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Mexico is Latin America’s second largest economy, but one that is highly dependent on its neighbour north of the border. The money sent home from migrant workers in the US remains significant for Mexico’s economic well being, which makes it particularly susceptible to any unease stateside. As a result, Mexico was hit particularly hard by the 2008 credit crunch with its GDP contracting 6%.Despite this dip, Mexico returned to positive growth of 3.8% in 2011, and one of the country’s biggest success stories, América Móvil owner Carlos Slim Helú, has since moved into pole position on the Forbes rich list.
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Slim holds a firm grip on the mobile, broadband and wireline markets of Mexico with little sign of release. His dominance in the country through América Móvil owned Telcel Group, has largely prevented the successful entrance of international players. In the mobile market the only real competition to América Móvil comes from Telefónica subsidiary, Movistar Mexico, which has 20.5% share of subscribers compared to Telcel’s 70.5%.
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Part of the reason that Telefónica has been unable to establish a more significant market share, is that América Móvil has the financial muscle to match any offer that it makes to customers. “América Móvil has tremendous resources and is able to quickly respond to offers, whilst also absorbing the pain in the interest of maintaining market share,” said Wally Swain, SVP of emerging markets at Yankee Group.
One potential counter to Slim’s dominance is the entrance of Mexican media conglomerate, Televisa, which has been looking to acquire a 50% stake of third place mobile operator Iusacell. The deal has so far been blocked by Mexico’s competition authority, but not due to concerns for the telecoms market.
The operator is owned by another Mexican billionaire, Ricardo Salinas Peliego, whose company, Salinas Group, has a significant presence in the Mexican media market. Despite acknowledging the benefits to improving competition in Mexico’s telecoms sector, the authority is concerned that the two companies working together in telecoms would lead to collusion in the media sector. Swain believes that the deal is still likely to go ahead, but with some terms and conditions attached, suggesting that the competition board is likely to be under “political pressure” to grant its approval.
Another new potential competitor on the horizon is Nextel, which will be launching 3G services this year. Nextel is primarily an enterprise oriented carrier, and had previously received interest from Televisa. The two sought to jointly acquire spectrum in the country’s 2010 auction to pave the way for a stake acquisition by Televisa, but despite Nextel acquiring the amount of spectrum it needed for the deal, it eventually fell through. Nextel’s shift to 3G means that the company is likely to have to expand its customer base. “The basic economics of this shift into 3G means that Nextel is going to have to expand beyond its enterprise base and go after customers,” said Swain. “We have great hopes that they will do something to shake up the market.”
Mobile population coverage in Mexico, at 86.1%, exceeds both broadband (49.2%) and PSTN (72.6%), but it is still below average when compared to many Latin American and Caribbean countries. América Móvil’s dominance is often blamed for the slow growth of Mexico’s telecoms sector. The launch of Telcel’s LTE service in April, however, could provide an opportunity for Mexico to catch up.
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Telcel was able to launch LTE services earlier than its competitor Telefónica by refarming its existing spectrum. Telefónica’s Mexican subsidiary was formed by combining five operators, meaning that its spectrum is not as well organised for refarming and it will most likely need to acquire new spectrum to proceed with a 4G launch. Mexico’s last spectrum auction ended in legal action with Iusacell claiming that Nextel had been able to acquire spectrum too cheaply, which has hindered hope of the government planning another any time soon.
Despite this Swain suggests that Telcel may not dominate the 4G market in the same way it has 3G. He suggests that the situation could develop similarly to Colombia, where América Móvil has an equally large mobile market share, but lags behind Telefónica in terms of mobile broadband modems issued.
With new competitors in the market and the launch of LTE, 2012 is already set to be a year that could redefine the Mexican telecoms market, but even more so given that it is also a presidential election year. Mexican presidents serve for seven years and boast significant leverage over the economy. History suggests that the bulk of policy is usually drafted through during the first two years after an election, which is likely to cause a significant impact on the overall Mexican telecoms market.
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