Mexico’s backbone network offers an investment opportunity for the international community

Mexico’s backbone network offers an investment opportunity for the international community

Mexico has opened the tender process for its fibre backbone project Red Troncal. Jorge Espinosa Mireles discusses the investment opportunity the trunk network offers to international operators.

If you haven’t been to Mexico, you may not realize just what a large and fascinating country it is. The 13th largest independent country in the world, Mexico has the 11th largest population, and a growing economy to boot.

In terms of telecoms, however, the country still has room for growth. Government reforms, launched in 2013 in order to break up the monopoly held by America Movil, are seeing a booming telecoms sector, with 20% compound data growth per year. The government has launched the next stage of its plan to help Mexicans get connected: the tender process for Red Troncal, a national fibre backbone network, opened last month.

The government has opened this international process to domestic and investors from outside the country and can even participate as a consortium according to Jorge Espinosa Mireles, Director de la Red Troncal at Telecomunicaciones de México (TELECOMM), the Red Troncal project offers the perfect opportunity for international operators to enter the Mexican market. 

“Companies should bid because of Mexico itself,” he explains. “It is a country that is growing and that makes for a very interesting telecommunications market.”

The backbone network, which consists of two pairs of fibre strands installed in power transmission lines that cover 25,000km altogether, can “put an international player in the country in a very short time.”

The infrastructure in question, which leverages on existing infrastructure from Mexico’s electric utility Comisión Federal de Electricidad (CFE), can be accessed through 300 points of presence – 144 of which have installations for colocation equipment.

Mexico’s geographic location, linking the US to central and latin America, also makes investment in the project appealing for the international community, says Espinosa Mireles. Investors will not face as much red tape, he adds, because “the infrastructure is already there. In a very short time, they can establish a strong foothold in the Mexico market, and the country is a natural pass through for traffic between north and south, so we can also provide services to central America and north America and this adds tremendous value to the project.”

Changes to regulations in Mexico have made the market more attractive for outside investors. For example, previous regulations meant any foreign investor in the telecoms space could hold a maximum of a 49% share in a telecoms operation, but this has been overhauled in order to open up the market.

“Now that the government has taken steps to introduce a fairer playground for competitors, it is the right time to take advantage of this opportunity. We’re seeing the impact of the government reforms in the growth of the telecoms market in Mexico which is growing at a faster rate than the GDP of Mexico.”

Though investors will not be buying any infrastructure, the successful bidder, which could be made up of an operator or a consortium, will be able to develop additional services as well as controlling the basic wholesale offering.

“The winners of the bid will be running the network on a wholesale basis but that does not mean they cannot offer added value services on it. We think we can start selling clear channels to operators, but also provide network and internet access ports connecting to the United States, offering border crossing services connecting to first tier operators.”

The bidding process is now open, with the winner set to be selected from the company offering the most ambitious coverage plan – the network must reach a minimum of 80% of the population within reach of the Add/drop PoPs. Targets for potential bidders include providing 32% of coverage in under 18 months; 56.3% coverage within 30 months; and 80ç% of coverage within 42 months (3.5 years).

But potential bidders need to submit anti-trust documents quickly – there’s a 1 August 2018 deadline in place to submit any relevant anti-trust documents, with 6 October the final submission deadline. The public private partnership contract will then be unveiled on 24 November.

Espinosa Mireles has a final message for those looking to invest on why they should join the bidding process.

He says: “It is an opportunity that has existing profitable assets. We are not imposing a network design on the bidders – they can have flexibility in the design of the network and can use as much CFE infrastructure as they want, or they can complement and use infrastructure from third parties. This whole project requires a relatively low investment given how attractive the market is. It has clear profitability potential and that is why they should get involved.”

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