New law to boost competition in Mexico’s telecoms sector
Following reforms to the education and finance sectors, the federal government has now turned its attention to the highly concentrated telecommunications sector, seeking to foster a more competitive environment.
In June the president signed into law a wide-sweeping telecommunications and broadcast reform bill. Important changes include liberalisation of foreign investment rules, with the 49% foreign ownership cap removed for telecoms; the introduction of various pro-competition measures; the creation of a new regulator, the Federal Telecommunications Institute (FTI), which will replace the Federal Telecommunications Commission and be led by seven commissioners appointed by the president; and the establishment of specialised telecommunications and antitrust courts.
The competition measures will be important in a telecoms market that is dominated by a single firm – America Movil, which accounts for 70% and 75% of the mobile and fixed-line segments, respectively. The reform also extends into the television industry – where Televisa holds a 70% market share – as well as the radio, internet and data segments.
According to a 2012 OECD review of Mexico’s telecommunications policy and regulation that was commissioned by the government, the lack of competition in the sector has resulted in high prices, low market penetration rates and poor infrastructure development, creating a loss to consumers of nearly $130bn over a five year (2005-09) period. Indeed, with a mobile penetration rate of 86.8%, Mexico falls behind Peru (98.8%), Ecuador (110.7%) and Colombia (103.2%), data from the International Telecommunication Union show.
The approved reform is a high-level change to the constitution that sets the stage for the FTI to draft secondary laws. Many details remain to be specified, creating some concern among industry participants.
The FTI will be handed significant power when it comes to competition oversight, taking over from the Federal Competition Commission, which will cease to have any authority over the telecoms sector. The legislation also gives the new regulator the right to draft “asymmetric regulation” to apply to dominant firms, as well as the possibility to mandate divestitures and the unbundling of dominant players’ networks.
The change in ownership limits is potentially important and in line with a broader push under the current administration to promote foreign investment. Under the new law, 100% foreign ownership will be allowed in telecoms, and up to 49% in television and radio. Foreign investors who previously may not have wanted to enter as junior partners in the Mexican telecoms market will now have an opportunity to acquire majority ownership of existing entities, ensuring control over strategic decisions, or establishing their own businesses. In either case, the injection of foreign capital and know-how into the market is expected to create competitors that will have more success in challenging the dominant players.
The policies outlined in the reform are expected to become effective sometime in 2014, and though it will likely take time to have the desired impact in terms of reducing end-user costs and improving services, it appears that it will successfully do so in the medium term. Indeed, in passing reform that raises foreign investment caps in the sector and stimulating competition, the government has complied with some of the major recommendations of the OECD, in theory ensuring the long-term health of the sector.