Mexico’s Telecommunications Reform: Market Concentration, Prices, Investment, and Consumer Welfare (2013-2015)

42 Pages Posted: 2 Apr 2016 Last revised: 8 Jun 2017

Date Written: March 31, 2016

Abstract

This paper follows up from the previous analysis of Mexico’s Telecommunication and Broadcasting Reform (TPRC43). It presents the institutional and regulatory progress made by Mexico’s recent Reform, designed to encourage competition in the telecommunications and broadcasting service markets. We describe the progress made towards implementing these measures and the market response to the measures over the course of 2013 and 2015. Market response is considered in terms of market concentration, prices, investment, income distribution and consumer welfare.

The pivotal goals of the Reform have been: to encourage competition, and to strengthen regulatory institutions in order to make this possible; and to provide universal access to broadband Internet. The Reform has included a new institutional framework in which regulatory institutions were strengthened and a new Federal Telecommunications Institute (IFT) was set up with the power and autonomy to regulate competition in these markets, in addition to the creation of specialist tribunals and an amendment to Mexico’s amparo law to prevent any immediate injunction over the regulator’s rulings. This is in addition to encouraging foreign investment by allowing 100% investment in the telecoms sector and an opening up of the broadcasting sector, allowing for up to 49% foreign capital, subject to a reciprocal investment deal in the corresponding country of origin.

Two years on from the introduction of the new regulations and new institutional framework of the Reform, we set out to examine what its actual effects have been. On the subject of market concentration, the evidence is that thus far, the Telecommunications Reform has not affected the degree of concentration observed in the telecommunications markets. In 2015, despite an unfavorable macroeconomic climate, investment recovered to levels similar to those seen in 2010. Our analysis suggests that those companies with greater supplies of capital and a greater market share are strengthening their positions in order to compete in “triple play” markets, suggesting that the new institutional framework is serving to overcome the issue of regulatory capture and foster competition. In contrast to our findings on market concentration, prices for telecommunications services have dropped significantly, especially for mobile services.

This means a positive effect on the welfare of the poorest section of the population, not only as a means of accessing voice services, but also a future gateway to smartphone-based Internet access. With regard to potential increases in teledensity, despite a drop in prices for both mobile and landline services, penetration did not see any improvement between 2013 and 2015. According to the econometric analysis, the service coverage deficit cannot easily be explained on the basis of income or price.

As mentioned above, a possible interpretation of these results for teledensity is that a failure to develop the existing infrastructure is at play, with coverage remaining biased towards higher-income regions with greater economic activity. The impact of these regulations, designed to boost competition in the given markets, will take some time to mature, provided that the regulatory reforms set in motion in 2013 remain in force and prove to be sustainable.

Keywords: Reform, antitrust, broadband universal access, telecommunications policy, social inclusion

JEL Classification: L5, L4, I3, O1, D4

Suggested Citation

Casanueva-Reguart, Cristina and Cantú-Díaz de León, Luis, Mexico’s Telecommunications Reform: Market Concentration, Prices, Investment, and Consumer Welfare (2013-2015) (March 31, 2016). Available at SSRN: https://ssrn.com/abstract=2757396 or http://dx.doi.org/10.2139/ssrn.2757396

Cristina Casanueva-Reguart (Contact Author)

Universidad Iberoamericana ( email )

Reforma 880
Lomas de Santa Fe
Mexico City, Mexico DF 01219
Mexico
+52+55 23 00 77 78 (Phone)

Luis Cantú-Díaz de León

Independent ( email )

No Address Available

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