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Mexico Telecoms Remains Uncompetitive
America Movil continues to dominate despite regulatory measures.
BY LATIN AMERICA ADVISOR
Inter-American Dialogue
A decade ago, in 2013, Mexico began an overhaul of its telecommunications and broadcast sectors following recommendations from a review by the Organization for Economic Cooperation and Development, or OECD. Mexico’s government took actions that included lifting restrictions on foreign direct investment and establishing the Federal Institute of Telecommunications regulatory agency. Mexico later agreed to additional measures to promote competition under the U.S.-Mexico-Canada Agreement, or USMCA. What have been the most significant changes in Mexico’s telecommunications sector in the past decade? How much have those changes increased competition in Mexico’s telecommunications sector? What has been the impact on companies in the sector, the services that they provide and on consumers?
Ryan Berg, director of the Americas Program at the Center for Strategic & International Studies: Since 2013, Mexico’s ICT sector has grown substantially. Nearly three-quarters of the population now has access to the Internet, up from 43 percent when the reforms were passed, while the consumer price index for ICT services has decreased an estimated 28.7 percent over the last nine years. Crucially, the reforms opened Mexico up to greater competition, helping drive prices down and bringing in billions of dollars in investment from companies such as AT&T. Finally, the inclusion of a chapter on digital trade in the USMCA proved a powerful complement to constitutional reforms in Mexico, locking in a commitment to competitiveness and further spurring investment. However, Mexico under President Andrés Manuel López Obrador shows worrying signs of backtracking on these provisions. The Mexican ICT space remains one of the most concentrated in the world, with América Móvil exercising a massive 70 percent market share (which it increased during the pandemic). A ‘Reform 2.0’ is therefore urgent for Mexico to capitalize on digital developments. Any such reform must begin by lowering spectrum fees, the mechanism through which Mexico allocates to companies the radio frequencies that form the backbone of digital communications. Mexico’s current spectrum pricing helps cement América Móvil’s dominance by pricing out smaller competitors. The IFT also needs to be empowered to operate at full capacity, with new commissioners appointed to fill open slots, and the reversal of years of budget cuts. Additional reforms especially in digital education and cybersecurity will also be vital if Mexico is to compete in the 21st century digital economy and make good the promise of secure, reliable and affordable ICT services for all.
Luis Rubio Barnetche, executive partner in the Mexico City office of Holland & Knight: The overhaul of the telecommunications legal framework in Mexico back in 2013 and 2014 brought about a renewed spirit within the telecommunications sector. The authority granted to the newly created federal government agency, independent from the executive branch, was seen at the time as necessary to effectively separate the regulator from those regulated and as a means to level the playing field between the incumbent network operators and their competitors. Additionally, the majority of the members elected to the entity’s governing body had experience in the telecommunications sector apart from regulated entities. During those first years, the new regulator dedicated substantial resources to designing and implementing measures aimed at containing and potentially reducing the market power of the incumbents. Fierce competition among mobile operators brought lower rates, and most mobile plans increased the number of minutes or megabytes included. However, the underlying conditions were not effectively changed. The incumbents managed to delay compliance of certain obligations and successfully challenged certain legal provisions aimed at restraining its market power in the mobile sector. The composition of the regulator’s governing body has also changed. The federal administration has failed to appoint new commissioners and has reduced the regulator’s budget. Recently, the incumbents have managed to sway the regulator into lifting certain restrictions in specific areas arguing that ‘effective competition’ exists. In summary, the intent was commendable, but implementation has failed to produce long-term benefits for consumers. Competition has not actually increased in Mexico. The incumbent holds either the same or more market power (depending on the specific market).
Gonzalo Rojon, director and senior partner at The Competitive Intelligence Unit in Mexico City: At the beginning of the implementation of the new phase of regulatory framework for the telecommunications and broadcasting sector, there was an initial and partial rebalancing in the competitive conditions among operators and market structure toward a scenario of better competition. However, since the beginning of 2017, a trajectory of persistent and excessive market concentration in different metrics in favor of the ‘Agente Económico Preponderante en Telecomunicaciones’ (AEP-T, América Móvil) is identified. The AEP-T is a Mexican legal concept to represent an agent holding more than 50 percent of the market share of the telecommunications market. For example, the aggregate share of AEP-T Revenue Generating Units (RGU) went from 59.8 percent in March 2017 to 57.5 percent in December 2021. Despite the Instituto Federal de Telecomunicaciones (IFT), the Mexican regulatory body for broadcasting and telecommunications sectors, having made two revisions to the asymmetric regulation applicable to the AEP-T, its market share dropped only 2.3 percentage points during that period. In terms of revenues and operating margins, the AEP-T has reversed its deconcentration trend, such that between March 2017 and March 2022, América Móvil’s share of revenues increased by 2.7 percentage points to 60.4 percent. Meanwhile, in the case of its EBITDA as a proportion of its revenues, an upward trajectory places América Móvil’s margin at 41.1 percent, a level close to the one it reached when it was declared as AEP-T and 11.6 percentage points higher than the average of its competitors. The high market concentration and the lack of enough competition in the telecommunications sector have resulted in extraordinary profits for the AEP-T, which allows it to continue with significant advantages, including in spectrum ownership, infrastructure development and exclusivity agreements with equipment vendors. Almost a decade after the definition and application of the preponderance regulatory framework, little progress has been made in achieving its objectives; on the contrary, it has caused losses in competition. This is due to the noncompliance and ineffectiveness of the asymmetric measures aimed at leveling the playing field. Hence, the need for the IFT to apply additional mechanisms to accelerate effective competition.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor
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