Legislators from the three major parties—PRI, PAN and PRD—are working on the final details of a telecommunications reform bill that will be introduced as early as next week in the Lower House. The bill is poised to be the central legislative issue of the spring congressional session.
Given the large vested interests at stake, legislators have remained especially quiet regarding the specific components of the reform. The secretiveness of the negotiations has given room to a great deal of speculation regarding the bill’s components as well as its overall impact.
Nevertheless, there are signs that the upcoming bill may be more comprehensive and meaningful than originally thought. The Mexican Congress is in the process of limiting a bizarre Mexican legal remedy known as Ley de Amparo (Constitutional Protection Law), which is often abused by large corporations, particularly in the telecom sector, to challenge government laws and regulations. If these changes to the Constitutional Protection Law are approved, there is a greater chance that the upcoming reform will go into effect quickly and produce significant changes to this monopolized sector.
At the same time, one should not underestimate the “green influence” of Mexico’s telecom and media players, namely Telmex (Owned by America Movil) and Televisa, on individual legislators. In recent years, these companies have effectively neutralized all attempts by the government to reform the status quo, which disproportionately benefits them. As Mexico’s largest media conglomerate, Televisa holds especially strong political power, regularly making and breaking political careers to secure its interests.
The State of Telecom in Mexico
Mexico’s telecommunication sector, which includes telephony, Internet and television, has been highly monopolized since its inception in the early 20th century, with some sub-sectors having been only recently privatized.
The highly concentrated nature of Mexico’s telecom sector has translated into disproportionately high prices for users, poor infrastructure development, ineffective regulation and concerns of political corruption between telecom giants and the government.
Meanwhile, Televisa, Mexico’s largest television company has used its near monopoly over the country’s news media content to hold large segments of the political class captive to its interests. Last year’s accusations against Televisa of supporting Enrique Peña Nieto’s presidential campaign embody the public’s lack of trust in Televisa.
An Evolving and Increasingly Important Sector
As instantaneous horizontal information sharing dominates the way people do business and consume products, telecommunications have become increasingly important in people’s day-to-day lives. Despite high prices and poor service, Mexicans are flocking to the Internet, cell phones and other new telecom services. The number of Mexican Internet users has skyrocketed from under 5% of the population in 2000 to roughly a third in 2012; the number of cellphone users has experienced similar explosive growth in recent years.
At the same time, the way telecom services are offered is rapidly evolving toward multi-service bundles—fixed-line, television and Internet, leading to a convergence among companies that were once completely separate. While product bundling has generated cheaper alternatives for users, these “triple-play” packages run the risk of fomenting even more monopolistic behavior among service providers.
Meanwhile, the high barriers to entry and capital costs to invest in telecom mean that even if the government provides room for more players to compete in this area, healthy competition will still be hard to achieve. The lack of beneficial competition has led to subpar service; Mexico has one of the slowest broadband Internet speeds in the OECD yet its prices are among the highest. Moreover, the government’s own restrictions on foreign investment in certain telecom sectors have only amplified these negative effects.
Previous Telecom Reform Efforts
Recent telecommunications laws have failed to deliver dramatic change to the entrenched monopolistic nature of Mexico’s telecom sector. One of the main problems is that different telecom sub-sectors are governed by different laws. Television and radio are principally governed by the Federal Radio and Television law of 1960 while telephony, mobile services and Internet are largely governed by the Federal Telecommunications Law of 1995.
Television and Radio
The Federal Radio and Television Law of 1960 sets up the basic framework for use of broadcast television and radio frequencies but does not clearly address digital television and other new technologies in this sector. The law also does not delineate how the government assigns and reclaims frequency bands.
To address these problems, Congress passed a highly controversial law known as the “Televisa Law” shortly before the 2006 election. The Televisa Law sought to reform the way the government licensed analog frequency bands as well as digital broadcast spectrum. It deregulated the licensing of digital frequencies, effectively allowing Televisa and TV Azteca to keep the frequency bands they already owned for free. The law also radically changed the licensing system of new frequency bands from a bid-review system to an auction-like process, effectively giving the most powerful actors (Televisa and TV Azteca) an overwhelming advantage in the acquisition of digital spectrum.
Following the bill’s approval, public outcry began to surge and various legislators stated that Televisa had pressured them to approve the bill, with some even receiving threats against their electoral campaigns. The Televisa Law was quickly challenged in court and in 2007 the Supreme Court effectively struck down the law, delivering a blow to vested television interests but also creating confusion as to how the government would license frequency bands in the future. Since then, legislative attempts to resolve this inefficiency have not been successful, partly because of the unrelenting pressure from Televisa and TV Azteca to maintain the status quo.
Telephony, Internet and Mobile
These telecom sub-sectors are largely regulated by the Federal Telecommunications Law of 1995. This law privatized the satellite communications sector, reorganized the Ministry of Telecom and Transportation (SCT) and allowed 49% foreign ownership of telecom sectors, excluding mobile services, which can go beyond 49%. This law was supposed to foment healthy completion in the fixed and mobile phone market but has largely failed to do so.
Telmex, which owns the overwhelming majority of Mexico’s telecom infrastructure, continues to charge exorbitant rates for competitors to use their networks and for competitors’ users to make calls to Telmex users. In light of the 1995 law’s inability to infuse healthy competition into the phone market, the PAN introduced new legislation to address these issues. This bill was ultimately killed in Congress, but it has since served as a model for possible future reforms, including the one being currently discussed.
Issues that Need to Be Addressed
The upcoming telecom law needs to address a slew of issues that remain unsolved. Chief among these is a general attempt to bring the telecom and media (TV) sectors under the same umbrella legislation. From there, the law needs to address the effectiveness of Mexico’s telecom regulatory agency (Cofetel), which is seen as overly weak and is regularly held captive to the interests of telecom conglomerates. Recent failed legislation has proposed eliminating the Cofetel completely and replacing it with a more encompassing and independent telecommunications institute.
Regardless of the Cofetel’s fate, the new legislation will have to tackle the divisive issue of frequency band allocations. Lawmakers have been struggling to license a third nationally broadcast television channel for years, but the current regulations regarding how this process is to be carried have been challenged many times, leading to delays. Similarly, legislators need to consider new sanctions and increased fines for telecom companies that participate in oligopolistic practices or violate other telecom laws. Possible restrictions to consider include revocation of frequency allocations and non-negotiable fines.
Another important issue is whether or not to eliminate the caps on foreign investment in certain telecom sectors, principally the fixed-line market. Previous legislation has tried to remove these caps on foreign investment but has hinged it on reciprocity from other countries. This has led to an effective stalemate with other countries that do not want excess foreign ownership of their telecom sectors.
Likely Components of the Bill
Likely components of the upcoming telecom law include:
(1) Auctioning new nationally broadcast television channels to two new companies. Televisa and TV Azteca would be excluded from the auctioning of these new television frequency bands;
(2) Creating a government-run television company similar to the BBC to operate at least one nationally broadcast television channel;
(3) Creating a new and independent regulatory body that is above the Cofetel and maybe replaces Cofetel. This new body would serve as the court of last resort for the telecom sector;
(4) Fomenting more competition in the broadband spectrum (voice, data and images) among mobile service providers. This includes opening new opportunities for companies to build more modern broadband infrastructure;
(5) Making public access to broadband a constitutional right;
(6) Increase regulation on monopolistic companies in the telephone sector (read Telmex). This includes regulating fees that these companies charge other companies for use of their networks.
Ahead of the unveiling of telecom reform, various parties have stated that there is widespread support for the creation of two new television powers. In theory, this could radically alter the near monopoly that Televisa has over television and televised news content.
Although the upcoming telecom reform seems poised to be more far-reaching than any similar bill in recent memory, critics have begun to call the deal a sham. Some point to an implicit deal between Telmex and the government to grant the company one of the new television spots in exchange for concessions in the telephone sector. Slim’s recent acquisition of broadcast media rights and certain Mexican soccer teams is seen as an attempt to buy content for his new television channel.
Conversely, Televisa is poised to benefit the most from increased competition in telephony. Last year it bought half of the small mobile phone company, Iusacell. Many columnists predict that the reform will actually strengthen Televisa and Telmex by allowing these companies to foray into each other’s dominant sectors and control the market as a whole. One component that could disrupt this very possible scenario is eliminating restrictions on foreign investment in the telecom sector as a whole.
Although there seems to be strong momentum backing telecom reform, individual legislators may succumb to “incentives” offered by the aforementioned dominant players. Even if a far-reaching law is passed, these companies will likely seek new ways to circumvent the beefed-up regulator agencies.
3 Responses to “Telecom Reform in Mexico: Current State and Issues to Address”
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The situation is very much the same anywhere you go. There's just a few big companies dominating a big market and most of the time, they also tend to "fix" rates to their advantage.
Thank you for the informative post on attempts to increase competition in Mexican telecom. Skeptics have pointed out that in the past Mexico has passed laws but has not imlemented them completely. Will this also happen with telecom reform.? I hope you will have a posting on the proposed reform of the Pemex monopoly in oil. It could be a major reform, but it faces strong opposition.