Telecommunications Reform

The President of Mexico, Enrique Peña Nieto, in conjunction with the Board of the Mexico Pact, announced the initiative for the constitutional reform of telecommunications. Peña Nieto stressed that conditions of competition should prevail in telecommunications to promote the nation's development.

In presenting the document, the President said that this reform represents challenges for companies in the sector in order to foment the opportunity to grow, but to do so, he said, there will have to be improved investment rates, as well as improvements in the quality of services.

President Peña Nieto explained by writing in his Twitter account. "Competition," he said, "triggers investment and innovative processes, thereby promoting the economic and social dynamism of nations. Therefore," he continued, "... the telecom is one of the most important areas where conditions of competition should prevail."

The President congratulated the leaders of the main political forces, he said, because the effort went beyond ideological differences. According to President Nieto, "there is a constant that is the best interest of all who work in favor of Mexico. This is one of the major initiatives," he continued, "to democratize productivity and boost the economy. It is also an initiative that was designed and spoken in democracy." Peña Nieto went on to explain: "...it highlights the creation of the Federal Competition Commission, in addition to the Federal Institute of Telecommunications.

EFFECTS

These are the main areas to follow in the constitutional reform initiative:

• The bill proposes the creation of a new Federal Telecommunications Institute (IFTEL), in addition to the Federal Competition Commission (CFCE). Requirements are to be satisfied by a proposed seven-member plenary that the Executive (on choosing a referee board) and the Senate will ratify.This will remove the locks on foreign investment in fixed-line and satellite communications moving it to reach 100% open to foreigners.
• With this reform, up to 49% of foreign investment is permitted in broadcasting and up to 100% in telecommunications and satellite communications
• The IFTEL will concentrate the powers to grant concessions (now that power lies with the Executive) in addition to declare and punish dominances (that role is now held by the Federal Competition Commission).
• The penalties will range from economic to revocation of concessions or divestiture of assets.
• Opening of two new television channels.
• End to the licensees and arrival of the concession service only.

THE ABC OF PEñA NIETO

A: Ensure universal coverage (Asegurar Covertura Universal). The goal is for television services, radio, telephony and data to reach across the country.

B: Good prices (Buenos Precios). Telecommunications should be accessible to all socio-economic levels with internationally competitive rates.

C: Quality of service and content (Calidad en el Servicio y Contenido). Mexicans deserve services that are fast and reliable, as well as a greater diversity of all types' content--not just entertainment.

OTHER VOICES

"Having truly competitive communications could add up to one percentage point of economic growth per year," said Luis Videgaray, the Secretary of Finance and Public Credit.

The Minister of Economy, Ildefonso Guajardo, said that the proposed constitutional amendment to the telecommunications law goes beyond the bidding for two television networks. In fact, he explained, it is one of the main impacts set within the right of Mexicans to have access to new information technologies.

Gerardo Ruiz Esparza, Minister of Telecommunications and Transport for the Federal Government, emphasized that in order to promote the transition of the sector to full competition, conditions are going to be established. Among other things, there are the following measures: "It rises from 49% to 100% of possible involvement of foreign direct investment in telecommunications in the country, including fixed and satellite services. And it goes from zero to 49% in broadcasting that includes television and radio," he pointed out.

"Broadcast dealers, for one thing, should allow broadcasting their entire signal for free and without discrimination. For its part, the pay television licensees must retransmit broadcast signals without cost to their subscribers. Grantees have been declared with substantial power in any telecommunications or broadcasting markets. They may not benefit from this rule of gratuity. Telecommunications dealers can access the local network of the dominant players," Gerardo Ruiz Esparza went on to say.

EFFECTS ON THE TELEVISION MARKET

Mexican and foreign businessmen are rubbing their hands into the business that was always for Televisa and TV Azteca. According to the resolution published in the website of the anti-monopoly body, stars will reach New Mexican television in the coming months. The telecommunications reform passed in mid-May opens the door for new competitors to a dynamic market worth around US$4.00 Billion.

"The reform aroused the interest of many investors," said Antonio Gonzalez, a practicing partner with the Jones Day consul tancy Litigation and International Arbitration Board. This is mentioned by Expansion.

Expansion has confirmed that four American and one Mexican entrepreneur have wanted to enter the business dominated by Televisa and TV Azteca for more than six decades. Some, like Carlos Slim and David Martinez, are interested in pay television. Although the advertising market restricted signal is eight times lower than in the open, in the past seven years it has grown five times faster than this. Although the pay TV competition exists in the open signal, any new entrant will face Televisa. The network of Emilio Azcarraga is almost a third of subscribers who pay in for the Mexican signal.

Others, like Olegario Vazquez and Alejandro Puente, are seeking one of the new broadcast channels that promise the government profit. Mainly looking for the exhibition offers a medium that reaches 95% of Mexican households. The problem is that revenues in this market will grow slightly. "Hardly any more revenue will increase," says Arturo Iluerta, President of the Confederation of the Communication Industry, which brings together 11 organizations related to advertising, marketing, media, design and public relations. It is reported that the amount of advertising in this medium is no more than a third of the total business," he said.

Although these businessmen made their fortunes in different industries, they all have something in common: they own a media company, either in Mexico or abroad. Although only Slim and John Malone, chairman of Liberty Global, have had sufficient resources to compete face-to-face with Televisa and TV Azteca, the real battle will be getting good caliber content that interests Mexicans.

EFFECTS IN OTHER INDUSTRIES

Allowing 100% of foreign investment in telecommunications and 49% in broadcasting is a way to denationalize the spectrum. Despite the two big players in Mexico--Televisa and Telmex--in this way we will soon have at least 10 of the existing corporate giants in the world vying for consumers in areas of phone service, the internet, satellite content and audience.

How long will we have to wait for new players on the AM and FM radio? It is an enigma. If the time to create the Ifetel and a secondary law are met, it probably won't be until the end of 2014, during the year 2015 or even later. Thus, there will be, after almost a quarter century without having been granted, a new lease on commercial radio. This has been very advantageous for the handful of businessmen who have dominated the industry for decades.

With the entry of the constitutional reform of telecommunications into force, there is an opportunity to increase competition through out the entire industry. Radio should not be the exception and should Ifetel launch tenders on par with those provided on commercial television, it will be something supported by market research and established in the same Pact for Mexico's Commitment # 45 reads: The adoption of the measures to promote competition in television, radio, telephone and data services must be simultaneous.

Ifetel will be an organism that may intervene and control the excesses in the phone market and that's a positive. The telephony industry represents the sum total of a domestic market of 101 million users across the country. Mexico has 112 million inhabitants according to the 2010 census. This is the third country in the OECD with the most expensive phone service, and the second in Latin America (behind Chile). Therefore, the new institute may impose sanctions on phone companies (Telmex and Telcel), which control 87% of the fixed telephony market and 70% of mobile phones, respectively.

The reform also requires America Movil to negotiate with a new stateowned company access to the 700 MHz band. This is essential to ensure its expansion. In the short term, Telcel will require a fully functioning 4G network. Only in Mexico City, it should be pointed out, there are more mobile phone users than in some Latin America countries.

CONCLUSION

This reform allows foreign investors to expand their participation in Mexican media companies. In broadcasting participation increases from 0% to 49%; and in satellite television from 49% to 100%. The same thing happens in the case of telephony. Current legislation restricts foreign ownership to 49% and this seems to go against what happens in other democratic countries around the world.