april 8, 2008 woodrow wilson international center for scholars

What Keeps Holding the Mexican What Keeps Holding the Mexican Economy Back?Economy Back?

A Discussion on Competition and A Discussion on Competition and ConsumersConsumers

Lessons From the Telecommunications SectorLessons From the Telecommunications Sector

April 8, 2008

Woodrow Wilson International Center for Scholars

2

700700 Concessionaires associated to CanitecConcessionaires associated to Canitec

802802 Operational networksOperational networks

4.14.1 Subscribers (millions)Subscribers (millions)

1.11.1 Internet users (millions)Internet users (millions)

210,000210,000 Telephony usersTelephony users

1,8001,800 Cities coveredCities covered

1111 Homes passed (millions, from a total of 25.5)Homes passed (millions, from a total of 25.5)

56,00056,000 Network extension (miles)Network extension (miles)

+30+30 Localities where telephony service is being Localities where telephony service is being offered (since 2006)offered (since 2006)

1515 Companies which will start telephony service Companies which will start telephony service during 2008during 2008

Mexico’s cable Mexico’s cable telecommunications industrytelecommunications industry

Mexico’s cable Mexico’s cable telecommunications industrytelecommunications industry

3

Competitive and consumer Competitive and consumer landscape in Mexicolandscape in Mexico

• Mexican families’ expenses in telecommunications services are much higher than those in electricity, gasoline, milk or tortillas.

• The National Index for Prices to Consumers (INPC) acts as an indicator of the consumer characteristics of Mexican people.

• A pro-competitive policy will contribute to reduce inflation, increase buying power and increment consumer’s well being.

4


INPC: National Index for Prices to Consumers

Source: Banxico. www.banxico.org.mx

Tel

efon

íaT

elef

onía

: 3

.51

4.022

3.19

2.2722.028 1.844

1.226

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50P

erc

en

tag

e

Telecommunications

Gasoline

Electricity Milk Gas

Tortilla

INPC Pondering

Tel

eph

on

y: 3

.51

http://www.banxico.org.mx/

5


• A 30% reduction in telecommunications’ prices would

have an impact on people’s well being, measured by the

INPC, equivalent to a decrease of:

– 37% on gasoline’s price, or

– 53% on electricity’s or

– 59% on milk’s or

– 98% on tortilla’s.

6


Fixed Telephone Line Service Distribution in Mexico

Cable, 1%

Telmex, 91%

Others, 8%

Total lines: 20.1 million Teledensity: 18.9 lines/100 inhab.

Source: Cofetel. Reporte de actividades 2006 – 2007, Telmex. Reporte del 1er trimestre 2007, Canitec

7


Source: OCDE Communications Outlook 2007. Focus on Mexico

41

40

19

45

33.2

21.8

78.9

144

3.1

35

31

34

63

22

15

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CzechRepublic

Hungary Mexico Poland Turkey

Mobile Market Relative Distribution

1st operator

2nd operator

3rd operator

4th operator

México

8


Pay TV Cable only$1,730 889

$21,299

$3,578$1,730 $889

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Telmex/Telcel Other Telcos Pay TV Cable only

2006 Annual Earnings (Millions of USD)

Source: Merill Lynch, 2007

9

Low-usage Fixed Residential Service Fees



10

OECD basket for low-usage mobile telephony service



USD PPP

11



USD PPP

Business fee

Residential fee

Fees for International Service

12

Competitive and consumer Competitive and consumer landscape in Mexicolandscape in MexicoTelmex’s own regulation

• Despite the agreements reached by the Federal Telecommunications Commission’s (Cofetel’s) Local Service Operator’s Committee, regarding Local Service Areas, last year Telmex opposed consolidation of 70 areas.

• These grouping would have benefited more than 33 million people living in more than 1,400 cities, by converting long distance calls into local calls.

• Telmex’s “Ciudades Vecinas” plan does not eliminate long distance fees for any city and only offers discounts to 148 cities.

13Source : International Telecommunications Union and Dirección de Información Estadística de Mercados, COFETEL.

International Comparison for Fixed Service -Fixed lines per 100 inhabitants-

8.2

15.516.8 17.0

18.9 20.2 20.5

24.2

27.8 28.3

36.5

42.3 42.4 42.9 43.0 43.1 43.4 44.3

48.8 48.8

55.8 56.0 56.256.9 57.2

61.264.1 65.2 65.5

Perú

Venezu

ela

Mala

sia

Colo

mbia

Méxic

o

Chile

Bra

sil

Arg

enti

na

Chin

a

Uru

guay

Fin

landia

Sin

gapur

Esp

aña

Nueva Z

ela

nda *

/

Japón

Italia

Aust

ria

Noru

ega

Irla

nda

Aust

ralia

Fra

nci

a

Core

a d

elS

ur

Rein

o U

nid

o

Din

am

arc

a

Est

ados

Unid

os

Sueci

a

Canadá *

/

Isla

ndia

Ale

mania


14

Competitive and consumer landscape in Competitive and consumer landscape in MexicoMexico

Teledensidad

0.05.0

10.015.020.025.030.035.040.045.050.0

CH

IAP

AS

OA

XA

CA

TAB

AS

CO

CA

MP

EC

HE

TLA

XC

ALA

HID

ALG

OV

ER

AC

RU

ZG

UE

RR

ER

OY

UC

ATÁ

N

SA

N L

UIS

PO

TOS

ÍM

ICH

OA

CÁ

NZA

CA

TE

CA

SP

UE

BL

AG

UA

NA

JUA

TO

DU

RA

NG

OS

INA

LOA

NA

YA

RIT

MÉ

XIC

O

QU

INTA

NA

RO

OS

ON

OR

AQ

UE

RÉ

TA

RO

TAM

AU

LIP

AS

CO

AH

UIL

A

AG

UA

SC

ALI

EN

TES

CH

IHU

AH

UA

BA

JA C

AL

IFO

RN

IA S

UR

CO

LIM

AM

OR

ELO

SJA

LIS

CO

BA

JA C

AL

IFO

RN

IAN

UE

VO

LE

ÓN

DIS

TR

ITO

FE

DE

RA

L

Source: Cofetel, 2007. Fixed lines per 100 inhabitants

National Teledensity

15


• Sky has nation-wide presence in Mexico.• Example: in the city of Puebla there are 5 alternatives of pay

TV: Megacable (cable), Sky (DTH), Ultravisión (MMDS), MVS (MMDS) and Maxcom (Telco).

• All telcos, but Telmex, may offer pay television services in any location in the country.

Pay TV Market Distribution in Mexico

15 companies

1 company

195 companies

16

Entry barriers to new comers in Entry barriers to new comers in telecommunications. Examplestelecommunications. Examples

• Present conditions for getting access to essential resources to offer telecommunications services, as interconnection and transmission (inter-city transport) …

i. force competitors to charge users for a service that has a marginal cost close to zero,

ii. are particularly harmful for low-income regions, due to high fees and scarce availability of interconnection and transport and

iii. impose a high cost “floor” to new comers, which limits further fee reductions to users.

17

Current SituationCurrent Situation

• Telmex keeps pressing the Federal Government to be authorized to offer television services to its customers, what it has explicitly forbidden on its license.

• The Federal Antitrust Commission (Cofeco) just started last January a dominance investigation in several telecommunications markets.

• Telmex has evaded compliance of antitrust conditions that had been established.

• Telmex’s control of essential resources precludes its competitors to enter markets in which it is the only service provider.

18

ConclusionsConclusions

• High fees and low teledensity in fixed telephony services are a consequence of scarce or almost inexistent competence.

• In addition to imposing its conditions to competitors, Telmex defines its own regulation when that established by the authority is considered by Telmex as “incorrect”.

• Without a previous asymmetric regulation, Telmex will transfer its dominant power to the television market.

• It is essential that Cofeco and Cofetel take effective actions to regulate Telmex.

• Only after Telmex has been properly regulated, it should be permitted to enter into a new market.

april 8, 2008 woodrow wilson international center for scholars

Documents

bebidas y tabaco22

pollo y sal0

cajetas y miel0

14242xxx45chuletas y

telephony service

consumer landscape

telephony users1

08369xxx59gelatina en