Open line: Several reforms may further boost a steadily performing sector

In 2013 the IT and telecoms sector contributed 2.5% to Querétaro’s GDP and was one of the economy’s faster-growing segments, according to the state’s Ministry of Sustainable Development (Secretaría de Desarrollo Sustentable, SEDESU). In recent years the sector has grown at an annual rate of 7-8%. Depending on how well Mexico implements reform of the telecoms sector, there may be an opportunity for continuing, or even accelerating, growth.

SERVICE CENTRES: The sector in Querétaro consists of several distinct, but interconnected, segments: enduser customer service call centres, business-to-business technical support call centres, data centres and telecoms infrastructure. The players include telecoms operators, IT service providers and financial institutions. Financial services firm Santander was one of the first multinationals to open a call centre in the state. Housed in a 10,000-sq-metre building to the north of Santiago de Querétaro, Santander handles customer service for the Americas. As of late 2013 Citibank was developing a similar operation in the state, according to SEDESU. AXA Seguros, the Mexican subsidiary of the French firm, opened a customer service call centre for its Mexican clients in October 2013.

Similarly, Mexican IT services and telecoms provider Alestra has centralised its remote technical support operations in Querétaro. In February 2014 it added to its presence in the state with a $59m investment in a new facility that includes a data centre and telecoms equipment for its national fibre optic network. Kio Networks, Telmex and Banamex have all built data centres in the state. Ericsson, which provides network management for businesses and telecoms infrastructure for operators, such as Mexican wireless firm Telcel, has roughly 10% of its Americas technical support operation based in Querétaro, while the rest is in Mexico City.

Four years ago, Ericsson chose Mexico as one of four countries where it would centralise its technical support call centres (the others being in Romania, China and India). According to Humberto Rezende, head of Ericsson Global Services Centre Mexico, the company found in Mexico the right balance of competitive wages, adequate infrastructure, political stability and skilled labour. Today, it employs 2500 IT technicians, all of whom speak English and Spanish, with many also speaking Portuguese, in Mexico City. In 2011 the company decided to expand its operation beyond Mexico City and chose Querétaro.

STATE SUPPORT: However, the factor that tipped the balance was the state government’s courting. Rezende said government officials in Querétaro were more accommodating and understanding of the company’s needs than officials in other states. Most importantly, the government helped to find employment solutions for the firm by opening doors with local public universities. The Universidad Tecnológica de Querétaro (UTEQ) is one notable example. Today UTEQ runs a permanent training programme for the company in a building on its Santiago de Querétaro campus. Ericsson assists in selecting participants after screening them for the requisite skills and language ability, and 90% of the programme’s graduates are hired by the firm. As of early 2014, Ericsson had 250 employees in Querétaro and planned to expand this to 600 within two years. This education and training programme – much like the one the government has facilitated between Bombardier and the Universidad Aernáutica de Querétaro – demonstrates the extent to which Querétaro’s government is responsive to businesses’ needs.

REFORM: Querétaro’s telecoms sector may have increased opportunities for growth in coming years, as the industry on a national level expands and becomes more competitive following the government’s telecoms reform. The reform was badly needed as Mexican networks are deficient and there is a serious lack of competition. A 2012 government study found that only 26% of Mexican homes had internet access. Since the early 1990s when the state telecoms company Telmex was sold to Mexican billionaire Carlos Slim, he has controlled roughly 80% of the fixed-line market. For years, Telmex successfully resisted attempts to be regulated as a monopoly. But that ended in April 2013, when the Supreme Court ruled that Telmex’s dominance of the market was anti-competitive, and significant telecoms reforms, parts of which are designed to break Telmex’s monopoly, followed two months later. Signed in 2013, the reforms laid out goals and the legal framework under which they will be achieved. However, secondary laws will still need to be implemented in order to fully realise the new regulations.

IFT: One measure that has already been implemented is the establishment of a new regulatory body, independent of the executive and the legislature. The new Federal Institute of Telecommunications (Instituto Federal de Telecomunicaciones, IFT) will consist of independent regulators chosen through a rigorous process meant to ensure that they are neither influenced by the government nor industry. IFT already has its first seven members and the selection process seems to have been successful in ensuring neutrality.

IFT promises to be a more aggressive regulator than its predecessors. It will be allowed to apply regulation asymmetrically in order to break up monopolies. Telmex, as well as Slim’s other telecoms firm América Móvil, is widely expected to be one of IFT’s targets. Today, Telmex dominates the fixed-line market in large part because it owns and operates the largest fibre optic network in the country, which consists of 179,000 km of cable and reaches 95% of Mexico. As a result, Telmex’s would-be competitors often choose to rent network capacity from Telmex to reach their customers as it is currently the most convenient option available to them.

BREAKING UP: Following the implementation of secondary laws, the state is expected to auction off the management of its 25,000-km fibre optic network and its 700-MHz bandwidth to a private operator. The transition from public to private management will open the network to private investment which, the government hopes, will lead to the expansion of the fibre optic network to at least 60,000 km. Even so, the public-private network cannot rival that of Telmex, though it may give operators an alternative to renting capacity from Telmex.

One of the primary goals of the reforms is to boost private investment in Mexico’s telecoms industry, and there will certainly be more opportunities to compete with dominant once the secondary laws are in place. However, there are some concerns that if the secondary laws are not clear enough, or if IFT proves too weak to release Telmex’s stranglehold on the market, firms may remain hesitant to invest.

It would be difficult to frame secondary laws that fail to increase competitiveness to at least some extent. As long as the laws are written clearly and passed, Mexico’s IT and telecoms industry could become more open and dynamic than it has been over the past 20 years. Network expansion would follow, as would the need for more IT service providers and telecoms infrastructure, which could be a boon to Querétaro’s sector.

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The Report: Mexico 2014

Querétaro chapter from The Report: Mexico 2014

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