The high cost of telecommunications services in Mexico has been a historic drag on the country’s economic growth.
Last year, the government of president Enrique Peña Nieto proved itself adept at bridging party divisions and passing reforms in several critical areas of the nation’s economy. Most often discussed by both government and business leaders were reforms in the areas of taxation and energy sector policy. Both were passed and are now being implemented with the goal of growing Mexico’s economy over the medium and long-terms. Reforms that made a lesser media splash that were achieved during the last calendar year included changes to the country’s educational system and its Customs Service. Mexican telecommunications reform was also enacted, and, like the other reforms that have passed and are being instituted, a shake up of the Mexico’s telecommunications sectorwill have a positive implications for the nation’s growth going forward.
In 2012, the Organization for Economic Cooperation and Development (OECD) issued a report that concluded that, “the lack of telecommunication competition in Mexico has led to inefficient telecommunications markets that impose significant costs onn the Mexican economy and burden the welfare of its population.” At that time, it was estimated that Mexican businesses, as well as the public at large, was being overcharged in excess of thirteen billion dollars a year. The multiplier effect of this overcharge imposed a total cost burden of in the vicinity of twenty five billion dollars on the Mexican economy as a whole. This sum is equal to about two percent of Mexico’s GDP. These statistics provided the impetus needed for the Peña Nieto administration to make Mexican telecommunications reform as one of its goals.
The market for telecommunications services in Mexico has historically been tightly controlled by government in terms of limited opportunities for investment by foreign capital, and has been the domain of very few domestic players. Today, a sole company controls of the lion’s share of the market for telecommunications services. America Movil, headed by one of the world’s wealthiest individuals, Carlos Slim, dominates eighty percent of the country’s landline phone market and seventy percent of wireless communications. The high degree of monopolization of the sector has resulted in high prices for consumers, both business and individual, and in poor infrastructure development. Due to the importance of telecommunications as it relates to economic growth, this state of affairs is creating a drag on Mexico’s ability to grow its economy. Hence, Mexican telecommunications reform made it to the list of the Peña Nieto administration’s top priorities.
Movement towards achieving Mexican telecommunications reform gained steam in February of 2013, when legislators from the country’s three major political parties, the PRI, PAN and PRD, began to work on details of the telecommunications reform bill. The bill passed the lower house and was moved to the Mexican Senate for approval. This happened on June 11, 2013. The bill made it to the president’s desk and was then signed into law on July 14, 2013. As a result, the Federal Institute of Telecommunications (FIT) was formed to oversee the implementation of legislation. FIT was formed as an autonomous body of seven regulators. A major goal of Mexican telecommunications reform is to open the market so that no one company controls more than fifty percent market share.
During the summer of 2014, Carlos Slim and America Movil, announced that it would sell a portion of the company in order to meet the government’s less than fifty percent ownership threshold. At about the same time AT&T divested its shares of America Movil. This has led to speculation that the former is poised to become a significant participant in the Mexican telecommunications market.
As the market gradually becomes more decentralized it is expected that prices for both business users and individuals will drop, and service will become better. Although Mexico’s economy is the second largest in Latin America, it has some of the lowest broadband speeds among OECD countries, as well as some of the highest prices. The Peña Nieto government expects that the recent Mexican telecommunications reform will remedy this situation by attracting twenty-three billion dollars of new investment to the sector over the course of the next five years. Although reform in this sector is lower profile than others such as the Mexican energy reform, changes in the status quo in this important area will facilitate and expedite Mexico’s economc rise.