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and 68% of Internet services. Third, it would eliminate the 49% foreign ownership cap on fixed-line telephony, already side-stepped once in 2001, when Avantels controlling shareholder, Banamex-Accival (both companies are Mexico-based), was sold to a US company, Citibank. Fourth, it would introduce a framework to finance expanded telecoms services in the countryside, where profitability is low. This is the most pressing need of the reform, but is likely to be delayed together with the rest. It also attempts to address calls from Telmexs competitors for an independent regulatory body, and to improved information about line costs, to allow line sharing. Despite the fact that all political parties participated in drafting the new legislation, the reforms are subject to delay in Congress and are unlikely to be passed anytime soon. Currently, spending on information technology (IT) is extremely low, at an estimated 1.4% of GDP, compared with an average of 4.3% of GDP in other OECD countries. This underscores the large potential for expansion. The current government's 2001-06 development programme accords a high priority to promoting e-government and developing the (currently extremely small) software industry. Prosoft, the government's software development programme, launched in 2002, has set an ambitious target whereby the country will be producing software worth US$5bn by 2010. Prosoft aims to both position the country as a global centre for software manufacturing and to promote greater economic competitiveness. The government's drive to foster e-government also forms part of its efforts to tackle corruption and cut red tape. Up to 80% of government procurement transactions are now conducted online and a shift towards the filing of tax returns online is under way. In the outlook period efforts will be stepped up to promote greater access to e-business technologies for small and medium-sized enterprises (SMEs). Use of technology by Mexican SMEs is currently low, even by regional standards. As economic growth becomes more broad-based and credit availability for SMEs improves (supported by government initiatives), demand for IT products will rise.

Market profile
This section was originally published on March 1st 2005
1998a 1999a 2000a 2001a 2002a 2003a

Telephone main lines ('000) Telephone main lines (per 100 population) Phone sets ('000) Mobile subscribers ('000) Mobile subscribers (per 100 population) Internet users ('000) Internet users (per 100 population) Personal computers (stock per 1,000 population)
a

9,927 10,963 12,336 13,722 14,936 16,270 10.2 11.1 12.3 13.6 14.6 15.7 16,381 18,131 20,413 21,337 23,365 25,784 3,388 7,766 14,585 22,128 26,204 30,055 3.5 1,094 1.1 38 7.9 1,871 1.9 46 14.6 4,110 4.1 58 21.9 5,714 5.6 69 25.6 6,002 5.9 80 29.0 6,445 6.2 89

Actual.

Sources: Pyramid Research; Economist Intelligence Unit.

Overview

Mexico has the second-largest information technology (IT) market in Latin America, after Brazil. Despite the liberalisation of the telecommunications market over the past ten years, the incumbent operator, Telfonos de Mxico (Telmex, the main telecoms company), remains the dominant service provider. Mexicos telecoms and

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technology markets have grown rapidly since 1990, as the sector has consistently outperformed GDP growth to date, in line with global trends. Nevertheless, the telecoms infrastructure in Mexico is relatively poor because of a long history of underinvestment. The penetration of fixed lines is low, at less than 17 lines per 100 people. The mobile telephone market has grown rapidly in recent years, overtaking fixed-line penetration in 2000. The Internet is rapidly becoming popular, but broadband penetration is still extremely low. The governments proposals for new telecoms legislation would replace the framework established in 1995, just before the first attempt was made to open up the sector in 1996, following the privatisation of Telmex in 1990. The Telecommunications Law was sent to Congress in October 2002. Despite the fact that the law was drawn up with the involvement of all the parties, there is unlikely to be rapid progress in passing the legislation. This is owing to the facts that the political parties became absorbed by the gubernatorial elections in 2004 and that the government does not command a majority in either house. According to data from the Comisin Federal de Telecomunicaciones (Cofetel, the telecoms industry regulator), the number of fixed-line telephones services grew by 8.9% in 2003, to 16.3m, equivalent to 15.7 per 100 people. Mobile telephone penetration overtook that of fixed lines for the first time in 2000, reaching 14.6% at the end of that year. At end 2003 there were 30.1m mobile subscribers. Nevertheless, Mexico's rate of mobile penetration is lower than that of Venezuela and Chile, although it is ahead of Brazil and Argentina. Prepaid packages account for an overwhelming share of Mexico's mobile subscriptions and have played a key role in boosting demand for mobile telephones. The number of households owning a personal computer (PC) has also risen markedly. The stock of computers was equivalent in 2003 to 8.9 PCs per 100 population. However, regional disparities are large. The capital, Mexico City, has the highest percentage, with 21.5% of households owning a PC, followed by Baja California (15.1%) and Nuevo Len (14.5%). This compares with 36.2% of households that own a telephone and 85.6% a television set. By end-2003 a total of 6.4m Mexicans were Internet users, 40% at work and 40% at home. According to OECD figures, Mexico ranked 26th out of the 28 rated OECD countries in terms of broadband penetration in June 2001, with just 0.02 connections per 100 inhabitants, compared with an OECD average of 1.96.

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1998a

1999a

2000a

2001a

2002a

2003a

Nominal GDP (US$ bn) Population (m) GDP per head (US$ at PPP) Private consumption per head (US$) Number of households ('000)
a

421.2 97.3 7,878

481.2 98.6 8,217

581.4 99.9 8,846

622.1 101.2 8,926b

649.1 102.5 9,037b

639.1 103.7 9,222b

2,917 3,271 3,897 4,276 4,366 4,175 21,295 21,772 22,269 22,756 23,220b 23,690b

Actual. b Economist Intelligence Unit estimates.

Source: Economist Intelligence Unit.

Pricing

Item

Price (US$)

% of monthly personal disposable income

Affordability rank

Telephone line, monthly rental (av) Telephone, charge per local call from home, 3 mins (av) Personal computer, 64 MB (av)

22.40 0.47 1,441

6.41 0.13 412.6

39 out of 49 42 out of 45 29 out of 53

Note. Affordability rank: for each country the price of an item as a percentage of monthly personal disposable income is calculated. Countries are ranked according to these percentages. The most affordable country will have the lowest percentage and be ranked first.

Technology

According to OECD figures, the information and communications technology (ICT) sector employed 164,050 people in Mexico in 1998, the last year for which full figures are available. ICT manufacturing alone employed 44,471, and this figure increased to 46,781 by 2000. IT spending in Mexico was worth US$8.4bn in 2001, according to eMarketer's 2003 IT Spending report. That makes Mexico the secondranked IT market in Latin America, some way behind Brazil, where IT spending in 2001 exceeded US$18bn. The Economist Intelligence Unit publishes e-readiness rankings every year, which reflect how conducive a particular country's business environment is to Internetbased opportunities, taking into account a range of factors from telephone penetration to online security. Mexico ranked 31st out of 60 countries in terms of ereadiness, with a score of 5.6 out of 10 in 2003. This is an improvement on its 2001 ranking of 34th place. In the Americas it ranks fourth, after the US, Canada and Chile.

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According to the National Chamber of the Electronic Industry, Telecommunications and Informatics (CANIETI), there are more than 650 electronics companies in Mexico in all, of which about three-quarters are engaged in the manufacture of telecoms equipment, computers and parts and components. Key playerstechnology Mexico's silicon valley is based in Guadalajara, in the western state of Jalisco. IBM (US) first set up a plant here in 1964, but Mexico's membership of the North American Free-Trade Agreement (NAFTA) brought a surge of investment from IT and electronics companies looking for a relatively low-cost base from which to export to North America. There were more than 320 electronics companies in Guadalajara in 1999, and Guadalajara accounts for 70% of Mexico's computer production and 95% of telecoms manufacturing. Many of the larger companies have set up training programmes with the region's universities and technical colleges. As a result of the pool of technology expertise in Guadalajara, it has become a centre for the development of Spanish-language software, as well as a focal point for the entire Latin American IT industry. Despite the focus on re-export for these companies, about 90% of electronic components are imported, with 60% coming from the US. The list of leading electronics companies in the Guadalajara area reflects this situation, as it is dominated by multinationals: Hewlett-Packard, IBM, Jabil Circuit, Kodak, Lucent, Motorola (all US), Natsteel (Singapore), SCI Systems (US), Siemens (Germany) and Solectron de Mexico. Tijuana, Puebla and Monterrey are also major manufacturing bases for consumer electronics, with Tijuana said to have the largest concentration of TV manufacturers in the world. Mexico's telecoms market began to open up to competition with the privatisation in 1990 of Telmex. With that came the concessions for cellular telephone operations. In 1996 the long-distance market was also opened up. However, Telmex continues to wield considerable market power and has been accused frequently of abusing its position. Telmex continues to dominate most market segments, including 95% of local telephony, 80% of long-distance calls, 75% of the mobile telephone market and 68% of Internet services. Local telephony, which is dominated by Telmex, remains the largest telecoms sector in terms of revenue generated, and corporate data communications and the Internet are the fastest growing segments. Local telephony revenue has received a significant push from value-added services such as caller ID, call waiting and threeway calling, according to Pyramid Research. However, mobile service revenue has been growing steadily and is approaching the value of the local services market. Telecoms investment in 2003 totalled US$2.3bn. This was a decline from the US$3.2bn invested in 2002, and less than half of the over US$5bn invested in 200001, according to the telecoms regulator, Cofetel. Aside from the stagnant state of the Mexican economy, analysts blame the investment standstill on the inability of Cofetel to provide a regulatory environment that lessens the nearly monopolistic position of Telmex and offers more opportunities and incentives for smaller carriers. Outstanding tasks for the regulator include the allocation of thirdgeneration (3G) spectra; the establishment of a process for local loop unbundling; and steps to encourage the introduction of flat-rate pricing for Internet access. In terms of credibility, Cofetel ranked ahead only of Venezuela's telecoms regulator in a survey of seven major Latin American countries. At the end of January 2003 the government started the first phase of its e-Mexico project, which aims to provide high-speed Internet connections via satellite to 3,200 communities. Operators are currently in the process of upgrading their time division multiple access (TDMA) networks to Global System for Mobile Communications (GSM) and general packet radio services (GPRS, also known as 2.5G technology). Wireless
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application protocol (WAP) uptake has been minimal, but there is expected to be more demand for 2.5G services. No 3G services are expected in Mexico until late 2006. Although cable TV penetration is relatively low, cable companies were the first to offer broadband services. Telmex launched a digital subscriber line (DSL) service, Infinitum, in 2001. The company will be able to determine the pace of development of DSL unless the unbundling of the local loop is accelerated. Key playerstelecoms Ericsson (Sweden) controls a large share of the telecoms infrastructure market as a result of its ties to Telmex and Telcel. Ericsson managed the digitalisation and expansion of Telmex's local network and provided the switching platform for the long-distance operation. It also won the contract to upgrade Telcel's TDMA network to GSM/GPRS and worked with Telmex on projects in Guatemala and the US. Other leading equipment vendors include Alcatel (France), which has provided switching infrastructure for Telmex, as well as integrated services digital network (ISDN) and DSL platforms. Cisco Systems (US) leads in Internet-based services and in the corporate market. Motorola has contracts with Cablevision for cable modem services, as well as for mobile network upgrade work for Telefnica. Nortel Networks (Canada) and Marconi (UK) also have a significant presence. The provision of telecoms services is dominated by the incumbent, Telmex, and its subsidiaries. Telcel, the biggest player in the mobile market, is a subsidiary of Amrica Mvil, a Telmex spin-off that operates across Latin America. Telmex accounts for 60% of Internet users via its affiliate, Prodigy. However, there are multiple players in Mexico's data communications, Internet and cable TV markets. Telcel's control over about three-quarters of the mobile market is likely to be eroded in the coming years, but it will only decline by a few percentage points. Avantel, the second-biggest telecoms company, entered the market in the mid-1990s as a long-distance carrier but has become a multiservice provider. It is considered to be vulnerable as a result of the market slowdown; the financial difficulties of Worldcom (US), one of its backers; and legal challenges to another backer, Citigroup (US), over foreign ownership laws. Other challengers to Telmex in the provision of local services include Axtel, Maxcom and Alestra. After its takeover of Pegaso, Telefnica Mviles (TEM, an affiliate of Spain's Telefnica group) has emerged as the second-largest player in the mobile market. TEM's Mviles Mxico division had about 2.7m subscribers in the fourth quarter of 2002, compared with Telcel's 19.4m. Other mobile service operators include Iusacell, Nextel and Unefn. In the Internet service provider (ISP) market, rivals to Prodigy (Telmex) include Spain's Terra Networks, Avantel, Alestra and America Online Latin America. In data communications, the market leaders Telmex, Alestra and Avantel are challenged by Telefnica, MetroRED, GlobalOne-Equant, Convergence and MCM Telecom. Useful websites Asociacin Mexicana de (AMITI):www.amiti.org.mx www.canieti.org Telmex: www.telmex.com.mx Anatel (telecoms industry association): www.anatel.org.mx Cofetel (telecoms regulator): www.cft.gob.mx la Industria de Tecnologias de Informacin

National Chamber of the Electronic Industry, Telecommunications, and Informatics:

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