Can you hear me now? Mexico proposes new telecom laws

The reform would open the Mexican telecommunications market to greater foreign investment.

Alexandre Meneghini/AP
Mexico's President Enrique Peña Nieto (c.) waves to the public after an event to sign an agreement with the three major political parties that would create two new national television channels and form a powerful independent regulatory commission along the lines of the US Federal Communications Commission, at the Technological Museum in Mexico City, Monday.

The Mexican government is taking aim at the system that enriched the country’s billionaires with a proposed reform of its telecommunications industry.

Backed by all three major political parties and President Enrique Peña Nieto, the reform would open the telecommunications market to greater foreign investment, create two new all-access television channels, and subject companies to tougher competition rules – all with an eye on providing Mexican consumers with more choice and lower prices when it comes to phone and television services.

Carlos Slim’s América Móvil dominates landlines and cellular phone service in Mexico through his companies Telmex and Telcel, which respectively claim 80 percent and 70 percent of those markets. Mr. Slim has ranked as the world’s richest person on Forbes’ list for four years running.

In television, Mexico's two free channels split local audiences, Emilio Azcárraga’s Televisa with 70 percent of viewers and Ricardo Salinas’ TV Azteca with the rest. Together they control roughly 90 percent of the television advertising market. They’re competitors but partners, too: Televisa and TV Azteca each own half of cellular phone provider Iusacell.

Those three – América Móvil, Televisa, and TV Azteca – have managed to derail many attempts at reform over the years with effective lobbying and legal challenges. But in a show of unity on the issue, political leaders of all stripes unveiled the proposal together on Monday.

“The bad reputations the companies have generated for exploiting their dominant power for their own benefit has allowed all political parties to come together,” says Eduardo Garcia, editor-in-chief of the business news website Sentido Común. “In principle, it looks very positive for the Mexican economy – and not very positive for the companies involved.”

'Sharper teeth'

If approved by legislators, the reform will dismantle the current – largely ineffective – regulatory structure that has one independent agency reviewing cases and recommending fines, and another government ministry – subject to political whims – rarely imposing them. The result of this divided responsibility is regulatory gridlock.

The top phone and television companies are “known for their excellent law firms,” says Alexander Elbittar, economist and telecommunications expert at CIDE, a public university in Mexico City. “They’re dedicated to protecting themselves with the amparo,” a legal shelter or injunction.

The reform sets up a new regulatory agency that would ostensibly have sharper teeth, including the ability to levy sanctions, impose additional regulations on dominant players, and limit market concentration nationally and regionally. New specialized courts would be led by judges with expertise in competition and telecommunications law.

“If you are going to create the potential for liberalized industry, you have to have somebody to enforce the provisions,” says Eric Farnsworth, vice president Council of Americas in Washington DC. “The regulator has to be impartial and insulated from political pressures to the extent possible.”

Mexicans may not immediately see more options in areas like landline phone service, where growth is slow and potential competitors may still be wary to take on Telmex, Mr. Farnsworth says. But the reform may well open the door to “new services that we take for granted in the US – broadband, clearly,” Fransworth says.

'Bring on the competition'

In Mexico, where the digital divide is especially wide; better, cheaper access to broadband Internet could be one important benefit to consumers. The reform would even declare broadband access as a basic constitutional right. Many Mexicans would also welcome additional competition in phone service; although prices have come down somewhat in recent years, because companies offer benefits for "in-network" calling, Telcel's wide grip on the market makes it difficult, and expensive, to switch to competitors.

América Móvil told Bloomberg in a statement that it supports the sector’s opening up to foreign investment. (Mexican law currently only allows 49 percent ownership by a foreign company of phone or cable assets.)

“We compete in 18 countries where we benefit from this type of policy of openness to investment, and we’ve always supported such openness,” an América Móvil spokesperson said by email.

Televisa’s Mr. Azcarraga appeared similarly open minded. The billionaire tweeted, “The #ReformaTelecomunicaciones has been presented. Time for big challenges and also opportunities. Bring on the competition.”

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