Change the channel: Reform is already bringing dynamism to the TV market

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Included in the telecoms sector’s reform, Mexico’s broadcasting market is set for a major transformation. New regulations allowing foreign ownership, a stringent reining in of dominant market players and a move towards digital terrestrial TV are set to change the entire environment. Although less dynamic than TV, radio and press remain important media vehicles, especially through their regional reach.

REGULATION: Soon after its inception, Mexico’s Institute for Telecommunications (Instituto Federal de las Telecomunicaciones, IFETEL) got down to work on measures to increase competition in broadcasting.

The new regulator, created as part of the telecoms reform passed by Congress in 2013, is enforcing legislation to help balance the market. Grupo Televisa, which controls 70% of the TV segment, will be forced to make its towers available to competitors under a negotiated set fee. The company, which owns the biggest open TV channel and has stakes in several pay TV providers, will also be required to publish its advertising prices and prevented from acquiring exclusive domestic rights to broadcast special events that typically attract high audiences, barring it from transmitting 2014 FIFA World Cup football matches and some of the bigger national league games.

CARING & SHARING: The obligation to share infrastructure will ease the way for other TV chains to try to earn market share without having to match the investments Grupo Televisa has made over the years.

Similarly to telecoms, where IFETEL is acting to curb the monopoly of América Móvil, asymmetric measures might take time to reduce the weight of the dominant TV broadcaster. They should nonetheless rouse the segment, which has seen considerable growth in recent years. Several operators have been strengthening their offering, combining fixed-line communications and broadband internet with TV in bundled products. The new telecoms law, which is to allow operators to acquire a single licence to provide all services, will further encourage convergence.

MAIN PLAYERS: Grupo Televisa was the only private broadcaster until a state channel was privatised in 1993, allowing for the entrance of TV Azteca, the second TV broadcaster. Once TV, owned by Instituto Politécnico Nacional, one of Mexico’s largest universities, broadcasts a range of educational and cultural shows, using the internet and local TV to reach across the country. A fourth chain, Television Metropolitana Canal 22, is a state-owned cultural network.

With a penetration level of 13%, pay TV remains the fastest-growing telecoms segment, with 14.5m subscriptions at the end of 2013. Competition has lowered prices and allowed operators to target larger parts of the market. Pay TV in Mexico is accessed either through cable or direct-to-home, and has experienced a considerable amount of concentration over the years, allowing for operators to expand their offer in terms of geographic coverage.

Owned by Grupo Televisa and Direct TV, Sky is the current leader of the pay TV segment, with 39% market share in 2012, according to figures from the Competitive Intelligence Unit (CIU). Another competitor, Megacable, has been growing through acquisition, buying 50% of Multioperadoras de Sistemas in 2007 and Omnicable in 2010, and has second position in the market with 2.1m subscriptions.

Cablemas, part of Grupo Televisa, was the first operator to offer triple play in the country. Grupo Televisa also has a 51% stake in another provider, Cablevision, which offers cable TV, broadband internet and is mainly focused on the Mexico City area. Grupo Dish operates a subscription satellite TV service and had a 15% share of the pay TV market in 2012.

The broadcast market will also change with the must-carry-must-offer legislation, which will oblige open-signal TV providers to make their content available to pay TV broadcasters. This will help even out the competitive field but will translate into lost revenues, especially for Televisa, which has typically offered its programming to pay TV providers for a fee. The principle behind must-carry-must-offer is to prevent consumers from picking their pay TV providers based solely on availability of programming from open-signal stations. The new rule is already influencing the market. Satellite TV provider Grupo Dish has been permitted to continue transmitting content from open TV firms Televisa and Azteca, as it had been doing since September 2013, after the must-carry-must-offer law was initially publicised. TV Azteca had filed a complaint against Grupo Dish for retransmitting two of its channels without consent, but IFETEL’s decision is a sign that the regulator is serious about making the market more equitable.

NEW CHAINS: Competition will also be spurred by the announced auction of two new TV concessions, with preliminary results as to which operators will be allowed to bid to be announced by September 2014. If successfully auctioned, the new stations could be operational by mid-2015. With the current TV market a duopoly between Grupo Televisa and TV Azteca, IFETEL has banned the incumbent broadcasters from participating in the bidding. “Putting two concessions on the market is important. But this does not mean more competition automatically when they will become available. The market will decide,” said Gonzalo Rojon, director and senior partner at the CIU.

The new chains could potentially attract foreign investors, as revised regulations reversing a longstanding ban on foreign participation will now allow non-Mexican entities to own up to 49% of broadcasting companies. Besides the open TV channels themselves, investors and market players will probably be interested in the frequencies, which can be used to offer converged services to consumers, including pay TV, communications and internet.

Furthermore, with the current legislation making Televisa share its broadcasting infrastructure and content, the price a new investor will need to pay to have a new TV chain ready to operate is much lower than it was before the telecoms reform. Although there is an increasing move towards pay TV, the majority of advertising investment remains in open TV, meaning more competitors will likely be fighting for advertising revenues in the future.

Still to be decided is the possibility of Carlos Slim’s América Móvil owning any of the new TV channels that will be auctioned. Because of the revised regulations imposed on its telecoms businesses, IFETEL has stated that the company will have to comply with new rules before it is given a multipurpose licence to allow it to offer TV services. Already determined by IFETEL is a 24-month waiting period before Amé rica Móvil can apply for a licence to provide pay TV.

TDT: Broadcasting infrastructure is set to be strengthened with a switch to terrestrial digital TV (TDT), scheduled for completion by December 2015. The city of Tijuana was chosen as the testing ground for the transition. However, the initial testing in 2013 exposed some of the government’s difficulties in making the switch from analogue to digital. Decoders were supposed to be installed in 400,000 homes in the city. Yet by mid-2013, only around 90,000 of these had been distributed, prompting consumer complaints and blocking TV access to large swathes of the city’s population, according to local media reports.

The switch is programmed to happen in phases, with Mexico City and Guadalajara, as well as the central part of the country, to have TDT installed by November 2014, and the rest of Mexico in 2015. In early 2014 much had yet to be defined, and there was no budgeted financing programme in place for the decoding equipment. A tender to decide on the supplier was scheduled for the end of 2013 but failed to materialise. Another problem is likely to be the availability of TV sets compatible with the TDT system. Nonetheless, the authorities claim that the switch to digital will take place on schedule. The date for the transition cannot be moved, because of the added commitment of liberating the 700 MHZ spectrum for the shared telecoms network. In order to manage the transition to digital smoothly, the government and IFETEL will need to move quickly.

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The Report: Mexico 2014

ICT & Media chapter from The Report: Mexico 2014

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