Home Latin America IV 1999 Opening the Telecommunications Market: The Mexican Experience

Opening the Telecommunications Market: The Mexican Experience

by david.nunes
Jorge Nicolin Issue: Latin America IV 1999
Article no.: 7
Topic: Opening the Telecommunications Market: The Mexican Experience
Author: Jorge Nicolin
Title: Chairman
Organisation: Mexican Federal Telecommunications Commission, Mexico
PDF size: 24KB

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Article abstract

Mexico’s need to provide adequate telecommunications services to its population has long been evident to the country’s planners. The process of liberalizing the country’s telecommunications began in 1990 with the revision of the telephone concessions to reflect the social obligations inherent in the service. The introduction of competition and the Federal Telecommunications Laws were other landmark events in the history of Mexico’s telecommunications sector. Although great progress has been made, many believe there is a need to extend the charter of Mexico’s Federal Telecommunications Commission (COFETEL), to grant it a greater degree of autonomy, to ensure that the goal of universalization of basic telephone services is achieved.

Full Article

The telecommunications industry has reached a point of technological development that can only be fully exploited when each and every individual of the world has access to one or many forms of telecommunication. The worldwide strategy for the development of telecommunications is to open the telecom sector to competition and private investment. This key strategy will allow greater supply of services, at better prices to a broader spectrum of people. The universal service goal is crucial. From a global perspective the only countries that are close to reaching this goal are the highly developed countries. The remaining countries, in many cases, lack the basic coverage and penetration of basic telecommunication infrastructure. When we understand this, we see that the challenge is to provide access in countries that lack the resources and lack a fully deployed infrastructure where Mexico is not an exception. The country lacks the coverage and penetration of telecom services needed to incorporate every individual in the global information society. Unlike developed countries, but similar to many developing countries, Mexico faces this important economic challenge: how much of the national budget can be devoted to develop the telecom sector? In a developing country where areas such as health, education, nutrition and shelter are a priority, telecommunications may become secondary. Even if the government was willing to deploy infrastructure and provide telecom services, it wouldn’t be enough to achieve coverage goals. In light of the above, in 1989, the Mexican Government decided to open this strategic sector to competition and private investment, following international trends and recommendations. In many countries, including Mexico, telecom services long remained a monopoly and, most frequently, a state-monopoly. To implement the liberalization strategy the government needed to deal with two issues: to privatise and foster competition. In 1990 the “concession title” of the incumbent carrier was modified. This regulatory instrument incorporated a calendar and mechanisms to switch from a monopoly to a competitive market. This modified version of the concession title was the first, ever, asymmetric instrument of regulation for the dominant carrier. It included concrete obligations aimed at the expansion and modernization of the network, the improvement of service quality, the establishment of a basis for healthy competition, the elimination of cross-subsidies between services and the fostering of productivity gains to reduce rates to the end user. With the privatization of the incumbent carrier and the opening to competition of all telecommunication services, the country started the liberalization process. However, the legal framework needed to be updated to reflect and regulate the industry’s new reality. Accordingly, a proposal for a new Federal Telecommunications Law was sent to Congress. The Federal Telecommunications Law (FTL) was approved on May 18, 1995, and became effective on June 8, 1995. This new law promotes market mechanisms for the allocation of scarce resources, such as the spectrum and orbital slots, and includes the goal of promoting competition among providers, to benefit users through better services, diversity and quality. One of the key features of this new law is that it mandates interconnection with the incumbent’s network. In the event of failure to negotiate interconnection terms and conditions the government’s designated authorities may settle the terms and conditions of issues in dispute. This new law makes the procedures to grant concessions transparent and non-discriminatory and it provides legal certainty to investors. Another key feature of the FTL is the creation of a new regulatory agency. The FTL establishes the institutional basis for the regulation of the telecommunications sector, by creating the Federal’ Telecommunications Commission (COFETEL). The new autonomous agency was founded on August 9, 1996. COFETEL has been delegated many of the powers exercised by the Ministry of Communications and Transportation under the FTL. These include, the power to issue opinions on new concessions and permits, resolve interconnection disputes, issue asymmetric regulation for dominant carriers, and the power to call for and conduct bidding procedures for frequency allocation. However, law enforcement and license granting still remain within the Ministry’s powers. As a result of the implementation of the liberalization strategy, the telecommunications sector in Mexico has grown rapidly. In the last 9 years this sector has grown 5 times faster than the economy as a whole. The number of fixed line telephones has grown from 6.4 million installed lines in 1990 to 10.8 million installed lines in mid-1999. Carriers have deployed a 70 thousand kilometres-long optic fibre network, most of which is digitalized. There are still many challenges that have to be confronted but we have to always keep in mind that the ultimate goal of every regulator is to achieve universal access. In support of its general strategy to accomplish this goal, the Mexican Government has taken steps to open local telephone service to competition and foster rural telephony programs. The telephone infrastructure in Mexico was built using cabled networks. This took many years and a very substantial volume of resources, but even this was not enough to provide access to every single individual. The developments of wireless technologies like Wireless Local Loop (WLL) and Personal Communications Systems (PCS) represent a great alternative for the deployment of telecom infrastructure in developing countries. Actually, this constitutes a technological opportunity for developing countries since they can deploy network infrastructure much faster and more inexpensively than if it were cabled. Also, these new technologies are effective for the deployment of cabled services in many countries that have complex topography. Bearing this in mind, in 1997, several frequencies were auctioned in order to allow for wireless local and mobile telephony. With these auctions, the Mexican Government intends to foster competition in local telephony and increase the telephone density. The main results of this strategy are already a reality in the northern cities of the country; WLL systems have been implemented with a high degree of consumer acceptance. PCS auction winners have also begun mobile service operation in 4 of Mexico’s cities and soon will be providing fixed services. There are different levels of profitability, depending on the type of consumer for which the lines are installed. For instance, commercial lines tend to be highly profitable, but the profitability of residential lines depends on the income level of its users. In order for global service to be profitable, there are two alternatives: increase the public tariff or increase interconnection rates. Following same idea, differentiatedinterconnection rates depend upon the type of carrier. For instance, a carrier that has social commitments incorporated in its concession title, receives a higher percentage of interconnection income than one that only provides lines in highly profitable areas or one that does not have any obligatory social commitments. There is also concern about providing telecom services in rural communities. To do so, the Government is working with various carriers through programmes that contemplate direct subsidies in order to make these projects profitable. The rural telephony program aims at providing basic telephone services to isolated communities using wireless technologies such as satellite, cellular and trunking. With these programs we are currently providing service in more than 27 thousand communities, with populations between 100 and 500 inhabitants, throughout the country. The Government needs to create a level playing field in the telecommunications industry. The first step that was taken after the privatisation of the state-owned telephone company was to incorporate a set of obligations through modifications of the incumbent’s concession title in 1990. As has been seen, this was not enough. Currently, the regulator is studying the possibility of putting together a set of rules that will apply only to the carrier or carriers that have considerable market power in a given service or services. These rules will establish additional requirements for tariff establishment, information provision and quality of service. Despite the fact that the Mexican regulator is an autonomous body, strengthening the independence of the regulator is crucial. At least three concepts must be guaranteed for real independence: the separation of regulatory and operational functions, freedom from direct political pressure and fair and transparent procedures. In Mexico we are working hard in order to get the regulator this autonomy, but there are still many steps that have to be taken in order to achieve this degree of independence. There are other things we have to consider. Understanding the trends of the telecom industry helps regulators avoid implementing measures that inhibit the development of the industry. This is especially important if we consider the speed in which the developments of new technologies arise, and the impact they have on the way this business is conducted. This sector changes so rapidly that the regulator should be able to act accordingly. When promoting competition, regulators often lose sight of the ultimate reason of the liberalization strategy. Competition in itself is not a guarantee that the universal coverage and better service goals will be met. Competition for competition’s sake should not be furthered by regulators. Instead, regulators should rather seek a customer-driven provision of services environment. A new environment is needed where the majority of the population receives the benefits of the new strategy. This maximizes the population welfare either by providing better services or lower prices than before, or both. Regulators, then, should always bear in mind that the main objectives are to increase coverage and to make sure that the population receives more and better services. The liberalization and competition policies are only means to achieve such goals. A consumer driven environment, where consumers have a real choice, requires a wide range of suppliers of telecom services. That is why fostering competition is so important. Finally, regulators need to guarantee that the right of telecommunications services access is not just desirable, but also enforceable; in a normative dimension this right is created out of beliefs about goodness, but it still needs to have a positivist dimension for the actual determination of justice. For this reason, a regulatory “bill of rights” for telecommunications services is needed, one that, at least, guarantees all an equal opportunity to obtain affordable basic local telephone service. Conclusion However, we should not only aim at providing a basic local telephone service. Convergence in the telecommunications sector obliges us to design the bill of rights in such a way that, in the near future, people may have the right of accessing comprehensive telecommunications services. The bill of rights should include as core principles applicable to all telecommunications users and providers: access, connectivity, affordability, non-discrimination and security. It is quite encouraging to observe that all telecom services in Mexico are now fully competitive and have a high growth rate. However, Mexico is still lagging behind in teledensity. At COFETEL we will continue to foster competition in order to provide not only basic telephony services to the population, but also comprehensive telecommunication services. To undertake this strategy involves a complex regulatory process. Concrete actions must follow to further competition and increase coverage, to include additional asymmetric regulation for the dominant carrier and strengthen COFETEL’s autonomy. In COFETEL we are certain that the liberalization strategy is appropriate. We are convinced that, as competition develops, telecommunications service density in Mexico will improve.

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