Mexico Plans to Boost Wireless Competition with new $10 billion USD Broadband Network

New $10 Billion Open Network Would Provide Alternative to Telcel, Owned by Mexican billionaire Carlos Slim.

President Enrique Peña Nieto has trumpeted the new Mexico City airport as the signature infrastructure project of his administration, but another equally costly and ambitious venture has gone practically unnoticed.

The planned construction of a $10 billion broadband network, with more than 20,000 antennas, could give companies interested in providing mobile-communications service here an alternative to Mexico’s dominant carrier, Telcel, which is owned by tycoon Carlos Slim .

The project is a key part of President Peña’s campaign to boost competition in Mexico’s wireless market, where América Móvil SAB unit Telcel holds a 70% share. Some industry analysts remain skeptical of his plan, which they say is the first of its kind and relies on complex regulation.

Under Mr. Peña’s overhaul plan, the new network would be run as an independent “carrier of carriers,” and would be available to any interested mobile-service provider at regulated and nondiscriminatory costs. The government hopes that this will translate in lower mobile-service prices for consumers, and encourage providers to enter the market offering phone, Internet and data services on mobile devices.

José Ignacio Peralta
José Ignacio Peralta, Mexico’s Deputy Communications Minister

“The idea is to build a new Telcel from zero,” said José Ignacio Peralta, Mexico’s deputy communications minister. The network could potentially be used by hundreds of mobile-service providers, but its operator would be barred from providing service directly to consumers to avoid any conflict of interest.

The process to tender a high-quality slot of radio waves that would be exclusively used by the new mobile network is expected to kick off in December.

The government plans to take bids to build the network in February, with the winner to be announced by August, and it is planning for the new network to be deployed by the end of the current administration in 2018.

Some of the top equipment companies in the world are interested in the project. “It’s a very sizable project from an equipment perspective,” said Dimitri Diliani, Latin America chief of Nokia Corp. ’s Nokia Networks, who said he expects between 8,000 and 15,000 cellular communications sites to be installed across Mexico.

Mexican Cellphone user

Alcatel-Lucent SA, Huawei Technologies Co. and Motorola Mobility have also shown interest in providing equipment and have participated in field tests to evaluate the project, according to people from the industry with knowledge of the situation.

Total investment in Mexico’s telecom infrastructure was 69.2 billion pesos (about $5 billion USD) in 2013, and total revenue for the industry was about 430 billion pesos.

Alcatel-Lucent and Motorola declined to comment, while Huawei didn’t respond a request for comment.

The government also has to select an operator for the network, which analysts say could be a large global telecommunications company.

Mexican Cellphone User
Mexican Cellphone User


The new open network will benefit operators that don’t have their own network but want to provide mobile services, according to experts. But it could also be used by current operators that own their networks, such as Mr. Slim’s Telcel or Spain’s Telefónica SA, to gain more spectrum and offer a better service to their clients.

“The shared network is game-changing,” said Mony de Swann, the former head of Mexico’s telecom regulator. “Currently, virtual operators have to beg Telcel for the access to its network. Obviously, Telcel prefers not giving capacity or to ration that capacity at higher prices and at its best interest.”

Telcel declined to comment on the project.

The new infrastructure also opens options for Mexican media companies. “Eventually, we could be interested in becoming virtual mobile operators,” said Felipe Chao, vice president of institutional relations at MVS Comunicaciones, a conglomerate that owns several radio stations and cable TV channels.

Grupo Televisa , the country’s biggest TV broadcaster and pay television provider, is also looking for options for offer mobile service to its 9 million TV subscribers after selling its 50% stake in Iusacell.
Mexico has suffered for decades from a highly concentrated telecommunications market, resulting in higher prices, saturated networks, and the lowest investment per capita among the 34 members of the Organization for Economic Cooperation and Development. For many users, it’s common that calls are dropped or fail to connect.

Mexico has the lowest mobile broadband penetration rate in the OECD, with around 14 subscriptions per 100 inhabitants at the end of 2013, according to data compiled by the OECD. That’s below Chile, which had 36, and the average of 72 for the group.

Mexico’s telecom regulator estimated in a 2013 study that the shared network could lower prices to consumers by 12% to 16%.

But the wholesale network project also entails big risks. There is no real experience of the economic impact of a shared wholesale mobile network, since no country in the world has built one so far, according to economic consultancy firm Frontier Economics. It said that, apart from Mexico, only Russia, Rwanda, Kenya and South Africa are working on similar projects.

Market regulation could also be problematic. Regulated rates would be imposed in order to offer competitive costs for mobile providers interested in using the network, squeezing profit margins for the operator.

“Regulation of prices and services is always a risk,” said Alexis Milo, chief Mexico economist at Deutsche Bank . “If you fix the tariff too low, the project couldn’t be profitable. If you fix it too high, the network won’t be competitive.”

Others say the incumbents may boycott the network. “Telcel or Telefónica could prefer not to use the shared network, and invest in boosting their own capacity. If so, the network wouldn’t likely be profitable, at least until many new virtual operators show up,” said Judith Mariscal, a telecom analyst at Mexico’s CIDE college.

Spain’s Telefónica, Mexico’s second-largest mobile provider, leases space on its network to a number of mobile operators, including Virgin Mobile. Telcel, meanwhile, plans to spin off its towers into a separate company early next year and offer access to third parties.

Another concern is that the network could end up costing the government billions of pesos a year in subsidies, Ms. Mariscal said. Since the operator will be forced to cover almost 100% of the country’s territory, even remote rural areas, it will be state-owned firm Telecomunicaciones de México that will provide the mobile service in areas where there is no interest from private firms.

“We have an enormous challenge ahead,” said Mr. Peralta, the government official. “But if we want to create an environment of competition in which many telecom marketers can prosper, the shared network is essential.”

By Juan Montes (Wall Street Journal)
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