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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen and thank you for standing by. I'll now turn the call over to Kunal Patel, Vice President, Investor Relations.
Thank you, and good morning, ladies and gentlemen. Welcome to Liberty Latin America's Third Quarter 2018 Investor Call. This call and the associated webcast are the property of Liberty Latin America. And any redistribution, retransmission or rebroadcast of this call or webcast in any form without the expressed written consent of Liberty Latin America is strictly prohibited. [Operator Instructions]
Today's formal presentation materials can be found under the Investor Relations section of Liberty Latin America's website at www.lla.com.
Following today's formal presentation, instructions will be given for a question-and-answer session. As a reminder, this call is being recorded on this date, November 8, 2018.
Page 2 of the slides details the company's Safe Harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information statements that are not historical fact.
These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed, from time to time, in Liberty Latin America's filings with the Securities and Exchange Commission, including its most recently filed Form 10-K and Form 10-Q.
Liberty Latin America disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.
Also note that nothing stated on today's call constitutes an offer of any securities for sale.
I would now like to turn the call over to Liberty Latin America's CEO, Mr. Balan Nair.
Thank you, Kunal, and welcome everybody to Liberty Latin America's third quarter results presentation. I am once again joined by my senior leadership team from across the region, and I'll get them involved as needed during the Q&A.
For our agenda today, I'll start by taking you through our highlights for third quarter, before providing an update on progress across our operations, and some M&A we were pleased to complete following the quarter-end.
Chris Noyes, our CFO, will then make some prepared remarks regarding our Q3 financial performance, including the strength of our capital structure, which is one of our strategic priorities. And after that, we will get straight to your questions.
As a point of housekeeping, we will both be working from slides, which you can find on our website at www.lla.com.
Let me start with Slide 4, with our key highlights for the quarter. Firstly, we reported good financial performance that rebased top line and OCF growth in Q3, as we've continued our recovery from the hurricanes that hit our markets a year ago.
Two, from an operational perspective, in line with a good first half, we continue to generate strong broadband gains, driving 42,000 total RGU additions in Q3. This is a testament to the quality of our networks and products, while also showing the potential opportunity for greater penetration in our markets.
Third, we are committed to investing in growing our networks. We have upgraded or extended our footprint by over 260,000 homes so far in 2018.
Moving to point four, I've talked previously about revitalizing our operations at Cable & Wireless, and although, still early in the process, we've made a significant step in Panama, C&W's largest consumer market by launching a new campaign last month, called Moments that Matter, along with improved customer value propositions.
Finally, we acquired the leading Costa Rican cable operator, Cabletica, at an announced OCF multiple of 6x, and purchased Searchlight's 40% stake in Liberty Puerto Rico.
In the next few slides, I'll provide an update on our fixed, mobile and B2B businesses.
So let's go to Slide 5. I'll first look at our fixed business. Operating across 20 consumer markets, in total, and representing approximately half of the group's third quarter revenue. Starting on the left, with RGU additions, as shown by the chart, we've delivered a significant improvement in net adds this year, driven by C&W. Especially, markets like Jamaica, where we are seeing some good momentum building, as we reposition our products and operations. And in Puerto Rico, we have strong sales and lower churns have driven our net adds performance as we recover our business there.
Note that this improvement is despite a drag coming from voice subscriber trends, where in Chile we saw an increase in voice RGU losses for Q3.
Our team had focused their acquisition efforts there on broadband and video sales, to 2 products in which we continue to do well. However, in the coming months, we aim to utilize these marketing and building tools to turn the voice RGU growth around.
Our commitment to bringing video innovation to 1.3 million video subscribers in Chile and Puerto Rico is demonstrated by the launch of [indiscernible] applications. VTR Play and Go in Puerto Rico, respectively, which are gaining traction as they enable our customers to access their video content, however they choose, either at home or on the go.
In Chile, approximately 30% of our enhanced video base also used our advanced functionalities, like Replay TV at the end of September.
Finally, the good news here is that there are more gains to be made, as penetration of broadband in our markets is still below 50% on average, relatively low to many parts of the world.
Moving to the middle of the slide. We continue to see healthy returns from upgrading and extending our footprint.
So far, this year we've upgraded or built over 260,000 homes, including approximately 100,000 in the third quarter, and are seeing good RGU and revenue growth.
As I've said previously, broadband is increasingly the lead product when a customer chooses their service provider, and our networks provide access to a leading experience through the speeds we can offer.
Our upgrades and new builds also continue to drive video performance. And we see a number of additional, attractive opportunities to expand this further in the coming years.
Lastly, for our fixed business, on the right-hand side of this slide, I wanted to give you an idea of the transformation we're seeing in customer demand for speed. Here, you can see the past 12 months, we've seen significant growth in the percentage of our subscribers utilizing above 100 megabits per second. In Puerto Rico, we've gone from 2% to 30%. While in Chile, over 80% of our customers now take packages with speeds in excess of 100 megabits per second.
In VTR, 40% of our base receives speeds of over 200 megabits per second. Clearly showing our ability to deliver lightning fast speeds to our customers in that market. We combine our differentiated speeds across much of our footprints, with our markets leading WiFi Connect Boxes, which deliver superior in-home connectivity. This is particularly important in markets such as Chile where concrete structures can limit signal propagation in the home. Here, nearly 2/3 of our broadband customers use our Connect Box model.
As we look to a future of greater speed and capacity demands, we think our networks are well positioned to continue to deliver superior broadband experiences to our customers and are ready to support new services and applications as they emerge.
Moving to Slide 6. I'll provide an update regarding our mobile business, which represents approximately 20% of total revenue. Starting on the left-hand side, we continue to focus on growing our LTE subscriber base. As you can see in the chart, our LTE subscriber base has grown by nearly a 1/3 in the first 9 months of the year, including approximately 90,000 new LTE subscribers in Q3. This is important because LTE enables our customers to experience the best of mobile, accessing applications and streaming content in a differentiated way. This, in turn, leads to increased data usage and improve ARPUs.
In Panama, for example, LTE ARPUs are approximately double those of customers who do not have LTE. Crucially, we also have the networks to support this experience across most of our markets and plan to increase coverage and capacity as required. We are committed to having the leading LTE networks across our region.
As a new team, we looked at the C&W business and felt that the consumer brand and proposition needed to be refreshed. We have been hard at work on this and launch of Moments that Matter campaign, to support the launch of our new Siempre packages in Panama last month. The Moments that Matter campaign provides a refreshed look and feel to the brand, while also positioning us closer to our customers.
And the Siempre package offers a hybrid postpaid-like proposition, with an attractive 30-day prepaid plan, which allows customers to retain data connectivity for a full month. Unique to the Panamanian market, where prepaid plans are unlimited but for shorter periods. It is early days for the campaign but we are seeing some positive early signs.
Moving to the center of the slide, we wanted to highlight progress we've made refreshing our on-the-go applications. The images here show our updated app in Panama, which we have been leveraging alongside the new value proposition there. The app allows for easy top ups, account management and offers customer extra perks for staying loyal. Subscribers can also stream video content if they are also a fixed customer of ours. And these capabilities are also available across our floor markets.
Our customers demand the freedom to access content and manage all aspects of their relationship with us when and where they choose. And we are fully committed to making this happen for them.
Moving to Slide 7, where I want to talk about our B2B operations. A business that, today, generates close to 1/3 of our total revenue and it's growing, as you can see in the charts on the left. We delivered strong performance across a number of LLA markets in the quarter, including Puerto Rico, where we delivered strong levels of installations for small businesses and revenues was above pre-hurricane levels as SOHO demand continued to grow. And we're seeing traction with our customers as we continue to move our mix from more basic connectivity solutions to more advanced solutions and products at Cable & Wireless.
Moving to the middle of this slide and looking to our focus areas. We operate across a number of segments but would highlight government, finance, retail and hospitality as areas where we are seeing particular success. As we look ahead, we are focused on developing a unified approach across LLA with a common roadmap, which will aim to offer a comprehensive portfolio of cloud-based services to meet the needs of business customers and digitize our business processes, optimizing our customer relationship management capabilities, and analytics to improve customer experience across segments.
In terms of customer segments, we will target growth in small office, home office focusing on expanding into the SOHO markets where we have a strong residential offering. We also aim to leverage the more developed Cable & Wireless portfolio of products in Puerto Rico and Chile, to expand into small and medium enterprise segments, where historically the focus has been on SOHO.
And finally, we will continue to grow wholesale and large enterprise businesses, leveraging our subsea and terrestrial networks. Which leads me to the map we have presented on the right-hand side of this slide. Though, not always the most visible asset in our group, ownership of the region's Premier subsea network is one of the most valuable components of our infrastructure. Firstly, for our existing business, this subsea network seamlessly connects with our high-speed terrestrial and mobile networks, helping us lower our cost to deliver these services. And as we look to expand inorganically, the network also provides a key differentiator to generate additional synergies.
We further differentiate our products and services through extensive coverage and capacity. The quality of our network includes available redundancy and ability to deliver customized solutions, and our experienced customer managers who provide tremendous value to our customers, while completely focused on our customers' needs and providing them white-glove service.
Turning to Slide 8 and the progress we're making with our inorganic strategy, starting with Puerto Rico. In the middle of last month, we acquired the remaining 40% stake held by Searchlight, so we now own 100% of the business. We purchased the stake using 9.5 million class C shares. And importantly, we expect this to be accretive on a free cash flow per share basis. Note that Searchlight remains a valued, long-term partner of ours, effectively moving the ownership stake from Puerto Rico up to the LLA level.
We are very pleased and proud of the business there, and the recovery that our management team has delivered over the past year as we started to lap the impact of the hurricanes. We're now -- we've now rebuilt the network, which is an impressive achievement for our team, and positions us well for growth. Our consumer and B2B momentum is building with RGUs approaching 700,000 at September 30, supported by leading NPS results among our peers.
Revenue and operating cash flow have continued the sequential progress. In addition, we were cash flow positive in Q3, having also benefited from a further insurance advance of $15 million.
Finally, we continue to move forward and innovate with our products. I mentioned the Go application on an earlier slide, and I'm pleased to share that we launched 150 megabits per second core speeds in Puerto Rico last week. This will deliver even greater speeds for many of our customers, while improving our boost.
Overall, momentum continues to build with our very strong RGU net additions in October, and we're looking forward to that continuing in the rest of Q4 and into next year.
In addition to Puerto Rico, we also completed the acquisition of 80% in Cabletica, a leading cable provider in Costa Rica. This is a smaller business with an enterprise value for about $250 million at a great operator, in a good market in terms of economic and macro backdrop. Cabletica exemplifies what we do well. It is a leading cable operator with high-speed infrastructure and a customer focus that has driven strong growth. And we've seen a good performance from the business since we announced the acquisition earlier this year with results tracking ahead of where we had anticipated. We welcome the team to our group and we see good prospects for the future.
On Slide 9, I wanted to wrap up in the context of our key strategic focus areas. As I've previously mentioned, in 2018, we are focused on establishing the right structures and culture across LLA to position us for sustainable cash flow growth in future years. As we approach the end of the year, I think there are a number of areas where we have started to show progress. We are enhancing our customer experience through the digitization program in Chile. Enabling self-service and a more frictionless experience, over 200,000 customers has now been migrated to our new platform.
We're also driving operational improvements at Cable & Wireless, resulting in significantly reduced times to install and repair connections. However, there is much more to do, and we expect we will continue to drive operational benefits in many of the coming years. We have also expanded our center of excellence program, launching a new center in Jamaica this week, which should improve churn.
Innovation is at the core of our thinking, and we've introduced on-the-go applications in Chile and Puerto Rico, as well as improved self-service applications for Cable & Wireless and faster connectivity speeds for our customers. We have continued to expand our footprint and see further attractive opportunities in future years.
Our B2B operations are growing well but we are just at the beginning of the opportunity here, with still very limited share of B2B in Chile and Puerto Rico, where we expect to benefit from the product development work done in our Cable & Wireless markets. And we've completed a couple of M&A transactions today, which represents good additions to the group. Our pipeline continues and remains very rich.
To conclude, we have continued to build operational momentum and remain excited about the future prospects for LLA.
I'll now pass you to Chris Noyes, our Chief Financial Officer, who will go through our Q3 performance in greater detail. And I look forward to your questions after that. Chris?
Thank you, Balan. I will begin on Slide 11 and summarize our Q3 results, both our subscriber performance and reported financials.
As Balan highlighted, our fixed RGU momentum continued with the addition of 42,000 subscribers in Q3. LCPR led the way, posting a second consecutive quarter of organic subscriber additions after returning to RGU growth in Q2. And in fact, LCPR doubled their Q2 net additions.
C&W added 17,000 RGUs as our product and service enhancements, and continued network upgrade and expansion activity drove growth, particularly, in Jamaica.
Finally, VTR posted 3,000 additions, where a good broadband performance adding 18,000 RGUs was mostly offset by fixed voice losses, which was alluded to earlier.
Moving to mobile, we lost 37,000 subscribers in the quarter, albeit an improvement on Q2. As the chart summarizes, VTR added 10,000 subscribers in Q3, bringing their total year-to-date gains to $31,000. However, these additions were more than offset by C&W's loss of 47,000 mobile subscribers. $41,000 of this loss was in prepaid, which can exhibit higher volatility from quarter-to-quarter, and occurred primarily in the competitive markets of Panama and the Bahamas.
Moving to our consolidated Q3 2018 financial results. Overall, we reported $925 million in revenue and $364 million in OCF, returning to year-over-year rebased growth for both metrics, as we started to lap the September 2017 hurricanes. As the slide highlights, we delivered 3% rebased revenue growth and 4% rebased OCF growth.
Turning to P&E additions, we totaled $170 million in Q3 or 18% of revenue, as compared to $193 million or 21% of revenue last year. Adjusted free cash flow, as illustrated in the bottom right corner of the slide, was a positive $34 million in the quarter, significantly higher versus the prior-year period, driven in part by improved OCF, lower CapEx and advances from insurance. Last year's Q3 was adversely impacted by a C&W pension contribution.
Moving to Slide 12. Here we provide some more detail on the third quarter financial trends for each of our 3 reporting segments. On the left-hand side of the slide, starting with Cable & Wireless, we posted revenue of $581 million in Q3. This is slightly up year-over-year on a rebased basis, as growth in B2B combined with another quarter of solid fixed residential performance driven by RGU gains more than offset a decline in our mobile residential revenue.
Q3 OCF for C&W was $227 million, 3% higher than the prior-year period on a rebased basis. Recall that last year's Q3 was adversely impacted by the hurricanes. We also continue improving our operational efficiency and our leveraging our scale, particularly in content, as our OCF margin improved to 39%, reflecting 100 basis point increase year-over-year, and a 70 basis point margin improvement sequentially.
P&E additions were $93 million in total, or 16% of revenue, which is lower than the prior year but still included approximately 50,000 new build and upgraded homes in Q3.
Additionally, nearly 10% of our Q3 spend was related to hurricane restoration. In the middle of the page, VTR had another strong quarter, reporting revenue of $246 million, up 5% year-over-year on a rebased basis. And OCF of $100 million, representing 6% rebased growth.
Our growth was supported by all product areas, with volume increases across fixed, mobile and B2B as well as an increase in our ARPU per fixed subscriber.
With respect to P&E additions, VTR reported $49 million or 20% of revenue during Q3. Spend was lower as compared to last year's third quarter due, in part, to reduced spend on new build and upgrade as well as lower spend on product enablers. These factors were partially offset by increased spend on CPE. During the quarter, we added and/or upgraded approximately 50,000 homes. And lastly, Liberty Puerto Rico generated $100 million of revenue and OCF of $50 million. Rebased growth for both revenue and OCF was largely driven by the SEC funding of $11 million that we received this quarter.
Importantly, and even after adjusting for the $11 million benefit, our Q3 results continued to grow sequentially, in terms of both revenue and OCF.
We remain on track to deliver our $14 million monthly run rate OCF target by the end of this year.
Additionally, it should be noted that in Q4, LCPR will have an extremely favorable comparison to last year's hurricane-impacted fourth quarter, in which we reported minimal revenue and negative OCF.
Turning to P&E additions, we reported $25 million in the quarter. This was significantly lower than the $45 million spent in Q2 2018, as we have now completed our restoration work in Puerto Rico.
A quick update on insurance, we have received $50 million of net third-party advances to date, including $20 million in Q3. We ultimately expect to receive a larger total payout and are actively working through the settlement process with our insureds.
Turning to Slide 13, I wanted to briefly provide some more details regarding the key focus area for us, our balance sheet, which we believe is a key differentiator. And looking at the hexagons on the far left, we summarize a number of important facts. Our fully swapped cost of debt sits comfortably at 6.3%, and nearly all of our debt is fixed, which gives a high level of cash flow certainty. We finished Q3 with committed undrawn facilities and cash of approximately $1.5 billion, which provides us with liquidity to pursue our organic and inorganic strategies.
Our leverage was 4.1x on a net reported basis, at the end of Q3. When looking at it on a net proportionate basis, it'd be about half a turn higher. Of our aggregate $6.7 billion of total debt, approximately 85% is denominated or swapped to our OCF functional currencies, which in essence, matches our borrow to our OCF generation, a key risk management philosophy, which I believe sets us apart from our peers. And finally, we have minimal near-term debt maturities with about 6 years average life, as the maturity schedule highlights on the bottom right-hand part of the slide.
On that note, we have taken recent steps to further strengthen our capital structure, since closing the books for Q3. To that end, we issued $500 million of new notes due 2026 at C&W. And earlier this week, we used some of the proceeds to redeem $275 million of our $750 million 2022 notes. And we intend to utilize most of the remaining proceeds to redeem approximately $200 million of our March 2019 non-call notes, of which we have successfully tendered for just over 40% of these notes to date. We also have redeemed $140 million of our 2024 holdco notes at VTR. And we completed a local funding for the Cabletica acquisition, which will form a new credit silo for us starting in Q4.
Moving to the final page of today's presentation. We continue to drive momentum in our operating businesses, particularly our fixed and B2B operations. A key element of our strategy is to invest in meeting high-speed infrastructure, which we are doing in both fixed and mobile. We're also excited about the new customer value propositions and campaigns that we've launched across the group. In M&A, we completed the acquisition of Cabletica, and the integration is going according to plan. This is a small acquisition but a great asset and an example of how we can efficiently plug strong businesses into our structure. And lastly, we remain on track to deliver our 2018 guidance targets.
With that, operator, we are ready to take questions.
[Operator Instructions] We'll go first to Soomit Datta with New Street Research.
Just to go back to one of the last slides you went through on the balance sheet, and talking about the strength there. And looking to 2019, we expect you to start moving into a positive phase for cash generation. Should we be thinking about a possible return of cash to shareholders on that basis?
Thank you for the question. Yes, I think your assumption is right on '19. But we haven't given '19 guidance yet. As to how we would allocate the capital and how we would use the cash, we would be very opportunistic on that. So at this point, we've not declared any usage of the cash vis-à-vis shareholder. Chris, you want to add to that?
Okay. I would just reiterate that. I mean, obviously, we're focused as a business on free cash flow generation. And we're in the process of turning the corner as we speak. And as we look to deploy our excess capital, we're obviously focused on returns to shareholders -- returns that drive shareholder value. So that may be whether it's returning via buybacks, acquisition or investing in our business. So I -- we obviously, have a rich pipeline of opportunities, both inside our business and out. And we'll continue to evaluate and find the best ways to deploy that capital for a shareholder benefit.
Okay, thanks. And if I could just quickly follow up with an operational one on Panama and the wireless market there has been under pressure. It looks to be -- did you sell, being aggressive on pricing and you've introduced some new brand -- or a new brand into the market. And is it as simple as -- there's a, sort of, price war, and there's not too much you can do about it? Or is there a little bit more nuance to the way you respond there?
Well, Panama is a complicated market. And from a mobile perspective, you have 4 operators there. And for a country with about 4 million people, it's probably one operator too many in that market. And as you've probably noticed, a bill that's been passed to consolidate from 4 to 3, and we expect something to happen, probably in 2019. It's a market that's highly competitive. Most of our losses there have been on the prepaid side. And we've been very aggressive in looking at how we not only spend that, but turn it around and bring some growth to that.
And so we've looked at it from: one, a pricing perspective; two, from a product perspective; and, three, from a network perspective as well. So our goal there is to move a lot more of our customers to LTE, try to get them off the -- what you call it traditional prepaid, into something we call a hybrid prepaid, I'll talk about that in a second. And then third, from a pricing standpoint, you'll see us actually very competitive, but we are looking more and more to move our customer base from the very low end of the mobile market, more to the mid and the high tiers.
On the prepaid side, though, the product that we've just launched, it's now a 30-day product, usually most of the products there -- or the prepaid has a time limit, it's 3 days, 5 days. We've now given a 30-day product, and where it's really useful, it's for a customer within 30 days, if they lose out -- if they completely consume the data allowance, they will still have access to the network and the one app that they use mostly is Whatsapp. And Whatsapp will continue to work even if their data limits have been reached. And, therefore, they have connectivity. This, we think, is a very compelling product that nobody else has on the marketplace and should help us to turn the prepaid story around.
We will move now to Kevin Roe with Roe Equity Research.
Balan, could you update us on your inorganic growth goals for 2019? If you could maybe highlight strategic goals for inorganic, geographically and maybe even size?
Sure. We did talk about the -- some of the activities we did this year. I think for 2019, our pipeline is very rich, full. And our small team of biz dev folks are very active and very busy. But we're going to be very disciplined. If we were not disciplined, there would have been a bunch of announcements already. But we are going to be very disciplined about this. And we're going to be focused on free cash flow in -- and accretive free cash flow in the transaction, on a per share basis, if we use equity. And certainly the IRRs, the Liberty standards, it's pretty high.
For 2019, we'll look at opportunities, the ones that are most exciting would be in-country opportunities where the synergies we would -- very clear and very quick to execute on. Second, we would look at areas where it opens up new markets for us, a new beachhead, that would be also very interesting to us, and given some of the changes we've made in our operating model, we think we can still get synergies even outside of countries that we operate in. And third, if it opens up new product choices for us and gives us really good scale that helps us with our returns, those are what we'd be looking for in 2019.
Thank you. And a quick follow-up. What's your outlook for SEC funding in Puerto Rico in Q4 and potentially in 2019?
Probably don't expect anything more in 2019 -- in Q4 this year. We -- as Chris mentioned on his section, we did receive SEC funding this year. It was a very positive surprise to us. Our teams worked really hard. Our legal regulatory teams have worked very closely with the SEC. And that was not an easy get but we did get it. It was a surprise to a lot of folks, including the incumbent.
In 2019, there are more opportunities but it's not in our plan. It's not something that we are banking on. But suffice to say, we would be very aggressive in trying to get our share of any assistance from the government. And we would use that assistance to bring more resiliency to our network and upgrading our network, as opposed to using that for other purposes.
James Ratcliffe with Evercore ISI has our next question.
Two if I could. First of all, can you talk about what you're seeing in terms of customers using their wireless devices as their sole internet connections? And how much of your base you think that constitutes? And particularly, as you continue to roll out LTE, does that become a more viable choice for customers?
And secondly, if you could talk a little bit about your thoughts on structures, in terms of minority partners? I mean, you've gone to 100% ownership in Puerto Rico, but you also have kept a minority partnership in Costa Rica. How do you think about the -- what portion of the market you should or need to own? And what sort of partner makes sense?
Okay. I'll answer the first question. But on the -- wireless is just a primary data -- we've seen some of that. As a matter of fact in a couple of islands -- small islands where post hurricane from last year, where we've really upgraded the mobile networks. We've seen customers just attaching to it and really liking it, and not missing their broadband.
However, after we get broadband in, they get back on their fixed broadband. And why is that? Because fixed broadband will always be faster. It'll always be more reliable and if you have multiple devices in the home, which most people do, it is the best way to get connected. Because once you have WiFi in the home, you can connect those 3 iPads, your laptop, your 4 mobile phones from your -- all of your family. It is the best way to get broadband. Now when we increase our speeds and we move to LTE, more and more LTE, we will see more utilization of broadband outside the home. But I think inside the home, you will see people still going back to WiFi. It is the most cost efficient, highest reliability and highest speed for multiple devices in the home.
Now on the partners question, the second question. I'll tell you we love partners. And it gives us a number of things: one, you get local expertise, people that understand the terrain, the market; second, you get also lots of relationships, with having a good local partner, a local partner you can trust, a local partner that has the same and aligned interests as we do and believes in our levered equity model. When you have partners like that, you want to have them.
Now you've got to be careful to have -- make sure that you have full control, operationally, of the business, even with partners. Vis-à-vis Puerto Rico, we had a really good partner there with Searchlight. And the timing was just right for Searchlight to move their investment from Puerto Rico to [indiscernible]. And the timing was right for us to also take advantage of that and also take control of the whole island.
And with that, by the way we, took on the risk of the island as well, which in our minds, our management team, we've just done an amazing job. And I'm really proud of the guys in Puerto Rico. And that gave Chris and myself and the executive team, here, the confidence to want to do that. But as we look at more M&A in the region, wherever we can partner with someone locally who wants to take a minority stake, who's aligned with our interests, who want to go and create wealth for themselves, we welcome them.
RBC's Julio Arciniegas has our next question.
The number of homes upgraded or new building 2018 so far has been lower than the -- than 2016 and '17. How should we think about the deployment of fixed networks in the following years? Should we expect like a further push across the board?
And my second question is regarding Panama. You mentioned, okay, there are 4 mobile players. However, in Panama, there are only 2 fixed infrastructure, if I'm not wrong. How do you think about fixed mobile convergence at the end of something that you guys can use as an advantage against the other players?
Sure, on the new builds, we certainly see a path to continue doing new builds. In -- certainly, in Chile and in a number of other operations as well. One of the reasons we went down in 2018 was because of cost, we had a lot of new builds in Puerto Rico, which we did not do, we were focused on reconstruction. And secondly, we did a lot of new builds in Bahamas, Jamaica, Panama, which we thought in 2018, it would be a good time to harvest the results from those constructions. But you'll see us very active in new builds. We are strong believers in creating value through expanding our network. It's one of the reasons we are in Latin America. One of our goals is to provide more broadband to more people in Latin America. So you'll see us continuing to do that and we see a roadmap and a path that -- it's very, very favorable for new builds.
On the second question. In Panama, you're right, that there are 2 fixed operators there. And we are very focused on our fixed network there. If you look at our network in Panama, we have a significant amount of HFC builds, some fibre to the home, we have a really good network there that we intend on leveraging even more so than we've ever been. And secondly, the bundling ratio between mobile and fixed, the attach rate of mobile to our fixed subscribers is very low. It's something that our management team in Panama, our management team in Miami, my Chief Operating Officer is focused on. And it's one of the things in 2019, you'll see that's different than 2018 in our business in Panama.
Okay. If I may, a follow-up on Panama. Do you see -- how do you perceive how the market might change after Millicom's deal with Cable Onda? and how does your network overlap with Cable Onda network?
I think, with Millicom's acquisition of Cable Onda, I think it's good for the market. It's good for the place. I think we heard them saying that they would be very rational and that's a good thing in -- for Panama. We do overlap with them quite a bit and -- but not fully. So where we overlap with them, that's always been a good competition back and forth between our subscribers.
Our next question comes from Jason Bazinet with Citi.
I just had a quick question for Mr. Noyes regarding currencies. I know you guys have exposure to a lot of dollar based or U.S. dollar pegged markets. But in those countries, those handful of countries that do float, can you just remind us what you guys do in terms of hedging, if anything?
Yes. I mean, the largest operation is VTR and that's the Chilean peso. So obviously, that's a currency that floats. And from a hedging perspective, we fully hedge the debt that we have on the VTR asset. So we do have dollar-based bonds up top, at the holdco, and we've swapped those to Chilean pesos, long-term swaps.
In addition, we do have exposure. The U.S. dollar, whether it's programming, CapEx, things like that, so we have a program that we do rolling forward on that exposure. So we're focused on managing the cash flow in the business. And as we look at -- obviously, Puerto Rico is all dollar-based. And then you get into Cable & Wireless, most of Cable & Wireless is dollar based, dollar pegged, dollar linked, et cetera. We do have a little bit of exposure, particularly, in the Jamaica -- in the Jamaican dollar. We have a small business in Seychelles, Columbia, et cetera. And we do have some small hedges on the debt side on Jamaica and Columbia. And overall, we don't have a lot of flux, just given most of the business is dollar based, dollar oriented.
Next we'll go to Buckingham Research, Matthew Harrigan.
Two questions there actually. I know your motivations would be different and the product located would be different. But looking at what Comcast is doing on a streaming-only box for broadband customers, can you talk about your [indiscernible] in the path? There, I mean, it seems like it'd be desirable in your markets to have a product with a very low CPE cost, some other motivations.
And then secondly, I guess the U.S. elections are always pretty good from a [client] standpoint. I guess if the republicans had taken both houses, you might have had an interest rates spike and such. But can you give us your perspective on the Chilean, in the macro and some of the budget issues down there, either are continuing with the -- after the transition of the administrations earlier this year?
Okay. On the first question, on streaming only and what Comcast has done. I'll tell you in our markets, the way we look at it is this way, it's a tale of 2 stories. It's the -- where we operate as a defender, where we are the primary pay-TV operator and then, in markets where we would be an attacker. And we would have slightly different strategies for both those different markets.
In the attacker market, you'll see us doing something, not too different than what Comcast just announced. I think we are prying to do that. I think the cost structure is very favorable to attackers there. And then you don't get the spin-down effect from your existing base. So that's how we view it.
On the Chilean macros, Chilean macro is -- we're very positive on that. The current government is very business friendly. The elections was helpful as well in a very roundabout way. The Chilean economy is backed by commodities and very, very strong. Now it's not reflective so much in the currency this year, it's just been a ripsaw but we're seeing some improvements already. But the future, it's really hard for any of us to predict.
Now I do have my General Manager in Chile on the call, Guillermo. Guillermo, would you like to maybe make a comment or two on this?
Sure. Certainly, just to say that the growth projection for the country has been adjust upwards, which is a good thing, of course, at Chile. It's not isolated and affected by the situation between China and the U.S. because of the commodity structure that Balan was mentioning. But the outlook, in general, for this year is positive and it will continue to be like that for 2019, according, not only, to the central bank but also to the agents in the market.
[Operator Instructions] And it looks like we have a question from [ Brian Moons ].
Just a first question on key debt levels. Sitting at 4.1x net leverage, expecting to -- although, I know you haven't given guidance but we see the free cash flow coming through next year. What is the ideal targeted leverage you see in the short term and the medium term that you would focus for this business?
Well, before we stated that this is a levered equity model that would be in the 4 to 5x, we prefer to be closer to the 4. And there will be a natural deleveraging as well, after Puerto Rico, to get us closer to the 4 number. And that's where we feel good. But the -- our stated range is 4 to 5. And maybe I'll ask Chris to make a comment.
Yes, I mean, I think we're comfortable at these levels. As Balan mentioned, we'll naturally delever and we will continue to look to utilize the balance sheet as we drive shareholder returns.
And then, just a follow-up on Panama. The -- you made a comment earlier that you would expect some consolidation in 2019, expect something to happen? And I'm aware of that bill that has passed, is there anything legislatively that needs to happen for a transaction to take place in this market? Is there a step that needs to happen or is it just a matter of market participants taking action?
Well, the bill has been passed, all signed by the President. It's now with the regulators and the regulators are working on how they would interpret the law, and as well to implement it. Now I think in discussions with many of the local regulators and lobbyists, et cetera, the view is that a transaction will probably trigger how they would approach it. And so we'll see how 2019 plays out. But if there was a transaction to happen, at this point, it can go forward probably with -- just have to work with the regulators but legally, one would be able to already do something there.
Okay. Thanks for clarifying that. And then, lastly, one last question, you mentioned the prepaid losses in Panama and Bermuda. I understand Panama, can you just talk a little bit about the competitive environments in Bermuda and why you saw those losses there?
Sure, it's Panama and the Bahamas. And, yes, I figured that's what you meant. In the Bahamas, remember, we were an incumbent with 100% of the mobile network there. And when the competitor showed up 1.5 years ago, a couple of years ago, it's only natural that they would take share. And it's only natural that if you own 100%, you're going to lose something. And we think it'll bottom out sometime in 2019. And where we've given up share, and that now we'll either get stable or we'll now grow, and both of us will want to grow, certainly valued through ARPUs and bundles, et cetera. But to be honest with you, the bottom is not there yet in the Bahamas. And -- but it'll -- it's getting closer and closer to it.
But you don't see a price war going on there or…
No. It's not a price issue, right? When you own 100% of the market, and a new entrant comes in, there will be a percentage of your customers that would want to have a different operator and that's natural.
This concludes our question-and-answer session. I'll turn the call back over to Balan Nair for any closing remarks.
Thank you, operator. Well, I -- let me close by saying, one, thank you so much for supporting us and for being part of this story, it's a really good story and I'll tell you third quarter probably shows it even more so than ever. I couldn't be more excited about the numbers in the third quarter and as we close out the month of October, I'm seeing very nice trends as well. So this is a really good story and we're really excited to be a part of it. So thank you, everybody, and have a great day.
Ladies and gentlemen, this concludes Liberty Latin America's Third Quarter 2018 Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Latin America's website at www.lla.com. There you can also find a copy of today's presentation materials.