting ourprices in local currency terms to reflect any such depreciation. In certaincountries that experience very high inflation, we set our prices in directrelation to the U.S. dollar. However, there can be no assurance that asignificant devaluation of a currency against the U.S. dollar can be offset, inwhole or in part, by a corresponding price increase, even over the long term.For example, the devaluation of the currency in Paraguay in 2002 had an adverseeffect on the results of our operations. For the years ended December 31,2005, 2004 and 2003, we recorded an exchange gain and 

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suffered exchange lossesof $52,446,000, ($26,782,000) and ($45,649,000) respectively. In each year themain portion of the exchange gain (loss) related to the revaluation of the 5%Mandatory Exchangeable Notes which are denominated in Swedish Krona. To someextent, the broad mix of currencies in which we conduct our businesses and thegeographic spread of our operations provide us with some measure of protectionagainst specific exchange rate movements and reduces the overall sensitivity ofour results to specific exchange rate fluctuations. We do not generally hedgeour foreign currency exposure as it is considered that the cost of purchasingfinancial instruments outweighs the benefits derived.

At the venture level, we seek to reduce our foreignexchange exposure arising from transactions through a policy of matching, asfar as possible, assets and liabilities. In some cases, we may borrow in U.S.dollars either because it is advantageous for operations to incur debtobligations in U.S. dollars or because dollar denominated borrowing is the onlyfunding source available to a venture. In these circumstances, we decided toaccept the inherent currency risk, principally because of the relatively highcost of buying, or inability to buy, forward cover in currencies of thecountries in which we operate. See Note 2 of the “Notes to theConsolidated Financial Statements”.

Thefollowing table summarizes our debt detailing the balances at December 31,2005, that were denominated in U.S. dollars and that in other local currencies.

| ** **     | ** ** | **Amounts due within**                                                   | ** ** |
|----------------|------------|------------------------------------------------------------------------------------|------------|
| ** **     | ** ** | **1 year**                                                                    | ** ** | **1-2 years** | ** ** | **2-3 years** | ** ** | **3-4 years** | ** ** | **4-5 years** | ** ** | **>5 yrs** | ** ** | **Total** | ** ** |
| ** **     | ** ** | **(in thousands of US dollars, except percentages)** | ** ** |
| US dollar      |       | 39,746                                                                             |       |   | 26,265 |   |   |   | 16,337 |   |   |   | 15,468 |   |   | 167,609 |   | 537,937 |   | 800,362 |   |
| Ghana          |       | 1,533                                                                              |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 1,533 |   |
| Guatemala      |       | 2,892                                                                              |       |   | 2,895 |   |   |   | 2,896 |   |   |   | 2,895 |   |   | 2,895 |   | — |   | 14,473 |   |
| Honduras       |       | 1,208                                                                              |       |   | 1,208 |   |   |   | 1,208 |   |   |   | 1,208 |   |   | 677 |   | — |   | 5,509 |   |
| MTSA (SEK)     |       | 315,359                                                                            |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 315,359 |   |
| Mauritius      |       | 3,925                                                                              |       |   | 930 |   |   |   | 556 |   |   |   | 9 |   |   | — |   | — |   | 5,420 |   |
| Pakistan       |       | 33,134                                                                             |       |   | 5,367 |   |   |   | 5,367 |   |   |   | 2,952 |   |   | — |   | — |   | 46,820 |   |
| Paraguay       |       | 2,869                                                                              |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 2,869 |   |
| Senegal        |       | 5,411                                                                              |       |   | — |   |   |   | — |   |   |   | — |   |   | 7,194 |   | — |   | 12,605 |   |
| Sri Lanka      |       | 3,749                                                                              |       |   | 5,091 |   |   |   | 5,141 |   |   |   | 5,198 |   |   | — |   | — |   | 19,179 |   |
| Tanzania       |       | 4,269                                                                              |       |   | 3,622 |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 7,891 |   |
| Other          |       | 604                                                                                |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   | — |   | 604 |   |
| Local currency |       | 374,953                                                                            |       |   | 19,113 |   |   |   | 15,168 |   |   |   | 12,262 |   |   | 10,766 |   | — |   | 432,262 |   |
| Total          |       | 414,699                                                                            |       |   | 45,378 |   |   |   | 31,505 |   |   |   | 27,730 |   |   | 178,375 |   | 537,937 |   | 1,232,624 |   |

 

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Thefollowing table summarizes our debt detailing the balances at December 31,2004, that were denominated in U.S. dollars and that in other local currencies.

| ** **     | ** ** | **Amounts due within**                                                   | ** ** |
|----------------|------------|------------------------------------------------------------------------------------|------------|
| ** **     | ** ** | **1 year**                                                                    | ** ** | **1-2 years** | ** ** | **2-3 years** | ** ** | **3-4 years** | ** ** | **4-5 years** | ** ** | **>5 yrs** | ** ** | **Total** | ** ** |
| ** **     | ** ** | **(in thousands of US dollars, except percentages)** | ** ** |
| US dollar      |       | 31,670                                                                             |       | 27,691 |   |   | 17,431 |   |   |   | 9,218 |   |   |   | 8,347 |   |   | 537,076 |   | 631,433 |   |
| MTSA (SEK)     |       | —                                                                             |       | 365,006 |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   | 365,006 |   |
| Guatemala      |       | —                                                                             |       | 4,728 |   |   | 4,728 |   |   |   | 4,728 |   |   |   | 4,728 |   |   | 3,782 |   | 22,694 |   |
| Mauritius      |       | 1,444                                                                              |       | 950 |   |   | 1,876 |   |   |   | 346 |   |   |   | — |   |   | — |   | 4,616 |   |
| Pakistan       |       | 13,345                                                                             |       | 9,241 |   |   | 8,414 |   |   |   | — |   |   |   | — |   |   | — |   | 31,000 |   |
| Paraguay       |       | 11,543                                                                             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   | 11,543 |   |
| Senegal        |       | 16,148                                                                             |       | 673 |   |   | 769 |   |   |   | 646 |   |   |   | — |   |   | — |   | 18,236 |   |
| Sri Lanka      |       | 485                                                                                |       | 1,628 |   |   | 2,171 |   |   |   | 2,171 |   |   |   | 2,171 |   |   | — |   | 8,626 |   |
| Tanzania       |       | 5,213                                                                              |       | 3,295 |   |   | 2,348 |   |   |   | 1,740 |   |   |   | — |   |   | — |   | 12,596 |   |
| Vietnam        |       | 8,663                                                                              |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   | 8,663 |   |
| Local currency |       | 56,841                                                                             |       | 385,521 |   |   | 20,306 |   |   |   | 9,631 |   |   |   | 6,899 |   |   | 3,782 |   | 482,980 |   |
| Total          |       | 88,511                                                                             |       | 413,212 |   |   | 37,737 |   |   |   | 18,849 |   |   |   | 15,246 |   |   | 540,858 |   | 1,114,413 |   |

 

**ITEM 12.**         DESCRIPTIONOF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable for Annual Report filing

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**PART II**

**ITEM 13.**         DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

**ITEM 14.**         MATERIALMODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

**ITEM 15.**         CONTROLSAND PROCEDURES

***Disclosure Controls***

As of December 31, 2005,the Company, under the supervision and with the participation of the Company’smanagement, including the Chief Executive Officer and the Chief FinancialOfficer performed an evaluation of the effectiveness of the Company’sdisclosure controls and procedures. The Company’s disclosure controls andprocedures are designed to ensure that information required to be disclosedunder the Securities Exchange Act of 1934 is accumulated and communicated tothe Company’s management to allow timely decisions regarding requireddisclosures. The Company’s management necessarily applied its judgment inassessing the costs and benefits of such controls and procedures, which bytheir nature can provide only reasonable assurance regarding management’scontrol objectives. Based on this evaluation, the Company’s Chief ExecutiveOfficer and the Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures are effective at the reasonable assurance level forrecording, processing, summarizing and reporting the information the Company isrequired to disclose in the reports it files under the Securities Exchange Actof 1934, within the time periods specified in the SEC’s rules and forms.

***Operational and Financial Control***

There have been nosignificant change in the Company’s internal controls over financial reportingthat occurred during the period covered by this annual report that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal controls over financial reporting.    Weactively manage our operations through:

·       recruitmentand selection of local management, which is subject to the approval of Millicom’sboard of directors;

·       developmentof business plans in conjunction with local management;

·       approvalof all significant capital expenditures by the board of directors of Millicom;

·       developmentof the mobile telephone network design and expansion plan with local technicalmanagement;

·       standardizedweekly and monthly reporting and review and an annual budgeting process; and

·       supervisionand support by our internal auditors and marketing, administrative, and legalpersonnel.

We seek to obtain acontrolling ownership of our operations. In most cases, where we do not hold acontrolling share in an operation, we manage our operations throughstockholders’ agreements or similar arrangements, special rights with respectto board representation or special voting rights. Such provisions provide uswith the means to approve or disapprove actions proposed by our partners. In somecases the stockholders’ agreements contain buyout, arbitration or otherprocedures that can be invoked in the event of a fundamental disagreement amongus and our partners.

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**ITEM 16A.   AUDITCOMMITTEE FINANCIAL EXPERT**

The Board of Directors hasappointed Michel Massart as its Audit Committee financial expert. Mr. Massartis an “independent” financial expert as such term is defined under the NASDAQNational Market listing requirements.

**ITEM 16B.   CODEOF ETHICS**

Millicom has adopted a Codeof Ethics applicable to its Chief Executive Officer, Chief Financial Officerand Chief Operating Officer and to all other Millicom employees. The text ofthis code is available free of charge upon written request addressed to:General Counsel, Millicom International Cellular S.A., 75 Route de Longwy, L-8080Bertrange, Grand-Duchy of Luxembourg, fax: + 352 27 759 359.

**ITEM 16C.   PRINCIPALACCOUNTANT FEES AND SERVICES**

Thefollowing table summarizes the aggregate amounts paid to Millicom’s auditorsfor the years ended December 31, 2005 and 2004.

| ** **          | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|---------------------|------------|-----------|------------|-----------|------------|
| Audit Fees          |       | 2,207,491 |       | 1,768,735 |       |
| Audit-Related  Fees |       | 126,071   |       | 4,010     |       |
| Tax Fees            |       | 70,866    |       | 41,724    |       |
| All Other Fees      |       | 5,951     |       | 3,500     |       |
| Total               |       | 2,410,379 |       | 1,817,969 |       |

 

Audit-relatedservices consist principally of consultations related to financial accountingand reporting standards, including making recommendations to managementregarding internal controls and procedure relates to the maintenance of fixedasset registers and inventory procedures and the issuance of certifications ofloan covenant compliance required by Millicom’s debt agreements. Tax servicesconsist principally of tax planning services and tax compliance services. Otherservices are services not included in the other categories.

**Audit CommitteePre-approval Policies**

The policies andprocedures now provide that no non-audit services can be rendered by Millicom’sauditors without the prior consent of the Audit Committee.

**ITEM 16D.   EXEMPTIONSFROM THE LISTING STANDARDS FOR AUDIT COMMITTEES**

Not applicable.

**ITEM 16E.   PURCHASES OF EQUITY SECURITIES BY THEISSUER AND AFFILIATED PURCHASES**

Not applicable.

116

----

**PART III**

**ITEM 17.**         FINANCIALSTATEMENTS

Not applicable.

**ITEM 18.**         FINANCIALSTATEMENTS

See pages F-1through F-83.

**ITEM19.   EXHIBITS**

| 1.1  |   | Articles of Association of Millicom International  Cellular S.A.                                                                                                                                                                                                                                                                                                                  |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1  |   | Indenture, dated  January 7, 2005 between Millicom International Cellular S.A. and The  Bank of New York, as Trustee.***                                                                                                                                                                                                                                                     |
| 2.2  |   | Trust Deed, dated  August 7, 2003 between Millicom Telecommunications S.A., Millicom  International Cellular S.A. and Deutsche Trustee Company Limited.*                                                                                                                                                                                                                     |
| 2.3  |   | Indenture, dated as of  November 24, 2003 between Millicom International Cellular S.A. and The  Bank of New York, as Trustee, as amended (incorporated by reference to  Exhibits 4.1 and 4.3 of the Company’s registration statement on  Form F-4 (File No. 333-112948) filed on  February 19, 2004 and January 13, 2005, respectively).* |
| 4.1. |   | Business Co-Operation  Contract dated June 2, 1994, as amended, among Vietnam Mobile Services  Co., Industriforvaltnings AB Kinnevik and Comvik International Vietnam AB.**                                                                                                                                                                                                  |
| 12.1 |   | Certification of Marc  Beuls required by Securities Exchange Act of 1934, as amended (“Exchange  Act”), Rule 13a-14(a).                                                                                                                                                                                                                                            |
| 12.2 |   | Certification of David  Sach required by Exchange Act Rule 13a-14(a).                                                                                                                                                                                                                                                                                                        |
| 13.1 |   | Certification of Marc  Beuls required by Exchange Act Rule 13a-14(b).                                                                                                                                                                                                                                                                                                        |
| 13.2 |   | Certification of David  Sach required by Exchange Act Rule 13a-14(b).                                                                                                                                                                                                                                                                                                        |

----

*                    Previouslyfiled with the Securities and Exchange Commission with the Company’s Form 20-Ffiled on April 30, 2004 and herein incorporated by reference.

**             Previously filed withthe Securities and Exchange Commission with the Company’s Form 20-F/Afiled on January 13, 2005 and incorporated herein by reference.

***      Previously filed with theSecurities and Exchange Commission with the Company’s Form 20-Ffiled on May 2, 2005 and incorporated herein by reference.

117

----

**INDEXTO FINANCIAL STATEMENTS**
| **Audited Consolidated Financial Statements of Millicom and its  Subsidiaries for the Years Ended December 31, 2005, 2004 and 2003** |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Report of Independent  Registered Public Accounting Firm                                                                                       |   | F-2    |
| Consolidated Balance Sheets as of  December 31, 2005 and 2004                                                                             |   | F-3    |
| Consolidated  Statements of Profit and Loss for the Years ended December 31, 2005, 2004 and 2003                                |   | F-5    |
| Consolidated  Statements of Cash Flows for the Years ended December 31, 2005, 2004 and  2003                                              |   | F-6    |
| Consolidated Statements of  Changes in Shareholders’ Equity for the Years ended December 31, 2005,  2004 and 2003                    |   | F-7    |
| Notes to  the Consolidated Financial Statements including reconciliation to U.S. GAAP  (Note 32)                                               |   | F-9    |

 

F-1

----

|  | **PricewaterhouseCoopers  Société à responsabilité limitée  Réviseur d’entreprises**400, route d’Esch  B.P. 1443  L-1014 Luxembourg  Téléphone +352 494848-1  Facsimile +352 494848-2900 |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Report ofIndependent Registered Public Accounting Firm**

To the shareholders of**Millicom International Cellular S.A.**

We have audited the accompanying consolidated balancesheets of Millicom International Cellular S.A. (the “Company”) and itssubsidiaries as of December 31, 2005 and 2004, and the relatedconsolidated statements of profit and loss, changes in shareholders’ equity andcash flows for each of the three years in the period ended December 31,2005. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statements presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Millicom International Cellular S.A. and its subsidiaries as of December 31,2005 and 2004, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2005, inconformity with International Financial Reporting Standards as adopted by theEuropean Union.

As discussed in Note 2 to the financial statements,the Company adopted new and revised standards under International FinancialReporting Standards as adopted by the European Union for share-based payments,goodwill and non-current assets held for sale and discontinued operations, andchanged its method of accounting under International Financial ReportingStandards for connection revenues and connection costs in 2005.

InternationalFinancial Reporting Standards as adopted by the European Union vary in certainsignificant respects from accounting principles generally accepted in theUnited States of America. Information relating to the nature and effect of suchdifferences is presented in Note 37 to the consolidated financialstatements.
| PricewaterhouseCoopers S.à  r.l.  Réviseur d’entreprises | May 1, 2006 |
|------------------------------------------------------------------------------|------------------|

 

F-2

----

**Consolidated balance sheets                                                                                                          Millicom International**

**As of December 31, 2005 and 2004                                                                                                                  Cellular S.A.**

| ** **                                                  | ** ** | **Notes**  | ** ** | **2005**         | ** ** | **2004(i)**      | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|
| ** **                                                  | ** ** | ** ** | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| **ASSETS**                                                  | ** ** |       | ** ** | ** **       |       | ** **       | ** ** | ** ** | ** ** |
| **NON-CURRENT ASSETS**                                      | ** ** |       | ** ** | ** **       |       | ** **       | ** ** | ** ** | ** ** |
| Intangible assets, net                                      |       |       | 9          | ** **       |       | 373,253          |       | 317,968 |   |
| Property, plant  and equipment, net                         |       |       | 10         | ** **       |       | 671,774          |       | 575,649 |   |
| Investment in  associates                                   |       |       | 11         | ** **       |       | 5,367            |       | 2,220 |   |
| Financial assets                                            |       |       |       | ** **       |       |             |       |   |   |
| Financial assets at fair value through profit or  loss      |       |       | 13         | ** **       |       | —           |       | 397,137 |   |
| Financial assets available for sale                         |       |       | 14         | ** **       |       | 6,307            |       | 3,011 |   |
| Financial assets held to maturity                           |       |       | 15         | ** **       |       | —           |       | 7,529 |   |
| Pledged deposits                                            |       |       | 20         | ** **       |       | 6,500            |       | 25,544 |   |
| Deferred taxation                                           |       |       | 31         | ** **       |       | 4,817            |       | 5,883 |   |
| **TOTAL NON-CURRENT ASSETS**                                |       |       |       | ** **       |       | 1,068,018        |       | 1,334,941 |   |
| **CURRENT  ASSETS**                                         | ** ** |       | ** ** | ** **       |       | ** **       | ** ** | ** ** | ** ** |
| Financial assets                                            |       |       |       | ** **       |       |             |       |   |   |
| Financial assets at fair value through profit or  loss      |       |       | 13         | ** **       |       | 327,803          |       | — |   |
| Financial assets held to maturity                           |       |       | 15         | ** **       |       | 7,687            |       | 15,327 |   |
| Pledged deposits                                            |       |       | 20         | ** **       |       | 47,035           |       | 9,260 |   |
| Inventories                                                 |       |       | 17         | ** **       |       | 16,369           |       | 16,304 |   |
| Trade  receivables, net                                     |       |       | 18         | ** **       |       | 109,165          |       | 141,972 |   |
| Amounts due from  joint ventures and joint venture partners |       |       |       | ** **       |       | 19,244           |       | 11,715 |   |
| Amounts due from  other related parties                     |       |       | 36         | ** **       |       | 1,781            |       | 2,067 |   |
| Prepayments and  accrued income                             |       |       |       | ** **       |       | 48,046           |       | 38,259 |   |
| Current tax  assets                                         |       |       |       | ** **       |       | 14,716           |       | 12,479 |   |
| Other current  assets                                       |       |       | 19         | ** **       |       | 52,796           |       | 49,898 |   |
| Time deposits                                               |       |       | 21         | ** **       |       | 108              |       | 610 |   |
| Cash and cash  equivalents                                  |       |       | 22         | ** **       |       | 596,567          |       | 413,381 |   |
| **TOTAL CURRENT ASSETS**                                    |       |       |       | ** **       |       | 1,241,317        |       | 711,272 |   |
| Assets held for sale                                        |       |       | 12         | ** **       |       | 250,087          |       | — |   |
| **TOTAL  ASSETS**                                           |       |       |       | ** **       |       | 2,559,422        |       | 2,046,213 |   |

----

*(i)**              Comparativeinformation restated as a result of the adoption of IFRS 2, “Share-basedPayment”, IAS 1, revised, “Presentation of Financial Statements” and as aresult of change in accounting policy for connection revenues and costs (seenote 2)*

The accompanying notes are an integral part of these consolidated financial statements.

F-3

----

**Consolidated balance sheets (Continued)                                                                                 Millicom International**

**As of December 31, 2005 and 2004                                                                                                                 Cellular S.A.**

| ** **                                                 | ** ** | ** ** | ** ** | **Notes**        | ** ** | **2005**         | ** ** | **2004(i)** | ** ** |
|------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|-------------|------------|
| **EQUITY AND LIABILITIES**                       | ** ** | ** ** | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| **EQUITY**                                                 |       |       |       |             |       |             |       |        |       |
| Share capital and premium                                  |       |       | 23         |             |       | 465,157          |       | 513,782     |       |
| Treasury stock                                             |       |       | 23         |             |       | (8,833           | )          | (8,833      | )          |
| Other reserves                                             |       |       | 24         |             |       | (15,217          | )          | (55,242     | )          |
| Accumulated losses brought forward (ii)                    |       |       |       |             |       | (151,779         | )          | (278,512    | )          |
| Profit for the year attributable to equity holders         |       |       |       |             |       | 10,043           |       | 65,891      |       |
|                                                       |       |       |       |             |       | 299,371          |       | 237,086     |       |
| Minority interest                                          |       |       |       |             |       | 34,179           |       | 43,351      |       |
| **TOTAL  EQUITY**                                          |       |       |       |             |       | 333,550          |       | 280,437     |       |
| **LIABILITIES**                                            |       |       |       |             |       |             |       |        |       |
| ***Non-current  Liabilities***                             |       |       |       |             |       |             |       |        |       |
| Debt and other  financing                                  |       |       |       |             |       |             |       |        |       |
| 10% Senior Notes                                           |       |       | 26         |             |       | 537,599          |       | 536,629     |       |
| 4% Convertible Notes—Debt component                   |       |       | 26         |             |       | 163,284          |       | —      |       |
| 5% Mandatory Exchangeable Notes—Debt component        |       |       | 26         |             |       | —           |       | 365,006     |       |
| Other debt and financing                                   |       |       | 26         |             |       | 120,041          |       | 124,267     |       |
| Other non-current liabilities                              |       |       | 25         |             |       | 203,988          |       | 194,774     |       |
| Deferred taxation                                          |       |       | 31         |             |       | 45,228           |       | 39,216      |       |
| **Total  non-current liabilities**                         |       |       |       |             |       | 1,070,140        |       | 1,259,892   |       |
| ***Current  Liabilities***                                 |       |       |       |             |       |             |       |        |       |
| Debt and other  financing                                  |       |       |       |             |       |             |       |        |       |
| 5% Mandatory Exchangeable Notes—Debt component        |       |       | 26         |             |       | 315,359          |       | —      |       |
| Other debt and financing                                   |       |       | 26         |             |       | 96,340           |       | 88,511      |       |
| Trade payables                                             |       |       |       |             |       | 210,540          |       | 173,969     |       |
| Amounts due to joint ventures and joint venture  partners  |       |       |       |             |       | 14,122           |       | 7,760       |       |
| Amounts due to other related parties                       |       |       | 36         |             |       | 4,780            |       | 975         |       |
| Accrued interest and other expenses                        |       |       |       |             |       | 61,236           |       | 55,203      |       |
| Current tax liabilities                                    |       |       |       |             |       | 67,815           |       | 78,926      |       |
| Other current liabilities                                  |       |       | 25         |             |       | 138,816          |       | 100,540     |       |
| **Total  current liabilities**                             |       |       |       |             |       | 909,008          |       | 505,884     |       |
| Liabilities directly associated with assets held for  sale |       |       | 12         |             |       | 246,724          |       | —      |       |
| **TOTAL LIABILITIES**                                      |       |       |       |             |       | 2,225,872        |       | 1,765,776   |       |
| **TOTAL  EQUITY AND LIABILITIES**                          |       |       |       |             |       | 2,559,422        |       | 2,046,213   |       |

----

*(i)**              Comparativeinformation restated as a result of the adoption of IFRS 2, “Share-based Payment”,IAS 1, revised, “Presentation of Financial Statements” and as a result of thechange in accounting policy for connection revenues and costs (see note 2).*

*(ii)**           Followingthe adoption of IFRS 3 “Business Combinations” (see Note 2), Millicom derecognisednegative goodwill existing on January 1, 2005 of $8,202 thousand throughan adjustment to accumulated losses brought forward. On January 1, 2005,Millicom alos eliminated the carrying amount of accumulated amortisation ofgoodwill existing on that date with a corresponding decrease in the cost ofgoodwill.*

The accompanying notes are an integral part of these consolidated financial statements.

F-4

----

**Consolidated statements of profit and loss                                                                              Millicom International**

**For the years ended December 31, 2005, 2004 and 2003                                                                          Cellular S.A.**

| ** **                                                                            | ** ** | **Notes**     | ** ** | **2005**               | ** ** | **2004(i)**            | ** ** | **2003(i)**            | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | ** **    | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Revenues                                                                              |       | 8, 29         |       | 1,083,669              |       | 917,492                |       | 640,363                |       |
| Cost of sales                                                                         |       | 28, 29        |       | (511,919               | )          | (386,150               | )          | (254,442               | )          |
| **Gross  profit**                                                                     | ** ** | ** **    | ** ** | **571,750**            | ** ** | **531,342**            | ** ** | **385,921**            | ** ** |
| Sales and  marketing                                                                  |       | 27            |       | (162,050               | )          | (122,216               | )          | (87,110                | )          |
| General and  administrative expenses                                                  |       | 9, 27, 23, 28 |       | (200,448               | )          | (127,792               | )          | (103,876               | )          |
| Other operating  expenses                                                             |       | 9, 27, 28     |       | (24,091                | )          | (35,225                | )          | (32,776                | )          |
| Other operating  income                                                               |       | 16, 30        |       | 15,743                 |       | 3,287                  | ** ** | —                 | ** ** |
| Gain (loss) from  sale of subsidiaries and joint ventures, net                        |       | 5             |       | 1,269                  |       | (2,207                 | )          | 2,213                  |       |
| **Operating  profit**                                                                 | ** ** | ** **    | ** ** | **202,173**            | ** ** | **247,189**            | ** ** | **164,372**            | ** ** |
| Valuation movement  on investment securities                                          |       | 13            |       | (63,356                | )          | (127,158               | )          | 246,760                |       |
| Gain on disposal  of investment securities                                            |       |          |       | —                 |       | 193                    |       | —                 |       |
| Interest expense                                                                      |       | 26            |       | (143,740               | )          | (108,514               | )          | (135,130               | )          |
| Interest and other  income                                                            |       |          |       | 25,013                 |       | 7,697                  |       | 4,836                  |       |
| Other financial  income(ii)                                                           |       |          |       | —                 |       | —                 |       | 96,748                 |       |
| Fair value result  on financial instruments                                           |       | 13, 16, 26    |       | (5,297                 | )          | 148,816                |       | (84,578                | )          |
| Exchange gain/(loss),  net                                                            |       | 26            |       | 52,446                 |       | (26,782                | )          | (45,649                | )          |
| Profit from  associates                                                               |       | 11            |       | 1,296                  |       | 814                    |       | 380                    |       |
| **Profit  before tax from continuing operations**                                     | ** ** | ** **    | ** ** | **68,535**             | ** ** | **142,255**            | ** ** | **247,739**            | ** ** |
| Charge for taxes                                                                      |       | 31            |       | (65,299                | )          | (59,449                | )          | (52,715                | )          |
| **Profit  for the year from continuing operations**                                   | ** ** | ** **    | ** ** | **3,236**              | ** ** | **82,806**             | ** ** | **195,024**            | ** ** |
| Profit/(loss) for  the year from discontinued operations                              |       | 12            |       | 675                    |       | (125                   | )          | (3,408                 | )          |
| **Net  profit for the year**                                                          | ** ** | ** **    | ** ** | **3,911**              | ** ** | **82,681**             | ** ** | **191,616**            | ** ** |
| **Attributable to:**                                                                  |       |          |       |                   |       |                   |       |                   |       |
| Equity holders of  the company                                                        |       |          |       | 10,043                 |       | 65,891                 |       | 176,921                |       |
| Minority interest                                                                     |       |          |       | (6,132                 | )          | 16,790                 |       | 14,695                 |       |
| ** **                                                                            | ** ** | ** **    | ** ** | **3,911**              | ** ** | **82,681**             | ** ** | **191,616**            | ** ** |
| **Earnings  per share for the year**                                                  |       | 32            |       |                   |       |                   |       |                   |       |
| (expressed in US$ per  common share)                                             |       |          |       |                   |       |                   |       |                   |       |
| —Basic, for profit  for the year attributable to equity holders                  |       |          |       | 0.10                   |       | 0.79                   |       | 2.71                   |       |
| —Basic, for profit  from continuing operations attributable to  equity holders   |       |          |       | 0.09                   |       | 0.79                   |       | 2.76                   |       |
| —Diluted, for  profit for the year attributable to equity holders                |       |          |       | 0.10                   |       | 0.74                   |       | 2.24                   |       |
| —Diluted, for  profit from continuing operations attributable to  equity holders |       |          |       | 0.09                   |       | 0.74                   |       | 2.28                   |       |

----

*(i)**             **Comparative information restatedas a result of the adoption of IFRS 2, “Share-based Payment”, IAS 1,revised, “Presentation of Financial Statements” and as a result of the changein accounting policy for connection revenues and costs (see note 2).*

*(ii)**          **As the result of a debt exchange,Millicom recorded a gain of $96,748 thousand in 2003.*

The accompanying notes are an integral part of these consolidated financial statements.

F-5

----

**Consolidated statements of cash flows                                                                                      Millicom International**

**for the years ended December 31, 2005, 2004 and 2003                                                                           Cellular S.A.**

| ** **                                                                           | ** ** | **Notes**  | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|--------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                           | ** ** | ** ** | ** ** | **US $’000** | ** ** | **US $’000** | ** ** | **US $’000** | ** ** |
| **Cash flows from operating  activities**                                            |       |       |       |                   |       |                   |       |                   |       |
| Net cash provided by operating activities                                            |       | 33         |       | 407,165                |       | 303,243                |       | 184,322                |       |
| **Cash  flow from investing activities**                                             |       |       |       |                   |       |                   |       |                   |       |
| Acquisition of  subsidiaries and joint ventures, net of cash acquired                |       | 4          |       | (72,250                | )          | (1,006                 | )          | 1,028                  |       |
| Proceeds from the  disposal of subsidiaries and joint ventures, net of cash disposed |       | 5          |       | 1,899                  |       | 961                    |       | 8,848                  |       |
| Purchase of  intangible assets and license renewals                                  |       | 9          |       | (51,477                | )          | (38,891                | )          | (3,569                 | )          |
| Investment in  associates                                                            |       | 11         |       | (1,256                 | )          | —                 |       | —                 |       |
| Purchase of  financial assets                                                        |       | 15         |       | —                 |       | —                 |       | (45,328                | )          |
| Proceeds from the  disposal of financial assets                                      |       | 13,  15    |       | 15,490                 |       | 15,490                 |       | 41,036                 |       |
| Purchase of  property, plant and equipment                                           |       | 10         |       | (323,524               | )          | (197,873               | )          | (86,452                | )          |
| Proceeds from the  sale of property, plant and equipment                             |       |       |       | 6,461                  |       | 82                     |       | 3,296                  |       |
| Purchase of  pledged deposits                                                        |       |       |       | (26,058                | )          | (9,045                 | )          | (9,228                 | )          |
| Disposal of  pledged deposits                                                        |       |       |       | 7,808                  |       | 6,686                  |       | 11,599                 |       |
| Purchase of time  deposits                                                           |       |       |       | (119                   | )          | (12                    | )          | (30,079                | )          |
| Disposal of time  deposits                                                           |       |       |       | —                 |       | 32,430                 |       | 12,283                 |       |
| Other                                                                                |       |       |       | (633                   | )          | 4,031                  |       | 1,015                  |       |
| Net cash used by investing activities                                                |       |       |       | (443,659               | )          | (187,147               | )          | (95,551                | )          |
| **Cash  flow from financing activities**                                             |       |       |       |                   |       |                   |       |                   |       |
| Proceeds from  issuance of shares                                                    |       |       |       | 3,553                  |       | 205,920                |       | —                 |       |
| Proceeds from  issuance of debt and financing                                        |       |       |       | 339,732                |       | 102,156                |       | 969,607                |       |
| Repayment of debt  and financing                                                     |       |       |       | (119,886               | )          | (155,071               | )          | (899,008               | )          |
| Cash outflows  related to debt restructuring                                         |       |       |       | —                 |       | —                 |       | (68,068                | )          |
| Payment of  dividends to minority interests                                          |       |       |       | (2,000                 | )          | (3,163                 | )          | (12,541                | )          |
| Payments to  shareholders                                                            |       |       |       | —                 |       | —                 |       | (1,628                 | )          |
| Net cash (used) provided by financing activities                                     |       |       |       | 221,399                |       | 149,842                |       | (11,638                | )          |
| Exchange gains/(losses) on cash and cash equivalents                                 |       |       |       | (1,719                 | )          | (1,386                 | )          | 1,245                  |       |
| **Net increase in cash and cash equivalents**                                        |       |       |       | 183,186                |       | 264,552                |       | 78,378                 |       |
| Cash and cash equivalents at beginning of year                                       |       |       |       | 413,381                |       | 148,829                |       | 70,451                 |       |
| **Cash  and cash equivalents at end of year**                                        |       | 22         |       | 596,567                |       | 413,381                |       | 148,829                |       |

 

The accompanying notes are an integral part of these consolidated financial statements

F-6

----

**Consolidated statements ofchanges in equity                                                                                                                          MillicomInternational**

**For the years endedDecember 31, 2005, 2004 and 2003                                                                                                                         CellularS.A.**

| ** **                                       | ** ** | **Attributable to equity holders** | ** ** | ** **                                        | ** ** | ** **             | ** **  |                   |
|--------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|------------------------|-------------|------------------------|
| ** **                                       | ** ** | **Number of**                                | ** ** | **Number of  shares held  by the** | ** ** | **Share**              | ** **  | **Share**              | ** ** | **Treasury** | ** ** | **Accumulated  profit and loss** | ** ** | **Other** | ** ** | ** ** | ** ** | **Minority** | ** ** | **Total** | ** ** |   |
| ** **                                       | ** ** | **Shares(v)**                                     | ** ** | **Group(v)**                                      | ** ** | **Capital(ii)**        | ** **  | **Premium(ii)**        | ** ** | **stock** | ** ** | **account** | ** ** | **reserves(i)** | ** ** | **Total** | ** ** | **interest** | ** ** | **equity** | ** ** |   |
| ** **                                       | ** ** | **‘000**                                     | ** ** | **“000**                                     | ** ** | **US$ ‘000** | ** **  | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |   |
| **Balance  as of January 1, 2003**               |       |                                              | **94,833** | ** **                                        | ** ** | ** **             | **(29,695** | **)**                  | ** ** | ** ** | **142,249** | ** ** | ** ** | ** ** | **139,740** | ** ** | ** ** | ** ** | **(54,521** | **)** | ** ** | ** ** | **(442,864** | **)** | ** ** | ** ** | **(79,863** | **)** | ** ** | ** ** | **(295,259** | **)** | ** ** | ** ** | **23,733** | ** ** | ** ** | ** ** | **(271,526** | **)** | ** ** |
| Effect of  consolidation of El Salvador          |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (3,248 | ) |   |   | — |   |   |   | (3,248 | ) |   |   | — |   |   |   | (3,248 | ) |   |
| Profit for the  year(iii),(iv)                   |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 176,921 |   |   |   | — |   |   |   | 176,921 |   |   |   | 14,695 |   |   |   | 191,616 |   |   |
| Dividends paid to  minority shareholders    |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (12,541 | ) |   |   | (12,541 | ) |   |
| Issuance of 2% PIK  Notes—equity component  |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 16,248 |   |   |   | 16,248 |   |   |   | — |   |   |   | 16,248 |   |   |
| Disposal/Cancellation  of treasury stock         |       |                                              | (28,863    | )                                                 |       |                   | 29,040      |                   |   |   | (43,294 | ) |   |   | — |   |   |   | 45,688 |   |   |   | — |   |   |   | — |   |   |   | 2,394 |   |   |   | — |   |   |   | 2,394 |   |   |
| Conversion of 2%  PIK Notes                      |       |                                              | 350        |                                              |       |                   | —      |                   |   |   | 524 |   |   |   | 657 |   |   |   | — |   |   |   | — |   |   |   | (242 | ) |   |   | 939 |   |   |   | — |   |   |   | 939 |   |   |
| Share based  compensation                        |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 443 |   |   |   | 443 |   |   |   | — |   |   |   | 443 |   |   |
| Changes in  composition of the Group             |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 39 |   |   |   | 39 |   |   |
| Currency  translation differences                |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 14,923 |   |   |   | 14,923 |   |   |   | 645 |   |   |   | 15,568 |   |   |
| **Balance  as of December 31, 2003**             | ** ** | ** **                                        | **66,320** | ** **                                        | ** ** | ** **             | **(655**    | **)**                  | ** ** | ** ** | **99,479** | ** ** | ** ** | ** ** | **140,397** | ** ** | ** ** | ** ** | **(8,833** | **)** | ** ** | ** ** | **(269,191** | **)** | ** ** | ** ** | **(48,491** | **)** | ** ** | ** ** | **(86,639** | **)** | ** ** | ** ** | **26,571** | ** ** | ** ** | ** ** | **(60,068** | **)** | ** ** |
| Profit for the  year(iii),(iv)                   |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 65,891 |   |   |   | — |   |   |   | 65,891 |   |   |   | 16,790 |   |   |   | 82,681 |   |   |
| Dividends paid to  minority shareholders    |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (3,163 | ) |   |   | (3,163 | ) |   |
| Conversion/Redemption  of 2% PIK  Notes          |       |                                              | 23,230     |                                              |       |                   | —      |                   |   |   | 34,845 |   |   |   | 33,141 |   |   |   | — |   |   |   | — |   |   |   | (16,006 | ) |   |   | 51,980 |   |   |   | — |   |   |   | 51,980 |   |   |
| Issuance of shares                               |       |                                              | 9,000      |                                              |       |                   | —      |                   |   |   | 13,500 |   |   |   | 189,552 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 203,052 |   |   |   | — |   |   |   | 203,052 |   |   |
| Shares issued via  the exercise of stock options |       |                                              | 669        |                                              |       |                   | —      |                   |   |   | 1,004 |   |   |   | 1,864 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,868 |   |   |   | — |   |   |   | 2,868 |   |   |
| Share based  compensation                        |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 1,852 |   |   |   | 1,852 |   |   |   | — |   |   |   | 1,852 |   |   |
| Transfer to legal  reserve                       |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (9,321 | ) |   |   | 9,321 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Changes in  composition of the Group             |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 3,893 |   |   |   | 3,893 |   |   |
| Currency translation  differences                |       |                                              | —     |                                              |       |                   | —      |                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (1,918 | ) |   |   | (1,918 | ) |   |   | (740 | ) |   |   | (2,658 | ) |   |
| **Balance  as of December 31, 2004**             | ** ** | ** **                                        | **99,219** | ** **                                        | ** ** | ** **             | **(655**    | **)**                  | ** ** | ** ** | **148,828** | ** ** | ** ** | ** ** | **364,954** | ** ** | ** ** | ** ** | **(8,833** | **)** | ** ** | ** ** | **(212,621** | **)** | ** ** | ** ** | **(55,242** | **)** | ** ** | ** ** | **237,086** | ** ** | ** ** | ** ** | **43,351** | ** ** | ** ** | ** ** | **280,437** | ** ** | ** ** |

----

*(i)**               **See note 24.*

*(ii)**            **See note 23.*

*(iii)**         **The net effect on profit for theyear as a result of adoption of the new accounting policy for connectionrevenues and connection costs was a reduction of $498 thousand and $1,459thousand for 2004 and 2003 respectively (see note 2.19 c).*

*(iv)**          **The net effect on profit for theyear as a result of the adoption of IFRS 2—Share based compensation was areduction of $1,852 thousand and $443 thousand for 2004 and 2003 respectively.*

*(v)**             **After stock split ofFebruary 20, 2004 (note 23).*

F-7

 

----

**Consolidated statements of changes in equity(Continued)                                                                                                  MillicomInternational**

**For the years endedDecember 31, 2005, 2004 and 2003                                                                                                                         CellularS.A.**

| ** **                                        | ** ** | **Attributable to equity holders** | ** ** | ** **                                                   | ** ** | ** **             | ** ** |
|---------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **Number of  Shares(iv)**                    | ** ** | **Number of  shares held  by the  Group(iv)** | ** ** | **Share  Capital(i)**  | ** ** | **Share  Premium(i)** | ** ** | **Treasury  stock** | ** ** | **Accumulated  profit and loss  account** | ** ** | **Other  reserves(iii)** | ** ** | **Total** | ** ** | **Minority  interest** | ** ** | **Total  equity** | ** ** |
| ** **                                        | ** ** | **‘000**                                     | ** ** | **‘000**                                                | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Balance  as of December 31, 2004**              | ** ** | ** **                                        | **99,219** | ** **                                                   | ** ** | ** **             | **(655**   | **)** | ** ** | ** ** | **148,828** | ** ** | ** ** | ** ** | **364,954** | ** ** | ** ** | ** ** | **(8,833** | **)** | ** ** | ** ** | **(212,621** | **)** | ** ** | ** ** | **(55,242** | **)** | ** ** | ** ** | **237,086** | ** ** | ** ** | ** ** | **43,351** | ** ** | ** ** | ** ** | **280,437** | ** ** | ** ** |
| IFRS 3—Negative  goodwill derecognised       |       |                                              | —     |                                                         |       |                   | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 8,202 |   |   |   | — |   |   |   | 8,202 |   |   |   | — |   |   |   | 8,202 |   |   |
| Profit for the  year                              |       |                                              | —     |                                                         |       |                   | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 10,043 |   |   |   | — |   |   |   | 10,043 |   |   |   | (6,132 | ) |   |   | 3,911 |   |   |
| Dividends paid to  minority shareholders          |       |                                              | —     |                                                         |       |                   | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (2,000 | ) |   |   | (2,000 | ) |   |
| Shares issued via  the exercise of stock  options |       |                                              | 485        |                                                         |       |                   | —     |   |   |   | 727 |   |   |   | 3,288 |   |   |   | — |   |   |   | — |   |   |   | (462 | ) |   |   | 3,553 |   |   |   | — |   |   |   | 3,553 |   |   |
| Share based  compensation                         |       |                                              | —     |                                                         |       |                   | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 3,075 |   |   |   | 3,075 |   |   |   | — |   |   |   | 3,075 |   |   |
| 4% Convertible  Notes—equity component(ii)   |       |                                              | —     |                                                         |       |                   | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 39,109 |   |   |   | 39,109 |   |   |   | — |   |   |   | 39,109 |   |   |
| Transfer to accumulated  losses brought forward   |       |                                              | —     |                                                         |       |                   | —     |   |   |   | — |   |   |   | (52,640 | ) |   |   | — |   |   |   | 52,640 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Fair value  adjustment on—financial  assets  |       |                                              | —     |                                                         |       |                   | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 3,308 |   |   |   | 3,308 |   |   |   | — |   |   |   | 3,308 |   |   |
| Currency  translation differences                 |       |                                              | —     |                                                         |       |                   | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (5,005 | ) |   |   | (5,005 | ) |   |   | (1,040 | ) |   |   | (6,045 | ) |   |
| **Balance  as of December 31, 2005**              | ** ** | ** **                                        | **99,704** | ** **                                                   | ** ** | ** **             | **(655**   | **)** | ** ** | ** ** | **149,555** | ** ** | ** ** | ** ** | **315,602** | ** ** | ** ** | ** ** | **(8,833** | **)** | ** ** | ** ** | **(141,736** | **)** | ** ** | ** ** | **(15,217** | **)** | ** ** | ** ** | **299,371** | ** ** | ** ** | ** ** | **34,179** | ** ** | ** ** | ** ** | **333,550** | ** ** | ** ** |

----

*(i)**               **See Note 23.*

*(ii)**            **See Note 26 (c).*

*(iii)**         **See Note 24.*

*(iv)**          **After stock split ofFebruary 20, 2004 (note 23).*

The accompanyingnotes are an integral part of these consolidated financial statements.

F-8

 

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**Notes to the consolidated financial statements                                                                         Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**1.**   **CORPORATE INFORMATION**

Millicom International Cellular S.A. (the “Company”),a Luxembourg Société Anonyme, and its subsidiaries, joint ventures andassociates (the “Group” or “Millicom”) is a global operator of mobile telephoneservices in the world’s emerging markets. The Group was formed in December 1990when Investment AB Kinnevik (“Kinnevik”), formerly named IndustriförvaltningsAB Kinnevik, a company established in Sweden, and Millicom Incorporated (“MillicomInc.”), a corporation established in the United States of America, contributedtheir respective interests in international mobile joint ventures to form theGroup. During 1992, the Group was restructured under a new ultimate parentcompany, maintaining the same name. On December 31, 1993, Millicom Inc.was merged (“the Merger”) into a wholly owned subsidiary of Millicom, MIC-USAInc. (“MIC-USA”) a Delaware corporation, and the outstanding shares of MillicomInc.’s common stock were exchanged for approximately 46.5% of Millicom’s commonstock outstanding at that time.

As of December 31, 2005, Millicom had 17 mobileoperations in 16 countries focusing on emerging markets in Central America,South America, Africa, South Asia and South East Asia. The Company’s shares aretraded on the NASDAQ National**Market underthe symbol MICC and on the Stockholm stock exchange under the symbol MIC.Millicom delisted from the Luxembourg stock exchange on January 16, 2006.The Company has its registered office at 75, Route de Longwy, L-8080,Bertrange, Grand-Duchy of Luxembourg and is registered with the LuxembourgRegister of Commerce under the number RCS B 40 630.

Millicom operates;in El Salvador, Guatemala andHonduras (see Note 4); in Central America; in Bolivia and Paraguay in SouthAmerica and in Chad, the Democratic Republic of Congo (see Note 4), Ghana,Mauritius, Senegal, Sierra Leone and Tanzania in Africa; in Pakistan and SriLanka in South Asia (and a Management Contract in Iran) and in Cambodia andLaos in South East Asia (our Business Cooperation Contract in Vietnam ended on May 18,2005, see Note 3).

TheBoard of Directors approved these consolidated financial statements on April 12,2006 for issuance.

**2.   SUMMARY OFCONSOLIDATION AND ACCOUNTING POLICIES**

**2.1 Basis ofpreparation**

The consolidated financial statements of the Group arepresented in US dollars and have been prepared in accordance with InternationalFinancial Reporting Standards as adopted by the European Union (“IFRS”). Allvalues are rounded to the nearest thousand ($000) except when otherwiseindicated. The consolidated financial statements have been prepared on ahistorical cost basis except for certain financial assets and liabilities thathave been measured at fair value.

The preparation of financial statements in conformitywith IFRS requires management to exercise its judgement in the process ofapplying the Company’s accounting policies. It also requires the use of certaincritical accounting estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Although these estimates are based onmanagement’s best knowledge of current events and actions, actual resultsultimately may differ from those estimates. The areas involving a higher degreeof judgement or complexity, or areas where assumptions and estimates aresignificant to the consolidated financial statements, are disclosed in note 3.

F-9

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**2.2 Consolidation**

The consolidated financial statements of the Group arecomprised of the financial statements of the Company and its subsidiaries as at31 December each year. The financial statements of the subsidiaries areprepared for the same reporting year as the parent company, using consistentaccounting policies.

All intra-group balances,transactions, income and expenses and profits and losses resulting fromintra-group transactions are eliminated.

***Subsidiaries***

Subsidiaries are those entities including SpecialPurpose Entities over which the Group has the power to govern the financial andoperating policies generally accompanying a shareholding of more than one halfof the voting rights. The existence and effect of potential voting rights thatare presently exercisable or presently convertible are considered whenassessing whether the Group controls another entity. Subsidiaries are fullyconsolidated from the date on which control is transferred to the Group andcontinue to be consolidated until the date that control ceases.

The purchase method of accounting is used to accountfor the acquisition of subsidiaries. The cost of an acquisition is measured asthe fair value of the assets given up, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus costs directlyattributable to the acquisition. Identifiable assets, liabilities andcontingent liabilities assumed in a business combination are measured initiallyat their fair values at the acquisition date, irrespective of any minorityinterest. The excess of the cost of acquisition over the fair value of theGroup’s share of identifiable net assets acquired is recorded as goodwill. Ifthe cost of acquisition is less than the fair value of the identifiable netassets of the subsidiary acquired, the difference is recognised directly to theconsolidated statements of profit and loss (see accounting policy forGoodwill).

Intercompany transactions,balances and unrealized gains on transactions between Group companies areeliminated; unrealized losses are also eliminated unless cost cannot berecovered. Accounting policies of subsidiaries have been changed wherenecessary, to ensure consistency with the policies adopted by the Group.

***Minority interests***

**TheGroup applies a policy of treating transactions with minority interests astransactions with parties external to the Group. Disposals to minorityinterests result in gains and losses for the Group that are recorded in theconsolidated statements of profit and loss. Purchases from minority interestsresult in goodwill, being the difference between any consideration paid and therelevant share acquired of the carrying value of the net assets of thesubsidiary.**

***Joint ventures***

Millicom determines the existence of joint control byreference to the joint venture agreements, articles of association, structuresand voting protocols of the Boards of Directors, of those ventures.

Entities that are jointly controlled are consolidatedusing the proportional method which only includes the Group’s share of theassets, liabilities, income and expenses of the joint ventures in which theGroup has an interest in the consolidated financial statements.

F-10

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

The Group recognizes theportion of gains or losses on the sale of assets by the Group to the jointventure that is attributable to the other parties in the joint venture. TheGroup does not recognize its share of profits or losses that results from thepurchase of assets by the Group from the joint venture until it resells theassets to an independent party. However, if a loss on the transaction providesevidence of a reduction in the net realizable value of current assets or animpairment loss, the loss is recognized immediately.

***Associates***

Associates are all entities over which the Group hassignificant influence but not control, generally accompanying a shareholding ofbetween 20% and 50% of the voting rights.

Investments in associates are accounted for using theequity method of accounting and are initially recognised at cost. The Group’sinvestment in associates includes Goodwill (net of any accumulated impairmentloss) identified on acquisition (see note 2.6 a).

The Group’s share of the post-acquisition profits orlosses of associates is recognized in the consolidated statements of profit andloss, and its share of post-acquisition movements in reserves is recognised inreserves. The cumulative post-acquisition movements are adjusted against the carryingamount of the investment. When the Group’s share of losses in an associateequals or exceeds its interest in the associate, including any other unsecuredreceivables, the Group does not recognize further losses, unless the Group hasincurred obligations or made payments on behalf of the associates.

Unrealized gains ontransactions between the Group and its associates are eliminated to the extentof the Group’s interest in the associates. Unrealised losses are alsoeliminated unless the transaction provides evidence of an impairment of theasset transferred. Accounting policies of associates have been changed wherenecessary to ensure consistency with the policies adopted by the Group.

**2.3 Foreigncurrency translation**

***Functional Currency translation***

Items included in thefinancial statements of each of the Group’s entities are measured using thecurrency of the primary economic environment in which the entity operates (“thefunctional currency”). The Group’s consolidated financial statements arepresented in U.S. dollar. The Company is located in Luxembourg and itssubsidiaries, joint ventures and associates operate in different currencies.The functional currency of the Company is the U.S. dollar because of thesignificant influence of the U.S. dollar on its operations. The functionalcurrency of each subsidiary, joint venture and associates reflects the economicsubstance of the underlying events and circumstances of these entities and isdetermined in accordance with the requirements of IAS 21 ‘The Effects ofChanges in Foreign Exchange Rates’.

***Transactions and balances***

Transactions denominated in a currency other than thefunctional currency are translated into the functional currency using theexchange rates prevailing at the date of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and fromthe translation at year-end exchange rates of monetary assets and liabilitiesdenominated in currencies other than the functional currency are recognised inthe consolidated statements of profit and loss, except when deferred in equityas qualifying cash flow hedges and qualifying net investment hedges.

F-11

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

Translation differences onnon-monetary financial assets and liabilities are reported as part of the fairvalue gain or loss. Translation differences on non-monetary financial assetsand liabilities such as equities held at fair value through profit or loss arerecognised in the consolidated statements of profit and loss as part of thefair value gain or loss. Translation differences on non-monetary financialassets such as investments classified as available for sale are included in thefair value reserve in equity.

***Group Companies***

The results andfinancial position of all the group entities (none of which has the currency ofa hyperinflationary economy) that have a functional currency different from thepresentation currency are translated into the presentation currency as follows:

i)                 Assets andliabilities for each balance sheet presented are translated at the closing rateat the date of the balance sheet;

ii)             Income and expensesfor each income statement are translated at average exchange rates (unless thisaverage is not a reasonable approximation of the cumulative effect of the ratesprevailing on the transaction dates, in which case income and expenses aretranslated at the dates of the transactions); and

iii)         All resulting exchangedifferences are recognised as a separate component of equity “Currencytranslation reserve”.

On consolidation, exchange differences arising fromthe translation of net investment in foreign operations, and of borrowing andother currency instrument designated as hedges of such investments, are takento equity. When a foreign operation is sold, exchange differences that wererecorded in equity are recognised in the consolidated statements of profit andloss as part of the gain or loss on sale.

Goodwill and fair value adjustment arising on theacquisition of a foreign entity are treated as assets and liabilities of theforeign entity and translated at the closing rate.

Thefollowing is a table of the principal currency translation rates to the U.S.dollar as of December 31, 2005 and 2004 and the average rates for the yearended December 31, 2005.

| ** **   | ** ** | ** ** | ** ** | **2005**     | ** ** | **2005**              | ** ** | **2004**               | ** ** |
|--------------|------------|------------|------------|--------------|------------|-----------------------|------------|------------------------|------------|
| **Country**  | ** ** | ** ** | ** ** | **Currency** | ** ** | **Average rate** | ** ** | **Year-end rate** | ** ** | **Year-end rate** | ** ** |
| Argentina    |       | Pesos      |       |         | 2.93       |                  |       |                   | 3.03       |   |   |   | 2.97 |   |   |
| Bolivia      |       | Bolivianos |       |         | 8.06       |                  |       |                   | 8.00       |   |   |   | 8.04 |   |   |
| Chad         |       | CFA franc  |       |         | 527.29     |                  |       |                   | 556.04     |   |   |   | 482.73 |   |   |
| Ghana        |       | Cedi       |       |         | 9,063.04   |                  |       |                   | 9,100.00   |   |   |   | 9,002.00 |   |   |
| Guatemala    |       | Quetzal    |       |         | 7.64       |                  |       |                   | 7.60       |   |   |   | 7.76 |   |   |
| Honduras     |       | Lempira    |       |         | 18.82      |                  |       |                   | 18.90      |   |   |   | 18.63 |   |   |
| Lao          |       | Kip        |       |         | 10,776.54  |                  |       |                   | 10,932.00  |   |   |   | 10,496.00 |   |   |
| Luxembourg   |       | Euro       |       |         | 0.80       |                  |       |                   | 0.85       |   |   |   | 0.74 |   |   |
| Mauritius    |       | Rupee      |       |         | 29.19      |                  |       |                   | 30.24      |   |   |   | 28.18 |   |   |
| Pakistan     |       | Rupee      |       |         | 59.54      |                  |       |                   | 59.79      |   |   |   | 59.43 |   |   |
| Paraguay     |       | Guarani    |       |         | 6,167.69   |                  |       |                   | 6,100.00   |   |   |   | 6,115.00 |   |   |
| Senegal      |       | CFA franc  |       |         | 527.29     |                  |       |                   | 556.04     |   |   |   | 482.73 |   |   |
| Sierra Leone |       | Leone      |       |         | 2,549.28   |                  |       |                   | 2,932.51   |   |   |   | 2,406.00 |   |   |
| Sri Lanka    |       | Rupee      |       |         | 100.83     |                  |       |                   | 102.11     |   |   |   | 104.48 |   |   |
| Sweden       |       | Kroner     |       |         | 7.46       |                  |       |                   | 7.95       |   |   |   | 6.65 |   |   |
| Tanzania     |       | Shilling   |       |         | 1,119.19   |                  |       |                   | 1,150.50   |   |   |   | 1,040.50 |   |   |
|              |            |            |            |              |            |                       |            |                        |            |  |  |  |  |  |  |  |  |

 

F-12

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

The effect of exchangerate changes on cash and cash equivalents held or due in a foreign currency isreported in the cash flow statement in order to reconcile cash and cashequivalents at the beginning and end of the year.

**2.4 SegmentReporting**

A business segment is agroup of assets and operations engaged in providing products or services thatare subject to risks and returns that are different from those of otherbusiness segments. A geographical segment is engaged in providing products orservices within a particular economic environment that are subject to risks andreturns that are different form those of segments operating in other economicenvironments.

**2.5 Property, plantand equipment**

Property, plant and equipment is stated at cost, lessaccumulated depreciation and accumulated impairment in value. Depreciation iscalculated using the straight-line method over the shorter of the estimateduseful life of the asset and the remaining life of the license associated withthe assets, unless the renewal of the license is contractually possible and isexpected without significant cost. All repairs and maintenance expenditures areexpensed as they occur.

Maximumestimated useful lives are:

| Buildings |   | 40 years or life of  lease if lower |
|-----------|--------|-------------------------------------|
| Networks  |   | five to ten years                   |
| Other     |   | two to seven years                  |

 

The carrying values of property, plant and equipmentare reviewed for impairment when events or changes in circumstances indicatethat the carrying value may not be recoverable. The assets’ residual value anduseful life is reviewed, and adjusted if appropriate, at each balance sheetdate. An asset’s carrying amount is written down immediately to its recoverableamount if the asset’s carrying amount is greater than its estimated recoverableamount (see Note 10).

Construction in progress consists of the cost ofassets, labour and other direct costs associated with property, plant andequipment being constructed by the Group. Once the assets become operational,the related costs are transferred from construction in progress to theappropriate asset category and start to be depreciated.

Costs directly associated with the establishment ofnew networks primarily relate to engineering and design work for the installationof the network and systems integral to its operation.

Subsequent costs are included in the asset’s carryingamount or recognised as a separate asset, as appropriate, only when it isprobable that future economic benefits associated with the item will flow tothe Group and the cost of the item can be measured reliably. All other repairsand maintenance are charged to the consolidated statements of profit and lossduring the financial period in which they are incurred.

A liability for the present value of the cost toremove an asset on both owned and leased sites is recognized when a presentobligation for the removal is established. The corresponding cost of theobligation is included in the cost of the asset and depreciated over the usefullife of the asset.

F-13

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

Borrowing costs that aredirectly attributable to the acquisition or construction of a qualifying assetare capitalized as part of the cost of that asset when it is probable that suchcosts will result in future economic benefits for the Group and the costs canbe measured reliably.

**2.6 Intangibleassets**

Intangible assets acquiredseparately are measured on initial recognition at cost. The cost of intangibleassets acquired in a business combination is fair value as at the date ofacquisition. Following initial recognition, intangible assets are carried atcost less any accumulated amortisation and any accumulated impairment losses.Internally generated intangible assets, excluding capitalised development costsmeeting the criteria of IAS 38, are not capitalised and expenditure is chargedagainst profits in the year in which expenditure is incurred. The useful livesof intangible assets are assessed to be either finite or indefinite. Intangibleassets with finite lives are amortised over the useful economic life andassessed for impairment whenever there is an indication that the intangibleasset may be impaired. The amortisation period and the amortisation method foran intangible asset with finite useful life is reviewed at least at eachfinancial year-end. Changes in the expected useful life or the expected patternof consumption of future economic benefits embodied in the asset is accountedfor by changing the amortisation period or method, as appropriate, and treatedas changes in accounting estimates. The amortisation expense on intangibleassets with finite lives is recognised in the consolidated statements of profitand loss in the expense category consistent with the function of the intangibleassets.

***Goodwill***

Goodwill represents the excess of cost of anacquisition over the Group’s share in the fair value of the identifiable assetsless the liabilities and contingent liabilities of the acquired subsidiary,joint venture or associate at the date of transaction. If the fair value of theidentifiable assets, liabilities or contingent liabilities or the cost of theacquisition can be determined only provisionally, then Millicom initiallyaccounts for the Goodwill using these provisional values. Within twelve monthsof the acquisition date, Millicom then recognises any adjustments to theseprovisional values once the fair value of the identifiable assets, liabilitiesand contingent liabilities and the cost of the acquisition have been finallydetermined. Adjustments to the provisional fair values are made as if theadjusted fair values had been recognised from the acquisition date. Goodwill onacquisition of subsidiaries and joint ventures is included in ‘intangibleassets’. Goodwill on acquisition of associates is included in ‘investments inassociates’. Following initial recognition, goodwill is measured at cost lessany accumulated impairment losses. Gains or losses on the disposal of an entityinclude the carrying amount of goodwill relating to the entity sold.

Goodwill is tested for impairment annually or morefrequently if events or changes in circumstances indicate that the carryingvalue may be impaired. Impairment losses on goodwill are not reversed.

For the purpose ofimpairment testing, goodwill acquired in a business combination is, fromacquisition date, allocated to each of the Group’s cash generating units orgroups of cash-generating units that are expected to benefit from the synergiesof the combination, irrespective of whether other assets or liabilities of theGroup are assigned to those units or groups of units. Each unit or group ofunits to which the goodwill is so allocated:

·       Representsthe lowest level within the Group at which the goodwill is monitored forinternal management purposes; and

F-14

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

·       Isnot larger than a segment based on either the Group’s primary or the Group’ssecondary reporting format determined in accordance with IAS 14 SegmentReporting.

Impairment is determined by assessing the recoverableamount of the cash-generating unit (group of cash-generating units), to whichthe goodwill relates. Where the recoverable amount of the cash-generatingunit (group of cash-generating units) is less than the carrying amount, animpairment loss is recognised. Where goodwill forms part of a cash-generatingunit (group of cash-generating units) and part of the operation within thatunit is disposed of, the goodwill associated with the operation disposed of isincluded in the carrying amount of the operation when determining the gain orloss on disposal of the operation. Goodwill disposed of in this circumstance ismeasured based on the relative values of the operation disposed and the portionof the cash-generating unit retained.

Before January 1,2005, goodwill was amortised using the straight-line method over its estimateduseful life but not longer than 20 years and assessed for an indication ofimpairment at each balance sheet date. In accordance with IFRS 3—*Business Combinations*, Millicom ceased amortization ofgoodwill from January 1, 2005 and eliminated the carrying amount ofaccumulated amortization existing on that date with a corresponding decrease inthe cost of goodwill (see note 2.24).

***Licenses***

Licences are shown at historical cost unless acquiredin a business combination where the cost is the fair value as at the date ofacquisition. Licenses have a finite useful life and are carried at cost lessaccumulated amortisation. Amortisation is calculated using the straight-linemethod to allocate the cost of the licenses over their estimated useful lives.

The Group operates in anindustry that is subject to changes in competition, regulation, technology andsubscriber base evolution. In addition, the terms of the licenses, which havebeen awarded for various periods, are subject to periodic review for, amongstother things, rate making, frequency allocation and technical standards.Licenses are initially measured at cost and are amortised from the date thenetwork is available for use using the straight-line basis over periods of 5 to20 years depending on the term of the license. Licenses held, subject tocertain conditions, are usually renewable and are generally non-exclusive. Whendetermining the useful life of the licenses, management usually does notconsider renewal periods since there is no guarantee that the license will berenewed without significant cost. Under the terms of the respective licenses,the joint ventures and subsidiaries are entitled to enter into interconnectionagreements with operators of both landline and other mobile networks.

***Trademarks and Subscriber bases***

Trademarks and subscriberbases recognized as intangible assets have been acquired in businesscombinations or ownership increase transactions in joint ventures. Their costcorresponds to the fair value as at the date of acquisition. Trademarks andsubscriber bases have a finite useful life and are carried at cost lessaccumulated amortisation. Amortisation is calculated using the straight-linemethod to allocate the cost of the trademarks and subscriber bases over theirestimated useful lives. The estimated useful life for trademarks and subscriberbases are based on the specifications of the market in which they exist.Trademarks and subscriber bases are recorded under the caption “Otherintangible assets”.

F-15

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**2.7 Impairment ofnon-financial assets**

The group assesses at each reporting date whetherthere is an indication that an asset may be impaired. If any such indicationexists, or when annual impairment testing for an asset is required, the Groupmakes an estimate of the asset’s recoverable amount. An asset’s recoverableamount is the higher of an asset’s or cash-generating unit’s fair value lesscost to sell and its value in use and is determined for an individual asset,unless the assets does not generate cash inflows that are largely independentof those from other assets or groups of assets. Where the carrying amount of anasset exceeds its recoverable amount, the asset is considered impaired and iswritten down to its recoverable amount. In assessing value in use, theestimated future of cash flows are discounted to their present value using adiscount rate that reflects current market assessment of the time value ofmoney and the risk specific to the asset. Impairment losses of continuingoperations are recognised in the consolidated statements of profit and loss inthose expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as towhether there is any indication that previously recognised impairment lossesmay no longer exist or may have decreased. If such indication exists, therecoverable amount is estimated. A previously recognised impairment loss isreversed only if there has been a change in the estimate used to determine theasset’s recoverable amount since the last impairment loss was recognised. Ifthat is the case the carrying amount of the asset is increased to itsrecoverable amount. That increased amount cannot exceed the carrying amountthat would have been determined, net of depreciation, had no impairment lossbeen recognised for the asset in prior years. Such reversal is recognised inprofit or loss. After such a reversal the depreciation charge is adjusted infuture periods to allocate the asset’s revised carrying amount, less anyresidual value, on a systematic basis over its remaining useful life.

Where no comparable marketinformation is available, management bases its view on recoverability primarilyon cash flow forecasts. In addition to the evaluation of possible impairment tothe assets carrying value, the foregoing analysis also evaluates theappropriateness of the expected useful lives of the assets. Management alsoreviews on a regular basis the terms and conditions for license renewal andwhen the latter is expected without significant cost, determine accordingly theuseful live of the assets associated with the license. In 2005, 2004, 2003, management recorded an impairment loss oncertain assets (note 28).

**2.8 Investments andother financial assets**

Financial assets in the scope of IAS 39 are classifiedas either financial assets at fair value through profit or loss, loans andreceivables, held to maturity investments and available for sale financialassets, as appropriate. When financial assets are recognised initially, theyare measured at fair value, plus, in the case of investments not at fair valuethrough profit or loss, directly attributable costs. Millicom determines theclassification of its financial assets after initial recognition and, whereallowed and appropriate, re-evaluates this designation at each financialyear-end.

All regular purchases andsales of financial assets are recognised on the trade date—the date on whichthe Group commits to purchase or sell the asset. Investments are derecognisedwhen the rights to receive the cash flows from the investment have expired orhave been transferred and the Group has transferred substantially all the risksand rewards.

F-16

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Financial assets at fair value through profit or loss***

This category has two subcategories: “financial assets held for trading” and those designated at fairvalue through profit or loss at inception or at adoption of the revised IAS 39.A financial asset is classified in this category if acquired principally forthe purpose of selling in the short term or if so designated by management.Derivatives are also categorised as “held for trading” unless they aredesignated as hedges. Assets in this category are classified as current assetsif they are either held for trading or are expected to be realised within 12months of the balance sheet date.

***Held to maturity investment***

Non-derivative financialassets with fixed or determinable payments and fixed maturity are classified asheld to maturity when Millicom has the intention and ability to hold tomaturity. Investments intended to be held for an undefined period are notincluded in this classification. Investments that are intended to held tomaturity are measured at amortised cost. This cost is computed as the amountinitially recognised minus principal repayments, plus or minus the cumulativeamortisation using the effective interest method of any difference between theinitially recognised amount and the maturity amount. For investments carried atamortised cost, gains and losses are recognised in income when the investmentsare derecognised or impaired, as well as through the amortisation process.

***Loans and receivables***

Loans and receivables arenon-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. Such assets are carried at amortised cost usingthe effective interest method. Gains and losses are recognised in income whenthe loans and receivables are derecognised or impaired, as well as through theamortisation process.

***Available for sale financial assets***

Available for sale financial assets are thosenon-derivative financial assets that are designated as available for sale orare not classified in any of the three preceding categories. After initialrecognition available for sale financial assets are measured at fair value withgains or losses being recognised as a separate component of equity until theinvestment is derecognised or until the investment is determined to be impairedat which time the cumulative gain or loss previously reported in equity isincluded in the consolidated statement of profit and loss.

The fair value ofinvestments that are actively traded in organised financial markets isdetermined by reference to quoted market prices at the close of business on thebalance sheet date. For investments where there is no active market, fair valueis determined using valuation techniques. Such techniques include using recentarm’s length market transactions reference to the current market value ofanother instrument, which is substantially the same discounted cash flowanalysis and option pricing models.

**2.9 Inventories**

Inventories are stated atthe lower of cost and net realisable value. Cost is determined using thefirst-in, first-out (FIFO) method. The net realisable value is the estimatedselling price in the ordinary course of business, less applicable variableselling expenses.

F-17

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**2.10 Tradereceivables**

Trade receivables areinitially recognised at fair value and subsequently measured at amortised costusing the effective interest method, less provision for impairment. A provisionfor impairment of trade receivable is established when there is objectiveevidence that the Group will not be able to collect all amounts due accordingto the original terms of receivables. Significant financial difficulties of thedebtor, probability that the debtor will enter bankruptcy or financialreorganisation, and default or delinquency in payments are consideredindicators that the trade receivable is impaired. The amount of the provisionis the difference between the asset’s carrying amount and the present value ofestimated future cash flows, discounted at the effective interest rate. Theamount of the provision is recognised in the consolidated statements of profitand loss within “Cost of sales”. The nominal value less impairment of tradereceivables is assumed to approximate their fair values.

**2.11 Time andpledged deposits**

Time deposits represent cash deposits with banks withmaturities of more than 3 months that earn interest at market rates.

Pledged deposits representcontracted cash deposits with banks that are held as security for debts eitherat the corporate or operational entity level. Millicom is unable to accessthese funds until either the relevant debt is repaid or alternative security isarranged with the lender.

**2.12 Cash and cashequivalents**

Cash and cash equivalentsincludes cash in hand, deposits held at call with banks, other short-termhighly liquid investments with the original maturities of three months or less.

**2.13 Derivativefinancial instruments**

Derivatives are initially recorded atcost and then re-measured to fair value through the consolidated statements ofprofit and loss under the caption “Fair value result on financial instruments”.

A derivative embedded in afinancial instrument, such as the embedded derivative on the 5% MandatoryExchangeable Notes in Tele2 AB series B shares (note 13), is treated as aseparate derivative when (i) its economic risks and characteristics arenot closely related to those of the host contract, (ii) a separateinstrument with the same terms as the embedded derivative would qualify as aderivative, (iii) the combined instrument (derivative and host contract)is not carried at fair value with unrealised gains and losses reported in thestatements of profit and loss.

**2.14 Impairment offinancial assets**

The Group assesses at eachbalance sheet date whether there is objective evidence that a financial assetor group of financial assets is impaired. In the case of equity securitiesclassified as available for sale, a significant or prolonged decline in thefair value of the security below its cost is considered an indicator that thesecurities are impaired. If any such evidence exists for available for salefinancial assets, the cumulative loss—measured as the difference between theacquisition cost and the current fair value, less any impairment loss on thatfinancial asset previously recognised in profit or loss—is removed from equityand recognised in the consolidated statements of profit and loss. Impairmentlosses recognised in the consolidated statements of profit and loss on equityinstruments are not reversed through the consolidated statements of profit andloss.

F-18

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**2.15 Share capital**

Common shares are classified as equity. Incrementalcost directly attributable to the issue of new shares options are shown inequity as a deduction from the proceeds.

Where any Group companypurchases the Company’s equity share capital, the consideration paid includingany directly attributable incremental costs is shown under the caption “Treasurystock” and deducted from equity attributable to the Company’s equity holderuntil the shares are cancelled, reissued or disposed of. Where such shares aresubsequently sold or reissued, any consideration received, net of any directlyattributable incremental costs and the related income tax effects, is includedin equity attributable to the Company’s equity holders.

**2.16 Borrowings andborrowing costs**

Borrowings are initially recognised at fair value, netof transaction costs incurred. Borrowings are subsequently stated at amortisedcost; any difference between the proceeds (net of transaction costs) and theredemption value is recognised in the consolidated statements of profit andloss over the period of the borrowing using the effective interest method.

The fair value of the liability portion of aconvertible bond is determined using a market interest rate for an equivalentnon-convertible bond. This amount is recorded as a liability on an amortisedcost basis until extinguishment, conversion or maturity of the bonds. Theremainder of the proceeds is allocated to the conversion option. This isrecognised and included in equity, net of income tax effects.

Borrowings are classified as current liabilitiesunless the Group has an unconditional right to defer settlement of theliability for at least 12 months after the balance sheet date.

Borrowing costs which arenot capitalised (see 2.5) are recognised as an expense when incurred.

**2.17**Leases

The determination of whether an arrangement is, orcontains a lease is based on the substance of the arrangement and requires anassessment of whether the fulfilment of the arrangement is dependent on the useof a specific asset or assets and the arrangement conveys a right to use theasset.

Finance leases, which transfer to the Groupsubstantially all the risks and benefits incidental to ownership of the leaseditem, are capitalised at the inception of the lease at the fair value of theleased property or, if lower, at the present value of the minimum leasepayments. Lease payments are apportioned between the finance charges andreduction of the lease liability so as to achieve a constant rate of intereston the remaining balance of the liability. Finance charges are charged directlyagainst income.

Capitalised leased assets are depreciated over theshorter of the estimated useful life of the asset and the lease term, if thereis no reasonable certainty that the Group will obtain ownership by the end ofthe lease term.

Operating lease paymentsare recognised as an expense in the consolidated statements of profit and losson a straight-line basis over the lease term.

F-19

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**2.18 Provisions**

Provisions are recognisedwhen the Group has a present obligation (legal or constructive) as a result ofa past event, if it is probable that an outflow of resources embodying economicbenefits will be required to settle the obligation and a reliable estimate canbe made of the amount of the obligation. Where the Group expects some or all ofa provision to be reimbursed, for example under an insurance contract, thereimbursement is recognised as a separate asset but only when the reimbursementis virtually certain. The expense relating to any provision is presented in theincome statement net of any reimbursement. If the effect of the time value ofmoney is material, provisions are discounted using a current pre-tax rate thatreflects, where appropriate, the risks specific to the liability. Wherediscounting is used, the increase in the provision due to the passage of timeis recognised as a borrowing cost.

**2.19 Revenuerecognition**

Revenue comprises the fair value of considerationreceived or receivable for the sale of goods and services, net of value addedtax, rebates and discounts and after eliminating sales within the Group.

Revenue is recognised tothe extent that it is probable that the economic benefits will flow to theGroup and the revenue can be reliably measured. The following specificrecognition criteria must also be met before revenue is recognised:

***Equipment revenues***

These revenues consist ofthe sale of handsets and accessories. Revenue is recognised when thesignificant risks and rewards of ownership of handsets and accessories havebeen passed to the buyer.

***Revenues from provision of telecom services***

These recurring revenuesconsist of monthly subscription fees, airtime usage fees, interconnection fees,roaming fees and other telecommunications services such as data services andshort message services. Recurring revenues are recognized on an accrual basis,i.e. as the related services are rendered. Unbilled revenues for airtime usageand subscription fees resulting from services provided from the billing cycledate to the end of each month are estimated and recorded.

***Connection revenues***

Until December 31, 2004 initial connectionrevenues were recognized when the subscriber connected to the network for thefirst time. On January 1, 2005, Millicom changed its accounting policy forconnection revenues and costs. Connections revenues are deferred and amortisedover the estimated life of the customer relationship. Related connection costsare also deferred, to the extent of the connection revenues deferred andamortised over the estimated life of the customer relationship. The estimatedlife of the customer relationship is calculated based on the percentage ofdisconnections for the same type of customer which has occurred historically.Management believes that the new accounting policy for connection revenues andcosts better reflects the economic reality of connection revenues and costs andis also consistent with current practices within the telecommunicationindustry. The adoption of the new accounting policy was retrospective andtherefore the comparative figures have been restated.

F-20

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**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

Theeffect of the change in accounting policy for connection revenues andconnection costs to the line items of the consolidated balance sheets andconsolidated statements of profit and loss are summarised below:

| ** **                                          | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Consolidated statements of  profit and loss**     |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| Revenues                                            |       |                   | (509       | )                      |       |                   | (973       | ) |   |   | (2,368 | ) |   |
| Cost of sales                                       |       |                   | 704        |                   |       |                   | 475        |   |   |   | 909 |   |   |
| Profit for the  year from continuing operations     |       |                   | 195        |                   |       |                   | (498       | ) |   |   | (1,459 | ) |   |
| Net profit for  the year                            |       |                   | 195        |                   |       |                   | (498       | ) |   |   | (1,459 | ) |   |
| **Consolidated  balance sheets**                    |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| Prepayments and  accrued income                     |       |                   | 2,088      |                   |       |                   | 1,384      |   |   |   | 909 |   |   |
| Total current  assets                               |       |                   | 2,088      |                   |       |                   | 1,384      |   |   |   | 909 |   |   |
| Total assets                                        |       |                   | 2,088      |                   |       |                   | 1,384      |   |   |   | 909 |   |   |
| Accumulated losses brought forward                  |       |                   | (1,957     | )                      |       |                   | (1,459     | ) |   |   | — |   |   |
| Profit for the  year attributable to equity holders |       |                   | 195        |                   |       |                   | (498       | ) |   |   | (1,459 | ) |   |
| Total equity                                        |       |                   | (1,762     | )                      |       |                   | (1,957     | ) |   |   | (1,459 | ) |   |
| Other current  liabilities                          |       |                   | 3,850      |                   |       |                   | 3,341      |   |   |   | 2,368 |   |   |
| Total liabilities                                   |       |                   | 3,850      |                   |       |                   | 3,341      |   |   |   | 2,368 |   |   |
| Total equity and  liabilities                       |       |                   | 2,088      |                   |       |                   | 1,384      |   |   |   | 909 |   |   |
| Effect on  earnings per share                       |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| (expressed in US$ per  common share)           |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| —Basic,  attributable to equity holders        |       |                   | 0.00       |                   |       |                   | (0.01      | ) |   |   | (0.02 | ) |   |
| —Diluted, attributable  to equity holders      |       |                   | 0.00       |                   |       |                   | (0.01      | ) |   |   | (0.02 | ) |   |

 

***Prepaid cards***

Prepaid cards allow theforward purchase of a specified amount of airtime by customers. Revenues arerecognized as credit is used. Unutilised airtime is carried in the balancesheet and is included under deferred revenue within “other current liabilities”.

***Value added services***

Revenues from value addedservices such as, ringtones, messaging, games etc, are recognized net ofpayments to the providers of these services when they are responsible for thecontents and for determining the price paid by the subscriber.

***Multiple-element arrangements***

Revenue arrangements withmultiple deliverables are divided into separate units of accounting if thedeliverables in the arrangement meet certain criteria. The arrangementconsideration is then allocated among the separate units of accounting based ontheir relative fair values or on the residual method.

F-21

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**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

**2.20 Cost of sales**

The primary cost of sales incurred by the Group inrelation to the provision of telecommunication services relate tointerconnection costs, roaming costs, rental of channels, costs of handsets andother accessories sold and royalties. Costs of sales are recorded on an accrualbasis.

Cost of sales alsoincludes the depreciation and impairment of network equipment.

**2.21 Customeracquisition costs**

Specific customeracquisition costs, including dealer commissions, handset subsidies and freephone promotions, are charged to sales and marketing when the subscriber isactivated.

**2.22 Employeebenefits**

***Pension obligations***

During 2005 Millicom had both defined benefit anddefined contribution plans. A defined contribution plan is a pension plan underwhich the Group pays fixed contributions into a separate entity. The Group hasno legal or constructive obligations to pay further contributions. A definedbenefit plan is a pension plan that is not a defined contribution plan.Typically, defined benefit pension plans define an amount of pension benefitthat an employee will receive on retirement, usually dependent on one or morefactors such as age, years of service and compensation.

The liability recognised in the balance sheet inrespect of the defined benefit pension plan is the present value of the definedbenefit obligation at the balance sheet date less the fair value of planassets, together with adjustments for unrecognised actuarial gains or lossesand past service costs. The defined benefit obligation is calculated annuallyby independent actuaries. The present value of the defined benefit obligationis determined by discounting the estimated future cash outflows using anappropriate discount rate based on the maturities of the related pensionliability.

For defined contributionplans, Millicom has no further payment obligations once the contributions havebeen paid. The contributions are recognised as employee benefit expense whenthey are due. Prepaid contributions are recognised as an asset to the extentthat a cash refund or a reduction in the future payments is available.

***Share-based compensation***

The Group operates an equity-settled, share-basedcompensation plan, where share options are granted to Directors, management andkey employees. The fair value of the employee services received in exchange forthe grant of the options is recognised as an expense. The total amount to beexpensed over the vesting period is determined by reference to the fair valueof the options granted, excluding the impact of any non-market vestingconditions (for example profitability and sales growth targets). Non marketvesting conditions are included in assumptions about the number of options thatare expected to become exercisable. At each balance sheet date, the entityrevises its estimates of the number of options that are expected to becomeexercisable. It recognises the impact of the revision of original estimates, ifany, in the consolidated statements of profit and loss, with a correspondingadjustment to equity.

The cost of equity-transactions is recognised,together with a corresponding increase in equity, over the period in which theperformance and /or service conditions are fulfilled, ending on the date onwhich the relevant employee becomes fully entitled to the award (the vestingdate). The cumulative expense 

F-22

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**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

recognised forequity-settled transactions at each reporting date until the vesting datereflects the extent to which vesting period has expired and the Group’s bestestimate of the number of equity instruments that will ultimately vest. Thecharge or credit to the consolidated statement of profit and loss for a periodrepresents the movement in cumulative expense recognised as at the beginningand end of that period.

No expense is recognised for awards that do notultimately vest, except for awards where vesting is conditional upon a marketcondition, which are treated as vesting irrespective of whether or not themarket conditions is satisfied, provided that all other performance conditionsare satisfied.

Where the terms of an equity-settled award aremodified, as a minimum an expense is recognised as if the terms had not beenmodified. In addition, an expense is recognised for any modification, whichincreases the total fair value of the share-based payment arrangement, or isotherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled is cancelled, it is treated asif it had vested on the date of cancellation, and any expense not yetrecognised for the award is recognised immediately. However, if a new award issubstituted for the cancelled award, and designated as a replacement award onthe date that it is granted, the cancelled and new awards are treated as ifthey were a modification of the original ward, as described in the previousparagraph.

The dilutive effect ofoutstanding options is reflected as additional share dilution in thecomputation of earnings per share (see note 32).

**2.23 Taxation**

***Current tax***

Current tax assets andliabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities. The tax rateand tax laws used to compute the amount are those enacted or substantivelyenacted by the balance sheet date.

***Deferred tax***

Deferred income tax is provided using the liabilitymethod on temporary difference at the balance sheet date between the tax baseof assets and liabilities and their carrying amount for financial reportingpurposes.

Deferred tax liabilities are recognised for alltaxable temporary differences, except where the deferred tax liability arisesfrom the initial recognition of goodwill or of an asset or liability in atransaction that is not a business combination and, at the time of thetransaction, affects neither the accounting profit nor taxable profit or loss.

Deferred income tax assets are recognised for alldeductible temporary differences, carry-forward of unused tax credits andunused tax losses, to the extent that it is probable that taxable profit willbe available against which the deductible temporary difference, and thecarry-forward of unused tax credits and unused tax losses can be utilisedexcept where the deferred tax assets relating to the deductible temporarydifference arise from the initial recognition of an assets or liability in atransaction that is not a business combination and, at the time of thetransaction, affects neither the accounting nor taxable profit or loss.

F-23

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**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

The carrying amount of deferred income tax asset isreviewed at each balance sheet date and reduced to the extent that it is nolonger probable that sufficient taxable profit will be available to allow allor part of the deferred income tax asset to be utilised. Unrecognised deferredincome tax assets are reassessed at each balance sheet date and are recognisedto the extent that it has become probable that future taxable profit will allowthe deferred tax asset to be recovered.

Deferred income tax assets and liabilities aremeasured at the tax rate expected to apply to the year when the assets isrealised or the liability is settled, based on tax rates and tax laws that havebeen enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognised directly inequity is recognised in equity and not in the consolidated statements of profitand loss.

Deferred tax assets anddeferred tax liabilities are offset, if legally enforceable right exist to setoff current tax assets against current tax liabilities and the deferred taxesrelate to the same taxable entity and the same taxation authority.

**2.24 Changes inaccounting policies**

The consolidated financialstatements as of December 31, 2005 are prepared in accordance withconsolidation and accounting policies consistent with those of the previousfinancial year except that the Group has adopted those International FinancialReporting Standards and revised International Accounting Standards mandatoryfor financial years beginning on or after January 1, 2005 and changed itsaccounting policy for connection revenues and costs (see note 2.19 c).

***Adoption of new standards***

The following new standards are applicable for theGroup’s accounting periods beginning on or after January 1, 2005:

IFRS 2—Share-based payment

The adoption of IFRS 2 resulted in a change in theaccounting policy for share-based payments. Prior to its adoption on January 1,2005 stock options granted to Directors and employees did not result in acharge to the profit and loss statement. Subsequent to that date, as per thetransitional provisions of IFRS 2, Millicom charges the cost of stockoptions to the profit and loss statement for options granted after November 7,2002 which had not yet vested on January 1, 2005. On the date of grant,Millicom computes the fair value of the stock options, using an option pricingmodel, and recognizes the so determined fair value over the vesting period. Theadoption of IFRS 2 was retrospective and therefore Millicom restatedcomparative figures.

F-24

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**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

Theeffect of the adoption of IFRS 2 to the line items of the consolidated balancesheets and consolidated statements of profit and loss are summarised below:

| ** **                                          | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Consolidated statements of  profit and loss**     |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| General and  administrative expenses                |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| Profit before tax                                   |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| Profit for the  year from continuing operations     |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| Net profit for  the year                            |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| **Consolidated  balance sheets**                    |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| Share premium                                       |       |                   | 462        |                   |       |                   | —     |   |   |   | — |   |   |
| Other reserves                                      |       |                   | 4,910      |                   |       |                   | 2,297      |   |   |   | 445 |   |   |
| Accumulated  losses brought forward                 |       |                   | (2,297     | )                      |       |                   | (445       | ) |   |   | (2 | ) |   |
| Profit for the  year attributable to equity holders |       |                   | (3,075     | )                      |       |                   | (1,852     | ) |   |   | (443 | ) |   |
| Effect on  earnings per share                       |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| (expressed in US$ per  common share)           |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| —Basic,  attributable to equity holders        |       |                   | (0.03      | )                      |       |                   | (0.02      | ) |   |   | (0.01 | ) |   |
| —Diluted, attributable  to equity holders      |       |                   | (0.03      | )                      |       |                   | (0.02      | ) |   |   | (0.01 | ) |   |

 

IFRS 3—Business Combinations

The adoption of IFRS 3 resulted in a change in theaccounting policy of goodwill. Until December 31, 2004 goodwill wasamortised on a straight line basis over its estimated useful life but notlonger than 20 years and assessed for an indication of impairment at eachbalance sheet date. In accordance with the provisions of IFRS 3, Millicomceased amortisation of goodwill from January 1, 2005 and eliminated thecarrying amount of accumulated amortisation on that date with a correspondingdecrease in the cost of goodwill. On that date Millicom also derecognisednegative goodwill of $8.2 million, resulting in an increase of $8.2 million inthe consolidated balance sheets captions “Goodwill” and “Accumulated lossesbrought forward” (see note 9).

IFRS 4—Insurance Contracts

This IFRS specifies the financial reporting forinsurance by an entity that issues such contracts. This standard does not havean impact on Millicom’s consolidated financial statements.

IFRS 5—Non-current assets held for sale anddiscontinued operations

Millicom adopted IFRS 5 onJanuary 1, 2005 which states that a non-current asset (or disposal group)should be classified as held for sale if its carrying amount will be recoveredprincipally through sale rather than continued use. For this to be the case,the disposal group must be available for immediate sale and the sale must be“highly probable” (see notes 3 and 12).

F-25

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Adoption of revised standards***

IAS 39—Financialinstruments: Recognition and measurement, revised, which is effective on January 1,2005, changed the measurement of available-for-sale (AFS) securities byrequiring the change in fair value to be recognised directly in equity (exceptfor impairment losses and foreign exchange gain and losses). As a consequence,Millicom decided to change the classification of its Tele2 AB shares from AFSsecurities to financial assets at fair value through profit or loss (see note13). Accordingly, Millicom continues to recognise the change in fair value ofits Tele2 AB shares in the consolidated statements of profit and loss. Inaddition, on January 1, 2005 Millicom adopted the revised InternationalAccounting Standards IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 31, 32, 33, 36and 38 which did not result in substantial changes to the Group’s accountingpolicies. IAS 1 resulted in changes to the presentation of minority interest inthe consolidated statements of profit and loss, consolidated balance sheets andconsolidated statements of changes in equity.

***New and revisedaccounting standards, interpretations and amendments to published standardswhich are not yet effective.***

Certain newstandards, amendments and interpretations to existing standards have beenpublished that are mandatory for the Group’s accounting periods beginning on orafter 1 January 2006 or later periods but which the Group has not yetearly adopted, as follows:

·       Amendmentto IAS 19—Actuarial Gains and Losses, Group Plans and Disclosures. Theseamendments finalise proposals that were contained in an Exposure Draft ofProposed Amendments to IAS 19 *ActuarialGains and Losses, Group Plans and Disclosures*published in April 2004.Entities shall apply majority of amendments for annual periods beginning on orafter January 1, 2006.

·       Amendmentto IAS 39—Recognition and measurement: Cash Flow Hedge Accounting of ForecastIntragroup Transactions. The amendments relate to proposals that were containedin an Exposure Draft of Proposed Amendments to IAS 39—Cash Flow HedgeAccounting of Forecast Intragroup Transactions published in July 2004.Entities shall apply the amendments set out in this document for annual periodsbeginning on or after January 1, 2006.

·       Amendmentto IAS 39—Recognition and measurement: Fair Value Option. The amendments relateto proposals that were contained in an Exposure Draft of Proposed Amendments toIAS 39—The Fair Value Option published in April 2004. Entities shallapply the amendments set out in this document for annual periods beginning onor after January 1, 2006.

·       IFRS7—Financial Instruments—Disclosures. The objective of this IFRS is to requireentities to provide disclosures in their financial statements that enable usersto evaluate the significance of financial instruments for the entity’sfinancial position and performance and the nature and extent of risks arisingfrom financial instruments to which the entity is exposed during the period andat the reporting date, and how the entity manages those risks. The principlesin this IFRS complement the principles for recognising, measuring andpresenting financial assets and financial liabilities in IAS 32 *Financial Instruments: Presentation*andIAS 39 *Financial Instruments: Recognitionand Measurement*.Entitiesshall apply this IFRS for annual periods beginning on or after January 1, 2007.

F-26

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

·       Amendment to IAS 1—Presentationof Financial Statements: Capital Disclosures. The amendments finalise some ofthe proposals that were contained in Exposure Draft 7 *Financial Instruments: Disclosures*(ED 7)published in July 2004. The remaining proposals in ED 7 were finalised inIFRS 7 *Financial Instruments: Disclosures*.Entities shall apply the amendments in this document for annual periodsbeginning on or after 1 January 2007. Earlier application is encouraged.

·       Amendmentsto IAS 39 Financial Instruments—Recognition and Measurement and IFRS 4Insurance Contracts: Financial Guarantee Contracts. This document containsamendments to the Basis for Conclusions on IAS 39 and IFRS 4, the Guidance onImplementing IFRS 4, and Appendix C accompanying IAS 37 *Provisions, Contingent Liabilities and ContingentAssets*. The amendments result from proposals that were contained inan Exposure Draft of Proposed Amendments to IAS 39 and IFRS 4—*Financial Guarantee Contracts and Credit Insurance*publishedin July 2004. Entities shall apply these amendments for annual periodsbeginning on or after January 1, 2006.

·       IFRIC4—Determining Whether an Arrangement Contains a Lease. This Interpretationprovides guidance for determining whether such arrangements are, or contain,leases that should be accounted for in accordance with IAS 17. It does notprovide guidance for determining how such a lease should be classified underthat Standard. An entity shall apply this Interpretation for annual periodsbeginning on or after January 1, 2006.

·       IFRIC5—Rights to Interests arising from Decommissioning, Restoration andEnvironmental Rehabilitation Funds. This Interpretation which is effective on January 1,2006 is not relevant to the Group’s operations.

·       IFRIC 6—Liabilities arising fromParticipating in a Specific Market—Waste Electrical and Electronic Equipment.An entity shall apply this Interpretation for annual periods beginning on orafter 1 December 2005.

·       IFRIC 7—Applying the Restatement Approachunder IAS 29 Financial Reporting in Hyperinflationary Economies. ThisInterpretation provides guidance on how to apply the requirements of IAS 29 ina reporting period in which an entity identifies the existence ofhyperinflation in the economy of its functional currency, when that economy wasnot hyperinflationary in the prior period, and the entity therefore restatesits financial statements in accordance with IAS 29. Entities shall apply this Interpretationfor annual periods beginning on or after 1 March 2006.

·       Amendmentto IAS 21—The effect of Changes in Exchange Rates: Net Investment in a ForeignOperation. This document sets out amendments to IAS 21 *The Effects of Changes in Foreign Exchange Rates*.The amendments finalise proposals that were contained in Draft TechnicalCorrection 1 Proposed Amendments to IAS 21 *NetInvestment in a Foreign Operation*published in September 2005.Entities shall apply the amendments in this document for annual periodsbeginning on or after 1 January 2006.

·       IFRIC8—Scope of IFRS 2—share based payments—This interpretation clarifies that IFRS2 applies to arrangements where an entity makes share based payments forapparently nil or inadequate consideration. If the identifiable considerationgiven appears to be less than the fair value of the equity instruments granted,this situation typically indicates that other consideration 

F-27

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

has been or will bereceived. IFRS 2 therefore applies. IFRIC 8 becomes effective for financialyears beginning on or after May 1, 2006.

·       IFRIC9—Reassessment of embedded derivatives—The interpretation clarifies certainaspects of the treatment of embedded derivatives under IAS 39—FinancialInstruments: Recognition and Measurement.

All the above newstandards, interpretations and amendments have been considered by Managementand they concluded that the impact on accounting policies is not material andin some cases is nil.

**2.25 RiskManagement**

***Cash flow interest rate risk***

The Group’s exposure to the risk for changes in marketinterest rates relates primarily to the Group’s long-term debt obligations witha floating interest rate.

At December 31, 2005,approximately 86% of the Group’s borrowings are at a fixed rate of interest.

***Foreign currency risk***

Millicom seeks to reduceits foreign currency exposure through a policy of matching, as far as possible,assets and liabilities denominated in foreign currencies. In some cases,Millicom may borrow in US dollars because it is either advantageous for jointventures and subsidiaries to incur debt obligations in US dollars or because USdollar denominated borrowing is the only funding source available to a jointventure or subsidiary. In these circumstances, Millicom has currently decidedto accept the remaining currency risk associated with the financing of itsjoint ventures and subsidiaries, principally because of the relatively highcost of forward cover in the currencies in which the Group operates.

***Commodity price risk***

The Group’s exposure toprice risk is minimal.

***Credit risk***

Financial instruments thatpotentially subject the Group to credit risk are primarily cash and cashequivalents, time and pledged deposits, letters of credit and accountsreceivable. The counter parties to the agreements relating to the Group’s cashand cash equivalents, time and pledged deposits and letters of credit aresignificant financial institutions. Management does not believe there is asignificant risk of non-performance by these counter parties. Accountsreceivable are mainly derived from the provision of telecom services to a largenumber of customers, including businesses and individuals as well as localtelecommunications companies and the related concentration of credit risk istherefore limited. The Group maintains a provision for impairment of tradereceivables based upon the expected collectibility of all trade receivables.

***Liquidity risk***

The Group has incurredsignificant indebtedness though Millicom also has significant cash balances.Millicom evaluates its ability to meet its obligations on an ongoing basis.Based on these evaluations, the Group devises strategies to manage itsliquidity risk.

F-28

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**3.   SIGNIFICANT ACCOUNTING JUDGEMENTS ANDESTIMATES**

***Classification ofVietnam operations***

Millicom has an 80% equityinterest in Comvik International (Vietnam) AB (“CIV”), which had entered into abusiness cooperation contract (“BCC”) with Vietnam Mobile Services Co. (“VMS”),a government owned company, to operate a nationwide mobile GSM network inVietnam (Mobifone). The BCC provided for a revenue-sharing arrangement betweenCIV and VMS, and sets out certain obligations of the parties, including CIV’sobligations to make certain investments in network infrastructure and toprovide training and other services. The BCC expired on May 18, 2005,though Millicom is currently negotiating with VMS and the Vietnamese governmentto continue their long-term relationship with VMS. In February and November 2004,CIV and VMS signed two memoranda of understanding confirming both parties’intention to continue their long-term cooperation. In addition, in December 2004,the European Community and the government of the Socialist Republic of Vietnamentered into a market access agreement whereby European Union investors in thetelecommunications sector operating under a BCC arrangement would, subject toagreement between the parties, be allowed to renew or convert such arrangementinto another legal form with conditions no less favourable than those under theBCC.

Based on the currentstatus of the negotiations, Millicom believes that it will be able to extendits relationship with VMS in 2006 under the legal form of a Joint Stock Company(“JSC”). However external factors such as Vietnamese legislation and Vietnam’spending entry into the World Trade Organisation will continue to affect thestarting date and the legal form of any future arrangement, including theownership percentage in a JSC. Therefore although the BCC expired on May 18,2005, Millicom has presented the BCC as a continuing operation as managementexpects to renew its arrangement with VMS and to have significant continuingcash flows from its operation in Vietnam in 2006 upon consummation of such anarrangement with VMS.

CIV continues to operatein Vietnam under the terms of a service agreement between CIV and VMS toprovide strategic consulting services for Mobifone’s operations. Furthermore,Millicom signed an agreement in August 2005 with VMS for the distributionof Mobifone products.

Thefollowing revenues and net profit were generated under the BCC for the periodfrom January 1, 2005 to May 18, 2005 and for the years ended December 31,2004 and 2003:

| ** ** | ** ** | **Period up to  May 18, 2005** | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------|------------|----------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** ** | ** ** | **US$ ‘000**                             | ** ** | **US$ ‘000**      | ** ** | **US$ ‘000**      | ** ** |
| Revenues   |       |                                               | 74,051     |                        |       |                        | 162,807    |   |   |   | 129,936 |   |   |
| Net Profit |       |                                               | 3,799      |                        |       |                        | 45,573     |   |   |   | 37,302 |   |   |

 

***Contingentliabilities***

Contingent liabilities arepotential liabilities that arise from past events whose existence will beconfirmed. Provisions for liabilities are recorded when a loss is consideredprobable and can be reasonably estimated. The determinination of whether or nota provision should be recorded for any potential liabilities is based onmanagement’s judgement.

F-29

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Estimates***

Estimates are continuallyevaluated and are based on historical experience and other factors, includingexpectations of future events that are believed to be reasonable under thecircumstances. Because of the inherent uncertainties in this evaluationprocess, actual losses may be different from the originally estimatedprovision. In addition, significant estimates are involved in the determinationof provisions related to taxes and litigation risks. These estimates aresubject to change as new information becomes available and changes subsequentto these estimates may significantly affect future operating results.

Accounting for property,plant and equipment, and intangible assets involves the use of estimates fordetermining the fair value at the acquisition date, in particular in the caseof such assets acquired in a business combination. Furthermore, the expecteduseful lives of these assets must be estimated. The determination of the fairvalues of assets and liabilities, as well as of the useful lives of the assetsis based on management’s judgment.

For our criticalaccounting estimates reference is made to the relevant individual notes tothese consolidated financial statements, more specifically note 4—Acquisitionof subsidiaries, joint ventures and minority interests, note 9—Intangibleassets and Note 35—Commitments and contingencies.

**4.   ACQUISITION OF SUBSIDIARIES, JOINT VENTURESAND MINORITY INTERESTS**

***Businesscombinations***

**OnSeptember 13, 2005, the Group acquired 100% of the voting shares of OasisSPRL (“Oasis”), a mobile operation in the Democratic Republic of Congo.Millicom expects to complete the allocation of the purchase price to the assetsacquired, liabilities assumed and contingent liabilities in the second quarterof 2006. The provisionally determined fair value of the identifiable assets andliabilities acquired were as follows:**

| ** **                                                                | ** ** | **Recognised on  acquisition** | ** ** | **Carrying value** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------|------------|
| ** **                                                                | ** ** | **US$’000**                    | ** ** | **US$’000**        | ** ** |
| Intangible assets,  net(i)                                                |       |                                | 17,336     |                    |       |   | 2,291 |   |   |
| Property, plant and  equipment                                            |       |                                | 16,035     |                    |       |   | 16,035 |   |   |
| Non-current pledged  deposits                                             |       |                                | 332        |                    |       |   | 332 |   |   |
| Inventories                                                               |       |                                | 460        |                    |       |   | 460 |   |   |
| Trade receivables                                                         |       |                                | 384        |                    |       |   | 715 |   |   |
| Prepayments and accrued  income                                           |       |                                | 865        |                    |       |   | 865 |   |   |
| Cash and cash  equivalents                                                |       |                                | 864        |                    |       |   | 864 |   |   |
|                                                                      |       |                                | 36,276     |                    |       |   | 21,562 |   |   |
| Trade payables                                                            |       |                                | (1,807     | )                       |       |   | (1,807 | ) |   |
| Accrued interest and  other expenses                                      |       |                                | (526       | )                       |       |   | (526 | ) |   |
| Current tax liabilities                                                   |       |                                | (40        | )                       |       |   | (40 | ) |   |
| Other current liabilities                                                 |       |                                | (2,035     | )                       |       |   | (2,035 | ) |   |
| Contingent  liabilities(ii)                                               |       |                                | (4,037     | )                       |       |   | — |   |   |
|                                                                      |       |                                | (8,445     | )                       |       |   | (4,408 | ) |   |
| Provisional fair value of  net assets acquired and contingent liabilities |       |                                | 27,831     |                    |       |   |   |   |   |
| Provisional goodwill  arising on acquisition (Note 9)                     |       |                                | 7,169      |                    |       |   |   |   |   |
| Acquisition cost                                                          |       |                                | 35,000     |                    |       |   |   |   |   |

----

*(i)**    **Intangible assets identified provisionally are licenses for an amountof $13,333 thousand which have a useful life of 12 years and subscriber basesfor an amount of $4,003 thousand which have a useful life of 5 years.*

F-30

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*(ii)**   **Contingent liabilities relate to tax contingencies.*

**The goodwill is attributable to theprofitability potential of the acquired business and the synergies expected toarise from the Group’s acquisition of Oasis. The acquisition cost of Oasis was$35.0 million and was fully paid in cash. The acquired business contributedrevenues of $5.2 million and net losses of $4.9 million to the Group for theperiod from September 14 to December 31, 2005. If the acquisition hadoccurred on January 1, 2005, Group revenue from continuing operationswould have been $1,094.0 million, and the net profit attributable to the equityholders of the Company would have been $6.3 million. These amounts have beencalculated using the Group’s accounting policies.**

**OnFebruary 3, 2004 Millicom increased its holding in Millicom TanzaniaLimited, Millicom’s operation in Tanzania, from 59.4% to 84.4%. Before theacquisition date Millicom proportionally consolidated 59.4% of MillicomTanzania Limited. Following the ownership increase, Millicom obtained controlover the operation and started consolidating 100% of this subsidiary in theGroup’s consolidated financial statements. The fair value of the net assetsacquired in the acquisition was:**

| ** **                                               | ** ** | **Recognised on  acquisition** | ** ** | **Carrying value** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------|------------|-------------------------|------------|
| ** **                                               | ** ** | **US$’000**                    | ** ** | **US$’000**        | ** ** |
| Intangible  assets, net                                  |       |                                | 463        |                    |       |   | 463 |   |   |
| Property, plant and  equipment, net                      |       |                                | 33,795     |                    |       |   | 33,795 |   |   |
| Non-current pledged  deposits                            |       |                                | 2,340      |                    |       |   | 2,340 |   |   |
| Inventories                                              |       |                                | 222        |                    |       |   | 222 |   |   |
| Trade receivables                                        |       |                                | 18,785     |                    |       |   | 18,785 |   |   |
| Prepayments and accrued  income                          |       |                                | 453        |                    |       |   | 453 |   |   |
| Other current assets                                     |       |                                | 913        |                    |       |   | 913 |   |   |
| Cash and cash  equivalents                               |       |                                | 76         |                    |       |   | 76 |   |   |
|                                                     |       |                                | 57,047     |                    |       |   | 57,047 |   |   |
| Non-current debt and  other financing                    |       |                                | (6,782     | )                       |       |   | (6,782 | ) |   |
| Deferred taxation                                        |       |                                | (6,983     | )                       |       |   | (6,983 | ) |   |
| Current debt and other  financing                        |       |                                | (6,092     | )                       |       |   | (6,092 | ) |   |
| Trade payables                                           |       |                                | (13,453    | )                       |       |   | (13,453 | ) |   |
| Accrued interest and  other expenses                     |       |                                | (2,887     | )                       |       |   | (2,887 | ) |   |
| Current tax liabilities                                  |       |                                | (349       | )                       |       |   | (349 | ) |   |
| Other current  liabilities                               |       |                                | (1,793     | )                       |       |   | (1,793 | ) |   |
|                                                     |       |                                | (38,339    | )                       |       |   | (38,339 | ) |   |
| Fair Value of net assets  acquired (100%)                |       |                                | 18,708     |                    |       |   |   |   |   |
| Fair value of net assets  acquired (25.04%)              |       |                                | 4,685      |                    |       |   |   |   |   |
| Excess of fair value  over the acquisition cost (Note 9) |       |                                | (3,660     | )                       |       |   |   |   |   |
| Acquisition cost                                         |       |                                | 1,025      |                    |       |   |   |   |   |

 

***Jointventures***

On May 26, 2005, Millicom acquired an additional16.67% in the capital of its operation in Honduras, Telefonica Celular(“Celtel”), for a total consideration of $20.0 million, taking its ownershipfrom 50.00% to 66.67%. Due to the presence of joint control, Millicom continuesto account for Celtel as a joint venture using proportional consolidation. The2005 results of Celtel have been proportionally consolidated at 50.00% fromJanuary 1, 2005 to May 26, 2005 and at 66.67% afterwards.

F-31

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**Thefair value of Celtel’s identifiable assets and liabilities acquired were:**

| ** **                                                  | ** ** | **Recognised on  acquisition** | ** ** | **Carrying value** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------|------------|
| ** **                                                  | ** ** | **US$’000**                    | ** ** | **US$’000**        | ** ** |
| Intangible  assets, net(i)                                  | ** ** |                                | 23,884     |                    |       |   | 1,204 |   |   |
| Property, plant  and equipment, net                         | ** ** |                                | 8,611      |                    |       |   | 8,611 |   |   |
| Investment in  associate                                    | ** ** |                                | 422        |                    |       |   | 422 |   |   |
| Inventories                                                 | ** ** |                                | 449        |                    |       |   | 449 |   |   |
| Trade receivables                                           | ** ** |                                | 1,747      |                    |       |   | 1,747 |   |   |
| Amounts due from  joint ventures and joint venture partners | ** ** |                                | 40         |                    |       |   | 40 |   |   |
| Prepayments and  accrued income                             | ** ** |                                | 516        |                    |       |   | 516 |   |   |
| Other current  assets                                       | ** ** |                                | 206        |                    |       |   | 206 |   |   |
| Cash and cash  equivalents                                  | ** ** |                                | 3,386      |                    |       |   | 3,386 |   |   |
|                                                        | ** ** |                                | 39,261     |                    |       |   | 16,581 |   |   |
| Non-current debt and other financing                        | ** ** |                                | (189       | )                       |       |   | (189 | ) |   |
| Deferred taxation                                           | ** ** |                                | (7,109     | )                       |       |   | (181 | ) |   |
| Current debt and  other financing                           | ** ** |                                | (151       | )                       |       |   | (151 | ) |   |
| Trade payables                                              | ** ** |                                | (2,607     | )                       |       |   | (2,607 | ) |   |
| Accrued interest  and other expenses                        | ** ** |                                | (118       | )                       |       |   | (118 | ) |   |
| Current tax  liabilities                                    | ** ** |                                | (1,506     | )                       |       |   | (1,506 | ) |   |
| Other current  liabilities                                  | ** ** |                                | (1,282     | )                       |       |   | (1,282 | ) |   |
|                                                        | ** ** |                                | (12,962    | )                       |       |   | (6,034 | ) |   |
| Fair value of net assets acquired                           | ** ** |                                | 26,299     |                    |       |   |   |   |   |
| Excess of fair  value over the acquisition cost             | ** ** |                                | (6,299     | )                       |       |   |   |   |   |
| Acquisition cost                                            | ** ** |                                | 20,000     |                    |       |   |   |   |   |

----

*(i)**              Additionalintangible assets identified as part of the purchase price allocation weretrademarks for an amount of $2,951 thousand which have a useful life of 15years and subscriber bases for an amount of $20,149 thousand which have auseful life of between 5 and 10 years. In addition Millicom increased its shareof existing intangible assets by 16.67% ($459 thousand for licenses and $325thousand for other intangible assets). Previous goodwill relating to Hondurasof $420 thousand was allocated to other intangible assets as part of thepurchase price allocation.*

**For thevaluation of the identifiable assets and liabilities Millicom has involved athird party valuation specialist. In accordance with the provisions of IFRS 3,as the initial fair value computation of the identifiable assets andliabilities was in excess of the acquisition cost, Millicom reassessed thevaluation. After this reassessment the remaining excess of $6.3 million wasimmediately recognised in the consolidated statements of profit and loss underthe caption “Other operating income”.**

***Minority interests***

On December 16, 2005, Millicom entered into anagreement with Comtech, the minority shareholder in its operation in SierraLeone to purchase the remaining 30% of shares in Sierra Leone not already heldby Millicom for $3.0 million. The purchase was made in two installments. Thefirst one, on December 16, 2005 by which the agreements were formally signedand 50% of the purchase price was paid. The second one, which occurred onFebruary 1, 2006 (note 38), when the shares were actually transferred toMillicom 

F-32

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

and the second half of thepurchase price was settled. Between those dates, certain administrative mattershad to be solved by the parties, the most significant one being the receipt bythe National Bank of Sierra Leone of the confirmation of the sale. As the laterwas received on December 22, 2005, Millicom recorded the acquisition on that dateas by then both parties had effectively fulfilled their main obligations underthe agreement and the remaining administrative matters were customary to thefinalization of the agreement. The purchase price of $3.0 million is entirelyrecognized as goodwill as Millicom’s operation in Sierra Leone had negativeequity on the acquisition date.

**In December 2005,Millicom bought an option to purchase 30% of Millicom (Ghana) Limited, Millicom’soperation in Ghana, from a former shareholder for an amount of $20.0 million.This amount is entirely recognised as goodwill as the purchase of the optionrepresents, in substance, the acquisition of the economic benefits associatedwith the 30% minority interest and at the date of the purchase of the option byMillicom, Millicom Ghana Limited had negative shareholders’ equity (see note16).**

**5.   DISPOSALOF SUBSIDIARIES AND JOINT VENTURES**

TheGroup has, from time to time, disposed of or reduced its share in certainsubsidiaries and joint ventures. The impact of the change in consolidationmethod and the carrying amount of the assets and liabilities disposed of duringthe year were as follows:

| ** **                                      | ** **               | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-------------------------------------------------|--------------------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                      | ** **               | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Property, plant  and equipment                  |                     |                   | —     |                   |       |                   | 2,104      |   |   | 33,496 |   |
| Intangible assets                               |                     |                   | —     |                   |       |                   | —     |   |   | 51,473 |   |
| Pledged deposits                                |                     |                   | —     |                   |       |                   | —     |   |   | (997 | ) |
| Current assets                                  |                     |                   | 149        |                   |       |                   | 944        |   |   | 15,300 |   |
| Amounts due in  more than one year              |                     |                   | —     |                   |       |                   | —     |   |   | (33,883 | ) |
| Amounts due  within one year                    |                     |                   | (519       | )                      |       |                   | (2,398     | ) |   | (56,240 | ) |
| Currency  translation adjustment                |                     |                   | —     |                   |       |                   | (1,708     | ) |   | — |   |
| Loans written-off                               |                     |                   | —     |                   |       |                   | 5,285      |   |   | — |   |
|                                            |                     |                   | (370       | )                      |       |                   | 4,227      |   |   | 9,149 |   |
| Profit/(loss) on  sale                          |                     |                   | 1,269      |                   |       |                   | (2,207     | ) |   | 2,213 |   |
| Total sale price,  in cash and cash equivalents |                     |                   | 899        |                   |       |                   | 2,020      |   |   | 11,362 |   |
| Less:                                           | Cash disposed            |                   |       | —                 |       |                   |       | (59 | ) |   | (2,514 | ) |
|                                            | Deferred sales  proceeds |                   |       | 1,000                  |       |                   |       | (1,000 | ) |   | — |   |
| Cash flow on disposal  net of cash              |                     |                   | 1,899      |                   |       |                   | 961        |   |   | 8,848 |   |

 

***Gain(loss) from sale of subsidiaries and joint ventures***

*2005*

In 2005, Millicom completed the sale of Millicom ChileS.A., which held certain rights in Chile, for net total proceeds of $0.9million realising a net gain of $0.9 million.

In 2005, Millicom disposedof or liquidated a number of non-operating subsidiaries realising a net gain of$0.4 million.

F-33

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*2004*

In September 2004, Millicom completed the sale ofMillicom Argentina S.A., its broadband operation in Argentina, for net totalproceeds of $2.0 million realising a net loss of $2.1 million.

Following the restructuring of Millicom’s holding inMillicom Lao Co. Ltd in December 2004, Millicom disposed of 3.9% of thisoperation realising a gain of $0.1 million.

In 2004, Millicom disposedof or liquidated a number of subsidiaries realising a net loss of $0.2 million.

*2003*

In February 2003, Millicom completed the sale ofCelcaribe, its mobile operation in Colombia, realising total proceeds of $10.9million and a net gain of $3.3 million.

Following the sale of anumber of operations in 2002 and based on certain contractual provisions theGroup realised a net loss of $1.1 million.

F-34

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**6.   SUBSIDIARIES**

TheGroup has the following significant subsidiaries:

| **Name of the company** | ** ** | ** **                             | ** ** | **Country**                        | ** ** | **Holding  December 31,  2005** | ** ** | **Holding  December 31,  2004** | ** ** |
|----------------------------------------|------------|----------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| ** **                             | ** ** | ** **                             | ** ** | **% of  ownership  interest** | ** ** | **% of  ownership  interest**   | ** ** |
| Central America                        |       |                                   |       |                               |       |                                 |       |                                 |       |   |   |
| Telemovil El Salvador SA               |       | El  Salvador                           |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| South America                          |       |                                   |       |                               |       |                                 |       |                                 |       |   |   |
| Telefonica Celular de Bolivia SA       |       | Bolivia                                |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| Telefonica Celular del Paraguay SA(i)  |       | Paraguay                               |       |                               | 96.0       |                                 |       |                                 | 96.0       |   |   |
| Africa                                 |       |                                   |       |                               |       |                                 |       |                                 |       |   |   |
| Millicom (Ghana) Limited(ii)           |       | Ghana                                  |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| Sentel GSM(i)                          |       | Senegal                                |       |                               | 75.0       |                                 |       |                                 | 75.0       |   |   |
| Millicom Sierra Leone Limited(iii)     |       | Sierra  Leone                          |       |                               | 100.0      |                                 |       |                                 | 70.0       |   |   |
| Millicom Tanzania Limited(i)           |       | Tanzania                               |       |                               | 84.4       |                                 |       |                                 | 84.4       |   |   |
| Oasis S.P.R.L(iv)                      |       | Democratic  Republic of Congo          |       |                               | 100.0      |                                 |       |                                 | —     |   |   |
| Millicom Tchad S.A.                    |       | Chad                                   |       |                               | 87.5       |                                 |       |                                 | 87.5       |   |   |
| South East Asia                        |       |                                   |       |                               |       |                                 |       |                                 |       |   |   |
| Millicom Lao Co. Ltd.                  |       | Lao  People’s Democratic Republic |       |                               | 74.1       |                                 |       |                                 | 74.1       |   |   |
| Comvik International (Vietnam) AB(v)   |       | Vietnam                                |       |                               | 80.0       |                                 |       |                                 | 80.0       |   |   |
| South Asia                             |       |                                   |       |                               |       |                                 |       |                                 |       |   |   |
| Pakcom Limited(vi)                     |       | Pakistan                               |       |                               | 61.3       |                                 |       |                                 | 61.3       |   |   |
| Paktel Limited(vii)                    |       | Pakistan                               |       |                               | 98.9       |                                 |       |                                 | 98.9       |   |   |
| Celltel Lanka Limited(i)               |       | Sri  Lanka                             |       |                               | 99.9       |                                 |       |                                 | 99.9       |   |   |
| Other                                  |       |                                   |       |                               |       |                                 |       |                                 |       |   |   |
| Millicom Peru SA(viii)                 |       | Peru                                   |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| Unallocated                            |       |                                   |       |                               |       |                                 |       |                                 |       |   |   |
| Millicom International Operations SA   |       | Luxembourg                             |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| MIC-USA Inc.                           |       | United  States                         |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| Millicom Holding BV                    |       | Netherlands                            |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| Millicom International Operations BV   |       | Netherlands                            |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| Millicom Telecommunications BV         |       | Netherlands                            |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| Millicom Telecommunications SA         |       | Luxembourg                             |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| MIC Latin America BV                   |       | Netherlands                            |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |
| Millicom  International BV             |       | Netherlands                            |       |                               | 100.0      |                                 |       |                                 | 100.0      |   |   |

----

*(i)**                           Seenote 38.*

*(ii)**                        Seenote 4 and 16.*

*(iii)**                     Seenotes 4 and 38.*

*(iv)**                     Seenote 4.*

F-35

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*(v)**                        Seenote 3.*

*(vi)**                     Seenotes 12, 35 and 38.*

*(vii)**                  Seenotes 35 and 38**.***

*(viii)**               Seenote 12.*

**7.   INTERESTIN JOINT VENTURES**

TheGroup has the following significant joint venture companies, which have beenproportionally consolidated:

| **Name of the company** | ** ** | ** ** | ** ** | **Country**                                    | ** ** | **Holding  December 31,  2005**           | ** ** | **Holding  December 31,  2004** | ** ** |
|----------------------------------------|------------|------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------|------------|
| ** **                             | ** ** | ** ** | ** ** | **% of   ownership   interest** | ** ** | **% of   ownership   interest** | ** ** |
| Central America                        |       |       |       |                                           |       |                                           |       |                                 |       |   |   |
| Comunicaciones Celulares SA            |       | Guatemala  |       |                                           | 55.0       |                                           |       |                                 | 55.0       |   |   |
| Telefonica Celular(i)                  |       | Honduras   |       |                                           | 66.7       |                                           |       |                                 | 50.0       |   |   |
| Africa                                 |       |       |       |                                           |       |                                           |       |                                 |       |   |   |
| Emtel Limited                          |       | Mauritius  |       |                                           | 50.0       |                                           |       |                                 | 50.0       |   |   |
| South Asia                             |       |       |       |                                           |       |                                           |       |                                 |       |   |   |
| Cam GSM Company Limited                |       | Cambodia   |       |                                           | 58.4       |                                           |       |                                 | 58.4       |   |   |
| Royal Telecam  International Limited   |       | Cambodia   |       |                                           | 57.0       |                                           |       |                                 | 57.0       |   |   |

----

*(i)**              Seenote 4.*

**Theshare of assets and liabilities of the jointly controlled entities at December 31,2005 and 2004, which are included in the consolidated financial statements, areas follows:**

| ** **               | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|--------------------------|------------|------------------------|------------|------------------------|------------|
| ** **               | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Current assets           |       | 110,186                |       | 80,172                 |       |
| Non-current  assets      |       | 187,386                |       | 146,411                |       |
|                     |       | 297,572                |       | 226,583                |       |
| Current Liabilities      |       | 124,183                |       | 76,227                 |       |
| Non-current  liabilities |       | 29,531                 |       | 33,638                 |       |
|                     |       | 153,714                |       | 109,865                |       |

 

**Theshare of revenues and operating expenses of the jointly controlled entities forthe years ended December 31, 2005, 2004 and 2003, which are included inthe consolidated financial statements, are as follows:**

| ** **                | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|---------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Revenues                  |       | 365,671                |       | 239,065                |       | 204,988                |       |
| Total operating  expenses |       | (237,439               | )          | (154,834               | )          | (141,611               | )          |
| Operating profit          |       | 128,232                |       | 84,231                 |       | 63,377                 |       |

** **

F-36

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**8.   SEGMENTINFORMATION**

The primary segment reporting format is determined tobe geographic segments as the Group’s risks and rates of return are affectedpredominantly by the fact that it operates in different countries in differentgeographical areas. The Group operates mainly in one reportable businesssegment, telecommunications services. The operating businesses are organisedand managed according to the geographical areas, which represent the basis onwhich the information is presented to the Board of Directors and executivemanagement to evaluate past performance and for making decisions about thefuture allocation of resources.

For segmental information on investment in associatesand profit from associates see note 11.

F-37

----

**Notes to theconsolidated financial statements (Continued)                                                                                                MillicomInternational**

**As ofDecember 31, 2005, 2004 and 2003                                                                                                                                                     CellularS.A.**

**Primary ReportingFormat—Geographical Segments**

TheGroup operates in 16 countries within five regions, Central America, SouthAmerica, Africa, South Asia and South East Asia. The other segment includes alloperating companies which do not provide mobile telephony and the unallocatedsegment includes all non-operating entities. The following table presentsrevenues, expenditures and other segment information for year ended December 31,2005, 2004 and 2003:

| **December 31, 2005** | ** ** | ** **       | ** ** | **Central  America** | ** ** | **South  America** | ** ** | **Africa**       | ** ** | **South  Asia  (note 12)** | ** ** | **South  East Asia** | ** ** | **Other**        | ** ** | **Unallocated  item** | ** ** | **Total  Continuing  Operations** | ** ** | **Discontinued  Operations  (note 12)** | ** ** | **Elimination**  | ** ** | **Total** | ** ** |
|---------------------------------|------------|------------------|------------|----------------------|------------|--------------------|------------|------------------|------------|---------------------------------|------------|---------------------------|------------|------------------|------------|-----------------------|------------|-----------------------------------|------------|----------------------------------------------|------------|------------------|------------|-----------|------------|
| ** **                      | ** ** | **US$’000** | ** ** | **US$’000**     | ** ** | **US$’000**   | ** ** | **US$’000** | ** ** | **US$’000**                | ** ** | **US$’000**          | ** ** | **US$’000** | ** ** | **US$’000**      | ** ** | **US$’000**                  | ** ** | **US$’000**                             | ** ** | **US$’000** | ** ** |

| Revenues                       |     |   | 452,600 |   |   |   | 141,194 |   |   |   | 204,397 |   |   |   | 120,718 |   |   |   | 161,523 |   |   |   | 3,237  |   |   |   | —    |   |     |   | 1,083,669 |   |   |   | 2,420  |   |     |   | —     |   |     | 1,086,089 |     |
|--------------------------------|----------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|----------|--------|-----------|--------|--------|--------|--------|--------|----------|--------|------------|--------|----------|-----------|----------|
| Operating  profit/(loss)       |     |   | 177,538 |   |   |   | 30,270  |   |   |   | 56,933  |   |   |   | (34,521 | )      |   |   | 24,730  |   |   |   | (2,762 | )      |   |   | (50,015   | )      |     |   | 202,173   |   |   |   | 337    |   |     |   | —     |   |     | 202,510   |     |
| Other segment information      |     |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |      |   |     |   |      |   |   |   |   |   |     |   |       |   |     |      |     |
| Depreciation and  amortization |     |   | (60,894 | )      |   |   | (26,120 | )      |   |   | (30,847 | )      |   |   | (47,514 | )      |   |   | (47,578 | )      |   |   | (939   | )      |   |   | (4,698    | )      |     |   | (218,590  | )      |   |   | — |   |     |   | —     |   |     | (218,590  | )        |
| Total Assets                   |     |   | 409,728 |   |   |   | 148,805 |   |   |   | 325,884 |   |   |   | 653,796 |   |   |   | 204,499 |   |   |   | 4,750  |   |   |   | 3,083,883 |   |     |   | 4,831,345 |   |   |   | 4,756  |   |     |   | (2,276,679 | )      |     | 2,559,422 |     |
| Total Liabilities              |     |   | 144,989 |   |   |   | 96,258  |   |   |   | 307,907 |   |   |   | 685,796 |   |   |   | 67,314  |   |   |   | 9,996  |   |   |   | 1,961,911 |   |     |   | 3,274,171 |   |   |   | 656    |   |     |   | (1,048,955 | )      |     | 2,225,872 |     |
| *Additions to:*                | * * |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |      |   | * * |   |      |   |   |   |   |   | * * |   |       |   | * * | * *  | * * |
| Property, plant  and equipment |     |   | 78,618  |   |   |   | 30,644  |   |   |   | 111,141 |   |   |   | 82,030  |   |   |   | 48,799  |   |   |   | 410    |   |   |   | —    |   |     |   | 351,642   |   |   |   | 11     |   |     |   | —     |   |     | 351,653   |     |
| Intangible assets              |     |   | 3,579   |   |   |   | 450     |   |   |   | 2,992   |   |   |   | 218,012 |   |   |   | 378     |   |   |   | — |   |   |   | 784       |   |     |   | 226,195   |   |   |   | — |   |     |   | —     |   |     | 226,195   |     |
| Capital  expenditure           |     |   | 82,197  |   |   |   | 31,094  |   |   |   | 114,133 |   |   |   | 300,042 |   |   |   | 49,177  |   |   |   | 410    |   |   |   | 784       |   |     |   | 577,837   |   |   |   | 11     |   |     |   | —     |   |     | 577,848   |     |

 

Thesegment information for 2004 is presented in the following chart:

| **December 31, 2004** | ** ** | ** **       | ** ** | **Central  America** | ** ** | **South  America** | ** ** | **Africa**       | ** ** | **South  Asia  (note 12)** | ** ** | **South  East Asia** | ** ** | **Other**        | ** ** | **Unallocated  item** | ** ** | **Total  Continuing  Operations** | ** ** | **Discontinued  Operations  (note 12)** | ** ** | **Elimination**  | ** ** | **Total** | ** ** |
|---------------------------------|------------|------------------|------------|----------------------|------------|--------------------|------------|------------------|------------|---------------------------------|------------|---------------------------|------------|------------------|------------|-----------------------|------------|-----------------------------------|------------|----------------------------------------------|------------|------------------|------------|-----------|------------|
| ** **                      | ** ** | **US$’000** | ** ** | **US$’000**     | ** ** | **US$’000**   | ** ** | **US$’000** | ** ** | **US$’000**                | ** ** | **US$’000**          | ** ** | **US$’000** | ** ** | **US$’000**      | ** ** | **US$’000**                  | ** ** | **US$’000**                             | ** ** | **US$’000** | ** ** |

| Revenues                      |     |   | 304,816 |   |   |   | 114,006 |   |   |   | 149,802 |   |   |   | 113,131 |   |   |   | 231,342 |   |   |   | 4,395  |   |   |   | —    |   |     |   | 917,492   |   |   |   | 3,001  |   |     |   | —     |   |     | 920,493   |     |
|-------------------------------|----------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|----------|--------|-----------|--------|--------|--------|--------|--------|----------|--------|------------|--------|----------|-----------|----------|
| Operating profit/(loss)       |     |   | 113,741 |   |   |   | 16,146  |   |   |   | 45,732  |   |   |   | 11,317  |   |   |   | 83,013  |   |   |   | (671   | )      |   |   | (22,089   | )      |     |   | 247,189   |   |   |   | (649   | )      |     |   | —     |   |     | 246,540   |     |
| Other segment information     |     |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |      |   |     |   |      |   |   |   |   |   |     |   |       |   |     |      |     |
| Depreciation and amortization |     |   | (41,977 | )      |   |   | (24,790 | )      |   |   | (18,314 | )      |   |   | (29,999 | )      |   |   | (54,677 | )      |   |   | (574   | )      |   |   | —    |   |     |   | (170,331  | )      |   |   | (663   | )      |     |   | —     |   |     | (170,994  | )        |
| Total Assets                  |     |   | 362,236 |   |   |   | 157,920 |   |   |   | 222,253 |   |   |   | 429,835 |   |   |   | 215,019 |   |   |   | 6,374  |   |   |   | 2,921,158 |   |     |   | 4,314,795 |   |   |   | 3,961  |   |     |   | (2,272,543 | )      |     | 2,046,213 |     |
| Total Liabilities             |     |   | 143,622 |   |   |   | 113,399 |   |   |   | 196,288 |   |   |   | 393,500 |   |   |   | 81,052  |   |   |   | 7,841  |   |   |   | 1,888,076 |   |     |   | 2,823,778 |   |   |   | 536    |   |     |   | (1,058,538 | )      |     | 1,765,776 |     |
| *Additions to:*               | * * |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |      |   | * * |   |      |   |   |   |   |   | * * |   |       |   | * * | * *  | * * |
| Property, plant and equipment |     |   | 55,445  |   |   |   | 22,818  |   |   |   | 55,795  |   |   |   | 68,700  |   |   |   | 31,061  |   |   |   | 3,480  |   |   |   | 131       |   |     |   | 237,430   |   |   |   | 185    |   |     |   | —     |   |     | 237,615   |     |
| Intangible assets             |     |   | 10,211  |   |   |   | 685     |   |   |   | 24,357  |   |   |   | 223,061 |   |   |   | 1,818   |   |   |   | 5      |   |   |   | —    |   |     |   | 260,137   |   |   |   | — |   |     |   | —     |   |     | 260,137   |     |
| Capital  expenditure          |     |   | 65,656  |   |   |   | 23,503  |   |   |   | 80,152  |   |   |   | 291,761 |   |   |   | 32,879  |   |   |   | 3,485  |   |   |   | 131       |   |     |   | 497,567   |   |   |   | 185    |   |     |   | —     |   |     | 497,752   |     |

 

F-38

 

----

**Notes to theconsolidated financial statements (Continued)                                                                                                MillicomInternational**

**As ofDecember 31, 2005, 2004 and 2003                                                                                                                                                     CellularS.A.**

Thesegment information for 2003 is presented in the following chart:

| **December 31, 2003** | ** ** | ** **       | ** ** | **Central  America** | ** ** | **South  America** | ** ** | **Africa**       | ** ** | **South  Asia  (note 12)** | ** ** | **South  East Asia** | ** ** | **Other**        | ** ** | **Unallocated  Item** | ** ** | **Total  Continuing  Operations** | ** ** | **Discontinued  Operations  (note 12)** | ** ** | **Elimination**  | ** ** | **Total** | ** ** |
|---------------------------------|------------|------------------|------------|----------------------|------------|--------------------|------------|------------------|------------|---------------------------------|------------|---------------------------|------------|------------------|------------|-----------------------|------------|-----------------------------------|------------|----------------------------------------------|------------|------------------|------------|-----------|------------|
| ** **                      | ** ** | **US$’000** | ** ** | **US$’000**     | ** ** | **US$’000**   | ** ** | **US$’000** | ** ** | **US$’000**                | ** ** | **US$’000**          | ** ** | **US$’000** | ** ** | **US$’000**      | ** ** | **US$’000**                  | ** ** | **US$’000**                             | ** ** | **US$’000** | ** ** |

| Revenues                      |   |   | 171,321 |   |   |   | 99,343  |   |   |   | 83,966  |   |   |   | 105,068 |   |   |   | 174,412 |   |   |   | 6,253  |   |   |   | —    |   |   |   | 640,363   |   |   |   | 4,373  |   |   |   | —     |   |   | 644,736   |   |
|-------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|-----------|--------|
| Operating profit/(loss)       |   |   | 66,319  |   |   |   | 18,571  |   |   |   | 16,538  |   |   |   | 31,581  |   |   |   | 58,592  |   |   |   | 137    |   |   |   | (27,366   | )      |   |   | 164,372   |   |   |   | (3,754 | )      |   |   | —     |   |   | 160,618   |   |
| Other segment  information    |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |      |   |   |   |      |   |   |   |   |   |   |   |       |   |   |      |   |
| Depreciation and amortization |   |   | (24,519 | )      |   |   | (22,485 | )      |   |   | (13,855 | )      |   |   | (22,178 | )      |   |   | (42,584 | )      |   |   | (611   | )      |   |   | (432      | )      |   |   | (126,664  | )      |   |   | (1,905 | )      |   |   | —     |   |   | (128,569  | )      |
| Total Assets                  |   |   | 275,909 |   |   |   | 134,574 |   |   |   | 120,053 |   |   |   | 116,224 |   |   |   | 157,867 |   |   |   | 5,588  |   |   |   | 3,608,671 |   |   |   | 4,418,886 |   |   |   | 4,060  |   |   |   | (2,899,088 | )      |   | 1,523,858 |   |
| Total Liabilities             |   |   | 158,223 |   |   |   | 123,560 |   |   |   | 124,278 |   |   |   | 144,730 |   |   |   | 85,181  |   |   |   | 10,575 |   |   |   | 2,350,741 |   |   |   | 2,997,288 |   |   |   | 510    |   |   |   | (1,413,873 | )      |   | 1,583,925 |   |
| *Additions  to:*              |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |      |   |   |   |      |   |   |   |   |   |   |   |       |   |   |      |   |
| Property, plant and equipment |   |   | 13,240  |   |   |   | 8,321   |   |   |   | 24,237  |   |   |   | 12,934  |   |   |   | 44,823  |   |   |   | — |   |   |   | 68        |   |   |   | 103,623   |   |   |   | 205    |   |   |   | —     |   |   | 103,828   |   |
| Intangible assets             |   |   | 925     |   |   |   | 1,520   |   |   |   | 26      |   |   |   | 624     |   |   |   | 16      |   |   |   | — |   |   |   | 453       |   |   |   | 3,564     |   |   |   | 5      |   |   |   | —     |   |   | 3,569     |   |
| Capital  expenditure          |   |   | 14,165  |   |   |   | 9,841   |   |   |   | 24,263  |   |   |   | 13,558  |   |   |   | 44,839  |   |   |   | — |   |   |   | 521       |   |   |   | 107,187   |   |   |   | 210    |   |   |   | —     |   |   | 107,397   |   |

 

 

F-39

 

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**9.   INTANGIBLEASSETS**

**Themovements in intangible assets in 2005 were as follows:**
|                                                              | ** ** | **Goodwill(i)**  | ** ** | **Licences**     | ** ** | **Trademarks,  Subscriber  bases and  Other** | ** ** | **Total**        | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|------------------|------------|----------------------------------------------------|------------|------------------|------------|
| ** **                                                   | ** ** | **US$’000** | ** ** | **US$’000** | ** ** | **US$’000**                                   | ** ** | **US$’000** | ** ** |
| Opening balance,  net                                        |       |             | 37,702     |             |       | 277,705                                            |       |             | 2,561      |   |   | 317,968 |   |
| Additions(v)                                                 |       |             | —     |             |       | 224,160                                            |       |             | 2,035      |   |   | 226,195 |   |
| Changes in the  composition of the Group (note 4)(iv)        |       |             | 29,749     |             |       | 13,792                                             |       |             | 27,848     |   |   | 71,389 |   |
| Amortisation  charge(vii)                                    |       |             | —     |             |       | (27,234                                            | )          |             | (3,918     | ) |   | (31,152 | ) |
| Impairment (note  28)(ii)                                    |       |             | (1,955     | )                |       | —                                             |       |             | —     |   |   | (1,955 | ) |
| Impairment  reversal on discontinued operations (note 28)    |       |             | —     |             |       | 872                                                |       |             | —     |   |   | 872 |   |
| Reversal of  negative goodwill (note 2)(iii)                 |       |             | 8,202      |             |       | —                                             |       |             | —     |   |   | 8,202 |   |
| Other movements                                              |       |             | —     |             |       | (2,243                                             | )          |             | —     |   |   | (2,243 | ) |
| Exchange rate  movements                                     |       |             | (350       | )                |       | (2,847                                             | )          |             | (401       | ) |   | (3,598 | ) |
| Transfer to  assets held for sale, net (note 12)             |       |             | —     |             |       | (212,268                                           | )          |             | (157       | ) |   | (212,425 | ) |
| Closing balance,  net                                        |       |             | **73,348** | ** **       | ** ** | **271,937**                                        | ** ** | ** **       | **27,968** | ** ** | ** ** | **373,253** |   |
| **As at  December 31, 2005**                            |       |             |       |             |       |                                               |       |             |       |   |   |   |   |
| Cost or valuation                                            |       |             | 73,348     |             |       | 318,799                                            |       |             | 34,469     |   |   | 426,616 |   |
| Accumulated  amortisation                                    |       |             | —     |             |       | (46,862                                            | )          |             | (6,501     | ) |   | (53,363 | ) |
| Net                                                          |       |             | **73,348** | ** **       | ** ** | **271,937**                                        | ** ** | ** **       | **27,968** | ** ** | ** ** | **373,253** |   |
| The movements in intangible assets in 2004 were as  follows: |       |             |       |             |       |                                               |       |             |       |   |   |   |   |
| Opening balance,  net                                        | ** ** |             | 49,578     |             |       | 30,889                                             |       |             | 3,351      |   |   | 83,818 |   |
| Additions                                                    | ** ** |             | —     |             |       | 258,740                                            |       |             | 1,397      |   |   | 260,137 |   |
| Changes in the  composition of the Group (note 4),(vi)       | ** ** |             | (3,634     | )                |       | 222                                                |       |             | —     |   |   | (3,412 | ) |
| Amortisation  charge(vii)                                    | ** ** |             | (8,242     | )                |       | (8,296                                             | )          |             | (1,272     | ) |   | (17,810 | ) |
| Other movements                                              | ** ** |             | —     |             |       | —                                             |       |             | (790       | ) |   | (790 | ) |
| Exchange rate  movements                                     | ** ** |             | —     |             |       | (3,850                                             | )          |             | (125       | ) |   | (3,975 | ) |
| Closing balance,  net                                        |       |             | **37,702** | ** **       | ** ** | **277,705**                                        | ** ** | ** **       | **2,561**  | ** ** | ** ** | **317,968** |   |
| **As at  December 31, 2004**                            | ** ** |             |       |             | ** ** | ** **                                         | ** ** |             |       |   | ** ** | ** ** | ** ** |
| Cost or valuation                                            |       |             | 68,210     |             |       | 347,601                                            |       |             | 6,247      |   |   | 422,058 |   |
| Accumulated  amortisation                                    |       |             | (30,508    | )                |       | (69,896                                            | )          |             | (3,686     | ) |   | (104,090 | ) |
| Net                                                          |       |             | **37,702** | ** **       | ** ** | **277,705**                                        | ** ** | ** **       | **2,561**  | ** ** | ** ** | **317,968** |   |

----

*(i)**              In2005, in accordance with IFRS 3, Millicom ceased amortization of goodwill andeliminated the carrying amount of accumulated amortization with a correspondingdecrease in the cost of goodwill.*

*(ii)**           Goodwillimpairments are recorded in the caption “Other operating expenses” in theconsolidated statements of profit and loss. In 2005, Millicom recorded animpairment of goodwill related to one of its operation in Pakistan, Pakcom, foran amount of $1,955 thousand (see notes 12 and 28)*

*(iii)**        Followingthe adoption of IFRS 3, Millicom derecognized negative goodwill existing on January 1,2005 of $8,202 thousand through an adjustment to accumulated losses broughtforward (see note 2).*

*(iv)**         Movementin goodwill represents the additional goodwill from the acquisition of Millicom’soperation in Ghana of $20,000 thousand, the Democratic Republic of Congo of$7,169 thousand and Sierra Leone of*

F-40

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*$3,000 thousand less $420thousand which was allocated to other intangible assets as part of the purchaseprice allocation on the acquisition of the additional 16.67% of Millicom’soperation in Honduras (see notes 4 and 16).*

*(v)**            Additionsof licences in 2005 are primarily due to the renewal of the licence in Pakcom,one of our operations in Pakistan for an amount of $217,885 thousand (2004:primarily due to the acquisition and/or renewal of licenses in Paktel, ourother operation in Pakistan, Chad, Ghana and El Salvador).*

*(vi)**         Movementin goodwill represents the $3,660 thousand excess of fair value over the costof the acquisition of 25.04% of Millicom’s operation in Tanzania reduced by $26thousand as a result of a change of consolidation method for one of Millicom’sholding companies.*

*(vii)**      Amortisationof licenses and other intangible assets of $31,152 thousand (2004: $9,568thousand) is included in “General and administrative expenses” in theconsolidated statements of profit and loss. Amortization of goodwill for 2004was included in “Other operating expenses”.*

***Impairment test of Goodwill***

The Group determines whether goodwill is impaired atleast on an annual basis. This requires an estimation of the recoverable amountof the cash-generating unit to which the goodwill is allocated. The recoverableamount is usually determined by reference to the value in use. Estimating thevalue in use requires the Group to make an estimate of the expected future cashflows from the cash-generating unit and also to choose a suitable discount ratein order to calculate the present value of those cash flows.

The allocation ofgoodwill to cash generating units net of exchange rate movements is shownbelow:

***Millicom’s operations in:***

| ** **                                  | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|---------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                  | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| El Salvador                                 |       |             | 42,053     |             |       |   | 42,053 |   |   |
| Ghana                                       |       |             | 19,973     |             |       |   | — |   |   |
| Democratic  Republic of Congo (provisional) |       |             | 7,169      |             |       |   | — |   |   |
| Sierra Leone                                |       |             | 3,000      |             |       |   | — |   |   |
| Negative goodwill                           |       |             | —     |             |       |   | (8,202 | ) |   |
| Other                                       |       |             | 1,153      |             |       |   | 3,851 |   |   |
|                                        | ** ** | ** **       | **73,348** |             | ** ** | ** ** | **37,702** |   |   |

 

For the year ended December 31, 2005, managementtested for impairment the goodwill allocated to the cash-generating unit (“CGU”)representing the operation in El Salvador. The recoverable amount wasdetermined based on cash flow projections for the next 4 years, using anaverage growth rate of 15%, a terminal value of $200.0 million, and a discountrate of 15%. The recoverable amount so obtained is significantly above thecarrying amount of the CGU.

Since the goodwillacquired on Ghana, the Democratic Republic of Congo and Sierra Leone resultfrom recent transactions, management does not believe that there is risk ofimpairment.

***Impairment test of significant licenses***

In October 2004, Millicom’s subsidiary inPakistan, Paktel, signed agreements with the Pakistan Regulator (the “PTA”) tooperate its GSM network with immediate effect and to renew its license for 

F-41

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

15 years from October 23,2004. The license was recorded at the present value of the total cash outflowspayable until 2017 of a gross amount of $291.0 million, resulting in a licensecost of $216.5 million.

In December 2005 Millicom performed an impairmenttest on the cash-generating unit (“CGU”) to which the license belongs. Therecoverable amount of the CGU was determined by using a discounted cash flowmodel. This involves the use of projected cash flows of sales, expenses andcapital expenditures over the remaining period of the license. Factors formingthe basis for expected future financial performance include historical growthand expected future growth, business plans for Paktel, historic and expectedlevels of operating profitability and also estimated future tax rates. Anaverage growth rate of 17% and a discount rate of 16% were used in thediscounted cash flow computation which covered a period of 14 years. Inaddition, the discounted estimated residual value of Paktel at the end of thelicense period of $57.2 million was included in the determination of the CGU’srecoverable amount. The recoverable amount so obtained is slightly above thecarrying amount of the CGU to which the license belongs.

As at December 31,2005, the net book value of the Paktel license was $201.4 million.

**10.   PROPERTY,PLANT AND EQUIPMENT**

**Themovements in 2005 were as follows:**

| ** **                                   | ** ** | **Network  equipment** | ** **   | **Land and  Buildings** | ** ** | **Construction  in Progress** | ** ** | **Other(i)**     | ** ** | **Total**        | ** **  |
|----------------------------------------------|------------|------------------------|--------------|------------------------------|------------|------------------------------------|------------|------------------|------------|------------------|-------------|
| ** **                                   | ** ** | **US$’000**       | ** **   | **US$’000**             | ** ** | **US$’000**                   | ** ** | **US$’000** | ** ** | **US$’000** | ** **  |
| **Cost or  valuation**                       |       |                   |         |                         |       |                               |       |             |       |             |        |   |   |   |   |   |   |
| Opening balance                              |       |                   | 951,580      |                         |       |                               | 30,378     |             |       |             | 81,361      |   |   | 128,757 |   | 1,192,076 |   |
| Additions                                    |       |                   | 39,549       |                         |       |                               | 2,442      |             |       |             | 298,125     |   |   | 11,537 |   | 351,653 |   |
| Disposals(ii)                                |       |                   | (184,861     | )                            |       |                               | (376       | )                |       |             | (2,929      | ) |   | (38,671 | ) | (226,837 | ) |
| Change in  composition of the Group (note 4) |       |                   | 20,230       |                         |       |                               | 468        |             |       |             | 2,673       |   |   | 1,275 |   | 24,646 |   |
| Impairments (note  28)                       |       |                   | (51,072      | )                            |       |                               | —     |             |       |             | —      |   |   | — |   | (51,072 | ) |
| Transfers                                    |       |                   | 194,573      |                         |       |                               | 1,652      |             |       |             | (216,188    | ) |   | 19,963 |   | — |   |
| Exchange rate  movements                     |       |                   | (14,803      | )                            |       |                               | (635       | )                |       |             | (2,549      | ) |   | (2,824 | ) | (20,811 | ) |
| Transfer to  assets held for sale (note 12)  |       |                   | (59,676      | )                            |       |                               | (3,556     | )                |       |             | (4,403      | ) |   | (4,909 | ) | (72,544 | ) |
| Closing Balance                              | ** ** | ** **             | **895,520**  | ** **                   | ** ** | ** **                         | **30,373** | ** **       | ** ** | ** **       | **156,090** |   | ** ** | **115,128** | ** ** | **1,197,111** | ** ** |
| **Depreciation**                             |       |                   |         |                         |       |                               |       |             |       |             |        |   |   |   |   |   |   |
| Opening balance                              |       |                   | (522,270     | )                            |       |                               | (8,505     | )                |       |             | —      |   |   | (85,652 | ) | (616,427 | ) |
| Charge for the  year                         |       |                   | (155,855     | )                            |       |                               | (2,666     | )                |       |             | —      |   |   | (28,917 | ) | (187,438 | ) |
| Disposals(ii)                                |       |                   | 180,562      |                         |       |                               | 253        |             |       |             | —      |   |   | 37,067 |   | 217,882 |   |
| Transfers                                    |       |                   | (1,637       | )                            |       |                               | (6         | )                |       |             | —      |   |   | 1,643 |   | — |   |
| Exchange rate  movements                     |       |                   | 3,389        |                         |       |                               | 256        |             |       |             | —      |   |   | 1,690 |   | 5,335 |   |
| Transfer to  assets held for sale (note 12)  |       |                   | 51,471       |                         |       |                               | 1,388      |             |       |             | —      |   |   | 2,452 |   | 55,311 |   |
| Closing balance                              | ** ** | ** **             | **(444,340** | **)**                        | ** ** | ** **                         | **(9,280** | **)**            |       |             | —      |   | ** ** | **(71,717** | **)** | **(525,337** | **)** |
| **As at December 31, 2005**             |       |                   |         |                         |       |                               |       |             |       |             |        |   |   |   |   |   |   |
| Cost or valuation                            | ** ** | ** **             | **895,520**  | ** **                   | ** ** | ** **                         | **30,373** | ** **       | ** ** | ** **       | **156,090** |   | ** ** | **115,128** | ** ** | **1,197,111** | ** ** |
| Accumulated  depreciation                    | ** ** | ** **             | **(444,340** | **)**                        | ** ** | ** **                         | **(9,280** | **)**            |       |             | —      |   | ** ** | **(71,717** | **)** | **(525,337** | **)** |
| *** ***                                 | ** ** | ** **             | **451,180**  | ** **                   | ** ** | ** **                         | **21,093** | ** **       | ** ** | ** **       | **156,090** |   | ** ** | **43,411** | ** ** | **671,774** | ** ** |

----

*(i)**              Thecaption “Other” mainly includes office equipment and motor vehicles.*

F-42

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*(ii)**           Mainlyrelates to disposals as a result of the end of the BCC (see note 3).*

**Themovements in 2004 were as follows:**

| ** **                                        | ** ** | **Network  equipment** | ** **   | **Land and  Buildings** | ** ** | **Construction  in Progress** | ** ** | **Other(i)**     | ** ** | **Total**        | ** ** |
|---------------------------------------------------|------------|------------------------|--------------|------------------------------|------------|------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                        | ** ** | **US$’000**       | ** **   | **US$’000**             | ** ** | **US$’000**                   | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| **Cost or  valuation**                            |       |                   |         |                         |       |                               |       |             |       |             |       |   |   |   |   |   |   |
| Opening balance                                   |       |                   | 800,624      |                         |       |                               | 23,555     |             |       |             | 36,548     |   |   | 104,309 |   | 965,036 |   |
| Additions                                         |       |                   | 34,669       |                         |       |                               | 3,042      |             |       |             | 185,120    |   |   | 14,784 |   | 237,615 |   |
| Disposals                                         |       |                   | (2,403       | )                            |       |                               | (30        | )                |       |             | —     |   |   | (889 | ) | (3,322 | ) |
| Change in the  composition of the Group  (note 4) |       |                   | 11,298       |                         |       |                               | 147        |             |       |             | 1,536      |   |   | 867 |   | 13,848 |   |
| Impairments (note  28)                            |       |                   | (7,237       | )                            |       |                               | —     |             |       |             | —     |   |   | — |   | (7,237 | ) |
| Disposal of  subsidiaries and joint ventures      |       |                   | (3,940       | )                            |       |                               | (60        | )                |       |             | —     |   |   | — |   | (4,000 | ) |
| Transfers                                         |       |                   | 127,479      |                         |       |                               | 4,195      |             |       |             | (141,933   | ) |   | 10,259 |   | — |   |
| Exchange rate  movements                          |       |                   | (8,910       | )                            |       |                               | (471       | )                |       |             | 90         |   |   | (573 | ) | (9,864 | ) |
| Closing balance                                   | ** ** | ** **             | **951,580**  | ** **                   | ** ** | ** **                         | **30,378** | ** **       | ** ** | ** **       | **81,361** |   | ** ** | **128,757** | ** ** | **1,192,076** | ** ** |
| **Depreciation**                                  |       |                   |         |                         |       |                               |       |             |       |             |       |   |   |   |   |   |   |
| Opening balance                                   |       |                   | (398,221     | )                            |       |                               | (6,930     | )                |       |             | —     |   |   | (70,342 | ) | (475,493 | ) |
| Charge for the  year                              |       |                   | (127,968     | )                            |       |                               | (1,904     | )                |       |             | —     |   |   | (23,312 | ) | (153,184 | ) |
| Disposals                                         |       |                   | 1,985        |                         |       |                               | —     |             |       |             | —     |   |   | 809 |   | 2,794 |   |
| Transfers                                         |       |                   | (5,852       | )                            |       |                               | —     |             |       |             | —     |   |   | 5,852 |   | — |   |
| Exchange rate  movements                          |       |                   | 5,950        |                         |       |                               | 269        |             |       |             | —     |   |   | 1,341 |   | 7,560 |   |
| Disposal of  subsidiaries and joint ventures      |       |                   | 1,836        |                         |       |                               | 60         |             |       |             | —     |   |   | — |   | 1,896 |   |
| Closing balance                                   | ** ** | ** **             | **(522,270** | **)**                        | ** ** | ** **                         | **(8,505** | **)**            | ** ** | ** **       | **—** |   | ** ** | **(85,652** | **)** | **(616,427** | **)** |
| **As at December 31, 2004**                  | ** ** | ** **             |         | ** **                   | ** ** | ** **                         |       | ** **       | ** ** | ** **       |       |   | ** ** |   | ** ** |   | ** ** |
| Cost or valuation                                 | ** ** | ** **             | 951,580      | ** **                   | ** ** | ** **                         | 30,378     | ** **       | ** ** | ** **       | 81,361     |   | ** ** | 128,757 | ** ** | 1,192,076 | ** ** |
| Accumulated  depreciation                         | ** ** | ** **             | (522,270     | )                            | ** ** | ** **                         | (8,505     | )                | ** ** | ** **       | —     |   | ** ** | (85,652 | ) | (616,427 | ) |
|                                              | ** ** | ** **             | **429,310**  |                         | ** ** | ** **                         | **21,873** | ** **       | ** ** | ** **       | **81,361** |   | ** ** | **43,105** | ** ** | **575,649** | ** ** |

----

*(i)**              Thecaption “Other” mainly includes office equipment and motor vehicles.*

**Thefollowing table provides details of cash used for the purchase of property,plant and equipment.**

| ** **                                               | ** ** | **2005**         | ** ** | **2004**         | ** ** | **2003**         | ** ** |
|----------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **US$’000** | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| Additions                                                |       | 351,653          |       | 237,615          |       | 103,828          |       |
| Increase in  payables for property, plant and equipment  |       | (28,129          | )          | (39,742          | )          | (17,376          | )          |
| Cash used for purchase  of property, plant and equipment |       | **323,524**      | ** ** | **197,873**      | ** ** | **86,452**       |       |

 

**TheGroup’s financials statements includes an amount of $4.2 million ($2.2 millionin 2004) for assets retirement obligations, which are in relation withproperty, plant and equipment.**

**11.   INVESTMENTIN ASSOCIATES**

As at December 31,2005 the principal associates are Navega.com S.A. which is unlisted, andMetrored S.A. which is a subsidiary of Navega.com S.A. acquired in 2005.Navega.com S.A. is 45% owned 

F-43

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

by Millicom’s joint venture in Guatemala. MetroredS.A. is 51% owned by Navega.com S.A. and 49% owned by Millicom’s joint venturein Honduras of which Millicom holds 66.7% (see notes 4 and 7). The followingtable provides summarised financial information of the Group’s investment inassociates:

| ** **                                      | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|-------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                      | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| **Opening  balance as January 1,(i)**      |       |             | 2,220      |             |       |   | 1,340 |   |   |
| Share of  profit(i),(iii)                       |       |             | 1,296      |             |       |   | 814 |   |   |
| Additions(ii)                                   |       |             | 1,256      |             |       |   | — |   |   |
| Effect of change  in ownership percentage       |       |             | 422        |             |       |   | — |   |   |
| Exchange rate  movements                        |       |             | 173        |             |       |   | 66 |   |   |
| **Closing balance as at  December 31,(i)** |       | ** **       | **5,367**  |             | ** ** | ** ** | **2,220** |   |   |

----

*(i)**              Allamounts relate to the Central America segment (share of profit for 2003 was$380 thousand).*

*(ii)**           Acquisitionof Metrored S.A by Telefonica Celular, Millicom’s operation in Honduras.*

*(iii)**        Shareof profit is after taxes and minority interest of associates.*

**TheGroup’s share of revenues and net profits of its principal associates and itsshare of the assets and liabilities are as follows:**

| **Name**         | ** **   | ** **   | ** **   | **Country of  incorporation** | ** **   | **Assets**       | ** ** | **Liabilities**  | ** **   | **Revenues**     | ** ** | **Profit** | ** **   | **% interest  held** | ** ** |
|------------------|--------------|--------------|--------------|------------------------------------|--------------|------------------|------------|------------------|--------------|------------------|------------|------------|--------------|---------------------------|------------|
| ** **       | ** **   | ** **   | ** **   | **US$’000**                   | ** **   | **US$’000** | ** ** | **US$’000** | ** **   | **US$’000** | ** ** | ** ** | *** *** |
| ***2005***       | *** *** | *** *** | *** *** |                               | *** *** | *** ***     |       |             | *** *** | *** ***     |       |       | *** *** | *** ***              |       |   | *** *** | *** *** |   |   | *** *** | *** *** |   |
| Navega.com S.A.  |         | Guatemala    | *** *** |                               | 12,873       | *** ***     |       |             | 9,507        | *** ***     |       |       | 5,762        | *** ***              |       |   | 944 | *** *** |   |   | 24.7 | % |   |
| Metrored S.A.(i) |         | Honduras     | *** *** |                               | 4,075        | *** ***     |       |             | 2,074        | *** ***     |       |       | 1,878        | *** ***              |       |   | 352 | *** *** |   |   | 45.3 | % |   |
|             |         | *** *** | *** *** |                               | 16,948       | *** ***     |       |             | 11,581       | *** ***     |       |       | 7,640        | *** ***              |       |   | 1,296 | *** *** |   |   |   |   |   |
| ***2004***       | *** *** | *** *** | *** *** |                               | *** *** | *** ***     |       |             | *** *** | *** ***     |       |       | *** *** | *** ***              |       |   | *** *** | *** *** |   |   | *** *** | *** *** |   |
| Navega.com S.A.  |         | Guatemala    | *** *** |                               | 6,569        | *** ***     |       |             | 4,349        | *** ***     |       |       | 3,100        | *** ***              |       |   | 814 | *** *** |   |   | 24.7 | % |   |
|             |         | *** *** | *** *** |                               | 6,569        | *** ***     |       |             | 4,349        | *** ***     |       |       | 3,100        | *** ***              |       |   | 814 | *** *** |   |   |   |   |   |

----

(*i)**              RepresentsMillicom’s 32.7% holding in Metrored S.A through its operation in Honduras.Millicom also holds 12.6% of Metrored S.A. through its investment in Navega.comS.A.*

**12.   DISCONTINUEDOPERATIONS AND ASSETS HELD FOR SALE**

***Discontinued operations***

In 2003, Millicom decided to dispose of its operationin Peru as it is a wireless local loop operation which is not part of the corebusiness of Millicom, mobile telephony, and in addition Millicom has no otheroperations in Peru where Millicom Peru S.A. (“Millicom Peru”) operates. As thedisposal of Millicom Peru is highly probable, Millicom Peru is classified as anasset held for sale and a discontinued operation as at December 31, 2005.The disposal of Millicom Peru is due to be completed in the second quarter of2006 and final negotiations for the sale are in progress. Expected proceeds ofthe sale are $4.1 million.

F-44

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                       Cellular S.A**

Theresults of Millicom Peru are presented below:

| ** **                                             | ** ** | **2005**         | ** ** | **2004**         | ** ** | **2003**         | ** ** |
|--------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **US$’000** | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| Revenues                                               |       |             | 2,420      |             |       |             | 3,001      |   |   |   | 4,373 |   |   |
| Cost of sales                                          |       |             | (439       | )                |       |             | (1,709     | ) |   |   | (2,651 | ) |   |
| Gross profit                                           |       |             | 1,981      |             |       |             | 1,292      |   |   |   | 1,722 |   |   |
| Other operating  expenses, net(i)                      |       |             | (1,644     | )                |       |             | (1,941     | ) |   |   | (5,476 | ) |   |
| Operating profit/  (loss)                              |       |             | 337        |             |       |             | (649       | ) |   |   | (3,754 | ) |   |
| Other expenses,  net                                   |       |             | (61        | )                |       |             | (25        | ) |   |   | — |   |   |
| Gain/(loss)  before tax from discontinued operations   |       |             | 276        |             |       |             | (674       | ) |   |   | (3,754 | ) |   |
| Tax income:                                            |       |             | 399        |             |       |             | 549        |   |   |   | 346 |   |   |
| Gain/(loss) for the year  from discontinued operations |       |             | 675        |             |       |             | (125       | ) |   |   | (3,408 | ) |   |

----

*(i)**              Includesthe reversal of impairment of a license for $872 thousand in 2005 (2003:impairment of a license for $3,073 thousand).*

**Theearnings per share attributable to equity holders from discontinued operations(see note 32) is as follows:**

| ** **                                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Basic, from  discontinued operations (in US$)   |       | 0.01     |       | (0.01    | )          | (0.05    | )          |
| Diluted, from  discontinued operations (in US$) |       | 0.01     |       | (0.01    | )          | (0.04    | )          |

 

Thecash flows of Millicom Peru are presented below:

| ** **                                         | ** ** | **2005**         | ** ** | **2004**         | ** ** | **2003**         | ** ** |
|----------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                         | ** ** | **US$’000** | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| Net cash (used)  provided by operating activities  |       |             | (80        | )                |       |             | (48        | ) |   |   | 291 |   |   |
| Cash flow  provided (used) by investing activities |       |             | 32         |             |       |             | (87        | ) |   |   | (232 | ) |   |
| Cash flow used by  financing activities            |       |             | —     |             |       |             | (75        | ) |   |   | (934 | ) |   |
| Net decrease in  cash and cash equivalents         |       |             | (48        | )                |       |             | (210       | ) |   |   | (875 | ) |   |
| Cash and cash  equivalents, beginning              |       |             | 146        |             |       |             | 356        |   |   |   | 1,231 |   |   |
| Cash and cash  equivalents, ending                 |       |             | 98         |             |       |             | 146        |   |   |   | 356 |   |   |

 

***Assets held for sale***

During the third quarter of 2005, Millicom startedactively negotiating the sale of its share in its Pakistani operation, Pakcomso it could focus on its other operation in Pakistan, Paktel Limited.Therefore, since September 30, 2005, Pakcom was classified as a disposalgroup held for sale in accordance with IFRS 5 “Non-current assets held for saleand discontinued operations”. Pakcom is not classified as a discontinuedoperation as Paktel a subsidiary of Millicom, also operates in Pakistan in thesame business line. As of December 31, 2005, Millicom measured all assetsand liabilities of Pakcom at their fair value (determined based on the expectedselling price) less costs to sell and, accordingly, recorded an impairment ofgoodwill of $2.0 million, as well as an impairment of network equipment of$29.9 million which are recorded respectively under the captions “Otheroperating expenses” and “Cost of sales”. In addition, Millicom classifiedseparately all assets and liabilities of Pakcom in the consolidated balance 

F-45

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                       Cellular S.A**

sheet as of December 31,2005. Pakcom is part of the segment South Asia. On March 20, 2006 Millicomcompleted the sale of Pakcom (subject to regulatory approval) for net proceedsof $1 (see notes 35 and 37).

**Themajor classes of assets and liabilities classified as held for sale as at December 31,2005 are as follows:**

| ** **                                                        | ** ** | **Peru**         | ** ** | **Pakcom**       | ** ** | **Total**        | ** ** |
|-------------------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                        | ** ** | **US$’000** | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| **Assets**                                                        |       |             |       |             |       |             |       |   |   |
| Intangible  assets, net                                           |       |             | 1,046      |             |       | 211,379          |       | 212,425 |   |
| Property, plant  and equipment, net                               |       |             | 1,475      |             |       | 15,758           |       | 17,233 |   |
| Non-current  pledged deposits                                     |       |             | —     |             |       | 96               |       | 96 |   |
| Deferred taxation                                                 |       |             | 1,404      |             |       | —           |       | 1,404 |   |
| Trade  receivables, net                                           |       |             | 39         |             |       | 10,962           |       | 11,001 |   |
| Time deposits                                                     |       |             | 610        |             |       | 12               |       | 622 |   |
| Cash and cash  equivalents                                        |       |             | 98         |             |       | 2,915            |       | 3,013 |   |
| Other current  assets                                             |       |             | 84         |             |       | 4,209            |       | 4,293 |   |
| Assets held for  sale                                             |       |             | 4,756      |             |       | 245,331          |       | 250,087 |   |
| **Liabilities**                                                   |       |             |       |             |       |             |       |   |   |
| Other non-current  liabilities                                    |       |             | —     |             |       | 151,459          |       | 151,459 |   |
| Trade payables                                                    |       |             | 371        |             |       | 7,271            |       | 7,642 |   |
| Current tax  liabilities                                          |       |             | 23         |             |       | 9,876            |       | 9,899 |   |
| Other current  liabilities                                        |       |             | 262        |             |       | 77,462           |       | 77,724 |   |
| Liabilities  directly associated with assets held for sale        |       |             | 656        |             |       | 246,068          |       | 246,724 |   |
| Net assets/(liabilities)  directly associated with disposal group |       |             | 4,100      |             |       | (737             | )          | 3,363 |   |

 

**13.   FINANCIALASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS**

As of December 31,2005 and 2004, Millicom had the following financial assets at fair valuethrough profit or loss:

| ** **                                                  | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|-------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                  | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| Tele2 A.B.—‘B’  shares                       |       | 288,526          |       | 351,882          | ** ** |
| Embedded  derivative on the 5% Mandatory Exchangeable Notes |       | 39,277           |       | 45,255           | ** ** |
|                                                        |       | 327,803          |       | 397,137          | ** ** |

 

F-46

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                       Cellular S.A**

Transactionsin Tele2 shares have been summarised in the table below:

| ** **                            | ** ** | **No. of shares  held(i)** | ** ** | **Ownership** | ** ** | **Gain (loss)** | ** ** | **Total**        | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|---------------|------------|----------------------|------------|------------------|------------|
| ** **                            | ** ** | ** **                           | ** ** | **%**         | ** ** | **US$’000**     | ** ** | **US$’000** | ** ** |
| Balance as of  January 1, 2003   |       | 30,037,629                           |       |          | 6.8        | %                    |       |             |       |   |   | 265,571 |   |
| Sale of shares                        |       | (3,132,387                           | )          |          | (0.7       | )%                   |       |             |       |   |   | (33,291 | ) |
| Change in fair value                  |       |                                 |       |          |       |                 |       |             | 246,760    |   |   | 246,760 |   |
| Balance as of  December 31, 2003 |       | 26,905,242                           |       |          | 6.1        | %                    |       |             |       |   |   | 479,040 |   |
| Change in fair value                  |       |                                 |       |          |       |                 |       |             | (127,158   | ) |   | (127,158 | ) |
| Balance as of December 31,  2004 |       | 26,905,242                           |       |          | 6.1        | %                    |       |             |       |   |   | 351,882 |   |
| Change in fair value                  |       |                                 |       |          |       |                 |       |             | (63,356    | ) |   | (63,356 | ) |
| Balance as of December 31, 2005  |       | 26,905,242                           |       |          | 6.1        | %                    |       |             |       |   |   | 288,526 |   |

----

*(i)**              Numberof shares has been adjusted for the 3:1 stock split that occurred on May 23,2005.*

**Tele2 is a leading alternativepan-European telecom operator providing fixed and mobile telephony, internetservices, data network, cable TV and content services. Tele2 is listed on theStockholmsbörsen.**

**The Tele2 shares underlying the 5%Mandatory Exchangeable Notes have been lent by Millicom Telecommunications S.A.to Deutsche Bank A.G. London pursuant to a securities lending arrangement.Deutsche Bank A.G. London may sell or on-lend such Tele2 shares under thesecurities lending agreement. Deutsche Bank A.G. London is contractuallyrequired to deliver to Millicom Telecommunications S.A. such Tele2 shares uponrequisite notice to Deutsche Bank A.G. London by Millicom TelecommunicationsS.A., if (1) Millicom Telecommunications S.A. requires such Tele2 sharesto satisfy its obligations from time to time to deliver Tele2 shares uponexchange of the 5% Mandatory Exchangeable Notes by the noteholders or (2) specifiedbankruptcy-related events with respect to Deutsche Bank A.G. London or defaultsin the performance by Deutsche Bank A.G. London of its obligations under thesecurities lending agreement have occurred. Millicom Telecommunications S.A. isobligated to deliver Tele2 shares upon exchange of the 5% MandatoryExchangeable Notes even in the event of a failure of Deutsche Bank A.G. Londonto redeliver to Millicom Telecommunications S.A. the Tele2 shares. MillicomTelecommunications S.A.’s obligation in respect to delivery of those shares hasnot been guaranteed by the Group. Millicom Telecommunication S.A. has pledged26,905,200 of the 26,905,242 Tele2 shares (2004: 26,905,200) for a fair valueof $288.5 million (2004: $351.9 million) in order to settle the exchange of the5% Mandatory Exchangeable Notes in Tele2 shares.**

**In2005, Tele2 distributed a dividend of approximately $0.22 (SEK 1.67) per share(2004: $0.13 (SEK 1.00) which was directly paid to the holders of the 5%Mandatory Exchangeable Notes.**

**14.   FINANCIALASSETS AVAILABLE FOR SALE**

As of December 31,2005 and 2004, Millicom had the following financial assets available for sale:

| ** **            | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|-----------------------|------------|------------------------|------------|------------------------|------------|
| ** **            | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Modern Holdings(i)    |       |                   | 6,258      |                   |       |   | 2,950 |   |   |
| Other investments(ii) |       |                   | 49         |                   |       |   | 61 |   |   |
|                  |       |                   | 6,307      |                   |       |   | 3,011 |   |   |

----

*(i)**              ModernHoldings Inc. and Great Universal Inc*

F-47

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                       Cellular S.A**

*(ii)**           $12thousand of investments were disposed of in 2005 for $nil gain.*

The Group has an ownership of 64.3% of the sharecapital of Modern Holdings Inc. (“Modern Holdings”) (note 36). This investmentis recorded as a non-current available-for-sale financial asset. The shares ofModern Holdings are not quoted on a public market. In 2005, managementdetermined the fair value of the investment to be $6.3 million (2004: $3.0million) and recognised a fair value adjustment of $3.3 million in equity(2004: $nil) under the caption “Revaluation reserve”. The fair value wasdetermined by using a discounted cash flow valuation. This involves the use ofprojected cash flows of sales, expenses and capital expenditures over fiveyears and the determination of a terminal value.

The Group also owns 100% of Great Universal Inc. (“GU”),which is a dormant group of companies. Therefore, the fair value of GU wasestimated by management at $nil.

Millicom does not consolidate its investments inModern Holdings and GU as due to the existence of warrants, enabling thewarrant holders to obtain control over Modern Holdings and GU, Millicom doesnot control or have significant influence over these companies. The warrantswill expire six months after the date a registration statement of GU isdeclared effective by the U.S. Securities and Exchange Commission.

In addition, the Groupholds other available-for-sale securities for a total fair value of $0.1million as of December 31, 2005 (2004: $0.1 million).

**15.   FINANCIALASSETS HELD TO MATURITY**

As of December 31,2005 and 2004, Millicom held the following financial assets held to maturity:

| ** **           | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|----------------------|------------|------------------------|------------|------------------------|------------|
| ** **           | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Non-current          |       |                   |       |                   |       |   |   |   |   |
| U.S. Treasury strips |       |                   | —     |                   |       |   | 7,529 |   |   |
|                 |       |                   | —     |                   |       |   | 7,529 |   |   |
| Current              |       |                   |       |                   |       |   |   |   |   |
| U.S. Treasury strips |       |                   | 7,687      |                   |       |   | 15,327 |   |   |
|                 |       |                   | 7,687      |                   |       |   | 15,327 |   |   |

 

On August 7, 2003, $45.3 million of the netproceeds of the 5% Mandatory Exchangeable Notes was used to purchase U.S.Treasury strips, with a nominal amount of $46.5 million to provide for paymentof the interest under the 5% Mandatory Exchangeable Notes.

As of December 31,2005, the fair value of the U.S. Treasury strips was $7.7 million (2004: $22.9million). The outstanding U.S. Treasury strips, which have an effectiveinterest rate of 2.12%, mature on May 15, 2006.

F-48

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                       Cellular S.A**

**16.   DERIVATIVES ARISING FROM BUSINESSCOMBINATIONS**

Millicom or its partnershave agreements to purchase or sell interests in certain operations accordingto fixed conditions. These agreements qualify as derivatives under theprescribed accounting treatment in IAS 39. Details of the agreements aredescribed as follows:

***ExpressTelecommunications Co. Inc***

As part of the saleagreement for Express Telecommunications Co. Inc. (“Extelcom”), Millicom’soperation in the Philippines, signed in December 2002, Millicom wasgranted, for the price of $1, the option to purchase 47.9% of the issued sharecapital of Extelcom at various prices up to ten years after issuance. Theexercise price is $1.0 million if exercised within 12 months of the saleagreement increasing by an additional $1.0 million for each year afterwards. Ifexercised between five and ten years after the option is issued, the purchaseprice is $8.0 million. In November 2005 Millicom sold this option andother receivables which had been fully written down for a price of $4.0 millionrealising a gain of $4.0 million which is recorded under the caption “Otheroperating income”.

***Ghana***

*In June 2002,Millicom issued a call option to a former shareholder. The option allows theholder to reacquire the 30% equity stake which he sold to Millicom in 2002. Theoption was exercisable from June 2005 to June 2007 at an exerciseprice of $190,000. In December 2005, Millicom bought the option from theshareholder for an amount of $20.0 million. This amount is entirely recognisedas goodwill, as the purchase of the option represents, in substance, theacquisition of the economic benefits associated with the 30% minority interestand at the date of the purchase of the option by Millicom, Millicom GhanaLimited had negative shareholders’ equity (see note 4).*

***Iran***

Millicom has an option toacquire an equity ownership of the company that operates the network in Iranfrom Rafsanjan Industrial Complex (“RIC”) at book value. Between February 9,2004 and February 9, 2007 Millicom can acquire up to 47% of the equity.After that date and until February 9, 2009, Millicom has the right toacquire an additional 30% of the equity in addition to any shares acquired beforethat date, provided that the total percentage acquired never exceeds 47%.Currently RIC pay 57% of revenues generated by its network toTelecommunications Company of Iran (“TCI”) the national incumbent fixed-lineoperator. Millicom intends to exercise the option if RIC can obtain afavourable interconnect arrangement from TCI. As of December 31, 2005, thefair value of the option is $0.8 million (2004: $1.1 million) and isrecorded under the caption “Other current assets”. The fair value of the optionwas determined by using a Black-Scholes model.

**17.   INVENTORIES**

| ** **  | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|-------------|------------|------------------|------------|------------------|------------|
| ** **  | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| Inventories | ** ** |             | 16,369     |             |       |   | 16,304 | ** ** |   |
|             |            |                  |            |                  |            |  |  |  |  |

 

**Inventoriesconsist of mobile telephone equipment and related accessories.**

**During2005, the amount of inventories written down and recognised as expensesamounted to $1.3 million (2004: $2.2 million). This expense is included in“Cost of sales”.**

The Group reversed $0.1million (2004: $0.1 million) of previous impairment of inventories.

F-49

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

**18.   TRADE RECEIVABLES**

| ** **                                      | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|-------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                      | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| Gross trade  receivables                        | ** ** | 139,402          |       | 178,656          | ** ** |
| Less: provisions  for impairment of receivables | ** ** | (30,237          | )          | (36,684          | )          |
| **Trade receivables, net**                      | ** ** | 109,165          |       | 141,972          | ** ** |

 

**There is no significantconcentration of credit risk with respect to trade receivables, as the Grouphas a large number of customers, internationally dispersed.**

**TheGroup has recognised a provision for $8.1 million (2004: $13.2 million) for theimpairment of its trade receivables during the year ended December 31,2005. The Group has used provisions for impaired receivables of $7.8 millionduring the year ended December 31, 2005 (2004 $13.5 million). Additionalprovisions and reversals of existing provisions for impaired receivables havebeen included in “Cost of sales” in the consolidated statements of profit andloss.**

**19.   OTHERCURRENT ASSETS**

Othercurrent assets are comprised as follows:

| ** **                   | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                   | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Receivable from  VMS, net(i) |       |                   | 17,332     |                   |       |   | 32,156 |   |   |
| Advances paid to suppliers   |       |                   | 21,152     |                   |       |   | 4,330 |   |   |
| Iran option (see  Note 16)   |       |                   | 785        |                   |       |   | 1,097 |   |   |
| Other                        |       |                   | 13,527     |                   |       |   | 12,315 |   |   |
|                         |       |                   | 52,796     |                   |       |   | 49,898 |   |   |

----

(i)             Thisreflects the net receivable under the revenue sharing agreement in Vietnam(note 3).

**20.   PLEDGEDDEPOSITS**

Pledged deposits represent interest bearing collateralfor certain debts of Group companies (Note 26).

The effective interestrate on pledged deposits as at December 31, 2005 was 2.12% (2004: 1.98%).

**21.   TIMEDEPOSITS**

Time deposits as of December 31, 2005 of $0.1 million(2004: $0.6 million) represent cash deposits with banks, remunerated at marketinterest rates. They have original maturity periods of between three to twelvemonths.

As of December 31,2005, the effective interest rate on time deposits was approximately 1.2%(2004: 1.1%).

F-50

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

**22.   CASH ANDCASH EQUIVALENTS**

Cashand cash equivalents are comprised as follows:

| ** **                                     | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Cash and cash  equivalents in U.S. dollars     |       | 481,437                |       | 354,237                |       |
| Cash and cash  equivalents in other currencies |       | 115,130                |       | 59,144                 |       |
|                                           |       | 596,567                |       | 413,381                |       |

 

**23.   SHARECAPITAL**

**On February 16,2004 an extraordinary general meeting of shareholders approved a stock split ofthe issued shares of the Company, by which each share with a par value of $6was split into four new ordinary shares with a par value of $1.50 each. Thestock split became effective on February 20, 2004. All figures in thisnote have been updated to reflect the stock split for all years presented.**

***Share capital and share premium***

The authorised share capital of the Company totals133,333,200 registered shares. As at December 31, 2005, the totalsubscribed and fully paid-in share capital and premium amounts $465.2 million(2004: $513.8 million) consisting of 99,703,598 (2004: 99,219,079) registeredcommon shares at a par value of $1.50 (2004: $1.50) each.

In 2005, the Company issued 484,519 (2004: 669,040)shares following the exercise of stock options by employees and directors ofMillicom.

At the Company’s Annual General Meeting in May 2005,the shareholders voted to decrease the statutory accumulated losses broughtforward by a total amount of $52.6 million through a transfer of the sameamount from the share premium account.

In the fourth quarter of 2004, the Company raised$209.2 million in equity through the offering of 9,000,000 shares (the shareoffering) in the form of ordinary shares or Swedish Depository Receipts (SDRs).The shares were issued at a price of $23.24. The net proceeds from the shareoffering were $203.1 million.

In May 2003, theCompany issued convertible notes (the “2% PIK Notes”) which were convertibleinto 23,639,108 common shares. In 2003, the Company issued 349,760 commonshares to holders of the 2% PIK Notes who converted their notes. From January 1,2004 to April 26, 2004, holders of the 2% PIK Notes converted an aggregateamount of $62.4 million of the notes into 23,230,099 common shares of theCompany. The outstanding 2% PIK Notes which were not converted were redeemed incash on April 26, 2004 for an amount of $0.2 million.

***Treasury stock***

As a result of the Merger (Note 1), 28,862,794 sharesof Millicom’s common shares, previously held by Millicom Inc., were held bysubsidiaries of the Company, and accounted for as treasury stock forconsolidation reporting purposes. In February 2003, an ExtraordinaryGeneral Meeting of Millicom passed a resolution approving the reduction of$43.3 million of the share capital of the Company by means of the cancellationof the 28,862,794 shares with a par value of $1.50 each.

F-51

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

In 2003, Millicom granted 177,428 shares from its holdingof treasury stock to Kinnevik International AB as final payment on the partialacquisition in 1995 of Multinational Automated Clearing House S.A (“MACH”), acompany providing clearing services for international roaming.

As of December 31,2005, the total number of treasury shares held was 654,852 (2004: 654,852).

***Share options***

Share options are granted to directors, seniorexecutives, officers and selected employees. The exercise price of the grantedoptions is equal to or higher than the market price of the shares on the dateof grant. Options are conditional on the employee or Director completing one tofive years service (the vesting period). The options are exercisable startingfrom one year to three years from the grant date. The options have a contractualoption term of six years from the grant date for employees and from 2005, oftwenty years for directors. Share options grants for directors before 2005 hadan indefinite life. Shares issued when stock options are exercised benefit fromthe same rights as common shares.

Thefollowing table summarizes information about stock options outstanding at December 31,2005. The market price of the Company’s shares as at December 31, 2005 was$26.84 (2004: $22.73)

| ** **                                        | ** ** | **Options outstanding** | ** ** | **Options exercisable**               | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|--------------------------------------------|------------|
| **Range of exercise price $** | ** ** | ** **                   | ** ** | **Weighted  average  exercise price** | ** ** | **Number  outstanding at  December 31, 2005** | ** ** | **Weighted  average  exercise price** | ** ** | **Number  outstanding at  December 31, 2005** | ** ** |
| 3.32–3.75                                    |       |                         | 3.41       |                                       |       |   | 1,099,515 |   |   |   | 3.47 |   |   |   | 687,558 |   |   |
| 9.00                                              |       |                         | 9.00       |                                       |       |   | 604,892 |   |   |   | 9.00 |   |   |   | 604,892 |   |   |
| 16.78–20.56                                  |       |                         | 20.26      |                                       |       |   | 1,040,632 |   |   |   | 19.53 |   |   |   | 306,392 |   |   |
| 25.05–29.75                                  |       |                         | 25.58      |                                       |       |   | 583,480 |   |   |   | 26.36 |   |   |   | 238,936 |   |   |
| 31.88–35.91                                  |       |                         | 32.33      |                                       |       |   | 483,868 |   |   |   | 32.33 |   |   |   | 483,868 |   |   |
| **3.32**–**35.91**                           |       |                         | 15.96      |                                       |       |   | 3,812,387 |   |   |   | 15.40 |   |   |   | 2,321,646 |   |   |
|                                                   |            |                              |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-52

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

Shareoptions outstanding at the end of the year have the following expiry date andexercise prices:

| **Date issued**                                                                                                                                                                                     | ** ** | ** ** | ** ** | **Number of  options** | ** ** | **Exercise price  $ **                                                                                                                                                                                                     | ** ** | **Terms of option** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|
| May 1994,  May 1995, May 1996,May 1997, January 1998, May 1998, August 1999,  May 2000, December 2001, December 2002, May 2003 and  May 2004 |       | 1,992,158  |       | 3.32 - 35.91                |       | Exercisable over a  three-year period in equal installments. Options have an indefinite life.                                                                                                                                        |
| May 2005                                                                                                                                                                                            |       | 200,000    |       | 20.56                       |       | Exercisable over  a three-year period in equal installments. Options have a twenty year life.                                                                                                                                        |
| December 2001,  December 2002,  May 2003 and May 2004                                                                                                                           |       | 935,449    |       | 3.32 - 25.05                |       | Exercisable over  a three-year period in equal installments. Options expire after six years  from date of grant.                                                                                                                     |
| May 2005                                                                                                                                                                                            |       | 484,240    |       | 20.56                       |       | Exercisable over  a five year period (1/5 vested after one year, 2/5 vested after two years,  3/5 vested after 3 years, 4/5 vested after four years, 100% vested after 5  years). Options expire after six years from date of grant. |
| May 2000, June 2000 and July 2005                                                                                                                                                         |       | 200,540    |       | 20.56  - 31.88              |       | Exercisable over a  five-year period (1/3 vested after three years, 2/3 vested after four years,  100% vested after five years). Options expire after six years from date of  grant.                                                 |

 

**Thefollowing table summarizes the Company’s stock options as of December 31,2005, 2004 and 2003, and changes during the years then ended.**

| ** **                            | ** ** | **2005**                                                    | ** ** | **2004**                          | ** ** | **2003**                                                    | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                            | ** ** | **Average  exercise  price in $  per share** | ** ** | **Number of   options** | ** ** | **Average  exercise  price in $  per share** | ** ** | **Number of   options** | ** ** | **Average  exercise  price in $  per share** | ** ** | **Number of   options** | ** ** |
| **Outstanding  at beginning of year** |       |                                                        | 15.56      |                              |       | 4,127,547                                                   |       |   | 13.26 |   |   | 4,520,808 |   |   | 18.63 |   |   | 4,221,004 |   |
| Granted                               |       |                                                        | 20.56      |                              |       | 740,740                                                     |       |   | 25.05 |   |   | 540,015 |   |   | 3.32 |   |   | 1,320,500 |   |
| Forfeited                             |       |                                                        | 26.09      |                              |       | (571,381                                                    | )          |   | 23.68 |   |   | (264,236 | ) |   | 22.64 |   |   | (1,020,696 | ) |
| Exercised                             |       |                                                        | 7.39       |                              |       | (484,519                                                    | )          |   | 4.29 |   |   | (669,040 | ) |   | — |   |   | — |   |
| **Outstanding  at end of year**       |       |                                                        | 15.96      |                              |       | 3,812,387                                                   |       |   | 15.56 |   |   | 4,127,547 |   |   | 13.26 |   |   | 4,520,808 |   |
| **Exercisable  at end of year**       |       |                                                        | 15.40      |                              |       | 2,321,646                                                   |       |   | 18.56 |   |   | 2,451,508 |   |   | 23.61 |   |   | 1,880,852 |   |

 

F-53

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

**The range of fair value of optionsgranted during the year determined using option pricing models was $2.76 to$8.63 (2004: $4.14 to $8.77, 2003: $2.09 to $2.22). The significant inputs intothe model were share price of $17.88 (2004: $22.77, 2003: $3.32) at the grantdate, exercise price as disclosed above, expected exercise date based onprevious exercise behaviour for employees and for directors between 1 and 20years, option contractual term as previously disclosed, annual risk-freeinterest rate of 3.74% (2004: 2.16% and 4.12%, 2003: 1.25% and 2.08%) andexpected share price volatility of 46.5%,(2004: 47.1%, 2003: 117.3%) based onstatistical analysis of daily share prices over the last 2 years amended forthe change in the debt levels of the Company over the same period of time.**

For the year ended December 31,2005, Millicom recorded a charge to the consolidated statements of profit andloss of $3.1 million for stock based compensation under the caption “Generaland administrative expenses” (2004: $1.9 million, 2003: $0.4 million).

***4% Notes—equity component***

In January 2005, Millicom raised$200.0 million aggregate principal amount of 4% Convertible Notes due 2010(the “4% Convertible Notes”). The net proceeds of the offering were paid andsettled on January 7, 2005 in the amount of $195.9 million.

Millicom has apportionedpart of the value of the 4% Convertible Notes to equity and part to debt. Thevalue allocated to equity as of December 31, 2005 was $39.1 million.

**24.**   OTHER RESERVES

| ** **                                         | ** ** | **Legal  reserve** | ** ** | **Equity-  settled  transaction  reserve** | ** ** | **Equity  component  convertible  notes** | ** ** | **Currency  translation  reserve** | ** ** | **Revaluation  reserve** | ** ** | **Total**        | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|------------------------------------|------------|--------------------------|------------|------------------|------------|
| ** **                                         | ** ** | **US$’000**   | ** ** | **US$’000**                           | ** ** | **US$’000**                          | ** ** | **US$’000**                   | ** ** | **US$’000**         | ** ** | **US$’000** | ** ** |
| **As at January 1, 2003**                     |       |               | 4,256      |                                       |       |                                      | 2          |                               |       |                     | —     |             |       |   | (84,121 | ) |   |   | — |   |   | (79,863 | ) |
| Issuance of 2% PIK  Notes—equity component    |       |               | —     |                                       |       |                                      | —     |                               |       |                     | 16,248     |             |       |   | — |   |   |   | — |   |   | 16,248 |   |
| Conversion of 2% PIK  Notes                        |       |               | —     |                                       |       |                                      | —     |                               |       |                     | (242       | )                |       |   | — |   |   |   | — |   |   | (242 | ) |
| Share based compensation                           |       |               | —     |                                       |       |                                      | 443        |                               |       |                     | —     |             |       |   | — |   |   |   | — |   |   | 443 |   |
| Currency translation  movement                     |       |               | —     |                                       |       |                                      | —     |                               |       |                     | —     |             |       |   | 14,923 |   |   |   | — |   |   | 14,923 |   |
| **As at December 31, 2003**                   |       |               | 4,256      |                                       |       |                                      | 445        |                               |       |                     | 16,006     |             |       |   | (69,198 | ) |   |   | — |   |   | (48,491 | ) |
| Transfer from  accumulated profit and loss account |       |               | 9,321      |                                       |       |                                      | —     |                               |       |                     | —     |             |       |   | — |   |   |   | — |   |   | 9,321 |   |
| Conversion/redemption of  2% PIK Notes             |       |               | —     |                                       |       |                                      | —     |                               |       |                     | (16,006    | )                |       |   | — |   |   |   | — |   |   | (16,006 | ) |
| Share based compensation                           |       |               | —     |                                       |       |                                      | 1,852      |                               |       |                     | —     |             |       |   | — |   |   |   | — |   |   | 1,852 |   |
| Currency translation  movement                     |       |               | —     |                                       |       |                                      | —     |                               |       |                     | —     |             |       |   | (1,918 | ) |   |   | — |   |   | (1,918 | ) |
| **As at December 31, 2004**                   |       |               | 13,577     |                                       |       |                                      | 2,297      |                               |       |                     | —     |             |       |   | (71,116 | ) |   |   | — |   |   | (55,242 | ) |
| Fair value adjustment                              |       |               | —     |                                       |       |                                      | —     |                               |       |                     | —     |             |       |   | — |   |   |   | 3,308 |   |   | 3,308 |   |
| Shares issued via the  exercise of stock options   |       |               | —     |                                       |       |                                      | (462       | )                                  |       |                     | —     |             |       |   | — |   |   |   | — |   |   | (462 | ) |
| Share based compensation                           |       |               | —     |                                       |       |                                      | 3,075      |                               |       |                     | —     |             |       |   | — |   |   |   | — |   |   | 3,075 |   |
| 4% Convertible Notes—equity  component        |       |               | —     |                                       |       |                                      | —     |                               |       |                     | 39,109     |             |       |   | — |   |   |   | — |   |   | 39,109 |   |
| Currency translation  movement                     |       |               | —     |                                       |       |                                      | —     |                               |       |                     | —     |             |       |   | (5,005 | ) |   |   | — |   |   | (5,005 | ) |
| **As at December 31, 2005**                   |       |               | 13,577     |                                       |       |                                      | 4,910      |                               |       |                     | 39,109     |             |       |   | (76,121 | ) |   |   | 3,308 |   |   | (15,217 | ) |

 

F-54

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

***Legalreserve***

On an annual basis, if theCompany reports a net profit for the year on a non-consolidated basis,Luxembourg law requires appropriation of an amount equal to at least 5% of theannual net profit to a legal reserve until such reserve equals 10% of theissued share capital. This reserve is not available for dividend distribution.

***Equity-settled transaction reserve***

The cost of stock optionsis recognised as an increase in the Equity-settled transaction reserve, overthe period in which the performance and /or service conditions are fulfilled.If the options are subsequently exercised then the cost attributed to theseoptions is transferred from the Equity-settled transaction reserve to the Sharepremium.

***Equity component convertible notes***

The portion of aconvertible bond representing the fair value of the conversion option at thetime of issue is included in equity (see note 26).

***Currency translation reserve***

For the purposes ofconsolidating joint ventures and subsidiaries with functional currencies otherthan U.S. dollars, their balance sheets are translated to U.S. dollars usingthe closing exchange rate. Profit and loss accounts are translated to U.S.dollars at the average exchange rates during the year. The currency translationreserve includes foreign exchange gains and losses arising from the translationof financial statements.

***Revaluation reserve***

The Group has recognisedunder the caption “Revaluation reserve” in equity an amount of $3.3 millionas result of a fair value adjustment of its investment in Modern Holding Inc.,which is classified as available for sale (note 14).

**25.**   OTHERNON-CURRENT LIABILITIES AND OTHER CURRENT LIABILITIES

Other non-current liabilities are mainly comprised ofthe unpaid portion of license fees of Paktel Limited and Millicom (Ghana) Ltd.amounting to $150.7 million as of December 31, 2005 (2004: $187.6 million).Included in other non-current liabilities are asset retirement obligations of$3.5 million (2004: $2.2 million).

Othercurrent liabilities are comprised as follows:

| ** **                      | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                      | ** ** | **US$’000** | ** ** | **US$’000** | ** ** |
| Deferred revenues               |       | 49,713           |       | 44,755           |       |
| Subscriber deposits             |       | 4,813            |       | 5,368            |       |
| Unpaid portion of  license fees |       | 48,760           |       | 32,347           |       |
| Provisions                      |       | 3,806            |       | 3,800            |       |
| Asset retirement  obligations   |       | 700              |       | —           |       |
| Other                           |       | 31,024           |       | 14,270           |       |
|                            |       | 138,816          |       | 100,540          |       |

 

F-55

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**26.   BORROWINGS**

**Borrowingsare comprised of the following:**

| ** **                                              | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                              | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| 10% Senior  Notes(b)                                    |       | 537,599                |       | 536,629                |       |
| 4% Convertible  Notes—debt component(c)            |       | 163,284                |       | —                 |       |
| 5% Mandatory  Exchangeable Notes—debt component(d) |       | 315,359                |       | 365,006                |       |
| Other Debt and  Financing(e)                            |       | 216,381                |       | 212,778                |       |
| Total borrowings                                        |       | 1,232,623              |       | 1,114,413              |       |

 

*Borrowings due after more than one year:*

| ** **                                                   | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                   | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Corporate debt at  amortized cost                            |       |                   |       |                   |       |
| 10% Senior Notes(b)                                          |       | 537,599                |       | 536,629                |       |
| 4% Convertible Notes—debt component(c)                  |       | 163,284                |       | —                 |       |
| 5% Mandatory Exchangeable Notes—debt component(d)       |       | —                 |       | 365,006                |       |
|                                                         |       | 700,883                |       | 901,635                |       |
| Other debt and  financing:                                   |       |                   |       |                   |       |
| Equipment financing facilities                               |       | 7,315                  |       | 6,370                  |       |
| Bank financing facilities                                    |       | 148,664                |       | 152,893                |       |
| Total non-current other debt and financing                   |       | 155,979                |       | 159,263                |       |
| Less: portion  payable within one year                       |       | (35,938                | )          | (34,996                | )          |
| Total other debt  and financing due after more than one year |       | 120,041                |       | 124,267                |       |

 

*Borrowings due within one year:*

| ** **                                             | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|--------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                             | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Corporate debt at  amortized cost                      |       |                   |       |                   |       |   |   |
| 5% Mandatory Exchangeable Notes—debt component(d) |       | 315,359                |       |                   | —     |   |   |
| Other debt and  financing(e):                          |       |                   |       |                   |       |   |   |
| Bank financing facilities                              |       | 60,402                 |       |                   | 53,515     |   |   |
| Total current other debt and financing                 |       | 375,761                |       |                   | 53,515     |   |   |
| Portion of  non-current debt payable within one year   |       | 35,938                 |       |                   | 34,996     |   |   |
| Total other debt  and financing due within one year    |       | 411,699                |       |                   | 88,511     |   |   |

 

***Company borrowings***

As of December 31, 2005, Millicom’s share of thecarrying amount of total pledged assets held by operating entities securingGroup debt and financing was $193.7 million (2004: $267.4 million) includingpledged deposits for $3.2 million (2004: $10.5 million).

F-56

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

The carrying amount ofpledged assets held by non-operating entities at December 31, 2005securing Group debt and financing was $346.5 million (2004: $399.0 million)represented by Tele2 shares, pledged deposits and pledged US Treasury strips(note 15). Millicom pledged 26,905,200 Tele2 AB series B shares (2004:26,905,200) for a fair value of $288.5 million (2004: $351.9 million) in orderto settle the exchange of the 5% Mandatory Exchangeable Notes in Tele2 ABshares. Furthermore, U.S. treasury strips amounting to $7.7 million (2004:$22.9 million) are recorded under the caption “Financial assets held tomaturity” non-current and current. An amount of $7.7 million (2004: $7.7million) was held as pledged deposits in current assets until settlement of thepayment of the interest on the 5% Mandatory Exchangeable Notes in February 2006.The total amount of pledged deposits held by non-operating entities totaled$50.3 million (2004: $24.3 million). $39.3 million (2004: $13.2 million) ofthese pledged deposits covered outstanding standby letters of credit issued bya bank in order to secure debt and financing granted to the operations and $3.0million (2004: $3.0 million) represented cash deposited as security for a loangranted to an operating entity by Bank Invik (see note 36).

***10%*** senior Notes

On November 24, 2003, Millicom issued $550.0million aggregate principal amount of 10% Senior Notes (the “10% Senior Notes”)due on December 1, 2013. The 10% Senior Notes bear interest at 10% perannum, payable semi-annually in arrears on June 1 and December 1,beginning on June 1, 2004. The effective interest rate is 10.4%.

The 10% Senior Notes are general unsecured obligationsof Millicom and rank equal in right of payment with all future unsecured andunsubordinated obligations of Millicom. The 10% Senior Notes are not guaranteedby any of Millicom’s subsidiaries or affiliates, and as a result arestructurally subordinated in right of payment to all indebtedness of suchsubsidiaries and affiliates.

Due to the fact that the registration statement of the10% Senior Notes was not declared effective by the U.S. Securities and ExchangeCommission before May 23, 2004, a special interest charge was added to theinterest rate of 10%, of 0.25% from May 23, 2004 to August 20, 2004,of 0.5% from August 21, 2004 to November 18, 2004, of 0.75% from November 19,2004 to February 16, 2005 and of 1% from February 17, 2005 until March 2,2005, the date the registration statement was declared effective.

Other than out of the proceeds of certain publicequity offerings prior to December 1, 2006, or for certain tax reasons,Millicom may not redeem the 10% Senior Notes prior to December 1, 2008. Onor after December 1, 2008, Millicom may redeem all or a portion of the 10%Senior Notes at prices ranging from 105% to 100%.

If Millicom experiences a Change of Control TriggeringEvent, defined as a rating decline and a change in control, each holder willhave the right to require Millicom to repurchase its notes at 101% of theirprincipal amount plus accrued and unpaid interest and all other amounts due, ifany.

The indenture containscertain covenants that, among other things, limit Millicom’s ability to incuradditional indebtedness, make certain payments, including dividends or otherdistributions, with respect to Millicom’s share capital and the share capitalof Millicom’s subsidiaries, make certain investments, prepay subordinated debt,create certain liens, engage in certain transactions with affiliates, engage incertain asset sales, consolidate, merge or transfer all or substantially allMillicom’s assets and enter into other lines of business. Certain of thesecovenants will no longer apply if the 10% Senior Notes are rated above acertain level by the rating agencies or if Millicom meets certain financialcriteria after three years following their issuance date.

F-57

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***4% convertible Notes***

In January 2005, Millicom raised$200.0 million aggregate principal amount of 4% Convertible Notes due 2010(the “4% Convertible Notes”). The net proceeds of the offering were paid andsettled on January 7, 2005 in the amount of $195.9 million.

The 4% Convertible Notes are direct, unsecuredobligations of Millicom. The rate of interest payable on the 4% ConvertibleNotes is 4% per annum. Interest is payable semi-annually in arrears on January 7and July 7 of each year, beginning on July 7, 2005. The effectiveinterest rate is 9.8%.

Unless previously redeemed or converted, the 4%Convertible Notes will be redeemed on January 7, 2010 at their principalamount. Each note will entitle the holder to convert such note into shares orSwedish Depository Receipts of Millicom at a conversion price of $34.86 pershare at any time on or after February 17, 2005 and up to December 28,2009. As of December 31, 2005, none of the 4% Convertible Notes have beenconverted into ordinary shares.

If Millicom experiences a change of control, duringthe 60 days period following such change of control, each note will entitle theholder to convert such note into shares or Swedish Depository Receipts ofMillicom at a conversion price ranging from $25.56 to $34.86 per share.

If Millicom experiences a Change of Control TriggeringEvent, defined as a rating decline and a change in control, each holder willhave the right to require Millicom to redeem its notes at their principalamount plus accrued and unpaid interest and all other amounts due, if any.

The 4% Convertible Notes were constituted by a trustdeed dated January 7, 2005 between Millicom and The Bank of New York, asTrustee for the holders of notes.

Millicom has apportionedpart of the value of the 4% Convertible Notes to equity and part to debt. Thevalue allocated to equity as of December 31, 2005 was $39.1 million andthe value allocated to debt was $163.3 million.

***5% Mandatory Exchangeable Notes***

On August 7, 2003, Millicom Telecommunications S.A.,Millicom’s wholly-owned subsidiary, issued for an aggregate value of SEK2,555,994,000 (approximately $310 million on that date) Mandatory ExchangeableNotes (the “5% Mandatory Exchangeable Notes”), which are exchangeable intoTele2 AB series B (“Tele2”) shares. The 5% Mandatory Exchangeable Notes may beexchanged either voluntarily at the option of the noteholders or mandatorily byMillicom Telecommunications S.A. as described below. The 5% MandatoryExchangeable Notes will be exchangeable for an aggregate of up to 26,905,200Tele2 AB series B shares (note 13) which Millicom holds through MillicomTelecommunications S.A.. The number of Tele2 shares that MillicomTelecommunications S.A. is obligated to deliver is based on a formula thattakes into account the market price of the Tele2 shares prior to any exchange. Underthe formula, Millicom Telecommunications S.A. could retain up to approximately23% of the 26,905,200 Tele2 AB series B shares. This maximum % corresponds to a30% increase in value of the Tele2 shares over the designated reference priceof SEK 95 per share. As a result, on August 7, 2006 or earlier if all ofthe 5% Mandatory Exchangeable Notes have been redeemed and exchanged prior tothat date, Millicom Telecommunications S.A. could own up to approximately 23%of the 26,905,200 Tele2 AB series B shares underlying the 5% MandatoryExchangeable Notes.

The 5% Mandatory Exchangeable Notes may be exchangedvoluntarily at the option of the noteholders at any time during the periodcommencing on September 17, 2003 and ending on the 25th 

F-58

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

trading day prior to August 7,2006, which is expected to be July 11, 2006. In addition, the 5% MandatoryExchangeable Notes may be exchanged voluntarily at the option of the holder inthe event of certain changes in tax laws and in the event of a takeover offerin respect of Tele2 AB. Dividends, if any, paid by Tele2 AB would be attributedto the 5% Mandatory Exchangeable Notes holders.

Unless otherwise previously redeemed and exchanged orpurchased and cancelled, each 5% Mandatory Exchangeable Note will bemandatorily exchanged by Millicom Telecommunications S.A. on August 7,2006.

The 5% Mandatory Exchangeable Notes bear interest onthe U.S. dollar equivalent amount of each note at a rate of 5% per annumpayable semi-annually on February 7 and August 7 of each year. Theeffective interest rate is 8.45%. As of December 31, 2005, the carryingamount of the 5% Mandatory Exchangeable Notes net of unamortized financing feeswas $315.4 million (2004: $365 million). In 2005, an exchange gain of $60.6million (2004: exchange loss of $27.6 million, 2003: exchange loss of $41.8million) was recognised on the 5% Mandatory Exchangeable Notes.

The 5% Mandatory Exchangeable Notes are secured by26,905,200 Tele2 shares. In 2003, as part of the financing, Millicom purchasedU.S. treasury strips with a nominal value of $46.5 million which are used tosettle the interest payments (note 15). Millicom Telecommunications S.A.’sobligations in respect of the interest payments of the 5% MandatoryExchangeable Notes are secured by U.S. Treasury strips and are guaranteed byMillicom. Whilst there are Notes or interest outstanding MillicomTelecommunications S.A. will not pledge, transfer, lend or sell any of thesecured Tele2 shares or U.S. Treasury strips.

The 5% MandatoryExchangeable Notes include an embedded derivative, which is valued separately.The embedded derivative, which reflects Millicom’s limited right to participatein the increase in value of the Tele2 shares, is recorded at fair value, takinginto account time and volatility factors. As of December 31, 2005, thefair value of the embedded derivative was an asset of $39.3 million (2004: anasset of $45.3 million), with the change in fair value for the year ended December 31,2005 a loss of $6.0 million (2004: a gain of $148.8 million, for the periodfrom August 7, 2003 to December 31, 2003: a loss of $84.6 million)recorded under the caption “Fair value result on financial instruments”.

*$100 million creditfacility*

On June 29, 2005 Millicom InternationalOperations B.V., Millicom’s wholly-owned subsidiary entered into a $100 millionrevolving credit facility ( the”$100 million facility”) for a one year periodwith a term out option of an additional year. This facility has been guaranteedby Millicom.

The $100 million facility bears interest at LIBOR plus2.5% and has a commitment fee of 1% on any undrawn balance. As at December 31,2005 there had been no drawdowns on this facility.

F-59

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***OtherDebt and Financing***

Millicom’sshare of total other debt and financing analyzed by country is as follows:

| ** **                      | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|---------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Bolivia(i)                      |       | 18,560                 |       | 26,722                 |       |
| El Salvador(ii)                 |       | 35,556                 |       | 40,000                 |       |
| Ghana(iii)                      |       | 11,533                 |       | —                 |       |
| Guatemala(iv)                   |       | 14,473                 |       | 22,694                 |       |
| Honduras(v)                     |       | 13,747                 |       | 1,257                  |       |
| Pakistan(vi)                    |       | 46,820                 |       | 31,000                 |       |
| Paraguay(vii)                   |       | 13,406                 |       | 17,693                 |       |
| Senegal(viii)                   |       | 12,605                 |       | 18,236                 |       |
| Sri Lanka(ix)                   |       | 19,177                 |       | 8,626                  |       |
| Tanzania(x)                     |       | 13,390                 |       | 19,097                 |       |
| Vietnam                         |       | —                 |       | 8,663                  |       |
| Other                           |       | 17,029                 |       | 18,725                 |       |
| Total                           |       | 216,296                |       | 212,713                |       |
| Corporate                       |       | 85                     |       | 65                     |       |
| Total other debt  and financing |       | 216,381                |       | 212,778                |       |
| Of which:                       |       |                   |       |                   |       |
| due after more than 1 year      |       | 120,041                |       | 124,267                |       |
| due within 1 year               |       | 96,340                 |       | 88,511                 |       |
| ** **                      |       | 216,381                |       | 212,778                |       |

Significant individualfinancing facilities are described below:

***Bolivia***

In June 2001, Telefonica Celular de Bolivia SA (“TelecelBolivia”) signed an agreement for additional financing in the amount of $25.0million with the International Finance Corporation (IFC) and $10.0 million withthe Nederlandse Financieringsmaatschappij Voor Ontwikkelingslanden, N.V. (FMO),also known as the Netherlands Development Finance Company. In addition, in November 2001,Telecel Bolivia signed an agreement with Bayerische Landesbank (“BLB”) for anaggregate amount of $10,361,228. Among other things, the financing requires thecompany to maintain certain financial covenants such as a debt ratio, long-termdebt service coverage, and debt-to-equity ratio. As of December 31, 2003,the company was in breach of certain covenants on the IFC, FMO and BLG loansand the outstanding balances had been reclassified as current financing. In2004, the lenders agreed to amend the terms of the loan and the company istherefore no longer in breach of any covenants and has accordingly reclassifiedthe non-current portion of the outstanding balances to non-current other debtand financing. The IFC and FMO financing bears interest at LIBOR plus 3.75% andthe BLB financing bears interest at LIBOR plus 1.15%.

As of December 31,2005, $15.1 million (2004: $21.0 million) was drawn down on these financings.These financings have helped to fund the expansion and further digitalizationof the Group’s mobile telecommunications network in Bolivia. These financingsare repayable in tranches until 2007. In addition to the above, Millicom’soperation in Bolivia also had $3.5 million of other debt and financingoutstanding as at December 31, 2005 (2004: $5.7 million).

F-60

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***ElSalvador***

In November 2004,Telemovil entered into a $40.0 million five year loan from a syndicateconsisting of ABN Amro, Citibank and Scotiabank. This loan bears interest forthe advances in U.S. dollars at 3 month LIBOR plus 2.5% and is repayable over18 quarterly installments commencing in 2005. As of December 31, 2005,$35.6 million (2004: $40 million) of this facility was outstanding.

***Ghana***

In July 2005,Millicom (Ghana) Ltd entered into a $20.0 million loan agreement with CitibankN.A., 75% guaranteed by the Overseas Private Investment Corporation (“OPIC”)and 100% guaranteed by the Company. This loan bears interest at 6 month LIBOR +2.5% and is repayable in 8 semi-annual installments commencing in January 2007.As of December 31, 2005, $10.0 million of this facility was outstanding.In addition to the above Millicom’s operation in Ghana also had $1.5 million(2004: $ nil) of other debt and financing outstanding as at December 31,2005.

***Guatemala***

In connection with the purchase of GSM equipment,Millicom’s operation in Guatemala entered into a facility agreement in September 2003with a syndicate of banks led by Banco G&T Continental. The facilityagreement provided for a seven-year term loan facility in a maximum aggregateprincipal amount of Quetzal 400.0 million of which Quetzal 320.0 million weredrawn down. Amortisation payments were payable semi-annually in the fixedamount of Quetzal 33.3 million each and were scheduled to begin in March 2006.For the first year of the loan interest was fixed at an annual rate of 8.00%after which it became subject to semi-annual adjustment and as at December 31,2004 was 8.75%.

In October 2005, Millicom’s operation inGuatemala refinanced the above facility with a new loan for a total amount ofQuetzal 200.0 million. The facility was provided by Banco Industrial S.A. andBanco G&T Continental S.A.. The purpose of this debt restructuring was tobenefit from lower interest rates. The facility bears interest at a rate of 7%,subject to semi-annual adjustments. The facilty dated October 7, 2005 isrepayable semi-annually starting in March 2006 and matures in October 2012.This facility was fully drawn as of December 31, 2005.

As of December 31,2005, the Group share of the debt was $14.5 million (2004: $22.7 million).

***Honduras***

In 2005, Telefonica Celular S.A. entered into 7promissory note facilities maturing in 2010 and one maturing in 2015 with localbanks. These facilities are in dollars and in Lempiras. As of December 31,2005, outstanding amounts under each of these facilities ranged betweenapproximately $0.8 million and $3.6 million. These facilities are unsecured andinterest rates are either fixed or variable, ranging as of December 31,2005 between 7% and 13%.

These facilities togetherwith a $6 million promissory note facility signed in 2002 and maturing in 2007totalled $20.6 million as of December 31, 2005. The Group share of thedebt was $13.7 million (2004: $1.3 million) as of December 31, 2005.

F-61

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Pakistan***

In 2003, Pakcom entered into a long-term financingagreement with National Bank of Pakistan for an amount of PKR 1,250.0 million($21.0 million) bearing interest equal to the six month Pakistani Treasury Billplus 2.4% (approximately 10.5% for the year ended December 31, 2005)repayable in equal installments until 2007. In 2004, Pakcom signed a three yearloan agreement for PKR 250.0 million ($4.2 million) from the UBL Bank. Theloan bears interest equal to the six month Pakistani Treasury Bill plus 2.5%(approximately 10.6% for the year ended December 31, 2005).

Among other things these financings require thecompany to maintain certain financial covenants such as current ratio, debt toequity and debt service coverage ratio. As of December 2005, the companywas in breach of certain covenants in both financings. As a result of the saleof Pakcom (subject to regulatory approval), the outstanding balances have beenclassified as current liabilities and will be settled by Millicom as part ofthe disposal of Pakcom (see note 38).

In 2003, Paktel entered into a PKR 962.7 million($16.1million) long term financing agreement with a syndicate of local banks,with Standard Chartered Bank as Agent. The purpose of this loan was torefinance letters of credit issued by United Bank Limited in 2003, at theirmaturity. The first drawdown under this loan was made in 2005 and as of December 31,2005, $13.7 million is outstanding. Theloan bears interest equal to the prevailing discount rate as set by the StateBank of Pakistan plus 3% (approximately 12% for the year ended December 31,2005).

In September and October 2005, Paktelentered into four short term overdraft facilities totaling PKR 1,745.0 million($29.2 million) with two local banks, United bank Limited and Allied BankLimited. These facilities bear interest at KIBOR + 0.75% (approximately 9.65%for the year ended December 31, 2005) and are secured by stand by lettersof credit. As of December 31, 2005, $28.6 million was drawn under thesefacilities.

In addition to the above,Paktel also had $4.5 million of other debt and financing outstanding as at December 31,2005 (2004: $5.8 million).

***Paraguay***

In May 2005, Millicom’s operation in Paraguayentered into a $15.0 million loan agreement with the International FinanceCorporation, 100% guaranteed by the Company. This loan bears interest at 6month LIBOR + 3% and is repayable in 6 semi-annual installments commencing in September 2007.As of December 31, 2005, $5.0 million of this facility was outstanding.

In December 2004, Millicom’s operation inParaguay issued local bonds for a total of $6.0 million through the local stockexchange, $4.5 million in USD and the equivalent of approximately $ 1.5 millionin PYG. These bonds have maturities ranging between 6 months and 2 years withinterest rates varying from 4% to 15%. As of December 31, 2005, $4.7million was outstanding under this issue.

In addition to the above,Millicom’s operation in Paraguay also had $3.7 million of other debt andfinancing outstanding as at December 31, 2005 (2004: $11.7 million).

***Senegal***

In December 2005, Millicom’s operation in Senegalentered into a XAF 12,500.0 million (approximately $22.5 million) loanagreement with Crédit Lyonnais Sénégal. This loan bears a fixed 

F-62

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

interest rate of 8% and isfully repayable at maturity, in December 2010. As of December 31,2005, $7.2 million (XAF 4,000.0 million) of this facility was outstanding.

In September 2005, Millicom’s operation inSenegal entered into a XAF 2,000.0 million bridge loan with the CompagnieBancaire de l’Afrique Orientale (CBAO). This loan bore a 6% interest rate andmatured in March 2006. As of December 31, 2005 $3.6 million (XAF2,000 million) of this facility was outstanding.

In addition to the above,Millicom’s operation in Senegal also had $1.8 million of other debt andfinancing outstanding as at December 31, 2005 (2004: $18.2 million).

***Sri Lanka***

In 2004, ABN-Amro arrangeda six year syndicated loan of LKR 2,000.0 million for Celltel LankaLimited. The facility was fully drawn down as of December 31, 2005 for anamount outstanding of $19.2 million (2004: $8.6 million). One tranche,representing LKR 427.0 million is guaranteed and carries interest equal to theSri Lankan Weighted Average Treasury Bill rate plus 0.75% (approximately 10.54%for the year ended at December 2004). The unsecured tranche carriesinterest equal to the Sri Lankan Weighted Average Treasury Bill rate plus 3%.The company will repay the loan between 2006 and 2009.

***Tanzania***

In June 2003,Millicom Tanzania Ltd. entered into a 3 years syndicated loan relating to aterm loan facility and a revolving loan facility with Standard Chartered BankTanzania Limited as arranger, pursuant to which MIC Tanzania Ltd. borrowed anaggregate of $15.0 million ($6.0 million in U.S. dollars and $9.0 million inTanzanian Shillings). This facility bears interest for the advances in U.S.dollars at LIBOR plus 4.50% and for the advances in Tanzanian Shillings at theTreasury Bill Rate plus 4.50%, with a minimum applicable interest rate of 12%per annum. In 2004, the aggregateamount of the facility was increased by $7.7 million (TZS 8,000.0 million). Asof December 31, 2005, $13.4 million (2004: $19.1 million) of this facilitywas outstanding.

***Fairvalue of financial liabilities***

Thefinancial liabilities are recorded at amortised cost. The fair value of thefinancial liabilities as at December 31, 2005 and 2004 disclosed above isas follows:

| ** **                          | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|-------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                          | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Corporate debt at  amortized cost   |       |                   |       |                   |       |
| 10% Senior  Notes(b)                |       | 559,599                |       | 564,129                |       |
| 4% Convertible  Notes(c)            |       | 162,876                |       | —                 |       |
| 5% Mandatory  Exchangeable Notes(d) |       | 282,814                |       | 328,694                |       |
|                                |       | 1,005,289              |       | 892,823                |       |
| Other debt and  financing(e)        |       | 216,402                |       | 212,548                |       |
| Fair value of total debt            |       | 1,221,691              |       | 1,105,371              |       |

 

F-63

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Analysisof borrowings by maturity***

Thetotal amount repayable at December 31, 2005 and 2004 is as follows:

| ** **                                                         | ** ** | **Corporate   2005** | ** ** | **Operations   2005** | ** ** | **Total   2005**  | ** ** | **Corporate   2004** | ** ** | **Operations   2004** | ** ** | **Total   2004**  | ** ** |
|--------------------------------------------------------------------|------------|---------------------------|------------|----------------------------|------------|------------------------|------------|---------------------------|------------|----------------------------|------------|------------------------|------------|
| ** **                                                         | ** ** | **US$ ‘000**    | ** ** | **US$ ‘000**     | ** ** | **US$ ‘000** | ** ** | **US$ ‘000**    | ** ** | **US$ ‘000**     | ** ** | **US$ ‘000** | ** ** |
| Due within:                                                        |       |                      |       |                       |       |                   |       |                      |       |                       |       |                   |       |   |   |   |   |   |   |
| 1 year                                                             |       | 322,214                   |       |                       | 95,821     |                   |       | 418,035                   |       |                       | 65         |                   |       |   | 88,446 |   |   | 88,511 |   |
| 1–2 years                                                     |       | —                    |       |                       | 45,511     |                   |       | 45,511                    |       |                       | 384,239    |                   |       |   | 48,302 |   |   | 432,541 |   |
| 2–3 years                                                     |       | —                    |       |                       | 31,587     |                   |       | 31,587                    |       |                       | —     |                   |       |   | 37,861 |   |   | 37,861 |   |
| 3–4 years                                                     |       | —                    |       |                       | 27,756     |                   |       | 27,756                    |       |                       | —     |                   |       |   | 18,975 |   |   | 18,975 |   |
| 4–5 years                                                     |       | 200,000                   |       |                       | 15,091     |                   |       | 215,091                   |       |                       | —     |                   |       |   | 15,373 |   |   | 15,373 |   |
| Due after 5 years                                                  |       | 550,000                   |       |                       | 338        |                   |       | 550,338                   |       |                       | 550,000    |                   |       |   | 4,229 |   |   | 554,229 |   |
| Total repayable                                                    |       | 1,072,214                 |       |                       | 216,104    |                   |       | 1,288,318                 |       |                       | 934,304    |                   |       |   | 213,186 |   |   | 1,147,490 |   |
| Unamortized  difference between carrying amount and nominal amount |       | (55,283                   | )          |                       | (412       | )                      |       | (55,695                   | )          |                       | (32,604    | )                      |       |   | (473 | ) |   | (33,077 | ) |
| Total debt, net                                                    |       | 1,016,931                 |       |                       | 215,692    |                   |       | 1,232,623                 |       |                       | 901,700    |                   |       |   | 212,713 |   |   | 1,114,413 |   |

 

***Guarantees***

In the normal course ofbusiness, Millicom has issued guarantees to secure some of the obligations ofsome of its operations under bank and supplier financing agreements. The tablesbelow describe the outstanding amount under the guarantees and the remainingterms of the guarantees as of December 31, 2005 and 2004. Amounts coveredby bank guarantees are recorded in the consolidated balance sheets under thecaption “Other debt and financing” and amounts covered by supplier guaranteesare recorded under the caption “Trade payables” or “Other debt and financing”depending on the terms and conditions.

**As of December 31, 2005:**

| ** **        | ** ** | **Bank and other financing  guarantees(i)** | ** ** | **Supplier guarantees(ii)** | ** ** | **Total**                    | ** **  |
|-------------------|------------|------------------------------------------------------------|------------|----------------------------------|------------|------------------------------|-------------|
| **Terms**         | ** ** | ** **                                                 | ** ** | **Outstanding  exposure**        | ** ** | **Maximum  exposure**        | ** **  | **Outstanding  exposure** | ** ** | **Maximum  exposure** | ** ** | **Outstanding  exposure** | ** ** | **Maximum  exposure** | ** ** |
| ** **        | ** ** | **US $ ‘000**                               | ** ** | **US $ ‘000**     | ** ** | **US $ ‘000** | ** **  | **US $ ‘000** | ** ** | **US $ ‘000** | ** ** | **US $ ‘000** | ** ** |
| 0-1 year          |       |                                                       | 6,863      |                             |       |                         | 110,618     |   |   |   | 7,206 |   |   |   | 7,536 |   |   |   | 14,069 |   |   |   | 118,154 |   |   |
| 1-3 years         |       |                                                       | 17,521     |                             |       |                         | 17,521      |   |   |   | 15,798 |   |   |   | 15,798 |   |   |   | 33,319 |   |   |   | 33,319 |   |   |
| 3-5 years         |       |                                                       | 29,446     |                             |       |                         | 42,242      |   |   |   | — |   |   |   | — |   |   |   | 29,446 |   |   |   | 42,242 |   |   |
| More than 5 years |       |                                                       | —     |                             |       |                         | —      |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| **Total**         | ** ** | ** **                                                 | **53,830** |                             | ** ** | ** **                   | **170,381** |   | ** ** | ** ** | **23,004** |   | ** ** | ** ** | **23,334** |   | ** ** | ** ** | **76,834** |   | ** ** | ** ** | **193,715** |   |   |
|                   |            |                                                            |            |                                  |            |                              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-64

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**As of December 31,2004:**

| ** **        | ** ** | **Bank and other financing  guarantees(i)** | ** ** | **Supplier guarantees(ii)** | ** ** | **Total**                    | ** ** |
|-------------------|------------|------------------------------------------------------------|------------|----------------------------------|------------|------------------------------|------------|
| **Terms**         | ** ** | ** **                                                 | ** ** | **Outstanding  exposure**        | ** ** | **Maximum  exposure**        | ** ** | **Outstanding  exposure** | ** ** | **Maximum  exposure** | ** ** | **Outstanding  exposure** | ** ** | **Maximum  exposure** | ** ** |
| ** **        | ** ** | **US $ ‘000**                               | ** ** | **US $ ‘000**     | ** ** | **US $ ‘000** | ** ** | **US $ ‘000** | ** ** | **US $ ‘000** | ** ** | **US $ ‘000** | ** ** |
| 0-1 year          |       |                                                       | —     |                             |       |                         | 2,000      |   |   |   | 2,702 |   |   |   | 2,702 |   |   |   | 2,702 |   |   |   | 4,702 |   |   |
| 1-3 years         |       |                                                       | 23,248     |                             |       |                         | 23,248     |   |   |   | 9,290 |   |   |   | 9,290 |   |   |   | 32,538 |   |   |   | 32,538 |   |   |
| 3-5 years         |       |                                                       | 3,753      |                             |       |                         | 3,753      |   |   |   | — |   |   |   | — |   |   |   | 3,753 |   |   |   | 3,753 |   |   |
| More than 5 years |       |                                                       | 4,092      |                             |       |                         | 10,000     |   |   |   | — |   |   |   | — |   |   |   | 4,092 |   |   |   | 10,000 |   |   |
| **Total**         | ** ** | ** **                                                 | **31,093** |                             | ** ** | ** **                   | **39,001** |   | ** ** | ** ** | **11,992** |   | ** ** | ** ** | **11,992** |   | ** ** | ** ** | **43,085** |   | ** ** | ** ** | **50,993** |   |   |
|                   |            |                                                            |            |                                  |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

*(i)**              Theguarantee ensures payment by the Group’s company guarantor of outstandingamounts of the underlying loans in the case of non payment by the obligor.*

*(ii)**           Theguarantee ensures payment by the Group’s company guarantor of outstandingamounts of the underlying supplier financing in the case of non payment by theobligor.*

The Group’s share of total debt and financing securedby either pledged assets, pledged deposits issued to cover letters of credit orguarantees issued by the Company is $445.8 million (2004: $514.0 million).

The total interest chargedfor the year is $143.7 million (2004: $108.5 million, 2003: $135.1 million). Alsoincluded in “Other debt and financing” is $0.6 million (2004: $1.1 million) inrespect of finance leases (note 35).

**27. PERSONNELCHARGES**

Thefollowing personnel charges are included in sales and marketing expenses,general and administrative expenses and other operating expenses:

| ** **                 | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Wages and salaries         |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| Sales and marketing        |       |                   | 10,041     |                   |       |                   | 8,817      |   |   |   | 6,784 |   |   |
| General and administrative |       |                   | 28,774     |                   |       |                   | 21,883     |   |   |   | 19,320 |   |   |
| Other operating expenses   |       |                   | 9,240      |                   |       |                   | 12,443     |   |   |   | 5,285 |   |   |
|                       |       |                   | 48,055     |                   |       |                   | 43,143     |   |   |   | 31,389 |   |   |
| Social security            |       |                   |       |                   |       |                   |       |   |   |   |   |   |   |
| Sales and marketing        |       |                   | 715        |                   |       |                   | 626        |   |   |   | 499 |   |   |
| General and administrative |       |                   | 2,669      |                   |       |                   | 2,320      |   |   |   | 2,168 |   |   |
| Other operating expenses   |       |                   | 192        |                   |       |                   | 128        |   |   |   | 120 |   |   |
|                       |       |                   | 3,576      |                   |       |                   | 3,074      |   |   |   | 2,787 |   |   |
|                       |       |                   | 51,631     |                   |       |                   | 46,217     |   |   |   | 34,176 |   |   |

 

The average number of permanent employees on aattributable basis during 2005 was 2,938 (2004: 2,470; 2003: 2,137).

Share-based compensationoffered to officers and employees are disclosed in Note 23.

F-65

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

**28.   IMPAIRMENTOF ASSETS**

***Impairment ofassets for the year ended December 31, 2005***

| ** **                       | ** ** | **Goodwill(i)**        | ** ** | **Licenses(ii)**       | ** ** | **Network   Equipment(iii)** | ** ** | **Total**              | ** ** |
|----------------------------------|------------|------------------------|------------|------------------------|------------|-----------------------------------|------------|------------------------|------------|
| ** **                       | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000**            | ** ** | **US$ ‘000** | ** ** |
| South Asia                       |       |                   | 1,955      |                   |       |                              | —     |                   |       |   | 34,503 |   |   |   | 36,458 |   |   |
| South East Asia                  |       |                   | —     |                   |       |                              | —     |                   |       |   | 16,569 |   |   |   | 16,569 |   |   |
| From continuing operations       |       |                   | 1,955      |                   |       |                              | —     |                   |       |   | 51,072 |   |   |   | 53,027 |   |   |
| From discontinued operations(iv) |       |                   | —     |                   |       |                              | (872       | )                      |       |   | — |   |   |   | (872 | ) |   |
|                             |       |                   | 1,955      |                   |       |                              | (872       | )                      |       |   | 51,072 |   |   |   | 52,155 |   |   |

----

*(i)**              Recorded under the caption “Other operatingexpenses” (see note 12)*

*(ii)**           Recorded under the caption “General andadministrative expenses”*

*(iii)**        Recorded under the caption “Cost of sales”*

*(iv)**        Recordedunder the caption “Profit/(loss) for the year from discontinued operations”*

For the year ended December 31,2005, Millicom recorded an impairment charge of $16.6 million relating to thenetwork equipment in its operation in Vietnam and impairment charges of $29.9million and $4.6 million relating to the analogue equipment of Pakcom andPaktel, Millicom’s operations in Pakistan, respectively. The Vietnam assetimpairment was due to a late approval of investments required under theBusiness Cooperation Contract (“BCC”) (note 3) that prevented Millicom fromgenerating revenues on these fixed assets as the BCC expired on May 18,2005. During the first quarter of 2005, Pakcom recognized an asset impairmentof $5.2 million as a result of a decrease in the recoverable amount of theanalogue equipment following increased competition by new entrants in themarket. In September 2005, the assets of Pakcom were classified as assetsheld for sale. Therefore, Millicom recorded additional asset impairments of$6.0 million and $18.7 million in September 2005 and December 2005respectively, in order to reflect the fair value less costs to sell of Pakcom’sanalogue equipment. The Paktel asset impairment is due to the acceleratedmigration of subscribers from the analogue network to the GSM network.

Therecoverable amounts of all the Group’s network equipment tested for impairmentwere determined based on their value in use. The discount rates used rangedfrom 12.0% to 16.4% (2004: 12.0% to 13.2%, 2003: 11.9% to 12.0%)

***Impairment of assets for the year ended December 31,2004***

| ** **    | ** ** | **Goodwill**           | ** ** | **Licenses**           | ** ** | **Network  Equipment(i)** | ** ** | **Total**              | ** ** |
|---------------|------------|------------------------|------------|------------------------|------------|---------------------------|------------|------------------------|------------|
| ** **    | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000**    | ** ** | **US$ ‘000** | ** ** |
| South America |       |                   | —     |                   |       |                      | —     |                   |       |   | 287 |   |   |   | 287 |   |   |
| South Asia    |       |                   | —     |                   |       |                      | —     |                   |       |   | 5,058 |   |   |   | 5,058 |   |   |
| Africa        |       |                   | —     |                   |       |                      | —     |                   |       |   | 1,892 |   |   |   | 1,892 |   |   |
|          |       |                   | —     |                   |       |                      | —     |                   |       |   | 7,237 |   |   |   | 7,237 |   |   |

----

*(i)**              Recorded under the caption “Cost of sales”*

F-66

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

Dueto the rollout of GSM networks in Millicom’s operations in South America andPaktel in Pakistan as well as the decrease in usage of analog equipment incertain operations in Africa, management assessed the existing analogueequipment for impairment, recognizing an impairment of $7.2 million.

***Impairment ofassets for the year ended December 31, 2003***

| ** **    | ** ** | **Goodwill**           | ** ** | **Licenses(i)**        | ** ** | **Network  Equipment(ii)** | ** ** | **Total**              | ** ** |
|---------------|------------|------------------------|------------|------------------------|------------|----------------------------|------------|------------------------|------------|
| ** **    | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000**     | ** ** | **US$ ‘000** | ** ** |
| South America |       |                   | —     |                   |       |                       | —     |                   |       |   | (1,579 | ) |   |   | (1,579 | ) |   |
| Africa        |       |                   | —     |                   |       |                       | —     |                   |       |   | 4,097 |   |   |   | 4,097 |   |   |
| Other         |       |                   | —     |                   |       |                       | 3,073      |                   |       |   | — |   |   |   | 3,073 |   |   |
|          |       |                   | —     |                   |       |                       | 3,073      |                   |       |   | 2,518 |   |   |   | 5,591 |   |   |

----

*(i)**              Recorded under the caption “General andadministrative expenses”*

*(ii)**           Recorded under the caption “Cost of sales”*

During 2003, Millicom enteredinto discussions concerning the sale of its high-speed wireless data operationin Peru and recognised an impairment charge of $3.1 million in the carryingvalue of the license in Peru at that time (note 12).

Dueto revised anticipated lower revenues from analogue equipment, Millicomrecognized an impairment loss of $4.1 million over certain network equipment inAfrica in 2003. In addition Millicom reversed an impairment loss in SouthAmerica for an amount of $1.6 million.

**29.   ANALYSISOF GROUP REVENUES AND COSTS**

TheGroup’s revenues from continuing operations is comprised of the following:

| ** **                     | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|--------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                     | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Provision of  telecom services |       | 1,026,225              |       | 881,375                |       | 617,604                |       |
| Connection  revenues           |       | 15,129                 |       | 10,071                 |       | 7,674                  |       |
| Revenues from  equipment sales |       | 42,315                 |       | 26,046                 |       | 15,085                 |       |
| Total revenues                 |       | 1,083,669              |       | 917,492                |       | 640,363                |       |

 

The Group’s cost ofsales from continuing operations is comprised of the following:

| ** **                                    | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-----------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Costs from the  provision of telecom services |       | (463,855               | )          | (355,996               | )          | (237,405               | )          |
| Connection costs                              |       | (5,581                 | )          | (3,923                 | )          | (2,564                 | )          |
| Costs from  equipment sales                   |       | (42,483                | )          | (26,231                | )          | (14,473                | )          |
| Total cost of  sales                          |       | (511,919               | )          | (386,150               | )          | (254,442               | )          |

 

| Included in cost  of sales from continuing operations: |   |     |   |     |   |    |   |
|--------------------------------------------------------|--------|----------|--------|----------|--------|---------|--------|
| Depreciation                                           |   | (155,855 | )      | (134,126 | )      | (92,557 | )      |

 

F-67

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

Includedin the Group’s operating costs from continuing operations are the following:

| ** **                    | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                    | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Personnel charges (note  27)  |       | (51,631                | )          | (46,217                | )          | (34,176                | )          |
| Of which relating to:         |       |                   |       |                   |       |                   |       |
| Pension plans (note 36)       |       | 554                    |       | (1,370                 | )          | (1,636                 | )          |
| Depreciation and amortization |       | (62,735                | )          | (36,204                | )          | (34,110                | )          |

 

**30.   OTHEROPERATING INCOME**

**TheGroup’s other operating income comprised of the following:**

| ** **                                                                                    | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                    | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Excess of fair value  over the acquisition costs of 16.67% of Telefonica Celular (see note 4) |       |                   | 6,299      |                   |       |                   | —     |   |   |   | — |   |   |
| Liquidated damages (note  35)                                                                 |       |                   | 5,113      |                   |       |                   | 3,287      |   |   |   | — |   |   |
| Profit on sale of  Extelcom option and other receivables (note 16)                       |       |                   | 4,000      |                   |       |                   | —     |   |   |   | — |   |   |
| Other                                                                                         |       |                   | 331        |                   |       |                   | —     |   |   |   | — |   |   |
|                                                                                          |       |                   | 15,743     |                   |       |                   | 3,287      |   |   |   | — |   |   |

 

**31.   TAXES**

Group taxes are mainly comprised of income taxes ofsubsidiaries and joint ventures. As a Luxembourg commercial company, theCompany is subject to all taxes applicable to a Luxembourg Société Anonyme. Dueto losses incurred and brought forward, no taxes based on Luxembourg-onlyincome have been computed for 2005, 2004 or 2003.

The effective tax rate on profitable operations isapproximately 25% (2004: 23%, 2003: 27%). Currently profitable operations arein jurisdictions with tax rates of 15% to 35% (2004: 15% to 37%, 2003: 15%to 41%). The utilization of tax loss carry forwards or tax holidays had animpact of decreasing the effective tax rate of profitable operations byapproximately 1% in 2005 (2004: nil%, 2003: 1%). The operations currentlyincurring losses operate in tax jurisdictions with rates ranging from 20% to37% (2004: 20% to 37%, 2003: 25% to 27%).

Thereconciliation between the weighted average statutory rate and the effectiveaverage tax rate is as follows:

| ** **                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                           | ** ** | **%**    | ** ** | **%**    | ** ** | **%**    | ** ** |
| Weighted average  statutory tax rate(i)              |       |     | 26         |     |       |     | 24         |   |   |   | 26 |   |   |
| Items taxed at other  than weighted average rate(ii) |       |     | 17         |     |       |     | (1         | ) |   |   | 15 |   |   |
| Non taxable/deductible  items(iii)                   |       |     | 53         |     |       |     | 18         |   |   |   | (19 | ) |   |
| Utilization of tax loss  carry forwards              |       |     | (1         | )        |       |     | —     |   |   |   | (1 | ) |   |
| Effective tax rate                                   |       |     | 95         |     |       |     | 41         |   |   |   | 21 |   |   |

----

*(i)**              Theweighted average statutory tax rate has been determined by dividing theaggregate statutory tax charge of each subsidiary and joint venture, which wasobtained by applying the statutory tax rate to the profit before tax, by theaggregate profit before tax.*

F-68

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

*(ii)**           Itemstaxed at other than weighted average rate mainly relate to taxes based onrevenue instead of profit before tax and withholding taxes on transfers betweenoperating and non-operating entities which are not deductible against othertaxes due to tax losses carried forward.*

*(iii)**        Nontaxable/deductible items mainly relate to corporate expenses and interest whichare not deductible for tax purposes as a result of the tax losses carriedforward at the Company level.*

Thecharge for income taxes is shown in the following table and recognizes thatrevenue and expense items may affect the financial statements and tax returnsin different periods (temporary differences):

| ** **                            | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|---------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Current income  tax charge            |       |                   | 66,734     |                   |       |                   | 61,731     |   |   |   | 38,345 |   |   |
| Deferred income  tax charge/ (income) |       |                   | (1,435     | )                      |       |                   | (2,282     | ) |   |   | 14,370 |   |   |
| Charge for taxes                      |       |                   | 65,299     |                   |       |                   | 59,449     |   |   |   | 52,715 |   |   |

 

Themovements in deferred tax assets and liabilities are shown below:

| ** **                        | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|-----------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                        | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Deferred  tax assets**          |       |                   |       |                   |       |   |   |   |   |
| Balance as of January 1,     |       |                   | 5,883      |                   |       |   | 5,226 |   |   |
| Tax income                        |       |                   | 338        |                   |       |   | 657 |   |   |
| Transfer to  assets held for sale |       |                   | (1,404     | )                      |       |   | — |   |   |
| Balance as of  December 31,  |       |                   | 4,817      |                   |       |   | 5,883 |   |   |

 

| ** **                               | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                               | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Deferred  tax liabilities**            |       |                   |       |                   |       |   |   |   |   |
| Balance as of January 1,            |       |                   | 39,216     |                   |       |   | 38,006 |   |   |
| Changes in the  composition of the Group |       |                   | 7,109      |                   |       |   | 2,835 |   |   |
| Tax income                               |       |                   | (1,097     | )                      |       |   | (1,625 | ) |   |
| Balance as of  December 31,         |       |                   | 45,228     |                   |       |   | 39,216 |   |   |

 

F-69

----

**Notes to the consolidated financial statements (Continued)                                                Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                     Cellular S.A.**

Thetax effects of significant items comprising the Group’s net deferred income taxliability as of December 31, 2005 and 2004 are as follows:

| ** **                                                              | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                              | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Deferred income tax  liabilities:                                       |       | (31,668                | )          | (25,656                | )          |
| Temporary differences between book and tax basis of  assets             |       | (13,560                | )          | (13,560                | )          |
| Temporary differences between book and tax basis of  intercompany loans |       | (45,228                | )          | (39,216                | )          |
| Deferred income  tax assets:                                            |       |                   |       |                   |       |
| Tax credit carryforwards                                                |       | 2,734                  |       | 2,734                  |       |
| Temporary differences                                                   |       |                   |       |                   |       |
| Provision for doubtful debtors                                          |       | 1,903                  |       | 1,983                  |       |
| Other temporary differences                                             |       | 180                    |       | 96                     |       |
| Net operating and  other loss carryforwards                             |       | —                 |       | 1,070                  |       |
| Net deferred  income tax assets                                         |       | 4,817                  |       | 5,883                  |       |
| Net deferred  income tax liability                                      |       | (40,411                | )          | (33,333                | )          |

 

Deferred income tax assets and liabilities reflecttemporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for income tax purposes.Deferred income tax assets are comprised of tax credit carry forwards andoperating losses in joint ventures and subsidiaries that are expected to bedeductible from future taxable profits.

The Company has not recorded deferred income taxliabilities in connection with investments in subsidiaries, joint ventures andassociates as it is unlikely that these differences will be reversed in thenear future. Undistributed earnings of foreign joint ventures and subsidiariesthat will be reinvested in foreign operations amounted to $546.8 million at December 31,2005 (2004: $441.6 million, 2003: $338.1 million).

Net operating losses andother loss carryforwards relating to the subsidiaries of Millicom, amounting to$77.5 million (2004: $20.1 million, 2003: $10.8 million) are present in theGroup. These have expiry periods depending on their jurisdiction of greaterthan one year. None of these net operating losses and other loss carryforwardsare anticipated to be used within expiry periods (2004: $nil, 2003: $2.5million). In addition the Company has net operating losses of $1,403 million(2004: $1,507 million). No deferred tax assets have been recognised for thesenet operating losses and other loss carryforwards.

**32.   EARNINGSPER SHARE**

Basic earnings per share amounts are calculated bydividing net profit for the year attributable to equity holders of the Companyby the weighted average number of shares outstanding during the year.

Diluted earnings per share amounts are calculated bydividing the net profit attributable to equity holders of the Company (afterdeducting interest on the convertible notes if the conversion of these noteswould be dilutive) by the weighted average number of ordinary sharesoutstanding during the year plus the weighted average number of ordinary sharesthat would be issued on the conversion of all the dilutive potential ordinaryshares into ordinary shares.

F-70

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

Thefollowing reflects the net profit and share data used in the basic and dilutedearnings per share computations (see “Consolidated Statements of profit andloss”).

| ** **                                                                                       | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                       | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Net profit  attributable to equity holders from continuing operations                            |       |                   | 9,368      |                   |       |                   | 66,016     |   |   | 180,329 |   |
| Net profit/(loss)  attributable to equity holders from discontinued operations                   |       |                   | 675        |                   |       |                   | (125       | ) |   | (3,408 | ) |
| Net profit  attributable to equity holders                                                       |       |                   | 10,043     |                   |       |                   | 65,891     |   |   | 176,921 |   |
| Interest expense  on convertible debt (note 26)                                                  |       |                   | —     |                   |       |                   | 1,217      |   |   | 3,476 |   |
| Net profit attributable  to equity holders used to determine the diluted earnings per share |       |                   | 10,043     |                   |       |                   | 67,108     |   |   | 180,397 |   |

 

| ** **                                                                                                      | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                                                                                                      | ** ** | **‘000** | ** ** | **‘000** | ** ** | **‘000** | ** ** |
| Weighted average  number of ordinary shares (excluding treasury shares) for basic earnings per  share(i)        |       | 98,803        |       | 83,335        |       | 65,312        |       |
| Effect of dilution:                                                                                             |       |          |       |          |       |          |       |
| Share  options(iii)                                                                                             |       | 1,118         |       | 515           |       | 2             |       |
| Assumed  conversion of convertible debt(ii),(iv)                                                                |       | —        |       | 6,462         |       | 15,186        |       |
| Weighted average number  of ordinary shares (excluding treasury shares) adjusted for the effect of  dilution(i) |       | 99,921        |       | 90,312        |       | 80,500        |       |

----

*(i)**              Allshare amounts have been adjusted to reflect the reverse stock split approved onFebruary 16, 2004 (see note 23).*

*(ii)**           For2003, the number of shares for the assumed conversion of convertible debtrepresents the weighted average number of convertible shares in the year thatwould result if the remaining principal amount of the 2% PIK Notes had beenconverted into Millicom’s common shares on May 8, 2003 (the issue date ofthe convertible debt). For 2004, potential ordinary shares that have beenconverted into ordinary shares during the reporting period are included in thecalculation of diluted earnings per share from the beginning of the period tothe date of conversion. From the date of conversion, the resulting shares areincluded in both the basic and diluted earnings per share.*

*(iii)**        Asof December 31, 2005, the Group had 956,136 (2004: 802,303; 2003:1,791,961) stock options that were not included in the computation of dilutedearnings per share because to do so would have been anti-dilutive for theperiods presented.*

*(iv)**        Forthe year ended December 31, 2005, the effect of the 4% Convertible Noteshas not been reported because to do so would be anti-dilutive.*

To calculate earnings pershare amounts for the discontinued operations, the weighted average number ofshares for both basic and diluted amounts is as per the table above. Refer tonote 12 for the profit/(loss) figure for discontinued operations.

F-71

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**33.   CASH FLOW FROM OPERATING ACTIVITIES**

| ** **                                                                      | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                      | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Profit after  taxes for the year                                                |       | 10,043                 |       | 65,891                 |       | 176,921                |       |
| Adjustments for  non-cash items:                                                |       |                   |       |                   |       |                   |       |
| Depreciation and amortization                                                   |       | 218,590                |       | 170,994                |       | 128,569                |       |
| Interest accretion on borrowings (effective rate)                               |       | 40,376                 |       | 16,262                 |       | 9,727                  |       |
| Share based compensation                                                        |       | 3,075                  |       | 1,852                  |       | 443                    |       |
| Impairment of assets                                                            |       | 52,155                 |       | 7,237                  |       | 5,591                  |       |
| Loss (gain) on disposal of property, plant and  equipment                       |       | 2,494                  |       | (446                   | )          | 268                    |       |
| (Gain) loss from disposal of subsidiaries and joint  ventures                   |       | (1,269                 | )          | 2,207                  |       | (2,213                 | )          |
| Loss (Gain) and valuation movement on investment  securities                    |       | 63,356                 |       | 126,965                |       | (246,760               | )          |
| Fair value result on financial instruments                                      |       | 5,297                  |       | (148,816               | )          | 84,578                 |       |
| (Profit) loss from operations in associated  companies                          |       | (1,296                 | )          | (814                   | )          | (380                   | )          |
| Exchange (gain)/loss on 5% Mandatory Exchangeable Notes                    |       | (60,591                | )          | 27,550                 |       | 41,820                 |       |
| Increase in the provision for doubtful receivables                              |       | 892                    |       | (316                   | )          | 5,794                  |       |
| Increase in other provisions                                                    |       | —                 |       | 2,975                  |       | —                 |       |
| Minority interest                                                               |       | (6,132                 | )          | 16,790                 |       | 14,695                 |       |
| Other non-cash gain                                                             |       | (6,299                 | )          | —                 |       | (533                   | )          |
| Other financial income                                                          |       | —                 |       | —                 |       | (96,748                | )          |
|                                                                            |       | 320,691                |       | 288,331                |       | 121,772                |       |
| Changes to  working capital:                                                    |       |                   |       |                   |       |                   |       |
| Decrease/(increase) in trade receivables,  prepayments and other current assets |       | 2,467                  |       | (51,559                | )          | 17,922                 |       |
| (Increase) decrease in inventories                                              |       | 533                    |       | (5,358                 | )          | (1,387                 | )          |
| Increase in trade and other payables                                            |       | 87,964                 |       | 52,807                 |       | 1,001                  |       |
| Increase in accrued interest                                                    |       | 1,340                  |       | 110                    |       | 2,828                  |       |
| Increase (decrease) in accrued taxation                                         |       | (2,817                 | )          | 18,912                 |       | 27,720                 |       |
|                                                                            |       | 89,487                 |       | 14,912                 |       | 48,084                 |       |
| Reclassification  to financing activities:                                      |       |                   |       |                   |       |                   |       |
| Early redemption penalties on debt restructuring                                |       | —                 |       | —                 |       | 14,466                 |       |
| Transfer of cash to assets held for sale                                        |       | (3,013                 | )          | —                 |       | —                 |       |
| Net cash provided by  operating activities                                      |       | 407,165                |       | 303,243                |       | 184,322                |       |

 

Thefollowing table give details of interest paid and received and taxes paid forthe years ended December 31, 2005, 2004 and 2003:

| ** **        | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **        | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Interest paid     |       |                   | 99,309     |                   |       |                   | 92,162     |   |   | 135,346 |   |
| Interest received |       |                   | 25,013     |                   |       |                   | 7,169      |   |   | 4,235 |   |
| Taxes paid        |       |                   | 68,116     |                   |       |                   | 39,988     |   |   | 20,305 |   |

 

F-72

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**34.   NON-CASH INVESTING AND FINANCING ACTIVITIES**

| ** **                                                                                    | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                    | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Investing activities:(i)                                                                      |       |                   |       |                   |       |                   |       |
| Revaluation of  marketable securities                                                         |       | (63,356                | )          | (127,158               | )          | 246,760                |       |
| Acquisition of El  Salvador                                                                   |       | —                 |       | —                 |       | 51,371                 |       |
| Excess of fair value  over the acquisition costs of 16.67% of Telefonica Celular (see note 4) |       | 6,299                  |       | —                 |       | —                 |       |
| Fair value adjustment on  financial assets (see note 14)                                      |       | 3,308                  |       | —                 |       | —                 |       |
| Acquisition of licenses                                                                       |       | 204,239                |       | 221,246                |       | —                 |       |
| Financing activities:(i)                                                                      |       |                   |       |                   |       |                   |       |
| Redemption of debt                                                                            |       | —                 |       | —                 |       | (150,350               | )          |
| Issuance of capital                                                                           |       | —                 |       | 67,986                 |       | 1,181                  |       |
| Payment of debt to  shareholders                                                              |       | —                 |       | —                 |       | 2,394                  |       |
| Share based compensation                                                                      |       | 3,075                  |       | 1,852                  |       | 443                    |       |

----

*(i)**              Acquisitionof license relates to the South Asia segment, excess of fair value over theacquisition costs of 16.67% of Telefonica Celular relates to the CentralAmerica segment all other amounts are unallocated.*

**35.   COMMITMENTSAND CONTINGENCIES**

***Litigation***

The Company and its operations are contingently liablewith respect to lawsuits and other matters that arise in the normal course ofbusiness. As of December 31, 2005, the total amount of claims againstMillicom’s operations was $29.6 million (December 31, 2004: $81.5 million)of which $5.8 million (December 31, 2004: $8.9 million) have been providedin the consolidated balance sheet. The decrease in the value of cases againstMillicom’s operations is mainly due to the resolution of the claim thatresulted from the sale of Multinational Automated Clearing House S.A.Management is of the opinion that while it is impossible to ascertain theultimate legal and financial liability with respect to these contingencies, theultimate outcome of these contingencies is not anticipated to have a materialeffect on the Group’s financial position and operations.

On March 20, 2006,Millicom agreed, subject to regulatory approval, to sell its 61.25%shareholding in Pakcom to Total Telecom (Private) Limited, a company owned bythe Arfeen family, for $1.00. Millicom has agreed to indemnify the Arfeen Groupfor undisclosed liabilities as of the date of closing based on a threshold of$5 million and a cap of $10 million. As part of this conditional agreement,Millicom has also agreed to sell a 10% stake in Paktel to the Arfeen Group for$1.00. In consideration for the above, the parties have signed agreements towithdraw all existing lawsuits and arbitration they have brought against eachother.

***Tele2 AB series ‘B’ shares***

The Tele2 AB series B (“Tele2”)shares underlying the 5% Mandatory Exchangeable Notes (note 26) have been lentto Deutsche Bank AG London pursuant to a securities lending arrangement.Millicom Telecommunications S.A. is obligated to deliver Tele2 shares uponexchange of the 5% Mandatory Exchangeable Notes even in the event of a failureof Deutsche Bank AG London to redeliver to Millicom Telecommunications S.A. theTele2 shares previously lent.

F-73

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Debt pledges and guarantees***

Details of debt pledgesand guarantees are contained in note 26.

***Operational environment***

Millicom has operations inemerging markets, namely Asia, Latin America and Africa, where the regulatory,political, technological and economic environments are evolving. As a result,there are uncertainties that may affect future operations, the ability toconduct business, foreign exchange transactions and debt repayments and whichmay impact upon agreements with other parties. In the normal course ofbusiness, Millicom is involved in discussions regarding taxation, interconnect,license renewals and tariffing arrangements, which can have a significantimpact on the long-term economic viability of its operations.

***Lease commitments***

***OperatingLeases:***

TheGroup has the following annual operating lease commitments as of December 31,2005 and 2004.

| ** **                      | ** **         | **2005**               | ** ** | **2004**               | ** ** |
|---------------------------------|--------------------|------------------------|------------|------------------------|------------|
| ** **                      | ** **         | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Operating lease commitments** |               |                   |       |                   |       |   |   |   |   |
| Within:                         | one year           |                   |       | 10,084                 |       |   |   | 7,035 |   |   |
| Between:                        | one - two years    |                   |       | 5,696                  |       |   |   | 4,877 |   |   |
|                            | two - three years  |                   |       | 5,093                  |       |   |   | 4,946 |   |   |
|                            | three - four years |                   |       | 4,834                  |       |   |   | 3,641 |   |   |
|                            | four - five years  |                   |       | 4,182                  |       |   |   | 3,232 |   |   |
| After:                          | five years         |                   |       | 14,840                 |       |   |   | 9,784 |   |   |
| Total                           |               |                   | 44,729     |                   |       |   | 33,515 |   |   |

 

Operating lease expensewas $17.8 million in 2005 (2004: $12.5 million, 2003: $8.6 million).

*Finance leases:*

Futureminimum payments on the finance leases are as follows:

| ** **                   | ** **         | **2005**               | ** ** | **2004**               | ** ** |
|------------------------------|--------------------|------------------------|------------|------------------------|------------|
| ** **                   | ** **         | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| **Finance lease repayments** |               |                   |       |                   |       |   |   |   |   |
| Within:                      | one year           |                   |       | 258                    |       |   |   | 214 |   |   |
| Between:                     | one - two years    |                   |       | 266                    |       |   |   | 202 |   |   |
|                         | two - three years  |                   |       | 262                    |       |   |   | 207 |   |   |
|                         | three - four years |                   |       | 223                    |       |   |   | 214 |   |   |
|                         | four - five years  |                   |       | —                 |       |   |   | 214 |   |   |
| After:                       | five years         |                   |       | —                 |       |   |   | — |   |   |
| Total                        |               |                   | 1,009      |                   |       |   | 1,051 |   |   |

 

The finance leases arecomprised mainly of lease agreements relating to vehicles used by the Group.

F-74

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Capital commitments***

The Company and itssubsidiaries and joint ventures have a fixed commitment to purchase networkequipment, land and buildings and other fixed assets for a value of $136.8million (2004: $91.8 million) of which $12.7 million (2004: $13.9 million)relate to joint ventures, from a number of suppliers.

***Dividends***

The ability of the Companyto make dividend payments is subject to, among other things, the terms of theindebtedness, local legal restrictions and the ability to repatriate funds fromMillicom’s various operations.

***Contingent assets***

Due to the late deliveryby a supplier of network equipment in Central and South America, Millicom isentitled to a total compensation for suffered damages amounting toapproximately $9.8 million. This compensation is in the form of discountvouchers on future purchases of network equipment. The recognition of thecompensation as “other operating income” occurs when the network equipmentpurchased with these vouchers is delivered. As of December 31, 2005,approximately $1.6 million of vouchers remain unused and therefore this amounthas not yet been recognized as compensation. In the year ended December 31,2005, Millicom recorded $5.1 million (2004: $3.3 million) as “other operatingincome” following the delivery of network equipment.

***Joint ventures***

**Millicom’sshare of the total contingent liabilities for all joint ventures is $0.1 millionand $0.4 million for the years ended December 31, 2005 and 2004,respectively.**

**36.   RELATEDPARTY TRANSACTIONS**

a) Remuneration of thedirectors and senior executives

***Principals***

The remuneration of the members of the board ofdirectors of the Company (the “Board”) is comprised of an annual fee and stockoptions. The annual fee and the number of stock options granted are proposed bythe Board and approved by the shareholders at the Annual General Meeting ofShareholders (the “AGM”).

The remuneration of the President and Chief ExecutiveOfficer (the “CEO”) and other senior executives comprises an annual basesalary, bonuses, stock options, other benefits and social securitycontributions. The CEO also receives a pension contribution. Other seniorexecutives include the Chief Operating Officer, the Chief Financial Officer andthe Cluster Managers for Central America, South America, Africa, South Asia andSouth East Asia. The bonus and stock options programmes are based on actualperformance (including individual and Company performance). Options are grantedonce a year by the Shareholders at the AGM following the recommendation of theBoard. For 2005, the annual base salary and other benefits of the CEO wasapproved by the Chairman of the Board, and the annual base salary and otherbenefits of other senior executives were set by the CEO and approved by theCompensation Committee.

F-75

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Remuneration and pensions***

*2005*

The remuneration charge for 2005 of the Chairman ofthe Board (the “Chairman”) was $75 thousand and a total of $455 thousand forthe other members of the Board. In 2005, 25,000 stock options were granted tothe Chairman and 175,000 to the other members of the Board at an exercise priceequal to the market price at date of grant plus a mark-up of 15%. The chargefor 2005 for stock based compensation was $137 thousand for the Chairman and$854 thousand for the other members of the Board. As of December 31, 2005,the Chairman held 45,000 stock options and the other members of the Board held636,054 stock options.

The remuneration charge of the CEO for 2005 was $2,139thousand of which bonus amounted to $602 thousand. On December 31, 2005the pension insurance plan of the CEO was changed from a defined benefit planto a defined contribution plan. As a result the net pension liability of $974thousand, resulting from the valuation of the defined benefit obligations lessthe plan assets, was reversed. The amount recorded in the consolidatedstatements of profit and loss for pension insurance of the CEO for 2005amounted to an income of $573 thousand of which $401 thousand related to the2005 charge for service cost and interest and an income of $974 thousand forthe reversal of the net pension liability. In 2005, 75,000 options were grantedto the CEO at an exercise price equal to the market price at date of grant plusa mark-up of 15%. The charge for 2005 for stock based compensation was $553thousand for the CEO. As of December 31, 2005, the CEO held 1,636,100stock options.

The remuneration chargefor the other senior executives (7 executives) for 2005 was a total of $3.6million of which bonuses amounted to $0.9 million and other benefits amountedto $1.0 million. The pension insurance charge for senior executives for 2005amounted to $19 thousand. In 2005, 203,100 options were granted to the othersenior executives at an exercise price equal to the market price at date ofgrant plus a mark-up of 15%. The charge for 2005 for stock based compensationwas $0.7 million for the other senior executives. As of December 31, 2005,the other senior executives held 645,241 stock options.

*2004*

The remuneration charge of the Chairman was $56 thousandand a total of $315 thousand for the other members of the Board. In 2004,20,000 stock options were granted to the Chairman and 120,000 to the othermembers of the Board at an exercise price equal to the market price at date ofgrant plus a mark-up of 10%. The charge for 2004 for stock based compensationwas $62 thousand for the Chairman and $340 thousand for the other members ofthe Board. As of December 31, 2004, the Chairman held 20,000 stock optionsand the other members of the Board held 465,600 stock options.

The remuneration charge of the CEO for 2004 was $1,988thousand of which bonus amounted to $497 thousand. The pension insurance chargeof the CEO for 2004 amounted to $1,370 thousand of which $396 thousand relatedto the 2004 service cost and interest and $974 thousand represented thedifference between the actuarial liability and the plan assets. As of December 31,2004, the pension actuarial liability amounted to $3.8 million and the pensionplan assets amounted to $2.9 million. The net pension liability of $974thousand is recorded under the caption “Other non-current liabilities”. In2004, 50,000 options were granted to the CEO at an exercise price equal to themarket price at date of grant plus a mark-up of 10%. The charge for 2005 forstock based compensation was $420 thousand for the CEO. As of December 31,2004, the CEO held 1,561,100 stock options.

F-76

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

The remuneration chargefor the other senior executives (9 executives) for 2004 was a total of $3.6million of which bonuses amounted to $1.0 million and other benefits amountedto $0.7 million. No contributions to pension funds were made for other seniorexecutives. In 2004, 152,100 options were granted to the other seniorexecutives at an exercise price equal to the market price at date of grant plusa mark-up of 10%. The charge for 2005 for stock based compensation was $0.5million for the other senior executives. As of December 31, 2004, theother senior executives held 710,000 stock options.

*2003*

The remuneration charge for 2003 of the Chairman was$96 thousand and a total of $247 thousand for the other members of the Board. In2003, 34,000 stock options were granted to the Chairman and 136,000 to theother members of the Board at an exercise price equal to the market price atdate of grant. The charge for 2005 for stock based compensation was $11thousand for the Chairman and $43 thousand for the other members of the Board.As of December 31, 2003, the Chairman held 634,000 stock options and theother members of the Board held 368,700 stock options.

The remuneration charge of the CEO during 2003 was$1,749 thousand of which bonus amounted to $606 thousand. The pension insurancecost of the CEO for 2003 amounted to $1,636 thousand. In 2003, 600,000 optionswere granted to the CEO at an exercise price equal to the market price at dateof grant. The charge for 2005 for stock based compensation was $209 thousandfor the CEO.As of December 31, 2003; the CEO held 1,600,000 stock options.

The remuneration chargefor 2003 for the other senior executives (10 executives) was a total of $4.0million of which bonuses amounted to $1.2 million and other benefits of $0.7million. No contributions to pension funds were made to other seniorexecutives. 325,300 stock options were granted in 2003 to other senior executivesat an exercise price equal to the market price at date of grant. The charge for2005 for stock based compensation was $0.1 million for the other seniorexecutives. As of December 31, 2003, the other senior executives held948,300 stock options.

***Severance payments***

If employment of seniorexecutives is terminated by Millicom, severance payment of up to 12 monthssalary is payable.

***Other***

Mr. M.A. Zaman,a senior vice president of Millicom, owns 20% of Comvik International (Vietnam)AB, Millicom’s subsidiary in Vietnam. Mr. Zaman also owns 3.1% of CamGSMCompany Limited and 3% of Royal Telecam International Limited, joint venturesof Millicom in Cambodia. In addition, Mr. Zaman owns 3.9% of Millicom LaoCo. Limited, Millicom’s subsidiary in Laos. Mr. Zaman holds the right toacquire an equity ownership in certain countries in the event he is able toobtain a license for Millicom.

***Kinnevik***

The Company’s principal shareholder is Investment ABKinnevik and subsidiaries (“Kinnevik”). Kinnevik is a Swedish holding companywith interests in the telecommunications, media, publishing and paperindustries. As of December 31, 2005, Kinnevik owned approximately 38.2% ofMillicom.

During 2005, Kinnevik purchased 2,692,903 Millicomshares of the Company (2004: 5,600,000).

F-77

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

The Group maintainscorporate bank accounts at Banque Invik, a subsidiary of Kinnevik, throughwhich it makes payments and receives cash in the normal course of business. Asof December 31, 2005, the Group had current accounts, time deposits,blocked deposits and a bank facility of $3.0 million at Banque Invik.

***Modern Holdings Inc. and Great Universal Inc.***

As of December 31, 2005, the Group, through itssubsidiary MIC USA Inc. (“MIC-USA”), had a 100% temporary and restrictedshareholding in Great Universal LLC, a trust established to hold two separateinvestments: Great Universal Inc. (“Great Universal”) and Modern Holdings Inc (“ModernHoldings”).

Great Universal LLC holds 100% of common shares inGreat Universal and 52.7% of common shares in Modern Holdings. Millicom alsohas a direct ownership of 11.6% of the share capital of Modern Holdings. Theseinvestments are recorded as non-current available-for-sale securities (note14). Great Universal continues to indemnify Millicom against certain contingentliabilities. Great Universal and Modern Holdings are mainly engaged in thecommunications, information technology, teleservices and media industriesprimarily.

Millicom does notconsolidate its investments in Great Universal and Modern Holdings as due tothe existence of warrants, enabling the warrant holders to obtain control overGreat Universal and Modern Holdings, Millicom does not control these companies.

***Services purchased and sold to related companies***

The following sales and purchases and outstandingbalances occurred with companies related to Millicom. The services purchasedand supplied covered fraud detection, network and IT support, acquisition ofassets and customer care systems.

F-78

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

Millicomhad the following payables to related parties and made purchases from relatedparties as follows:

| ** **             | ** ** | **Purchases in year** | ** ** | **Amount payable as of  December 31,** | ** ** |
|------------------------|------------|---------------------------------|------------|------------------------------------------------------------|------------|
| ** **             | ** ** | **2005**                        | ** ** | **2004**                                                   | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** |
| ** **             | ** ** | **US$ ‘000**          | ** ** | **US$ ‘000**                                     | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| 3C Communications      |       |                            | 236        |                                                       |       |   | 233 |   |   |   | 10 |   |   |   | — |   |   |
| Applied Value          |       |                            | —     |                                                       |       |   | 81 |   |   |   | — |   |   |   | — |   |   |
| AVI                    |       |                            | 45         |                                                       |       |   | 403 |   |   |   | — |   |   |   | 70 |   |   |
| Banque Invik           |       |                            | 665        |                                                       |       |   | 665 |   |   |   | 3,783 |   |   |   | 57 |   |   |
| Bassett                |       |                            | 2,142      |                                                       |       |   | 376 |   |   |   | 22 |   |   |   | 130 |   |   |
| Foreign Value          |       |                            | 1,246      |                                                       |       |   | 1,859 |   |   |   | — |   |   |   | — |   |   |
| Fischer Partners       |       |                            | 56         |                                                       |       |   | 37 |   |   |   | 4 |   |   |   | — |   |   |
| Great Universal        |       |                            | —     |                                                       |       |   | 192 |   |   |   | 214 |   |   |   | 78 |   |   |
| Kinnevik               |       |                            | 6          |                                                       |       |   | 5 |   |   |   | 1 |   |   |   | — |   |   |
| Metro                  |       |                            | —     |                                                       |       |   | 21 |   |   |   | — |   |   |   | — |   |   |
| Modern Treuhand        |       |                            | 390        |                                                       |       |   | 569 |   |   |   | 293 |   |   |   | 415 |   |   |
| Modern Times  Group    |       |                            | 25         |                                                       |       |   | 5 |   |   |   | — |   |   |   | 1 |   |   |
| Netcom  Consultants(i) |       |                            | 217        |                                                       |       |   | 1,129 |   |   |   | — |   |   |   | — |   |   |
| Praesidium(ii)         |       |                            | —     |                                                       |       |   | 13 |   |   |   | — |   |   |   | — |   |   |
| Procure-it-right       |       |                            | 1,584      |                                                       |       |   | 978 |   |   |   | 155 |   |   |   | 8 |   |   |
| Search Value           |       |                            | 370        |                                                       |       |   | 257 |   |   |   | — |   |   |   | — |   |   |
| Shared Services        |       |                            | 218        |                                                       |       |   | 146 |   |   |   | 33 |   |   |   | 34 |   |   |
| Shared Value           |       |                            | 653        |                                                       |       |   | 680 |   |   |   | 34 |   |   |   | 5 |   |   |
| Tele2 AB               |       |                            | 260        |                                                       |       |   | 234 |   |   |   | 231 |   |   |   | 177 |   |   |
|                   |       |                            | 8,113      |                                                       |       |   | 7,883 |   |   |   | 4,780 |   |   |   | 975 |   |   |

----

*(i)**              Nolonger a related party as at December 31, 2005.*

*(ii)**           Nolonger a related party as at December 31, 2005 and 2004.*

As of December 31,2005 and 2004, Millicom had the following receivables from related parties:

| ** **                 | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Kinnevik                   |       |                   | 154        |                   |       |   | 154 |   |   |
| Millicom  Technologies Ltd |       |                   | 84         |                   |       |   | 83 |   |   |
| Modern Holdings            |       |                   | 1,093      |                   |       |   | 1,383 |   |   |
| Modern Times  Group        |       |                   | 268        |                   |       |   | 265 |   |   |
| Netcom                     |       |                   | 8          |                   |       |   | 8 |   |   |
| Shared Value               |       |                   | 18         |                   |       |   | 18 |   |   |
| Stonebrook  Enterprises    |       |                   | 156        |                   |       |   | 156 |   |   |
|                       |       |                   | 1,781      |                   |       |   | 2,067 |   |   |

 

F-79

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**37.   RECONCILIATIONTO U.S. GAAP**

The consolidated financialstatements of the Group have been prepared in accordance with InternationalFinancial Reporting Standards as adopted by the European Union (“IFRS”). Thereconciliation of the reported net profit prepared under IFRS to the net profit(loss) prepared under accounting principles generally accepted in the UnitedStates of America (“U.S. GAAP”) for the years ended December 31, 2005,2004 and 2003 and the reconciliation of the consolidated balance sheet preparedunder IFRS to the consolidated balance sheets prepared under U.S. GAAP as of December 31,2005 and 2004 are presented below:

| ** **                                                                                                                         | ** ** | **Item**   | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                                         | ** ** | ** ** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Net profit for  the year attributable to equity holders of  the Group reported under IFRS                                          |       |       |       |                   |       | 10,043                 |       | 65,891                 |       | 176,921 |   |
| **Items  increasing (decreasing) reported net profit:**                                                                            |       |       |       |                   |       |                   |       |                   |       |   |   |
| Consolidation of Variable Interest Entities                                                                                        |       |       | 1          |                   |       | (5,487                 | )          | 3,878                  |       | 4,603 |   |
| Application of  equity method of accounting under U.S. GAAP                                                                        |       |       | 2          |                   |       | —                 |       | 21                     |       | (1,052 | ) |
| Consolidation of  operation in El Salvador                                                                                         |       |       | 3          |                   |       | —                 |       | —                 |       | 5,830 |   |
| Adjustments to  initial step-up in the value of licenses                                                                           |       |       | 4          |                   |       | 2,424                  |       | 2,108                  |       | 2,273 |   |
| Stock options                                                                                                                      |       |       | 5          |                   |       | 4,905                  |       | 596                    |       | (714 | ) |
| Impairment of  long-lived assets                                                                                                   |       |       | 6          |                   |       | (1,884                 | )          | 3,127                  |       | (3,813 | ) |
| Adjustments  relating to goodwill                                                                                                  |       |       | 7          |                   |       | (210                   | )          | (7,175                 | )          | 6,695 |   |
| Reclassification  to shareholders’ equity of fair value adjustments on financial assets at fair  value through profit or loss |       |       | 8          |                   |       | 63,356                 |       | 127,158                |       | (241,163 | ) |
| Adjustments  related to debt                                                                                                       |       |       | 9          |                   |       | 6,292                  |       | (10,754                | )          | 1,598 |   |
| Disposal of Argentinian operation                                                                                                  |       |       | 10         |                   |       | —                 |       | 5,019                  |       | — |   |
| Other(b)                                                                                                                           |       |       |       |                   |       | 2,890                  |       | (998                   | )          | (1,535 | ) |
| **Net  profit (loss) under U.S. GAAP**                                                                                             |       |       |       |                   |       | 82,329                 |       | 188,871                |       | (50,357 | ) |
| **Presented as:**                                                                                                                  |       |       |       |                   |       |                   |       |                   |       |   |   |
| Net profit (loss)  from continuing operations before cumulative effect                                                        |       |       |       |                   |       | 112,349                |       | 189,793                |       | (58,014 | ) |
| Cumulative effect  of change in accounting principle                                                                               |       |       | 1          |                   |       | —                 |       | 2,865                  |       | — |   |
| Net Profit (loss)  from continuing operations                                                                                      |       |       | 11         |                   |       | 112,349                |       | 192,658                |       | (58,014 | ) |
| Discontinued  operations:                                                                                                          |       |       |       |                   |       |                   |       |                   |       |   |   |
| Profit (loss)  from discontinued operations, net of taxes                                                                          |       |       |       |                   |       | (34,979                | )          | (6,599                 | )          | 1,775 |   |
| Gain on disposal,  net of taxes(a)                                                                                                 |       |       |       |                   |       | 4,959                  |       | 2,812                  |       | 5,882 |   |
| Profit (loss)  from discontinued operations                                                                                        |       |       |       |                   |       | (30,020                | )          | (3,787                 | )          | 7,657 |   |
| Net profit (loss) under  U.S. GAAP                                                                                                 |       |       |       |                   |       | 82,329                 |       | 188,871                |       | (50,357 | ) |

 

(a)           The tax impact of theseitems is $1,192,000 (2004: $nil, 2003: $nil)

(b)   Millicomidentified other reconciling items which are not significant to thereconciliation as a whole.

F-80

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

 

| ** **                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| *Basic profit (loss) per common share*               |       |     |       |     |       |     |       |
| Profit (loss) per common share under U.S. GAAP:                               |       |     |       |     |       |     |       |
| —from continuing  operations                                             |       | $        | 1.14       |     | $          | 2.31     |       | $ | (0.89 | ) |
| —from discontinued  operations                                           |       | $        | (0.31      | )        | $          | (0.04    | )          | $ | 0.12 |   |
| Basic profit (loss) per  common share under U.S. GAAP                         |       | $        | 0.83       |     | $          | 2.27     |       | $ | (0.77 | ) |
| Weighted average number  of shares outstanding during the year (in ‘000) |       | 98,803   |       | 83,335   |       | 65,312   |       |

 

| ** **                                                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| *Diluted profit (loss) per common share*                                                                      |       |     |       |     |       |     |       |
| Profit (loss) per common share under U.S. GAAP:                                                               |       |     |       |     |       |     |       |
| —from continuing  operations                                                                             |       | $        | 1.12       |     | $          | 2.13     |       | $ | (0.89 | ) |
| —from discontinued  operations                                                                           |       | $        | (0.30      | )        | $          | (0.04    | )          | $ | 0.12 |   |
| Diluted profit  (loss) per common share under U.S. GAAP                                                       |       | $        | 0.82       |     | $          | 2.09     |       | $ | (0.77 | ) |
| Weighted average number  of shares and potentially dilutive shares outstanding during the year (in ‘000) |       | 99,921   |       | 90,312   |       | 65,312   |       |

 

**1.   Consolidationof Variable Interest Entities**

On March 31, 2004 Millicom adopted FinancialInterpretation No. 46, revised 2003 (“FIN 46R”), *Consolidation of Variable Interest Entities*.FIN 46R applies to legal entities in which a variable interest is held. Suchentities are referred to as variable interest entities (“VIEs”). VIEs are thoseentities possessing certain characteristics, which indicate either a lack ofequity investment sufficient to cover the expected losses of the entity or theequity holders’ lack of characteristics consistent with holding a controllingfinancial interest. When an entity is a VIE the party whose interests absorb amajority of the entity’s expected losses, receives a majority of its expectedresidual returns, or both, is deemed to be the Primary Beneficiary and mustconsolidate the VIE.

Information on the Group’sshare of revenues and operating expenses of VIEs contributed on a proportionalbasis under IFRS are included in Note 7 to the consolidated financialstatements.

***(a) Joint Venture Interests***

*IFRS Treatment*

Entities that are jointlycontrolled are consolidated using the proportional method which only includesthe Group’s share of the assets, liabilities, income and expenses of the jointventures in which the Group has an interest in the consolidated financialstatements.

*US GAAP Treatment*

As a result of the adoption of FIN 46R by Millicom on March 31,2004, the Company began consolidating its interests in the following VIEs: (a) CamGSM Company Limited, a joint venture of Millicom in Cambodia, (b) RoyalTelecam International Limited, another joint venture of Millicom in Cambodia, (c) MillicomArgentina S.A., a former joint venture of Millicom in Argentina sold in September 2004,and (d) Comunicaciones Celulares S.A., a joint venture of Millicom inGuatemala.

F-81

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

The remaining jointventures are Emtel Limited in Mauritius and Telefonica Celular (“Celtel”) inHonduras. Emtel is accounted for using the equity method (see (e) below) andCeltel is now consolidated since May 2005 following the acquisition of anadditional 16.67% in May 2005 (see (b) below).

*Reconciling Effect*

The different treatment ofjoint ventures under U.S. GAAP impacts many of the individual balance sheet andprofit and loss line items but has no overall effect on net profit, afterdeducting minority interests.

***(b)***    Acquisitionof Additional Interest in Honduras

OnMay 26, 2005, Millicom acquired an additional 16.67% interest inTelefonica Celular S.A. (“Celtel”), our operation in Honduras, bringing totalownership interests to 66.67% (see Note 4).

*IFRS Treatment*

Although the totalownership represents a majority interest, Millicom does not have control overCeltel, which continues to be proportionally consolidated under IFRS.Therefore, the results of Celtel have been proportionally consolidated at50.00% from January 1, 2005 to May 26, 2005 and at 66.67% for the remainder of2005.

The purchase priceallocation of the consideration paid for the additional 16.67% interest inCeltel resulted in a negative goodwill of $6.3 million, which was recognised inthe consolidated statement of profit and loss under the caption “Other operatingincome”. Millicom’s share of assets and liabilities of the 50% previously heldinterest has been kept at its historical value. 

*U.S. GAAP Treatment*

Under U.S. GAAP, followingthe acquisition of the additional interest, Millicom determined that it is theprimary beneficiary of Celtel and started consolidating it as of May 26, 2005 underthe provisions of FIN 46R. 

Upon initial consolidationof Celtel, Millicom recognized 100% of the assets, liabilities andnon-controlling interest at fair value, stepping up the values accordingly. Asa result, Millicom computed $56.6 million of negative goodwill, which wasallocated on a pro rata basis to all acquired assets, except some assets, asspecified in SFAS 141 *Business Combinations*.

*Reconciling Effect*

As a result of thedifferent treatment under U.S. GAAP, Millicom (i) reversed the $6.3 million ofnegative goodwill recognized in the consolidated statement of profit and lossunder IFRS and reclassified it in the balance sheet, (ii) stepped up the assetsand liabilities which had not been fair valued under IFRS, (iii) recognised thenon-controlling interest at fair value, and (iv) recorded incrementaldepreciation and amortization under U.S. GAAP of $7.0m as a result of thestep-up.

F-82

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***(c)***    GreatUniversal Inc. and Modern Holdings Inc.

*IFRS Treatment*

Under IFRS, Millicom doesnot consolidate its investment in Great Universal Inc. (“GU”) and ModernHoldings Inc. (“Modern Holdings”) since the existence of warrants, which enablethe holder to obtain 100% of GU and 64% of Modern Holdings, are presentlyexercisable and convey the ability to the warrant holder to control GU andModern Holdings. Millicom records its investments in both GU and ModernHoldings at fair value under the caption “Financial assets available for sale”.In 2005, Millicom increased the value of GU and Modern Holdings by $3.3 millionin the caption “Revaluation reserve”.

*U.S. GAAP Treatment*

GU andModern Holdings, which were consolidated under U.S. GAAP before the adoptiondate of FIN 46R are variable interest entities, continue to be consolidatedunder FIN 46R. Since December 31, 2005, under both IFRS and U.S. GAAP, GUand Modern Holdings have been reclassified as Assets Held for Sale. The sale is expected to occur before the end of2006. The assets and liabilities of GU and Modern Holdings are not significantto the consolidated financial statements.

*Reconciling Effect*

The effect ofconsolidating GU and Modern Holdings under U.S. GAAP in 2005 is an additionalnet profit of $1.6million (2004: net profit of $1.0 million; 2003: net profit of $4.6 million). In addition, the fair value adjustment of $3.3million recorded in “Revaluation reserve” under IFRS was reversed.

***(d)***    CumulativeEffect of a Change in Accounting Principle

The cumulative impact ofadopting FIN 46R as of March 31, 2004 was a gain of $2.9 million, mainly relating to the discontinuedoperation Millicom Argentina S.A. and has been recorded as a cumulative effectof change in accounting principle in the reconciliation of the net profit.

***(e)     Emtel Limited***

*IFRS Treatment*

Under IFRS, Emtel Limitedis consolidated using the proportional method.

*U.S. GAAP Treatment*

Millicom determined that EmtelLimited, its operation in Mauritius, is not a VIE and should continue to beaccounted for under the equity method (see item 2). The adjustment toreflect Millicom’s investment in joint ventures not consolidated underFIN 46 and adjusted from proportional consolidation under IFRS to equitymethod under U.S. GAAP (Emtel Limited and Celtel prior to May 26, 2005) isreflected in the balance sheet reconciliations on the following pages. As of December 31,2005, the total amount of retained earnings that represented undistributedearnings of 100% of Emtel Limited amounted to $19.1 million (2004: $14.4million).

F-83

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

Thesize of 100% of Emtel Limited in which Millicom holds a 50% interest is asfollows as of and for the year ended December 31, 2005 and 2004:

| ** **               | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|--------------------------|------------|------------------------|------------|------------------------|------------|
| ** **               | ** ** | **US$ ’000** | ** ** | **US$ ’000** | ** ** |
| Non-current  assets      |       |                   | 31,955     |                   |       |   | 29,341 |   |   |
| Current assets           |       |                   | 15,826     |                   |       |   | 10,726 |   |   |
| Non-current  liabilities |       |                   | 2,992      |                   |       |   | 6,872 |   |   |
| Current liabilities      |       |                   | 22,949     |                   |       |   | 14,273 |   |   |
| Revenues                 |       |                   | 39,318     |                   |       |   | 31,060 |   |   |
| Gross profit             |       |                   | 29,463     |                   |       |   | 29,430 |   |   |
| Net profit               |       |                   | 10,597     |                   |       |   | 14,832 |   |   |

 

***(f)    Total reconciling effect from VIEs***

| ** **                                                                                            | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                            | ** ** | **US$ ’000** | ** ** | **US$ ’000** | ** ** | **US$ ’000** | ** ** |
| Reversal of negative goodwill                                                                         |       | (6,299                 | )          |                   | —     |                   |       |   | — |   |   |
| Incremental depreciation on non-current assets recognized at fair  value upon consolidation of Celtel |       | (6,986                 | )          |                   | —     |                   |       |   | — |   |   |
| Consolidation of GU and Modern  Holdings                                                              |       | 1,640                  |       |                   | 1,013      |                   |       |   | 4,603 |   |   |
| Cumulative effect of adopting FIN 46R                                                                 |       | —                 |       |                   | 2,865      |                   |       |   | — |   |   |
| **Sub  total**                                                                                        | ** ** | (11,645                | )          |                   | 3,878      |                   |       |   | 4,603 |   |   |
| Tax effect of the above adjustments                                                                   |       | 2,096                  |       |                   | —     |                   |       |   | — |   |   |
| Effect on minority interest  of the above adjustments                                                 |       | 4,062                  |       |                   | —     |                   |       |   | — |   |   |
| **Total reconciling effect from  VIEs**                                                               | ** ** | (5,487                 | )          |                   | 3,878      |                   |       |   | 4,603 |   |   |

 

**2.   Applicationof Equity Method of Accounting under U.S. GAAP**

*IFRS Treatment*

Under IFRS, joint venturesare consolidated using the proportional method.

*U.S. GAAP Treatment*

Prior to the adoption dateof FIN 46R on March 31, 2004, Millicom’s interests in joint ventures wereaccounted for under the equity method under U.S. GAAP. Upon adoption of FIN 46R, only Emtel Limited remains accounted for underthe equity method under U.S. GAAP. Under the equity method, if aninvestor’s share of losses of an associate equals or exceeds the amount ofinvestment plus advances made by the investor, the investor ordinarilydiscontinues including its share of losses and the investment is reported atnil value. If the investee subsequently reports net income, the investor shouldresume applying the equity method only after its share of that net incomeequals the share of net losses not recognized during the period the equitymethod was suspended. Additional losses are provided for when the investor hasguaranteed obligations of the investee or is otherwise committed to providefurther financial support to the investee. Losses recognized in excess of theinvestor’s total investment due to a commitment to provide further financialsupport are recorded as a liability.

F-84

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*Reconciling Effect*

Summarizedbelow are the adjustments to the profit and loss account that are requiredunder U.S. GAAP for the additional losses recorded by Millicom above thoserecorded for IFRS due to Millicom’s commitment to provide further financialsupport to the joint ventures (these additional losses are reversed to theextent of net income subsequently reported by the joint ventures).

| ** **                                                               | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                               | ** ** | **US$ ’000**      | ** ** | **US$ ’000**      | ** ** |
| Additional losses  in excess of investment value and subsequent reversal |       |                        | 21         |                        |       |   | (1,052 | ) |   |
|                                                                          |            |                             |            |                             |            |  |  |  |  |

 

**3.   Consolidationof operation in El Salvador**

*IFRS Treatment*

Under IFRS, Millicomstarted reconsolidating its operation in El Salvador (“Telemovil”) from September 15, 2003when Millicom acquired 100% of Telemovil which resolved the dispute with theminority shareholders. Under IFRS, prior to the consolidation on September 15,2003, Telemovil was recorded as an available-for-sale investment.

*U.S. GAAP Treatment*

UnderU.S. GAAP, Millicom began consolidating Telemovil on September 15, 2003 when itacquired 100% of Telemovil.  BeforeSeptember 15, 2003 Telemovil has been treated as an equity investment asrequired under Accounting Principles Board Opinion No. 18, *The Equity Method of Accounting for Investments inCommon Stock*.

*Reconciling effect*

The adjustment to the profit and loss account torecord Millicom’s share of Telemovil’s equity earnings under U.S. GAAP for theperiod from January 1, 2003 to September 15, 2003 is $5.8 million.

Upon consolidation, underU.S. GAAP, Millicom has reclassified an amount of $19.6 million from thecarrying amount of its investment in Telemovil to goodwill, corresponding tothe remaining difference between the investments cost and the underlying equityin net assets of Telemovil at the date of investments in Telemovil.

F-85

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*IFRS Proforma*

Thefollowing unaudited pro forma condensed combined financial informationrepresent the consolidated figures of Millicom including Telemovil as ifTelemovil was consolidated since January 1, 2003 under IFRS and ispresented for illustrative purposes only. These figures are not necessarilyindicative of the operating results or financial positions that would haveoccurred if the acquisition of Telemovil had been consummated onJanuary 1, 2003, nor is it necessarily indicative of future operatingresults or financial position of the combined company. The information below isbased upon Millicom’s and Telemovil’s historical IFRS financial information.Pro forma net profit includes pro forma adjustments for interest andamortization and depreciation of assets adjusted to the accounting baserecognized for each in the acquisition:

| ** **                                       | ** ** | **2003**                                                              | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **US$ ’000  (Unaudited)  Except per  share data** | ** ** |
| Total revenues(a)                                |       |                                                                  | 725,621    |   |   |
| Net profit(a)                                    |       |                                                                  | 186,839    |   |   |
| Basic net profit  per share                      |       |                                                                  | 2.86       |   |   |
| Diluted net  profit per share                    |       |                                                                  | 2.32       |   |   |
| Shares used to  compute basic profit per share   |       |                                                                  | 65,312     |   |   |
| Shares used to compute  diluted profit per share |       |                                                                  | 80,500     |   |   |

----

(a)    Restated for the change in accounting policy of connectionrevenues and costs and the adoption of IFRS 2 share-based payment.

**4.   Adjustmentto Initial Step-up in the Value of Licenses**

*IFRS Treatment*

The value of mobileproperties contributed by the shareholders of certain of the Company’ssubsidiaries and joint ventures, upon formation of Millicom, were not recordedat the contributing shareholders’ carryover basis under IFRS but werestepped-up to reflect their fair value. The incremental value recorded forthese properties was recorded as an intangible asset, attributable to licenses,for $58,628,000 and is amortized through the profit and loss account.

*U.S.GAAP Treatment*

Under U.S. GAAP, thecontributed properties have been recorded at the contributing shareholders’carryover basis, thus no additional intangible asset and no incremental amortizationexpense were recorded.

*Reconciling Effect*

This adjustment reversesthe amortization expense recorded for IFRSof $2.4 million for the year ended December 31, 2005 (2004: $2.1 million; 2003:$2.3 million), and the stepped-up value recorded in the balance sheet. 

F-86

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**5.   StockOptions**

***(a)*   *Stock Options Granted toDirectors and Employees***

*IFRS Treatment*

As of January 1,2005, the Company has adopted IFRS 2, *Share-based Payment*,which resulted in a change in accounting policy for share-based payments. Priorto its adoption, stock options granted to directors and employees did notresult in a charge to the statement of profit and loss. Subsequent to thatdate, the Company charges the cost of the stock options to the statement ofprofit and loss. On the date of grant, the Company computes the fair value ofthe stock options using an option pricing model, and recognizes the determinedfair value over the vesting period. The adoption of IFRS 2 was retrospectiveand therefore the Company restated comparative figures (see note 2.24). Thecompensation cost under IFRS for 2005 was $3.1 million (2004: $1.9 million;2003: $0.4 million).

*U.S. GAAP Treatment*

Under U.S. GAAP, theCompany accounts for stock options under Accounting Principles Board Opinion No. 25(“APB 25”), *Accounting for Stock Issued toEmployees*. The Company normally grants stock options on Millicom’sshares to employees and directors for a fixed number of shares with a fixedexercise price. The grant date intrinsic value of such options is amortizedover the vesting periods of the options. Such a plan is referred to as a “fixedplan”. Because the exercise price of such options granted by the Company equalsor exceeds their fair market value at the date of the grant, the options haveno or negative intrinsic value. Accordingly, no compensation expense has beenoriginally recorded under U.S. GAAP for the Company’s fixed plans. When eitherthe exercise price or the number of shares granted under the option plans isnot known at the grant date, compensation expense under APB 25 is recalculated,based on the intrinsic value of this stock based compensation, at each balancesheet date. Recalculated compensation expense is recognized over the vestingperiod. Such a plan is referred to as a “variable plan”. Variable plan incomefor 2005 was $2.1 million (2004: $0.6 million; 2003: expense of $1.2 million).

***(b)***    AcceleratedVesting of Options

On May 6, 2004, theBoard of Directors approved an acceleration of the vesting periods for certainoutstanding options at that date.

*IFRS Treatment*

As mentioned previously, beforethe adoption of IFRS 2 on January 1, 2005, compensation expense relatingto stock options was not recognized. The acceleration of the vesting period in2004 was applied before the adoption of IFRS 2, and therefore the accelerationdid not result in a compensation expense under IFRS.

*U.S. GAAP Treatment*

In accordance with the FinancialInterpretation No. 44 (“FIN 44”) *Accountingfor Certain Transactions involving Stock Compensation*, Millicomcomputed a compensation cost corresponding to the intrinsic value of thoseoutstanding options on May 6, 2004 in excess of the original intrinsicvalue of $nil at grant date and, only for options that would have beenforfeited had the vesting period not been accelerated and 

F-87

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

recognizesthis amount over the revised vesting period. The cost recognized for the yearended December 31, 2005 amounts to $0.2 million (2004: $1.9 million).

***(c)*****    ReconcilingEffect**

| ** **                                         | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|----------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                         | ** ** | **US$ ’000** | ** ** | **US$ ’000** | ** ** | **US$ ’000** | ** ** |
| Reversal of IFRS 2  expense                        |       |                   | 3,075      |                   |       |                   | 1,852      |   |   |   | 443 |   |   |
| Income /  (expense) under APB 25 of variable plans |       |                   | 2,055      |                   |       |                   | 629        |   |   |   | (1,157 | ) |   |
| Accelerated  vesting of options                    |       |                   | (225       | )                      |       |                   | (1,885     | ) |   |   | — |   |   |
| **Total reconciling effect (i)**                   | ** ** | ** **             | 4,905      |                   |       |                   | 596        |   |   |   | (714 | ) | ** ** |

 

(i)As a result of the adoption of IFRS 2, Millicom has restated its net profitunder IFRS for the years ended December 31, 2004 and 2003.  Accordingly,Millicom has restated the adjustment to compensation cost for stock optionsgranted to employees from $(1,256,000) to $596,000 for the year ended December31, 2004 and from $(1,157,000) to $(714,000) for the year ended December 31,2003.

**6.   Impairmentof Long Lived Assets**

*IFRS Treatment*

*Under IFRS,*wheneverevents or changes in circumstances indicate that the carrying amount of along-lived asset may not be recoverable, i.e. a triggering event occurs, the carryingamount of this asset is compared to its recoverable amount, which is usuallydetermined by reference to a discounted cash flow model. If the discounted cashflows forecast to be generated from the asset is less than the asset’s carryingamount an impairment is recorded for the amount of the excess.

*U.S. GAAP Treatment*

Under Statement ofFinancial Accounting Standard No. 144 (“SFAS 144”), *Accounting for the Impairment or Disposal of LongLived Assets*, whenever events or changes in circumstances indicatethat the carrying amount of a long-lived asset may not be recoverable, i.e. atriggering event occurs, the carrying amount of this asset is compared to theundiscounted cash flow forecast from the asset. If the undiscounted cash flowforecast to be generated from the asset is less than the asset’s carryingamount, the carrying value of the asset is regarded as not recoverable. Whensuch a determination is made, impairment is measured as the excess of thecarrying value above the asset’s fair value, typically determined using adiscounted cash flow model.

***(a)***   Impairmentof license value—Peru

*IFRS Treatment*

Under IFRS, the Companyrecorded an impairment charge of $2.2 million in 2002 on the license value ofits operation in Peru. This impairment was measured as the difference betweenthe recoverable amount of the license, which was determined by reference to thediscounted cash flows projected to be generated from this license, and itscarrying value at the measurement date.

F-88

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*U.S. GAAP Treatment*

Since the recoverableamount of the license, determined by reference to an undiscounted cash flowmodel, as required by SFAS 144, was higher than its carrying value, thelicense was not impaired. Therefore, the impairment recorded under IFRS in 2002was reversed for U.S. GAAP purposes. In 2003, asa result of the decision to classify Millicom Peru as an asset held for saleand to measure it at fair value less cost to sell, the carrying value of thelicense was reduced to its recoverable amount and so the impairment wasrecorded under U.S. GAAP.

*Reconciling Effect*

In 2003, the amount of$2.2 million was charged to the profit and loss account under U.S. GAAP as (i) incrementaldepreciation charge of $0.2 million and (ii) an additional impairmentcharge of $2.0 million in connection with the Peruvian operation beingclassified as an asset held for sale.

***(b)***    Impairmentof Analogue Equipment—Bolivia

*IFRS Treatment*

During 2003, under IFRS, Millicom reversed part of animpairment recorded in 2000 on analogue equipment belonging to its Bolivianoperation for an amount of $1.6 million, due to a change in the underlyingassumptions to determine the recoverable amount of these assets.

In 2004, under IFRS,Millicom recorded an impairment charge of $0.3 million on its analogue equipment.

*U.S. GAAP Treatment*

Under U.S. GAAP, the 2003 reversal of $1.6 million isnot allowed.

In addition, the 2004charge of $0.3 million must be reversed as it had already been recorded underU.S. GAAP previously.

*Reconciling Effect*

The $1.6 million valueincrease has been reversed for U.S. GAAP purposes in 2003.

In 2004, the $0.3 million impairment was reversedunder U.S. GAAP.

In 2005 and 2004, $0.4million and $0.5 million, respectively, of incremental depreciation under IFRShas been reversed for U.S. GAAP purposes.

***(c)***    Impairmentof Analogue Equipment—Pakistan

*IFRS Treatment*

In 2004, under IFRS,Millicom recorded an impairment charge of $2.0 million and $3.1 million on thevalue of its analogue equipment belonging to Pakcom and Paktel respectively, itsPakistani operations.

F-89

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*U.S. GAAP Treatment*

In 2004, since therecoverable amount of the analogue equipment determined by reference to anundiscounted cash flow model was higher than its carrying value, the impairmentrecorded under IFRS was reversed for U.S. GAAP purposes.

As aresult of the decision to classify Pakcom as an asset held for sale and tomeasure it at fair value less cost to sell as of December 31, 2005, animpairment was recorded for U.S. GAAP purposes in 2005.

In addition, in 2005, sincethe recoverable amount of the analogue equipment held by Paktel, determined byreference to an undiscounted cash flow model was lower than its carrying value,an impairment has been recorded under U.S. GAAP.

*Reconciling Effect*

In 2004, for U.S. GAAPpurposes, the $5.1 million impairment charge is reversed. In 2005, the $5.1million impairment charge is recorded for U.S. GAAP purposes.

***Summary ofreconciling effect***

Summarizedbelow are the adjustments to the Company’s IFRS reported net profit that havebeen made due to the application of SFAS 144:

| ** **                                      | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|-------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                      | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Peru—additional  impairment charge         |       |                   | —     |                   |       |                   | —     |   |   |   | (2,011 | ) |   |
| Peru—incremental  depreciation charge      |       |                   | —     |                   |       |                   | —     |   |   |   | (223 | ) |   |
| Bolivia—write-back  of impairment reversal |       |                   | —     |                   |       |                   | —     |   |   |   | (1,579 | ) |   |
| Bolivia—reversal  of impairment charge     |       |                   | —     |                   |       |                   | 287        |   |   |   | — |   |   |
| Bolivia—reversal  of depreciation          |       |                   | 432        |                   |       |                   | 526        |   |   |   | — |   |   |
| Pakistan—reversal  of impairment charge    |       |                   | (5,058     | )                      |       |                   | 5,058      |   |   |   | — |   |   |
| **Subtotal**                                    | ** ** | ** **             | (4,626     | )                      |       |                   | 5,871      |   |   |   | (3,813 | ) | ** ** |
| Adjustment to tax charge                        |       |                   | 1,938      |                   |       |                   | (1,938     | ) |   |   | — |   |   |
| Adjustment to  minority interest                |       |                   | 804        |                   |       |                   | (806       | ) |   |   | — |   |   |
| **Total adjustment to reported  net profit**    | ** ** | ** **             | (1,884     | )                      |       |                   | 3,127      |   |   |   | (3,813 | ) | ** ** |

 

**7.   AdjustmentsRelating to Goodwill**

In December 2005, Millicompurchased the remaining 30% of shares in its operation in Sierra Leone andpurchased the option that a former shareholder held entitling him to acquire30% of the shares in Millicom’s operation in Ghana.  The purchase price allocation of theseacquisitions for U.S. GAAP purposes has been made on a provisional basis.

***(a)***   Amortization

*IFRS Treatment*

Millicom adopted IFRS 3 onJanuary 1, 2005 and therefore no longer amortizes goodwill. Under IFRS, Millicomcontinued amortizing goodwill until December 31, 2004.

F-90

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*U.S. GAAP Treatment*

In accordance withStatement of Financial Accounting Standard No. 142 (“SFAS 142”), *Goodwill and Other Intangible Assets*,Millicom ceased amortization of existing goodwill on December 31, 2001.

*Reconciling Effect*

In 2004, under U.S. GAAPMillicom reversed $8.2 million of amortization on goodwill charged under IFRS(2003: $6.7 million).

***(b)***    NegativeGoodwill

*IFRS Treatment*

As mentioned previously, Millicom adopted IFRS 3 on January 1,2005. IFRS 3 requires negative goodwill acquired in a business combination onor after March 31, 2004 to be recorded as income after initial reassessment of the purchase price allocation. In2005, Millicom recognized income of $6.3 million as a result of negativegoodwill on the acquisition of Celtel (see item 1).

In February 2004, underIFRS, Millicom generated $3.7 million negative goodwill on its acquisition of25% of Millicom Tanzania Limited, which was recognized as negative goodwill inthe balance sheet.

*U.S. GAAP Treatment*

In 2004, under U.S. GAAP,the negative goodwill on the acquisition of Tanzania Limited was reassigned ona pro rata basis to all acquired assets,except some assets as specified in SFAS 141 *BusinessCombinations*. The incremental depreciation charge recordedfor IFRS purposes relating to these assets in 2005 of $1.2 million (2004: $1.1million) was reversed for U.S. GAAP purposes.

***(c)***    ImpairmentTesting of Goodwill

*IFRS Treatment*

Under IFRS, goodwill istested for impairment annually or more frequently if events or changes incircumstances indicate that the carrying value may be impaired.

*U.S. GAAP Treatment*

SFAS 142 establishesa method of testing goodwill for impairment on an annual basis or on an interimbasis if an event occurs or circumstances change that would reduce the fairvalue of a reporting unit below its carrying value.

*Reconciling Effect*

The annual goodwillimpairment tests performed by Millicom on December 31, 2005, 2004, and2003 resulted in incremental impairment losses under U.S. GAAP of $1.4 million,$16.5 million, and $nil, respectively.

F-91

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***(d)***    Summaryof Adjustments for Goodwill

| ** **                         | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**               | ** ** |
|------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                         | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** |
| Reversal of  goodwill amortization |       |                   | —     |                   |       | 8,242                  |       |   | 6,695 |   |   |
| Reversal of  depreciation charge   |       |                   | 1,220      |                   |       | 1,117                  |       |   | — |   |   |
| Additional  goodwill impairment    |       |                   | (1,430     | )                      |       | (16,534                | )          |   | — |   |   |
| **Total**                          | ** ** | ** **             | (210       | )                      |       | (7,175                 | )          |   | 6,695 | ** ** | ** ** |

 

**8.   FinancialAssets at Fair Value through Profit and Loss**

*IFRS Treatment*

Millicom records the fairvalue adjustments of its investment in Tele2 in the profit and loss account.

*U.S. GAAP Treatment*

Under U.S. GAAP these fairvalue adjustments should be recorded in shareholders’ equity within the caption“Revaluation Reserve.”

*Reconciling Effect*

In 2005, under U.S. GAAP,Millicom reclassified an unrealized loss of $63.4 million (2004: $127.2 million;2003: reclassification of an unrealized gain of $241.2 million) to shareholders’equity.

**9.   Debt**

***(a)   4% Convertible Notes***

*IFRS Treatment*

Under IFRS, Millicom hasallocated part of the value of the 4% Convertible Notes to debt and part toequity. As a result, an incremental interest expense is recorded, whichcorresponds to the difference between the effective and the nominal interestrate.

*U.S. GAAP Treatment*

UnderU.S. GAAP the 4% Convertible Notes are recorded at nominal value and theinterest charge is computed based on the nominal interest rate.

*Reconciling Effect*

The equity component of$39.1 million of the 4% Convertible Notes recorded for IFRS is reclassified tothe debt component of the 4% Convertible Notes. The incremental interestexpense, which corresponds to the difference between the effective and thenominal interest rate, of $6.3 million recorded under IFRS for the year ended December 31,2005 is reversed under U.S. GAAP (2004: $nil; 2003: $nil).

***(b)   Debt Restructuring Completed in 2003***

In 2003, Millicomimplemented a restructuring by issuing 11% Senior Notes and 2% SeniorConvertible PIK Notes. In November 2003, Millicom issued its 10% Senior Noteswhich were partly used to repay the outstanding 11% Senior Notes. In 2004, the 2%PIK Notes were fully converted or redeemed.

F-92

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

*Reconciling Effect*

The adjustments forthe years ended December 31, 2004 and 2003 to reconcile U.S. GAAP to theIFRS accounting treatment of the debt restructuring that Millicom completed in2003 are as follows:

(i)    in 2003 areclassification of $14,952,000 from the equity component of the 2% PIK Notesto share premium to recognize a beneficial conversion feature (“BCF”) of $14,952,000and a reclassification of $1,295,000 from the equity component to the debtcomponent of the 2% PIK Notes;

(ii)   anamortization charge of the BCF of $10,695,000 for 2004 and $4,257,000 for 2003;

(iii) a decreasein the interest on the 2% PIK Notes of $1,217,000 in 2004 and $4,579,000 in2003 recorded under IFRS to reflect the difference between the effectiveinterest rate of 11% recorded for IFRS and the actual interest rate of 2%recorded for U.S. GAAP;

(iv)  in 2003 anincrease of $16,002,000 in the gain of $96,748,000 realized under IFRS on thedebt exchange, corresponding to the reclassification to deferred costs of thefees related to the issuance of the 11% Senior Notes and 2% PIK Notes (underIFRS these fees are not considered to be related to the new Notes issued,rather they are deducted from the gain realized on the debt exchange); and

(v)   anamortization expense of $1,276,000 in 2004 and $14,726,000 in 2003 of thedeferred costs recognized under (iv).

Summarizedbelow are the adjustments to the net profit for 2004 and 2003 related to thedebt exchange for U.S. GAAP purposes:

| ** **                                                      | ** ** | **Adjustments to profit  for the year ended  December 31, 2004** | ** ** | **Adjustments to profit  for the year ended  December 31, 2003** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **US$ ‘000**                                                                              | ** ** | **US$ ‘000**                                                                              | ** ** |
| Amortization of  BCF on the 2% PIK Notes(ii)                    |       |                                                                                                | (10,695    | )                                                                                                   |       |   | (4,257 | ) |   |
| Adjustment to  interest expenses on the 2% PIK Notes(iii)  |       |                                                                                                | 1,217      |                                                                                                |       |   | 4,579 |   |   |
| Increase in gain  realized on the debt exchange(iv)             |       |                                                                                                | —     |                                                                                                |       |   | 16,002 |   |   |
| Amortization of  incremental deferred costs(v)                  |       |                                                                                                | (1,276     | )                                                                                                   |       |   | (14,726 | ) |   |
|                                                            |       |                                                                                                | (10,754    | )                                                                                                   |       |   | 1,598 |   |   |

 

**10.   Disposalof Argentinian Operation**

Upon adoption of FIN 46R,as of March 31, 2004, Millicom classified its investment in itsArgentinian operation, which had previously been recorded as an equity investmentunder U.S. GAAP as an asset held for sale in accordance with Statement ofFinancial Accounting Standards No. 144 (“SFAS 144”) prior to the divestureon September 22, 2004.

*Reconciling Effect*

For U.S. GAAP purposes,Millicom recorded an adjustment of $5,019,000 in 2004 to the loss recordedunder IFRS on this disposal.

F-93

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**11.   DiscontinuedOperations**

*Reconciling Effect Summary*

**Presented below is an analysis of profit (loss) fromdiscontinued operations under U.S. GAAP:**

| ** **                                                        | ** ** | **Year ended December 31,** | ** ** | **Segment in**    | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------|------------|
| ** **                                                        | ** ** | **2005**                                   | ** ** | **2004**               | ** ** | **2003** | ** ** | **which reported** | ** ** |
| ** **                                                        | ** ** | **US$ ‘000**                     | ** ** | **US$ ‘000** | ** ** | **US$ ‘000** | ** ** | ** ** | ** ** |
| Colombian operations                                              |       | —                                     |       |                   | —     |   |   |   | (2,116 | ) |   | Central America |   |
| Peruvian operations                                               |       | 675                                        |       |                   | (113       | ) |   |   | (5,642 | ) |   | Other |   |
| Pakcom operations                                                 |       | (35,513                                    | )          |                   | (4,730     | ) |   |   | 7,400 |   |   | South Asia |   |
| Argentinean operations                                            |       | —                                     |       |                   | (1,940     | ) |   |   | — |   |   | Other |   |
| Certain operations held  by Great Universal and Modern Holdings   |       | (141                                       | )          |                   | 184        |   |   |   | 2,133 |   |   | See item 1 |   |
| **Profit (loss) from discontinued  operations, net of taxes (a)** | ** ** | **(34,979**                                | **)**      | ** **             | **(6,599** | ) | ** ** | ** ** | **1,775** | ** ** | ** ** | ** ** | ** ** |
| Gain on disposal, net of  taxes(b)                                |       | 4,959                                      |       |                   | 2,812      |   |   |   | 5,882 |   |   |   |   |
| **Profit (loss) from discontinued operations**                    | ** ** | **(30,020**                                | **)**      | ** **             | **(3,787** | **)** | ** ** | ** ** | **7,657** | ** ** | ** ** | ** ** | ** ** |

 

(a)    Excludinggains on disposals

(b)   The taximpact of these items is $1,192,000 (2004: $nil, 2003: $nil)

Thetable below provides information about revenues, cost of sales, operatingexpenses, operating profit and net profit (loss) under U.S. GAAP for the yearsended December 31, 2005, 2004 and 2003 from continuing operationsexcluding the discontinued operations above:

| ** **                                             | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                             | ** ** | **US$ ‘000**      | ** ** | **US$ ‘000**      | ** ** | **US$ ‘000**      | ** ** |
| Revenues from continuing operations     |       |                        | 1,262,239  |                        |       |                        | 946,965    |   |   |   | 404,801 |   |   |
| Operating profit  from continuing operations           |       |                        | 281,878    |                        |       |                        | 244,876    |   |   |   | 76,166 |   |   |
| Net profit (loss)  reported from continuing operations |       |                        | 112,349    |                        |       |                        | 192,658    |   |   |   | (58,014 | ) |   |

 

**12.   CustomerAcquisition Costs**

*IFRS Treatment*

Under IFRS customeracquisition costs are classified under sales and marketing expenses.

*U.S. GAAP Treatment*

Under U.S. GAAP, customeracquisition costs are recorded as cost of sales.

*Reconciling Effect*

For the year ended December 31,2005 an amount of $126.0 million was reclassified from sales and marketing tocost of sales (2004: $83.6 million: 2003: $34.4 million).

F-94

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**13.   ConnectionFees**

*IFRS Treatment*

Until December 31,2004, under IFRS, initial connection revenues were recognized when thesubscriber connected to the network for the first time. On January 1,2005, Millicom changed its accounting policy for connection revenues and costs.Connections revenues are deferred and amortised over the estimated life of thecustomer relationship. Related connection costs are also deferred, to theextent of the connection revenues deferred and amortised over the estimatedlife of the customer relationship. The estimated life of the customerrelationship is calculated based on the percentage of disconnections for thesame type of customer which has occurred historically. Management believes thatthe new accounting policy for connection revenues and costs better reflects theeconomic reality of connection revenues and costs and is also consistent withcurrent practices within the telecommunication industry. The adoption of thenew accounting policy was retrospective and therefore the comparative figureshave been restated.

*U.S. GAAP Treatment*

Under U.S. GAAP,connection revenues are deferred and amortized over the estimated life of thecustomer relationship. As such, there is no longer a difference in accountingtreatment.

**14.   FinancingFees**

*IFRS Treatment*

Under IFRS, the Companyrecords its 10% Senior Notes and the debt component of its 4% Convertible Notesand 5% Mandatory Exchangeable Notes net of un-amortized financing fees incurredto acquire these debts.

*U.S. GAAP Treatment*

Under U.S. GAAP, thesefinancing fees are capitalized as a deferred charge.

*Reconciling Effect*

The amount that isreclassified as an asset in the balance sheet as at December 31, 2005, is$18.3 million (2004:$13.4 million), comprised of $12.4 million for the 10%Senior Notes (2004: $13.4 million;), $3.9 million for the 4% Convertible Notes(2004: $nil;) and $2.0 million for the 5% Mandatory Exchangeable Notes (2004:$5.6 million).

**15.   NewU.S.GAAP Accounting Pronouncements**

In May 2005, the FASB issued Statement 154, *“Accounting Changes and Error Corrections”* (“SFAS 154”),a replacement of APB Opinion 20, *“Accounting Changes”*(“APBO 20”) and FASB Statement 3, *“Reporting AccountingChanges in Interim Financial Statements”* (“SFAS 3”). SFAS 154applies to all voluntary changes in accounting principle and changes theaccounting for and reporting of a change in accounting principle. SFAS 154requires retrospective application to prior periods’ financial statements of avoluntary change in accounting principle unless it is impracticable. APBO 20previously required that most voluntary changes in accounting principle berecognized by including in net income of the period of the change thecumulative effect of changing to the new accounting principle. SFAS 154 also 

F-95

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

requires that a change inmethod of depreciation, amortization, or depletion for long-lived, nonfinancialassets be accounted for as a change in accounting estimate that is effected bya change in accounting principle. APBO 20 previously required that such achange be reported as a change in accounting principle. SFAS 154 carriesforward many provisions of APBO 20 without change, including the provisionsrelated to the reporting of a change in accounting estimate, a change in thereporting entity, and the correction of an error. SFAS 154 also carries forwardthe provisions of SFAS 3 that govern reporting accounting changes in interimfinancial statements. SFAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15,2005. We do not expect the adoption of SFAS 154 to have a material impacton our consolidated financial position or results of operations.

In December, 2004 the FASB issued Statement 123(revised 2004) (“SFAS 123(R)”), *“Share-BasedPayment.”* Statement 123(R) replaces FASB Statement 123, *“Accounting for Stock-Based Compensation,”* supersedesAPB Opinion 25, *“Accounting for Stock Issued to Employees”*and amends FASB Statement No. 95, *“Statement of Cash Flows.”*SFAS 123(R) requires all share-based awards to employees,including grants of employee stock options, to be recognized in the financialstatements based on their grant-date fair values. The related compensationcosts are to be recognized over the period during which an employee is requiredto provide service in exchange for the award. Excess tax benefits are to berecognized as an addition to paid-in capital and reflected as financing cashinflows in the statement of cash flows. We will adopt the prospectiveprovisions of SFAS 123(R) to new and existing plans as ofJanuary 1, 2006. The grant-date fair values of unvested awards that areoutstanding on the date of adoption will be charged to expense over theirremaining vesting periods. We are currently assessing the impact that theimplementation of SFAS 123(R) will have on our consolidated financialposition or results of operations.

In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement 153 (“SFAS 153”), “Exchanges ofNonmonetary Assets—an amendment of APB Opinion 29.” The guidance in AccountingPrinciples Board Opinion 29 (“APBO 29”), “Accounting for NonmonetaryTransactions,” is based on the general principle that exchanges of non-monetaryassets should be measured based on the fair value of the assets exchanged. Theguidance in APBO 29 included certain exceptions to that principle.SFAS 153 amends APBO 29 to eliminate the narrow exception for nonmonetaryexchanges of similar productive assets and replaces it with a broader exceptionfor exchanges of nonmonetary assets that do not have commercial substance (thatis, transactions where future cash flows are not expected to significantlychange as a result of the exchange). We will adopt the provisions ofSFAS 153 for non-monetary asset exchange transactions afterDecember 31, 2005. We do not expect the adoption of SFAS 153 to havea material impact on our consolidated financial position or results ofoperations.

In March 2004, the EITF reached a consensus onEITF Issue 03-1 (“EITF 03-1”), *“The Meaning ofOther-Than-Temporary Impairment and its Application to Certain Investments.”*EITF 03-1 addresses the meaning of other-than-temporary impairment andits application to investments in debt and equity securities accounted forunder Statement of Financial Accounting Standards 115 (“SFAS 115”) , *“Accounting for Certain Investments in Debt and Equity Securities,”*and to investments in equity securities accounted for using the cost method, aswell as new disclosure requirements for investments that are deemed to betemporarily impaired. EITF 03-1 currently provides a multi-step model fordetermining whether an impairment of an investment is other-than-temporary, andrequires that an impairment charge be recognized in earnings in the period inwhich an other-than-temporary impairment has occurred based on the differencebetween the adjusted cost basis of the investment and its fair value at thebalance-sheet date. EITF 03-1 requires certain quantitative andqualitative disclosures about unrealized losses pertaining 

F-96

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

to certain investments andbeneficial interests, in addition to certain disclosures about cost methodinvestments when the fair value of such investments is not currently estimable.While the disclosure requirements for specified debt and equity securities andcost method investments are effective for annual periods ending afterDecember 15, 2003, the FASB has delayed the effective date for theapplication of multi-step measurement and recognition guidance until issuanceof implementation guidance contained in FSP EITF 03-1-1, *“Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1,‘The Meaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments.’”* We do not expect the adoption of EITF No. 03-1to have a material impact on our consolidated financial position or results ofoperations.

F-97

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***BalanceSheet Reconciliations:***

Thefollowing significant balance sheet differences arise under U.S. GAAP as of December 31,2005:

| **Balance sheet as of December 31, 2005** | ** ** | ** ** | ** ** | **Item**               | ** ** | **Per Balance  Sheet Group** | ** ** | **Consolidation  of VIEs and  Proportional  Consolidation  Adjustments(a)  (Item 1)** | ** ** | **Other  Adjustments** | ** ** | **Under  U.S. GAAP  Group** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------------|------------|
| ** **                                                              | ** ** | ** ** | ** ** | **US$ ’000** | ** ** | **US$ ’000**                 | ** ** | **US$ ’000**                                                                               | ** ** | **US$ ’000** | ** ** |
| **Assets**                                                              |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| **Non-Current Assets**                                                  |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Goodwill                                                                |       | 3,7        |       |                   | 73,348     |                                   |       |                                                                                                 | 2,985      |                   |       |                             | 25,282     |   |   | 101,615 |   |
| Other intangible  assets, net                                           |       | 4,14       |       |                   | 299,905    |                                   |       |                                                                                                 | 78,107     |                   |       |                             | 13,216     |   |   | 391,228 |   |
| Property, plant  and equipment, net                                     |       | 7          |       |                   | 671,774    |                                   |       |                                                                                                 | 84,043     |                   |       |                             | (1,639     | ) |   | 754,178 |   |
| Investments in  associates                                              |       |       |       |                   | 5,367      |                                   |       |                                                                                                 | 15,160     |                   |       |                             | —     |   |   | 20,527 |   |
| Financial assets                                                        |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Financial assets available for sale                                     |       |       |       |                   | 6,307      |                                   |       |                                                                                                 | (2,692     | )                      |       |                             | —     |   |   | 3,615 |   |
| Pledged deposits                                                        |       |       |       |                   | 6,500      |                                   |       |                                                                                                 | 488        |                   |       |                             | —     |   |   | 6,988 |   |
| Deferred  taxation(b)                                                   |       |       |       |                   | 4,817      |                                   |       |                                                                                                 | 356        |                   |       |                             | (749       | ) |   | 4,424 |   |
| Total Non-Current Assets                                                |       |       |       |                   | 1,068,018  |                                   |       |                                                                                                 | 178,447    |                   |       |                             | 36,110     |   |   | 1,282,575 |   |
| **Current Assets**                                                      |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Financial assets                                                        |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Financial assets at fair value through profit or  loss                  |       |       |       |                   | 327,803    |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 327,803 |   |
| Financial assets held to maturity                                       |       |       |       |                   | 7,687      |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 7,687 |   |
| Pledged deposits                                                        |       |       |       |                   | 47,035     |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 47,035 |   |
| Inventories                                                             |       |       |       |                   | 16,369     |                                   |       |                                                                                                 | 5,773      |                   |       |                             | —     |   |   | 22,142 |   |
| Trade receivables,  net                                                 |       |       |       |                   | 109,165    |                                   |       |                                                                                                 | 16,069     |                   |       |                             | —     |   |   | 125,234 |   |
| Amounts due from  joint ventures and joint venture partners             |       |       |       |                   | 19,244     |                                   |       |                                                                                                 | 3,602      |                   |       |                             | —     |   |   | 22,846 |   |
| Amounts due from  other related parties                                 |       |       |       |                   | 1,781      |                                   |       |                                                                                                 | 4,427      |                   |       |                             | —     |   |   | 6,208 |   |
| Prepayments and  accrued income                                         |       |       |       |                   | 48,046     |                                   |       |                                                                                                 | 4,896      |                   |       |                             | —     |   |   | 52,942 |   |
| Other current  assets(b)                                                |       |       |       |                   | 67,512     |                                   |       |                                                                                                 | 3,526      |                   |       |                             | 2,778      |   |   | 73,816 |   |
| Time deposits                                                           |       |       |       |                   | 108        |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 108 |   |
| Cash and cash  equivalents                                              |       |       |       |                   | 596,567    |                                   |       |                                                                                                 | 27,394     |                   |       |                             | —     |   |   | 623,961 |   |
| Total Current Assets                                                    |       |       |       |                   | 1,241,317  |                                   |       |                                                                                                 | 65,687     |                   |       |                             | 2,778      |   |   | 1,309,782 |   |
| Total assets from  disposal group classified as held for sale      |       |       |       |                   | 250,087    |                                   |       |                                                                                                 | 16         |                   |       |                             | —     |   |   | 250,103 |   |
| **Total  Assets**                                                       |       |       |       |                   | 2,559,422  |                                   |       |                                                                                                 | 244,150    |                   |       |                             | 38,888     |   |   | 2,842,460 |   |

 

F-98

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**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

 

| **Balance sheet as of December 31, 2005** | ** ** | ** ** | ** ** | **Item**   | ** **  | **Per Balance  Sheet Group** | ** ** | **Consolidation  of VIEs and  Proportional  Consolidation  Adjustments(a)  (Item 1)** | ** ** | **Other  Adjustments** | ** ** | **Under  U.S. GAAP  Group** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|------------|-------------|----------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------------|------------|
| **Shareholders’ Equity and  Liabilities**                          | ** ** | ** ** | ** ** | ** ** | ** **  | ** **                             | ** ** | ** **                                                                                           | ** ** | ** **             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Shareholders’ equity**                                           |       |       |       |       |        |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Share capital and  premium                                              |       | 4,5        |       |       | 465,157     |                                   |       |                                                                                                 | —     |                   |       |                             | (43,953    | ) |   | 421,204 |   |
| Treasury stock                                                          |       |       |       |       | (8,833      | )                                      |       |                                                                                                 | —     |                   |       |                             | —     |   |   | (8,833 | ) |
| 4% Notes—equity  component                                         |       | 9          |       |       | 39,109      |                                   |       |                                                                                                 | —     |                   |       |                             | (39,109    | ) |   | — |   |
| Legal reserve                                                           |       |       |       |       | 13,577      |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 13,577 |   |
| Accumulated  losses brought forward                                     |       |       |       |       | (151,779    | )                                      |       |                                                                                                 | (4,084     | )                      |       |                             | (52,708    | ) |   | (208,571 | ) |
| Net profit for  the year                                                |       |       |       |       | 10,043      |                                   |       |                                                                                                 | (5,487     | )                      |       |                             | 77,773     |   |   | 82,329 |   |
| Currency  translation reserve                                           |       |       |       |       | (76,121     | )                                      |       |                                                                                                 | 1,595      |                   |       |                             | 1          |   |   | (74,525 | ) |
| Deferred  compensation costs                                            |       | 5          |       |       | 4,910       |                                   |       |                                                                                                 | —     |                   |       |                             | (4,910     | ) |   | — |   |
| Revaluation  reserve                                                    |       | 8          |       |       | 3,308       |                                   |       |                                                                                                 | (3,308     | )                      |       |                             | 50,649     |   |   | 50,649 |   |
| Total  Shareholders’ Equity                                        |       |       |       |       | 299,371     |                                   |       |                                                                                                 | (11,284    | )                      |       |                             | (12,257    | ) |   | 275,830 |   |
| Minority Interest                                                       |       | 1,6        |       |       | 34,179      |                                   |       |                                                                                                 | 146,607    |                   |       |                             | —     |   |   | 180,786 |   |
|                                                                    | ** ** | ** ** | ** ** | ** ** | **333,550** | ** **                             | ** ** | ** **                                                                                           | ** ** | ** **             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Liabilities**                                                         | ** ** | ** ** | ** ** | ** ** | ** **  | ** **                             | ** ** | ** **                                                                                           | ** ** | ** **             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Non-current liabilities**                                             |       |       |       |       |        |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| 10% Senior Notes                                                        |       | 14         |       |       | 537,599     |                                   |       |                                                                                                 | —     |                   |       |                             | 12,401     |   |   | 550,000 |   |
| 4% Notes—debt  component                                           |       | 14         |       |       | 163,284     |                                   |       |                                                                                                 | —     |                   |       |                             | 36,716     |   |   | 200,000 |   |
| Other debt and  financing                                               |       |       |       |       | 120,041     |                                   |       |                                                                                                 | 16,637     |                   |       |                             | —     |   |   | 136,678 |   |
| Other non current  liabilities                                          |       |       |       |       | 203,988     |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 203,988 |   |
| Deferred taxation(b)                                                    |       | 1,6        |       |       | 45,228      |                                   |       |                                                                                                 | 16,010     |                   |       |                             | (843       | ) |   | 60,395 |   |
| Total Non Current Liabilities                                           |       |       |       |       | 1,070,140   |                                   |       |                                                                                                 | 32,647     |                   |       |                             | 48,274     |   |   | 1,151,061 |   |
| **Current liabilities**                                                 |       |       |       |       |        |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| 5% Mandatory  Exchangeable Notes—debt component                    |       | 14         |       |       | 315,359     |                                   |       |                                                                                                 | —     |                   |       |                             | 2,029      |   |   | 317,388 |   |
| Other debt and  financing                                               |       |       |       |       | 96,340      |                                   |       |                                                                                                 | 5,272      |                   |       |                             | —     |   |   | 101,612 |   |
| Trade payables                                                          |       |       |       |       | 210,540     |                                   |       |                                                                                                 | 33,537     |                   |       |                             | —     |   |   | 244,077 |   |
| Amounts due to  joint ventures                                          |       |       |       |       | 14,122      |                                   |       |                                                                                                 | (14,111    | )                      |       |                             | —     |   |   | 11 |   |
| Amounts due to  other related parties                                   |       |       |       |       | 4,780       |                                   |       |                                                                                                 | 576        |                   |       |                             | —     |   |   | 5,356 |   |
| Accrued interest  and other expenses                                    |       |       |       |       | 61,236      |                                   |       |                                                                                                 | 18,225     |                   |       |                             | —     |   |   | 79,461 |   |
| Other current  liabilities(b)                                           |       |       |       |       | 206,631     |                                   |       |                                                                                                 | 31,835     |                   |       |                             | 842        |   |   | 239,308 |   |
| Total Current Liabilities                                               |       |       |       |       | 909,008     |                                   |       |                                                                                                 | 75,334     |                   |       |                             | 2,871      |   |   | 987,213 |   |
| Total liabilities  from disposal group classified as held for sale      |       |       |       |       | 246,724     |                                   |       |                                                                                                 | 846        |                   |       |                             | —     |   |   | 247,570 |   |
| Total Liabilities                                                       |       |       |       |       | 2,225,872   |                                   |       |                                                                                                 | 108,827    |                   |       |                             | 51,145     |   |   | 2,385,844 |   |
| **Total Shareholders’ Equity and  Liabilities**                    |       |       |       |       | 2,559,422   |                                   |       |                                                                                                 | 244,150    |                   |       |                             | 38,888     |   |   | 2,842,460 |   |

 

(a)           this column includesonly the IFRS amounts applicable; U.S. GAAP adjustments related to theseamounts are included in succeeding columns.

(b)          UnderIFRS all deferred tax assets and liabilities are classified as non-current.Under U.S. GAAP deferred tax assets and liabilities are classified as eithercurrent or non-current based on the 

F-99

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

classification ofthe related asset or liability. Accordingly, as of December 31, 2005,Millicom reclassified $749,000 from non-current deferred tax assets tocurrent deferred tax assets and $843,000 from non-current deferred taxliabilities to current deferred tax liabilities.

The following significantbalance sheet differences arise under U.S. GAAP as of December 31, 2004:

| **Balance sheet as of December 31, 2004** | ** ** | ** ** | ** ** | **Item**               | ** ** | **Per Balance  Sheet Group** | ** ** | **Consolidation  of VIEs and  Proportional  Consolidation  Adjustments(a)  (Item 1)** | ** ** | **Other  Adjustments** | ** ** | **Under  U.S. GAAP  Group** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------------|------------|
| ** **                                                              | ** ** | ** ** | ** ** | **US$ ’000** | ** ** | **US$ ’000**                 | ** ** | **US$ ’000**                                                                               | ** ** | **US$ ’000** | ** ** |
| **Assets**                                                              |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| **Non-Current Assets**                                                  |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Goodwill                                                                |       | 3,7        |       |                   | 37,702     |                                   |       |                                                                                                 | 12,293     |                   |       |                             | 34,914     |   |   | 84,909 |   |
| Other intangible assets, net                                            |       | 4,14       |       |                   | 280,266    |                                   |       |                                                                                                 | 4,041      |                   |       |                             | 13,281     |   |   | 297,588 |   |
| Property, plant and equipment, net                                      |       | 7          |       |                   | 575,649    |                                   |       |                                                                                                 | 43,823     |                   |       |                             | 314        |   |   | 619,786 |   |
| Investments in associates                                               |       |       |       |                   | 2,220      |                                   |       |                                                                                                 | 42,492     |                   |       |                             | (66        | ) |   | 44,646 |   |
| Financial assets                                                        |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Financial assets at fair value through profit or loss                   |       |       |       |                   | 397,137    |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 397,137 |   |
| Financial assets available for sale                                     |       |       |       |                   | 3,011      |                                   |       |                                                                                                 | (2,111     | )                      |       |                             | —     |   |   | 900 |   |
| Financial assets held to maturity                                       |       |       |       |                   | 7,529      |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 7,529 |   |
| Pledged deposits                                                        |       |       |       |                   | 25,544     |                                   |       |                                                                                                 | 488        |                   |       |                             | (24        | ) |   | 26,008 |   |
| Deferred taxation(b)                                                    |       |       |       |                   | 5,883      |                                   |       |                                                                                                 | 2,857      |                   |       |                             | (1,246     | ) |   | 7,494 |   |
| Total Non-Current Assets                                                |       |       |       |                   | 1,334,941  |                                   |       |                                                                                                 | 103,883    |                   |       |                             | 47,173     |   |   | 1,485,997 |   |
| **Current Assets**                                                      |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Financial assets                                                        |       |       |       |                   |       |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Financial assets held to maturity                                       |       |       |       |                   | 15,327     |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 15,327 |   |
| Pledged deposits                                                        |       |       |       |                   | 9,260      |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 9,260 |   |
| Inventories                                                             |       |       |       |                   | 16,304     |                                   |       |                                                                                                 | 1,028      |                   |       |                             | (42        | ) |   | 17,290 |   |
| Trade receivables, net                                                  |       |       |       |                   | 141,972    |                                   |       |                                                                                                 | 14,001     |                   |       |                             | (80        | ) |   | 155,893 |   |
| Amounts due from joint ventures and joint venture  partners             |       |       |       |                   | 11,715     |                                   |       |                                                                                                 | (11,715    | )                      |       |                             | —     |   |   | — |   |
| Amounts due from other related parties                                  |       |       |       |                   | 2,067      |                                   |       |                                                                                                 | 630        |                   |       |                             | (3         | ) |   | 2,694 |   |
| Prepayments and accrued income                                          |       |       |       |                   | 38,259     |                                   |       |                                                                                                 | 7,528      |                   |       |                             | 2,693      |   |   | 48,480 |   |
| Other current assets(b)                                                 |       |       |       |                   | 62,377     |                                   |       |                                                                                                 | 7,960      |                   |       |                             | 274        |   |   | 70,611 |   |
| Time deposits                                                           |       |       |       |                   | 610        |                                   |       |                                                                                                 | —     |                   |       |                             | (610       | ) |   | — |   |
| Cash and cash equivalents                                               |       |       |       |                   | 413,381    |                                   |       |                                                                                                 | 14,873     |                   |       |                             | (178       | ) |   | 428,076 |   |
| Total Current Assets                                                    |       |       |       |                   | 711,272    |                                   |       |                                                                                                 | 34,305     |                   |       |                             | 2,054      |   |   | 747,631 |   |
| Total assets from disposal group classified as held for  sale      |       |       |       |                   | —     |                                   |       |                                                                                                 | —     |                   |       |                             | 3,933      |   |   | 3,933 |   |
| **Total Assets**                                                        |       |       |       |                   | 2,046,213  |                                   |       |                                                                                                 | 138,188    |                   |       |                             | 53,160     |   |   | 2,237,561 |   |

 

F-100

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

 

| **Balance sheet as of December 31, 2004** | ** ** | ** ** | ** ** | **Item**   | ** **  | **Per Balance  Sheet Group** | ** ** | **Consolidation  of VIEs and  Proportional  Consolidation  Adjustments(a)  (Item 1)** | ** ** | **Other  Adjustments** | ** ** | **Under  U.S. GAAP  Group** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|------------|-------------|----------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------------|------------|
| **Shareholders’ Equity and Liabilities**                           | ** ** | ** ** | ** ** | ** ** | ** **  | ** **                             | ** ** | ** **                                                                                           | ** ** | ** **             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Shareholders’ equity**                                           |       |       |       |       |        |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Share capital and premium                                               |       | 4,5        |       |       | 513,782     |                                   |       |                                                                                                 | —     |                   |       |                             | (41,467    | ) |   | 472,315 |   |
| Treasury stock                                                          |       |       |       |       | (8,833      | )                                      |       |                                                                                                 | —     |                   |       |                             | —     |   |   | (8,833 | ) |
| Legal reserve                                                           |       |       |       |       | 13,577      |                                   |       |                                                                                                 | —     |                   |       |                             | —     |   |   | 13,577 |   |
| Accumulated losses brought forward                                      |       |       |       |       | (278,512    | )                                      |       |                                                                                                 | (7,961     | )                      |       |                             | (163,610   | ) |   | (450,083 | ) |
| Net profit for the year                                                 |       |       |       |       | 65,891      |                                   |       |                                                                                                 | 3,878      |                   |       |                             | 119,102    |   |   | 188,871 |   |
| Currency translation reserve                                            |       |       |       |       | (71,116     | )                                      |       |                                                                                                 | 1,528      |                   |       |                             | —     |   |   | (69,588 | ) |
| Deferred compensation costs                                             |       | 5          |       |       | 2,297       |                                   |       |                                                                                                 | —     |                   |       |                             | (2,491     | ) |   | (194 | ) |
| Revaluation reserve                                                     |       | 8          |       |       | —      |                                   |       |                                                                                                 | —     |                   |       |                             | 114,005    |   |   | 114,005 |   |
| Total Shareholders’ Equity                                         |       |       |       |       | 237,086     |                                   |       |                                                                                                 | (2,555     | )                      |       |                             | 25,539     |   |   | 260,070 |   |
| Minority Interest                                                       |       | 1,6        |       |       | 43,351      |                                   |       |                                                                                                 | 60,800     |                   |       |                             | (553       | ) |   | 103,598 |   |
| ** **                                                              | ** ** | ** ** | ** ** | ** ** | **280,437** | ** **                             | ** ** | ** **                                                                                           | ** ** | ** **             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Liabilities**                                                         | ** ** | ** ** | ** ** | ** ** | ** **  | ** **                             | ** ** | ** **                                                                                           | ** ** | ** **             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Non-current liabilities**                                             |       |       |       |       |        |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| 10% Senior Notes                                                        |       | 14         |       |       | 536,629     |                                   |       |                                                                                                 | —     |                   |       |                             | 13,371     |   |   | 550,000 |   |
| 5% Mandatory  Exchangeable Notes—debt component               |       | 14         |       |       | 365,006     |                                   |       |                                                                                                 | —     |                   |       |                             | 5,634      |   |   | 370,640 |   |
| Other debt and financing                                                |       |       |       |       | 124,267     |                                   |       |                                                                                                 | 18,125     |                   |       |                             | —     |   |   | 142,392 |   |
| Other non current  liabilities                                          |       |       |       |       | 194,774     |                                   |       |                                                                                                 | (111       | )                      |       |                             | —     |   |   | 194,663 |   |
| Deferred taxation(b)                                                    |       | 1,6        |       |       | 39,216      |                                   |       |                                                                                                 | 1,956      |                   |       |                             | (1,997     | ) |   | 39,175 |   |
| Total Non Current  Liabilities                                          |       |       |       |       | 1,259,892   |                                   |       |                                                                                                 | 19,970     |                   |       |                             | 17,008     |   |   | 1,296,870 |   |
| **Current liabilities**                                                 |       |       |       |       |        |                                   |       |                                                                                                 |       |                   |       |                             |       |   |   |   |   |
| Other debt and financing                                                |       |       |       |       | 88,511      |                                   |       |                                                                                                 | 8,275      |                   |       |                             | —     |   |   | 96,786 |   |
| Trade payables                                                          |       |       |       |       | 173,969     |                                   |       |                                                                                                 | 12,116     |                   |       |                             | (968       | ) |   | 185,117 |   |
| Amount due to joint  ventures                                           |       |       |       |       | 7,760       |                                   |       |                                                                                                 | 1,355      |                   |       |                             | —     |   |   | 9,115 |   |
| Amounts due to other  related parties                                   |       |       |       |       | 975         |                                   |       |                                                                                                 | 326        |                   |       |                             | (5         | ) |   | 1,296 |   |
| Accrued interest and  other expenses                                    |       |       |       |       | 55,203      |                                   |       |                                                                                                 | 22,253     |                   |       |                             | 11,854     |   |   | 89,310 |   |
| Other current  liabilities(b)                                           |       |       |       |       | 179,466     |                                   |       |                                                                                                 | 15,648     |                   |       |                             | (1,025     | ) |   | 194,089 |   |
| Total Current  Liabilities                                              |       |       |       |       | 505,884     |                                   |       |                                                                                                 | 59,973     |                   |       |                             | 9,856      |   |   | 575,713 |   |
| Total liabilities from  disposal group classified as held for sale |       |       |       |       | —      |                                   |       |                                                                                                 | —     |                   |       |                             | 1,310      |   |   | 1,310 |   |
| Total Liabilities                                                       |       |       |       |       | 1,765,776   |                                   |       |                                                                                                 | 79,943     |                   |       |                             | 28,174     |   |   | 1,873,893 |   |
| **Total Shareholders’ Equity and  Liabilities**                    |       |       |       |       | 2,046,213   |                                   |       |                                                                                                 | 138,188    |                   |       |                             | 53,160     |   |   | 2,237,561 |   |

----

(a)           this column includesonly the IFRS amounts applicable; U.S. GAAP adjustments related to theseamounts are included in succeeding columns.

(b)          UnderIFRS all deferred tax assets and liabilities are classified as non-current.Under U.S. GAAP deferred tax assets and liabilities are classified as eithercurrent or non-current based on the classification of the related assetor liability. Accordingly, as of December 31, 2004, Millicom reclassified$274,000 from non-current deferred tax assets to current deferred taxassets and $627,000 from non-current deferred tax liabilities to currentdeferred tax liabilities.

F-101

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

***Comprehensive Income:***

TheCompany’s statement of comprehensive income under U.S. GAAP for the years endedDecember 31, 2005, 2004 and 2003 is as follows:

| ** **                                                                                                  | ** ** | **2005**                 | ** ** | **2004**                 | ** ** | **2003**                 | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                                                                                  | ** ** | **U.S.$ ’000** | ** ** | **U.S.$ ’000** | ** ** | **U.S.$ ’000** | ** ** |
| Net profit (loss)  under U.S. GAAP                                                                          |       |                     | 82,329     |                     |       | 188,871                  |       |   | (50,357 | ) |   |
| Other comprehensive  income (loss):                                                                         |       |                     |       |                     |       |                     |       |   |   |   |   |
| Holding (loss)  gain excluding effect of sale of marketable securities sold during the year,  net of tax(a) |       |                     | (63,356    | )                        |       | (127,158                 | )          |   | 241,163 |   |   |
| Currency  translation reserve                                                                               |       |                     | (4,937     | )                        |       | (3,050                   | )          |   | 14,923 |   |   |
| Other  comprehensive (loss) income                                                                          |       |                     | (68,293    | )                        |       | (130,208                 | )          |   | 256,086 |   |   |
| Comprehensive income  under U.S. GAAP                                                                       |       |                     | 14,036     |                     |       | 58,663                   |       |   | 205,729 |   |   |

----

(a)           Thetax impact on these items is $nil (2004: $nil; 2003: $nil)

***Additional Stock Option Disclosure:***

Asdescribed above, under U.S. GAAP, the Company accounts for stock options underAPB25 (see item 5). Had compensation costs been determined in accordancewith SFAS 123, the Company’s net income and loss per share would have beenadjusted to the following pro forma amounts:

| ** **                                                                                                                                          | ** ** | **2005**                 | ** ** | **2004**                 | ** ** | **2003**                 | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                          | ** ** | **U.S.$ ’000** | ** ** | **U.S.$ ’000** | ** ** | **U.S.$ ’000** | ** ** |
| Net profit  (loss), as reported                                                                                                                     |       |                     | 82,329     |                     |       | 188,871                  |       | (50,357 | ) |
| Add: total stock-based  employee compensation expense determined under APB 25 for all awards,  net of related tax effects                      |       |                     | (1,830     | )                        |       | 1,256                    |       | 1,157 |   |
| Deduct: total  stock-based employee compensation expense determined under fair value  based method for all awards, net of related tax effects  |       |                     | (3,311     | )                        |       | (2,039                   | )          | (2,579 | ) |
| Pro forma net  profit (loss)                                                                                                                        |       |                     | 77,188     |                     |       | 188,088                  |       | (51,779 | ) |
| Profit (loss) per  share:                                                                                                                           |       |                     |       |                     |       |                     |       |   |   |
| As reported (basic)—                                                                                                                           |       |                     | $          | 0.83                     |       |                     | $          | 2.27 |   | $ | (0.77 | ) |
| As reported  (diluted)—                                                                                                                        |       |                     | $          | 0.82                     |       |                     | $          | 2.09 |   | $ | (0.77 | ) |
| Pro forma  (basic)—                                                                                                                            |       |                     | $          | 0.78                     |       |                     | $          | 2.26 |   | $ | (0.79 | ) |
| Pro forma (diluted)—                                                                                                                           |       |                     | $          | 0.77                     |       |                     | $          | 2.08 |   | $ | (0.79 | ) |

 

The fair value of theoptions granted was estimated on the date of grant using an option pricingmodel with the following assumptions: risk free interest rates of 3.74% (2004: 2.16%,2003: 4.12%), expected lives ranging from 1 to 20 years, no dividendsand expected volatility of 46.5% (2004: 47.1%; 2003: 117.3%).

F-102

----

**Notes to the consolidated financial statements (Continued)                                                 Millicom International**

**As of December 31, 2005, 2004 and 2003                                                                                                      Cellular S.A.**

**38.   SUBSEQUENTEVENTS**

On January 16, 2006, Millicom delisted from theLuxembourg stock exchange.

On January 19, 2006 Millicom announced that ithad received a high number of unsolicited approaches and had decided to conducta review of the strategic options for the Company. It appointed a financialadvisor in this respect.

On January 23, 2006, Millicom purchased theremaining 15.6% ownership interest in Millicom Tanzania Limited, its operationin Tanzania in which Millicom now has 100% ownership.

On February 1, 2006, Millicom completed thesecond and final installment of its agreement to purchase the remaining 30%ownership interest in Millicom Sierra Leone Limited (see note 4).

On February 27, 2006, Millicom’s subsidiary inSri Lanka, Celltel extended its mobile license in Sri Lanka until 2018 ata cost of approximately US$5 million.

On March 14, 2006, Millicom purchased theremaining 25% ownership interest in Sentel GSM, its operation in Senegal inwhich Millicom now has 100% ownership.

On March 20, 2006, Millicom sold Pakcom (subjectto regulatory approval), one of Millicom’s operations in Pakistan, to theArfeen Group for a nominal amount. As part of the agreement the Arfeen Groupwere also sold 10% of Paktel, Millicom’s other operation in Pakistan. Millicom willretain full management and operational control of Paktel. In consideration forthe above, the parties have signed agreements to withdraw all existing lawsuitsand arbitration they have brought against each other.

In April 2006, Millicom purchased the remaining4% ownership interest in Telecel Paraguay (subject to regulatory approval), itsoperation in Paraguay in which Millicom now has 100% ownership.

F-103

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| **Shareholder information**          |
|--------------------------------------|
| **Corporate  and registered office** |
| Millicom  International Cellular SA  |
| 75 Route de  Longwy                  |
| L-8080 Bertrange                     |
| Luxembourg                           |
| Tel: +352 27 759  101                |
| Fax: +352 27 759  359                |
| RCB 40630 Luxembourg                 |
| **Investor  relations**              |
| Shared Value  Limited                |
| 30 St. James’s Square           |
| London SW1 4JH                       |
| Tel: +44(0)20  7321 5010             |
| Fax: +44(0)20  7321 5020             |
| E-mail  mic@sharedvalue.net          |
|                                 |
| **Visit  MIC’s homepage at**    |
| http://www.millicom.com              |
| **Financial  Calendar**              |
| May 30, 2006                         |
| Annual General  Meeting              |
| July 26, 2006                        |
| Second quarter  results              |
| October 25, 2006                     |
| Third quarter  results               |
| February 2007                        |
| Full year results  2006              |

104

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**SIGNATURES**

Underthe requirements of Section 12 of the Securities Exchange Act of 1934, theRegistrant certifies that it meets all of the requirements for filing on Form 20-Fand has duly caused this annual report to be signed on its behalf by theundersigned, thereunto duly authorized.

| Dated: May 1, 2006 |                                  |
|-------------------------|---------------------------------------|
|                         | MILLICOM INTERNATIONAL  CELLULAR S.A. |
|                    | By:                                   | /s/ MARC BEULS |
|                    |                                  | Name: Marc Beuls |
|                    |                                  | Title:* Chief Executive Officer* |
|                    | By:                                   | /s/ DAVID SACH |
|                    |                                  | Name: David Sach |
|                    |                                  | Title:* Chief Financial Officer* |

 

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