We upgrade our recommendation on Millicom International Cellular S.A. ( ) to Outperform. Millicom reported excellent financial results for the first quarter of 2011, easily beating the Zacks Consensus Estimates. This fabulous performance was primarily attributable to a double-digit growth in Latin America and Africa. Furthermore, highly penetrated Central American region also witnessed a 5% revenue growth. Significant growth of 3G mobile and broadband services coupled with lucrative wireless value-added services business in Central/South America and Africa will serve as long-term business catalysts.

Millicom operates in Central & South America, and Africa. These regions are economically less stable, but average mobile penetration rates remain appealing at around 40% (20%-25% in Africa) fostering vast revenue potential. Management has raised its share repurchase program by $500 million over its previous authorization level for 2011.

Millicom is upgrading its older TDMA and CDMA wireless networks to high-speed 3G wireless capabilities in Latin & Central America. So far the company has 1.927 million 3G subscribers. This is expected to improve the company’s financials in future. At the end of the first quarter of 2011, Millicom had approximately 39.763 million wireless subscribers, up 13% year over year. During the previous quarter, Millicom added 1.2 million net new mobile subscribers.

With the gradual deployment of 3G wireless services, Millicom is slowly shifting its focus from low-end customers to higher paying customers. This strategy helps the company to check its sequential fall in ARPU (average revenue per user). Consolidate ARPU in the previous quarter was $9.4, while remaining flat year over year.

Millicom is giving major thrust in its African operations for future growth. However, Africa is seeing increased competition. Global telecom giants like Vodafone Group plc. ( VOD - Analyst Report ) , South African MTN, Bharti Airtel, and France Telecom S.A. ( FTE - Analyst Report ) are existing players in this market. The company’s Central/Latin American operations are also facing stiff competition from several large telecom operators like America Movil S.A.B. ( AMX - Analyst Report ) , Telekom Argentina S.A. ( TEO - Snapshot Report ) , and Telefonica S.A. ( TEF - Analyst Report ) .