ANALYSIS: Mexico’s telecoms reform – a comprehensive solution?

11 September 2014 | Kavit Majithia


The Mexican government finalised its revolutionary telecoms reforms in mid-July, and the overhaul is expected to put an end to América Móvil’s dominant position in the market.

The move – intended to boost competition and foreign investment – has been welcomed by regulators, competitors and investors looking to enter the lucrative market.

Mexico’s telecoms sector has lacked competition for decades. The latest reform states that any player deemed dominant in the market must reduce its share in both the mobile and fixed-line markets, as well as slash the price it charges competitors to use its network infrastructure.

Carlos Slim-owned América Móvil possesses approximately 70% of the existing mobile market in Mexico, and 80% of the fixed-line industry.

Although there is a clear goal of reducing Slim’s dominance, Wally Swain, SVP, emerging markets at 451 Research, believes the after-effects of such radical reform could be negative for the market.

“Whenever well-intentioned (or not) governments attempt to intervene in the competitive balance, the law of unintended consequences runs riot,” he told Capacity.

Market watchers have also raised concerns over the comprehensiveness of the reforms. While the moves aim to promote competition, it neglects to address the importance of network quality. “Mobile network operators simply don’t try or don’t think that they can succeed by competing on customer service,” said Swain.

The reform, however, may help Mexico compete more aggressively with other countries in Latin America. Brazil, Argentina and Chile, all have a mobile penetration rate of at least 120%, while Mexico lags behind with less than 90%. Additionally, the legislation is designed to make it easier for foreign investors to enter the Mexican market, which should – in theory – increase competition.

As expected, América Móvil has already reacted to the reforms and is actively looking to divest its assets in the country. It will no longer feasibly be able to gain a competitive return on its investments, and is looking at other Latin American markets, as well as Europe.

One small consolation to the company will be increased access to the pay-TV market, of which rival Televisa presently holds a 50% share. The company will be expected to comply with a number of further concessions, and should it do so, will be eligible to apply for a pay-TV offering in 18 months, which it has sought for years.

“As to whether Televisa did better than América Móvil [following the reform], I would only note that it is not a good strategy to bet against someone who owns a television channel,” Swain said. “Politicians pay much more attention to those who influence public opinion.”

Meanwhile, British MVNO Lycamobile is set to enter the Mexican market by the end of year, sources claim. The MVNO obtained a licence to operate in the country earlier this year, and will reportedly use Telefónica’s network to deliver services there.