Research and analysis

Mexico: challenging telecoms monopolies: commercial opportunities – March 2014

Published 16 April 2014

On 6 March, the newly established Federal Telecommunications Institute (IFT) made two landmark rulings that will weaken the duopoly of Mexico’s two biggest broadcasters and introduce competition in the broadcasting and telecoms sectors. The IFT declared that Televisa and America Movil (whose subsidiaries Telmex and Telcel each control over 70% of the landline and mobile markets) have an oversized market share in the broadcast and telecoms sectors respectively and will be subject to regulation. They also approved a public bid to create at least two new national television networks to end the monopoly of Televisa and rival TV Azteca that together control 95% of the broadcast television market.

In the broadcasting sector, the IFT has ordered Televisa to share its radio infrastructure with competitors for a set fee, to be approved by IFT, and make public its advertising terms and conditions, tariffs and any promotional discounts – which must not discriminate against rivals. All broadcasters must allow their free channels to be aired on competitors’ fee-paying networks, who are obliged to air them. And Televisa will be prohibited from buying exclusive domestic rights to broadcast premium events, including the 2014 World Cup, the national soccer playoffs and the summer/winter Olympics.

The IFT has called for similar regulation of the telecoms sector. Telcel will not be able to charge national roaming fees and will be forced to inform users of international roaming charges. Telmex and Telcel will be required to share their infrastructure for a set fee, to be approved by IFT. And the IFT will determine interconnection fees.

0.1 The Impact

The rulings have raised expectations that Mexico might finally take on vested interests and boost competition in order to increase growth. The market is currently controlled by two businessmen. Carlos Slim, the world’s second richest man, took control of the telecoms industry through the 1990’s privatisation of the State telephone monopoly. He controls 70% of the telecoms sector. And Televisa, run by Emilio Azcarraga, whose grandfather strengthened the network’s position by aligning his interests with the government during one party rule. Following the announcement, Televisa’s stocks reduced 3.4% and the firm’s market value dropped £348m, although it has since recovered slightly.

The rulings aim to eliminate barriers to entry for new competitors to reduce prices by up to 30% and stimulate growth of 2.5% GDP. According to IFT, revenues from telecoms services reached £19.2b in 2012. The estimated growth of the telecoms market last year was 9% and revenue from the mobile sector surpassed £9b. There is enormous potential for growth in the internet market. Currently only 50% of the population have internet access. New rules could also widen the range of political content available to viewers. Televisa’s news programs are accused of a bias towards Enrique Pena Nieto’s PRI party.

0.2 Comment

Whilst widespread positive press coverage suggests the announcement is a fait accompli, there is a significant hurdle to overcome. The IFT was created by last June’s Telecoms reform but Congress has yet to pass the secondary legislation establishing the competences and tools at its disposal. The impact of the rulings will therefore depend entirely on the secondary legislation, which is being discussed now, and on which legislators have already missed both December and February deadlines.

Increased competition would present an opportunity for the UK. The new legislation would allow 100% foreign ownership in Mexican telecoms companies.

0.3 Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.