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Mexico's Telecom Sector Gathers Steam After 2014 Reforms

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The telecommunications market in Mexico has become highly competitive after the government initiated reforms in this market. This market was highly monopolized by the two companies controlled by billionaire Carlos Slim. The reforms process which was initiated by Mexico’s telecom regulatory authority, the Federal Telecommunications Institute (IFT), has so far yielded exceptional results, as per a recent report by OECD.

The reform process has significantly raised competition resulting in a sharp fall in price of various telecom products. As a result, people are increasingly availing telecom products that were a distant dream till sometime. The OECD report stated that the reforms have transform Mexico into one of the lowest telecom price countries from one of the highest.

The OECD report stated that in the last three years, the cost of a low-usage mobile broadband basket of 100 calls and 500 Mbps has dropped 65% from $44.05 PPP (at purchasing power parity) to $15.39 PPP. Likewise, the cost of a high-usage basket dropped 75% from $101 PPP to $24.93 PPP. The price for a medium-usage basket also dropped 61%.

In 2014, the Mexican government introduced a few major reforms within its telecom sector. Per the IFT reformed norms, the maximum hold of a company in any specific market has been restricted to 50%. The IFT identified Slim controlled America Movil SAB (AMX - Free Report) as a dominant players in the telecom market as its wireline division, Telmex, controls around 70% of the Mexican market, whereas its wireless division, Telcel, holds about 68% market share.

The reform process has however intensified competition. Several stringent measures have been imposed on America Movil. Besides the existence of Telefonica SA (TEF - Free Report) which controls around 20% of the telecom market share, U.S. telecom behemoth AT&T Inc. (T - Free Report) also entered the fray with the acquisition of Grupo Iusacell and Nextel de Mexico. As a result, America Movil’s mobile broadband market share has gone down to 71.8% from 83.8% prior to reforms.

In contrast to the telecom sector, the broadcast TV market in Mexico has witnessed an increase in price of around 5% in the same time frame. The OECD report blames limited competition and restrictions on foreign investment as the primary factors behind this increase in price. Notably, Grupo Televisa SA (TV - Free Report) is the undisputed leader in this sector commanding around 70% market share.

Mexico is the largest economy in the Latin American region, with a growing middle class population that is eager to spend more on high-speed wireless networks for optimal use of smartphones and tablets. Also the wireless penetration rate is relatively lower in the country compared with that in the United States. We, therefore, expect increased competition in this market.

AT&T, Telefonica and Grupo Televisa carry a Zacks Rank #3 (Hold) while America Movil has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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