On June 10, President Enrique Peña Nieto signed into law a major
reform of Mexico's telecommunications industry. The Mexican
economy has long been held back by monopolies and oligopolies in
important industries. For example, the firm América Móvil
reportedly controls some 75% of the country's fixed-line telephone
service and 70% of its mobile telephone and broadband
service. The television companies Grupo Televisa and TV
Azteca account for virtually all over-the-air broadcasting.
Many economists believe these large, powerful companies snuff out
competition, raise prices, and discourage innovation and
investment. The new reform aims to tackle those problems by
Below is a summary of the new law's major provisions.
New Telecom Regulator. Mexico's
main anti-monopoly agency is the Comisión Federal de Competencia
Económica (CFCE). That agency is currently complemented by a
telecom regulator that is widely panned as weak and
ineffective. The new law replaces the current telecom agency
with an entity called the Instituto Federal de Telecommunicaciones,
otherwise known as "Ifetel". The new agency is charged with
promoting competition in the telephone, television, broadband, and
radio industries. It is empowered to establish rules in a
range of areas such as quality, pricing, ownership, and
infrastructure sharing. It has the power to investigate any
indications of anti-competitive behavior, and in order to stop such
behavior, it can take steps ranging from levying fines to ordering
a dominant firm to divest assets.
Streamlined Legal Process. Legal
hurdles have been a major impediment to Mexico's current telecom
regulator. Even when the regulator has tried to stop
anti-competitive behavior, the dominant incumbent firms have been
able to delay sanction by taking advantage of the country's slow,
inefficient legal system and rules blocking the enforcement of
regulatory decisions while they are being challenged in
court. The new law sets up special courts to handle disputes
in the telecommunications industry, based on the assumption that
more efficient processes and dedicated judges with expertise in the
industry will help make regulatory action swift and sure.
Just as important, the law allows Ifetel to enforce its decisions
even while they are being challenged.
Access to Network
Infrastructure. Currently, a key impediment to
smaller, newer competitors in Mexico is that the dominant
incumbents charge high interconnect fees and otherwise limit access
to their networks. Under the new law, Ifetel will be able to
require firms to make their networks accessible at competitive
New "Carrier of Carriers." In
addition to easing access to the incumbent networks, the new law
aims to eventually create a "carrier of carriers" network that
would allow newcomers to bypass the incumbent networks
altogether. As Mexico's television stations transition to a
100% digital format, the government will reacquire bandwidth and
use it for the new, nondiscriminatory, universal-access
New Television Stations. To
counter the current duopoly in broadcast television, Ifetel will
auction bandwidth for two new television stations. It is
charged with releasing the bidding terms and conditions for the
auction within 120 days of the agency's establishment.
However, licenses will not be granted to any firm that is
controlled by an entity that already has 12 MHz or more of
bandwidth in any locality. The government will also establish
a new public television network.
Easier Foreign Investment.
Currently, foreigners are not allowed to own more than 49% of any
Mexican land-line telephone or cable network. Foreign
ownership of broadcast television networks is also
restricted. To further promote the entry of new competitors,
the new law allows for unlimited foreign ownership in telephone
services, broadband, and satellite television, and it raises the
limit to 49% for over-the-air television stations.
The new telecom law is another product of the "Pact for Mexico,"
an agreement among all three of the country's major political
parties to push through needed reforms. The Pact has already
led to an important reform of the Mexican education system, and in
the coming months it is expected to lead to big changes in the
financial services, energy, and transportation industries.
Some legislators from opposition parties have started to chafe at
the continued cooperation under the Pact, but passage of the
telecom law is a welcome sign that the overall consensus for reform
is still intact.
In theory, the new law should boost competitive pressure in
Mexico's telecom industry, lowering prices, improving quality, and
sparking new innovation and investment. However, it is
important to remember that much will depend on follow-on
legislation and rulemaking. If implementation of the reform
is delayed or poorly managed, the benefits may be less than hoped
for. One sign of potential trouble is that legislators in the
Mexican Senate tried hard to water down the legislation by making
it easier for former politicians and former employees of telecom
firms to become regulators. That highlights the risk that the
regulator could become politicized. In sum, the telecom
reform seems to be a step in the right direction, but only time
will tell how much it will really improve Mexico's telecom services
Patrick Fearon, CFA
Vice President, Fund Management