Megacable holds its own in Mexico's highly concentrated markets

Tuesday, April 11, 2017

What do Mexico's popular soccer club Chivas de Guadalajara and US President Donald Trump have in common? They can both hit the bottom line of pay-TV, internet access and fixed-line telephony services provider Megacable Holdings.

Chivas has signed a deal with Televisa Deportes Network (TDN) to make its games available on cable systems nationwide. But Guadalajara-based Megacable, the third-biggest cable operator in the country, decided back in September to stop carrying some of its competitor's channels, among them TDN.

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While Megacable has since reached a deal to carry Spanish broadcaster Mediapro's Formula One channel in Mexico, it may come back to regret shunning its hometown club Chivas – one of the most popular teams in the country. In fact, Megacable lost 59,000 pay-TV subscriptions in the last Q4, though it closed 2016 with nearly 2.97mn subscribers for a 5% gain.

As for Trump? The Mexican currency's volatility since the real estate mogul turned politician took power in the US has impacted the telco particularly hard.

"It affects us twofold: in our operations, as some of our costs are in dollars, such as content acquisition; and especially in our capital investments, because 90% of our investments are denominated in dollars," CEO Enrique Yamuni said earlier this month at the opening of its new Mexico City office catering to the corporate segment.


The company is minority stakeholder in Altán Redes, the consortium in charge of building Mexico's wholesale shared mobile network, Red Compartida. MegaCable's role consists of providing dark fiber and integrated circuits to connect base stations. 

Through its participation in the US$7bn project to provide 4G coverage to over 92% of the population by 2024, MegaCable plans to provide quadruple play services in the near future. 

The Guadalajara-based telco reported revenues of 4.45bn pesos (US$263mn) in the fourth quarter of last year, up 13.5% from the previous quarter, and full-year 2016 income of 16.9bn.  


In Mexico's highly concentrated fixed telephony market, Megacable and its MCM unit had a 6.8% market share by the end of 3Q16, compared to 4% a year earlier, according to data from telecom regulator IFT.

América Movil's Telmex-Telnor led the field with a 64.2% market share, followed by Grupo Televisa's 15.8%. Megacable's closest competitor was Telefónica's GTM with 5.5%. 

Megacable ended the fourth quarter with 1.17mn fixed telephony subscribers, up 11% from the previous quarter and up 31% from 4Q15. The company reduced its fixed telephony disconnection rate to 4% in Q4 from 5.2% in 4Q15. 



Megacable's copper and fiber network extends across 54,339km with 7.86mn homes passed. When including its subsidiaries' infrastructure, it reaches 74,000km. The operator invested 4.9bn pesos in expanding its network and acquiring data terminal equipment last year.

The company had a 13.5% share of the fixed broadband segment in 3Q16, up from the 11.9% a year prior. Once again, Telmex-Telnor had the market lead with 57.7%, followed by Televisa with 21.4%. 

Megacable's broadband subscribers shot up 22% year-on-year to 2.27mn in Q4. 



The Mexican pay-TV market also remains concentrated, with Televisa controlling 51% of subscriptions through 3Q16. Dish-MVS had 20.8% and Megacable-MCM was third with 14.8%, down from the 34% a year earlier.  

Megacable attributed the decline to its "changes in programming," in reference to its controversial decision to remove Televisa Networks programming from its offer. It has since resumed carrying four Televisa channels out of the 14 it originally had. 

In Q4, it had a disconnection rate of 3.8%, up 0.7% from the previous quarter. 



The business segment comprises 20% of Megacable's revenue stream, totaling 921mn pesos in the fourth quarter, and 3.12bn for full-year 2016. 

MetroCarrier – the business unit launched by Megacable in 2003 – reported income of 174mn pesos in 4Q16 and 654mn for full-year 2016.  

Megacable acquired a 51% share with voting rights in Mexican ICT solutions provider Ho1a in 2013. The unit has since grown 400%, according to its CEO Armando de la Torre, securing private and public sector contracts, such as one signed in 2015 to install 160,000 smart meters in Mexico valley for CFE, the largest electric utility in Latin America.  

Ho1a recorded revenue of 470mn pesos in 4Q16 and of 1.45bn in full-year 2016.



The difficulties in increasing market participation levels in the concentrated fixed telephony and pay-TV markets have led Megacable to seek expansion opportunities in the Mexican corporate segment, where it only trails Telmex. 

"We're open to any opportunity, and we're actively searching for one that makes sense for us in the corporate market," Megacable Holdings joint general director Raymundo Fernández was quoted as saying by El Economista in late March.

Meanwhile, Ho1a and Metrocarrier are pooling their respective in ICT solutions and infrastructure to serve SMEs with managed services, cloud and support out of the group's new Mexico City office.

Other recent investments include 3.2mn pesos to expand a fiber transport network in the southeastern states of Yuacatán, Quintana Roo, and Campeche, and 12mn to to provide high-speed internet, voice, data, and video services to corporate clients.