Mar. 24, 2015

Francisco Gil Díaz


Francisco Gil Díaz

President, Telefónica Mexico

"Perhaps one of the most important reforms concerns allowing foreign firms full ownership of a fixed line operator."


Born in Mexico City in 1943, Francisco Gil Díaz graduated in Economics from the Instituto Tecnologico Autonomo de Mexico and has an MA and PhD in Economics from the University of Chicago. His professional career has combined academic work with stints in the public and private sectors. In the latter he served as President and CEO of AVANTEL, and since 2007 as President of Telefonica. In the Treasury Department his career began as General Director of Fiscal Planning and continued as General Director of Revenue, the Undersecretary of Revenue, and finally, from December 2000 until November 2006, as Treasury Secretary.

Can you describe Telefónica's growth trajectory over the past year?

The year was successful; we increased our customer base to above 23 million. We also raised our revenues in addition to meeting all our goals in compliance with our commitments to our Madrid headquarters.

Telefónica saw its customer base increase in the last quarter compared to other companies such as América Móvil. To what degree is the appointment of your new CEO Carlos Morales linked to an increase in customers?

Carlos Morales has motivated and organized the team and contributed to improving the distribution network. His initiative and strategic measures have proven him to be an excellent CEO. His role was key in achieving the turnaround of our operations.

“Perhaps one of the most important reforms concerns allowing foreign firms full ownership of a fixed line operator."

By 2015 Telefónica will have network coverage of 70% with over 23 million customers in the country, and the company has invested in a new LTE network. How will the new network improve your services?

Perhaps one of the key elements of our marketing efforts this year is to take advantage of the implementation our LTE (4G) coverage. To begin with we are concentrating on the three largest cities in order to improve our customer base in the post-paid market. Then LTE will be deployed further. The speed of our LTE is comparably faster than that of other service providers. In a comparison published in the local press, our LTE speed turned out to be four or five times faster when compared to other popular providers. If the consumer's interest is in data, LTE is key and Telefónica is their best option.

What steps should be taken to increase Telefónica's penetration rate?

We have to increase the percentage of smart phones in our customer base; it is rising quickly, but we have to move faster. The opportunity comes from a high turnover in handsets, which is the result of short battery lives. Handsets are, on average, renewed every year and a half. The fact that more smartphones will be available at lower prices is an opportunity because more customers will be able to enjoy broadband services. Penetration rates are already increasing naturally and will continue to do so.

What is your short-term outlook on the sector and on the impact of telecommunications reform?

Perhaps one of the most important reforms concerns allowing foreign firms full ownership of a fixed line operator. There have been many key constitutional reforms involving our sector, but this one stands out because it will allow companies like AT&T to invest in urban fiber to provide television and voice services. If other, more financially limited firms, like Usacel and Nextel, recently purchased by AT&T, are able to associate themselves with large foreign firms, they will grow quickly. Another favorable outcome of this particular item of the reform is that in order to be the 100% shareholder of a fixed line service we no longer need rely on a partner. Of course, we are more comfortable with this type of situation. The other reforms concern, for instance, the provision of interconnection points by the incumbent. The Federal Institute of Telecommunications (IFT) has already issued a resolution requiring connection points to allow us fewer interconnection points and at a lower cost. There is also the requirement for the incumbent to share its infrastructure through a partial and so far ineffective provision called terms of reference, but we are still waiting for additional resolutions from the IFT to put ceilings on the prices it can charge for its services. For the first time we have a small degree of asymmetry involving differentials between what we obtain in interconnection rates and what we have to pay. This is important because firms that are not incumbent are those netting on traffic. Asymmetry is essential since we have an infrastructure almost identical to the incumbent's, but a small fraction of total traffic, about 13%, whereby our unit costs are considerably higher than the incumbent's. Although we get net settlements from the incumbent, we are far from seeing in reality what the reform stipulates in letter as interconnection rates have been set with no regard for differences in scale. The fact that we have different sizes means we incur different costs, which is the point of the reform: the IFT needs to establish differential rates. Because this has not happened we have had to go to the courts to demand that the IFT recognize the letter of the constitutional reform. We do expect positive verdicts from the courts. Some IFT resolutions have reflected the letter of the law, but some are questionable. For example, a resolution by the IFT related to portability has inhibited it substantially.

Is the television market appealing for Telefónica?

There was the possibility of a merger with the telecoms component of Televisa, but it was not possible to move forward. If Televisa had purchased Iusacell it would have been possible for us to consider a merger, but the latter entity was sold to AT&T. Currently, a merger with a television company is not in the works, and we have no plans to to do something with DTH. We have to decide where we want to put our limited amount of capital, and so far we have privileged our core business.

What are your expectations for this year?

We plan on increasing our LTE network even further, and currently this is our main emphasis. We are changing the mix of prepaid and postpaid services, and want to move further into the data section of telecommunications. This is where the greatest growth potential lies and where Telefónica is exerting its greatest effort.

© The Business Year - March 2015