Three Best-Selling Stories About Telecommunications in Mexico: A Critique of the OECD Review of Telecommunication Policy and Regulation in Mexico

Abstract

According to the Review of Telecommunication Policy and Regulation in Mexico published by the OECD in January 2012, the performance of the Mexican telecommunications industry in terms of prices and penetration has been poor in comparison with other OECD countries. This would have led to a welfare loss to the Mexican economy of 129.2 billion dollars over the 2005-2009 period; ie. 1.8% of national GDP. The poor performance is attributed to a lack of competition in Mexican telecommunication markets. These findings are supported by an econometric study establishing a causal link between the degree of competition and the performance indicators. In this article I criticize the findings of the OECD arguing that in comparison with OECD averages Mexican prices have not been high, that penetration ratios are reasonably acceptable given Mexico’s stage of economic development, that they are steadily catching up with OECD standards and, finally, that the econometric study fails to establish a causal link between the degree of competition and performance. Particularly, I show that there is no theoretical justification for comparing prices in purchasing power parity dollars, as the OECD does. Moreover, I indicate a number of elementary errors in the econometric study inflating the welfare loss beyond any proportions.

Keywords: telecommunications, regulated industries

JEL Classification: L11, L96