Mexico: The good, the bad and the ugly


By Federico Hernandez Arroyo

06 August 2013 at 15:15 BST


Federico Hernandez Arroyo of Mexican law firm BSTL discusses the opportunities and challenges of the move to liberalise the telecoms market.

Only one in four homes in Mexico have internet access. Bryan Busovicki

On March 11, 2013, the President submitted an ambitious bill to reform certain provisions of the Mexican Constitution. The main target was  telecommunications matters and the bill is a result of the commitments contained in the  “Pact for Mexico” reached by the new President and the three main political parties.The reforms were  approved and published in just three months and  introduces structural changes that can be separated in two groups: (i) amendments to eight articles of the Constitution that became effective on June 12, 2013, and (ii) guidelines contained in eighteen transitory articles that provide the implementation of several actions within different terms.

The central objective of the Reform is to improve competition in the telecommunications and broadcasting markets, which are currently highly concentrated. However, there is no common consensus about the Reform. We present a general overview of the most relevant aspects from three angles.

The Good

The Reform elevated as human rights access to information and communications technology and broadcasting and telecommunications services, including broadband and Internet. It is created the Federal Institute of Telecommunications (IFETEL) as a new regulatory agency for all broadcasting and telecommunications matters with constitutional autonomy to replace the Federal Telecommunications Commission (COFETEL) -  formed in 1996 as a subordinated governmental body.

Although it  new institutional framework is debatable, there is no doubt that IFETEL will have much more independence -  (eg budget and power to issue: particular and general provisions and its organic statute) and transparency (eg public deliberations - with exceptions) than COFETEL. In addition, the Senate accurately included some mechanisms to balance the power of IFETEL, such as: (i) submission before the Executive Power and the Congress of annual programs and quarterly reports; (ii) summons before the Congress; (iii) internal comptroller, and (iv) being subject (active and passive) of constitutional disputes.

With respect to telecommunications and broadcasting concessions, IFETEL will be the sole authority in charge of its: (i) granting; (ii) revocation; (iii) assignment, and (iv) considerations to be paid. Even though the Ministry of Communications and Transportation (“Ministry”) and the Ministry of Finance and Public Credit may issue non-mandatory opinions, the so-called double window between the regulator and the Ministry is, if not eliminated, significantly reduced. The Reform also provides the creation of specialized judges and courts in broadcasting, telecommunications and economic competition matters, that it is expected to bring more certainty in the highly litigation field.

The transitory articles contain the following notable provisions: (i) the Congress must issue on or before December 9, 2013, a convergent law to regulate telecommunications and broadcasting; (ii) direct foreign investment is now permitted 100 per cent  in telecommunications and satellite communications and up to 49 per cent  in broadcasting (subject to reciprocity from the country of the investor); (iii) must offer and must carry obligations will apply on a free basis (but restricted in three cases); (iv) IFETEL must issue the bidding rules for two new television networks with national coverage, and (v) IFETEL must determine the existence of economic agents who hold a market share greater than 50% (“preponderant agents”), in order to impose certain measures.

The Bad

Most of the topics included in the Reform could have been addressed through secondary provisions rather than in the Constitution or constitutional transitory articles. For example, the Constitution will now establish the requirements and mechanism to appoint the seven commissionaires of IFETEL, including its president. Among the vague requirements that the commissionaires must comply, one is particularly undesirable: only for the previous year, instead for a greater period (as originally proposed), the candidates shall have not been State Secretary, Mexico’s Attorney General, senator, federal or local congressman, Governor, or Mexico’s City Mayor. In addition, the procedure to evaluate and elect the commissionaires is cumbersome and could be politically influenced.

We disagree that IFETEL should be the exclusive authority in all economic competition matters in the telecoms and broadcasting sectors; it should have been granted the application of competition law only for sector specific regulation purposes. Two controversial provisions are that IFETEL’s acts could: (i) only be challenged via a constitutional appeal, and (ii) not be stayed through injunctions in any case.

The State will ensure the installation (between 2014 and 2018) of a shared telecommunications network of wholesale wireless services by mainly using the 700 MHz band and the fiber optic network of the Federal Electricity Commission (“CFE”). It has been criticized this direct role of the State that replaces the private sector which requires the spectrum to cope with the new and high demand of broadband services.

The Ugly

The Reform provides short periods in order to implement important different actions at the same time. In addition, all concepts entail important implications that should be properly addressed and detailed in the secondary provisions to be issued.The regulation and supervision of content (excluding electoral) will be performed by IFETEL, but it is uncertain that such institute should also be the authority of said matters. Although the Reform confirms that the transition to digital terrestrial television (DTT) must finish on December 31, 2015, it is unclear that such date will be accomplished.

The assignment from CFE to Telecommunications of Mexico (subordinated to the Ministry) of its network concession (except the infrastructure) is certainly a risky move that could even jeopardize the operation and growth of the fiber optic backbone. Other two good wishes difficult to achieve are the broadband universal coverage and the real and effective disposition of federal infrastructure usable for the sector.

The future

As can be seen, the balance of the Reform is mixed and poses different challenges. However, we can look forward to the publication of the secondary legislation and the designation of the commissionaires of IFETEL which should indicate the direction the reforms will take. If these two factors are correctly dealt with, we have  high expectations that the telecommunications sector in Mexico will improve. The final test will be the application of the new regulatory framework by all those  involved in the industry (private and public).

Frederico Hernandez Arroya is a partner at Mexican law firm  Barrera, Siqueiros y Torres Landa (BSTL). He heads up the firm's telecommunications practice. Prior to that he worked at the Federal Telecommunications Commission in the department of Legal Affairs and was Director of Regulatory Affairs in 2001. Contact at fha@bstl.com.mx 

 
   
 
 
 

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