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Mexico to Reform Telecom Sector

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A new bill proposed by Mexican President Enrique Pena Nieto early this week highlights several measures to reform its telecom and television industry. The main objective of introducing this bill is to bring greater uniformity and transparency in the sector and to curb the concentration of power lying with predominant players who dictate market behavior.   

A major highlight of this bill is to introduce a new regulatory body -- Federal Telecommunications Institute -- that replaces the existing body -- Cofetel (Comisión Federal de Telecomunicaciones). The bill also proposes to remove the antitrust agency -- the Federal Competition Commission -- by allocating its responsibilities to the Federal Telecommunications Institute.

Through these amendments, the government expects strong participation in controlling industry activities. The bill demonstrates several key points that the Mexican government intends to undertake. One of these include barring operators from pushing regulatory rulings through injunctions during court appeals. Further, the bill imposes stringent action for unfair trade practice through stiffer penalties and may require fragmenting a company to promote fair competition.

However, the proposal has struck a discordant note on the Mexican telecom and television industry as it unfavorably targets giant corporations -- America Movil S.A.B. (AMX - Free Report) and Grupo Televisa S.A. (TV - Free Report) . The proposal stresses on implementation of the asymmetric regulations that faced severe condemnation by America Movil.

The rule implies that predominant players who control majority of the market share as in the case of America Movil will have to pay higher mobile termination rates (MTRs) to smaller peers while receive less from them for network interconnection. Through Telcel and Telmex, America Movil commands about 70% market share, while the Spanish wireless operator Telefonica S.A. (TEF - Free Report) controls nearly 22% of the Mexican market share.

The rule has also cast the cable company Televisa under examination as it controls over 73% of the market share in the television business, according to market reports. The proposal includes the creation of two new digital broadcast networks that would compete with Televisa and TV Azteca.

In addition, it highlights creation of a non-profit television company that would provide cable services across the country. Further, these companies would be prohibited from participating in any government-related spectrum auction in the future to expand national television networks.

This is not the first time that the company has been hit by regulatory interventions. Earlier, in 2010, Televisa abandoned its wireless venture with Nextel de Mexico, a subsidiary of  NII Holdings Inc. due to prolonged legal battles.

Given the nature of the Mexican telecom and television market characterized by extreme level of competition and quasi-monopolistic practices, the proposed reform comes as no surprise. The bill, if approved, would mark a pivotal role in shaping the telecom industry in Mexico and decide the prospects for these carriers in Mexico who have so far reaped large profits and grown as market leaders throughout Latin America. 

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