Mexico’s New Telecommunications Law — A Step in the Right Direction

The Mexican government recently passed a new Telecommunications and Broadcasting Law (the “TBL”) with the goals of increasing competition in the telecommunications and broadcasting sectors, and improving service for Mexican consumers. The TBL implements and expands a Constitutional amendment passed in June 2013 as part of the structural reform agenda of President Enrique Peña Nieto. The TBL is widely viewed as a necessary reform to curb the dominant position of Mexico’s incumbent telecommunications and media giants, América Móvil (controlled by Mr. Carlos Slim) and Grupo Televisa. 

Being more than 100 pages long, the TBL is extremely detailed. The new law is scheduled to become effective on Aug. 13, 2014, and will include the following principal changes:

• New Regulator. Confirmation of a new and autonomous regulator, the Federal Telecommunications Institute (“IFT”). The IFT is the only authority in the telecommunications and broadcasting sectors and has broad powers to: (i) grant telecommunications and broadcasting licenses; (ii) oversee and regulate the markets; (iii) administer antitrust laws in the telecom sector; (iv) impose dominant carrier regulation on operators with a significant market position; and (v) enforce the TBL and sanction operators.
• Convergent Licensing and Foreign Ownership. Creates a convergent telecommunications license authorizing the provision of all facilities-based services (telephony, video, Internet, etc.) under one single license. The licensing process is also streamlined and eliminates all foreign ownership restrictions for telecommunications licensees. Broadcasting licenses are subject to a maximum of 49% foreign investment (subject to reciprocity in the country of the foreign investor). Service providers that do not need to deploy their own facilities are only subject to a simplified authorization regime.
• Elimination of Domestic Long Distance and Improved Consumer Protection. All domestic long distance charges are eliminated effective Jan. 1, 2015. The TBL also improves consumer protection with respect to prepaid mobile telephony services, number portability, imposition of quality of service obligations, and clearer rules for contracting and service disconnections.
• Dominant Carrier Regulation. Confirms the IFT’s ability to impose asymmetric regulation on any operator found to be “preponderant” (i.e., with a market share of more than 50 percent in terms of subscribers, audience and/or traffic on its networks) in each of the telecommunications and broadcasting sectors.
  • In March 2014, the IFT determined that América Móvil and Grupo Televisa were preponderant in the telecommunications and broadcasting sectors, respectively, and imposed a series of obligations on these companies.
  • Among the most important obligations imposed on América Móvil (“AMX”) are: (i) obligations to provide interconnection on a non-discriminatory basis, including publication of a reference interconnection offer; (ii) unbundling of Telmex’s fixed local loop; (iii) infrastructure sharing including unbundled access to network elements other than the local loop as well as to passive infrastructure, such as ducts, poles and conduits; (iv) asymmetric interconnection and mobile termination rates; (v) obligation to obtain IFT’s prior approval for all service pricing to consumers; (vi) obligation to provide any services on a wholesale basis to any requesting competitors at fixed prices, including to MVNOs; (vii) obligation to permit competitive mobile carriers to roam on AMX’s network at prices set by the regulator; (viii) accounting separation and enhanced reporting obligations to the IFT; and (ix) restriction to provide video services, including pay TV and broadcasting services.
  • In turn, the obligations imposed on Grupo Televisa in the broadcasting sector, include: (i) imposition of “must offer” obligations requiring the provision of Televisa’s network programming free of charge to pay TV providers; (ii) infrastructure sharing, including masts and antennas; (iii) restrictions on the ability to contract exclusive programming such as major sporting events or the national soccer tournament; and (iv) obligation to disclose all of its advertising pricing and permit advertisers to buy time on an unbundled basis and not subject to packages.
  • The IFT is also empowered to impose additional obligations, including possible structural and operational separation of preponderant operators.
  • In addition to “preponderant” operators, the IFT may also designate any carrier as having significant market power (“SMP”) in any submarket (e.g., fixed telephony, mobile telephony, broadband access, pay TV, etc.). Operators with SMP have a lower than 50 percent market share, but are still dominant in the applicable submarket. The IFT may impose asymmetric regulation on operators with SMP, including taking any or all of the measures that may be imposed on preponderant operators.
• Interconnection Rate Reduction. The TBL aims at gradually moving to a bill and keep system (for both wireline and wireless networks) where all operators offset payments to one another for termination of traffic in the other’s networks. However, while there is a preponderant operator in the telecommunications sector, the TBL goes even further than the original preponderant carrier resolution against AMX, mandating that the preponderant carrier does not have the right to charge anything for termination of traffic on its networks. This new zero interconnection and mobile termination rate is a major blow for AMX.
• New Wholesale Network. Creation of a new wholesale carrier’s carrier network (possibly through a public-private partnership) for the deployment of a new fixed and wireless national broadband network (using spectrum in the 700 MHz band to be contributed free of charge by the IFT). This entity will sell capacity at fixed rates to any requesting service provider.
• Enhanced Enforcement Powers. The IFT has the authority to impose significant fines (up to 10 percent of a company’s gross revenues) for transgressions of the IFT. The new law also amends procedural rules to reduce litigation in the telecommunications and broadcasting sectors.

Potential Divestiture by AMX
Concurrently with the passage of the new TBL, AMX announced that it intends to divest subscribers and assets in order to reduce its market share below 50 percent and no longer be subject to preponderant carrier regulation. This unexpected announcement from Mr. Slim is a major coup for the government which has seen immediate results from the passage of the new law. Details regarding AMX’s divestiture plans are still sketchy, but the company would need to put together a comprehensive and detailed divestiture plan that includes both subscribers and assets (wireline and wireless) to be sold to an independent third party operator. The plan needs to be reviewed and approved by the IFT (which under the TBL has a period of 120 days to review (with two possible extensions of 90 days each)). Once approved, AMX will have up to one year to close the sale of the assets. After the divestiture, AMX can request the lifting of the preponderant carrier obligations and, if successful, may enter the pay TV market or broadcasting markets after 18 months from the date the IFT determines it is no longer preponderant. It should be noted, that while the divestiture plan is being reviewed by the IFT, AMX will not be subject to the zero termination rate and all carriers would move immediately to a bill and keep system.

The new TBL, coupled with AMX’s divestiture announcement, appear to be very good news for the Mexican telecommunications market and will likely bring new entrants and additional competition to the benefit of Mexican consumers.

Contacts

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