Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
The past few weeks have been intense for Mexico’s telecommunications sector, and the ongoing discussion of proposed reforms to the local regulatory framework have been the main attraction. During this time, I have been privileged to share opinions with colleagues and people directly involved in the discussion. In addition, I have been doing my homework by reading many different and interesting perspectives on what should be modified and/or included in the bill that will finally be approved the legislature.
A couple of weeks ago, I authored an analysis that was distributed by RCR Wireless syndicated partner Signals Telecom News listing some of my concerns about the proposed reforms. For example, much of the ongoing discussion focuses on the impact that the legislation would have on large telecommunications companies. However, there is a tendency in the various discussion forums to forget the impact this reform will have on small CATV operators.
Signals Telecom Consulting expects that many of these small cable companies will disappear as part of a new market configuration that requires operators to offer converged video, voice and broadband. In the current Mexican market scenario, many small cable companies (most of them in rural localities) do not have the necessary capital to upgrade their networks to make them bi-directional; in a sector such as telecommunications, this is a death sentence. The issue here is not if consolidation is good or bad for the market but how consolidation will take shape. Would the Mexican authorities be willing to impose coverage and service conditions on future mergers and acquisitions of CATV companies? Would they be strong enough to both monitor, and when necessary, enforce these conditions?
Moreover, there’s an incredible need to be very careful and to start controlling expectations. The reform proposal only changes the competitive landscape to make it more attractive to new investors in order to accelerate innovation and improve the quality of services provided. This does not mean that once the final version of the legislation is approved, suddenly a host of mergers, acquisitions and licensing requests from foreign companies wishing to provide services in Mexico will appear. In other words, the reform’s impact won’t be immediate in many sectors of the telecommunications industry.
Another issue that should be highlighted is who are the players that would be negatively impacted by lifting the foreign ownership restriction for fixed telecommunications services? There’s little doubt that most of the foreign companies willing to invest in Mexico’s fixed telecom services segment would be focused on three main areas: data transport services, Pay TV services and retail high speed broadband services.
It would be a mistake to think that the best interests of the companies looking to enter the Mexican market lie in being able to offer fixed telephony services. Eliminating restrictions on foreign investment for fixed services would translate into increased competition for DSL providers, cable modem and FTTx broadband providers.
Furthermore, an important element of the reform package is increasing the broadcasting foreign ownership cap to 49% (apparently with reciprocity). Signals Telecom Consulting believes this decision contradicts the ultimate goals that gave birth to the reform package currently being discussed by the Mexican legislature. Consider that over the last decade, recurring criticisms of the 49% foreign ownership cap for fixed telecom assets were that it was anti-competitive, prevented rapid technological innovation and punished consumers with more limited telecom service offers. Nevertheless, many of the individuals that vocalized these objections are now in favor of imposing a 49% cap limit on foreign ownership.
If approved, this cap would greatly reduce the number of potential interested parties that would be willing to invest in Mexico knowing that they can’t own the majority of the company. Also, how many companies in Mexico possess the capital to invest in the deployment of a nationwide TV network? Regardless of the future transformation of terrestrial TV signals and the potential impact of the multi-screen phenomenon, imposing a 49% foreign ownership cap on broadcasting appears to promote the current status quo and does not foster competition.
The question that Mexican legislators need to answer when discussing the broadcasting foreign ownership cap is: who would benefit from this restriction?
Jose F. Otero is president of Signals Telecom Group; his Twitter account is Jose_F_Otero.
