Focus: ICT

Terra Incognito

Terra Incognito

Jul. 14, 2013

The telecoms sector's contribution to GDP has increased steadily over the last decade, from 1.5% in 2000 to just over 3% at the end of 2012. The sector has been underlined by high consumer prices due to a lack of competition in recent years, an issue that President Peña Nieto took only a few months to challenge. Signed into law in June 2013, the reform package aims to end the dominance of Telmex and Telcel, the dominant fixed and mobile operators, as well as that of television broadcasters Televisa and TV Azteca.

According to BuddeComm, the mobile penetration rate will stand at 94% by end-2013, while the fixed-line rate will be 18.7%—América Móvil's Telmex has a 70% share of the mobile market and an 80% share of fixed-line connections. Telmex also dominates the fixed broadband segment, the penetration rate of which is just over 12%.

In IT terms, Mexico is now the world's largest provider of services after India, China, and the Philippines, with exports worth over $3.75 billion a year, according to the Mexican Electronics Telecommunications and Information Technologies Industries Chamber (CANIETI).

REFORM

President Peña Nieto's new telecoms reform signals a significant change for the landscape of Mexico's ICT industry, and was signed into law in June 2013. América Móvil, which has operations in 19 countries, now stands to face increased competition in the mobile segment, where it is present with Telcel, and in the fixed-line telephony and broadband segment, where it is present with Telmex. The reform also targets broadcasters Televisa, which has a 70% market share of the television market, and TV Azteca, which has a share of just under 30%. According to the new measures, foreign companies are allowed to own 100% of a telephony firm, up from 49%. Additionally, foreign companies can now hold 49% of radio and television broadcasters, up from 0%. The changes are expected to revolutionize the mobile and fixed-line segments, as well as television, by promoting fiercer competition—a move that it is hoped will reflect positively on user spending. The reform package also establishes two new regulatory bodies, including Ifetel and the Federal Commission on Economic Competition. Ifetel has the power to dissolve monopolies, issue and revoke licenses, and oversee the creation of two new private television networks and one, not-for-profit broadcaster along the lines of the BBC. The Federal Commission on Economic Competition, on the other hand, is tasked with investigating and combatting monopolies in order to promote an efficient market.

MOBILE & FIXED

With a penetration rate that is expected to rise to 94% by end-2013, up from 79% in 2010, there is still room to maneuver in mobile telephony expansion. Telcel, owned by Carlos Slim's América Móvil, dominates the sector with a 70% market share. Its main competitors are Telefónica, which operates the Movistar brand in Mexico and has a 20% market share, and lusacell, with a 5% share. The mobile segment represents 57% of total telecoms revenue in Mexico, and was worth $4.38 billion in 1Q2012.

The fixed-line sector lies far behind mobile, with a penetration rate approaching 19% predicted by end-2013, up from 17.3% in 2010. Telmex dominates the sector with an 80% market share, and has been unable to expand in rural areas that have proven unprofitable for other operators. Axtel, headquartered in Monterrey, is Telmex's main competitor in the fixed-line segment, with 1 million subscribers out of a total 20 million.

INTERNET & TV

With over 70 million internet users, Mexico has huge potential for the expansion of broadband service. Although growing quickly, there were only 11.87 million fixed-broadband subscribers in 2010, a figure set to grow to just over 14 million by end-2013, according to BuddeCom. While one of the fastest growing sectors in the telecoms market, growth in fixed broadband is being outstripped by growth in mobile broadband. In 2010, there were just 2.7 million users of mobile broadband, a figure that will have grown to 14.6 million by end-2013, passing the number of fixed connections. Telmex accounts for the largest portion of broadband customers, although cable television providers, including Megacable, Cablemás, and Cablevision, have begun to claim larger shares of the broadband sector through the introduction of bundled services for cable television, broadband internet, and fixed-line telephony. Increased competition in the internet service provider sector would also be welcome, given the country's high prices and relatively low penetration—broadband penetration is less than half the OECD average, while prices are some of the highest among member states.

The reforms are also expected to enliven the broadcasting sector—there are currently six major television networks, four of which are owned by Televisa and two of which are owned by TV Azteca. The country is also preparing for the digital switchover, with Tijuana first in line for the change. “Several border cities will follow Tijuana, and by December 2015 the entire country will have switched to digital television," said Mony de Swaan, President of Cofetel. “Such steps are aimed at increasing competition in the industry," he concluded.

SATELLITES

Mexico currently has two satellites in orbit, one of which was launched in mid-2013. A third is also set to be launched in 2014, establishing a trio that will provide services for mobile telephony. Telecomm Telégrafos is the designated operator of government satellites in Mexico and plans to extend communications services across the country. For Telecomm Telégrafos, the satellites are an opportunity to expand additional services to rural areas lacking the right communications infrastructure.

Satélites Mexicanos (SATMEX) is a developer of satellites in Mexico, and has pioneered new technology with Boeing and SpaceX. The development of an electric-propulsion system means future satellites will be up to two tons lighter than average satellites, reducing the cost of launch by up to 50%—SATMEX 8 was launched in March 2013 at a cost of $320 million, while future satellites will cost much less at “approximately $165 million," according to CEO Patricio E. Northland.

President Peña Nieto's reforms will also provide a boost to the satellites sector, according to Northland. “FDI will be allowed for up to 100% participation in the telecommunications markets, including satellite operators. In this regard, the business expectations in the broadcasting and telecommunications markets could result in an important opportunity for new market entrants and new market consolidation," he noted, meaning that the amendment “becomes relevant as new potential shareholders may become interested in investing in the company."

IT

Mexico has become a popular destination for nearshoring in recent years, with its business outsourcing companies lapping up business as US firms relocate call centers and technical consultancies away from markets such as India and the Philippines. The government is keen to show the more innovative side of the Mexican IT sector, however, which is valued in excess of $15 billion a year.

According to ProMéxico, there are 2,500 companies engaged in IT-related activities and 600,000 people are employed in the sector, 400,000 of who specialize in software. Strong academic focus on IT and innovation means that 65,000 people enter the sector a year. Coupled with Mexico's free trade agreements (FTAs) encompassing 44 nations with access to almost 1 billion potential consumers around the world, the country is beginning to position itself as an IT hub in the region.

Companies in the sector are focused on software development, back office solutions, data centers, distance maintenance, online businesses and e-commerce, as well as various other B2B, B2E, and B2C programs, as well as call center services and technical consultancy.

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