TELECOMMUNICATIONS IN MEXICO

THREE YEARS
AFTER THE CONSTITUTIONAL REFORM
TELECOMMUNICATIONS IN MEXICO

THREE YEARS
AFTER THE CONSTITUTIONAL REFORM
3 Telecommunications in Mexico. Three Years After the Constitutional Reform

CONTENT

.04 Introduction .12 Growth of Telecommunications in

Mexico
.05 Drop in Telecommunications
Prices .13 Telecommunications Contribute
More to the Domestic Economy
.06 More than Half of Households in Mexico
have Pay TV Services .14 More Private Investment in
Telecommunications
More than 40% of Households in Mexico
.07 have Internet Services .15 Telecommunications Attract More
Foreign Direct Investment (FDI)
Mexico Now has Faster Internet with to Mexico
.08 Better Infrastructure
Increased Investor Confidence in
More than 50% of Population have Mobile
.16 the Mexican Telecommunications
.09 Internet Sector

Broader Spectrum for Better Mobile The Industry has also Benefitted from
.10 Telecommunications
.17 the Telecommunications Reform

More Digital Free-To-Air TV Channels with

.11 Better Quality of Transmission
4 Telecommunications in Mexico. Three Years After the Constitutional Reform

INTRODUCTION

For many years, the high levels of concentration that were prevalent in the various Mexican
telecommunications and broadcasting markets led to high prices, a reduced offering, poor
service penetration, substandard quality, and low levels of investment. To address this
situation, on June 11, 2013, a constitutional reform in telecommunications and broadcasting
was issued.

Not enough time has passed since the constitutional reform was approved for a substantial
structural reconfiguration of the telecommunications and broadcasting sectors to have
occurred, and although there are still several challenges ahead, the implementation of the
reform has already brought significant results during this period:

Greater competition
Significantly reduced prices
A broader service offering
More investment in infrastructure
More foreign direct investment
Technological improvements
Better quality of service

A brief description of the evolution experimented by the sectors regulated by the IFT during
the three years following the constitutional reform is provided below.
 5 Telecommunications in Mexico. Three Years After the Constitutional Reform

Cumulative variation between

DROP IN 2Q-13 and 4Q-15
TELECOMMUNICATIONS
PRICES 1.9%
0.9%
Cumulative variation between 2Q-13 and 4Q-15
CPI: 9.1% COMPI: -23.2% -4.3%

Despite inflation growth by 2013 2014 2015 2016 -32.4%

9.1% in Mexico between June
Quarter (Q) I -40.3%
2013, the year the telecommu- II III IV I II III IV I II III IV I
nications reform was passed,
and December 2015, tele- Higher prices -100%
communications prices fell by
23.2%, yielding a differential of
32 percentage points between Landline International LD
telecommunications prices Mobile phone Pay TV
and those of other products in Domestic LD Internet

average.

Source: Federal Institute of Telecommuni-

cations (IFT), based on data from the Na- Lower prices
tional Institute of Statistics and Geography
(INEGI).

N.B. Base Period December 2013 = 100. The During the same period, due
Communications Price Index (COMPI) is in-
tegrated by the price indices of the following
to the elimination of domestic
services: mobile phone, landline, internet, long distance call fees, interna-
COMPI CPI
domestic long-distance calls, international tional long-distance call rates
long-distance calls, and landline handsets. The
abbreviations stated above refer to the CPI:
fell 40%, while mobile phone
Consumer Price Index; COMPI: Communica- call prices decreased more than
tions Price Index; LD: Long Distance; and AAGR: 32%.
Average Annual Growth Rate.
6 Telecommunications in Mexico. Three Years After the Constitutional Reform

Subscriptions per 100 households

MORE THAN HALF 2013 2014 2015 2016

OF HOUSEHOLDS IN
MEXICO HAVE PAY TV Quarter (Q) II IV II IV II IV I
SERVICES

45 47 49 51 52 56 59

Pay TV services in Mexico have

grown more than 30% since
the telecom reform. Conse-
quently, nearly 60% of house-
holds and companies in Mexico
now have cable or satellite Pay
TV services. Source: IFT based on information provided by
the operators, current as of March 2016.
The establishment of the Must
N.B. Overall subscriptions for 1Q-16 were es-
Carry/Must Offer obligation re- timated from information provided by Avan-
garding Free-to-Air television tel, Axtel, Cablecom, Cablevisión, Cablemás,
content has led to the elimi- Dish, Maxcom, Megacable, and Sky, which
accounted for a combined share of 88% of the
nation of a significant barrier market in 4Q-15. Data include residential and
to entry in the Pay TV market. non-residential subscriptions, calculated under
the methodology established by the Interna-
tional Telecommunication Union (ITU). Resi-
dential subscriptions are estimated to account
for 85% of all subscriptions, with non-resi-
dential subscriptions accounting for the other
15%, according to the 2015 National Survey on
Household Availability and Use of Information
Technology (ENDUTIH).
7 Telecommunications in Mexico. Three Years After the Constitutional Reform

MORE THAN 40% Subscriptions per 100 households

OF HOUSEHOLDS
IN MEXICO HAVE 2011 2013 2012 2014
2013 2015
2014 2015 20162016
INTERNET SERVICES
(Q) II (Q) II IV
QuarterQuarter IIIV IV II II IV
IV II II IV IVII IV I I

45 47 49 51 52 56 59 47
39 41 41 43 39 40 42 41 42 45

Before the telecom reform,

the growth of fixed broadband
(FBB) services was practically
stagnant. Between the fourth
quarter of 2013 and the end of
2015, household internet ser-
vices experienced a growth of
12.5%.
Source: IFT based on information provided by
the operators, current as of March 2016.
By March 2016, the FBB pe-
netration rate had climbed N.B. Overall subscriptions for 1Q-16 were esti-
mated from information provided by Axtel, Ca-
to 47 subscriptions per 100
blemás, Cablevisión, Maxcom, Megacable, and
households, signaling a Telmex, which accounted for a combined share
growth of more than 20% in of 88% of the market in 4Q-15. Data include
residential and non-residential subscriptions,
household internet services
calculated under the methodology established
during the last five years. by the International Telecommunication Union
Rate of change between 2Q-11 and Rate of change between 4Q-13 and (ITU). Residential subscriptions are estimated
2Q-13: 0% 4Q-15: 12.5% to account for 88% of all subscriptions, with
non-residential subscriptions accounting for
Before the Reform After the Reform
the other 12%, according to the 2015 Nation-
al Survey on Household Availability and Use of
Information Technology (ENDUTIH).
8 Telecommunications in Mexico. Three Years After the Constitutional Reform

Internet Access Speed

MEXICO NOW HAS 2014 2015 100 Mbps or above

FASTER INTERNET Quarter (Q) I II III IV I II III IV

Between 10 Mbps and below 100 Mbps
Between 2 Mbps and below 10 Mbps
WHITH BETTER Between 256 Kbps and below 2 Mbps

INFRASTRUCTURE 0.1% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%

9.5% 9.6% 9.9% 11.8% 11% 24.7% 70.9% 75.7%
85.4% 85.2% 84.9% 83.7% 85.4% 71.7% 27% 22.4%
5% 5% 5% 4.3% 3.4% 3.4% 1.9% 1.7%
This provision of increased in-
ternet speed has gone hand in
hand with operators investing
There has been a significant in more modern technologies.
improvement in reported in- For instance, the prevalence
ternet speeds for households of twisted-pair copper ca-
over the last two years. As of ble based broadband declined
early 2015, 85% of households from a 66% share in early 2014
had an internet speed between to 54% by late 2015, contrast-
2 and 9.9 Mbps. By late 2015, ing with the rise in the use of
only 22% of households had coaxial cables from 24% at the
Internet Access Technology
internet services with speed beginning of 2014 to a 33%
2014 2015
below 10 Mbps, while more share by late 2015. Over the
than 75% of households had an Quarter (Q) I II III IV I II III IV same period, the percentage of
internet speed of between 10 fiber-optic internet increased
4.2% 4.1% 4% 4.1% 3.9% 2.9% 2.7% 2.5%
and 99.9 Mbps. 6.2% 6.5% 6.7% 7% 7.6% 8.3% 9.2% 10.2% by nearly 65%.
23.8% 24.5% 25.2% 27.8% 28.9% 30.5% 32.4% 33.2%
65.8% 64.9% 64.1% 61.1% 59.6% 58.3% 55.7% 54.1%

2
Source: IFT based on information provided by
the operators, current as of December 2015.

N.B. Data include residential and non-resi-

Others dential subscriptions. Although the technol-
Optical fiber ogy changes started in previous quarters,
Cable modem (coaxial cable) subscriptions for internet speeds that ranged
DSL (twisted-pair copper) between 10 Mbps and below 100 Mbps were
reported to the IFT until the 3Q-15.
9 Telecommunications in Mexico. Three Years After the Constitutional Reform

MORE THAN 50% OF Subscriptions per 100 inhabitants

POPULATION HAVE
MOBILE INTERNET Before the Reform After the Reform
2011 2012 2013 2014 2015 2016

Quarter (Q) II IV II IV II IV II IV II IV I

Mobile broadband has ex-

perienced significant growth 7 12 16 21 23 29 39 43 46 53 54
during the last five years.
While only 7% of the popula-
tion had an internet access
through their cell phones in
2011, by mid 2013, 23 per
100 inhabitants could surf
the web through their mobile
handsets.
Source: IFT based on information provided by
Two and a half years after the the operators, current as of March 2016.

telecommunications reform,
N.B. Overall subscriptions for 1Q-16 were es-
more than half of the popula- timated from information provided by AT&T,
tion in Mexico could make use Telcel, and Telefónica, which which accounted
for a combined share of 99% in 4Q-15. Data
of this service, and by March
include residential and non-residential sub-
2016, 54% of the population scriptions, calculated under the methodology
had mobile internet services. established by the International Telecommu-
nication Union (ITU). Residential subscriptions
are estimated to account for 91% of all sub-
scriptions, with non-residential subscriptions
accounting for the other 9%, according to the
2015 National Survey on Household Availability
and Use of Information Technology (ENDUTIH).
10 Telecommunications in Mexico. Three Years After the Constitutional Reform

BROADER SPECTRUM
FOR BETTER MOBILE Before the Constitutional Reform

TELECOMMUNICATIONS 120Mhz 60Mhz 42Mhz

The radio spectrum allocated

Total: 222 Mhz
for mobile telecommunications
before the constitutional re- Current situation

form was just 222 Mhz. 120Mhz 130Mhz 64Mhz

Following a string of public ten-

ders awarded by the IFT, the ra-
dio spectrum allocation has in-
creased by over 40%, and more Total: 314 Mhz
tenders are anticipated during
the next two years, which Expected Spectrum
700 Mhz

would enable the use of a to- 800 Mhz

190Mhz 120Mhz 140Mhz 64Mhz 90Mhz
tal of 604 Mhz for mobile tele- AWS

communications, allowing to PCS

ensure better quality services. 2.5 Ghz

Total: 604 Mhz

Source: IFT, based on information current as of
December 2015.

N.B. IMT: Global standard for international mo-

bile telecommunications established by the
International Telecommunication Union (ITU).
11 Telecommunications in Mexico. Three Years After the Constitutional Reform

MORE DIGITAL
FREE-TO-AIR TV
CHANNELS WITH
BETTER QUALITY OF
TRANSMISSION
Digital Channels

Mexico was the first country in 676

A new free-to-air national TV
Latin America to successfully
network that will broadcast
switch off its analogue televi-
digital content will begin opera-
sion signal and migrate to digital
tions shortly.
terrestrial television (DTT). The
rollout of DTT allows viewers 311
to watch up to 676 digital
television channels, compared
to the 311 digital channels they
could access before the consti-
tutional reform.

This enables the reception of

better quality signals and a
more efficient use of the radio DTT

spectrum while also offering TV Analógica

1Q 2013 1Q 2016
more free-to-air programming
Source: IFT, based on information current as of
to the public through multipro-
March 2016.
gramming.
N.B. Only includes television stations with an-
alog transmission systems that use VHF or
UHF frequencies, or with digital transmission
systems (DTT).
12 Telecommunications in Mexico. Three Years After the Constitutional Reform

GROWTH OF
TELECOMMUNICATIONS
The average revenue of the
IN MEXICO
telecommunications sector
before the reform was MXN
AAGR of National GDP 2011-2015: 4% $366 billion, and by December
2015—after the reform—was
AAGR of Telecom GDP 2011-2015: 11%
MXN $427 billion.

Before the Reform After the Reform

Moreover, as the domestic
2011 2012 2013 2014 2015 2016 economy was growing at an
annual rate of 4% over the last
Quarter (Q) I II III IV I II III IV I II III IV I II III IV I II III IV I five years, the telecommuni-
cations sector increased 11%,
550 18,000
thus growing three times faster
17,000 than Mexico’s Gross Domestic
500
Product.
16,000

National GDP
450
Telecom GDP

15,000
400
14,000

350 13,000
Telecom GDP
National GDP
300 12,000

11,000 Source: IFT, based on data from INEGI.

250
N.B. GDP is in constant 2008 Mexican Pesos
(MXN). The abbreviations stated above refer
to the AAGR: Average Annual Growth Rate.
Average Telecom GDP: MXN $366 Billion Average Telecom GDP: MXN $427 Billion Figures in billions of Mexican pesos. The IFT
estimated the Telecom GDP figures for 1Q-16
based on information from INEGI.
13 Telecommunications in Mexico. Three Years After the Constitutional Reform

TELECOMMUNICATIONS Telecom annual share as percentage of National GDP

CONTRIBUTE MORE
TO THE DOMESTIC Year of
ECONOMY Before the Reform
the Reform
After the Reform
2011-2012 2013 2014 2015 4Q-15 1Q-16

2.56% 2.90% 3.03% 2.97% 3.21% 3.40% 3.6%

Telecommunications have in-

creasingly contributed to the
domestic economy in the years
following the reform than be-
fore it.

This is a telling sign of the

growth the sector has expe-
rienced in recent years. Even
if we focus only on 4Q-15 or
1Q-16, we see that the share
of the telecommunications
sector as a percentage of
the Gross Domestic Product
reached record proportions,
which is a reflection of the im-
portance the sector has in the
lives of the Mexican public. Fuente: Source: IFT, based on data from INEGI.

N.B. GDP is in constant 2008 Mexican Pesos

(MXN). The IFT estimated the Telecom GDP
figures for 1Q-16 based on information from
INEGI.
14 Telecommunications in Mexico. Three Years After the Constitutional Reform

MORE PRIVATE
INVESTMENT IN
TELECOMMUNICATIONS Telecom private investment

2013 2014 2015

Billions of Mexican Pesos

Telecommunications GDP and Total $49 $49 $66

private infrastructure invest- Mobile telecommunications $22 $17 $18
ment practically experienced Fixed telecommunications $27 $32 $48
no significant growth between
2013 and 2014. However, in- $70

vestment during 2015 grew $450

$60
by 34.8% on 2014, while tele-

Billions of MXN Pesos (Telecom GDP)

Billions of MXN Pesos (Investment)

Telecommunications GDP
communications GDP in- Mobile telecommunications
$50
creased by 11% over the same Fixed telecommunications
period. $40

$400
This means that 2015 was a $30
year in which there was a re- Source: Investment calculated by the IFT,
based on information provided by operators,
markable rise in the sector’s $20
current as of December 2015. GDP calculated
GDP together with strong by the IFT, based on data from INEGI.
$10
growth in investment, which is
N.B. The investment figure reported by Telcel
a positive signal for the tele- $0 $350 for 2013 is being reviewed by the operator,
communications in Mexico for with the figure shown serving as an estimate
2016. based on available data. GDP is in constant
2008 Mexican Pesos (MXN), provisional data
for 2015. The investment figures for Telcel do
not include investment by Opsimex.
15 Telecommunications in Mexico. Three Years After the Constitutional Reform

Year of the Reform After the Reform

2013 2014 2015

TELECOMMUNICATIONS
ATTRACT MORE
9.6%
FOREIGN DIRECT
INVESTMENT (FDI) TO
MEXIC0 2,712
4.7%

The legal and institutional 2,134

changes that have taken place 0.9%
in the telecommunications
sector have made Mexico an
219
attractive prospect for foreign
investment.

Before the reform, the FDI on

the Telecommunications sec-
tor was less than 1% of the
total FDI. This figure stood at
nearly 5% for the year in which
the reform was passed, and
10.0%
during 2015 it accounted for Finance and insurance 9.6% Telecom
almost 10% of the total for- Telecom FDI

eign direct investment, mak- 9.0% Wholesale Telecom FDI as share of Total FDI
Trade
ing it the third most attractive
7.3%
FDI proposition, only behind Construction
the manufacturing and the fi-
Source: IFT, based on data from the Ministry
nance and insurance services. 14.1%
50% of Economy as of 4Q-15.
Manufacturing Others
N.B. Figures in millions of U.S. dollars.
Total FDI during 2015: USD $28,376
16 Telecommunications in Mexico. Three Years After the Constitutional Reform

INCREASED INVESTOR Before the reform, this index

CONFIDENCE IN grew at a level far below that
THE MEXICAN of the IPC. However, for the
TELECOMMUNICATIONS Before the Reform After the Reform
quarter after the constitutional
SECTOR 2011 2012 2013 2014 2015 2016
reform was passed the Tele-
Quarter (Q) I II III IV I II III IV I II III IV I II III IV I II III IV I com Services Index recorded
growth rates that were higher
15
than that of the IPC, and also
The increase in foreign direct in- trended positively during the
Cumulative rate of growth

vestment, combined with a rise first quarter of 2016, which is a

in production levels, investment reflection of the increased con-
on infrastructure, and telecom- 0
fidence on the profitability of
munications sector revenue, the Mexican telecommunica-
have brought increased inves- -15
tions companies.
tor confidence, as can be seen
from the upward trend of the -30
Telecom Services Index on the
Mexican Stock Exchange.

AAGR before the Reform AAGR after the Reform IPC

Telecom Services Index

5.4% (BMV TELECOM RT)
3.7%

-0.6% 8.1%
Source: IFT, based on data from the Mexican
Stock Exchange (BMV). Base Period December
2013 = 100.

N.B. The abbreviations stated above refer to

the AAGR: Average Annual Growth Rate; and
IPC: Mexican Stock Exchange Price Index.
17 Telecommunications in Mexico. Three Years After the Constitutional Reform

THE INDUSTRY HAS Level of income

ALSO BENEFITTED Billions of Mexican Pesos were reported for the first quar-
FROM THE 2013 2014 2015 2016 ter of 2016 than were recorded
TELECOMMUNICATIONS during the same period of 2015
REFORM 397 435 443
118
109
109
107 109

In addition to users and vie-

wers having benefitted from the
constitutional reform through
a wider offering, better prices,
and a greater diversity of con- 1Q-2015
tent, the telecommunication 2Q-2015
companies have also increased 3Q-2015
their revenues. 4Q-2015
1Q-2016
Income reported by telecommu-
nications operators combined
was nearly MXN $400 billion Mobile Telecommunications
in 2013, whereas this figure Fixed Telecommunications
reached MXN $435 billion by
2014. In 2015, these opera- Source: IFT based on information provided by
tors generated more than MXN operators.
Fixed
$442 billion in revenue, thus Telecommunications
N.B. The data for 1Q-16 were estimated based
achieving a growth of nearly Mobile 43% on the information reported to the IFT by the
12% between 2013 and 2015. Telecommunications operators and the information reported in the
57% financial statements of the following opera-
Furthermore, greater revenues
tors: Grupo Televisa, Telefónica, América Móvil
(Telmex, Telnor, and Telcel), and AT&T. Figures in
billions of Mexican Pesos.
Telecommunications in Mexico. Three Years After the Constitutional Reform
JUNE 2016
Insurgentes Sur #1143, Col. Nochebuena, Delegación
Benito Juárez, Ciudad de México, México, CP. 03720