Contributed By Holland & Knight
Mexico’s telecommunications landscape suffered significant structural changes during the last administration derived from the 2013 Constitutional Reform on Telecommunications and Competition, the enactment of new telecommunications and competition laws and the reconfiguration of the decision-making bodies, with the creation of the Federal Institute of Telecommunications (Instituto Federal de Telecomunicaciones – IFT) and the Federal Commission of Economic Competition (COFECE) as constitutional autonomous entities.
López Obrador’s administration took office on 1 December 2018. The new administration will be tasked with further promoting the development of this sector, which requires, among other issues, reformulating the criteria to determine the amount of compensation payable due to the extension of spectrum licences; developing and implementing efficient policies and programmes to ensure universal broadband coverage; bringing telecommunication services to unserved or underserved urban and rural communities; as well as improving the current legal framework to enable telecommunication operators to use federal and State government buildings throughout the country to deploy telecommunications and broadcasting infrastructure.
On analysis, the most important trends and developments for the telecommunications sector during 2019 are as follows.
Red Troncal (Backbone Network)
The 'Red Troncal' (backbone network) is one of the two major telecommunications projects stemming from the 2013 Constitutional Reform in the telecommunications sector. This project is organised and coordinated by Telecomunicaciones de Mexico, which is a government entity holding a long-term indefeasible right of use over four strands of dark fibre optics that are property of the government-owned power utility company, two of which will be contributed to a public-private partnership (PPP) to develop the nationwide Red Troncal project. The PPP agreement will be awarded through an international public bid.
This project is considered by sector specialists as the most important connectivity project and is in line with the country’s current connectivity needs and policy. The awardee of the project will have the obligation to connect at least 80% of the population, will complement existing telecommunications infrastructure and will open the door to telecommunications operators whose presence is only circumscribed to a part of the Mexican territory.
Due to the increasing demand of bandwidth, which is necessary to deploy new technologies and to provide better telecommunications services, the markets are eager about fibre optics. In particular, the Mexican fibre optics market has grown exponentially over the last couple of years, during which we have seen ambitious projects building and developing fibre optics rings in strategic cities supported by telecommunications operators. It is estimated that these kinds of projects will be replicated across the territory in the coming years, thus the importance of a backbone network functioning as a natural link between these projects.
The first coverage milestone of the Red Compartida was attained in March 2018.
Compliance with the second milestone will be closely followed during 2019; in accordance with the agreed coverage commitments, Altán, in charge of deploying Red Compartida, will have to meet a coverage commitment of 50% of the country’s population by 24 January 2020.
The deployment of telecommunications infrastructure in Mexico faces critical constraints, mainly derived from cumbersome procedures to obtain local permits that are not harmonised within municipalities (there are 2,458 municipalities in Mexico).
As an effort to address such problems, last year the Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes) worked with the industry in a project to standardise permit procedures and fees across municipalities. Hidalgo was the first state to adopt the model of permit procedures proposed by the Ministry to simplify the authorisation process for the deployment of telecommunications infrastructure.
On the other hand, during the last quarter of 2018, the Energy Regulatory Commission (Comisión Reguladora de Energía) issued the general administrative provisions to allow access to operators and other entities providing telecommunication infrastructure to the facilities and rights of way of the National Electricity System, which is aimed to provide legal certainty to operators by setting forth the technical, administrative and economic conditions of access to 11 million poles under the “first come, first served” rule. During 2019, we will see the first agreements between telecommunications entities and the government-owned power utility company under these provisions.
Finally, last year the IFT initiated two investigations to determine the possible existence of barriers to entry that could generate anti-competitive effects in the telecommunications market in the State of Mexico and Guanajuato, respectively. As a result, the procedures to obtain permits in these jurisdictions will be thoroughly analysed during 2019. It is not certain if a resolution in these proceedings will be issued during 2019, as the IFT has the authority to extend the investigations until 2020.
Taxes and Government Fees
Telecommunications services in Mexico are currently subject to a 3% excise tax, a collection policy considered by many as contrary to the spirit of the 2013 Constitutional Reform and a deterrent to attain connectivity goals. In addition to that, telecommunications operators have to pay annual government fees for the use of spectrum, and such fees vary considerably depending of the allocated frequency band and served territory. The criteria upon which such variation is based was constitutionally challenged by a major mobile operator, and a resolution determining whether such payment is or is not in accordance with constitutional principles is expected this year.
In line with the industry’s requests, during the 2018 presidential campaign members of López Obrador’s advisory team mentioned in several fora that the collection of excise taxes imposed on telecommunications services, and fees applicable to spectrum use, would be thoroughly reviewed by the new administration.
Spectrum Auctions for 5G Technology
Consistent with the global trend in spectrum allocation for the deployment of 5G technology, the 2019 Annual Programme of Use and Exploitation of Frequency Bands (Programa Anual de Uso y Aprovechamiento de Bandas de Frecuencias 2019), issued by the IFT, considers at least the following three spectrum auctions during 2019:
Review of Asymmetric Measures Imposed on Preponderant Economic Agents
The 2013 Constitutional Reform mandated the IFT to review the telecommunications and broadcasting sectors in order to determine if the conditions to declare a preponderant economic agent (AEP per its acronym in Spanish) in each sector were met. As a result of such review, in 2014 the IFT declared América Móvil as the AEP in the telecommunications sector and Group Televisa as the AEP in the broadcasting sector. Consequently, asymmetric measures were imposed on these two economic agents, in view of increasing competition and a level playing field in each of these sectors.
The second review of compliance with asymmetric measures by each AEP will take place this year. Should the IFT determine that América Móvil is compliant with the imposed measures, the restriction to provide Pay-TV services to this operator could be lifted. It is important to highlight that despite asymmetric measures imposed four years ago, the incumbent maintains a market share of more than 60% in the telecommunications sector.
In addition, this year the Mexican Supreme Court of Justice is expected to rule on an injunction filed by América Móvil with respect to its preponderant status. This ruling is of great importance, as it could be seen as a step back from the 2013 Constitutional Reform, as well as affecting the ongoing process of functional separation of Telmex ordered by the IFT in 2018.
During the first half of 2018, the draft of the Mexican Official Standard NOM-184-SCFI-2017 (the Consumer’s Protection NOM) aiming to update and supersede the prior standard on the obligations of telecommunications operators vis-à-vis consumers, was released for public consultation.
Contrary to the previous standard, the Consumer’s Protection NOM exempts telecommunications operators from using a pre-formulated standard contract when (i) they are part of an auction process for provision of services organised by a public entity; (ii) the client does not meet the 'consumer' definition of the Consumer’s Protection Law; and (iii) they are providing wholesale services. In addition, the Consumer’s Protection NOM allows operators to comply with their obligations towards consumers through digital means (operators are still required to provide a physical address for customer service).
On the other hand, certain provisions of the Consumer’s Protection NOM have been identified as inconsistent with the obligation to provide customers with unlocked handsets at the time of purchase set forth in the Federal Telecommunications and Broadcasting Law.
Although the draft Consumer’s Protection NOM does not have a specific issuance date, its publication is expected to take place during the first half of 2019.