The state monopoly carrier was privatised in 1990. Five years later, the sector was liberalised, a new law was issued and a new regulator established. Although for more than 15 years there was some progress and the sector was growing each year, there were major problems to tackle.
In 2012, the 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:
- 80 per cent of Telmex in fixed telephony;
- 70 per cent of Telcel in mobile telephony;3
- 45 per cent of Televisa in pay-TV; and
- 28 per cent of Megacable in pay-TV.
The report also stated that the penetration rates for fixed line, mobile and broadband were among the lowest in the OECD.
Considering the foregoing, a historic telecommunications constitutional reform (Reform) was published in June 2013 with the main aim of improving and securing effective competition with the respective benefits for 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).
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 review below.
In August 2017, the OECD published a new study4 that weighs the developments derived from the Reform and acknowledges the important evolution and tangible benefits to the people through the regulatory changes, but also identifies areas of opportunity and new actions to be implemented.
In July 2018 there were federal elections in Mexico, and a new government and Congress will be in place by the end of the year, which will impact the regulation of the sector in the following six years.
i The regulators
The main regulator is the 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 statutes and general provisions;
- public deliberations;
- powers to directly grant, revoke and approve all acts regarding telecommunications and broadcasting concessions and authorisations; and
- 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).
Norms, acts or omissions of 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 comprising 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. The Profeco shall approve adhesion agreements 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 by 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:
- the Mexican Political Constitution;
- the FTBL;
- the Federal Economic Competition Law (FECL); and
- the Foreign Investment Law (FIL).
In addition to the foregoing, there are numerous international treaties, specific regulations, guidelines and 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 figure put forward by the Reform and the FTBL that allows the provision of all services that are technically feasible, excluding spectrum or orbital resources. According to its purposes, the unique concession shall be for commercial use (for profit), public use (government 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 a 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 under 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:
- establish a reseller of telecommunications services without being a concessionaire;
- install, operate and exploit earth stations to transmit satellite signals;
- install telecommunications equipment and transmission media that cross the borders of the country;
- 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
- 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 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 broadcasting, foreign investment is limited to 49 per cent control of an entity, subject to reciprocity from the country of the ultimate investor, but through neutral investment it is possible to secure larger economic participation. In its 2017 report, the OECD recommended eliminating any foreign investment restriction in broadcasting.
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 an 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, to level the playing field, the Reform introduced a new concept, called preponderance, which 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 Telcel, Telnor and Telmex (and other companies within the same group) in the telecommunications sector, and Televisa (and other companies within the same group) in the broadcasting sector.
The measures imposed by the IFT, which were reviewed and amended in 2017, have the purpose of preventing abuses by the preponderant agents and granting access to the rest of the players to services, infrastructure and other information that would foster competition. Moreover, in March 2018, the IFT resolved that Temex and Telnor shall incorporate two new companies that will provide access to the local network, dedicated circuits and passive infrastructure to other carriers on a non-discriminatory basis.
In 2014, the IFT declared the Televisa Group as an agent with substantial market power in the pay-TV market. Such resolution was challenged, and finally the Supreme Court resolved in February 2018 that the IFT shall issue a new resolution related to this matter. The IFT resolved that the elements to consider the Televisa Group as an agent with substantial market power in the pay-TV market were not proven.
Finally, the rollout of infrastructure and networks is subject to state and municipal restrictions that are inconsistent, costly and burdensome. Although the IFT and the SCT are working to improve the situation, there is a long way to go. However, the state of Hidalgo has agreed with the SCT to simplify the procedures regarding the installation of telecommunications infrastructure in all of its municipalities.
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 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. The assignment, encumbrance, pledge, trust, sale or mortgage, either totally or partially, of any concession in favour of foreign governments or states is prohibited. 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:
- the concessionaire shall notify the IFT, providing a report of the party interested in acquiring the shares that includes information about the ultimate individuals indirectly holding more than 10 per cent;
- the IFT will have 10 business days to request the opinion of the SCT;
- the SCT will have 30 calendar days to issue its opinion; and
- the IFT will have 15 business days, counted from the receipt of the SCT's opinion or the termination of its term, to justifiably reject the operation. If there is no objection from the IFT within such term, the transaction will be considered as authorised.
The foregoing procedure is not applicable in the case of a subscription or sale of neutral investment shares under the FIL, or when the capital increase is subscribed by the same shareholders and its 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 transaction.
If a concentration notice under the FECL is triggered in any case, the IFT shall resolve under the corresponding procedure provided in such law and a new set of merger guidelines issued by the IFT.
Notwithstanding, the Ninth Transitory Article of the FTBL provides that the FECL's concentration procedure is not applicable as long as there is a preponderant agent in the telecommunications and broadcasting sector, and a simplified process shall be followed. In the 2017 report, the OECD suggested eliminating the foregoing.
In addition, specific provisions may apply considering the particular rules contained in the corresponding concession.
III TELECOMMUNICATIONS and INTERNET ACCESS
i Internet and internet protocol regulation
The Reform categorises 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 state is obliged to ensure access to information and communication technologies, as well as to telecommunications and broadcasting services, including broadband and internet services. Thus, internet services are currently considered as standard telecommunications services, and a concession or authorisation is required for their provision.
The FTBL includes new provisions regulating net neutrality that are applicable to concessionaires and authorised parties providing internet access services. Such parties shall observe the following principles:
- free election;
- transparency and information;
- management of traffic and quality; and
- sustained development of the infrastructure.
The IFT is planning to issue guidelines with details of such principles by the end of 2018.
The IFT has also launched a website, IPv6,5 which is focused on new actions to improve the adoption of IPv6. Actions for the adoption of IPv6 were also recommended by the OECD in 2017.
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 Mexico. 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: Mexico Conectado. This programme has granted broadband connections to more than 100,000 sites and spaces around the country, serving millions of people in urban and rural areas with limited access. However, these sites have stalled from 2015 to date.
In 2017, the SCT successfully concluded a public–private partnership bidding process for the biggest telecommunications project in the history of Mexico: Red Compartida. It contemplates the design, financing, deployment, operation and marketing of a wholesale national 4G LTE network in the 700MHz band that will provide broadband services to concessionaires and authorised parties under non-discriminatory terms. Red Compartida started operations in March 2018 with coverage of 32 per cent, and is required to cover 92.2 per cent of Mexico by the seventh year of its implementation.
iii Restrictions on the provision of service
The FTBL provides several rules for the provision of services. Additionally, the preponderant agents have more restrictions in providing telecommunications and broadcasting services. Some general conditions applicable to the provision of telecommunications services are the following:
- any discrimination on whatever ground is forbidden;
- concessionaires shall interconnect (directly or indirectly) their network with other requesting concessionaires. The interconnection agreements shall be filed before the IFT and certain obligations must be observed. The IFT will resolve any disagreement through a specific procedure;
- traffic between interconnected concessionaires cannot be interrupted;
- number portability shall be allowed to all users under strict terms and conditions;
- concessionaires must abstain from establishing contractual barriers limiting other concessionaires from accessing telecommunications infrastructure in real estate;
- any communications directed to emergency numbers shall be transmitted;
- 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) to protect final consumers from any potential abuses (consumer protection regulations);
- tariffs of telecommunications services shall be electronically filed with the IFT before their offering; and
- must-offer and must-carry obligations will apply on a free basis, subject to the must-carry obligations being applicable to DTH operators if they cover 50 per cent or more of the territory, and the gratuity not applying to preponderant or dominant concessionaires.
As mentioned above, concessionaires and authorised parties that provide internet access services are subject to the following net neutrality obligations:
- users must have access to any content;
- access to services, content and applications cannot be discriminatory, delayed, interfered with, inspected or filtered;
- the privacy of users must be respected and the network must be secure;
- they must describe the features of the service provided on their websites; and
- network and traffic management shall ensure the quality and speed of the service contracted by users.
Further, the Profeco has implemented a system whereby telephone users can register their phone numbers to avoid receiving marketing or publicity calls.
Finally, the preponderant agents have additional restrictions based on the specific measures imposed by the IFT, such as the following:
- interconnection obligations (including a master interconnection agreement);
- public offer to share passive infrastructure;
- public offer of services to MVNOs;
- public offer to provide national roaming services;
- non-exclusivity agreements; and
- the provision of, inter alia, information, tariffs, quality standards.
The FTBL includes different obligations regarding security and judicial matters, which were further detailed by specific guidelines issued by the IFT. In April 2018, the IFT amended these guidelines to harmonise their provisions with those applicable to the transparency and data protection statutory framework by reducing obligations to the IFT and to concessionaires, and authorised them since the same corresponded to the Mexican Data Protection and Transparency Authority (INAI). Among other things, concessionaires and authorised parties have the obligation to provide a geographic location in real time for mobile devices, and to store, register and provide specific information about communications made from any line. They are required to answer written requests from security or judicial authorities duly founded and motivated under the 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 on a private communication.
Although the International Telecommunication Union (ITU) ranked Mexico in third place in the Americas region in the 2017 Cybersecurity Index,6 still more actions need to be taken to protect data and information technology systems from cyberthreats. The INAI has assessed more than 20 international standards to provide a guide to data controllers and data processors to facilitate their compliance with data security obligations. Likewise, the International Chamber of Commerce Mexico published the ICC Cybersecurity Guide for Business,7 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. In early 2018, the Central Bank of Mexico suffered a cybersecurity threat that resulted in the creation of a specialised cybersecurity department in charge of issuing policies to guarantee the operation of the financial system.
IV SPECTRUM POLICY
Spectrum and the orbital resources are publicly owned goods under the regimen and administration of the state. The IFT is in charge of the administration of the spectrum, which includes:
- the issuing of plans and programmes;
- granting, revoking, changing and taking concessions;
- supervising the radio electric emissions and interferences; and
- enforcing any applicable sanctions.
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:
- determined: for the provision of services specified in the CNAF;
- free: which may be used for the public in general without concession or authorisation;
- protected: for radio navigation and security of human life; and
- reserved: for planning purposes.
On 31 December of every year, the IFT must issue the Frequency Bands Programme, which shall provide the frequencies that will be auctioned the following year. Interested parties may request the inclusion of frequency bands in such programme.
In April 2018, the IFT issued new guidelines that authorise the use of spectrum on a secondary basis in two particular cases: specific events, and facilities for commercial and industrial activities.
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 under a primary basis). 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 approval must comply with the following:
- the lessee must hold or have applied for a unique concession for the same use;
- the lessee must be joint obligor with the concessionaire regarding the obligations derived from the bands leased;
- the continuity in providing services cannot be affected; and
- it cannot generate negative concentrations, monopolisation or cross-ownership.
iii Broadband and next-generation mobile spectrum use
In September 2018, the IFT issued resolutions under which AT&T and Telefónica were declared the winners of the auction of 120MHz of the 2.5GHz band as follows: AT&T will be granted two frequency division duplex (FDD) and two time division duplex blocks, and Telefónica two FDD blocks. Considering the foregoing auction, Mexico has allocated 584MHz for international mobile telecommunications, which represents 44.9 per cent of the ITU recommended amount of spectrum allocation for 2015.
iv Spectrum auctions and fees
At the end of 2017, the IFT concluded an auction in which it assigned 32 channels (out of 148, of which 116 were out of interest for the market) for new local digital terrestrial television stations around Mexico. Early in 2018, the IFT also successfully concluded an auction allocating frequency bands for the provision of private radiocommunications services.
In April 2018, the IFT published the final 2018 annual programme of use of frequency bands, which plans the auction or assignment of various frequency bands, including the auction for commercial purposes of bands for ancillary terrestrial components for satellite mobile services; digital terrestrial television stations around Mexico; and FM and AM radio stations around Mexico.
The spectrum pricing policy in Mexico for telecommunications is divided into two categories: an upfront payment for the granting of the frequency concession as a result of the bidding procedure; and periodical payments concerning the use and exploitation of the bands for the concession's term. The upfront payment is also applicable in broadcasting, but the periodical payment is made through air time. Any renewal of frequency concessions is subject to an upfront payment. However, the level of the fees has been questioned by the OECD in its 2017 report and by other players in the sector such as Telefónica. In addition, community and indigenous spectrum concessions should also pay periodical fees, which is inconsistent with its purposes.
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 to be telecommunications services. Both services shall be provided through concessionaires.
The FTBL also identifies programmers as individuals or entities that have the capacity to constitute a programming channel based on own or third parties' production, whether the copyright ownership is Mexican or foreign. Programmers provide programming channels to Mexican pay-TV concessionaires through specific agreements executed by both parties. Concessionaires and programmers have different rights and obligations under the FTBL.
As a general rule, content distributed through free-to-air or pay-TV services shall promote, inter alia:
- integration of families;
- harmonic development of childhood;
- improvement of educational systems;
- artistic, historical and cultural values;
- sustainable development;
- ideas of national identity;
- gender equality;
- scientific and technical knowledge; and
- correct use of language.
Content shall also comply with the Mexican rating requirements on their respective content, and there is a maximum amount of minutes for advertising per hour per channel. Depending on the advertising, specific regulations will be applicable (e.g., health, religious, electoral). In August 2018, as a result of numerous lawsuits, the Ministry of the Interior issued the new Guidelines for the Audiovisual Content Classification of Broadcasting Transmissions and Pay Television and Audio Services, which are basically the same as the prior ones that dramatically increased the hours during which a programme or advert can be broadcast depending on its rating.
ii Internet-delivered video content
ICPs are not regulated under the Mexican regulatory framework, but benefit from the net neutrality provisions. OTT online video service providers currently do not require a concession or authorisation to provide services, and differ from standard operators that hold a network to offer services. The IFT has confirmed the foregoing criteria, although some of the pay-TV concessionaires are pushing for regulation of OTTs to level the playing field. We expect that discussions in this respect will continue in the years to come.
According to the most recent report issued in 2018 by Mexico's National Institute of Statistics and Geography, Mexico has 71.3 million internet users, which represents 63.9 per cent of the population. In 2017, 72.2 per cent of the same population used a mobile phone. Of those users, 64.7 per cent have a smartphone, whereby 92.7 per cent connect to the internet. According to the IFT, in June 2017, there were 62 mobile broadband connections per 100 inhabitants, and its penetration has grown 170 per cent since 2013.
VI THE YEAR IN REVIEW
The main highlights of 2018 were the following:
- the beginning of operations of the Red Compartida wholesale network project and the approval of its public offer;
- the OECD reported that from 2014 to 2017, the interconnection fees for mobile services decreased 84 per cent in Mexico;
- reversion of the declaration of the Televisa Group as an agent with substantial market power in the pay-TV market;
- the success of the bidding procedures of auction bands for local TV channels and the 440–450MHz band for private radiocommunication services;
- the success of the bidding procedure for 120MHz of the 2.5GHz band;
- the publication of the tender rules to auction the Red Troncal, a nationwide fibre optic wholesale network project, as a public–private partnership project that plans to provide minimum coverage of 80 per cent in the territory;
- the IFT's approval of the reallocation of the 600MHz band to reallocate TV concessionaires that still operated in such band;
- the IFT imposed a fine amounting to around US$5 million on América Móvil and Telcel for an exclusivity agreement regarding airtime top ups as a relative monopolistic practice;
- the IFT ordering the functional and legal separation of Telmex and Telnor, including the approval of the by-laws of the two companies that will emerge from the functional separation; and
- the publication by the IFT of new guidelines applicable to TV broadcasting services to include sign language in favour of the part of the population with hearing disabilities.
VII CONCLUSIONS AND OUTLOOK
Telecommunications reforms have continued and results have been seen in 2018, such as broadband penetration and a reduction of prices for final users, particularly regarding mobile services. On 1 December 2018, a change of the federal and many state governments will take place. The entrance of the new federal government will be a change that has not happened before in the history of Mexico, since it will be the first time that a left-wing party will take the executive power, and specialists envisage several changes may affect the public sector, the country's economy and policies in general. Although we expect there will be changes in the telecommunications sector, we are not certain of the scale and extent of the same. So far, it appears that the Reform will not be changed, but some adjustments could be implemented in order to improve certain aspects, particularly in dealing with the competitive landscape. We hope that such changes will be consistent with the Reform, and that competition and investments will not be affected. One of the main challenges that the IFT and the new government will face is the implementation of the functional separation of Telmex and Telnor, with other operators waiting to see the real outcome of such measure.
1 Federico Hernández Arroyo is a partner at Hogan Lovells BSTL, SC. The author thanks Rodrigo Méndez Solís (senior associate) and David Amado Monroy (associate) for their help in the preparation of this chapter.
2 OECD (2012), OECD Review of Telecommunication Policy and Regulation in Mexico, OECD Publishing. DOI: 10.1787/9789264060111-en. This study excludes broadcasting.
3 Telmex and Telcel are part of the same economic interest group and are held by América Móvil.