Finpro promover mexican telecommunication sector 2015 ryynänen

The Telecommunications Sector in Mexico - in the Context of the Telecom 2014 Reform

Mervi Ryynänen

Promover LatAm

T: +52 1 55 4342 2198

E: [email protected]

Web: www.promover-latam.com

23.6.2015 Helsinki

Company Confidential

mailto:[email protected]

Table of Content

1. Abstract

2. Introduction for the Telecommunications Sector in Mexico – Mobile Lines1. Mexican Business Environment

2. Overview of the Mobile Sector in Mexico

3. Mexican Mobile Line Sector Before and Right After the 2014 Reform1. The Current State of the Mobile Line Sector in Mexico

2. Mobile Operators in Mexico and the Competition

3. Current Behaviour of the Mobile Line Market in Mexico

4. Mexican Telecommunications Reform in Practise1. Reform Targets – Eliminate Monopolies and Strengthen Competition

2. The Independent Regulator IFT

3. Telecommunications Infrastructure Projects to Update Infrastructure and Increase the Coverage1. National Wholesale Backbone (including CFE´s fiber optic network),

2. Wholesale Open Access Mobile Network (700MHz Band),

3. Mexico Conectado: Open Internet Access to all public schools, health centres, libraries, parks.

5. Mexican Mobile Line Operators´ Expectations and Challenges for Reform1. Existing Mobile Operators Telcel and Telefonica

2. Challenger AT&T

3. Mexico set for a wave of MVNOs

6. Conclusions about the Business Opportunities for Finnish ICT Companies in Contextof the 2014 Reform.


1. Abstract

1. Abstract

This presentation has three major parts:

1. First, it provides an overview of Mexico´s mobile telecom market, including a range ofstatistical data and the key players in the market.

2. Second, it discuss how Mexican telecom 2014 reform addresses some of the rootcauses of the sector´s inefficiency, how the reform will change the competition field inMexican mobile sector and also, it outlines the infrastructure projects which are includedin the original reform as objectives.

3. Third, the research concludes how the execution of the Mexican telecom 2014 reformwill create opportunities for Finnish companies.

This presentation is a combination of perspectives of the interviewed personsand companies, as well as Promover analysis from collected information andother research.

Key project team members:• Finpro Finland: Kimmo Aura, Senior Advisor, Americas

• Finpro Mexico: Heidi Virta, Commercial Counsellor Finpro Mexico, Region Americas & Erna Takala,Junior Advisor, Region Americas

• Promover Latam: Nina Jaakkola, COO, Co – Founder & Mervi Ryynänen, CEO, Co –Founder


2. Introduction for

Telecommunications

Sector in Mexico –

Mobile Lines


2.1. Mexican Business Environment –Fast growing economy

The official name of Mexico is the United Mexican States and it is 13th largest country in the world.

119,7 million consumer market.

Competitive and young labor force.

11th largest economy in the world.

Network of free trade agreements with 45 countries, most important ones with the EU and the USA.

Rank #53 in Ease of Doing Business Study by World Bank.

Stable economy and political environment.

Efficient hub from a transport and logistical standpoint.

Growing middle class, GDP per capita is 15,000USD.

Investment Protection Agreement with 24 countries.

An agreement to Avoid Double Taxation with more than 30 countries.

An open economy.

Mexico is part of: OECD (The Organization for Economic Co-operation and Development)

G20 (Group of 20 major economies)

G5 (5 largest emerging economies)

2.2. Overview of the Mobile Sector in Mexico


The telecommunications sector in Mexico has been widely described asinefficient and dysfunctional. In general, these problems are attributed to a lackof competition, low levels of accountability, and lack of transparency, all of whichresult in: High prices, High level of concentration, Low market penetration, Low take-up of services and Insufficient infrastructure development.

The constitutional reform of telecommunications approved in 2014 offered ahistoric opportunity to fix and restructure Mexico´s anemic telecommunicationssector. The 2014 reform establishes telecommunications services as public services of

general interest, meaning the state will guarantee these services will meet certaincriteria, including standards related to quality and competition.

The law also address market regulation and a new distribution of regulatory functionsamong different entities.

The 2014 reform´s main objectives is to enhance Mexican economiccompetitiveness by bringing down costs and improving the quality of telecomservices.



Mexico is the second largest mobile market in Latin America, after Brazil. The number of mobile subscribers in Mexico overtook fixed-line users in mid-2000. Mobile subscribers are gradually migrating from 3G to 4G networks as these are

progressively rolled out across the country. Given the limitation of further developing voice services, the move to LTE is enabling

operators to capitalise on consumer use of mobile data services.

Historically, the popularity of mobile services rise in 1999 as a result of the

introduction of a Calling Party Pays (CPP) and prepaid services. Mobile competition increased to some extend following the 2002 market entrance of

Telefónica Móviles Mexico (TEM Mexico), operating under the brand name Movistar.

By end-2014 Movistar held a 22% market share.

Telcel´s other much smaller competitors are Iusacell and Nextel de Mexico, which are

now part of AT&T. Iusacell acquired Unefón in mid-2007.

However, the mobile market is still highly concentrated with Telcel accounting for 70%

of the subscriber base. Telcel is controlled by the Mexican multimillionaire Carlos Slim,

and are subsidiaries of América Móvil.



There were hopes within the telecom industry that the mid-2010 spectrum salesby bid would inject increased competition into the mobile market. Below ispresented the spectrum Holdings of Mexican Mobile Operators Pre – and Post –2010 PCS and AWS Auctions.

3. Mexican Mobile

Line Sector Before

and Right After the

2014 Reform

3.1. The Current State of the Telecommunications Sector in Mexico 3.1.1. Mobile Subscribers and penetrations


105 005 00014 078 000

X

27.75%

-1,05%

X

3.1. The Current State of the Telecommunications Sector in Mexico


2014:

Prepaid

87 625 300

(84%)

Postpaid

16 329 000

(16%)

2000:

Prepaid

12 450 000

(87%)

Postpaid

1 630 000

(13%)

2014

Prepaid Change:

1,4%

Postpaid Change:

0,1%2000

Prepaid Change:

95%

Postpaid Change:

20%

3.1.2. Prepaid Subscriptions

3.1.3. Regulatory Issues

The mobile communications market in Mexico is regulated by the Federal Institute ofTelecommunications (IFT), which replaced the Federal Telecommunications Commission– Comisión Federal de Telecomunicaciones, COFETEL, in September 2013.

Legislation and licenses are issued by the Ministry for Communications and Transport –

Secretaria de Comunicaciones y Transportes, SCT.

In relation to foreign ownership rules, while other telecom licences are only granted to

individuals or corporations of Mexican nationality with no greater than 49% foreign

investment, in the case of mobile telephony permission can be obtained from the

Commission of Foreign Investment for a higher level of foreign participation.

Mexico´s antitrust laws are administrated by the Federal Competition Commission, or

Comisión Federal de Competencia, CFC. The CFC has an important role to play in a

market characterised by highly concentrated sectors.



3.1.4. Telecom 2014 Reform

The new rules define a dominant player, called as preponderant, one which hasmore than 50% market share in the telecoms sector. Most of the introduced rulesfocused to the telecoms segment, particularly with reference to interconnectionsfees, infrastructure sharing and the strengthened powers of the regulator.

In the mobile market Telcel currently has a dominant 70% market share.

The operator is obliged to reduce this to below 50% which it aims to do by the sale ofassets.

This will result in a shift in a large proportion of its subscriber base to other players.

Telcel/América Móvil pre-empted the legislation by announcing its commitmentto proceed along with the sales of its´ property, and thus the migration of a largeproportion of its subscriber base.

Effectively the only viable purchasers which would have the resources to buypart of América Móvil´s infrastructure are AT&T – but then it might reach the 50%market share - and Telefónica – depending on its financial situation. Newcomers could be like Vodafone, Softbank and China Mobile.



3.2. Mobile Operators in Mexico and the CompetitionThere are a range of cellular technologies deployed in Mexico: Analogue

(AMPS) and digital (TDMA, CDMA, GSM, 3-4G)

• Telcel and Movistar adopted GSM technology, while Iusacell chose CDMA.

• Nextel de Mexico has been operating an iDEN network, though after being awarded awireless license during 2010, signalled to deploy a 3G GSM wireless network.

• In 2000, there were nine operators in the Mexican mobile market, whereas by the end of2010 only three major operators remained: América Móvil (Telcel), Telefónica (Movistar)and AT&T - Grupo Iusacell (Iusacell and Unefón).


3.2. Mobile Operators in Mexico and the Competition


TELCEL

70.4

TELCEL

68.80

AT&T

242

TELCEL

94

20.5

AT&T

9020.10TELCEL

166

AT&T

11.480

AT&

T

11.10

87

Subscribers

(millions)Coverage %

Market

Share %

ARPU

PESOS

MOVISTAR

MOVISTAR

MOVISTARMOVISTAR

Data 3Q/2014 – El Economista

Mexican Mobile Line Market without AT&T:

Subscribers (millions) ARPU Market Share

Telcel 70.4M Telcel 166 Telcel 68.80%

Movistar 20.5M Iusacell 167 Movistar 20.10%

Iusacell 8.6M Movistar 87 Iusacell 8.40%

-----------------------------------------------------------------------------------------------------------

3.2. Mobile Operators in Mexico and the Competition3.2.1. Telcel as a Preponderant Player in Mexican Mobile Market


X

-2.8%

X

62%

3.2. Mobile Operators in Mexico and the CompetitionAs part of the new regulations introduced in mid-2014,Telcel was obligated to:

1. Stop charging customers more expensive roaming charges when calls were madewithin Mexico. Calls must now be charges at local rates.

2. Roaming charges for incoming calls were also scrapped.

3. In addition, customers who pay for mobile phones in full should receive unlockeddevices.

Telcel has also been obliged to sell a range of assets to reduce its marketdominance.

Telcel reported a 1.2% fall in mobile service revenues in 4Q/2014.

This was partly attributed to the introduction of a zero interconnection rate for Telcel .

Mobile voice revenue continued to decline affected by lower roaming charges and theelimination of termination rates for incoming traffic from other operators.

• Mobile data revenue increased 12.9% year-on-year as the company exploited customerneed for data services on the back of more capable and widespread 3G and LTEinfrastructure.

• Telcel has to pay to connect calls to rival carriers while completing incoming calls withoutcharge.


3.2. Mobile Operators in Mexico and the Competition3.2.1.2.Telcel spin off its towers to new business unit

In 2014 América Móvil announced, as part of a restructuring plan, to spin off its

towers, base stations and passive infrastructure into a new business unit called

Telesites SAB, which has 10,800 communications towers.

Telesites would provide access to the infrastructure to Telcel´s competitors.

The move is part of a broader requirement to reduce its market dominance, in line with

recent legislation.

The spinoff created a new competitor for America Tower, the largest of Mexico´s tower

operator with around 8,750 sites owned or operated in the country at the end of 2014.

America Tower rents space in Mexico to Iusacell, Telefonica and Nextel.

NOTE: Mexico offers much room for growth in the towers business.

Mexico could follow what happened in the U.S., where the number of towers increased

rapidly in the past decade on demand for wireless broadband services as the explosion

of data growth has driven site expansion.

As the growth of 3G and 4G data services should underpin strong growth in the tower

market, regulators estimate Mexico needs to expands its number of radio bases to

80,000 from around 20,000 at present.


3.2. Mobile Operators in Mexico and the Competition3.2.2. Telefonica Movistar, the Defender


X

-2.9%

X

63%

3.2. Mobile Operators in Mexico and the CompetitionTelefonica Moviles Mexico (TEM Mexico), operating under the Movistar brandname, is the country´s second largest mobile telephony provider.


Take over Acquisition Launch

Acquisition of 4 Motorola carriers

Cedetel, Norcel, Bajacel, Movitel

Investment

1,969 million dollars

Acquisition of Pegaso

5 carriers and 2 brands

Investment

1,360 million dollars

National brand launch

Movistar Mexico

July, 2001 September, 2002 April, 2003


3.2.3. AT&T, the Challenger

U.S. company AT&T is going to head-to-head with Carlos Slim in Mexico after

US $4.3 billion deals in the early-2015 to snap up competitors Iusacell and

Nextel, with plans for further investment in the next three years as it plans to

become the market leader within a decade

The acquisitions gave it about an 11 % market share, but it still has only about

half the subscribers of the second-placed player Telefonica.

Still, they will allow AT&T to overtake Telefonica in terms of income and have the highest

average rate per user in the country.

Mr Thaddeus Arroyo, CEO, sees five years of “considerable” investment to

upgrade its network and to offer seamless North America cross-border services

that target Latin America expatriates in the US and their families in Mexico.

• The company already owns the most spectrum in Mexico and Mr Arroyo said it intends

“to put it to use to bring more competition”.



3.2.3.1. AT&T / Iusacell, Targeting Primarily High-Value Users and Postpaid Customers


Revenues started to

decline in mid-2001,

due to competition

and the general

economic slowdown,

Iusacell lost its

number two position

in the mobile market

during 2002.

1 6

80 0

00

8 0

00 0

00

Iusacell filed for

bankruptcy at

2010, in mid-

2011Televisa

agreed to buy a 50%

stake.

3.2. Mobile Operators in Mexico and the Competition3.2.3.2. Nextel

Nextel operates a mobile trunking network based on iDEN technology, acommunications standard that is similar to and compatible with GSM.

Nextel Mexico subscribers, 2012 - 2013

Nextel started operating in Mexico in mid-1998, with a concession for trunkingservices.

• The difference between Nextel´s wireless spectrum in the 800MH band and the 850 MHzband used by mobile operators in largely regulatory and not technical. From theregulator´s point of view, Nextel was not a mobile telephony operator since it did nothave mobile telephony license before 2009.

In mid-2009 the regulator modified the mobile license held by Nextel, enabling Nextelto offer traditional mobile voice services, as well as fixed telephony and data transmissionservices.


3.2. Mobile Operators in Mexico and the CompetitionIn early 2010, Televisa agreed to acquire a 30% stake in Nextel Mexico.

Soon after Televisa and Nextel were awarded spectrum in 2010, Televisa pulled out its

joint venture with Nextel, instead preferring to focus on its core business.

The government soon afterwards licensed Nextel to provide wireless services. Nextel

launched its 3G network in late 2012, initially in 34 cities including Mexico City,

Guadalajara, Monterrey, Puebla and Cancun.

Nextel reported a 25% fall in revenue for the nine months to September 2014.

The financial decline was partly attributed to the decline in the number of subscribers,

as well as to network and business plans being disrupted as a result of Sprint´s

deactivation of its iDEN network in the US (in mid-2013).

Nextel Mexico´s own WCDMA network was found to be insufficient to handle the number

of subscribers who migrated from the iDEN service on its WCDMA network. As a result,

the number of iDEN subscribers fell 23% in the year to September 2014.

The sale to AT&T in early-2015 included Nextel Mexico, spectrum licenses,

network assets, retail stores and the operator´s subscribers. The network covers

some 76 million people in Mexico.


3.3. Current Behaviour of the Mobile Line Market in Mexico


The current trend in Mexico is to continue to be a move away from fixed linetelephony towards mobility. The mobile spectrum auctions of 2010 has stimulatedgrowth in the number of subscribers.

Mexican Mobile Subscribers Forecast till 2018 An acceleration in the

take-up of mobile

broadband and the

growth of data traffic.

4G is still relative

infancy.

Mobile networks and

services are

increasingly becoming

the main method of

accessing the internet

across Mexico.

Mexico recorded one

of the highest growth

in smartphone

connections in Latin

America

Consumers across

the country are

increasingly using

online messaging

service (OMS)

4. Mexican

Telecommunications

Reform in Practise

4.1. Reform Targets – Eliminate Monopolies

and Strengthen Competition

Mexico had been left behind in telecommunications - The development of

the telecom sector in Mexico has not been enough to improve productivity and

welfare of the population.

Causes:

Inefficient legal and institutional framework.

High level of concentration: in telecommunications and broadcasting one single groupconcentrates 70% of the market.

Weak competition.

Poor level of infrastructure development.

High prices (among the highest consumer prices in the OECD).

Low take-up of services.

Mexico is the 2nd largest economy in the Latin America, but 20th in Internet users.

The reform´s main objective is to enhance Mexican economical competitiveness

by bringing down costs and improving the quality of telecom services.


Constitutional Reform

1. Reinforcement of Mexican’s rights – right of internet access, Consumers’ rights and

Audiences’ rights

2. Institutional framework – independent regulator (IFT), Specialized courts

3. Regulations & antitrust – direct foreign investment, antitrust regulation

4. Telecommunications Infrastructure – National Wholesale Backbone, Open Access

Mobile Network (Red Compartida), Free Internet Access in Public Places (Mexico

Conectado)


Ref. Monica Aspe Bernal Presentation named

First North American Sustainable Economic Delevopment Summit



4.1. Reform Targets – Eliminate Monopolies and Strengthen CompetitionNew operating rules for Mexico´s telecom sector

The new rules regulating the operations of telecom companies fall into twocategories – those designed to reduce prices and improve quality directly(benefiting business as well as individual consumers) and those designed to dothis indirectly by increasing competition in the sector.

A. Reducing Prices and Increasing Quality of Service

All calls within Mexico must now be charged as local calls.

In addition, the reform prohibits mobile companies from charging more to connect callsto their customers from outside their network than within it, and

Forces mobile companies to roll over the minutes remaining on prepaid phone cardswhen these are renewed.

With regard to the quality of services,

All phone numbers must become portable within 24 hours of contract termination.

Furthermore, phones must be unlocked at the end of the contract,

Contract terms cannot be modified without prior notifications, and

Consumers must be compensated through refunds or discounted services for failures intelephone services or erroneous charges.




B. Increasing Competition

To encourage competition, and as noted later, this is the first time the Mexican

telecom regulator has has the power to regulate the sector asymmetrically.

It can now declare companies either preponderant in a particular sector or “with

substantial market power” in the provision of a particular service and then issue

regulations that apply only to those companies.

This authority has two objectives:1. To prevent dominant companies from using their market power to implement anticompetitive

policies, such as preventing competitors from entering the market of overcharging consumers or

providing poor customer service.

2. To encourage preponderant companies to divest – to sell enough assets to reduce their market

share.

In other words, the Mexican government can create a regulatory environment

that encourage dominant players to take this action on their own. And as noted

later, the core target is America Movil, which has responded to IFT´s

“encouragement”, and much quickly than the Mexican government anticipated.


4.2. The Independent Telecom Regulator, The Federal Telecommunications Institute, IFTThe telecom reform seeks to create a far stronger regulatory agency bymeaningfully addressing all of these issues.

A. Legal and Financial Independence

Mexico´s telecom regulatory agency, IFT, is fully independent entity, both legally(constitutionally) and financially.

B. Sole Regulator

The IFT is the sole regulator for the entire telecom sector, pay and open TV, and radio,

Internet, and fixed-line and mobile phone services.

C. Power to Sanction Preponderant Companies

The IFT´s sanctioning power is impressive. It has the power:

To regulate the sector asymmetrically,

To penalize monopolistic practices and promote competition,

Apply high fines, and

Even require the sale of assets in extreme cases.


4.2. The Independent Telecom Regulator, The Federal Telecommunications Institute, IFTD. Authority Over Dominant Companies

The IFT has a variety of sanctioning tools at its use:

1. The IFT can fine companies for failing to conform to its rulings but, for the first time,these fines can be very significant (up to 12% for subsequent offenses).

2. The IFT can order “preponderant” companies, as well as those with significant marketpower, to sell assets.

3. IFT has the authority to cancel telecom licences.

NOTE: Any company that controls more than 50% of the market for telecom isautomatically considered “preponderant” and subject to meaningful asymmetricregulation by the IFT, fines and divestment – what ever IFT sees necessary. TheIFT can also declare that the company has “substantial market power” even ifits market share is less than 50% and apply asymmetric regulation anyway.

Telecom 2014 reform created telecom courts dedicated to hearing theseappeals, as well as challenges to the broader telecom legal framework. In thepast, telecom cases were heard by ordinary judges. Today, all telecom cases willbe heard by judges in courts that specialize in telecom matter.



National Wholesale Backbone

(including CFE´s fiber optic network)

Wholesale

Open Access

Mobile

Network (700

MHz Band)

México

Conectado: Open

Internet access to

all public schools,

health centers,

libraries, parks

Main initiatives to achieve universal access

The Mexican Government is currently implementing the most ambitious

infrastructure projects in the history of telecommunications in the country.

They total an investment USD 14 billion.



4.3. Telecommunications Infrastructure Projects to Update Infrastructure and Increase the Coverage


• Coverage: from 25,000 km to

60,000 km

• Access points: from 114 to

more than 900

• Redundancy: through other

rights of way (highways,

railways, oil pipelines)

• Wholesale: open and non

discriminatory network.

Encourage competition, does

not compete

• Investment: USD 758 million

P del Carmen

Nuevo

Laredo

León (m)

Saltillo

Aguascalientes

Guadalajara

Silao

Celaya Querétaro

Yautepec

Texc

ocoTulaPto. Vallarta

Tepic

Mazatlán

Durango

Gómez Palacio

y Torreón

Nogales

Hermosillo

Guaymas

Cd. Obregón ©

Navojoa Los

Mochis

Guamuc

hil Culiacán ©

Cd. JuárezEnsenada

ReynosaMatamoros

Cd. Victoria

Altamira © - Tampico

Acapulco

Verac

ruz

Oaxaca

Cd del

Carmen

Campec

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Cárde

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Mérid

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Canc

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Coatzacoalco

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Zacat

ecas

Chihuahua

Oriza

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Xal

apa

Poza

Rica

Tuxtla

Gutiérrez ©

Morelia

Monclova

Chetum

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Delicias

Parral

Minatitlán

(No)

Tecate

Camargo

Cd. Cuauhtémoc

P Peñasco

Caborca

Sta. Ana CananeaNacozari

Casas Grandes

Agua Prieta

La

Paz

Cd.

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CaboCabo San

Lucas

P. Negras ©

Sabinas y

Nva. Rosita

Uruapan

L CárdenasV de Bravo

Salina Cruz

Juchitán

M Romero

©

Villaherm

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Tapachula

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Colima Puebla

Moctezuma

Topoloba

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Cd GuzmánOcotlán

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ato

4.3.1. National Wholesale Backbone


The constitutional telecom 2014 reform, put in to effect as a regulation byPresident Pena Nieto on June, 2013, mandates the growth of the NationalWholesale Backbone Network. Its goal is to increase the deployment, popularityand competition of fiber optics in the country, bringing it closer to areas wherethis infrastructure does not currently exist.

The national wholesale backbone will:• Promote competition in areas where there is only one fiber optic network available, and fiber optic

network presence in suburban and rural regions, where there is no infrastructure today.

• Provide long-distance transport for the Open Access Wholesale Mobile Network in 700 MHz bandand for local operators without access to a fiber backbone network.

• Provide all services and capacities in an unbundled and non-discriminatory manner.

The project requires an estimated investment of US $760 million. Its deployment andoperation may be carried out through public, private or mixed investment, with norestrictions to foreign capitals.

In order to carry out the growth and start the operations of the National WholesaleBackbone Network, the concession (license) to deploy and operate the fiber optic networkwill be, first, transferred from CFE (Comision Federal de Electricidad, the Mexican state-owned electric power utility) to Telecomunicaciones de Mexico (Telecomm), which is apublic telecommunications company of the Ministry of Communications andTransportation, and then from Telecomm to the final entity that will manage and operatethe network through a Private-Public Partnership (PPP).



All CFE telecommunications assets have been audited to have a clear

understanding of the current state of the fiber optic network. The license transfer

from CFE to Telecomm is in the approval process by the Federal

Telecommunications Institute (IFT), the independent regulator. Also, technical,

financial and economic feasibility and profitability studies are being carried out to

help develop the operation and expansion roadmap of the network in the future.

The public tender call for the PPP that will expand and operate the network will be

issued during the second semester of 2015.

Chart 12 - National Wholesale Backbone Project Schedule


Activities

2014

1st

Half

2014

2nd

Half

2015

1st

Half

2015

2nd

Half

2016

1st

Half

2016

2nd

Half

2017

1st

Half

2017

2nd

Half

2018

1st

Half

2018

2nd

Half

Transfer of CFE license to

Telecom

Elaboration of the technical and

economic studies for the growth

and operation of the network

Tender (RFP)

Tender Results

Growth and operation of the

network


Wholesale network (4G. LTE) with

national coverage on the 700 MHz

band

Public Private Partnership, PPP

No restrictions for foreign capital

investments

Public buildings available for

installation of infrastructure

Coverage for over 95% of the

population

Reduce entry barriers for the mobile

broadband market

Promote competition both in

infrastructure and services

Benefit consumers through

internationally competitive prices

Estimated investment: USD 10 billion

4.3.2. Wholesale Open Access Mobile Network



4.3.2. Wholesale Open Access Mobile Network (700MHz band / 90MHz spectrum)The constitutional telecom 2014 reform mandates the creation of an Open

Access Wholesale Mobile Network in the 700MHz band. Its goal is to increase

the coverage of mobile networks in both profitable and unprofitable areas.

This network will:

Reduce entry barriers to the mobile broadband market through simultaneous and non-

discriminatory access to current and future infrastructure operators, as well as to MVNO.

Increase investment in telecommunications infrastructure and the quality of services.

Promote competition, both in infrastructure and services.

Promote the supply of capacities and services at internationally competitive prices, which

will benefit the customer.

Use the 90MHz of the 700MHz band to plan to maximize spectral efficiency and, thus of

the lower price of network equipment and end-user mobile devices.

Note: The network in question will exploit 90MHz of spectrum with a contiguous downlink

of 45 MHz using what is called band 28, the most modern spectrum superhighway

currently available only in the iPhone 6 and iPhone 6 Plus and the latest Samsung Galaxy

smartphones.


4.3.2. Wholesale Open Access Mobile

Network (700MHz band)

To increase efficiency and reduce the cost of deployment, the Mexican

Government will make government-owned buildings available for installation of

infrastructure. Furthermore, the Open Access Mobile Network can make use of

the services and capacity of the National Wholesale Backbone Network.

Note: The 763-768/793-798MHz is dedicated to a broadband public safety

communications system with a national wide level of interoperability.

The Wholesale Shared Network will be developed by a commercial entity or

consortium of entities that will be responsible for its design, financing,

deployment, operation and commercialization; under Mexican law, it can be

have up to 100% direct foreign investment.


4.3.2. Wholesale Open Access Mobile

Network (700MHz band)

The project requires an estimated investment of USD $10 billion over the next 10 years. The

network will be deployed and operated through a Public Private Partnership (PPP), with no

restriction to foreign capitals.

Chart 13 - Open Access Mobile Network Project Schedule


Activities

2014

1st

Half

2014

2nd

Half

2015

1st

Half

2015

2nd

Half

2016

1st

Half

2016

2nd

Half

2017

1st

Half

2017

2nd

Half

2018

1st Half

2018

2nd

Half

Elaboration of the technical, economic,

financial and social profitability studies

Expression of Interest (EOI) May

22

Request for Information, RFI July

Request for Proposal, RFP Oct

Network Deployment

Open Access Mobile Network in Full

Operation

4.3.2. Wholesale Open Access Mobile Network (700MHz band)

Entities which have given their Expressions of Interest ( direct copy of the list received from

Monica Aspe).


1. COMUNICACIONES VETA

GRANDE, S.A.P.I. de C.V.

2. GRUPO I&IMT, S.A. de C.V. 3. MAESTRO ERNESTO

FLORES ROUX

4. DETECON

INTERNATIONAL GmbH

5. INSOBOX, S.A. de C.V.

6. ASCOM NETWORK

TESTING

7. BELLO, GALLARDO,

BONEQUI Y GARCIA, S.C.

(BGBG)

8. MOTOROLA SOLUTIONES,

INC.

9. NOKIA DE MEXICO 10. ASOCIACION MEXICANA

DE INTERNET, A.C.

(AMPIPCI)

11. ERICSSON TELECOM,

S.A. de C.V.

12. CISCO SYSTEMS, INC. 13. CHINA TELECOM

GLOBAL LIMITED

14. ALESTRA, S. de R.L. de

C.V.

15. GRUPO MVS

16. QUALCOMM

INTERNATIONAL, INC.

17. CONSULTORIA CHAVEZ

Y ASOCIADOS, S.C.

18. ELARA

COMUNICACIONES, S.A. DE

C.V.

19. PRODUCTOS,

SOLUCIONES Y SERVICIO,

S.A. DE C.V. (PSS)

20. FRANCIS O´FLAHERTY

21. COMUNICACIONES VETA

GRANDE, S.A.P.I. DE C.V.

22. AXTEL, S.A.B. DE C.V. 23. HECTOR BORRO MADRID 24. GRUPO JDE

ELECTRONICA, S.A. DE C.V.

25. PRODUCTORS

SOLUCIONES Y SERVICIO,

S.A. DE C.V.

26. NETWORK

MANAGEMENT SERVICES

27. ACCENTURE, S.C. 28. ALESTRA (ENVIA UNA

NUEVA VERSION)

29. HUAWEI 30. INDRA BUSINESS

CONSULTING (HECTOR

BORRA MADRID,

REPRESENTANTE)

31. NOKIA (ENVIA NUEVA

AVERSION)

32. RIVADA NETWORKS

(FRANCIS O´FLAHERTY,

REPRESENTANTE)

33. GRUPO JDE

ELECTRONICA

34. PRODUCTOS

SOLUCIONES Y SERVICIOS

(ENVIA OTRA MDI)

35. NMS (NETWORK

MANAGEMENT SYSTEM)

36. ADVA OPTICAL

NETWORKING, SE

37. IP MATRIX –

TRANSTELCO

38. PCIA – THE WIRELESS

INFRASTRUCTURE

ASSOCIATION

39. TELEFONICA 40. PEGASO

41. GRUPO DE

TELECOMUNICACIONES

MEXICANAS (GTM)

42. SES MEXICO 43. DETECON

INTERNATIONAL GmbH

44. AXTEL (ENVIA UN

ALCANCE A SU MDI

ANTERIOR)

45. SUMMIT WIRELESS

INFRASTRUCTURE DE

MEXICO

46. TOTAL PLAY

COMMUNICACIONES

47. INSTITUTO FEDERAL DE

TELECOMUNICACIONES

48. AHCIET


Mexico Conectado will:

Provide free broadband Internet access to

all public schools, health centers, libraries,

parks and other public buildings in the country

(approximately 250,000) by 2018.

Reduce service costs by aggregating

demand.

Use any technology based on a cost-

efficiency criteria.

Install hotspots in unserved and underserved

areas.

Provide an access platform for the e-

government, e-health, e-education and open

data initiatives in the National Digital Strategy

(EDN).

Estimated Investment: USD 1.5 billion



4.3.3. Mexico Conectado: Open Internet Access to all Public Schools, Health Centres, Libraries and Parks.


The constitutional telecom 2014 reform mandates that, by the end of 2018, the

estimated 250,000 buildings and public open spaces where government services

are provided to the general populations, have access to Internet. These

buildings and public open spaces include all public schools, health centers,

libraries, community centers, and government building, among many. In order to

fulfil this obligation, the Ministry of Communications and Transportation created

Mexico Conectado.

Mexico Conectado objectives are:

Improve the quality of public services provides to the populations through the use of ICT

technologies otherwise unavailable without Internet access.

Contribute to close the digital divide in Mexico by providing free Internet access to the

general population in these buildings and public open spaces.



Telecommunications operators who are awarded contracts through the tenders

are free to choose the technology as long as they comply with strict service level

specifications. 14 different operators have been awarded contracts whose

technologies vary from terrestrial to satellite.

Currently the program provides Internet access to 65,000 public places in all the

country.

43% of these are also equipped with an external Wi-Fi access point so that the general

population has access to free Internet. Additionally, the external Wi-Fi access point has

had a very positive impact in many communities by turning previously unattended public

spaces into places of social coexistence.

Another 13,000 services are about to be installed. The program´s target for 2015 is to

provide Internet access in 100,000 public places.

The goal of Mexico Conectado is to provide Internet access to the

estimated in 250,000 public places in Mexico by the end of 2016.


5. Mexican Mobile

Line Operators´

Expectations and

Challenges in

Context of the

Reform

5.1. Existing Operators Telcel and Telefonica Movistar

In 2013, the Mexican government established a new telecom and media

regulator, IFT, to impose remedies for competitive imbalances in the market.

In March 2014, IFT ruled that Telcel, was a Preponderant Economic Agent,

and imposed a series of measures designed to reduce Telcel´s dominance.

The full range of measures will make it increasingly difficult for Telcel to compete

aggressively on price, particularly in the voice market.

Thanks to the reform, first time ever, Telcel is forced to include customer satisfaction

and the quality of the service in its business strategy plans.

It might be challenging to drop its market participation below to 50% in the very

near future as there are not so many entities that can buy its assets like

required.

In the longer run, the market dynamic itself might do the change, as AT&T might

win more market share within its aggressive market entry plan, including good

quality of service, totally new service concepts and with the North America

Mobile Service Area strategy.


5.1. Existing Operators Telcel and Telefonica MovistarTelefonica is the second largest mobile operator in the Mexican market at the

moment and would stay there for some time, at least. For the company the

future will be “Make or break” situation. AT&T aggressive push into Mexico

means crunch time is coming for Telefonica.

The Spanish telecoms group has invested about US $13.5 billion in Latin America’s

second biggest market over the past dozen years.

Telefonica it has not decided what to do in the teeth of intensifying competition from a

new rival that is fast gaining on it. Telefonica, with about 20% market share, has long

played 2nd place in Mexico.

The landscape is changing. Mexico passed a sweeping telecoms reform bill

designed to open the door to competition and changes have come thick and fast.

AT&T wants to expand its presence in Mexico and incorporate it into a seamless

North American network.

The two odd-ones-out from this round of musical chairs are Telefonica and Televisa, the

country´s dominant television group. Telefónica last year tried to negotiate a partnership

with the broadcaster, but plans fell apart.

At the moment Telefonica is looking for cost saving solutions.


5.2. Challenger AT&T

Mexican market was attractive for many reasons for AT&T to enter: it wasunderdeveloped as far as capabilities and it also recently passed new legislationthat made it easier for new entrants to come into the market.

For AT&T there are lot of opportunities in Mexico and it might take the 2nd

position from Movistar in Mexican mobile market in the coming years as beingvery aggressive in the market entry and in its market growth strategy like:

1. AT&T will merge Iusacell and Nextel into a single company for wider coverage. Todayin Mexico, AT&T has the deepest spectrum position in the country.

2. AT&T is planning to create the first seamless network within the U.S. and Mexico, “thefirst-ever North American Mobile Service area“, covering 400M subscribers andbecome a leader in the industry Mexico.

3. According to AT&T people, in around 18 months the company can deliver a ‘good,robust’ 4G Long Term Evolution (LTE) experience beyond urban areas in Mexico.

4. Additionally AT&T Mexico communicated that the company is preparing to bringconnected car users exclusive content, including videos and games that can bestreamed onto personal mobile devices later this year.

5. There are rumours that AT&T will bid for 700MHz ‘Digital Dividend’ spectrum in thefrequency auction later this year; the US telco launched its 700MHz LTE network inthe US in September 2011.


5.3. Mexico set for a wave of MVNOs

Mexican market size and regulation changes like number portability, unblockedmobile phones - will make Mexican market one of the most attractive in theregion.

MVNO competition is still low due to the recent opening of the market, butregulator see MVNOs as a catalyst to increase market competition.

Some of the key challenges that Mexican MVNOs have faced are: The creation of a customer base. Telcel, Telefonica and AT&T have all together huge

customer bases and covering many different customer segments.

Mexican mobile sector differs a lot from the most of the other mobile markets due tohuge amount of the prepaid customers – prepaid customer segment has been as aniche market segment in other countries, but in Mexico traditional operators are verystrong in this segment and have very attractive customer packages available, also forniche markets.

Also, as MVNOs are not selling mobile phones, affects for the customer loyalty.

Telefonica, the main MNO to rent capacity for MVNOs in Mexico, offers good capacityand implementation packages, but they are very expensive and the penalties are veryhigh.

Mexican MVNOs have not yet find the right niche markets, services nor segments to winthe market share they are planning.

Additionally, AT&T and Telefonica are offering packages where Mexico and USA are thesame market area, without any additional roaming fee.



The number of MVNOs in growing, with players often focussing on nichemarkets. Two of the earliest operators to be licensed as Mobile Virtual NetworkOperators included Maxcom (launched in September 2007) and Megacable(launched in October 2012). Virgin Mobile Latin America received an MVNOlicense from the regulator in 2011 and launched services in mid-2014.

Mexican MVNOs are listed here:1. Using Telcel´s network:

• Alo (owned by Telcel, offers mobile plans and mobile phones for prepaid customers),

• Alestra and Axtel (Telecom Operators),

• Grupo Elektra (Appliance stores that have bank and money transfer branches)

2. Using Telefonica´s network:

• Cierto, Coppel, Lycamobile, Maz Tiempo,

• Maxcom, Megacable (Telecom Operators)

• OBoCell,

• Tuonti (owned by Telefonica)

• Virgen Mobile

Additionally, there are rumours that Liverpool, Coca Cola, Walmart and NeusMobile (M2M) would come to Mexico in the soonest.



Different opportunities and value propositions should be developed in Mexico toMVNO business. MVNOs should find the way to secure the loyalty of the finalcustomers. The ways might be as follow:

1. Socio-demographics: Mexican MNOs don´t have the branding, positioning or image to tackle certain market niches;

MVNOs can benefit from using specific brands to set very focused positioning and target theseniches;

Specific demographic niches (such as football clubs´ fans, religious communities or ethniccommunities) can be targeted developing laser focused value propositions

2. Ethnic model: Develop value propositions around ethnic communities living in foreign countries. These MVNOs are

typically build around reducing tariffs for international calls and money transfers and prepaid credit top-ups.

Among the largest communities that can be targeted is that Colombia citizenships living in Mexico

3. Stores, consumer brands: Some store chains and famous consumer brands are considering the set up of an MVNO to reach the

following goals: Increase customer loyalty and promote their products and services.

4. Fixed telecom operators: Fixed telecom operators – like Maxcom and Megacable - have entered the MVNO business in

Mexico. Having this service in their portfolio enables them to: Increase convergent offers;

Build bundled offer;

Attach other operators customer base without facing cannibalization risk;

Create defensive strategy to defend from other operations

Frequently new and innovative subscription based applications and solutions.


6. Conclusions

about the Business

Opportunities for

Finnish ICT

companies in

Context of the 2014

Reform

6. Promover Conclusions In general, the areas with the greatest opportunities for Finnish ICT companies inthe Mexican Mobile Line Market within each subsector based on expected growth,market trends and experts´ opinion include:

All kind of Mobile (and Fixed) Network Equipment for capacity and coverageexpansions. To: AT&T, Open Access Network, Wholesale Backbone.

Fiber Optic. To: Wholesale Backbone, AT&T.

OSS systems, the network facing systems, to instruct the network what to do, andresponsible for the orchestration like customer databases, etc. To: AT&T, Open AccessNetwork, Wholesale Backbone, MVNOs.

Customer Facing Systems – web portals, billing systems. To: AT&T, Open AccessNetwork, Wholesale Backbone, MVNOs.

Mobile Towers, see the need to have 40 000 new towers in coming years per dataservice growth. To: American Tower, Telesite

SIM Cards. To: MVNOs

Cyber Security Solutions for compliance for regulator and for data/company protectiondriven by the Federal Data Protection Law. SAAS solutions. Encryption, Data Erasure,Email Security, Web Safety. To: All

Mobile Device Management: To: All

Services related to Branding, Marketing, Strategy Services – all localised. To: All

Network performance testing and SLA monitoring. To: Open Access Network

Network Consultancy. To: Open Access Network


6. Promover Conclusions Big data solutions for mobile applications and content platform, security solutions for

mobile devices; applications for the consumer market. To: All

Subscription based applications to make the difference. New applications frequently.

Could be like: eLearning, eHealth, eGovernment, Identity services (Mobile ID, Web

Identification). To: All

Devices and Device Management. To: All

Value-added Services meant to support operator´s strategies to increase ARPU. To: All

Applications and infrastructure solutions for services on the cloud. TO: All


ThankYou

Mervi RyynänenPromover LatAmT: +52 1 55 4342 2198E: [email protected]: www.promover-latam.com

mailto:[email protected]


Technology

Finpro promover mexican telecommunication sector 2015 ryynänen