Mexico Telecommunications Report Q3 2008

Issues between Telmex and Telefnica-owned Grupo de Telecomunicaciones Mexicanas appear to have been resolved as the regulator ordered Telmex to begin interconnection discussions with the operator after it had initially refused. It is the latest in a number of interconnection agreements the regulator has ordered for Telmex as it attempts to counter the company's dominance in the market.

Telmex has faced several investigations into its monopolistic practices but, until now, there has been little to slow the operator's growth. Further competition will be a blow to the company as it continues to experience falling fixed-line subscriptions. For the first time fixed-lines in service fell in Mexico causing BMI to revise its forecasts downwards as the market's decline appears to have started earlier than previously anticipated.

Mexico's mobile market continues to report strong growth with Telcel remaining the market leader despite a falling market share. The regulator has stated it is prepared to launch number portability (NP) on July 5 2008 making it the first market in Latin America to offer the service. BMI believes this is a necessary step in encouraging further competition in the market and seeing the market continue to show good growth. Increased competition will be necessary for the mobile market if it is to continue to show strong growth. BMI has slightly lowered its forecasts going onwards owing to slightly slower growth in the market in 2007 but NP and the licensing of MVNOs could well be the boost the market needs to maintain its steady, but strong, expansion.

Mexico's telecoms market moved up to third place in our rankings as continued strong growth in the mobile and broadband markets saw it overtake Argentina in BMI's Business Environment Rankings.

Although the fixed-line market seems to have begun its decline we do not anticipate the market to shrink quickly and the broadband market's stronger results have helped push up Mexico's telecoms market score to move it into the top half of our rankings. The country continues to exhibit some of the strongest scores in the region for country structure and country risk which is helping maintain Mexico's position in the region. While the regulator score remains unchanged there has been considerable movement to open up the market to further competition which could see the regulator's score upgraded in the future.

As Telmex finds its home market more difficult it will be spinning off its international operations into a separate unit to be known as Telmex Internacional. The spin-off is expected to be complete by YE08.