Mexico preps for major overhaul of telecoms regulation

As mentioned in last week’s email I am in Mexico at the moment, where significant changes have been proposed to the telecoms regime in a Bill to be put before the Congress. Here is a report of what I have picked up so far.

Paul Budde at the Seventh Broadband Commission for Digital Development Meeting, Mexico City, Mexico

Paul Budde at the Seventh Broadband Commission for Digital Development Meeting, Mexico City, Mexico

The Mexican government’s timing for the announcement of sweeping changes to the country’s telecoms landscape is impeccable, given that much attention has been focussed on the 7th meeting of the Broadband Commission for Digital Development held in Mexico City, which I attended.

The changes announced will affect Mexico’s telcos across the board, not least of which is América Móvil, the dominant operator owned by the host of the Broadband Commission meeting, Carlos Slim. América Móvil dominates both the fixed-line and mobile/wireless sectors in the country, while its reach – already broad across much of Latin America – is extending deeper into the flagging European telecom scene through astute investments with a number of key incumbent operators which have subsidiaries in several markets in Central and Eastern Europe as well.

The proposed reform has been long in gestation. In early 2012 the OECD recommended that Mexico should reform its telecoms laws and regulations to boost competition and investment, asserting that ineffective competition had led to extremely high prices for consumers and businesses, and had slowed the take-up of new services. The cost to the Mexican economy was estimated at some US$25 billion annually, equivalent to nearly 2% of GDP. One difficulty cited was the court system which enables companies to appeal the regulator’s decisions, so weakening their effectiveness. The OECD recommended that decisions should instead remain in force until the appeals process is finished, as is the norm in most other OECD countries. One recommendation (removing the ‘double window’ whereby regulatory processes are conducted by two different authorities) was addressed in mid-2012.

Currently , telecoms regulation is rather convoluted. It is part-managed by the Under Ministry for Communications and Transport, responsible for granting and revoking licences for public telecom networks, as well as the regulator Cofetel, which ensures that companies meet the terms of each licence, concession, or permit. The Federal Competition Commission also has a hand in monitoring competition within all sectors of the economy, including telecoms.

The government has now proposed that a new regulator be set up (the Federal Telecommunications Institute– FTI) to replace Cofetel. This will have greater power and a wider remit encompassing all telecom sectors, as well as broadcasting. The FTI is intended to have greater bite as well as bark: it would be able to impose fines, control pricing, and crack down on the appeals process. Litigation has long been relied on by the major telcos to stymie unfavourable rulings, and this has encumbered the enforcement of regulatory frameworks and throttled attempts to develop greater competition.

Additional reforms would update the country’s long-standing law addressing foreign investment. Foreign investors cannot own more than 49% of a Mexican corporation, and only 10% of the voting stock. Overturning this restriction, let alone allowing foreign investors to own 100% stakes in telcos, would need a clear demonstration of a benefit to consumers. However, since 2010 senators have considered proposals to amend foreign ownership limits in an attempt to increase competition in the fixed-line sector, so this reform is also not new.

What is particularly interesting is that the proposed changes have support across the political spectrum, so there is a very good chance that the Bill will proceed through the Congress. Nevertheless, the details will be thrashed out and the end result of the conditions of the reforms may be diluted. But they represent far-reaching changes which the country would benefit from enormously.

Next week I will provide a further update on these and other issues. It has been a busy few days, with many interesting developments.

Paul Budde

For more information on these developments, see the report Mexico – Key Statistics, Telecoms Market and Regulatory Overview

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