'The idea is to have national coverage': Megacable's aim to conquer Mexico

Mexican telco Megacable is accelerating its conversion to fiber optics and is also advancing with a project to expand its fiber coverage in order to add new cities and eventually double the size of the company.

That plan started with a move to shift 50% of its HFC cable network to fiber and migrate the dismantled nodes to the other 50% of the network.

However, shortly after that project was completed, Megacable decided to move forward with migrating the remaining 50% of the network to fiber optics because consumers were demanding better services.

The fiber migration experience enabled the company to gain a better understanding of the logistics of deployment and operation of fiber optics, prompting it to create a five-year plan to double its size.

In this interview, Megacable CEO Enrique Yamuni talks to BNamericas about the firm's business plans and the investments it expects to make going forward.

BNamericas: How is the plan to double the size of the company progressing?

Yamuni: Two years ago, we started the plan to double the size of the company within four or five years. It's an expansion plan costing around US$2bn and we've already invested more than US$800mn.

This year we will invest and in 2024-25 we will begin to slow down the rate of investment because by then we will have converted all the company's important areas, which are where we have some kind of competition, and cities that we need and which are important.

In 2022 we launched a large number of new and important cities such as Chihuahua, Tijuana, Ciudad Juárez, Mexico City, Monterrey, Aguascalientes, San Luis Potosí.

This year we will be launching Mérida, Villa Hermosa, Acapulco. We're going to enter Tamaulipas state … the idea is to have national coverage.

We already have a long-distance network that we're reinforcing.

BNamericas: What were the results?

Yamuni: The results started being seen last quarter. This first quarter, they should be even better and from the second quarter of 2023 they will begin to be seen more seriously in terms of the number of subscribers and income.

In 2022 we had growth. It wasn't a year where we expected great growth because it was a year of investment, of launching markets. And we start with small launches. If last year we built approximately 24,000km of fiber including expansions to new cities and conversion of existing ones, this year we have to build more than 30,000km.

Likewise, there have been lots of challenges, especially since the pandemic imposed a shortage of materials on us. For example, to be able to obtain the terminal equipment, the fiber modems that go to the users' homes, we went from delivery times of five weeks to almost 60 weeks. We're now buying what we're going to use in a year, and they're also more expensive.

BNamericas: And what do you expect for 2023 regarding the supply chain?

Yamuni: I think the chip problem has been overcome, not completely, but it's not that dramatic. We also already know that we have to order the equipment with more notice. There's enough fiber and if you could place fiber orders, deliveries are scheduled and have been fulfilled.

I think the most important challenge for us is family finances. The minimum wage has risen 100% in the last four years, people's purchasing power has improved, but salaries aren't enough and we're competing strongly with other family needs, especially in the last quintile of the economy. 

I'm talking about a segment of the population that can't afford broadband and can't buy terminal equipment. Two and a half years of the pandemic went past without any support for these families.

BNamericas: Do you think subsidies or low-cost plans should be implemented?

Yamuni: Low-cost plans haven't worked. We're the company with the lowest ARPU, because we're the most efficient. We have the lowest prices and the highest margins, and even so we're not able to get a segment of the population to take contracts because they don't have enough money.

In our growth projections we don't consider [this segment of the population] but I think it's something that has to be done. And at some point the government is going to realize.

I think that what we've been doing, where we entered to compete with Totalplay, with Izzi or with Telmex, with efficiency in our operations and lower ARPU, that gives us a great advantage to enter these new markets.

The intrinsic rotation of the markets helps us. We can go for that ARPU and for the subscriber who wants to change providers. Our projections indicate that having a 25% share of the market would be a very good thing. In the areas where we're the incumbent, our market share is much higher than 25%. We're not thinking that we're going to reach these new cities and we're going to take market away from everyone, but we're going to take our share of the market.

BNamericas: How many cities have fiber coverage?

Yamuni: There must be about 200, 250 cities with fiber and many others that continue with HFC. We should have about 450 cities covered.

BNamericas: Could you tell us more about the migration plan for the cities with HFC?

Yamuni: I think we're going to have about 80% of those kilometers of HFC converted into fiber by 2024 and in 2025, 2026, we'll finish migrating the other 20%.

BNamericas: How does that migration complement the service offering?

Yamuni: We have the most advanced video service in Mexico, very similar to any company in advanced markets in the US, Canada or Europe. Our terminal equipment already has Netflix, Amazon Prime, HBO, Star+, all the applications. And it works fantastically with our high-speed internet and our own streaming service.

BNamericas: What percentage of video clients are signing up for streaming services with you?

Yamuni: Not much now, but gradually the client migrates to having them with us. We should have a couple of hundred thousand Netflix subscribers, which if you compare to the total base isn't that many, but we think it's going to grow.

BNamericas: Going back to the fiber optic expansion plan, do you plan to grow solely organically or are you also considering inorganic growth options?

Yamuni: There aren't many small operators to buy and those that do exist would be inefficient due to the technical and technological state of those companies. It's buying them to deploy a new network.

There is room with big operators. We'll see what we will do with them. We aren't ruling out the idea of forming a partnership with a large operator. We're always open to the best options for subscribers and for the company's shareholders, but it's not something we have in mind or is on the horizon right now.

BNamericas: You rejected the proposal that Televisa made to you though? 

Yamuni: The board thought at that time that it wasn't a good option; that the plan the company's administration presented for the expansion and conversion of the network was better.

BNamericas: When you refer to a partnership with the big operators, are you considering sharing infrastructure?

Yamuni: Right now, there's a lot of excitement about infrastructure companies. I think we should finish our plan and then look at the options. But, in the future, we aren't ruling out anything, we're open to everything.

BNamericas: And how are you doing with the mobile service that you offer as an MVNO?

Yamuni: It's not our core [business] but we believe it can be a business because it doesn't need us to 'burn through capex', we don't have to make capital investments. We've done some cell phone promotions because we've gotten some great deals with manufacturers, but it's not something we're [actively] looking for.

It's by far the best offer on the market. For 250 pesos a month [US$13] you get practically unlimited gigabytes, that is, I think it's 20 gigabytes. No company anywhere in the world gives you 20 gigabytes for 250 pesos.

Altán has been improving coverage and service and we also have a contract with AT&T – not under the same conditions as Altán – but in areas where there's still no Altán coverage.

We're moving to postpaid services a lot, trying to be innovative and, you know, 85% of cell services in Mexico are prepaid. We're also offering family packages.

In 2022 we already earned money [from the mobile service]. It's not spectacular profits, but considering we don't invest any capital, it's pretty good.