News, features, and commentary from the biggest city in the Americas, Mexico City.
By Darren M. Popik —
Got a Mexican cell phone?
If you do, chances are you’re connected with Telcel.
In the Mexican cell phone industry in 2012, Telcel commanded a whopping 71.6% market share. The remainder of the market was split by Nextel (11.5%), Movistar (11.3%), and Iusacell (5.6%).
But once new reforms are put into law, Telcel’s parent company, América Móvil (which just so happens to belong to the world’s richest man, Carlos Slim) could lose its dominance in the market. Or at the very least, it should have its dominance reduced significantly.
Basically, the reforms have the aim of creating a greater competitive field, and hopefully bringing down prices across the spectrum of the key industry sectors — telephone, television (broadcasting and cable), and Internet.
Perhaps the most impressive part of the reforms, announced Monday by President Enrique Peña Nieto, is that the nation’s three major political parties (PRI, PAN, PRD) are on board with the overhaul of the industry.
An End to Market Dominance
One of the key aims of the reforms is to put an end to one company dominating a sector, as is the case today.
At present, América Móvil controls over 70% of the cell phone market (Telcel), 80% of landlines (Telmex), and 74% of high speed Internet service.
Conversely, in addition to its position as the dominant broadcasting company in the nation (over-the-air plus cable channels), Televisa also controls 60% of the pay TV market, thanks to its ownerships stakes in Cablevisión, Cablemás, and Sky México satellite television.
In terms of over-the-air television, Televisa operates 56% of all licensed stations, vs. 39% for TV Azteca. Just 5% of broadcast channels are not affiliated with either of these companies.
Under the overhaul to the industry, no one company will be permitted to have more than a 50% market share in any one sector.
Overseeing the new industry playing field will be a new agency, independent of government control, to be known as the Instituto Federal de Telecomunicaciones (Ifetel).
For the most part, its role will be similar to that of the Federal Communications Commission (FCC) in the U.S. Ifetel will be in charge of issuing licenses (and revoking them, if necessary), and ensuring that the new rules of the game are adhered to by industry players.
This new agency will replace the existing Comisión Federal de Telecomunicaciones, an administrative branch of the Secretaría de Comunicaciones y Transporte (SCT).
One of the jobs of the new Ifetel will be to see to the licensing of two new private TV Networks, as well as the creation of a new public broadcaster, to compete with market leaders Televisa and TV Azteca.
Carlos Slim had sought a license for a third national network, but was rebuffed by the government. Now, Slim and his companies will be free to apply for one of the two new network licenses.
And as for the new public (non-profit) network, it has been suggested that it resemble the British Broadcasting Corporation (BBC) or TV España (TVE) in focus and operation. It would be available nationwide.
Aside from Televisa and TV Azteca — who combine to dominate Mexican TV viewship — the only other networks with much of a national reach (though on a more limited basis) are the public networks Once TV and Canal 22.
Must Carry / Must Offer
Because of the growing integration of telecom companies, there will also be new rules to ensure that all over-the-air television gets equal treatment from pay TV distributors, and that no company can unilaterally block the signals of a competitor.
Broadcasters will be required to provide their signals free of charge to cable and satellite operators (“must offer”), and for their part, these distributors will be required to make these signals available at no charge to customers (“must carry”).
Another important change is opening up the field to more foreign investment. Direct foreign investment will rise from a maximum of 49% to 100% for telephone and internet sectors, while in the broadcast sector, it will go from zero to a maximum of 49%.
The Big Players
Looking at the Mexican telecommunications industry as a whole, the biggest player is, by far, América Móvil, with revenues of MXN $271.0 billion (USD$21.7 billion) in 2012. In second place is Grupo Televisa, with revenues of MXN $69.3 billion.
Trailing farther behind are Telefónica Movistar (MXN$27.0 billion), TV Azteca (MXN$12.6 billion), Axtel (MXN$10.2 billion), and Megacable (MXN$9.0 billion).
Another smaller but important media company — though without the national reach of the companies just listed — is Monterrey’s Grupo Multimedios. More on them below.
Who Wins? Who Loses?
The reaction of the big media players to the news of the overhaul was curious — they all seemed happy with the changes.
Or at least, that’s the public face they’re putting on.
At first glance, you’d think América Móvil would have the most to be concerned about. However, what they lose in telephone side of the ledger, they hope to make up for by entering the broadcasting industry.
And as for Grupo Televisa and Grupo Salinas (TV Azteca), you can expect them to want to increase their market share in the cell phone sector. The two companies are co-owners of cell carrier Iusacell.
And no doubt Televisa has a desire to expand even further into the telephone market, something they are already doing through Cablevision. Now, you can not only subscribe to cable, you can also get your phone service from them — and Internet.
Looking at industry trends here and next door in the U.S. and Canada, we can expect America Movil, Televisa, and Grupo Salinas to become big players in each other’s industries.
The convergence of technologies has meant that all these large conglomerates can offer the “triple play” — TV+Telephone+Internet.
And don’t be surprised to see the aforementioned Grupo Multimedios becoming larger on the national stage. From their Monterrey base, they already operate 10 TV stations (including their flagship, Canal 12 Monterrey), a group of radio stations, and Cablevisión Monterrey, making them the dominant media company in the Northeast of the country. Their national reach also includes the Milenio Diario newspaper chain, and Milenio TV, available nationally on cable and satellite.
A Possible Result
Just to give an idea of what convergence has meant elsewhere in North America, in Canada now, there are four big media conglomerates who sell phone service (cell phones and land lines), cable/satellite, and internet. Each began within one sector, and then as technologies merged, they began crossing over, and competing against one another.
It’s also worth noting that Canada’s media companies still have to deal with a lot of bureaucratic regulation, plus, foreign investment in the industry there is still very much restricted. In fact, these changes to Mexico’s telecommunications sectors will give this country a freer market than Canada has.
That said, given the trends in Mexico and elsewhere, what we could end up in Mexico is a similar result as Canada has — that is, with the same big companies still in charge, albeit in every single sector.
But in Mexico, the opening of the industry to foreign investment could have a positive impact in the way of new companies entering the market. No doubt other big media companies outside Mexico will be taking a serious look at this country for opportunities.
And with the new limits being imposed on market shares here (no one company with more than a 50% share), there will indeed be opportunities for new entrants.
More competitors? Bring it on.
But before you start expecting to see a big change overnight, don’t hold your breath. A number of analysts suggest that we’ll have to wait three to four years to see the effects of the announced reforms.
Let’s just hope that in the end, the real winners — in terms of greater choice, better service, and lower prices — will be the public.