Mexico Telecommunications Report Q2 2008

Mexico's telecoms market saw reasonable growth in 2007, with Telmex and Telcel continuing to dominate their respective markets. However, competition is gradually eroding the market share of these two operators as the regulator introduces new rules on interconnection and introduces mobile number portability (MNP) in Q208. MNP is expected to be completed within 30 days of the initial request. These steps, as well as licensing MVNOs, should bring competition into the market following the MVNO licence granted to fixed-line operator Maxcom in Q307. MVNOs should also boost penetration rates in the country, which has fallen behind regional peers in terms of growth. In terms of regional rankings, Mexico is above only Peru for mobile penetration rates, and Peru is fast closing the gap.

Our latest telecoms report now includes an extended regulatory section which looks at regulatory bodies and their responsibilities, as well as looking at competition laws and current issues in the regulation of Mexico's telecoms market. We have also updated our Business Environment Rankings based on the latest data available seeing some movement in the rankings with Mexico remaining in the middle of the table.

We are maintaining our forecasts to 2012, although the introduction of MVNO licences and MNP should help to boost the market once they are brought into play and may see forecasts revised upwards.

Significant news in the market includes Telcel's launch of 3G services in four Mexican cities, becoming the second operator to offer such services after third-ranked Iusacell. Telcel announced subscribers had passed the 50mn mark in Q407, with the operator continuing to add the bulk of net additions. However, this has not been enough to stop the decline of the operator's market share, which has seen consistent falls in recent quarters. Movistar has taken much of this additional market share as Iusacell has failed to live up to the promise shown after its merger with Unefon, seeing its market share fall in Q307 after seeing qo- q growth in 2006 and early 2007. Nextel remains the smallest operator but has also seen market share reduce marginally as competition heats up between Movistar and Telcel.

Mexico's fixed-line market has seen some growth, but all of this has been for alternative operators that have taken market share from Telmex with bundled offerings. However, Telmex continues to lead in the broadband market, where it is increasing the number of Infinitum ADSL customers far faster than it loses dial-up customers.

In November 2007, Telmex announced its intention to spin off its international units and pginas amarillas units into a new subsidiary, to be known as Telmex Internacional, giving the company the chance to concentrate on operations in its domestic market. Telmex Internacional will include all operations in Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay and the US. Domestically, Telmex will concentrate on markets where it faces competition and those where it does not separately.