Good day, and welcome to the Cogeco Incorporated and Cogeco Communications Q4 2021 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Senior Vice President and Chief Financial Officer, Mr. Patrice Ouimet. Please go ahead, sir.
Thank you. Good morning, everybody, and welcome to this quarterly conference call which Philippe Jetté and I will present. As usual, before we begin the call, I'd like to remind listeners that the call is subject to forward-looking statements, which can be found in our press releases issued yesterday. I'll turn over the call to Philippe Jetté.
Merci, Patrice. Good morning. Thank you everyone for joining us to discuss the financial results of Cogeco Communications and Cogeco Inc. Let me first note that we are satisfied with Cogeco Communications' overall performance for the Q4 of fiscal 2021, which is in line with expectations at both our Canadian and American broadband segments. On the media side, we are pleased with the financial results of our radio business, where revenue has grown by 17.7% year-over-year. All in all, these results position us very well to start our fiscal 2022 on a strong footing. Let us begin with a reflection on the key fiscal 2021 accomplishments, setting down fresh routes to further expand horizons. Cogeco Communications has pursued its acquisition growth strategy while maintaining a strong financial position.
In December 2020, Cogeco Connexion completed the acquisition of DERYtelecom, the third-largest cable operator in Québec, now serving approximately 108,000 customers. The integration of DERYtelecom is very advanced, and financial results are above expectations. In late June 2021, we announced an agreement to acquire networks passing 689,000 homes and businesses in Cleveland and Columbus, Ohio, serving some 200,000 customers. We closed this acquisition on September 1, and have already started integrating these assets on Atlantic Broadband's platform, and are preparing to introduce innovative service enhancement to our new customers. This acquisition allow us to add significant scale to our growing and profitable U.S. broadband business on reasonable financial terms to pursue our market expansion strategies.
In Canada, as we further develop our plans to enter the wireless market, we have secured 38 spectrum licenses in Quebec and Ontario, which will increase our spectrum coverage to 91% of our national broadband footprint, which represents a population of 3.6 million Canadians. These spectrum investments, together with the recent CRTC regulatory decision on wholesale wireless services and our robust and growing regional broadband network, position Cogeco to further develop plans to enter the mobile market in a financially disciplined way in our core markets in Canada. Over the course of the year, Cogeco Connexion announced several network expansion projects in underserved and unserved regions in the province of Quebec and Ontario. Most of these network expansion projects are being done in collaboration with governments, whereby Cogeco will deploy approximately 75,000 homes over the next three years.
Cogeco's deep roots in regions and rural communities should continue to contribute to its success in collaborating with governments to help close the gap in digital access between large centers and rural areas. In the U.S., there is an opportunity at the moment to accelerate network expansion and in areas with good demographics and growth potential. We expect to earn an attractive return on these investments from these unsubsidized network expansion and offer more choice to consumers. We also plan to leverage upcoming government funding programs for some network expansions in more rural communities in the U.S. to help close the digital divide.
When we look at our corporate social responsibility agenda, in 2021, we took great strides to this end, and were gratified to be recognized by leading voices in environmental, social, and corporate governance, or known as ESG practices, and reporting, such as being named once more amongst the global 100 most sustainable corporations. Among our recent initiatives, Cogeco was proud to reiterate its commitment to the environment by announcing its goal of achieving net zero emissions by 2050. Cogeco was the first telecommunication company in Canada to have its targets approved by the Science-Based Targets initiative, which include a 65% reduction in emissions from operations by 2030 compared to 2019 levels.
As a further recognition of the importance Cogeco gives to a sustainable future, I was proud to announce last week that Cogeco received the inaugural Terra Carta Seal, which recognized global companies that are driving innovation and demonstrating their commitment to and momentums towards the creation of genuinely sustainable markets. This seal is being awarded to companies with ambition aligned to those of the Terra Carta, a recovery plan for nature, people, and the planet, launched in January 2021. On the social front, in addition to our strong commitment to digital inclusion through continued investments in broadband networks in regional and rural areas, we have sustained our efforts around workforce diversity and inclusion. We are proud to have achieved our goal of having at least 35% of women in management positions.
In June, we were pleased to announce further action plans to drive diversity and inclusion with the rollout of training and education initiatives, the establishment of a D&I leadership committee, and increased philanthropic investments aimed at promoting D&I and supporting underrepresented groups. When looking ahead at some of our priorities for fiscal 2022, at Cogeco Connexion, we will continue to seek market expansion opportunities and further develop plans to enter the mobile services market under the right conditions. Our network expansion plans include actively seeking and participating in government programs to provide broadband access in underserved and unserved areas, including the upcoming Ontario government program. We have already secured nine high-speed internet network expansion projects covering close to 10,000 households in several communities in Ontario in collaboration with the Ontario and Canadian governments.
We are progressing well with the 13 high-speed internet network expansion projects we were awarded last March in several regions of Québec, which should be completed by September 2022. Including this large Québec project, we are planning to increase the number of homes passed by 3% by fiscal year-end through network expansions and organic growth. On the customer experience side, we will continue to leverage and broaden our new IPTV entertainment services, EPICO, expanding to new customer segments, and increasing availability in our footprint. As high-speed internet is our cornerstone service, we will continue to expand our one gigabit per second coverage on our Québec footprint. To better understand and serve our customer, we will continue to enhance our data analytics capabilities and will introduce new marketing automation in our contact centers, leveraging artificial intelligence.
As we will continue to deploy operational excellence while enhancing customer service, cost efficiency initiative will include, among others, the pursuit of our digital transformation, mainly through engaging customers to use self-care, virtual connect, and diagnostic tools. Priorities for fiscal 2022 at Atlantic Broadband start with the integration of the Ohio acquisition, where we welcome new colleagues into the ABB and Cogeco family and have initiated the integration of technical and operational systems. In addition, we are pursuing network expansions into adjacent cities with attractive growth potential, where we plan to increase homes passed by approximately 4% pro forma the Ohio acquisition by the end of the current fiscal year. Planning and initial construction is underway in some areas of New Hampshire and West Virginia, with commercial launch scheduled to start early in the 2022 calendar year.
On the customer experience front, we will continue to implement and refine our new internet-first offer strategy. While we plan to launch an IPTV service by the end of this calendar year, with a gradual rollout during the year. As we accomplish all this, we will continue our digital transformation, mainly through engaging customers to use self-care, virtual connect, and through advanced customer communication and diagnostic tools. As for Cogeco Media, we are optimistic about the radio outlook as the Quebec economy is recovering, and we continue to enjoy the commitment of our listeners as many of our stations stand at the top of the numerous ranking. For our Montreal talk station, 98.5, it is ranked once again, the most listened to radio station in Canada. I will now let Patrice discuss our financial results.
Thank you, Philippe. Revenue at Cogeco Communications is up 8.1% and adjusted EBITDA up 1.7% in constant currency when compared to the same quarter last year. This was driven by EBITDA growth of 1.7% at Cogeco Connexion and 4.6% at Atlantic Broadband. Free cash flow declined by CAD 42 million or 37.7% in constant currency, mainly as a result of capital expenditures increasing by CAD 56 million, partly offset by reduced financial expense and higher EBITDA. The significant increase in capital expenditures in the Q4 is mostly due to Atlantic Broadband's accelerated purchases of customer premise equipment and networking equipment in order to avoid supply chain disruptions, which are impacting many industries these days.
As well as the strong customer additions that we've had in past quarters that had an impact on our inventories. These capital expenditures are expected to be used to support growth driven by the recent Ohio acquisition as well as network expansion projects. We announced an increase in the quarterly dividend from CAD 0.64 to CAD 0.705 per share, representing a 10.2% increase over the last year. Our track record of generating free cash flow and strong free cash flows has enabled us to grow our dividend at an annual rate of at least 10% over the last eight fiscal years. Cogeco Communications has also made meaningful share purchases since May 2019 and purchased close to 400,000 shares during the quarter. Now let us look at the individual components.
Cogeco Connexion, our Canadian broadband business, revenue has increased by 10.1% in constant currency relative to the same quarter last year. Excluding the impact of the DERYtelecom acquisition, revenue and constant currency grew at 1.2%. Organic revenue growth was related to a higher internet service customer base and higher, a higher value product mix. Cogeco Connexion's, EBITDA increased by 1.7% in constant currency relative to the same quarter last year, which is better than expected, considering that we had planned, for no growth in EBITDA during the quarter, as highlighted during the Q3, conference call. Excluding the impact of the DERItelecom acquisition, EBITDA in the quarter declined by 5.5%.
This decline is mainly related to an unusual CAD 4 million reduction in expenses last year, lower marketing and sales activities last year in the context of the pandemic, and the impact of delaying certain annual rate increases from June to November this year. Overall, Cogeco Connexion delivered the expected mid- to high single-digit growth in revenue and EBITDA for the full year. The broadband customer additions in the Q4 were lower compared to last year, which benefited from the positive impact of the pandemic, but were strong from a historic perspective. The video product losses were lower than last year, mainly resulting from the IPTV introduction and from a more targeted sales and marketing approach by region and by market. Finally, the phone losses were in line with historical trends.
Turning to Atlantic Broadband, revenue and constant currency increased by 5.8% in the Q4 compared to last year, while EBITDA increased by 4.6%. Organic revenue growth comes mainly from a higher internet customer base and a higher value product mix. The EBITDA growth was slightly lower than the revenue growth due to higher marketing and advertising expenses to support overall customer base growth. The shift in expenses during the pandemic was planned and explained during our last earnings call. Broadband customer additions were more muted during the quarter and lower than last year's unusual additions in the context of the pandemic. The video and phone customer declines are mainly related to the broadband-first approach and the fact that we generally do not offer video-only services anymore. Now let's take a look at Cogeco Inc.
The Q4 consolidated revenue increased by 8.4%, and EBITDA increased by 0.9% in constant currency. Revenue related to the radio operations increased by 18% in the Q4 compared to the prior year, which had been impacted by the pandemic. We announced an increase of 14.7% in the quarterly dividend, so going from CAD 0.545 to CAD 0.625 per share. I'll now discuss our revised financial guidelines. Cogeco Communications revised its 2022 financial guidelines issued last quarter to include the impact of the Ohio acquisition, which was completed on September 1. On a constant currency and consolidated basis, Cogeco Communications expects to grow revenue in the range of 15%-17% and EBITDA in the range of 14%-16%.
The Ohio acquisition should contribute 11.5% of the revenue growth and 11% of the EBITDA growth. Expectations excluding the Ohio acquisition are generally in line with the previous financial guidelines when factoring a slightly better than expected fiscal 2021 comparative year and slightly higher capital expenditures due to increasing equipment costs. At Cogeco Connexion, we forecast in fiscal 2022 close to mid single-digit growth in revenue and EBITDA resulting from organic growth and also the impact of the DERYtelecom acquisition, which still has an impact next year as we don't have a full year in the comparative year. The organic growth should stem primarily from demand for the residential internet product, the upselling of customers to higher tiers of service, and the recent launch of the IPTV product.
At Atlantic Broadband, we do expect a mid-single digit organic revenue and EBITDA growth from the expected continued demand for the residential internet product and growth in the business sector. As for quarterly results, we expect that organic year-over-year EBITDA growth will gradually improve during the year, as we will be comparing a more normal post-pandemic operation this year to an unusually strong first half in fiscal 2021. Let's remember that during the first half of last year, both Cogeco Connexion and Atlantic Broadband generated very strong year-over-year organic growth. At Cogeco Connexion, we expect a small year-over-year increase in EBITDA in the Q1 when including the impact of the DER Ytelecom acquisition.
Excluding the DERYtelecom impact, we expect the Q1 to generate a decline in EBITDA since we delayed some rate increases until November of this year, and the level of operating expenditures was unusually low last year. Overall, the Q1 in our Canadian operations should be a similar story as the Q4 we are reporting on today. We then, however, expect organic growth in the next three quarters of the year. At Atlantic Broadband, we expect the first half of the year, especially the Q2, to generate lower year-over-year organic EBITDA growth, followed by strong growth in the second half of the year, resulting, as mentioned, in mid-single digit revenue and EBITDA growth for the full year in constant dollars.
This is due to the timing of expenses during the pandemic last year, higher political advertising revenue during the presidential campaign last year, and also higher marketing and advertising expenses this year. We are planning for capital expenditures in the CAD 815 million-CAD 845 million range, resulting in an expected capital intensity of approximately 28%. Excluding the network expansions, it would be 20%. The capital expenditure budget includes CAD 230 million-CAD 240 million in network expansion projects, which is the same, as mentioned last quarter, and approximately $95 million related to the Ohio acquisition, of which close to half is linked to the integration and densification of the network.
As mentioned last quarter, the network expansions will result in higher capital intensity in both countries, but are necessary to seize a unique window of opportunity for growth. These expansions should add approximately 3% to our homes passed in Canada and 4% in the U.S. The 4% is pro forma, the number of homes passed we have added with the Ohio acquisition. Since these projects will take most of the fiscal year to build, both business segments expect the growth in homes passed towards the end of the year, at least for the bulk of what we are building. The impact in the revenues and EBITDA will be in future years, not this year.
Free cash flows on a constant currency and consolidated basis should decrease 33%-43% due to the higher capital intensity, higher financial expenses, and about $35 million in transaction and integration costs related to the Ohio acquisition. Excluding the network expansion projects mentioned earlier, free cash flow and constant currency would otherwise increase 5%-15%. The recently closed Ohio acquisition and the announced spectrum purchases result in a pro forma leverage of 3.4x EBITDA at Cogeco Communications. It is a level that allows us to pursue our dividend payment strategy as well as our share buyback program.
At Cogeco Inc., our guidelines have been revised to take into account the Ohio acquisition, and we also expect revenue growth of 15%-17%, EBITDA growth of 14%-16%, and cash flow decline of 33%-43%. I'll turn it over now to Philippe to provide concluding remarks.
Thank you, Patrice. As we can see, fiscal 2022 looks very promising. We will actively pursue organic growth opportunities and continue to be on the lookout for acquisitions within our leverage targets in areas where we are positioned as a consolidator of regional cable operators. We are actively investing in our operations and networks to continue to offer ever faster internet speeds and high performance products while expanding our network into areas to help address the digital divide between large urban centers and regional and rural areas.
We also continuously innovate through automation in both the U.S. and Canada to deliver exceptional digital experience for our customers. Through our digital transformation, we are putting our customers first and also aim to gain agility while further increasing our efficiency. As an inclusive leader, we place social commitment and corporate social responsibility at the heart of our priorities. We strive to drive inclusive growth, support our communities, and continue fostering a highly collaborative, engaging, and inclusive work environment. Now we will be very happy to answer your questions.
Thank you. As a reminder, everyone, if you would like to ask a question, please press star, then one on your telephone keypad. Once again, that's star one to come into the question queue. Our first question is going to come from the line of Jérome Dubreuil with Desjardins.
Hey, [Non-English content ]. Thanks for taking my question. Actually two questions on CapEx. Your CapEx guidance seems a bit higher than what the Street anticipated. I understand it's probably a good time to do it. I'm looking to see a bit where this higher number might come from. Are there more projects than what was expected in July? Is it our understanding that wasn't good? Or maybe if there's some cost inflation that might be included in there. Then the second question on CapEx, I just want to clarify what you mean by growth-oriented network expansion projects. Just to be clear, the 20% kind of normalized CapEx, I mean, what percentage growth of homes passed would that imply? Thank you.
Okay, great. Hi, Jerome. Yeah, there's a couple of reasons why we have increased the CapEx guidance. First of all, obviously, we have the Ohio acquisition. As I mentioned, it's about CAD 95 million. And that is a mix of just business as usual and also the integration CapEx and densification of the network. You'll recall when we announced the transaction, we said there would be, in addition to running the business, there'd be $82 million in additional CapEx we would put through over a period of two years. There's a portion of that. About half, I would say, the increase related to Ohio is related to this, and the rest is business as usual.
We also have some densification costs that we were planning to do last year in 2021 related to the DERYtelecom acquisition that we're gonna do next year, just delayed a little bit by a quarter or two. That explains a bit of the shift of CapEx in Canada. There is also a bit of inflation. As you know, there's some inflation coming in equipment from transportation, some also the electronics. So we do expect to see some. It's not extremely material, but that explains a portion of the reasons. I would say Ohio is probably the biggest difference there. On your second question, if I understood correctly, hopefully I feel free to tell me if I'm not answering your question.
What we're referring to with and without is CAD 230 million-CAD 240 million in CapEx related to new builds we're doing in the year, and that's a mix of Canada and the U.S. This is what adds to homes passed. In the 20%, we don't have basically homes passed growth because it's included in the CAD 230 million-CAD 240 million.
Yeah. That answers my question. Thank you.
Our next question will come from the line of Vince Valentini with TD Securities.
Thanks very much. Patrice, on that, CAD 230 million-CAD 240 million rural CapEx, should we expect that to pace in evenly through each quarter of 2022, or is it somewhat skewed to the back half?
It's a bit difficult to say because it's dependent on a number of things, how the construction goes, and even before that, there's permitting that is not finished as well. I would say my base assumption, it's gonna be more second half than first half. It's difficult. It's very difficult to plan for this on a quarterly basis.
Fair to say, you're almost two months into the Q1, you haven't spent too much of it yet.
Exactly. We're building right now, and as Philippe said, in the U.S. we're planning to see some additions early, calendar year next year. It's a small portion. There is construction activity, but I would say, there's still a lot of permitting activity right now, which is not very consuming from a CapEx standpoint. Probably, less so in Q1, and ramping up over the next three quarters. In Quebec, we have to be done by September 2022, which is one month after our year-end. There's gonna be a blitz there for sure. Then Ontario and the U.S., it's more paced, and some straddle into the next year as well.
Okay. I have two other questions. I'll throw them both out at you. One, the line for corporate costs and inter-segment eliminations, it was a CAD 13 million loss in Q4 last year. This year it jumped to CAD 17 million. Just wondering what caused that, and is seventeen million a new run rate or is there something unusual? The final question is there anything you can give us, Philippe, on the timeframe for negotiations on MVNO terms and rates? I assume the process has started in talking to some of the carriers. No idea how long it might take before we find out what you might be able to do. Thanks.
Yeah. Well, let me start with your second question, Vince. As we've explained before, it's a multi-step process to enter the mobile market. We are now with the CRTC framework. There's a very public open process where the incumbent MNOs have proposed terms and conditions. We have likewise on the public record filed an extensive with many others extensive answers. Now, the CRTC has really to finalize these terms and conditions. They've said many times, and governments, that all this framework is supposed to encourage competition and create a framework that is fair and reasonable to bring more choice to the marketplace. We are still in this process. This is-
A very obvious step that we need to clear. The next one after that. Oh, sorry. To help you on the timing, we're not expecting this CRTC process to be finished before this winter. It might be prolonged if the CRTC needs even more information from current players. After that, there will, once we have a framework and it is good terms for new players like us in the marketplace, we will enter a rate negotiation, a commercial rate negotiation period with the MNOs. This will take time and it could be super fast if we find the rates that we need to for a good business case.
In the likelihood that we don't, there is a backstop arbitration process with the CRTC. This obviously will add even more time. Now we are definitely into spring, summertime next year at the earliest. I hope this is helping in terms of timing. It could be longer depending on the intensity of the negotiation as well as the pushback that we're seeing from the incumbent MNOs right now.
That's very helpful.
Let me just make sure to clarify then. I assume that none of your CapEx guidance for 2022 includes any wireless or MVNO build-out then, given the timeframes you just said.
Yeah. I've said that in the past. I'll make it clear again today. We are going to deploy capital in line with market success. It first means that we will enter the market, we will ramp up, and based on success, we will invest CapEx.
Okay. On your other questions on the corporate costs. Perhaps I'll refer to the Cogeco Communications. I'm trying to see which number you were using, the 17. But if you refer to the Cogeco Communications corporate costs in Q4, they were CAD 11.2 million, and you're right, it's an increase versus CAD 6.3 million last year. This comes primarily from our innovation group, which does include wireless activities. As Philippe said, we're not building a network, but there's some activities obviously in the sector and some a group of employees there as well. Going forward, for the next year, we don't expect to be at the same level as the Q4 number.
We expect to be at a lower run rate than this, but it's still gonna be higher than what we incurred for the full year of fiscal 2021. Happy to talk offline if you wanna go more into it. Perhaps you refer to CGO, but Cogeco Inc., but we are happy to do it offline.
No, that's good. Thank you.
Again, to come to theCUBE, star one. Your next question will come from Matthew Griffiths with Bank of America Merrill Lynch.
Hi, thanks for taking the question. I was gonna follow up on the wireless comments quickly if I could. I just wanted to clarify, you mentioned that you would deploy capital on a success-based basis. If my understanding of, like, the CRTC model is correct, you can enter these MVNO arrangements for a seven-year period while you build your network. I’m not sure, you know, how much leeway there is to deploy success-based capital when you have to finish the network. Maybe you could clarify that comment if you could, please. Secondly, I wanted to ask about the Ohio subscriber counts.
It seems at the time of acquisition, the broadband subscriber numbers that you provided basically didn't change over the six months to the numbers you provided as at the beginning of September. I was just curious what you're seeing in the market in Ohio in particular, where there didn't seem to be any growth, which seems like an anomaly. Generally in the U.S., we've had some of the other providers comment about, you know, kind of moderating their expectations for net adds, referring to, you know, slower move activity. Just generally what you're seeing in the U.S. market. Thanks.
Okay. Thank you, Matthew. Let me start with your first question on the CapEx need for a mobile operation. That's one component, and the second hidden component in your question is the seven year period. To start an operation, you obviously need some equipment to activate customers to be able to set them up. There's a small portion of capital that is required for the activation support billing these kind of elements that we would, like, obviously have to put up front, but they are relatively small. Now, the network build, my previous comment is we're going to build the network as we find success.
Remember that the framework is allowing players like us to enter the market leasing capacity on the MNO's network. This is what we will do. Our market penetration will rise, and we will deploy capital for network equipment based on success. Two different buckets, if you want, for CapEx expenditure. Now, the seven-year, of course, we are not going to aggressively build a network to start before we find success. I said it would be the reverse. We would build gradually as we find success during the seven-year. The seven-year is not a cliff thing. We have to demonstrate to the CRTC that we are investing, that we're not just leasing capacity as in the wireline framework for TPIA.
They can rent networks, but they have no obligation to build. We've always at Cogeco supported a model where if you do find success in the marketplace, you have to invest, and this is what we're gonna do. At the end of the seven year, there will be a public process with the CRTC monitoring those investments and making sure that the commitments that were made by players are in line. Remember that the MNOs have taken more than 30 years to build what they have today. No one would expect from a new players to build networks in less than seven years. The principle here is to invest gradually over time and the CRTC to monitor that.
Yeah. On the Ohio question, specifically, we were not, I would say we're pretty much in line with what we saw when we made the transaction in terms of internet customers. We were not planning initially, and you'll recall, we did discuss this when we made the acquisition, to have a substantial increase in number of customers initially. What we said is that for a period of 12-18 months, we're gonna be in integration mode, which means that we need to basically transition certain services to our platform, order taking, billing, for example. And also at the same time, we are densifying the network to be able to get new customers and also sell higher speeds to customers and introduce an IPTV product. Stability for us is what we were expecting.
following that period, we're planning to be able again to grow penetration a bit, and also grow our mix of higher-end business by selling bigger packages. The other thing you'll notice as well is on the video side, not that you can necessarily see it separately, but on the video side, there is a decline, and that was also planned. The strategy that WOW! has is a little different than what we do on the video front, so we're all losing some PSUs on video. But in terms of strategy long term, we are planning again to introduce an IPTV platform across our network in the U.S., including in the WOW! territories. That again was planned.
Okay, great. Thanks. If I can sneak one more in just quickly. There was also mention in the MD&A about expansions into, you know, I think it was Virginia, if I'm not mistaken, and New Hampshire. That I'm sure is included in the CAD 230-CAD 240, even though I think the majority of that is in Canada. How much of those expansions in the U.S., which are gonna continue past this current year, are included in that CAD 230-CAD 240, just so we can carry it forward?
Sure, yeah. It is in it. Basically, it's close to half and half, U.S., Canada in terms of the network expansions. You're right, they're gonna extend past this fiscal year. We're gonna evaluate other areas as well. We have a team looking at this right now. As long as we find attractive areas, and again, these are we think attractive financially where we can make mid-teens in terms of unlevered returns, we're planning to do this for some time while we can. It's about approximately half of the CAD 230-CAD 240 relates to the U.S. expansion.
Okay. Thank you.
Thank you. Our next question is going to come from the line of Jeff Fan with Scotiabank.
Thank you. Good morning. Just to follow up on the previous question. So it sounds like the CapEx expansion or dollars is half/half between U.S. and Canada. Can you? Is it the breakdown of the number of homes, I think it was 75,000, is that split evenly between U.S. and Canada as well? And then of the ones in the U.S., are you going still into overbuilt markets, i.e., are you competing against fiber and another MSO in some of these edge-out expansions?
Actually, the 75,000 refers to something else. It's Canada. It's multi-year, and it relates to government-subsidized areas. When you look at what we're planning to do this year with the CAD 230-CAD 240, we're planning to add between 50,000 and 60,000 homes passed in Canada, so that's about 3% increase in the network. In the U.S., it's about 70,000 homes passed, so that's about 4% of the network. Again, the network does include now Ohio, so it's a bigger base than we used to report on. 50 to 60 plus 70 in the U.S., approximately. Again, the timing of these can straddle another year, depending on how fast we can get permits and get construction ongoing.
The nature of the builds in Canada are almost all government subsidized. It means we're going into areas where there is no high-speed internet provider. It's primarily DSL or nothing or fixed wireless. In the U.S., we do have a bit of this in the U.S. as well, but I would say the majority is in overbuilt areas where there is a cable player and there is a phone company. We are not going into areas that have fiber to the home. We are going in areas typically where you'll have a DSL phone company.
Even in these overbilled areas, you expect to get a return in the mid-teens. Is that? Did I hear that correctly?
That's right. We're going with fiber to the home in these areas. Yes. You'd have basically us as a fiber to the home provider. You have a cable player and a phone company. There's a bit also of what we've been doing in Florida for many years now. Florida has a different story. Obviously, there's more players, but it's more longer term contracts signed with associations of residents.
Right. Your penetration assumption in these markets, I would presume would be pretty high with fiber to the home.
Yeah. We're assuming 36% over three years. I know different players will have different assumptions on this, but we try to be conservative. Yes, with 36% over three years, we can generate mid-teen returns. In Canada, we're assuming a higher penetration of 50% because again, it's a two-player market with the other player being not providing high-speed internet at this point.
That makes sense. Just one follow-up on the U.S. operation, the margin specifically. I know you had some marketing costs this quarter, so your broadband-first strategy didn't deliver the margin expansion. When should we start to look at margin expansion as a result of this strategy with being broadband-first?
Yeah. Well, it's going well, actually. We've been able to increase the revenue per customer, especially for the internet product. Actually the margins per customer are increasing. And that should help the margins. Now, when we compare to last year, for the reasons I explained before, there were lower operating expenses and lower sales and marketing because of the pandemic. I wouldn't say it's necessarily the best reference point. If we look at the full year, at ABB, we did 45.8% margins. We should be in a similar place next year. As we add these new expansions that we just talked about, we do expect this will play favorably, in addition to the broadband-first approach.
We should see an uptick. What goes against the margin is the video cost increases, which are higher than inflation. The mix shift with some reduction in PSEs and video and those PSEs going towards internet does help the margin. Right now it's sort of evening out. I expect with the network expansions that we'll see an improvement over time. It is not gonna be a 2022 story. It is gonna start in 2023 and mostly in 2024, we're gonna see a bigger impact of these network expansions.
Great. Thanks, Patrice.
Thank you. At this time, I see no further questions. I would like to turn the call back to Mr. Ouimet and Mr. Jetté for closing comments.
Okay, great. Well, thanks for being there this morning, and, we're gonna be back in January with the Q1 results. Feel free to call us in the meantime.
Have a good day.
Bye-bye.
Thank you. This will conclude today's conference call. We appreciate your participation. You may now disconnect.