Aug. 14, 2015


Francisco Gil Díaz

Mexico

Francisco Gil Díaz

President, Telefónica Mexico

TBY talks to Francisco Gil Díaz, President of Telefónica Mexico, on recent successes, telecommunications reform, and plans for the year ahead.

BIO

Francisco Gil Díaz graduated in Economics from the Instituto Tecnológico Autónomo de México (ITAM), and has MA and PhD qualifications in Economics from the University of Chicago. His professional career has combined academia with government service and two stints in the private sector, the first as President and CEO of AVANTEL, at the time the 2nd largest telecommunications firm in Mexico and since February 2007, as President of Telefónica for México, the 2nd largest mobile phone operator in the country. Within his academic career, he has taught at ITAM, at the Universidad Iberoamericana, El Colegio de México, and the National Autonomous University of Mexico (UNAM). He has also lectured at the University of Columbia, Harvard, Chicago, UCLA, Miami, San Diego, and the Tribuna Juan de Oñate in Madrid, among others. In Mexico's Treasury Department his career began as General Director of Fiscal Planning, and continued to become General Director of Revenue, the Undersecretary of Revenue and finally from December 2000 the position of Treasury Secretary until November 2006.

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

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

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 biggest 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 by a local newspaper, 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 is your short-term outlook on the sector and on the impact of the telecommunications reform?

Perhaps one of the most important reforms has to do with allowing foreign firms to have full ownership of a fixed-line operator. There were 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 don't have to rely anymore on a partner. Of course, we are more comfortable with this type of situation. The other reforms concern 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 to have fewer interconnection points at a lower cost. There is also the need for the incumbent to share the incumbent's 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 who are not incumbent are the ones 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%. Therefore, our unit costs are considerably higher than the incumbent's. Although we get net settlements from the incumbent, we are far from what the reform requires because interconnection rates have been set with no regard for differences in size. The fact that we have different sizes means we incur different costs, which is the point of the reform: we have to have the IFT 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 expect to see positive verdicts from the courts. Some IFT resolutions have been according to the law, but some are questionable. For example, a resolution by the IFT related to portability has inhibited it substantially.

What are your expectations for 2015?

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

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