REVIEW

On the Go

Revenues are on the up in Mexico’s ICT sector, with expanding penetration rates and a growing number of IT professionals leading the charge.

Mexico has certainly not been resting in developing its ICT sector in recent years, instead encouraging investment that has seen the sector grow year-on-year and increase its revenues, helped along by a burgeoning nearshoring sector.

In 2007, the Mexican government laid the groundwork of the 2007-2012 National Infrastructure Program (NIP), establishing strategies to encourage an increase in coverage, quality, and competitiveness and narrow the digital divide. With an allocation of $25 billion for the 2007-2012 period, it is also hoped that the NIP will boost Mexico’s ICT infrastructure in order to guarantee growth for the sector and generate more jobs. Indeed, increasing private investment is seen as key for the government, which targets an increase in fixed and mobile phone penetration rates of 24 and 78 lines for every 100 inhabitants. At the same time, the authorities are seeking to increase broadband coverage up to 22 users for every 100 inhabitants—especially in rural areas—with the aim of increasing the number of internet users to 70 million, covering well over half of the population.

Over the course of the NIP, the government put significant focus on Mexico’s rural areas, especially those with under-developed ICT infrastructure development with the aim of increasing broadband coverage to increase the number of internet users.

Since 2007 when the NIP was signed, investments in telephone infrastructure have achieved encouraging results, and, by 2009, the number of fixed lines had reached 19.4 million users with a penetration rate of 18 lines per
100 inhabitants. Mobile telephony experienced a comparatively higher rate of growth, with 83.5 million mobile phone users and a sector density of 77 lines per 100 inhabitants. Current broadband indicators also put Mexico ahead of Argentina, Uruguay, and Chile, making the country a key ICT hub in the region.

The Mexican government is also targeting liberalization in the telecoms sector, which is currently dominated by Carlos Slim’s extensive telecoms operations, including América Móvil in the mobile sector, and Telmex in the fixed segment. Initiatives include allowing foreign investors to buy up to 49% in fixed-line telecoms firms, as well as the liberalization of segments of Mexico’s radio spectrum and some 20,000 kilometers of fiber-optic cable. Such efforts are also receiving broader international recognition. According to the World Economic Forum’s (WEF’s) Global Competitiveness Index 2011-2012, Mexico is making good progress in liberalizing the ICT sector and implementing institutional reforms.

In this framework, the forecast for the 2012-2016 period expects Mexico’s ICT spending to grow at a compound annual growth rate (CAGR) of 10.7%, but with strong variation between sectors and regions. Mexico City and its surrounding area account for at least 50% of total ICT spending in the country, but Mexico’s underpenetrated southeast and Pacific regions are expected to offer growth opportunities in the medium term.

It is expected that Mexican ICT spending will grow by about 8% in 2012 to $15.2 billion, while ICT spending per capita is anticipated to rise from $138 to $205 by 2016, driven mainly by local and national government projects that were delayed during the global economic downturn. Cloud computing is also offering growth possibilities, as is the country’s booming nearshoring industry, as Mexican firms look to grab a piece of the pie and US firms look to relocate call center and IT services operations closer to home.

FIXED LINE

Telmex, the fixed-line unit of América Móvil, is the dominant national phone and internet provider. Although TelMex is still the leader in the fixed-line segment, smaller alternative operators have been given room to grow over recent years, including Axtel and Maxcom, claiming subscriber and market share from the leading operator. At the beginning of 2012, Telmex’s profits climbed to 21% as demand from corporate clients helped lessen the impact of customer losses. It is reported that Telmex’s income for the first quarter of 2012 was Ps4.1 billion, Ps72 million more than for the same period in 2011. It registered a total loss of around 1 million fixed-line connections, from 15.5 million in March 2011 to 14.5 million in March 2012, yet its broadband services saw 6.8% growth year-on-year, crossing the 8 million mark by the end of 1Q2012. The growth of broadband also heralded a decline in dial-up connections of around 29%, as customers opted for higher-speed options.

MOBILE

As fixed-line penetration continues its downward trend, Mexico’s mobile-telephony industry is experiencing growth rates of over 20%, with mobile penetration reaching 85%. There are four mobile operators in Mexico, including Telcel (an América Móvil subsidiary), Movistar (a Telefónica subsidiary), Iusacell, and Unefone. Both Telcel and Movistar offer GSM services, while Iusacell and Unefon work with CDMA technology. Along with the major mobile phone operators, Nextel Mexico plays a strategic role in the mobile industry since it obtained the regulator’s approval to send and receive SMS text messages.

Telcel dominates the sector with a 70% market share, with the biggest news of the last 12 months being its announcement that it would reduce interconnection fees after reaching an agreement with a selection of fixed-line and mobile operators. According to Telcel, interconnection fees will be progressively lowered to about Ps0.24 by 2014.

Mobile operators offer both pre-paid and post-paid plans, with contracts typically lasting between 12 and 24 months. Post-paid plans allow customers to enjoy lower call rates, as well as sweetening the deal with varying amounts of free talk time. Mexico is, however, divided into different roaming regions, and travelling throughout the country may result in varying calling rates.

Projections for 2012 forecast the Mexican IT market to stabilize at a value of $5.3 billion and, despite short-term economic exigencies, the market is expected to grow at a CAGR of 11.1% in 2016, reaching a value of $8.1 billion. The sector is somewhat driven by the location of large multinationals to the country, as well as the growing nearshoring sector, which is taking advantage of changes trends in the business process outsourcing (BPO) sector. As US firms look to outsource IT or call center services, as well as relocate operations away from traditional outsourcing destinations such as India, Mexican firms are looking to leverage the country’s growing number of IT graduates to claim a large slice of the growing market.

Provincial and rural areas of Mexico, such as the underpenetrated southeast region, represent a significant growth opportunity for the IT market, where multinational vendors are trying to strengthen their distribution. SMEs are also driving significant growth, as hardware sales look set to reach $7 billion in 2012, with projections suggesting that sales could grow up to $10.2 billion by 2016.