The state monopoly carrier was privatised in 1990 following international best practices. In 1995 the sector was liberalised and a new law was issued. This law was structurally amended in 2006 but the market continued with poor progress.
In 2012 the Organisation for Economic Co-operation and Development (OECD) published a study2 that described the weakness of the telecommunications sector in Mexico and recommended the implementation of different actions to foster the market. The study presented the following market shares: (1) 80 per cent of Telmex in fixed telephony; (2) 70 per cent of Telcel in mobile telephony;3 (3) 45 per cent of Televisa in pay-TV; and (4) 28 per cent of Megacable in pay-TV. In addition, the document stated that the penetration rates for fixed line, mobile and broadband in Mexico were among the lowest in the OECD.
In the foregoing context and as a consequence of the commitments agreed by the three main political parties, the new administration published an historic telecommunications constitutional reform in June 2013 (the Reform) with the main aim of improving and securing effective competition with the respective benefits to the end-users.
The Reform was followed by the formation in September 2013 of the new Federal Telecommunications Institute (IFT) and the publication in July 2014 of new convergence legislation, the Federal Telecommunications and Broadcasting Law (FTBL), which became effective the following month.
Since its creation, the IFT has been issuing various regulations and guidelines and has been in charge of implementing the Reform and the FTBL through the drafting and execution of various policies, some of which we will review in the following sections.
i The regulators
The main regulator is the new IFT, which was created as a constitutional entity with enhanced powers covering almost all decisions concerning the telecommunications and broadcasting sectors, except as mentioned below. It has a new institutional design, specific rules for the designation of its commissionaires, as well as rules for transparency and contact with the regulated industry.
The IFT has the following main features: constitutional autonomy; management of its own patrimony and budget; independence of resolutions, including its own statute and general provisions; public deliberations; powers to directly grant, revoke and approve all acts regarding telecommunications concessions and authorisations; exclusive powers in economic competition matters regarding the broadcasting and telecommunications sectors, and the power to regulate content transmissions except with respect to the following content: electoral, childhood, health, copyrights and education (in which the respective authorities shall intervene accordingly).
The general norms, acts or omissions from the IFT can be appealed only through a constitutional trial (amparo indirecto) and there is no injunction. Such trials will be held before specialised judges (two federal judges) and courts (two federal tribunals comprised by three magistrates) in broadcasting, telecommunications and economic competition matters that were established as part of the Reform.
Another regulator in the sector is the Federal Consumer Protection Agency through a newly created Telecommunications’ Deputy Attorney (PROFECO), which is in charge of protecting the rights of telecommunications consumers. This authority shall approve adhesion agreements in order to balance the obligations and rights between telecommunications service providers and end-users.
The Ministry of Communications and Transportation (SCT) continues to participate as an authority but to a much lesser extent, such as: issuing non-mandatory opinions with respect to specific acts of the IFT; implementing social, universal and broadband programmes, and in international negotiations of treaties and orbital resources.
The Ministry of Finance and Public Credit (SHCP) has the option to issue non-mandatory opinions to the IFT regarding considerations applicable to the grant and use of frequency bands.
The main sources of law in the telecommunications and broadcasting sector are the following:
- a the Mexican Political Constitution;
- b the FTBL;
- c the Federal Economic Competition Law (FECL); and
- d the Foreign Investment Law (FIL).
In addition to the foregoing, there are numerous specific regulations, guidelines, rules and other administrative and technical provisions issued by the IFT and the prior regulator that continue to be applicable.
ii Regulated activities
The FTBL contemplates two types of approval for the provision of telecommunications and broadcasting services: concessions and authorisations, each of which has its own modalities as detailed below.
Public telecommunications and broadcasting services are defined as those ‘services of general interest provided by concessionaries to the general public with commercial, public or social purposes[…]’. On the other hand, the concept of telecommunications is defined as ‘every emission, transmission or reception (except of broadcasting) made through threads, radio electricity, optic means, physical or other electromagnetic systems of: signs, signals, data, writings, images, voice, sounds or information of any other kind’. In turn, broadcasting is defined as follows: ‘dissemination of electromagnetic waves of audio or associated audio and video signals, using, enjoying or exploiting the frequency bands of the radio spectrum, including those associated to orbital resources […] with which the population may directly and freely receive the signals of its transmitter using the proper devices’.
The ‘unique concession’ is a new figure put forward by the Reform and the FTBL that allows the provision of all services technically feasible, excluding spectrum or orbital resources. According to its purposes, the unique concession shall be for: commercial use (for profit); public use (to governmental agencies); private use (private, experimentation and testing, when spectrum or orbital resources are required), and social use (not for profit cultural, scientific, education, community and indigenous). There are specific guidelines issued by the IFT that describe the procedure, terms and conditions to secure unique concessions through the submission of the corresponding application formats.
An additional concession shall be granted for the use and exploitation of determined frequency bands and orbital resources (geostationary orbital positions or satellite orbits assigned to Mexico). Such concessions are also divided depending on their purpose as detailed above and the type of service to be provided (telecommunications or broadcasting).
Frequency band concessions for commercial and private use are granted through public bids, where the economic factor (consideration) shall not be the sole element to determine the winner of the bid. Frequency band concessions for public and social purposes for the provision of telecommunications services are assigned directly and for broadcasting services are granted through a specific plan and procedure conducted by the IFT.
Orbital resources concessions are in principle granted through public bids, but there are two exceptions in which they can be directly assigned: if there is a justified application from an interested private party and in the case of public entities.
An authorisation granted by the IFT is required to: (1) establish a reseller of telecommunications services without being a concessionaire; (2) install, operate and exploit earth stations to transmit satellite signals; (3) install telecommunications equipment and transmission media that cross the borders of the country; (4) exploit the emission and reception rights of signals and frequency bands associated with foreign satellite systems that cover and could provide services in the Mexican territory, and (5) use temporary spectrum bands for diplomatic visits. There are specific guidelines issued by the IFT that describe the procedure, terms and conditions to secure each of these authorisations through the submission of the corresponding application form.
On the other hand, products, equipment or devices intended for telecommunications or broadcasting services that are to be connected to a telecommunications network or use the spectrum shall be homologated or certified by the IFT.
Value added services are no longer regulated under the new regulatory framework so they can be freely provided, although internet access is now considered as a telecommunications service and subject to concession or authorisation.
iii Ownership and market access restrictions
The unique frequency bands and orbital resources concessions can only be granted to Mexican individuals or entities, but as a result of the Reform, there is no limitation with respect to foreign investment for telecommunications services. In the broadcasting sector foreign investment is limited to 49 per cent control of the entity, subject to reciprocity from the country of the ultimate investor, but there are mechanisms that allow for larger economic participation.
All authorisations (except one) are also granted to Mexican individuals or entities and are not subject to foreign investment restrictions. The authorisation for the use of temporary spectrum bands for diplomatic visits can only be granted to the Ministry of Foreign Affairs.
The frequency bands and orbital resources concessions for commercial purposes are subject to public bidding procedures, which usually contain spectrum caps depending on the particular bid. The winner of the auction must make an up-front payment for the grant of the concession and periodical payments for the use and exploitation of such resources. The latter payments are also applicable for authorisations concerning the exploitation of frequency bands associated with foreign satellite systems.
On the other hand, in order to level the playing field, the Reform introduced a new concept called ‘preponderance’ that triggers asymmetrical regulation in an expeditious manner in addition to the standard concept of dominance (substantial market power in one or more telecommunications or broadcasting markets under the FECL). Preponderance applies to agents who hold a participation of more than 50 per cent in the telecommunications or broadcasting sectors. In March 2014, the IFT declared as preponderant agents and imposed different measures on: (1) Telcel and Telmex in the telecommunications sector, and (2) Televisa in the broadcasting sector.
The measures imposed by the IFT, which are reviewed biannually, have the purpose of preventing any abuses from the preponderant agents and granting access to the rest of the players to services, infrastructure and other information that would foster competition.
Finally, the rollout of infrastructure and networks is subject to state and municipal restrictions which are inconsistent, costly and burdensome. Although the IFT and the SCT are working to improve the actual situation, there is a long and rough path to walk.
iv Transfers of control and assignments
The IFT is in charge of authorising the total or partial assignments of concessions for commercial or private use, as long as at least three years have passed since the granting date of the concession. It shall also authorise the assignment of any public or commercial concessions between Mexican public entities. The regulator has 90 calendar days to approve the assignment, in which case the assignee shall commit to duly comply with the pending obligations and new conditions imposed by the IFT.
When the assignment of concessions is between concessionaires that provide similar services in the same geographical zone, the IFT shall review the actual or potential antitrust effects in the market. The assignment, encumbrance, pledge, trust, sale or mortgage, either totally or partially, of any concession in favour of foreign governments or states is prohibited. On the other hand, if a concessionaire subscribes or sells shares or equity, in one or consecutive acts, that represent 10 per cent or more of its capital stock, the following procedure will apply, unless an antitrust concentration procedure is triggered:
- a the concessionaire shall give notice to the IFT, providing a detailed report of the party interested in acquiring the shares, including information of ultimate individuals indirectly holding more than 10 per cent of the concessionaire;
- b the IFT will have 10 business days to request the opinion of the SCT;
- c the SCT will have 30 calendar days to issue its opinion; and
- d the IFT will have 15 business days, counted from the receipt of the SCT’s opinion or the termination of its 30-day term, to justifiably reject the operation. If there is no objection from the IFT within the 15-business-day term, the transaction will be considered as authorised.
The foregoing procedure is not applicable in the case of subscription or sale of neutral investment shares under the FIL or when the capital increase is subscribed by the same shareholders and its participation percentage in the capital stock is not modified.
The assignment approval and the subscription or sale procedure are not applicable in the case of mergers, spin-offs or corporate restructures if such acts are performed within the same group of control or economic agent. In such scenarios, a notice shall be submitted to the IFT within 30 calendar days of the operation.
Also, if a concentration notice under the FECL is triggered in either of these cases, the IFT shall resolve in terms of the corresponding procedure, but taking into account the respective foregoing rules. Notwithstanding the foregoing, the Ninth Transitory Article of the FTBL provides that the concentration procedure under the FECL is not applicable as long as there is a preponderant agent in the telecommunications and broadcasting sector, in which case a simplified process shall be followed.
In addition to the foregoing, it is important to bear in mind that specific provisions may apply considering the particular terms and conditions contained in the corresponding concessions.
III TELECOMMUNICATIONS AND INTERNET ACCESS
i Internet and internet protocol regulation
The Reform categorised the telecommunications and broadcasting services as human rights and public services of general interest. This means that all persons must have access to such services and the Mexican state is obliged to ensure the access to the information and communication technologies, as well as to telecommunications and broadcasting services, including broadband and internet services.
Considering the foregoing, internet services are currently considered as standard telecommunications services and a concession or authorisation is required for its provision.
In addition, the FTBL included new provisions regulating net neutrality, which is applicable to concessionaires and authorised parties providing internet access services. Such parties shall observe the following principles: (1) free election; (2) non-discrimination; (3) privacy; (4) transparency and information; (5) management of traffic and quality, and (6) sustained development of the infrastructure. Further guidelines to elaborate on these principles will be issued in the near future by the IFT.
ii Universal service
The SCT is in charge of drafting and implementing a social coverage programme every year, with the aim of increasing the coverage of telecommunications networks and the penetration of telecommunication services (mainly voice and internet) in less developed areas of the country. The SHCP and other federal, state and municipal entities shall support and participate in this programme.
Using public funds, the SCT has, for several years, been successfully executing a connectivity programme for public places in Mexico (Mexico Conectado). This programme has granted broadband connections to more than 100,000 places and public spaces around the country, serving millions of people in urban and rural areas with limited access. However, the draft proposed budget for 2017 reduces the funds for Mexico Conectado.
The SCT is also currently conducting a public-private partnership bidding process for the ‘Red Compartida’4 project, which is the biggest telecommunications project in the history of Mexico. It contemplates the design, financing, deployment, operation and marketing of a wholesale national telecommunications network in the 700MHz band that will provide broadband services to concessionaires and authorised parties under non-discriminatory terms and conditions. Success in the auction procedure will set the ground for the development of this project.
iii Restrictions on the provision of service
The FTBL provides several terms and conditions for the provision of services. In addition, the preponderant agents have additional restrictions in the provision of telecommunications and broadcasting services.
Some general terms and conditions applicable to the provisions of telecommunications services are the following:
- a any discrimination on whatever ground is forbidden;
- b concessionaires shall interconnect (directly or indirectly) their network with other concessionaires requesting interconnection services. The interconnection agreements shall be filed before the IFT and certain obligations must be observed. In the event of any disagreement, the IFT will resolve it through a specific procedure;
- c traffic between interconnected concessionaires cannot be interrupted;
- d number portability shall be offered and allowed to all users under strict terms and conditions;
- e concessionaires must abstain from establishing contractual barriers limiting other concessionaires from accessing telecommunications infrastructure in real estate;
- f any communications directed to emergency numbers shall be transmitted;
- g the standard service agreements shall be filed before the PROFECO and afterwards before the IFT and must include different rights in favour of users (including disabled consumers) in order to protect final consumers from any potential abuses (consumer protection regulations);
- h tariffs of telecommunications services shall be electronically filed with the IFT before their offering; and
- i must offer and must carry obligations will apply on a free basis, subject to: (1) the must carry obligation being applicable to direct-to-home operators if they cover 50 per cent or more of the territory, and (2) the gratuity not applying to preponderant or dominant concessionaires.
In addition, as mentioned above, concessionaires and authorised parties that provide internet access services are subject to the following net neutrality obligations: (1) the users must have access to any content; (2) access to services, content and applications cannot be discriminated, delayed, interfered, inspected or filtered; (3) the privacy of the users must be respected and the network must be secure; (4) they must inform on their websites the features of the service provided, and (5) network and traffic management shall ensure the quality and speed of the service contracted by the user.
Further, the PROFECO has implemented a system whereby telephone users can register their phone numbers in order to avoid receiving marketing or publicity calls.
Finally, the preponderant agents have additional restrictions and obligations based on the specific measures imposed by the IFT, such as the following: (1) interconnection obligations (including a master interconnection agreement); (2) public offer to share passive infrastructure; (3) public offer of services to mobile virtual network operators; (4) public offer to provide national roaming services; (5) non-exclusivity agreements; and (6) provision of information, tariffs, quality standards, among others.
The FTBL includes different obligations in security and judicial matters, which have been further detailed by specific guidelines issued by the IFT. Among others, concessionaires and authorised parties have the obligation to provide a geographic location in real-time of mobile devices and to store, register and provide specific information of communications made from any line. They are required to answer written requests from security or judicial authorities duly founded and motivated under applicable laws and provide the information within the following 24 hours. Private communications are inviolable unless a federal judicial authority requests to tap or block a private communication.
On the other hand, there is no specific regulation regarding the protection of data and information technology systems from cyberthreats. The Mexican Data Protection Authority assessed more than 20 international standards in order to provide a guide to data controllers and data processors to facilitate their compliance with data security obligations. Likewise, in September 2015, the International Chamber of Commerce Mexico published the ICC Cybersecurity Guide for Business,5 which is a tool and self-regulatory guide to promote good business practices.
Cybersecurity threats have affected the financial services industry more than anything else in Mexico. The financial regulator has published standards for banks and other financial institutions to protect and safeguard their customers’ information.
The Mexican government is in the process of implementing a cyber-defence plan aimed at the protection of critical national infrastructure, which is expected to be executed by 2018.
IV SPECTRUM POLICY
Spectrum and the orbital resources are public owned goods under the regimen and administration of the Mexican state. The IFT is the authority in charge of the administration of the spectrum, which includes issuing of plans and programmes; granting, revoking, changing and taking concessions; supervising the radio electric emissions and interferences, as well as enforcing any applicable sanctions.
In order to promote an efficient use of the spectrum, the IFT must periodically update the National Frequencies Allocation Chart (CNAF). The spectrum is divided into four categories: (1) determined: for the provision of services specified in the CNAF; (2) free: that may be used for the public in general without concession or authorisation; (3) protected: for radio navigation and security of human life; and (4) reserved: for planning purposes.
On 31 December of every year, the IFT must issue the Frequency Bands Program, which shall provide the frequencies that will be auctioned the following year. Interested parties may request the inclusion of frequency bands in such programme.
ii Flexible spectrum use
The FTBL introduced the attribution of frequency bands on a primary basis (protected against harmful interferences) and secondary basis (cannot cause harmful interferences to services provided through primary basis frequencies). This new attribution aims to improve the efficient use of the spectrum.
Likewise, the FTBL put forward the possibility to lease spectrum for commercial or private use, subject to the IFT’s authorisation. Such authorisation must comply with the following requirements: (1) the lessee must hold or have applied for a unique concession for the same use; (2) the lessee must be joint obligor with the concessionaire regarding the obligations derived from the frequency bands leased; (3) the continuity in providing the services cannot be affected, and (4) it cannot generate negative concentrations, monopolisation or cross-ownership.
iii Broadband and next-generation mobile spectrum use
Currently, Mexico has allocated to mobile broadband operators just 314MHz, which represents 24.2 per cent of the ITU recommended amount of spectrum allocation for 2015,6 but slightly below the average in the region that is 339MHz. This amount includes the recent allocation of 80MHz in the AWS band granted to two mobile operators.
As mentioned before, the SCT is in the process of assigning through a PPP bidding procedure 90MHz of the 700MHz band under the Red Compartida project. Also, the IFT is expecting to auction 130MHz of the 2.5GHz band in 2017. If these auctions are successful, by 2018 Mexico will be in a better position with more than 500MHz allocated for broadband services, but still below the international recommendations.
iv Spectrum auctions and fees
In addition to the spectrum auctions referred to above, in 2015 the IFT conducted an auction and allocated frequency bands for the establishment of a new national TV station. In 2017, the IFT will finish a bidding procedure to grant frequency bands for new radio stations around Mexico. The IFT is also in the process of issuing a new bidding process to additionally offer frequency bands for national, regional and local TV stations.
The spectrum pricing policy in Mexico for both telecommunications and broadcasting services is divided into two categories of payment. The first is an upfront payment for the granting of the corresponding frequency concession as a result of the corresponding bidding procedure. The second category refers to the periodical payments concerning the use and exploitation of the frequency bands for the life of the corresponding concession. Also, the renewal of any frequency concessions is subject to an upfront payment.
i Restrictions on the provision of service
The FTBL regulates broadcasting services (free-to-air television) and terrestrial and satellite pay television and audio services, which are considered as telecommunications services. Both services shall be provided through concessionaires.
Also, the FTBL regulates the figure of ‘programmer’ as the individual or entity that has the capacity to constitute a programming channel based on own or third parties’ production whether the copyrights ownership are Mexican or foreign. The programmers provide the programming channel to the Mexican pay-TV concessionaires through specific agreements executed by both parties. Concessionaires and programmers have different rights and have to comply with diverse obligations under the FTBL.
As a general rule, content distributed through free-to-air or pay-TV services shall promote (among other values and principles): (1) integration of families; (2) harmonic development of childhood; (3) improvement of educational systems; (4) artistic, historical and cultural values; (5) sustainable development; (6) ideas of national identity; (7) equality between men and women; (8) scientific and technical knowledge; and (9) correct use of language. Also, content shall comply with the Mexican rating requirements on their respective content and there is a certain maximum amount of minutes for advertising per hour per channel. Depending on the advertising, specific regulation will be applicable, such as in health, religious and electoral matters.
ii Internet-delivered video content
Internet content providers are not regulated under the Mexican regulatory framework and benefited from the net neutrality provisions. Over-the-top (OTT) online video service providers currently do not require a concession or authorisation to provide such services and are different from standard operators that hold a network to offer their service. Recent decisions from the IFT have confirmed the foregoing criteria although some of the pay-TV concessionaires are pushing for regulation of OTTs in order to level the playing field. We expect that the discussions will continue in the years to follow.
Internet connections increased 15.7 per cent from 2014 to 2015 partly because of the effects of the Reform and improvement of the market conditions. Currently 59 per cent of the population in Mexico is connected to the internet, principally through smartphones. The two main barriers to internet access are the poor quality or coverage and high costs. One of the main objectives of the Red Compartida project is to tackle both issues. This will certainly improve the OTT market even more than its increasing growth in recent years.
VI THE YEAR IN REVIEW
Some of the main highlights in the sector in 2016 are the following:
- a the successful bid by two operators for 80MHz in the AWS band;
- b the issue of the Guidelines for the commercialisation of mobile services through Mobile Virtual Network Operators;
- c launching of a system on the IFT’s website to denounce the operation of radio stations without concessions;
- d the carrying out of the bidding process regarding the Red Compartida project;
- e the bidding process for the granting of more than 250 radio stations within the territory;
- f the biannual revision of the preponderance measures imposed to the preponderant agents in the telecommunications and broadcasting sectors;
- g the direct granting of frequency concessions for the provision of community and indigenous radio services;
- h the confirmation that OTTs are not regulated;
- i the issue of the Guidelines regulating the leasing of spectrum;
- j the commencement of procedures to determine the existence of substantial market power in the provision of triple play services; and
- k the issuing of various regulations and guidelines necessary to implement the Reform and the provisions of the FTBL.
VII CONCLUSIONS AND OUTLOOK
As a result of the Reform and the FTBL, the prices of mobile telecommunications services fell more than 23 per cent; the charges for national long-distance calls were eliminated and the prices for international long distance calls fell 40 per cent. The IFT carried out spectrum auctions that increased the spectrum allocation for broadband services. During 2015 private investment in the sector grew almost 35 per cent in comparison with 2014. However, the market shares continue to be similar to those in 2012. The IFT shall continue its efforts to implement the new regulatory framework to maintain and improve the market conditions. Mexico still faces challenges that must be overcome in the following years and for that purpose it needs to embrace new technologies and best international practices to cope with the increased needs and demand for more, better and cheaper broadband services.
1 Federico Hernández Arroyo is a partner at Hogan Lovells BSTL, SC, with thanks to Rodrigo Mendez Solis (associate) and David Amado Monroy (law clerk) for their assistance in drafting this chapter.
2 OECD (2012), ‘OECD Review of Telecommunication Policy and Regulation in Mexico’, OECD Publishing. DOI: 10.1787/9789264060111-en. This study excludes the broadcasting sector.
3 Telmex and Telcel are part of the same economic interest group and are held by América Móvil.
5 Int’l Chamber of Commerce Mexico, ICC Cybersecurity Guide for Business, (September 2015), http://phrenesis.net/ICC-Cyber-security-guide-for-business.pdf.