 Mexico: Telecoms and Technology background
FROM THE ECONOMIST INTELLIGENCE UNIT
Mexico has the second-largest information technology (IT) market in Latin America, after Brazil. However, relative to its population and to the size of its economy, Mexico’s telecoms and technology sector has suffered historically in comparison with many of its Latin American neighbours.
Although mobile and Internet penetration rose rapidly in countries such as Brazil and particularly Chile (a country with a similar per-head income level to Mexico) at the beginning of the decade, Mexico lagged behind. This is a legacy of regulatory weaknesses, which allowed Teléfonos de México (Telmex, Mexico’s main telecoms company) to emerge from the liberalisation of the 1990s with a de facto monopoly.
The result was persistently high prices, a lack of investment in infrastructure and new technology, and low teledensity (Mexico has among the highest phone charges and lowest teledensities within the OECD). A series of legal challenges to Telmex’s alleged anti-competitive behaviour brought by US entrants into the mobile and fixed-line markets culminated in a WTO ruling in mid-2004 against Mexico.
This prompted some strengthening of the powers of the telecoms regulator, Cofetel, and a number of agreements on reducing Telmex’s interconnection costs. Combined with an acceleration in economic activity, the introduction of new technologies and significant increases in infrastructure investment (mostly by Telmex and its market-leading mobile network, Telcel), this has set the stage for a rapid rise in telecoms revenue and teledensity in the past two years.
Telecoms investment rose from an accumulated US$5.7bn in 2002-03 to US$7.1bn in 2004-05. Mobile penetration rose from 29.1 per 100 population in 2003 to 40.2 per 100 in mid-2005. However, although Mexico’s telecoms market is catching up with the rest of the region, competition remains weak. The Fox government has presented a telecoms reform that would increase Cofetel’s powers to combat anti-competitive practice, but it has been blocked by an opposition-dominated Congress. Until it is passed, Telmex’s dominance will not be challenged and important issues, such as the expansion of coverage in rural areas, will remain pending.
As in the telecoms sector, rising personal incomes, the introduction of new technologies, and slowly declining prices are aiding the development of Mexico’s IT industry. PC ownership rose to 10.7 per 100 people in 2004, in line with most of the rest of the region, while Internet penetration rose to 13 per 100 population. Combined with improved access to credit cards, increasing Internet usage is boosting the development of the small e-commerce sector.
Banks and large retailers are steadily increasing their e-commerce offerings. Meanwhile, strong economic links to the US and relatively low-cost labour continue to support Mexico’s telecoms and IT equipment manufacturing base; the IT equipment market was estimated at US$6.5bn in 2004.
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SOURCE: The Economist Intelligence Unit
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