Mexico Telecommunications Report Q4 2009

Mexico lost its second-ranked position in BMI's Business Environment Rankings as its Telecoms Market score took a hit, allowing Brazil to overtake it once again. Mexico's ascendancy had been a result of an improved Independence of Regulator score that remained unchanged in the quarter. However, Mexico's reliance on the US means that it is one of the worst hit markets in Latin America from the fallout of the financial crisis and the shrinking US economy. This lowered the Country Risk score for Mexico with considerations from the swine flu outbreak in April 2009 impacting the country's tourism prospects and further damaging the economy. However, Mexico retains good growth potential for all areas of the market, including a resurgence of interest in fixed-line services despite earlier declines in the market.

Having easily held its growth rate at over 20% for several years, the Mexican mobile market experienced something of a decline in 2008 ending the year with a yearly growth rate of 13.4% as the market faced the effects of the recession. With unemployment increasing subscribers are spending less, and fewer new subscribers are signing up for services. This impacts operators' growth rates as well as their revenues, with ARPUs continuing to decline. However, there was good news for second-ranked Movistar as it saw an increase in ARPU in Q109 following decreases throughout most of 2008. The operator is targeting a third of the mobile market and has been pushing its subscriber base up within reaching distance of 20%. It still has some way to go to reach its target but presents the only real competition to market leader Telcel.

Mexico's broadband market continues to grow at a robust rate as the market sees strong competition from smaller operators, seeking to make inroads on Telmex's dominance of the market. Cofetel is understood to be planning an auction of spectrum for WiMAX services by the end of 2009 with new competition expected to enter the market. If a large established company were to enter, it would have a real impact on the Mexican telecoms market, which has been accused of being expensive and of poor quality by a report from the OECD.

Early July 2009 found Telmex to be dominant in the local transit and leasing of dedicated lines markets.

Four further investigations were awaiting results, and asymmetric regulations are being considered as a measure to regulate the market. Telmex is not to be fined by the anti-trust authority Cofeco but is unlikely to take the ruling lying down. Previous rulings have been overturned, but both Cofeco and regulator Cofetel look set to push through the ruling and impose some restrictions on the operator. While growth is unlikely to return to the fixed-line market, it should help smaller operators to provide competition to Telmex and create more choice for subscribers.