Competition in the

Telecommunications Sector in Mexico

April 2008
1
Coverage of Telecommunications services have still not reached
its full potential. This Administration is promoting measures to
increase penetration of telecommunications services.
Fixed Telephony, 2006 Mobile Telephony, 2006 Broadband, 2006
(Lines / 100 inhabitants) (Subscribers / 100 (Subscribers / 100
inhabitants) inhabitants)
Switzerland 69.4 UK 116.4 Korea 29.3
Germany 65.5 Spain 106.4 Switzerland 26.5
Canada 64.1 Switzerland 102.1 Canada 23.6
UK 57.6 Germany 101.9 UK 21.7
US 57.2 France 85.1 France 20.9
France 55.8 Korea 83.8 US 19.3
Korea 56.0 US 77.4 Germany 18.1
Spain 42.4 Chile 75.6 Spain 15.4
Brazil 20.5 Brazil 52.9 Chile 5.9
Chile 20.2 Mexico 52.6 Mexico 3.4
Mexico 18.3 Canada 52.5 Brazil 3.1

Fuente: Unión Internacional de Telecomunicaciones

2
Over the last year, there has been a dramatic fall in prices of close
to 30% in mobile telephony, due mainly to an increase in
competitive pressures. In other services more competition and
faster reduction in rates are needed, particularly in Internet access.
OECD Basket of Mobile Telecommunications, October 2006
$USD, PPP High Medium Low

1200
1000
800
600
400
200
0

Slovaq
Irland
Island

Japan
Italy

Turkey
OECD

New
Finland

Netherland

France
Sweden

Luxemburg

Poland

Korea

Spain

Greece

Mexico
Switzerland

Canada

Austria

Australia
Belgium

Portugal
US
Germany

Uk

Czeck
Denmark

Norway

Hungary

Source: OECD, Communications Outlook 2007.

3
ICTs have an important share in households expenditure,
regardless of their income level.

Household Expenditure in Telecommunications Services as

percentage of Total Expenditure, by Population Deciles
Household Deciles 1/
Total
I II III IV V VI VII VIII IX X
Total Com m unications 4.8 2.9 3.2 3.5 3.9 4.3 4.7 4.7 5.6 5.7 5.0

Local Service 2/ 1.7 1.3 1.4 1.5 1.6 1.8 2.1 2.0 2.1 2.0 1.4

Long Distance Service 0.6 0.3 0.4 0.5 0.5 0.5 0.5 0.6 0.7 0.8 0.7

Mobile Telephony/3 1.9 0.8 1.0 1.0 1.3 1.5 1.5 1.7 2.3 2.4 2.3

Internet Service 0.3 0.1 0.1 0.2 0.1 0.2 0.2 0.2 0.3 0.4 0.5

1/ According to its monetary income

2/ Includes telephone installation and local calls.
3/ Includes initial payment, equipment acquisition, prepaid cards and mobile telephony service payment.
Total communications expenditure includes public telephony and other services such as mail, telegraph,
public fax, beeper and others not specified.
Source: Own estimates based on Household Income and Expenditures National Survey 2006.
4
In order to reduce the income gap it is necessary that
Telecommunications Services reach the entire population.

Penetration of Telecommunications Services in

Mexico, by Population Decile
%
90 Fixed Telephony
80
Mobile Telephony
70
Internet Access
60
50
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10 Total
Decile
Source: INEGI, Household Income and Expenditure National Survey, 2006.

5
 Competition in the telecommunications sector has intensified,
particularly in the mobile market.

Market Share Distribution in Main

Telecommunications Markets in Mexico

Fixed Telephony Mobile Telephony Broadband Access

TV por
Axtel
4% cable
Movistar
26%
15%
Maxcom
1% Otros
Iusacell-
Otros Telcel 6%
Unefón
3% 76%
6%

Nextel
3%
Telmex
92% Telmex
68%

Source: Pyramid, Communications Source: Merrill Lynch, Global Wireless Source: Pyramid, CANITEC y Telmex.
Markets in Mexico 2007. Datos a Matrix. Datos a diciembre 2006. Datos a diciembre 2006.
diciembre 2006.

6
Competition will be fostered by making more spectrum
available.
Spectrum Auction Program
Frequency Total
Blocks Geographic Area
Band (MHz) Bandwidth
1850-1910/ 3 blocks of 10
30 MHz Cellular Regions
1930-1990 MHz
5 blocks of 10
1710-1770/ MHz Cellular Regions and
90 MHz
2110-2170 2 blocks of 20 Basic Service Areas
MHz
2 blocks of 25
MHz Cellular Regions and
3400-3700 150 MHz Municipalities / Groups
2 blocks of 50 of municipalities
MHz
71000-76000/ 10,000
1 block Basic Service Areas
81000-86000 MHz
7
This program is the most ambitious that has been published
Auction Programs since 1996
Program Year Service MHz Availability

1 1996 Mobile 3 Country wide

Pay TV* 118 53% of the country

Fixed 200 Country wide

2 1997
Links 6,270 Country wide

Mobile 120 Country wide

Links 2,271 Country wide

3 1998 Pay TV * 180 50% of the country

Mobile 7 Country wide

4 2000 Mobile 0.025 Country wide

20 30% del país**

5 2004 Mobile 30 22% del país**

40 Country wide

Links 10,000 Country wide

Fixed *** 150 Country wide

6 2008
90 Country wide
Mobile
30 88% of the country

Program 1 Program 2 Program 3 Program 4 Program 5 Program 6 * Pay TV auctions

Usos 1996 1997 1998 1998 2004 2008 ** Mobile service auctions which
include 30% of the country.
Links 0 6,270 2,271 0 0 10,000 ***The inmediate use is fixed service,
however no restrictions existe forl
Fixed 3 200 0 0 0 150***
delivering mobile services in the
Mobile 0 120 62 0.025 90** 120 future..

Other No Yes* Yes* No No No

8
 In order to effectively increase competition it is important to
set more efficient conditions in interconnection.

Indicators of tariffs, lines and traffic

1999 2000 2001 2002 2003 2004 2005 2006
Fixed-mobile retail rate 1 2.5 2.5 2.5 2.5 2.5 2.5 2.25 2.03
Interconnection rate 1
Fixed-mobile 1.9 1.9 1.9 1.9 1.9 1.9 1.71 1.54
Mobile-mobile 1.9 1.9 1.9 1.9 1.9 1.9 1.71 1.54
Mobile-fixed 0.3 0.316 0.117 0.094 0.105 0.11 0.106 0.106
Number of lines
Mobile network 2,5 7.7 14.1 21.8 25.9 30.1 38.5 45.1 56.4
Fixed network 2,5 10.9 12.3 13.8 15 16.3 18.1 19.2 20.9
Network traffic
Mobile network 3,5 5,152 10,975 15,919 19,990 26,386 38,188 50,236 73,000
Fixed network 4,5 23,426 24,738 25,567 25,679 26,494 26,782 26,680 26,666
1/ Pesos per minute
2/ Figures in millions of lines in service.
3/ Millions of minutes.
4/ Millions de Telmex calls.
5/ 2006 Figures correspond to estimates up until December.
Source: Cofetel and Telmex

9
Fixed local termination should be cost based and symmetric
for all carriers.
Fixed Local Termination Rates in Selected Countries
(US cents per minute)

1.65
1.80
1.60

1.30
1.17
1.40

0.98
1.20

0.91
0.78
0.74
0.73
0.72
0.72
0.72
1.00

0.70
0.70

0.71
0.70
0.65
0.59
0.80 0.57
0.51
0.44
0.34

0.60
0.27
0.20

0.40
0.20
0.00

Slovaq Rep.
Mexico
Netherlands

Czeck Rep.
Austria
Belgium
Portugal
Denmark
Italy

Poland
Germany

Irland

Sweden

Finland
UK
US

Chipre

France

India

Hungary
China

Spain
Canada (2001)
Source: European Communities Commissions, “European Electronic Communications
Regulation and Markets 2006, march 2007. Peak-hour rates, adjusted by 85% factor (Exchange
rate 1.3 dollar/euro); FCC, “Intercarrier Compensation and Retail Rate Regulation in the US”;
China and India: TRAI, Financial Analysis of Telecom Industry in India and China, june 2006.

10
 Competition of backbone services has been enhanced by the
entrance of Electric companies in the Market.

Telecommunications Service Offerings of Electric

Companies in selected Countries
Relation with the Parent Dark
Country Utility Company Ownership Lit Fiber Collocation
Electric Company Fiber
Canada ENMAX Government Yes (business unit) Yes Yes Yes
Canada Telecom Ottawa Government Yes (subsidiary) Yes Yes Yes
Canada Toronto Hydro Telecom Government Yes (subsidiary) Yes Yes n.a.
US Edison Carrier Solutions Private Yes (business unit) Yes Yes Yes
US FPL FiberNet Private Yes (subsidiary) Yes Yes Yes
Spain Ufinet Private Yes (subsidiary) Yes Yes Yes
France @rteria Government Yes (subsidiary) Yes Yes Yes
Irland ESB Telecoms Government Yes (subsidiary) Yes Yes Yes
Portugal RenTelecom Private Yes (subsidiary) Yes Yes Yes
South Africa Infraco (in project) Public-Private Non Yes Yes n.a.
Central America
Newco (in project) Public-Private Non Yes Yes Yes
Spain Adif* Private Yes (business unit) Yes Yes Yes
Sweden Stokab* Government Non Yes Yes Yes

Source: Internet web-pages of the companies

*They are not related with electric companies, but with other utility companies such as railway in the
case of Adif and the local government in the case of Stokab.

11
 CFE entrance into the telecommunications market will lower
prices, particularly for internet access services.

OECD basket of national leased line OECD basket of national leased line
charges 2 Mbps, August 2006 charges 34 Mbps, August 2006
(000’ USD PPP) (000’ USD PPP)
70 400
60 350
50 300
40 250
200
30
150
20
100
10 50
0 -
New

Norway
Luxemburg
Mexico

US

UK
Italy

Denmark
Germany

Netherlands
Japan
Czeck Rep.

Irland

Sweden

Island
Belgium

Norway
Mexico

Luxemburg
OECD

Portugal

Turkey
Korea
Polond

Canada

Spain

France

Greece

UK

US

Germany
Italy

Denmark
Japan
Irland

Belgium

Island
OECD
Portugal

Turkey
Korea
Canada
Spain

France

Greece
Austria
Australia

Austria
Fuente: OCDE, Communications Outlook 2007.

12
CFE entrance into the provision of Internet access will help to
lower the price disparity between rural and urban areas.

Leased Lines Prices for Internet Access (2 Mbps)

Monthly Rent
City Backbone Provider
(MXN$)
Toluca, Edo. Méx. Bestel, Maxcom, Alestra $ 3,300
León, Gto. Bestel, Maxcom, Alestra $ 3,300
Cd. Hidalgo, La Piedad, Telmex $ 6,000
Zitácuaro, Mich.
Tenancingo, Edo. Méx. Telmex $ 6,000
Tapachula, Chis. Telmex $ 13,000
Salamanca, Gto. Telmex $ 18,200
Cd. Altamirano, Gro. Telmex $ 20,971
Huetamo, Gro. Telmex $ 35,108
El Grullo, Sayula, Jal. Telmex $ 40,000
San Miguel de Allende, Gto. Telmex $ 58,650

13
Competition will be also impacted by empowering consumers-
Practices such as double billing should be avoided.

Local Call Revenue of the incumbent when its costumers make Long
Distance Calls and Calls to Mobiles
(Millions of Pesos per year, 2005 prices )

3,416
3,500 Long 3,157
Distance
3,000
Calls to
2,500 Mobiles 2,818 2,711
2,000
1,340 1,744
1,500
1,000
500 634

0
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005
Source: Own estimates based on information reported by the Company.

14