Oct 25, 2017
Operator
Good morning, and good afternoon, ladies and gentlemen. And welcome to the Millicom Financial Results Conference Call.
Today's presentation will be hosted by Chief Executive Officer, Mauricio Ramos and Tim Pennington, Chief Financial Officer. Following the formal presentation by Millicom's management, an interactive Q&A session will be available.
I would now like to hand the call over to Michel Morin, Millicom's Head of Investor Relations. Please go ahead.
Michel Morin
Thanks, Morin and hello, everyone, and welcome to Millicom's third quarter 2017 results conference call. Before we begin, let me draw your attention to the Safe Harbor disclosure on slide two of the presentation, which is available on our website.
And with that, let me hand it over to Mauricio for his remarks.
Mauricio Ramos
Good morning, or good afternoon to everyone and thank you for joining us today. As always, I am here today with Tim, our CFO, whom you all know.
Let's get right on it on slide four. Overall, we are extremely pleased with our results this quarter.
We continue to build high speed data networks in Latin America, both fixed and mobile, at increasingly faster speeds. We also continued to add record number of customers on both our 4G and our HFC networks.
And as a result, service revenue growth is now back. As we had anticipated, in Q3 we saw growth come back in all of our Latin American markets and that was so squarely as a result of the operation on the strategy that we put in place a couple of years ago.
So, we're extremely pleased to see that happening. And we are now entering the last few months of the year with strong momentum and this is very important across all our business in all our markets in Latin America, that's the key point our strong momentum.
Now let's look specifically at the strong process that we made during the third quarter beginning on slide five. In mobile, the chart on the left shows that we continued to expand our 4G networks to tap into the unmet demand for high-speed data in our markets.
Over the past year, we have increased the number of 4G point of presence by almost 70%. That is almost doubling the size of our 4G network in that pantry.
Our 4G network is now on average over 52% of the population in our Latin American markets. In some of those countries, these 4G networks now cover almost as much of the population as our 3G network, which is typically 60% to 70% coverage.
And note that we are adding capacity and density to these 4G networks to bigger customers and even better user experience and make it easier for them to consume more data. You have heard me say this before, but let me repeat it because it is important into the future.
4G in this market is not an upgrade from funding. 4G gives a new product in this market.
User experience is much better, speeds are much faster and allow access to more functionality and many more user cases whether it's social media or shopping or hailing a ride or gaming or gaining work productivity. This means than when a customer migrates from 3G to 4G, he or she consumes a lot more data, about 40% more in a very specific case, and because you have seen that we are very disciplined on price, we do monetize increased data traffic.
In our case, we get roughly a 10% uplift to ARPU on a same subscriber basis, when a user moves from 3G to 4G. So, the key for us is to continue to accelerate this fast adoption of 4G in our markets.
And on the chart on the right, you can see that indeed we continued to fill our 4G networks at a very strong pace this quarter. For our second consecutive quarter, we added about 900,000 4G mobile customers.
That puts us well on track to constantly beat the target of 3G and 4G net adds for this year. Just do the math on that run rate.
During the last quarter call, we made the point that if we had the opportunity to continue to add customers at a fast rate, we would not hesitate to invest in sales and marketing and acquisition costs in order to grow faster. That is exactly what we are seeing and that is exactly what we are doing, because there is a significant growth opportunity right in front of us, that we want to tap now.
Sure, mobile penetration rates are very high, around over a 100% but that is only true for the legacy voice business. We are focused on the fast-growing high speed mobile data business, 4G.
In 4G, data penetration is still only 18% of our customer base. We think there is a long runway of growth still ahead of us, which is why we are not being shy about investment to accelerate our growth.
Now moving on to cable on slide six, year two, we continue to build our state-of-the art HFC network faster than before. You might recall that last quarter, we raised our target number of homes passed from 12 million to 15 million in the mid-term.
We are trying to get there as quickly as possible. In this third quarter alone, we added more than a quarter of a million new homes passed to our network.
Year-to-date, we have now added almost 1 million home passes to the network already. That is more than double what we did in the first months of last year.
So, it should be somewhat obvious, but we will finish this year well ahead of our target of adding 1 million homes passed in the year. Just as with 4G and as we had anticipated last quarter, we will invest we are investing more and faster because we are seeing opportunity for growth become available.
And that is exactly what it is happening also in cable. As you can see on the right-hand side of the page, we're now connecting subscriber homes to our network at a faster rate than ever.
In the third quarter, we connected a record 72,000 HFC homes. We have connected 200,000 homes year-to-date, that number is 70% more than last year.
The pace is picking up because we now have a larger stock of homes build and because we have much larger and better trained sales and distribution teams that we have been putting together over the last months. Now to the punch line on slide seven.
These slides speak for itself. The left-hand chart simply says revenue growth is back and operational turnaround is working.
As you can see, some of these revenue growths for the quarter was 2.3% just as we said we will get to. Third quarter of consecutive improvement, our best performance in more than a year and most importantly, now positive and with operational momentum behind it.
The top right chart simply shows why, the result of the strategy. Mobile data grew almost 20% in Q3.
This is our consistent performance in mobile data growth. But note that we increasingly have more and more mobile data in their revenue mix.
So, this growth carries more weight now than before and that's a good thing. Home grew almost 9% driven by Bolivia, Guatemala and Paraguay and without much contribution yet from Colombia.
And there is only now building up momentum as we will see in a minute. And B2B which includes both mobile and fixed services grew almost 6%.
We're now out of the negative shadow of the loss of the B2B surveillance contract in Guatemala, so the underlying true growth potential of our B2B business is beginning to conclude. Indeed, we see a lot of opportunity to accelerate growth in B2B overtime, precisely because we're expanding our fixed networks across the region.
So, the revenue reconfiguration that we have been talking about for the past two years is now becoming very real. In operational turnaround, what really matters is happening.
Said [ph] differently revenue growth from our high-speed data networks is now more than enough to offset the decline of our legacy voice business. An important element of this revenue reconfiguration is that we have been quietly that consistently growing the relative size of the subscription based revenue within our mix.
Take a look at this. Cable is subscription revenue.
B2B is subscription revenue and we increasingly have more and more of these businesses in our mix. But we have also been steadily increasing our base of mobile postpaid subscribers this year as we have gotten the shape in take.
As a result, we can see on the bottom right chart that almost 60% of our total service revenue today is already subscription based. That means that we are no longer a predominantly prepaid mobile business.
We are rapidly becoming a subscription based broadband business. Now let's go to - this is actually my favorite slide.
Six charts here, one for each one of our large markets in LatAm. All of the six charts say exactly the same thing.
Every single one of our large Latin American markets performed better in Q3 this year than they did last year. Growth was more than 6% in Bolivia and Paraguay in the third quarter, where our strategy is ahead.
In El Salvador, Guatemala and Bolivia, our growth rate in Q3 was our highest since 2015. And in Colombia, we are back in positive territory even after taking a hit from regulation earlier this year and with strong operational momentum behind it.
So, like I said at the beginning we now have good momentum in all of our large markets in Latin America. Let's look at Colombia in more detail on slide number nine, because there are interesting things going on.
As most of you know, we have some of the unique challenges in Colombia. It is the only market where we are not the clear market leader or at least a very strong number two in mobile.
We don't have the skill advantages that we enjoy in other markets. And there is a dominant and aggressive number one player there.
We also have a large number of legacy corporate customers that were migrating to our HFC network as fast as possible. We've talked about that often.
That migration is a strategic and necessary and will allow us to cross-sell and bundle down the road. But it entails some short-term cost with little short-term revenue pickup, and our long-term significant opportunities.
So, the challenges are there, they're not small and we're not blind to them, but here is the key thing. We have stayed focus on our strategy and we are now on positive growth territory and growing again in that market.
We also see now more stable inherently or competitive mobile environment already in the making and very strong long-term opportunity in fixed. On our operational KPIs in Colombia are quickly gaining strength and as you have revenue stated before in this business revenue follows customer pickup.
On the top left-hand chart, you can see that we have been steadily and consistently connecting homes to our HFC network every quarter. Many of these are obviously copper [ph], you can see that in the chart and the number of customers in copper has been steadily declined.
Finally, Q3, and this is important, the growth in HFC or Cable connected home was more than enough to offset the churn in copper and we added 17,000 homes on a net basis in the quarter. You can see these on the bottom left chart.
This was by far our best performances over the past two years. The point is basic that is very important.
We are not adding the net connected homes in Colombia, and not just replacing copper homes. So, we are now into that territory and as you know in this subscription business, once you start building up momentum it begins to pile up into the future.
This is therefore a turning point for us in Colombia. And on the right-hand side of the page, you can see that on the mobile front, 4G adoption is also accelerating.
We added a 0.25 million 4G customers in Q3 in Colombia. So yes, we still have some challenges in Colombia, but we now have really good operational momentum in that market.
And that's what matters into the future. And to support our strategy, we're also launching the products and services as we can see on this next slide, slide 10.
As on September 14th, we launched our next generation TV product in Colombia. This is a state-of-the-art various product.
It has seamless integrated access to Internet video ops, search functionality across leaner programming, or home VOD platform and third-party video apps. And other functions that we'll have further position and differentiate our video and high-speed broadband presence in that market.
The section so far has been as positive as we'd expected, and we will rollout this product in the rest of Latin American market during 2018 and 2019. Earlier this month, I will also in Colombia to inaugurate our new tier-3 data center.
We're broadening our product portfolio and nothing higher service levels in a B2B offering, not only in Colombia but across the region. If data center launched comes into back launched to the single data center in Paraguay last year and planned data centers to be launched in Bolivia next year.
All of these will support and enhance our growing B2B business. All of these is our consistent approach to capital discipline.
We are investing various areas of strong growth ahead, Mobile, Data, Cable and B2B and accelerating when we see the opportunity to do so. So now let's going to bit more financial and move to slide 11.
This is in essence; I mean a single chart, track record and management team so far. All focus on healthy and sustainable cash flow growth.
This move in a single page, the story line of the last two years. We have been investing heavily to build high speed networks for 4G and HFC at the neck breaking speeds.
We have been adding customers similarly fast speed and not hesitating to invest in sales and marketing and distribution in order to tap that growth. This is now resulting in the operational turnaround that has brought back service revenue growth.
Our areas of strategic focus now grow fast enough to offset the legacy mobile voice business not a small point. The company is no longer a prepaid mobile voice company.
It is now an emerging high-speed data company, mobile and fixed predominantly and increasingly subscription base with revenue growth ahead of it. And this is happening as we have brought back equity free cash flow to the business.
Money speaks; it is the ultimate measuring stick for us. You have seen the left-hand side of the slide before; our equity free cash flow has gone from negative $43 million in 2014 just before we joined to positive $269 million in 2016.
We have picked that more than $300 million in two shorter years. And this financial turnaround continued in 2017.
We have added $33 million of equity free cash flow, so far, this year when compared to the same period last year or up 19% year-on-year. Now, before handing the call over to Tim let me ramp up on slide 12.
We are extremely pleased with our results this quarter. We are nearing the end of the year with strong commercial momentum across all our markets in Latin America and across all our lines of businesses.
Our revenue growth is back and improving and we are seeing some operating leverage come through. Overall, Q4 is better to us than Q3 and for our Latin region in Q4, we expect service growth of between 2% and 4%, and EBITDA growth of between 4% and 6%, like we wanted to be coming out of the year.
And finally, we have a balance sheet in order, our operational strategy working and our equity cash flow growing, we feel that they need momentum for a strong 2018. And this is exactly where we wanted to be towards the end of the year.
Tim will now walk you through our financials.
Tim Pennington
Thank you, Mauricio. And let's start on slide 14.
So, you just heard from Mauricio the operational building blocks are rapidly falling into place, customer uptake is accelerating, some businesses are delivering, what are your improvement are and we have been able to maintain on sustained margins. Whilst investing in higher levels of sales activity plus cash flow continues to show strength.
LatAm is trending in line with where we wanted to be. Let me turn to the key financial metrics in slide 15, service revenue growth swung by more than 300 basis points from Q2, turning us to positive service revenue growth after full quarters with negative growth.
This is slowing Q3 EBITDA which was up 3.4% year-on-year, and with cost discipline margin is improved 80 basis points to 36.8%. And for the record FX was not a major factor this quarter.
In line with CapEx has picked up to $632 million, reflecting the rapid build on underway. But we expect to be in line with our guidance which adjusted for Ghana and Senegal would be revised for around $1 dollars for the year.
Mauricio has already gone into detail in service revenue growth. But I just want to take a second to disaggregate what a sequential growth came from.
The biggest contributor was LatAm, Colombia which contributed more than half the improvement, but what really made the difference in this quarter is both Colombia and Africa show sequentially improvements. Turning to LatAm slide 17.
Overall, LatAm service revenue growth in Q3 was 2.3%, big improvement in B2C Mobile, now less than 1% down year-on-year, unless we are - and we are also seeing data continuing to grow over 20% per annum rates. Moreover, Paraguay, Bolivia and Guatemala all reported positive mobile service revenue growth, which helped drive the strong performances in each of these markets.
The home business grew well across most geographies of 8.8%, with robust growth again in Paraguay, Bolivia and Guatemala and then improvements in Colombia. And also note, B2B made a positive contribution growing by 5.7%, our strongest performance this year, on a bigger B2B markets, and our biggest B2B market Colombia, it was pretty solid in the quarter as well.
EBITDA grew 2.5% organically in LatAm, it's a great improvement on Q2, and we expect to continue this improvement into Q4. LatAm OCF is broadly flat as we pushed hard on the network build, it's worth mentioning that customer equipment deployed to support the growth of our fixed customer base increased almost 50% year-on-year, and it now accounts for 25% of our LatAm CapEx.
So, in short, a lot more of our CapEx is being deployed into direct revenue generating investments. Let's look at Colombia in a bit more detail on slide 18.
As we said, we're pleased to report to return to growth this quarter. The strength of this however is obscured by the significant impact we had from regulatory changes earlier this year.
Specifically, the wholesale caps on MD&A is national roaming. As I said last quarter, we have a disproportionately large share of this traffic in Colombia.
So, these actions at the end of Q1, had a disproportionate impact on us. You can see here, the cost towards was 260 basis points of growth.
Additionally, if we had the discontinuation of UNE fixed wireless business, at which we had planned for, this added to further 90 basis points impact. Now, this is only cost of the story, given the opportunity outlined by Mauricio, we pushed up ourselves in marketing spend by 19% in the quarter.
And we make no apology for such a rise in the market where we can see such growth opportunities. However, we are mindful of the margin, we particularly and wouldn't we partially compensate it for that increase by 12.5% reduction in our G&A cost.
Fully standing the result here, 350 basis points low EBITDA margin, and this margin is likely to remain muted for the next couple of quarters. And we move to Africa on slide 19, and before talking about the performance only spend a moment on what constitutes the Africa group now.
Ghana are both consolidated numbers. Ghana, we got regulatory approvals proceed with the merger at the end of the quarter, so from Q4 this will be treated as JV and equity accounting for.
We haven't quite got regulatory approval for Senegal, but we are expecting it sometime during the next quarter. That leads us away just Tanzania, Chad and Rwanda and it now represents less than 10% of group revenues.
These are numbers here on the slide here. And in the quarter, there was some method in Tanzania with stronger revenue growth, although we do remain concerned about the operating environment.
Chad continues to see a substantial revenue impact from the sales tax imposed in Q1. And that is largely why Q3 service revenues continue to fall.
We'll be at a slow rate. You recall that our main objective is set Africa on the standalone financing basis.
And we remain comfortably in positive operating cash flow territory. I'm confident that the Africa region will be fully equity free cash flow positive in 2017.
Okay, let's turn our attention to group EBITDA in slide 20, EBITDA for the quarter was $5 56 million up 4% year-on-year inn U.S. dollar terms, and 3.4% on an organic basis that is on in constant currency and excluding Senegal and Ghana.
For reference, Ghana generated EBITDA of approximately $8 million in the quarter. On the chart, you can see that EBITDA growth was fueled by LatAm and corporate that includes the benefit of a $19 million loan of credit.
Then the cost on slide 21, our operating expenses declined point 2.4%, although this is a more modest in recent quarters, underlying that was a 7% increase in sales and marketing costs to support the growth initiatives to offset by 7% reduction in general and administrative expenses. So, we continue to actively manage our costs, aided by the work we are doing on project Heat and despite the investments in sales and marketing, you can see on the right-hand side of this slide, the rolling 12 months EBITDA margin continues to tick up and you can see that we are being solidly through the 35% barrier now for full quarters.
Turning to the full, P&L and a couple of things to highlight, firstly, we recorded a credit in other operating income on the accounting gain on the sale of Paraguay Towers. Second, the net finance charge includes $28 million from the redemption of the 2020 and 2021 bonds we made in the quarter.
And that's why it's a little higher than usual. Next, taxes.
They were higher in the quarter on higher profits. So, we continue to expect the full-year P&L charge to be in the region of $250 million.
Finally, you can see that in discontinued operations. That's why we've recorded Senegal and Ghana's contribution.
So, turning to the year-to-date cash flow on slide 23 as Mauricio mention cash flow has remain robust, so if you noted that the equity free cash flow is 19%, or $33 million higher than in the first nine months of 2016. A lot of this uplift is in the cash CapEx, which is just on the $100 million lower than in Q3 2016 largely on timing differences.
Tax paid were flat in Q3 reflects our OFCF mainly the after-tax cash generated by operating activities up $140 million so far, this year. Now, financing charges increased mostly due to the net debt management activities just mentioned, so the free cash flow increased by just short of $100 million.
Dividends to minorities and that's mainly Honduras and Guatemala, $114 million and the sales distribution in Guatemala in 2016 were atypical. So, this is a more normalized level.
In fact, total dividends to minority should hit around $150 million for the full year. And then, equity free cash flow of $204 million in the nine months through September was pretty strong.
Finally, slide 24, net debt was around $100 million lower at $4.3 billion on both cash flow generation, and receiving the first tranche of the cash in respect to the tower in Paraguay. During Q3, we continued to actively manage our debt, extending maturities and lowering our average cost of funding, we completed the redemption of bulk of our short maturity bonds, which will be issue of 10 year bound which round about 150 basis points lower than the 21.
We also issued a further 80 million local currency debts in Bolivia, carrying a coupon of 4.7%. So, this means that pro forma, we now have 40% of our debt in local currency and we also have more than 3 /4 of it on the balance sheet of our local operations.
On leverage, net debt to EBITDA was 1.99 times proportionate net debt to EBITDA was 2.15 times, these are unchanged into 2016, albeit a little bit down from the 3.22 times at the end of Q2. As it stands of the Q3 presentation and to summarize, we saw another great quarter for customer additions, another quarter of rapid build of our high-speed data networks, good signs and strategy is delivering with return to service revenue growth across all LatAm countries.
We're taking the opportunity to invest in higher sales activity, which is constrained to margin in the number of markets. But this is an investment we believe will return dividends in the coming years.
We've also invested more in delivering more homes passed in the 4G presence, at the same time though, we are maintaining cost in capital discipline, that brings us to the end of the presentation and we will now take questions.
Operator
Thank you. [Operator Instructions] Our first question comes from Johanna Ahlqvist with SEB.
Johanna Ahlqvist
Yes. Only one question, so how do you sort of look upon the margin potential going forward?
You mentioned that you've seen Colombian being new that for the next couple of quarters, but how much is that really sort of left in terms of cost and margin expansion you foresee in 2018 versus where we are now? Thank you.
Mauricio Ramos
Hi, Johanna Ahlqvist. How are you?
Thanks for the call. So, on a general level and once we have recuperated revenue growth as we have and the operational momentum that.
I was describing margins will continue to service revenue growth. My favorite language and one that has been adopted quite clearly that Millicom is operational leverage and it's much easier to attain that once you have service revenue growth, as we now do.
So, we see some upside potential and naturally as a result of focusing more operations in Latin America, where we have a margin, but also because we continue to be adamantly focused on headquarter costs, but also because we see in some of the operations those upside for margin expansion. Now regarding specifically with Colombia, I think your question have both angles to it.
The group in Colombia, and on one side, remember that in the long-term our margins in Colombia are structurally lower simply due to differences in the mix. We have a call center in there.
And our lower market share in mobile simply means that it's harder for us to attain the benefits or very strong market position. But during that in mind and as we have recuperated revenue growth in Colombia and we are doing that.
We will also start to expand our margins there. When and exactly how much would really depend, particularly in Colombia.
As with the rest of the group but to a lesser extent on growth and the point here is that if we continue to see the opportunity that we're seeing particularly in Colombia where we've increased our sales and marketing group, we increased our acquisition cost and we've increased its size and the strength of our distribution teams, we will continue to invest. So, in the trade-off between short-term EBITDA margins and capturing in the short-term.
That long-term growth that we have an opportunity to do. More of this business is a subscription business, the mortgage important to build momentum in the short-term, to secure long-term sustainable growth.
Tim Pennington
I would just add to that, I mean if I look at the margins over the businesses ex our fixed mobile markets in LatAm ex-Colombia over the improved margins in the quarter and margin is 36%. So, our challenges are in Colombia, which Mauricio addressed, and I mean Africa, which is subset margins still.
And the point I would make on that is it now represents sort of less than 8 percent of our group EBITDA, so it's becoming increasingly marginal in the impact. So, the focus of margin improvement is ultimately in Colombia, and we continue to express confidence that we will improve the margin overtime, but at this point in time, it's better to capture the growth that exist.
It's just a lot easier to do it when you've got revenue growth, so you can tackle operational leverage and help support not just cost reductions.
Johanna Ahlqvist
Perfect. Thank you very much.
And just if I may just one follow up question, a detailed one for you Tim on financial net outlook sort of I see that you ended up at 106 underlying in the quarter and if you can say anything of how we should view that figure going forward given the sort of tower deals you made and so forth. Thank you.
Tim Pennington
Sorry, I didn't quite catch that financial what you're talking about.
Johanna Ahlqvist
The financial net, if you exclude the redemption fees sort of the underlying financial - quarter.
Tim Pennington
The financial charges in the quarter, and I think sort of, no I think it's probably better Michel follows up with you more detail. But we can wind up around the 440 million, its $450 million of finance charges for the full year, it obviously was distorted in the quarter by the $28 million redemption fee on that the 20s and the 21s that we took.
Johanna Ahlqvist
Thank you.
Mauricio Ramos
Thanks.
Operator
Our next question comes from Julio Arciniegas with RBC.
Julio Arciniegas
Hello, hi Mauricio, Tim. Thanks for taking my question.
My question is also about Colombia, we have seen that basically EBITDA has been some penalized by subscriber growth or at least sales and marketing. Can you give us some color of what sort of actions are you doing?
Has the subscribers increased because, for example, when I see subscribers actually well broadband product has growth in this quarter but for example, mobile net adds in Q3 they are actually lower than the previous quarter. So, I would like to have a better sort of feeling of what are the dynamics that actually are driving these subscribers and marketing growth?
Thanks.
Mauricio Ramos
So, as we said last quarter Julio, we have significantly ramped up our sales and marketing and distribution commercial distribution networks in Colombia and we are adding a number of on home business and subscribers that is effectively twice we are adding a year ago, if you look at the HFC, that's a significant pickup focus on the market and we have also launched this quarter and in preparation to our launch last month, we have also look to launch a new product which is you can imagine has a fair amount of momentum. And in 4G in Colombia in particularly, this quarter we added a strong 250,000 4G net adds which is an acceleration - to that 900 which is a good number 250 from Colombia.
Now at a good level and this 900 is similar to Q2 up on our run rate or year-to-date we are almost now about 3 million marks, that we have spoken about as our target. So that's what we think into 4G we are going to be comfortably ahead of that we had put out for - and you have seen us, and I realize that we don't give you lot of detail on this, we have got a - into the business, we are adding, I am not sure I am looking in the chart to see if I can say a number, but we are adding over the north for 100,000 postpaid subs so far.
And that obviously has an additional cost into that line that you're referring to, that as I was saying before, when you have that kind of opportunity you've got a light, dive right into it and take it because in postpaid subscription of business that you bring into the house and this business stays with you for the long term. That's the color.
I think that we can give you and clearly just to remind you, in terms of looking at the purpose subscriber base in Colombia, we took at cleanup in the fourth quarter of last year. So that would-be kind of in the first half, just over 0.5 million subs that distorts the year-on-year comparison total sub base.
Julio Arciniegas
Okay. If I might follow-up are we seeing share improving due to the mix because at the end if Cable subscribers are growing, that requires less commercial activity, because at the end.
That translates into more net adds?
Mauricio Ramos
Yeah. So, I think the, the key to your question is indeed looking at churn as you're growing as you're beginning to grow in Colombia.
The area where we've seen churn decreased the most in Colombia is copper and as you recall, at the beginning of this year, towards the end of last year we had a double whammy, which is one, we have taken a price increase that cost some churn early in the year. February and January of this year, which was also coupled with the copper losses are on the context of early low consumer confidence in Colombia.
We're now out of that phase, there is still because of the price increases now so far behind, churn has gone down, and also, we're being a lot more able to retain those corporate customers because of that we've been doing to the network over the past and as a result of that net share is much lower and we're now in growth territory in Colombia, which is as I said earlier, pretty much a good turning point.
Julio Arciniegas
Okay, thank you.
Operator
We'll go next to Stefan Gauffin with DnB.
Stefan Gauffin
Yes. To continue on Colombia, you say that you increase investments due to the growth prospects that you see in this market.
Can you give a little bit more understanding of where you see that you can take this business both in terms of growth and in terms of margins? Secondly, therefore a question on the RGUs this quarter Cable RGUs which increases quite significantly compared to homes connected.
Just wondering what is driving that development? Thank you.
Mauricio Ramos
Yeah, so the second part of the questions have been and thank you for noticing that one, very keen - it's called cross-selling and it's called better bundling. So, we have a base in Colombia that we can cross-sell too and that's really quick wins that we're beginning to take, and I may have said this earlier that we are now evenly distributor in our subscriber base in Colombia.
There are some areas in which we can cross-sell into our existing fixed base and some areas in which we can cross-sell into our mobile base. We're doing a lot of that.
And also as a result of these upgrades from copper to HFC. We have the ability to cross-sell broadband into our subscriber base.
There is the effect of bundling and cross-selling. And again, I won't start making this point, we don't hesitate to invest in that at all, because this is HFC customers that have significantly lower churn and then all the customers, which means we have to keep this customer long-term.
So that's where you've got there in terms of the dynamics, we didn't want to highlight because we issue reporting number of homes connected. But we had a significant number of RGU pickups in Colombia indeed much more than the actual number of connected homes.
Now, on Colombia in general, and you've heard me say this before, we are extremely, extremely positive. This is a large market and which we see a significant opportunity for us to drive our network growth and add customers that we are beginning to have and also pick up on our 4G net adds and see a recovery of the mobile, the mobile market.
The one thing that I think it's according to highlight about Colombia going forward. Is that it is a country with tremendous growth population, it is now about 15 million inhabitants and I know it still covers, it is small part of the available homes.
So, there is growth there for us in broadband for sure.
Stefan Gauffin
Thank you.
Operator
And we'll go next to Bill Miller with JM Heart Well.
Bill Miller
Good morning. The cable economics of interest...
Mauricio Ramos
Good morning. We can barely hear you.
Bill Miller
Okay. I'm talking about the economics.
Can you hear me now? Can you hear me?
The economics of cable could you run through that again. The investments and the monthly subscriber fees does that would appear after a certain amount of time, there is almost a 100% pay back return.
Could you give us more color on just exactly how that works and how long it takes for somebody to become a full subscriber and as you passed their home?
Mauricio Ramos
Yeah surely. Yes, that's a great question.
So first the opportunity which is alluded to on the last quarter. We have set a target of 50 million homes in our markets, is that by the time we complete that target, it would only be a 50% build out ratio about effectively 50 million homes out of our market that has 30 million homes.
That we think are the available market. So that's 50% build out ratio compared very favorably to what is an 80% build out ratio in Puerto Rico and an 75% built out ratio in Chile which are sort of the aspirational comparisons, it still be 50 against 75.
So, it is a target that could be much bigger, but there is no point in putting it out there, if we are only building about a million - in homes, half homes per year. Now the economics themselves are pretty simple.
The cost to build the home for us is about a $100, a little less in Colombia, a little more in other countries. But on average you can use about a $100 per home passed.
The cost to connect the home is about a 150, that's the installation, the tab, the CPE and that's fair installation and as we have said before we are aiming in the in states so that's about 3 years out to connect a about a third of the homes that we passed, so I'll call it a 30% to 35% penetration rates on the homes that we build. So, the last piece of the equation here is of course the ARPU that we get per household and we are now getting around $20 per household on average in the region per home per month, on what is two times than the ratio.
We have actually increased that number from what about $27 than a year ago, so we are taking a little bit of ARPU pickup. The last bid of the equation is that giving you basically the math around revenue on the math around CapEx, the time it takes us to get to that 30% to 35% penetration on the EBITDA margin that we get on that.
It takes us typically about three years to get to that 30% to 35% penetration, but if you had done the math on the numbers we showed you today, of the last year give or take to build a million homes on the connected 200,000 HFC homes. That's what I said on the call.
So, and realize the business more specific cohort math, but its [indiscernible] math. We are connecting about 20% - 15% to 20%.
And if you do math the number we just showed you, that is consistent with that. The last bit of the equation is that you all know our cable and EBITDA margin, standalone drives the margin of somewhere between 35% and 45% of revenue.
And we're not a standalone cable operator; our brand already exists in the marketplace our G&As already paid for. Our network already has a lot of cable and back hole in the ground.
So, we drive what I called marginal EBITDA margins, which are north of 50% because we already got this 50% cost base. Now the whole point of this is, we see a tremendous opportunity even without the benefits to the mobile business even without factoring the strategic relevance of having our --place in a market.
All that I've said before is effectively standalone economics, but there is just needed rationale for us to go out and do that. And I'll just tie you to the last point I'm going to make here.
This is why the faster we do it the better. And I made the point about there is being subscription based revenue already.
So, you've seen this quarter as we've already reached almost reached the 1 million home passed build target for 2017, I think the exact number is 955, so it's almost a million already, and we're not stopping. At the end of the year we'll be way more for the million in terms of number of the homes that we built this year.
The - between a 1 million and 1.5 million so 1.5 somewhere in that range don't know exactly where it is for, the point is we're not hesitating because of the economics that you're alluding to invest in that growth. If it would be silly for us not to go ahead and do it given the economics given the penetration and given the market opportunity.
So, like I said last quarter we're not hesitating, that maybe impact on our operating cash flow so be it. We're not going to take short-term decisions just so that we can drive self-imposed OCF guidance number.
We're going to grab the opportunity where we can and if we can get closer to 1.5 million homes built this year, we will.
Bill Miller
Mauricio, that's a terrific answer. Thank you.
But I have a follow-on since you gave a such a great answer, which is okay. Can you throw more CapEx sales marketing whenever at this and accelerate the pace of cable penetration conversion from comp or whatever?
And can you give us any idea since you've had well above your estimates for this year? What the estimates might be for next year?
Mauricio Ramos
We shouldn't have given you a comeback. I'm hoping that we're going to end the year flow through a run rate of 1.5 than 1.
It's going to fall somewhere between 1 and 1.5 but that's going to be a run rate. And the number of homes that we are connecting is increasing especially now that we are out of partially out of the couple of ways and - the net adds.
So, we're pretty excited about the penetrations that we're getting. And by the way, when getting this penetration as when there is pick up in countries like Paraguay and Bolivia as much as we are in Colombia.
So, it is quite broad based. And we're going to be as adamant as we've been in this last two quarters on tapping the opportunity when it is right there right away.
Bill Miller
Okay, but you didn't answer the question about the outlook for next year. That would be really helpful for us.
Mauricio Ramos
It's very difficult in terms of providing that. And because we're getting better and better every quarter and that's also probably the reason.
And we are looking to strength the quarter and that will give us the better idea on how to put out the guidance for next year, every day so that we can settle it. We're not looking at less than 1 million, how about that.
Bill Miller
Thanks.
Operator
Our next question comes from Georgios Ierodiaconou with Citi.
Georgios Ierodiaconou
I have two questions please. The first one I was wondering if you could give us an update on spectrum events you are anticipating on other one in Colombia probably, will come a bit later now, but if you could talk more broadly about other ones that you may be expecting for 2018?
And my second question is on cable speeds in Colombia. There was any port out in the summer by the regulator which kind of - around 45,000 of your subscribers take speed to more than 10 megs and the majority of the - in the region of 2 to 5 megs on competitor, how does much better mix on you.
Q1 explaining trials, the drivers there any actually and actually you are taking perhaps reduce the gap between the speeds. Thanks.
Mauricio Ramos
Yes, you bet. So, on spectrum, there's been a lot of activity in the last 18 months or so.
Some of it kind of goes without releases with renewed all of our licenses in Bolivia. we also got license maybe some [indiscernible].
We're looking pretty good there. We also just renewed a little bit in Ghana in the context of closing the transaction.
So, we increased the number of years on that license, and El Salvador earlier this year. All within our budgeted numbers.
Those four other ones that have occurred over the last call it 12 or 18 months. Now, looking ahead, there is a very, [indiscernible] 700 megahertz options in Colombia, which is now been postponed into 2018, and it had handicapped, whether it will or will not happen in 2018, because the electrical process are already started in Colombia and this things until go hand-in-hand.
So, who knows it will be a 2018 - or not. In Paraguay and also coming a possible AWS license, again that could happen before year end or could moving to 2018, obviously we look towards it very positively.
And we're having the natural dialogue with the government - right price for it. And we see the government that has been very rational and very focused on making sure the private sector has the resources needed to make an economy continue to grow.
So, we would hope it happen this year, that maybe does moving to next year, and we think it's going to happen a very reasonable price. We also have an [indiscernible] the second part of our licenses, that's coming up.
It possible needs spectrum and the people close out well within the number that we think a very reasonable and giving our budget. And then largely there is the Guatemala in our 4G/AWS option that has been postponed, and postponed, and postponed from the last two to three years, and it still remain uncertain, where it would be the 2018 at all or not, certainly, not of 2017 event.
Tim Pennington
I think on the spectrum and speeds. I think our point number one will be that, there's a bit of inconsistency in the way the regulators capture this date.
We seem to be in the path of that - it's sort of had a different spectrum, at the end of the day we of, and I saw - we offer a range of speeds, our customers buy the speeds that, once you. And I think we've said in the past, most of our customers are in that sort of 5 to 10 megabits, second band, and that just gives us plenty of upselling opportunities.
So, we're not comfortable with where our customer base is in the main.
Mauricio Ramos
So, let me give you, sorry I missed out. Let me give the little bit more color on my long-term beyond this, because speed is our friend.
And I'll tell you why in a minute. So, when you look at the picture today in Colombia, you've got to remember, that we still have quite of bit of copper there, it's respect to that in mind.
And got to remember, that we still have a little bit of M&DA that we just give up, and that has fixed broadband on it. It's speed on copper and M&DA that are not comparable to the one that - the building can offer.
So, that data likely captured a lot of that. That's the picture today.
The picture going forward is as golden, and the neck breaking speeds, that I've just referred, state-of-the-art 1 gigahertz, two ways, DOCSIS 1.0 ready network. So, once you have that kind of network in play, like we're building, at the rate we're building, and have DOC 60 modems and housing, routers on the house, speed becomes our friend.
And it is up to us, how we monetize it and how we drive that margin. Because they're the only be couple of HFC network in that market that we would be able to drive speeds into the market place.
When and how we monetize it, is a commercial decision, but speed is our friend. With the kind of times that we're building.
And you already know the last point I would make is the network that we're building is identical to the network that the large MSOs have in the U.S. no difference.
1 gigahertz, -DOC 60.1 existing networks.
Georgios Ierodiaconou
If you just remind me following up, is there a difference in the subscriber base, they are addressing. Because in the last 12 months, they have around an 8% growth in the RGUs around 0.5 million customers being added and or services being added to be more precise.
Is it because their subscriber base is more this year top grade to kind of speeds versus yours. Or what would then expand addition in the performance?
Mauricio Ramos
There are two things. One is the bigger network, so if you're comparing apples to oranges.
And two, we have the copper effect and that we just described that we just begun coming out. Prior it doesn't have any copper, that when you compare our HFC gross adds with [indiscernible].
Georgios Ierodiaconou
Yeah, thank you.
Operator
And we'll go next to Nielsen [ph] with Nordic.
Unidentified Analyst
Hi, good morning guys. Three questions if I may.
On the impact of the rule effect wireless decommissioning, will that roll through the numbers until annualized or is that a project that takes longer time to complete, so what's the character to expect there? And then on moving away from Colombia and maybe focusing on a smaller market on Bolivia, we see a solid acceleration of net adds on the highest level since 2014 I believe.
Is there anything specific driving that and how sustainable do you think that is? Thank you.
Mauricio Ramos
On the third one...
Unidentified Analyst
I'll come back to that sorry.
Mauricio Ramos
It's holding it back it's a back. I'll let Tim answer number one.
Tim Pennington
Very quickly the fixed one as we've come out of our numbers after Q2, it's an annualized thing.
Mauricio Ramos
So, the Bolivia question, our Bolivia's empire. And is the cable playing out faster than the other countries and right by the book?
We added 30,000 this is the fixed or the home or the cable. We added 30,000 net adds this quarter and we had added another 30,000-last quarter.
And we've been building in Bolivia and adding subscribers like always telling upticks. And we're pretty bullish into next year.
And as you can imagine we're going through a budget and we're just putting capital right there that's what we do. Our semi-speed on 4G, Bolivia added about 160,000 4G net adds and that's on the back on putting money into the 4G network.
And then just being ahead of the pack in terms of 4G deployment. So, it is just a playbook thing out like as we would expect it would once you get operational momentum.
The other element that is specific about Bolivia is that if the market where we first started putting all the sales team selling all products. First market in which we started selling fixed and mobile single unified commercial team.
And the benefits of that are beginning to show.
Tim Pennington
I think it's interesting because in the couple of quarters back and it sort of slowed down. Yet we saw the opportunity there.
We're seeing the opportunity we're actually significantly up our CapEx investments into Bolivia diversely from other markets. And I think that's give investments since as I seen sort of service that is paying off quickly than we feel it's actually with the speed in which the particularly the cable business is taking place.
So, we're very happy with that.
Unidentified Analyst
Thank you for that. And onto my third and last question, this might be stupid one.
But is there is a seasonality effect on your subscriber intake in LatAm specifically. I mean looking back a number of years, it looks like Q3 is always rather flat or negative or is that just by coincidence.
Mauricio Ramos
Well, there is seasonality in mobile, it tends to be fourth quarter for sure, that's definitely the case. And that's why we are like confident that we're going to constantly ahead of 3 million 4G net adds which was our target for the year.
But because we had a pretty good hope now it tends to be [indiscernible] last quarter or fourth quarter we did about 1 million or so plus. Now on key, the element of seasonality of the numbers made difficult to see because we're building so much [indiscernible] but the element of seasonality it's going to get to do since it is pickup and subscribers on the back of the pick up on our outlook.
Unidentified Analyst
Okay. Thank you.
Michel Morin
Lauren, I think that we're already at 9 o'clock, so I think that had to be our last question. So, Mauricio I don't know if you want to go for final remarks.
Mauricio Ramos
Well I think that the key point that we're making today is that our Latin American business is performing driving lines of our expectations and adding tons and tons of operational momentum. We just have a market opportunity right now is driving faster than we had anticipated and that's a great problem to have.
I think we're going to be building more than that 1 million homes that we targeted we would build and we're penetrating them better than we had expected. We were adding 4G subscribers or users that are passed and we're going to end up ahead of our target that's our mobile opportunity that we have to tap.
We're now adding 70,000 HFC subscribers in a quarterly basis and that is an opportunity that we had to tap. So, we're investing more and more in acquisitions and it's taken the view like we told you before that we want to grab that opportunity for the subscription base business that we want to build momentum for the future and it would be absurd for us not to build more, not to spend more, not to spend more in certain marketing and acquisitions.
Short-term guidance, it will be the guidance that we would use the market opportunity and we don't want to do that, we shouldn't be doing that and relative to that we're pretty pleased with the kind of momentum that we're building for our business into fourth quarter Latin America and the practical building is strong 2018 going forward. Thank you for joining us today.
Operator
This concludes Millicom's financial results conference call. Thank you for your participation.
You may now disconnect.