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Edited Transcript of MEGACPO.MX earnings conference call or presentation 24-Feb-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Megacable Holdings SAB de CV Earnings Call

Guadalajara Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Megacable Holdings SAB de CV earnings conference call or presentation Friday, February 24, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Enrique Yamuni Robles

Megacable Holdings SAB de CV - CEO

* Kenia Vargas

i-advize Corporate Communications - Senior Associate

* Raymundo Fernandez

Megacable Holdings SAB de CV - Deputy CEO

* Luis Zetter

Megacable Holdings SAB de CV - CFO & Administrative Officer

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Conference Call Participants

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* Alejandro Gallostra

BBVA - Analyst

* Andres Coello

Scotiabank - Analyst

* Carlos de Legarreta

GBM - Analyst

* Tyras Bookman

Park West - Analyst

* Rodrigo Villanueva

Merrill Lynch - Analyst

* Gilberto Garcia

Garcia, Barclays - Analyst

* Arturo Langa

Itau BBA - Analyst

* Andre Baggio

JPMorgan - Analyst

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Presentation

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Operator [1]

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Good morning everyone, and welcome to the Megacable conference call. All lines have been placed on mute to prevent any background noise. Please note this call is being recorded. After the speakers' remarks, there will be a question-and-answer session and instructions will be given at that time. For opening remarks and introductions, I would like to turn the conference over to Kenia Vargas of i-advize Corporate Communications. Please go ahead.

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Kenia Vargas, i-advize Corporate Communications - Senior Associate [2]

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Thank you. Welcome to Megacable's Fourth Quarter 2016 Conference Call. At this time, I would like to introduce the team from Megacable, Mr. Enrique Yamuni Robles, CEO; Mr. Raymundo Fernandez, Deputy Chief Executive Officer; and Luis Zetter, Chief Financial & Administrative Officer. They will be discussing the quarterly results before taking questions from the audience.

Please note that certain comments made today may constitute forward-looking statements, which do not account for future economic circumstances, company performance or financial results. These are subject to various conditions. For a complete disclaimer, we ask that you refer to the quarterly release that was issued yesterday. If you didn't receive the information and would like to re-add it to the Megacable mailing list, please contact us in New York at 212-406-3696.

It is now my pleasure to turn the call over to Mr. Enrique Yamuni to begin his presentation. Sir, please go ahead.

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Enrique Yamuni Robles, Megacable Holdings SAB de CV - CEO [3]

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Good day, everyone. Thank you for joining us today as we review Megacable's fourth-quarter and 2016 results. The year ended in a very good manner for the Company and paved the way for continued growth in 2017, despite somewhat of a challenging economy and the existing exchange rate volatility. In the residential market, Megacable posted double-digit growth of 15% RGUs year-over-year, totaling approximately 6.4 million units at the end of 2016 or 1.93 RGUs per unique subscriber.

Both telephony and broadband continued to provide very high growth. Telephony alone posted record numbers for the second consecutive quarter way above market expectations. Video remained stable due to the higher penetration we've. This product is more affected by the economy slowdown and changes in the program lineup had an impact as well.

As you are aware during this quarter, we bought Televisa channels, which briefly impacted our number of subscribers but took to be the right decision for the Company, our savings surpassed by far revenue loss that improved our margins.

Metrocarrier, Ho1A, and MCM, our enterprise business units, represented 21% of total Company revenue in a growth of 31% year-over-year. Our diversification strategy has been a great success since it takes (inaudible) for existing network and makes our capital more productive. The (inaudible) fiber experienced human resource and advance technology are some of our major strengths. EBITDA grew 18% year-over-year to reach MXN6,891 million with one of the stronger EBITDA margins in the industry, despite stronger effort (inaudible) and depreciation of the Mexican peso that affected OpEx and CapEx of the Company.

Net debt is [36] times EBITDA validating the strength of the financial structure in our ability to face competition and take advantage of future opportunities in the market. Megacable reached its annual guidance in terms of projected revenue, EBITDA in margins. These again reinforced the commitments of the Company, its employees and the Board to deliver to shareholders in the market expectations. We expect 2017 in whatever percent challenges as well as opportunities for Megacable. The economic slowdown that we have been experiencing since mid last year will continue to affect our growth during the first quarter of this year, specifically, on the Media segment. However, broadband penetration will continue to drive growth across the year. (inaudible) will continue to grow along with broadband. CapEx to revenue ratio was 29%, which provided us with the network required to offer the best speeds and capacity in the market.

As such, Megacable raised the basic subscriber speed from 10 to 20 megabits ahead of our competition. We would very soon launch across almost all our markets, our XView video product to comply with the new manners of watching television in every device and would allow our video subscriber to get the most out of the constant we deliver. With the best video experience, the higher speeds, reliable service in broadband in a home service that offers unlimited calls to Mexico, the US and Canada and the possibility to enable the mobile devices, the fixed phone and use it in any wireless network, Wi-Fi or cellular. Our offer is extremely competitive and creates a lot of value to our subscribers in the market in general.

Enterprise being a much more solid operations would also provide greater results. So, in these 2017, with all these challenges, we are very excited and we're quite sure that we will provide great results for everyone. Now for the operational and in-depth financial result, I'd turn the call over to financial results, I will turn the call over to my colleagues Raymundo and Luis. Please go ahead, Raymundo.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [4]

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Thank you, Enrique, and welcome everyone. Regarding the financial results during fourth quarter, we reached 6.4 million RGUs with 15% growth year-over-year. The extraordinary results in broadband and telephony being the main reason for that, while video continued to grow, telephony grew 31%, broadband 22%, and video 5%. The number of Internet subscribers continues to rise, reaching more than 2.2 million subscribers with net adds of 112,000 subscribers and a 5% increase for the quarter with nearly 400,000 net adds year-over-year or a 21% increase.

At this point, Megacable is growing at a faster pace than the market as a result of great service quality caused by the high performance of the network, and (inaudible) during this quarter, we continued to migrate subscribers to 20-megabits way ahead of what we consider a standard competition offer. The bandwidth demand has been well satisfied by the investment and operation to the network.

Telephony saw a strong growth with 117,000 net adds for the quarter, reflecting an 11% increase and an historic growth of 280,000 or 31% year-over-year, reaching 1.2 million telephony subscribers. From that 95% of the growth achieved in 2016 came from the last two quarters, proving that our marketing strategy to bundle telephony with broadband in top of video and product quality is a key factor for the success.

Both Internet and telephone segments growing higher than the mark. In video, the number of subscribers rose 5% or 137,000 year-over-year. However, there was a subscriber decline in the fourth quarter 2016 caused by the slowdown of the economy, selected targeted campaign and the changes in program. Churn rates increased to 3.8% with the peak in October and a reduction as we approach the end of December. We believe the effect of the channel substitution perhaps ended since we experienced subscriber growth at the end of the quarter with a positive acceptance on the new channels we provide today. The effect of the substitution in our costs and the increasing margin related to it is by far more beneficial than the increasing churn during October and November. So again, it proved to be a right decision. However, the economy slowdown, the effective disposable income of the social economic levels for our pay TV subscribers will continue to impact during the first quarter. That is why we have adjusted our product offer, implemented more selective campaigns and focus on customer retention. Our video market share and penetration is the highest among the three products. Therefore, has been more effective.

Regarding new technology implementations, we're getting very close to the launch of the next generation video like Enrique has said. This is a very exciting project for Megacable and we are confident that our existing customers and the overall market will adopt it and respond positively to the launch. Customers will be able to experience a completely new look and feel, and a more user friendly interface when consuming video in a nonlinear manner across multiplatform.

The idea of this new service is to operate our digital subscribers to the new NGV using our current network and set-top boxes, therefore maximizing CapEx investment. Also implies a transformation on an upgrade for our OTT service. Our existing friendly user test has shown a high level of acceptance and satisfaction of the new product. We are ready to go. In terms of GPON, Megacable has reached mature levels of technology deployment following the successful implementation of the solution throughout several markets co-existing with our -- (inaudible) methods and successfully delivering a new class of service. A strategic and updated areas already provide service to this technology In line with our growth strategy, we are creating a new capacity in our hybrid fiber coax network.

Work has begun over creating new capacity by segmenting our fiber notes to have a smaller and smaller service groups. As mentioned in the previous quarter, we're very committed to note segmentation in order to enable a very service reliable and capacity enabled note to support future bandwidth requirements. Our network can provide first-class services and support the growth of broadband and video for the years to come. As of today, practically all our network by direction of and above 750-megahertz with the vast majority at 1 gigahertz. We've built 2,800 new kilometers reaching (inaudible) of last mile, covering 7.9 million homes pass, of which 87% are also fully digital.

Our corporate segment continued to succeed with outstanding growth. Metrocarrier increased revenues 36% year-over-year and Ho1A 21% in the same period. We are committed to become a strong player in the telecommunication enterprise business via opened also our Mexico City offices and expanded our presence to cities like (inaudible) and Cancun, and plan in other main cities in the near future. Since the Company decided to be a major player in the corporate business in 2012 when revenues were around MXN500 million, we have achieved more than MXN3.1 billion as of today, a 55% compound annual growth rate in the corporate segment. Now we are a very strong player.

In summary, there is a clear path ahead for Megacable in terms of our goals and our position for 2017 year-end. The bottom line is clear, our commitment to work across all of the business segments to ensure that they remain cost effective to remain a highly efficient and profitable company, growing above the market and above competition as we have done in the past.

This year comes with a new set of challenges for our business where there is more competition, growth constraint or economic challenges, we're well prepared. Thank you again for your attention at this point. Luis will take you through the financial highlights. Please go ahead, Luis.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [5]

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Thank you, Raymundo. Good morning, everybody. As we saw in the results, Megacable posted a strong performance during 2016 with 13% growth in consolidated revenues from fourth quarter 2015, reaching MXN4.5 billion for the quarter and MXN17 billion or 16% growth for the year. As Enrique mentioned, the corporate segment continues to have an outstanding performance contributing with 21% of total revenues in the quarter. Megacable achieved a 16% growth in consolidated EBITDA from fourth quarter 2015 to fourth quarter 2016 or MXN1.8 billion, to reach 18% growth or MXN6.9 billion for the year. These were achieved because of cost of services and our SG&A grew 15% versus the 16% growth in revenues. It is important to mention that a portion of these efficiency came from programing costs savings and also on greater operational efficiency due to the lower operation, meaning reduction in sales commission, drop cost et cetera, all these despite the currency volatility and the very competitive landscape. Megacable reported net profit of MXN996 million in line quarter-over-quarter and 15% increase year-over-year. Megacable's net debt reached MXN2,490 million with debt related to the CFE project at about MXN900 million. These positions Megacable at a ratio of 0.36 times EBITDA which remains one of the lowest leverage levels for the industry. At the same time, EBITDA to interest coverage was 35.6 times at the end of this period. It is important to mention that most of Megacable debt is peso-denominated and a high percent that is of US dollar debt is back to back from the CFE project.

Additionally, for 2017, we are negotiating mutually beneficial conditions with suppliers in order to reduce foreign exchange exposure while at the same time increased certainty on investments for the whole year. With regards to CapEx during the fourth quarter, Megacable invested MXN1,652 million for a total of MXN4,901 million at the end of the year.

Most of these resources were allocated toward the purchase of terminal subscriber equipment, that's 45% of that, growth and modernization of the cable network and the purchase of fixed asset for around 42% and during the fourth quarter. Always the goal is to strengthen competitive and customer experience with a strategic CapEx investment. Megacable is an industrial partner with (inaudible) project to use the 700 megahertz bandwidth spectrum in Mexico. We are confident these will bring great opportunities for us in the future.

Finally, our guidance for 2017, we expect video subscriber to grow around 8%, broadband to increase around 17% and telephony between 20% to 21% in 2017. In terms of RGUs, we expect to reach close or above 13% growth. In terms of revenues, we are targeting around MXN19 billion or a 13% increase and EBITDA in boundaries of the MXN8 billion or a 16% increase as well. The consolidated EBITDA margin, we are targeting around 42% for 2017.

Thank you and I conclude my comments. At this time, I will ask the operator to open the line for your questions.

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Questions and Answers

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Operator [1]

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(Operator instructions). Tyras Bookman, Park West.

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Tyras Bookman, Park West - Analyst [2]

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Could you repeat those guidance numbers for subscribers, I actually just missed them?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [3]

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Sure, no problem. Okay, our guidance in terms of subscriber, we expect the growth in video of around 8%, broadband subscribers around 17%, and telephony between 20% and 21% growth.

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Tyras Bookman, Park West - Analyst [4]

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Great, and did you guys talk about ARPU?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [5]

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The ARPUs really will remain, a little bit slightly going up, compared to the fourth quarter it will be very, very close to that, maybe a slight reduction on cables by [on an average] for the year, but basically will be really slightly going up, especially on the unique subscriber ARPU.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [6]

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Yes, unique subscriber.

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Tyras Bookman, Park West - Analyst [7]

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It will be down, how can it be down against the fourth quarter, but up for the year against the entire year?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [8]

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Right, we finished -- the video ARPU for the quarter was MXN214 and for the year was MXN217. So, it went down a little bit. So, it's going up slightly. So, it's going up slightly.

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Tyras Bookman, Park West - Analyst [9]

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Against the fourth quarter, you mean.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [10]

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Yes

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [11]

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You [can account further] that video will remain very much the same as well as broadband, we're targeting the same market because of the launch of the new service that will compensate the growth with lower (inaudible) that we have and the only one that we were lowering a little bit likely MXN2, MXN3 or something like that will be telephony, because we are very aggressive in the campaign and that will support the 21% growth in subscribers that we are forecasting. At the end, unique subscriber will have a slight increase to what we have right now.

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Tyras Bookman, Park West - Analyst [12]

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And did you guys talk about CapEx?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [13]

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We didn't mention about CapEx, but our guidance for this year of course is going to be lower than what we invested this year. This year we reached MXN263 million for the year, but we are going to be close to MXN240 million.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [14]

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MXN240 million which is going to be about 25% of total revenues.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [15]

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Right. Between 24% and 25%.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [16]

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About 4 percentage points lower than this year.

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Tyras Bookman, Park West - Analyst [17]

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And how much has that been impacted by the depreciation of the peso, because I think previously you guys have talked about getting down to 20% in the next few years? And I just want to highlight (multiple speakers)

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [18]

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If you go back to three years ago -- two years ago, we were around 23%, 22%. Basically, the depreciation of peso has been around 30% in the last couple of years and that is why we have gone all the way up to 29% investment in 2016. But we have already finished large project that took about two years to be completed. So, we are very happy that we will be able to reduce CapEx, but not affecting the areas of growth. So, subscriber equipment, we will invest as much as needed to be sure that we do not stop any growth opportunities.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [19]

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Like Luis mentioned before, 45% of our CapEx goes towards CPE equipment, 45% towards upgrade of the network in general, 10% being others. We did a very strong effort indeed last year to upgrade the network, upgraded areas below 750 megahertz -- already being upgraded to GPON; I said that in my remarks before. So, right now, we have all the network 1 gigabit which is affordable for the bandwidth, we need to improve speeds from 10 megabits to 20 megabits or 20 megabits to above if we need and we're improving on a [speedy notes]. So, the CapEx that we have for MXN240 million, will certainly support the growth that we're forecasting at 17% and 21% subscriber growth that we have and been really competitive in that part.

We also negotiated with all the vendors to compensate for the effect of the depreciation of the peso and we have a very good response of everyone and that's how we are able, not to slowdown investments, but to keep the CapEx to revenue ratio, like Enrique mentioned, lower than what we have in the past, so improving our financial margins in general.

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Tyras Bookman, Park West - Analyst [20]

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And one last question. Over the next few years, do you see CapEx going down in absolute US dollars.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [21]

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Yes, we see that going down. In the next three to four years, we will see the CapEx going down in the US dollar terms, more than the $23 million we used this year, we expect that to go down in the following three to four years.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [22]

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(multiple speakers) -- if that continues the trajectory, then you're going to get to a pretty good CapEx as a percent of EBITDA ratio in a few years.

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Enrique Yamuni Robles, Megacable Holdings SAB de CV - CEO [23]

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As a percentage of the EBITDA ratio, it should go down a lot. But maybe in absolute terms, you won't, but as the Company grows and we are -- and the Company gets to a level of maturity, obviously our CapEx will slow its pace well enough and we expect to get to the levels of any other European or US company with the levels of capital that they have, maybe below the 20s.

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Operator [24]

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Alejandro Gallostra, BBVA.

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Alejandro Gallostra, BBVA - Analyst [25]

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Raymundo, you provided detailed breakdown of the CapEx. However, I was wondering how much of that goes specifically to network expansion.

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Enrique Yamuni Robles, Megacable Holdings SAB de CV - CEO [26]

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Just one clarification. The CapEx for us means anything that improves the performance of the Company. So it means expansion of network, near-CPE equipment to our subscribers, any upgrades that we do to the network to provide better bandwidth, more channels, things like that. We don't include in our CapEx any maintenance of the network. Maintenance of the network goes to OpEx. But we -- Raymundo can you please give them a general breakdown of the CapEx.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [27]

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Yes, Alejandro. From the, like I said, in dropped numbers, 45% goes to CPE, 45% goes to operator of the network, improving the network and increasing the number of kilometers. This year we built 24,000 kilometers and that will account for around 12% of the CapEx set for the network. So most of the CapEx that we have is not going to expansion on other areas for growth but it goes to (inaudible) we can plan. So we can't provide a right platform for the future. Like I said, we put money, we upgraded from 5.50 that we have in small towns and areas to (inaudible) because it was the best cost effective way to improve the speed and up to the next level of generation in terms of bandwidth, but the rest of the HFC network that we have, we were very, very happy to tell you that we decreased the number of (inaudible). So, we can provide 20 and 50 megabits and I can tell you that right now, none of our notes has any kind of pressure in terms of bandwidth, but also that we were able for 2017 to be really more aggressive in terms of marketing and provide customer retention for broadband. That's been -- the network has been the main driver for the great performance of program. So, CapEx goes to that, goes to growth unlike Enrique say for the next five years we expect CapEx to decrease in terms of revenue, because the set-top boxes, CPEs and equipment we are setting can provide not only 20 megabits, but also 50 megabits to 100 megabits on the home, so we won't need to improve and increase the CPE in terms of the broadband and also the set-top boxes that we have, we are operating the NGV, probably next-generation video product with the existing platforms of set-top boxes that we have in the majority of the markets. So, we always care a lot to get the best of the CapEx that we have without putting any risk or compromising the future of the network. That why I talk so much about the network. I don't know if that answered your question, Alejandro.

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Alejandro Gallostra, BBVA - Analyst [28]

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That was a great explanation indeed, but I was just trying to have a feeling of your expansion plans, if you're still interested in expanding your network and if you still see value in doing that going forward. If you still plan to expanding your network at the same pace or similar pace in the coming years?

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [29]

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What we're doing in expansion, we kept in the systems where we have residential services, we kept the growth of the population in general. we don't miss any spot of the series where we are. In terms of corporate, that's different. We are going to other cities, we increase our presence in fiber metro ring of Mexico City, Monterrey, we already have presence and we're living presence in the Southeast part of Mexico that's (inaudible) and Cancun and we have plans for other cities, because that's the one that makes the most economic sense for us right now. Metrocarrier and Ho1A are our great partners altogether; we don't see in Mexico. So, as you saw in our numbers, we're getting the best growth coming from corporates and we're determined. And that one doesn't take as much CapEx as all the last mile of residential in those areas. So, we will increase expansion but mostly on the corporate business, not that much on the residential.

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Alejandro Gallostra, BBVA - Analyst [30]

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And could you perhaps give us more additional color on these specific benefits that you get from expanding your network. I mean, for example, I know, if you -- if it would be possible to quantify how much increasing your network helps you increase the top line or increase the customer base, usually --

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [31]

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In terms of customer base, increasing the network for the corporate business, that is a complete different segment. That's one on Metrocarrier and that we don't count its subscribers. We count, what we call -- count the revenues to be generated in the future by pesos and dollars and not that much about subscribers. In terms of growth of the residential, as we said, we have the guideline for 2017 that includes the expansion of the network and that will account for 8% we expect. Even though we're facing a tough economy, we're going to be much more aggressive in terms of retention of the customer; we're focused on that part, we saw from the fourth quarter because of the reasons we've told you and the campaigns that we're saying on the market, we expect that to pay off by the second quarter, third and fourth quarter of this year. So, it's going to be a ramp up of subscribers to get that 8% of the end of the year.

So, it looks good with in terms of subscribers in video. I won't say any more about broadband and telephony because telephony for us, we're very proud in the last two quarters that we've above 90% of the growth of last year came from the last two quarters with a historical of telephony in a market that is not growing. We're growing up 31% telephony over our existing subscribers reaching [1.2 million] and broadband to 2.2 [million]. So, we're very happy that that is going to look like a great 2017 including expansion and organic growth.

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Alejandro Gallostra, BBVA - Analyst [32]

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My last question is the following. If you had to prioritize your growth strategy for the next two to five years, would you rather focus on growing your retail business or you would prefer to grow in the government and enterprise and perhaps IP businesses.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [33]

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Well, right now, we're focused to grow both. And we will take advantage of market opportunities that we have. We won't do any -- we want to stop doing anything that we need to [grow], where we see business like we did in the past. And of course, you can expect both corporate and residential to continue to grow. We'll see opportunities, we saw opportunities in Monterrey, Cancun, Ciudad Juarez where we were and we have offices and we have some presence before, that's why we like -- before like Tijuana for example. We have also businesses through the contract that we have for Mexico Conectado that help us to increase our network in other parts. That's how we run the business. We look at opportunities and we see into the future, and you can bet we continue to provide that. Ho1a, Metrocarrier and MCM are pairing together way faster than we thought. We acquired all in 2013 and the pace that we have -- and everything in between the two companies, we're very satisfied with that. So, you'll see the growth of the Company with the projections you have and the guideline that we have, we will match that.

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Alejandro Gallostra, BBVA - Analyst [34]

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Thinking that growth would only come through organic growth or you would also can see their growing -- for Yamuni.

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Enrique Yamuni Robles, Megacable Holdings SAB de CV - CEO [35]

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As I said, Alejandro, the market right now is, we had the Trump effect, we have the dollar, we have the telecommunication industry looking, we're always open. I believe that right now, we're in the best position for any business opportunity that might be arisen from the market. We are not close to anything, we're open to any growth as we can have in that part, and we feel we're in the best position. We don't have anything for now, right now in terms of M&A. We're focused into recovering the role that we have in [video] and match the guideline that we're telling you, but also to maintain the great numbers that we're providing you. If we see something you can bet that we are ready and we have the muscle to do it.

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Operator [36]

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Andres Coello, Scotiabank.

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Andres Coello, Scotiabank - Analyst [37]

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To be honest, I find the guidance on video a little bit aggressive, because obviously we saw disconnections during the fourth quarter and we saw significant slowdown in pay TV additions during the second and third quarter. So, I have a question that I guess that many of your subscribers are asking themselves, why -- it's a very direct question, but hopefully you can give us some color, why would I want to pay MXN219 per month for your pay TV service, when I can pay MXN60 to Amazon Prime Video in Mexico, or I can pay MXN100 to Netflix and get some of the world's best programming?

Why do you think that customers will retain their pay TV subscription when they can have online options that are very competitive, very good? And if you're so optimistic on 2017 in actually growing again your subscriber base in pay TV after this connection (inaudible) that we saw in 2016, is that the product -- is that the result of lower churn? Meaning that you are going to retain your customers or is that the result of actually trying to grow gross additions?

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [38]

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Yes, Andres. Okay. Let me tell you the first part. I do agree we have an aggressive video guideline. It is above the 4.8% that we have this year, without considering the fourth quarter, our [loads] will be 7% or 8% for 2016. We believe that the changes we're doing in terms of more attention and at the same time being more selective on the campaigns can pay you off by the second quarter and second half of the year.

What we're doing right, right there is -- we're selecting areas and markets where we can have the most growth and don't be so aggressive in all the territories where they don't pay. It was paying really good for the Company until third quarter last year. We started feeling third quarter and fourth quarter that the economy more than the change of programming that the economy makes us slowdown in that part with high assurance in some areas.

We detect that and we correct that. Of course that those in main is going to be solved in the first one week or two weeks. It takes lot of the sales force and the customer care people to obtain that area. Also, we create new bundled packages in the triple play that comes with the conversion of standard to HD and also our bundling in the upper economic levels. Those are the ones attracted by Netflix and Amazon. We created the XView platform on the TV with HD with all the content coming from the best programming that are in the industry. I don't agree too much with what you are saying. We have more content in terms of what -- it is provided by all our partners, Viacom, HBO, Fox, we have agreements with all of them to provide their content inside the TV. We are also talking to all city players, we can't close anything and can't decide, but if you look at our user interface that can go across all the platforms, either it's video, broadband or telephony, you can have only one user interface with one single way to get into the system with profiles or person in the home, in the phone or outside, you can have access to 5,000, 6,000 and by the end of this year 8,000 metro WiFi hotspots across. You have the customer care that we have on our broadband (inaudible). So, the whole combination, we believe, can get us there. Also, we have a really good segmentation. What affects in as we say in the ARPUs is to increase video subscribers at the end. We have lower packages to penetrate and compensate the economic in selected areas, but higher and mid-economic levels with HD and XView that can compensate the ARPU of video and remain at the same time. So, I know I'd like to talk (inaudible) but everything is in my mind on that part. I think we can make the 8%. We have no doubt in all the service and we'll do the best to get it. Hopefully, we can do that.

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Andres Coello, Scotiabank - Analyst [39]

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Let me ask a technological question. Is it possible for the subscribers of your new technologies to, for example, watch a program, say a program in Fox or Warner that was transmitted previously, can I watch that on an on-demand basis, meaning if I want to watch a series by HBO, for example, that was transmitted last week, could I actually demand that specific program in my TV or if it that -- if it like a digital platform where I can watch the channels, but [this is just too] linear television?

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [40]

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(inaudible), than the great part that we have with the user friendly [phase] that we have in the market and we are ready to launch, I mean we're very, very ahead of the project. The usage that people have in their homes of the non-linear program is incredible. People like to reverse the guide, people like to go through the (inaudible) steps to go to the guide and they like to go to the new releases of all those series and our search platform can look into series and can tell you whether it's HBO or it's Sony or it's Universal, or it's Fox and you can do search by year by actor, by year, by movie, by everything you want. So, it is a very enriched platform and also you can watch that in the OTC platform that we have in any form.

So, we believe that product is targeted to the new generation of people that want to watch the nonlinear, we also have content coming from several sources. We buy, we acquire, and we have the rights to provide, whether we go direct to the studios or we capture right from the linear channels to provide that Volume 4, what we call the Volume 4 or Volume 5, I don't know if you're familiar of the full pack of the series. That means you can have the 10 episodes or you can have the last five episodes on your platform or you can have 48 hours to go back in the guide. All those programs we have it on a selective basis by content, by program, and that's what we're providing to the subscribers.

Also, we want it straight to the studios like I said, and we bought series and we bought movies and we bought kits. So, we target to all the different segments of the market. Next time you are here, I will love to show you platform, you will be impressed. Also the speed of the change of the channel is one of our great advantage to, is really, you can really not perceive when you change a channel and you do search from one to the other one and you would work through the guide or do retrieve a video in your home is really, really, really fast, because we have a good CDN and we have a good network and we've a good service and good technology in that part. I don't know how much --

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Andres Coello, Scotiabank - Analyst [41]

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Just one last clarification. So, what you're saying is that as a subscriber, I can access obviously linear television and separately you have a library of content that include series and movies, like a Netflix-like product, but we're talking about separate things, because I guess it's separate licenses for you, right. I mean, the linear channels and even advertising, they leave on programing fees. So, what I'm saying is, if I want to watch a program that was transmitted, say on channel 2 or whatever last week, I can probably record that, but it's going to have advertising fees, it's going to have like a traditional linear format and if I want to access a series on your OTT library, then it's a separate license for you. I don't know if you know what I meant. It's not that I will search for a program that was transmitted last week on linear and I will watch it as it was OTT. I still have to watch it on a linear basis.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [42]

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You are partially correct, Andres. There are some rights for programmer, important to provide the rolling for, that means if you have the last four episodes that were watched on the linear channel, you can't provide that on non-linear channels. You can also go back in the guide, in certain linear channels, not in all of them. You can, and of course the full stack of the season we'll go and we'd buy it. When we announce a new release on our platform, the release says, hey close to these series that we acquired from the studio and you can watch the full season of this series. So we have a mixture. You cannot -- it's not straight like you say, we have rights for a lot of the content on an non-linear basis coming from our partners and every year that content will be more released in our platforms as a part of the migration to linear to non-linear in the whole industry.

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Andres Coello, Scotiabank - Analyst [43]

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And finally, what percentage of your video customers already have this technology.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [44]

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Very few. We'd been offering VOD services and TVOD services in the legacy platform. That means an all user interface and a very limited amount of video to provide on an old technology, not IP technology on the network, now it's fully IP in all the platforms. So right now, we don't have that many because we're launching the product which is called the XView and is launching really, really soon.

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Andres Coello, Scotiabank - Analyst [45]

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Thanks so much for the color Raymundo.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [46]

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You're welcome. Hopefully next conference, we'll be talking a lot about perception and people and the content and the experience and that part, not from the FUC but more on the real life. And the reason also, Andres, is because we migrate all the technology to this new platform, because we wanted to have what you're looking for, which is a non-linear experience across the different devices. We should run fast with high quality and can match the needs of the new generation of people, can also adapt absolutely meaning if we wanted to do a deal with HBO GO or we wanted to do a deal with Netflix and we wanted to include that in the TV or we want to include as you say, Amazon.

We have the possibility according to the set-top box as the platform to run those app in the future to come. Where we are going to launch without the app, we are going to launch with the content of all the linear channels that they have in the app. Let me explain you. If we have ESPN Play, if we have Sony, if we have Warner, if we have MTV, we have Universal, we have HBO, we have Fox. Our search engine looks into all the apps and watch for the content and play the content in their app, but our subscriber will look for that in the non-linear manner and we will record that in our TV because we have the rights from them for that content that they have in the apps.

So, we don't have a 100%, but we have a great percentage of the content for our subscribers. So, believe me, it's one of the -- we're very happy for that. We are very excited for that.

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Operator [47]

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Carlos de Legarreta, GBM.

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Carlos de Legarreta, GBM - Analyst [48]

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So, let me go back to the cash flow statement please. So for the full year, I am seeing the income tax line is basically at zero. So, I would like to understand that because in the P&L, I mean the number is (inaudible) MXN845 million. So, if I think of 2015, the cash tax rate that you guys paid at least against the operating profit was somewhere around 18%. So, it seems that you guys have been having a very favorable tax in terms of cash. So, I want to know what's the origin of this and what can we expect going forward? I mean how sustainable is to have a low tax rate or cash tax rate for Mega? That's the first question, please.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [49]

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Sure, Carlos. Yes, we had a rate of about 18% for 2016 and our expectation is that it will go a little bit up on 2017. Of course, we are targeting that about more of 20% tax rate for 2017. And this is basically because of the deferred taxes benefits that we had during 2015 -- that we are really taken some benefit on these years. But, as we move on year-over-year will reduce and that's why we expect that to go up a little bit.

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Carlos de Legarreta, GBM - Analyst [50]

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Okay, perfect. That's very clear. Regarding other items, in the corporate segment, (inaudible) to go back to that. Very recently Telmex, I think in January came up with different or lower packages for small businesses, (inaudible) double play pause, cloud services for up to 200 megabytes. I'm wondering how negative could this be for Metrocarrier or MCM business going forward, and also industry lines -- in the corporate segment, so (inaudible) that you provided for the CapEx, the 45% (inaudible) does that include this segment or you only request to have so, I am not understanding where do you guys put the CapEx regarding the corporate segment, thank you.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [51]

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Let me answer the first part and then I'll let Luis answer the second one, the part of the CapEx. The [S&D] is different in Mexico than in the US. What we consider be small and micro segment is not included in our results of the Metrocarrier that's a small segment with the smaller ARPU, but is included in our massive market, we call it that, Metrocarrier goes to mid or large enterprises, of course, our mid enterprises will be the small enterprise of the US in that area. We are very aware of the offers that R&D market for Metrocarrier. We compete and we bet for all the different options that they are aware whether it's government or corporate with different companies, now whether it is Nextel, Axtel, Telmex or TotalPlay, maximum even if there is, we know we show that in the market, now we're very well recognized, like probably one of the top of them to compete. We won Mexico Connectava and we have won several government licenses in that part. We don't see Telmex. It is a serious competition, we have dealt with them in the past and we have great network to take advantage of whether it is (inaudible). We believe that 2017, we will continue to grow Metrocarrier (inaudible) at the high-speed, not as high as the 55 that we have in the past because we have the CFE contract, but it will represent still high growth for those areas with also the new series that we have. We are competing head to head and our product is very competitive because of the advantage that we have of our fiber in the (inaudible). In terms of the new offer, we compete with (inaudible) small businesses. And our office offer is a lot better because of the bandwidth that we're providing to them. We provide -- we have a strong offer that goes from 25 megabits to 100 megabits to the business with four digital lines and also if they want, we provide video in that business (inaudible). So our product is okay. We feel comfortable. We continue to grow the [niche] of businesses well in that part and we have a good share of the market competing head to head with Telmex on the part. And that's related to the CPE of Metrocarrier and those, it is included on the CPE, but Luis, if you want to clarify more about that?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [52]

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Right for Metrocarrier, every part of the network that has been built for Metrocarrier is part of what we call the modernization or growth of our cable network. So that is already included there. Any equipment for WiFi services will be on the PCE equipment that we are camping. So yes, the short answer is, it's already there.

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Carlos de Legarreta, GBM - Analyst [53]

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That's very clear and helpful. Thank you. And finally, if I may. So regarding -- anything I have to get back to you on this. Thank you.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [54]

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Okay. Any time, no problem.

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Operator [55]

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Rodrigo Villanueva, Merrill Lynch.

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Rodrigo Villanueva, Merrill Lynch - Analyst [56]

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Thank you. Good morning. Can you hear me well?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [57]

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Yes, go ahead.

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Rodrigo Villanueva, Merrill Lynch - Analyst [58]

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Thank you. Enrique, Raymundo and Luis. And my first question is related to the corporate segment. We know that there was an important project with the CFE that is coming to an end as you already have around 87% completion. So I was wondering if there is any project that would substitute revenues from this one. And if you could give us more color on what you're expecting in terms of growth for corporate segment revenues. That will be my first question.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [59]

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Sure, Rodrigo. What affecting corporate segment, correct me Luis, around 17%-18% growth for next year, mainly driven by Metrocarrier and MCM because of the connectivity business that we are having there. Ho1a will be down of the CFE project if you call it that way, but I don't want to blow the whistles in that part, but we do have project, Ho1a (inaudible). CFE was a very big and large project for the size of Ho1a. But we're looking to new projects to go there. We have strong common in the funnel, funnel meaning all the projects that are close to and in the process to be close as a contract. We have some coming from government -- federal government, some coming from large corporates. Of course, I cannot release your, where are we and what details do we have on that part, but we expect Metrocarrier to grow 50% to the most what we have right now and then Ho1a, MCM and the rest will remain the rest of the revenue growth that we have for 2017. So, you can count on 16% to 17%. Maybe you have the straight numbers.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [60]

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(inaudible) that's basically our expectation and we are also, as you know, you have to keep in mind that we are part of Altan and that is a project that is just about to be launched. And we are - Altan is Red Compartida, and that is not already included in the guidance. So, that will boost our numbers if we achieve projects and it is very likely that we get some of the projects coming to the Red Compartida implementation on the Metrocarrier piece. So, we are very optimistic about what's going to be the future in 2017 for the corporate.

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Rodrigo Villanueva, Merrill Lynch - Analyst [61]

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Understood very much, Raymundo and Luis. And my second question is related to content costs. As far as we know, you had around MXN1.9 billion in content cost in 2015. I was wondering if you could share the amount for 2016 and what do you expect for 2017?

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [62]

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Well, related to costs, like you know, we have on improving margins for the fourth quarter. And you will have that benefit the Company for 2017. What we have done in terms of content cost is negotiated with all the providers to have provisions on the depreciation. We've been successful with some. We've not been successful with the other one. In terms of general, we can tell you where we have -- we feel we have a good position for them. And of course, if you consider the movement that we make in the channel lineup with the exclusion of the Televisa channels for the fourth quarter that was done, that decision was done at that time MXN16, MXN17 per dollar. If we are at [19.50] or the pressure that we have at the beginning of the year at [21.75], well, it proved to be a very, very good decision for us and necessarily decision in terms of what we have at that time.

So, we also tell you all the details of our programing. We're going to have less pressure and we have some releasing margins for this coming year. You can see the margins that we have on the cost of programming of the fourth quarter and you can target that to the 2017 or anything to it in the guidance that we gave you. So that's what we have, we say the cost of program.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [63]

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And Rodrigo, remember that we cannot disclose the details because of the agreement we have with Televisa and other programmers. So, basically you can add up and make your numbers, just consider the part of the savings you saw in the fourth quarter came or the majority came from programming, but there were also savings or there were savings coming from the lower, you know, effort in terms of sales commissions and also the drop cost that came from the number, the lower number of additions that we had in the fourth quarter, so it's a mix there, but you can made up some numbers based on fourth quarter results.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [64]

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And the majority or you can tell the majority of the content, it is peso denominated.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [65]

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The exposure we have now it's between 12% or around 12%, 13% of our total cost or expenses are now denominated in US dollars. So that's also something, overall.

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Rodrigo Villanueva, Merrill Lynch - Analyst [66]

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Thank you. Thank you for the very detailed answer. Just to have this clear Raymundo and Luis, so, 12% to 13% of consolidated costs correct, not a video cost?

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [67]

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That's correct. It is of the total company.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [68]

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Right, considering all the broadband costs, considering maintenance costs, that is also in US dollars. So, that's what we're talking about.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [69]

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And that includes content, which as I said, the majority we have denominated in pesos already, but these are above 13% that we have exposure in both.

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Operator [70]

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Gilberto Garcia, Barclays.

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Gilberto Garcia, Garcia, Barclays - Analyst [71]

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Thank you for all the very detailed answers you have given so far. I have a follow-up on the growth in the enterprise segment. It's a pretty healthy revenue growth that you are guiding for. Can you talk about what sort of margin we should expect for the segment? You mentioned you're expecting around 42% EBITDA margin for the consolidated results. So, I guess this is pretty similar to what we had in the fourth quarter. Should this be the case for the full-year 2017 as well?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [72]

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Yes, remember that there are different companies in this enterprise or different business units and you have to look at them separately. If you go to PCTV, for example, of course, you can expect margin of 30% there, that's a 5% margin that we you have to consider PCTV is really more a pass-through company and a savings company, but you look into, then Metrocarrier and MCM, those companies should be around 25% to 30% margin. And then, Ho1A is based on the project, there is a lot of equipment that is involving in the projects that we are talking. So, you cannot have margins in selling product the same as you have for other contracts.

So, there is a mix. That's where we think we will be. So, it's in the range of 30% in one side and then 20% through 15% on the other side with Ho1A. And then the overall mix, that's why we are reaching on the 42% that we are putting in our guidance. You can take a picture from the Q4 and then make a future statement for that.

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Gilberto Garcia, Garcia, Barclays - Analyst [73]

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That's very clear. And then regarding CapEx, can you give us a sense of what is the breakdown between the cable operations and the corporate, Ho1A and MCM and the rest, how is the $240 million split end? Does that include any potential investments that could take place this year for the Red Compartida project?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [74]

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Yes. In terms of the CapEx, it is included in what we have right now, on the $240 million that we're forecasting, in those include the actual growth of our corporate and massive market. In terms of Red Compartida, we still don't have the whole picture of the revenues that we would provide. Therefore, we still don't have the picture of the CapEx that we will need. What we can tell is that, we cannot release too much of what we're doing over there, Red Compartida is working as a great project. We are very happy to be part of that, but more than that we are very happy to be a supplier of that new network that is coming over there, we are working 24 hours in Mexico City in their offices to [deepen] to be part of this project and to be awarded the last miles in all the cities where we are. It is a very interesting project for us and it will require CapEx, but it will be tied to the revenues that we will have.

So for our guidance, and to be meaningful in the numbers, we are forecasting a decrease in CapEx of $260 million, [$3] million to $243 million pretty much and that's done because -- and that's done without slowing down any necessary investment in corporate and residential. It is done for growth in CPEs and customer equipment for both segments again, residential and corporate, and it does include the operator of the network to provide services in the cities what I told you, I mean our existence is -- for the both segments.

So you will see those numbers around that area for 2017 and if we have something related to Red Compartida, maybe we can discuss that by second quarter or when we have something already set within. Right now we are in the bidding process like anybody else on that part and we are very active to be [our] Company for that contract.

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Gilberto Garcia, Garcia, Barclays - Analyst [75]

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And sometimes the investment on the network, it's really for the benefit of the both segments, corporate and also residential. So that's why we don't have a detailed breakdown to the final [scent] in terms of which CapEx investment was for MetroCarrier and what works for the massive market CapEx. But basically that's mixed in the number.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [76]

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And Paul, you know, if we want to talk detail on that part, we can look for that and I'll tell you, it's something that we look into the details every time here internally in the Company, but like we said, the synergies are a lot and that's why it make us be really efficient. And if you want more details on that part, we can give you a call and tell you a little bit more how we operate on that, but it is included.

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Operator [77]

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Arturo Langa, Itau BBA.

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Arturo Langa, Itau BBA - Analyst [78]

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Just two questions and the first one is, maybe from a top level discussion, how would you see the industry evolving in terms of market concentration and service conversions? Do you see (technical difficulty).

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Operator [79]

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This line is disconnected, we will go ahead with the next questioner. Tyras Bookman, Park West.

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Tyras Bookman, Park West - Analyst [80]

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I had one follow-up, sorry I didn't get it earlier. On churn, I was encouraged to see it come down in broadband and telephone. But I don't think I remember hearing you guys talk about what you thought churn could get to in the three segments and where you wanted it to be?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [81]

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Sure, let me see. The figures for the churn that expect on 2017, we have (inaudible). We think in video, we will go back to 3.0. We were 3.8 on Q4 with things that for the full year, we will be on the 3.0 churn on a monthly basis. On Internet, we expect to reach 3.3. And on telephony, we will be around 5 to 5.5. Basically that's what we have included in our guidance. And we're going to achieve that, like I said, with a much more, we are already beginning to do that. We are selecting the areas where we can be aggressive and other ones where we cannot. We're not only one, we have seen that similar companies too where we won't be and provide (inaudible) free and promotions that will increase part of our churn. Part of our churn comes from the aggressive campaigns.

So we're much more restricted in what customers are we're approving to come to the Company in that part, because the model change with the economic situation. We feel that that the disposable income in the lower economic levels of the (inaudible) growth, we need to be more selective and more efficient. And the other one is we have a strong campaign of retaining customers through offering them what they really need, both in video, broadband.

And telephone is different. Telephony may seem -- and it seems like a really high churn, but this churn includes the people that stopped the service because they didn't use it after the promotion that we provide to them because we bundled service between telephony and broadband. So far, the last two quarter's churn of telephony decreased. And we expect that to decrease from 6.0 something to 5.5, if I can recall that we've mentioned to you. So those are the numbers that we have for churn.

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Tyras Bookman, Park West - Analyst [82]

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And what about long-term? I mean, where do you the churn to go given the current pricing?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [83]

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We expect that to decrease. We expect churn to decrease. As long as we approach mature levels of penetration, we should be much more less aggressive in campaigns and dedicated more to customer retention and to provide operator services to those customers whether it's in new generation of HD, whether it's the next generation of video, whether it's HBO or Netflix or if operated to 100 megabits and 200 megabits, that's where we will be focused in the years to come in that segment.

All markets have a level of penetration, still we have a lot of room to grow in the three segments. In that part, telephony is not growing, the segment of telephony is stable, it is not going to grow, but the market share (multiple speakers) no, no, the market is not growing, but we have a lot of market share to grow in that part. Broadband and video, broadband being the main driver and video a little bit lower than broadband in that part and switching, but broadband will be the driver of our triple-play package that we have there. Once we [approach] that we will be strongly dedicated to customer retention.

I can tell you that if you deduct the customers that disconnect from the Company in the first couple of months or three or four months, coming from people that want it because they can afford to have (inaudible) that, you deduct that from the churn, we have a very manageable churn for Latin America, let's call it that way.

So we will be much more restricted on the increase of sales and much more aggressive in the retention of the customer on after-market basis. That doesn't apply to all the markets. We have markets where our penetration can give us growth and we'll continue to be aggressive like we were in the past and some other markets where we need to be much more selective and that's the part of our strategy for 2017 close to the new products were launched.

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Tyras Bookman, Park West - Analyst [84]

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And this is a longer-term question. But if your EBITDA keeps growing at anywhere near the rate that it's growing, I'm sure it will slow down at some point, and your CapEx is actually going down, do you guys -- just going to be spitting out a ton of cash and what do you think you're going to do with that?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [85]

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That's a good question.

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Enrique Yamuni Robles, Megacable Holdings SAB de CV - CEO [86]

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Well, we have a clear path where we want to go. I mean, as long as we can grow the Company and invest, we will be growing the Company with the excess cash and we will dedicate some of that cash also to dividends as we have done in the past years. Our dividend policy is about 15% of the total EBITDA of the Company, but last year I think it was 20% because we had excess cash. We don't know yet what is going on, but I think that at least is going to be a 15% cash dividend of the EBITDA. But obviously EBITDA in the future, it's the excess cash that is larger, we might get an increase of EBITDA, we don't know, that's a matter of the shareholder assembly and the Board, but obviously we did reasonable and we think that they will take the right decisions for that.

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Tyras Bookman, Park West - Analyst [87]

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Got it. I have no axe to grind at this point, I'm just curious to your thoughts, I realize that having this good balance sheet is a competitive advantage for you because you guys can invest in your network, but at some point, under capitalization just becomes or the over capitalization (multiple speakers).

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [88]

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Yes, we know. But I don't know if there is going to be some more M&A in Mexico and we got to be waiting for that. If not, then we will decide what to do. Okay?

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Operator [89]

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Andre Baggio, JPMorgan.

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Andre Baggio, JPMorgan - Analyst [90]

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Hi, I have two questions. The first one is, actually, can you just remind, I could not hear you well when you talked about guidance. I hear some 8% B2B growth in a $240 million CapEx. Is this correct? And can you add the broadband growth?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [91]

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Yes. The guidance for CapEx in 2017 is around $240 million. That's our guidance, Andre.

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Andre Baggio, JPMorgan - Analyst [92]

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Okay. And growth rate for broadband?

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [93]

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For broadband, the growth rate is, 17%.

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [94]

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Around 17%. Yes.

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [95]

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And voice between 20% and 21% and video around 8%.

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Andre Baggio, JPMorgan - Analyst [96]

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Then my final question is that, can you talk about how it's going to competitive environment, we see a mix, but not on the corporate, but on the retail side, on the broadband, like how aggressive a mix building a better network or one that can compete with HFC or GPON?

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [97]

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Well, we've been having competition in all these segments already for a long time whether it's satellite or it's Telmex in terms of broadband. We have competition also from other companies, fixed line companies like Axtel, Totalplay, EC in some markets where we compete. We have other cable companies. So we're used to competition in that area, we feel that as a company and product offering, we are the best (inaudible) right now, we have a strong network, the best cost effective product related in the market, and we have the best rates in the market, we have good financial structure, good presence nationwide. So if you look at what Maxcom tele, Axtel tele or other companies, we are the one that continue to grow. We have a company coming from Totalplay, Totalplay increased presence in some of the markets and is a serious competitor too. But so far we managed to complete them to continue to grow and the way we see it, they are not growing anymore right now in term of kilometers and we're competing in some of the markets with them and we're used to that part.

In terms of broadband, it will come from Totalplay and Telmex and ourselves (inaudible) and again, our network has GPON, what it needs to be GPON and it has the right node size of 1 gigabit that can be provided with -- remember that we're fully digital. So if you are very familiar with the technology, we have a full spectrum of the boxes to provide maximum capacity where we are at the CapEx that we're investing. So what we foresee is a strong competition in the part, but we feel probably in this landscape, we might be one of the best to (inaudible).

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Operator [98]

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Carlos de Legarreta, GBM.

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Carlos de Legarreta, GBM - Analyst [99]

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Thank you. Sorry about the earlier. Just very quickly, and I don't know if you're disclosing this, but what is the exchange rate that you guys are assuming for the year in the average?

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Luis Zetter, Megacable Holdings SAB de CV - CFO & Administrative Officer [100]

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Yes, for sure. We -- to date in our project, [MXN21.50], but of course it looks good one day, it looks bad the following day. But in average we use [MXN21.50].

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Operator [101]

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Thank you. At this time, we have no further questions. I'd like to turn the call back over to Mr. Yamuni for closing remarks.

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Enrique Yamuni Robles, Megacable Holdings SAB de CV - CEO [102]

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Okay. We're quite pleased to conclude our 2016 year the way we did. Looking ahead 2017 will mostly like bring its own set of challenges, some we expect and some we expect and some we will never -- it will be new challenges that we would face, but we're confident that we are in the solid position to take on whatever it comes and continue (inaudible) Megacable has always demonstrated the ability to maintain the growth and keep the confidence of our shareholders.

Thank you very much and we'll see you in the next conference. Any other questions that you may have, you know our mails and phone numbers and we'll be glad to answer them anytime. Thank you very much. And please, Raymundo?

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Raymundo Fernandez, Megacable Holdings SAB de CV - Deputy CEO [103]

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Thank you. Nothing more to say. (inaudible) Thank you for your time and care you have for this Company, a really proactive and nice chat we have with you guys.

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Operator [104]

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Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.