Megacable Holdings, S. A. B. de C. V. (MEGACPO) Earnings Call Transcript & Summary

Good morning, and welcome to Megacable's Fourth Quarter 2023 Earnings Conference Call. With us this morning from Megacable, we have Mr. Enrique Yamuni, CEO; Mr. Raymundo Fernandez, Deputy CEO; and Mr. Luis Zetter, CFO. Let me remind you that the information discussed in today's earnings call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risks and uncertainties. Megacable undertakes no obligation to update or revise any forward-looking statements. I will now turn the call over to Mr. Enrique Yamuni. Sir, you may begin.

Thank you for joining us today. Once again, during this period, we have achieved strong operating and financial performance, supported by the successful execution of our special projects. After the sales strategy adjustments, we are returning to the subscriber growth trend of previous periods, supported by greater penetration in expansion cities, while legacy territories continued to grow, despite the competitive market in that line in 2023, will recorded the highest annual net additions of broadband and unique subscribers in the company's history. As we have mentioned before, our expansion plan was conceived with 2 main strategies: First, the building of the infrastructure, which would bring 8 million to 9 million additional homes to the 9.3 million homes that we have when we announced this initiative, using state-of-the-art fiber technology and entering into approximately 60 new cities. And second, to gradually increase the penetration rates to levels of 20% the objective that we have set. These real results in the subscriber increase that we will generate additional revenues. As of December 2023, we are very satisfied with this year's significant achievements in both strategies. As we have far exceeded the initial expectations for this period, bringing us closer to the project conclusion. Regarding the Building phase, we managed to add close to 4 million homes passed, during the year with the state-of-the-art fiber technology. With this result, we now have reached 6.1 million additional homes, passed since the third quarter of '21, which implies that we are very close to conclusion, it is important to highlight that we have achieved this within the time frame we initially established by the company. With respect to penetration levels, we have reached a total average of 13%, as of December. However, for some territories that we have been operating for a longer period, we have started to see levels of 20%. This allow us to be optimistic about regional penetration targets in all of the territories and tasks to achieve the expected return of investment. At the same time, we have continued with our network evolution project, which is another initiative that supports our fiber adoption. During this year, we have migrated more than 6,100 kilometers to fiber from the HFC network, to reach a total of 35,000 kilometers updated since we started this project in 2020. Both initiatives have contributed to increase the percentage of fiber footprint in the company's network, as of the end of 2023. 63% of our subscribers are already getting their service to this technology. This ensures a competitive capacity of the company, not only for the present but also for the coming years. Also, it's important to note that the CapEx figure for the year is in line with these efforts, as it reflects the top quality infrastructure that we are deploying. Considering the peak of the investment sector was in 2023. CapEx levels will start to decrease in the short term, starting in this year 2024, in which not only we expect a lower CapEx to revenue rate when compared to 2023, but also the actual amount spent will be lower. The investments we carried out during this period are reflected in the net additions coming from the new cities, but also in a higher growth rate than the rest of the market in the legacy territories. Regarding the results of the period, we were able to record the best figure in revenues for the Mass segment, since we announced the initiative, with a very positive outlook for the following quarters in the corporate segment. The revenues for the period remains below the figure recorded in the fourth quarter of '22, due to a difficult comparison effect. However, in the normal performance of the business, we had the best quarter of the year. The outstanding performance in revenues allowed us to see double-digit growth in consolidated EBITDA, with a margin that exceeded the market expectations, as we have established before, our expansion territories were going to positively contribute to EBITDA generation by the end of 2023. And we achieved that. Margin for the quarter was close to 20% in the expansion territories. Going forward, we are aiming at a higher margin for 2024, when compared to the previous year as expansion sees continued to improve their performance due to a higher penetration. Our financial position remains strong despite the increase in our debt, we maintained one of the lowest leverage ratios in the industry. It is worth noting that our current net debt-to-EBITDA ratio is in line with the significant investments we have made. As you may know, we are in the process of issuance -- of issuing local sustainable notes for -- of MXN 8 billion, as part of our MXN 20 million debt program. Importantly, a portion of the proceeds raised from this issuance will be deployed toward our network evolution and expansion projects. The remaining proceeds will be used to repay the debt maturing in 2024. In this sense, our financial management, coupled with our strong market position, enabled us to receive AAA credit ratings from Fitch and HAR ratings. On the other hand, sustainable Fitch granted our sustainable debt framework, the opinion of excellence, the highest grade would just [indiscernible] to the alignment of our framework with the most relevant international principles. In this context, I would like to highlight the increasing relevance of sustainability practices in our operations. Our strategy is now aimed to integrate ESG practices utilizing energy patent technologies to reduce our environmental footprint, while reinforcing our commitment to promoting digital inclusion, ensuring that our growth translates into tangible benefits for all our stakeholders. As we move forward in 2024, our focus remains on growth, technologically evolution and enhancing operational efficiency. We are committed to delivering industry-leading margins and providing exceptional value to our customers and shareholders. In conclusion, this quarter's performance is clear proof of our strength, as our strategic initiatives are clearly showing results. Thank you for your support and trust. We look forward to another year of growth and expansion. Now I hand the floor to Raymundo for these remarks on our operational performance.

Thanks, Enrique, and good morning, everyone. As we review our operational performance for both, the fourth quarter and full year 2023, it is evident that our progress is closely aligned with our expansion and network evolution initiatives. Which have gained considerable momentum and will continue the trend during 2024. The path ahead is clear to us, as we have established a plan and have been executing in that direction. This strategy has put us in a position where we have built most of the homes that we plan to become a national player. And even with these investments, we still maintain leverage with reasonable boundaries. We have recorded the best annual growth figure, in terms of new subscribers. Whose permanence with the companies reflected in this quarter's ARPU and Mass Market revenue figure. Additionally, as penetration in the new territories continues to improve, also consolidated margin has also started to recover. With such a strategy, we are ensuring that we will be able to continue generating value for our shareholders over the long term. So our future looks brighter, the company has a track record of efficient execution. And now that we have passed the more demanding part of the investment cycle, we will be focusing all our efforts on capturing all the value we can from the investment made. Moving into results. We have further extended our infrastructure, adding 3,100 kilometers of fiber, thus expanding our reach to an additional 885,000 homes. This figure brings our total number of comp added this year to roughly 3.9 million, beating our initial target. In terms of technological deployment, during the quarter, we converted an additional 2,000 kilometers of our network from [indiscernible] to fiber, thus enhancing the connectivity of 400,000 homes with full fiber technology. For the full year, we have updated more than 6,100 kilometers or more than 1.1 million home pass of the existing territories. Once again, as Enrique mentioned, with the results of this year, we now have a total of 6.1 million additional home pass, from the expansion initiative and more than 35,000 kilometers of updated network, related to our network evolution project. On the subscriber front, we achieved a stronger sequential growth due to the enhanced sales and marketing operations implemented during the period. Our total unique subscriber count has now reached 4.9 million, an annual growth of 13%, including 548,000 net additions with 148,000 coming from the fourth quarter alone. Now in the Internet segment, we recorded a 14% year-over-year growth, now serving 4.7 million subscribers. Of these, 157,000 subscribers were added this quarter, bringing the full year figure to 584,000 net additions, where our continuous network operates were instrumental. A significant highlight is that 63% of our Internet subscribers now enjoy higher speed connections to a fiber service. A significant achievement from the 50% of last year. This underlines our commitment to provide a faster and highly reliable Internet charge. Our video subscriber base increased to 3.9 million, a 7% year-over-year growth or 238,000 net additions, with 25,000 subscribers added this quarter. The XView platform continues to be a cornerstone to our offering, with its user base expanding by 22%, reaching 2.9 million subscribers by quarter end. The platform's innovative features, including personalized content and interactive options, continue to drive customer engagement with money interactions supporting 108 million. In the Telephony segment, we recorded a 20% year-over-year growth, now serving 4.1 million subscribers. Net additions amounted to 678,000 with 176,000 from this quarter. RGUs reached 12.7 million, a 13% growth from the previous year, reflecting the progress of our expansion plan. The MVNO segment showed a strong growth with a 21% increase year-over-year or 77,000 net additions, standing at over 433,000 subscribers. On a sequential basis, this segment recorded 19,000 net additions. This shows our strategic focus on ARPU contribution, over quantitating customer acquisition. Strong rates for Internet, Video and Telephony are 1.8%, 2.2% and 2%, improvement when compared to the previous quarter, proof of our success in customer retention in expansion territories, where a big portion of the subscriber that [indiscernible] service is set to continue with the company, as well as seasonality effect. The ARPU per unique subscriber stood at MXN 426, 2% higher than that of the fourth quarter of 2022 and the third quarter of 2023. Even considering the significant subscriber increase recorded during the period, reflecting the effectiveness of our pricing employees and service quality, despite a higher competitive environment. By segment, ARPU of Broadband, Video and Mobile services increased compared to the same quarter of last year, while on a sequential basis, the ARPU of Internet and Video services also recorded increases. On the corporate side, the Corporate Telecom segment recorded a lower figure than that of the fourth quarter 2022, mainly due to extraordinary results that all achieved last year. However, on a sequential basis, this segment reached a 10% increase on the best quarterly figure of the year, mainly supported by the recovery of Ho1a. On a full year comparison, this segment recorded a 5% increase, as a result of the positive performance of Metrocarrier MCM. Before concluding, I would like to mention that this year's investments have been higher than initially expected, but as we have commented. We are certain that this year represents a window of opportunity that we decide to take advantage of by accelerating our plans. Nevertheless, this year CapEx includes nearly 4 million additional home pass, almost half of the core of the entire expansion plan. The addition of nearly 600,000 Broadband subscribers, more than 900,000 set-top box and a similar amount of Modems, O&T, broadband, added 7,000 employees to reach more than 31,000. We are now providing service in nearly 55 expansion cities and the conversion of more than 6,000 kilometers from HFC, to fiber technology up among our main initiatives. We are very proud of what this organization has achieved with that amount of the investment. There is no doubt that no other company has such interest and focus on execution and efficiency. In conclusion, our strategic approach to infrastructure technology, customer satisfaction and a strategic market penetration, position us on solid ground for continued growth, remaining confident in our ability to maintain momentum and achieve our operational target for 2024. Thank you for your attention. I will now hand over the call to Luis, who will provide a detailed analysis of our financial performance.

Thank you, Raymundo. Good morning, everyone. First of all, like every year, it is important to clarify that all the comparative figures related to 2022, used in our report to respond to the 2022 audited financial statements, which were published on May 2 of 2023 and could defer from the numbers reported in the quarterly report a year ago. Now moving into results. In the fourth quarter 2023, the company's consolidated revenues reached MXN 7.9 billion, a 9% year-over-year growth, that derives mainly from the positive performance of our Smart segment, that recorded an accelerated subscriber growth during the period. For the full year 2023. consolidated revenues stood at approximately MXN 29.9 billion, a 10% increase over 2022. In the Mass segment, we recorded a revenue increase of 15% over the quarter, totaling MXN 6.4 billion. Our service offerings posted substantial revenue growth with Internet, Video, MVNO and Telephony, rising 20%, 11%, 16% and 10%, respectively, largely reflecting the execution of our expansion and network evolution plan. For the full year, Mass segment revenues reached MXN 24.5 billion, up 11%, compared to 2022. The revenues for the Corporate segment decreased when compared to the fourth quarter 2022, mainly due to a high comparison base. However, on a sequential basis, it increased 9%, due to a significant recovery of Ho1a. For the full year, this segment revenues recorded a 4% increase to reach MXN 5.4 billion. In terms of revenue distribution, the Mass segment accounted for 82% of the company's total revenue in 2023, with the Corporate segment contributing the remaining 18%. The cost of services and SG&A for the fourth quarter increased 7% and 8% year-over-year, amounting to MXN 2.3 billion and MXN 2.1 billion, below revenue growth for the period. For the full year, these costs rose by 17% and 15% year-over-year, reaching MXN 8.6 billion and MXN 7.9 billion, respectively. Consolidated EBITDA for the quarter was MXN 3.5 billion, recording a 12% increase from the same period 2022 and with a margin expansion to reach 44%. For the full year, EBITDA grew 5%, reaching MXN 13.3 billion with a margin of 44.6%. On the other hand, the quarterly EBITDA for Cable Operations increased 12%, when compared to the fourth quarter of 2022, with a 44% margin. In the full year comparison, the growth was 5% with a 46.2% margin. We reiterate our expectation of a gradual improvement in margins towards the expansion level, in line with the positive EBITDA contribution ramp up in the expansion territory. Our net income for the fourth quarter was MXN 648 million, recording a 13% increase compared to the same period last year. In the same line of EBITDA increase on a sequential basis, a 22% growth was recorded when compared to the third quarter 2022, as a result of a lower net financial expense. The full year net income was MXN 2.8 billion, down when compared to 2022, reflecting the higher depreciation rate as a result of an investment carried out, as well as higher financial expenses. CapEx was MXN 3.9 billion during the fourth quarter 2023, to reach MXN 12.9 million at year-end, representing 43.3% of yearly revenues. The full year amount is a result of the extraordinary investment that were carried out during the period, which allowed the company to exceed the expansion goals that were initially established for 2023. Looking ahead, considering that the investment peak has already passed, we expect CapEx to gradually decrease and land around 20% by 2027. This will be due to increased revenues, the reduced need for extensive investments, the maturation of infrastructure in new territories and a strategic shift from expansion to consolidation. Turning to the balance sheet. As of December 31, 2023. Net debt was MXN 20.2 billion, up 53.5% compared to MXN 13.2 billion, recorded at the end of the previous year. This growth is largely due to the engagement of additional debt, oriented to our network evolution and expansion projects during 2023. The net debt-to-EBITDA ratio stood at 1.5x, compared to 1.4x at the end of '22, remaining within the company's expected range. As Enrique mentioned, this metric is projected to increase to 1.7x, with the completion of sustainable local notes in March, before a gradual decrease in the following periods. Meanwhile, the interest coverage ratio remained solid, staying at 6.1x over the last 12 months, showing our set capacity to manage financial obligations, despite the aggressive expansion. As we step into 2024, we remain confident in our performance and strategic vision, seeking to further capitalize on our market expansion and upgraded network to drive revenue growth and profitability. Our commitment remains firm towards shareholder value. within a framework of financial discipline. With this, I conclude my remarks, and we'll now turn the call back to the operator for the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Vitor Tomita with Goldman Sachs.

It's 2 questions from our side. The first one is if you could give us some more color on how much CapEx could decline and how much margins could improve in 2024, following the significant progress of the expansion plan in 2023? And the second question from our side would be more on the operational side of the expansion plan. Since you are now at a later stage of the expansion plan, would you say that the latest areas or cities that you have been entering, have a different profile from the areas or cities that you were prioritizing and entering initially? Are those newer cities any smaller or any more competitive? And are you entering them with any differences in promotional or commercial approach than how you are approaching those new cities at the beginning of the expansion?

Yes, Vitor, thank you very much for your question, very interesting. Luis, you want to go with the CapEx?

Sure. For 2024, we expect a range from 33% to 35% of revenues and basically a margin gradually going back to 47%, of course, not in this year, but we will see an expansion in the margin for 2024.

2024 will have an expansion, gradually, as you say, we will reach those levels in 2027, but we will have an improving margin for 2024. And the CapEx, and we want to be clear there, is going to have a significant decrease on that part. As we hve stated in our program, we built 4 million home pass. When we say we were going to build at the beginning 2.5 million, we did that because we're going to capture the market momentum and we could. And we can. That's why we did do it in a very strong position. That doesn't mean this is the level, and this is the plan that we have for 2024. It's completely different. 2024, we will continue to increase our footprint, our expansion plan. Our initial plan was to get to 17.5 million home pass, we are at 15.5 million. So we are very, very close to the initial goal that we have, okay? And we will build those 2 million home pass in the years to come. Some in 2024 and some in 2025. So we will slow down because we spill off from 2023 and that has to be very clear. CapEx is going to decrease over revenue and absolute numbers. So that one is part. And margins as we say on this fourth quarter and everybody noticed that, our margins improved on fourth quarter, and they will continue to improve in 2024, not to the levels where we were, at the beginning of -- before the expansion plan, but we will continue to improve year-over-year until we reach the 47%, 48% by 2027 pretty much. That's complementing what Luis says. Regarding the expansion territories, we're very, very, very clear in our strategy. We have a good Xview platform product and a good speed, process and promotional. We try not to put too much -- we try not to carried off before below the competition and price for no more than a promotional temporary campaign. We are decreasing the campaign from the initial aggressive plan that we have too less of that, that will give us also a better revenue coming from those markets. And the good thing on that part is that after finishing the promotional period of the existing subscribers in those markets, we managed to lower any churn coming from those promotions. That's why we're growing so good, in terms of the expansion plans and will recover during the fourth quarter. Those were the adjustments we made. Now we are not going to build more cities. We're going to stay with those 63 stores 55 that we built in the last 18 months, but we will continue to grow a network within those cities. That's another great advantage for us because we already have all the operational basis. Most of the employees, both those that are variable, if we increase the number of sales with more salesman and more installers, but we have all the back office to operate. We have all the hubs.

All the facilities.

All the facilities to provide the service in all those cities. That's why CapEx decrease and operational efficiency will increase. And also penetration of those markets is increasing. As Enrique said, we have 13%. And in some of the old areas, we reached almost 20%, when we were aiming that in 5 years. So we're very happy on that. And I took a lot of the -- I took your 3 points of the question to expand my message, but it's very important to have those parts clear, increasing of the margins and decreasing of the CapEx. Thank you, Vitor.

Our next question comes from the line of Marcelo Santos with JPMorgan.

Enrique, Raymundo, Luis. I wanted to double-click a bit on this change in promotional strategy. When you say you made some adjustments, does it mean that the promotional period ended in some cities or you really changed a bit the strategy you were realizing you can grow with fewer promotions than you thought? Just wanted to understand exactly what changed the dynamics because I think it was important to see the increase in ARPU that you posted on the quarter, right? So I just wanted to understand this better. And regarding the margin, it was a pretty good margin in the quarter. Was there any nonrecurring effect, maybe you provisioned too much for bad debt when there was churn in the previous quarters and now you released? Or is this really an effect of being able to have good penetration that's having operating leverage? Just wanted to see any non-usual items that might have helped margins in this quarter.

Luis, you want to go with the margin because I talk too much. I can talk on the other one.

You can talk on the other one for a while. So the margin -- what we think the margin is going to go up as we explained. This means that the margin we saw in the fourth quarter was without or clean margins. And we expect that to continue and to expand a few basis points quarter-over-quarter. So that's sustainable from our perspective.

That is non-recurring?

Non-recurring, it is special impact.

And on the other one, Marcelo, what we did was we got stronger with the execution of the sales force. We implement technology to be -- to make sure that all the new sales are good sales. We increased the price of the initial hookup. First of all, they have to pay an advanced payment of X amount, and then we put a higher amount. So we are sure that we get good subscribers coming here on that part. The promotional itself increased also in price by certain amount MXN 50 instead of charging, let's say, MXN 400, which are MXN 450. So we get better on that part because we feel we can do that. And the adjustment that we made was part of the sales force when they get supervised, some of them, they just leave the company and go back to the competition where we have probably more freedom to do that. That's why we have the third quarter. Fourth quarter, we made the adjustments and was more of the execution, nothing for you to worry about whether we are more aggressive or less aggressive, in terms of lowering prices for tariff no, it's is not that we're increasing what we're doing there and continue to our trial of providing the subscribers our Xview platform and Broadband service. So there is nothing really strange but to work with the people. As I said, we put 7,000 new employees in the company, and we need to supervise and we need to put -- and those are the adjustments that we make at the beginning of third quarter last year, that capitalized on the fourth quarter, and we continue to expect that to happen for 2024. Thank you, Marcelo.

Our next question comes from the line of Carlos Lagarto with Itau.

I have 2 questions from my end, please. The first one is after more than a year that you have been operating fiber to the home, can you talk us about the difference in economics, understand that fiber is cheaper to maintain compared to HFC? And also if you have lower churn in your fiber customers versus HFC? And the second question is regarding the enterprise segment. Obviously, during 2023, we saw a slowdown in terms of growth. For 2024, do you think it's feasible to resume double digit growth.

Thank you, Carlos, Always a pleasure. Well, the trend of economics is not increased. We have a good year in terms of dollars in that part. That's something that we do not control. But what we -- what I can tell you is that the price of -- if you look at the numbers that we have and the amount that we invest, we continue to currently lower -- the lower investment per kilometer in the industry. We see a trend in Fiber. On that part that is very efficient the price of the fiber decreased slightly, but slightly, it's not that much what it can decrease. It's a passive network. So it doesn't consume power from the electricity. So it's a saving in the OpEx, too. I can tell you that in those markets, customer satisfaction, of course, in a brand-new network and bringing is higher. We have less complaints and better customer satisfaction that we had before, we've been improving as a company, by far -- by all the projects, the [indiscernible] evolution and the other one and the expansion projects. So it is a better service, and we're very happy of that -- lower maintenance, as I said with electricity and everything is brand new. So you can bet that it's a good decision what we've done on that part. For the Corporate segment, as I said, it was a good year. The problem was for quarter, that we have an extraordinary fourth quarter in 2022. Mostly coming in from Ho1a. But it was, in general, a good year. You can expect that we continue to provide double-digit around 10%. I can tell you that, that 10% for 2024 in the Corporate segment is achievable and that will be my answer.

Our next question comes from the line of Lucca Brendim with Bank of America.

Two on my side here. First, on ARPU, I think this was one of the positive surprises of the quarter ARPU up 5% on Internet. What were the drivers for that? And should we continue to see growth in those levels for 2024? I remember in the past, you mentioned that you're increasing prices for your old regions, but for the new regions, you had the promotional efforts. So probably it's one of the drivers? And second, on churn, do you still see room for -- to decline churn even further? Or are you close to what you believe are like the levels, you'll be seeing for the mature regions as well?

Thank you, Lucca. The ARPU that we have it was significant. It was a good increase in ARPU. It's coming from 2 parts. One is the -- not only the increase of rates of the organic system but also the increase of subscribers that we have in those systems, we have more RDUs. So both on that part rate but we always try to keep with inflation in the organic market on that part. So that is one part of the ARPU that we have there. The other one is on the expansion programs, as we said. As we continue to grow and to see that the subscribers and the promotional period, the ARPU will continue to increase. It cannot increase higher in general because we continue to add new subscribers, okay? So looking forward, we can tell you that we will have a slight increase for 2024, conservative increase in 2024, why? Because in the new market, we have a big growth coming from 2024. That will have promotional with a lower ARPU than what we have in general in the organic part. So even though we raised or increased rates in the organic, we leave with the promotional expansion, and that's an effect that will continue to be as long as we are a grow, a fast and high-growth rate company. In terms of charge we put the walls too high. Seasonality is good in the fourth quarter, and we're doing a good job, in terms of keeping the subscriber, but I wouldn't say that we expect that to decline. I wouldn't go as far as that. We feel happy with the levels of action that we have in 2023, in general. It is taking our seasonality because when you are a fast-growing company, it's not easy to keep a low churn in that part. So we will continue to have the levels of churn that you are familiar with on that part.

Our next question comes from the line of Fatima Bonitas with Compass Group.

I have just one question on my side. There have been many rumors about mega buying Televisa's, Telecom part, the easy part. So I don't know if you have any -- any comments on that?

No, comments. We are pretty much focused in our expansion plan in the transformation of the network and our evolution. That's our focus, basically.

As simple as that. Fatima.

Our next question comes from the line of Alejandro Azar with GBM.

Two quick ones. The first is on your dividend. You guys have been paying between 50% to 20% EBITDA in the past 3, 5 years. I was just wondering if we should continue to see -- to see the dividend per share growing, despite the expansion plan in this year and in the coming years? And the other one, I wanted to pick your brains on perhaps technological advances or changes. What are your thoughts on mobile Internet in-house? Do you think that's a threat of the cable business, 5G I mean?

Thank you, Alejandro. Yes. The policy of the dividend is there, our policy is 15% of the EBITDA. We have been a little bit above that. That's not our take. That's the general shareholders assembly take. But we don't see -- I mean, a problem with that. I mean, the level so far, depth of the company are very, very healthy. Our balance sheet is healthy. So we don't see a risk, if our shareholders decide to keep with the dividend. But that's not something that is up to the management of Megacable or us. We have been given the dividend for the past years, I don't know, the last 10 years, 12 years, and we're still very healthy in our plans. So -- but that's up to the shareholders.

And the second part, Alejandro, regarding the technology, no, we do not see any threat on the part. And so far, our -- all our market research shows that fiber or fixed networks is the key for a healthy broadband or limited service to the home or to the enterprise. There is no other way to get there. There is no return on investment that can justify the 5G for the company, even when they see that there is not going to be an improvement in ARPU on their part or an improvement in the bandwidth consumption by competing to us. That isn't -- I just don't see that. There is other trend regarding satellite, it's the same. I can tell you. If you look at the United States, you look at Europe and that -- in general, fixed network fiber is the way to be for the needs of the future, of our population in that part. We are more looking into our network, it can be evolved in a very, very efficient and cheap manner, not only to 10 gigabits, right now, we're at 2.5 gig GPON, that's the kind of technology that we have. We have some areas where we're beginning to test 10G. But the trend is to go to 25 gig or even 50 gig to the home. There is no way still that wireless can compete to us in the years to come. So I don't see any trend for this company coming from that part so far. What's going to happen in 50 years, we'll see. But the next years, and I'm talking about many, many years, fiber will continue to be the way to get there.

I'd like to hand it back to management for any webcast questions.

Okay. We have some -- the first one will come from Alessandro Conti from Jefferies. What is the CapEx plan for the next years, we saw that both Televisa, totalplay and AMX have lowered this number.

Okay. Let me answer that, Alessandro, and thank you for the question. I remarked that at the beginning of the question, I will do it again because it's really an important part. The plan for next year is to be around 33% to 36% of our revenues, on that part. It's going to decrease significantly from the 44% that we have this year, in terms of percentage and absolute numbers. We are not going to stop the CapEx, we will continue to do our expansion and GPON evolution plan, but in a much more lower level because we speed up on 2023. So that has to be clear. We put all the speed on the last year. And now we go to a much more conservative approach and cash back what we have a penetrated market that we already have. That is the first part. Okay?

And the second, what are the network expansion plans for 2024 and beyond?

Well, as I said, our original plan was to reach around 17.5 million-18 million home pass, out of the 9.2 million that we have, when we started project. We're at 15.5 million. So you can count that we will reach the 17.5 million Home pass in the next years. It's not going to be 2024. It's going to be 2024, some 2025 and the least of them 2026, when we finish the 5 years, on that part. So if we build 4 million home pass this year, you can bet that next year, we won't build -- we are going to be building around 1.5 million home pass of the expansion territories. And also some amount on the GPON evolution around 1 million home pass. So that's pretty much what we want to have to be clear because all of you have the concern about whether we're going to lower the CapEx or not. Yes, we're going to lower the CapEx. We're going to lower the number of kilometers, but we will continue to grow in the expansion territories because we see an opportunity. It's a good timing, and we will do that.

Okay. And the final one is, what are your expectations on how the penetration, particularly [indiscernible] of your system home pass is ramping up?

I'm also sure if he's talking about organic or is talking about expansion, talking about everything, as we said, we continue to increase penetration in general. In the organic markets, we continue to increase penetration. We're bidding the market growth that we have in our system, and that's a good question and important to say. In the organic territories, we continue to provide growth of subscribers in broadband and above the market growth of the market. So that's proved that our GPON evolution and even the conversion of the HFC into less nodes, with the products and the services that we have is a success. In the expansion territory, as we said, 13% pretty much is what we have so far. But that's a mix of new neighborhoods with lower penetration in all neighborhoods with a high expectation. So right now, we are at 15%. Our goal in the expansion was to keep 1/4 of the market, which is 20% penetration. I'm pretty sure that in 2, 3 years, whoever, all of us that we will be speaking in 3 years, we will see that our potential could be higher than that.

Okay. The next one comes from Jarek Friedberg from CCL. The company has incurred an incremental sales, marketing and operating expenses because of the expansion project. As the project ends, would you begin to eliminate some of those expenses and when?

That's for sure, Jarek. I mean, that's -- when a company -- every company that has an expansion plan, as aggressive as ours in [indiscernible] big cost of subscriber acquisition and OpEx and everything related. Once we get to maturity, not maturity, but a much more higher penetration in 2027, you will see that levels of sales and OpEx on that part will decrease. That's why lease on the financial part tells you that we will go back to margins of 47%, 48% once we reach 2027 when we have a higher ARPU, higher revenue higher ARPU, okay, and less of this need for sales so much because we won't have that growth.

And also fixed cost will be more effective, as we have broader subscribers.

Well said, Luis, thank you.

Okay. The next one comes from Sergio Santos from TD Vynamic, which CapEx levels will be expected for 2024, 2025?

We already answered that.

Okay. And the next one is a follow-up from Jared given that Mega is the birch of generating a lot of cash flow, what are your current thoughts about capital allocation besides dividends?

Well, that's early to say. Enrique, you want to comment that?

No, we were on the track -- we're at the track of that. I think that it's going to be a debt reduction. I think we will get a better balance sheet over time. And then we'll see. We don't know yet. But definitely, we will reduce debt over time.

Okay. And the follow-on comes from Christopher Niland from [indiscernible]. Thoughts on the use of cash as you start to take down the CapEx in the coming years, I think it's very [indiscernible] question.

Enrique already answered that.

Okay. So we have no further questions in the queue. I'll pass the call over to Mr. Yamuni for final remarks.

Okay. As always, it was a pleasure to discuss our results with you. Please contact our Investor Relations department, if you have any questions or concerns regarding the company. And have a wonderful day and a very good weekend. Thank you very much for your interest.

Thank you, everyone.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.