Mexico’s telecoms reform bill – The Expert Take

shutterstock_70763086By Duncan Wood, 3/15/2013

In another bold move, the Enrique Peña Nieto government has presented legislation to the Mexican Congress that is aimed at reducing the power and monopolistic control that is currently held by the dominant players in the country’s telecommunications sector. The legislation, which appears to have a strong chance of passing through the legislature, is a further attempt by the government to wrest back control of the economy and Mexican politics from the so-called “poderes fácticos,” or vested interests. It shows the effectiveness both of the government’s approach, and of the negotiating mechanism that it is employing in its legislative agenda, namely the Pacto Por México.

The telecoms reform is far-reaching and revolutionary. First, it aims to create a new independent regulatory body that will have the power to restrain companies that have more than 50 percent of the market, and in turn will offer an opening to new, smaller firms. At its most extreme, the regulator will have the power to break up dominant firms, forcing them to sell assets. But the regulator will also possess the power to set maximum prices for interconnections, currently seen as being a severe obstacle to the emergence of rival firms in the fixed-line and wireless market.

The second significant dimension to the legislation is that foreign ownership limits in the phone market will be eliminated, allowing 100% foreign-owned firms to enter the market. In the late 1990s, a number of foreign firms attempted to challenge Telmex and Telcel’s market dominance, only to find that they were seriously hampered by foreign ownership restrictions and pricing issues. The way is now clear for foreign competition to push Carlos Slim’s companies to come up with improved prices and packages for the Mexican public.

It is important to note that the new laws apply not only to the fixed-line and wireless sectors, but also to television stations. As such they represent an assault on the interests of the two dominant television companies in Mexico, Televisa and TV Azteca, both of which were heavily criticized during the election campaign for throwing their support behind Peña Nieto (although it has been difficult to prove that accusation).

The message, then, from the current government is three-fold. First, it is showing that its campaign promise to attack the “poderes fácticos” is being fulfilled. No one is safe from this, and the government is not afraid of challenging any entity that believes its interests come before those of the state. Second, there is an explicit message that the government is fulfilling its campaign pledge to provide “effective government”. From labor reform to education reform to telecoms, and presumably energy and fiscal reforms later this year, the government is delivering on its promise to “get things done”. Lastly, this stands in stark contrast to the travails of the previous two PAN governments, each of which began with high hopes and ambitious plans, only to end up being frustrated by their inability to move legislation through Congress.

In all of this it is crucial to note that the Pacto por México has emerged as the central negotiating mechanism in contemporary Mexican politics. The value of this agreement is becoming clear as the government has been able to secure the legislative collaboration of the major opposition parties, and to generate much-needed consensus in an era of divided government.

It still remains to be seen whether the legislation will be implemented, of course, and Mexican commentators have already raised doubts about the seriousness of the legislation with regards to controlling monopolies in the television industry. Both Carlos Slim and the TV stations have already issued statements welcoming the new legislative initiative, which has exacerbated this suspicion. What’s more, it will take time to develop the new institutional framework for regulating the sector, meaning that the status quo will not likely be altered very much in the next year or so. But the intent that has been signaled is intriguing and, if it comes to fruition, will profoundly change Mexico’s telecommunications sector.

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