Megacable Holdings: Assessing Sustainable Growth in a Competitive Mexican Telecom Landscape

In the high-stakes arena of Mexican telecommunications, where economic headwinds and aggressive competition threaten even the most established players, Megacable Holdings SAB de CV (MHSDF) has carved out a compelling narrative of disciplined growth and strategic resilience. As the country's broadband and video markets evolve under the pressure of rising churn rates and disruptive entrants like Walmart's Bait and Televisa's broadband services, Megacable's ability to balance subscriber expansion, margin preservation, and capital efficiency will determine its long-term viability.

A Foundation of Financial and Operational Strength

Megacable's 2024 results underscore its commitment to sustainable growth. The company reported a record EBITDA of MXN14.6 billion, a 10% year-over-year increase, with a margin of 44.5%—a testament to its operational efficiency. This growth was fueled by a 13% rise in internet subscriptions (to 5.3 million) and a 17% increase in fixed telephony subscribers (to 4.8 million), while the MVNO segment surged 28% to 554,000. The video segment, though facing traditional pay-TV subscriber losses, stabilized with a shift to its advanced digital platform, XView Plus, now serving 3.5 million users.

Critically, Megacable's capital expenditures (CapEx) for 2024 totaled MXN10.3 billion, representing a CapEx-to-revenue ratio of 31.5%—a 3-year low. This strategic reduction reflects the near-completion of its major infrastructure project, which expanded its last-mile network to 102,000 kilometers, with 75% of subscribers now on fiber. The company's balance sheet remains robust, with a net debt-to-EBITDA ratio of 1.5x and a 5.2x interest coverage ratio, ensuring liquidity and flexibility to pursue growth opportunities.

Navigating Churn and Competitive Pressures

The Mexican telecom sector is no stranger to volatility. In Q1 2025, América Móvil, the dominant player, faced 1.1 million net disconnections in its prepaid segment due to economic slowdowns and aggressive promotions by mobile virtual network operators (MVNOs). Meanwhile, Megacable's churn rates remain impressively low: 1.7% for internet, 2.1% for video, and 1.9% for telephony in Q4 2024. This is a direct result of its bundled service model, which locks in customers with integrated internet, pay-TV, and wired phone offerings.

Megacable's geographic diversification also insulates it from localized churn events. With nearly 60% of its broadband subscribers in states where it holds at least 50% market share, the company leverages its dominance to maintain pricing power while offering lower ARPU (average revenue per user) than competitors. This strategy is amplified by its fiber-first network, which delivers higher speeds than coaxial or satellite alternatives, creating a barrier to entry for new competitors.

Strategic Innovation and Expansion

Looking ahead, Megacable's MEGA 2024 initiative aims to expand its network to 17.4 million homes passed by 2025, with 8 million already achieved. The company's focus on fiber-to-the-home (FTTH) technology—now covering 75% of its subscriber base—positions it to meet the surging demand for bandwidth-intensive applications. Additionally, the integration of MCM Business Tech-Co under its corporate services division strengthens its B2B offerings in connectivity, cloud, and cybersecurity, opening a new revenue stream in the enterprise market.

Capital discipline will remain central to Megacable's strategy. The company plans to keep CapEx below 30% of revenues in 2025, with further reductions expected in 2026 and 2027. This shift from expansion to optimization is designed to maximize free cash flow generation, which in 2024 already demonstrated strong performance. By prioritizing high-margin markets and leveraging its technological edge, Megacable aims to close the margin gap between new and legacy territories as its expansion matures.

Investment Implications

Megacable's combination of financial prudence, operational efficiency, and strategic foresight makes it an intriguing long-term investment. The company's low leverage, robust free cash flow, and disciplined CapEx plans provide a buffer against macroeconomic risks, while its focus on bundled services and fiber infrastructure ensures differentiation in a crowded market. For investors, the key risks lie in the broader economic environment—such as Mexico's 1% year-on-year decline in private consumption in Q1 2025—and the potential for aggressive price wars in the prepaid segment. However, Megacable's emphasis on postpaid and broadband growth, where ARPU is higher and churn is lower, mitigates these risks.

In a market where churn rates are rising and new entrants are proliferating, Megacable's ability to maintain low churn, expand its fiber footprint, and generate consistent EBITDA growth positions it as a standout performer. For investors seeking exposure to a telecom operator with a clear path to sustainable, high-margin growth, Megacable Holdings offers a compelling case—provided the company can continue to execute its disciplined strategy in an increasingly competitive landscape.