Luis Rubio
Partner at Holland & Knight
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Insight

IFT Needs More Teeth

Tue, 11/06/2018 - 10:06

The 2013 Institutional Telecommunications Reform was designed to introduce true change to the country’s telecoms infrastructure and break down the monopoly held by main operator America Movil. Luis Rubio, Partner at Holland & Knight, says the challenge was not in the writing but the implementation, and the results show it. “I believe we should have seen stronger changes from the reform than those we have seen so far,” he says. “At the moment, expectations are not being met.”
Although the reform’s projects, such as the Shared Network and Backhaul Network, have attracted the attention of many, Rubio says implementation has been slow due to the existing providers’ long-standing and substantial power over the market. “International companies have wanted to enter the Mexican telecoms market for many years but they are thinking twice and not necessarily committing to it,” he says. “The market is attractive but they feel that the Telecommunications Reform will not be correctly implemented or will not be implemented fast enough.”
According to the 2017-2018 WEF Global Competitiveness Index, Mexico ranks 84th of 137 countries in terms of its telephony infrastructure. IFT estimates that the current telecom infrastructure covers only 33 percent of demand, representing a deficit of 53,000 structures. “Most of the infrastructure developed for telecoms has revolved around what is a good business strategy and not so much about what is beneficial for the country in the long term,” says Rubio. “The dominant player in the market – America Movil – makes it extremely hard to compete with not only its infrastructure but its rules.”
Opening the market and creating a healthy atmosphere for both operators and investors has been one of the greatest challenges of the reform. But it will take more than reforms and projects to ensure the success of the sector, according to Rubio. Through the reform, IFT was created to ensure that no company would hold more than 50 percent market share. Televisa’s and America Movil’s hold on the sector should have reduced significantly as the government heralded a new era of competition.
But five years after the reform was passed, Rubio says IFT’s regulatory power leaves much to be desired. “The biggest issue is that IFT does not have the teeth or the political will to change things,” he says. “The projects themselves need to be financially viable to keep up with the quickly-changing market and prices.” By giving IFT more power to regulate – and sanction – Rubio believes that rules will be clearer and projects a lot smoother.
But regulation is not the only sticking point that is holding back telecoms infrastructure, he says. Another hurdle is funding. PPPs could bridge the gap but many improvements are needed to allow these schemes to completely take off. For example, in Rubio’s experience, the private sector does not trust regulators. “There was great hope and trust in the Telecommunications Reform but because IFT has taken such a long time to move projects along, many investors have lost that trust.”
Other infrastructure sectors have seen successful PPPs but Rubio acknowledges that there have been some setbacks. “The biggest issue is that the government still sees the concessions as a source of public sector income and that mentality should change completely,” he says. “The incentive should lie in development of services for the good of the public. As long as the current mentality persists, it is going to be hard to generate more competition.”
For example, many mobile operators will renew their concessions soon. If prices are low and the investment required is high, it will not make sense for new players. It is essential that the government makes processes faster and more affordable for new entrants. “By not doing this, IFT is punishing competitors against a very well-established Telmex, a company that owns almost all the telecommunications infrastructure in Mexico,” says Rubio. The 2.5MHz bid is considered critical to allow operators like AT&T, Telcel and Telefónica to improve their 4G broadband offering, for example. “But in the 2.5MHz bid, the price is so high that participants are discouraged to participate. The government should aspire to include as many participants as possible at a reasonable price to diversify the market.”