The AMERICAN CHAMBER/MEXICO is dedicated to fostering economic and regional competitiveness. Within this commitment, it is crucial to highlight the telecommunications sector, which plays a pivotal role, surpassing traditional sectors such as automotive in terms of GDP contribution in Mexico.
In Mexico, the radioelectric spectrum, crucial for mobile telephony, is considered a national asset managed by the State. Since 2005, Mexico has adopted a unique hybrid model where the Secretaría de Hacienda y Crédito Público (Finance Secretariat, SHCP in Spanish) oversees fee calculations, subject to Congress approval through the Federal Rights Law. While standing out in the OECD for its hybrid approach, the notably high spectrum fees disproportionately impact mobile operators. Despite input from entities like the Instituto Federal de Telecomunicaciones (Federal Telecommunications Institute, IFT in Spanish), there is a current lack of transparency regarding fee determination.
The current policy in Mexico, where approximately 90% of total spectrum payments are annual fees adjusted based on the general inflation rate, is raising concerns, especially in light of the recent decrease in mobile service prices. The IFT emphasizes that Mexico’s spectrum costs are significantly higher than the global average, with a 39% difference, excluding the 800 MHz/850 MHz band. Therefore, IFT recommends measures to enhance competition, such as reducing spectrum costs for new entrants and offering discounts for future auctions focused on 5G-oriented bands.
The findings from a recent market study conducted by IFT underscore the critical impact of Mexico’s existing spectrum fee payment structure as a major contributor to holding the status of the world’s most concentrated mobile telecommunications market. It not only impedes the growth of operators beyond the Preponderant Economic Agent but also raises barriers for new concessionaires entering the market. Additionally, a study by the GSMA suggests that aligning Mexico’s spectrum costs more closely with international benchmarks could have facilitated mobile service access for up to 5 million Mexicans in recent years.
Furthermore, the prevailing spectrum fees framework has prompted major mobile operators like Telefónica and AT&T to return significant portions of their allocated spectrum. The financial implications of spectrum returns are substantial, affecting public finances significantly. Telefónica‘s relinquished spectrum incurred an annual cost to the treasury of approximately USD 650 million from 2020 to 2023, accumulating to a staggering USD 2.1 billion over the 20-year concession period. Similarly, AT&T’s returned spectrum resulted in an annual financial burden of approx. USD 60 million from 2020 to 2023, leading to a total revenue loss of approx. USD 155 million over the 20-year concession.
This trend is also evidenced by the lack of interest in spectrum auctions, as the most recent auction left 38 out of 41 blocks unassigned. This disinterest also poses an impact on state revenues. Unassigned spectrum potentially represents a fiscal loss of USD 30 million in compensation and USD 60 million annually, accumulating to approx. USD 600 million over the concession period. In total, these financial implications signify a substantial loss of approx. USD 2.5 billion in revenues over 20 years. Reducing spectrum fees emerges as a crucial strategy to encourage competitiveness, attract new market entrants, and potentially redirect resources into trusts or financial instruments, ensuring their utilization for network expansion, 5G deployment, and extended mobile telephony coverage which is critical for Mexico’s potential in the context of nearshoring investment and USMCA optimization.
Earlier this year, the IFT addressed the issue of high spectrum fees in Mexico, proposing a significant 60% reduction for all agents and introducing a proportional charge based on revenues (1%) to enhance competition. However, Mexico’s SHCP, in its annual proposal for fiscal year 2024 to Congress on September 8th, once again overlooked the IFT’s recommended changes. This highlights an ongoing challenge in aligning regulatory and treasury policies to foster fair competition in the sector.
As representatives of the binational business community in Mexico, we express our interest in forging collaborative partnerships with the authorities and initiate a constructive dialogue aimed at improving spectrum costs. Recognizing the crucial role of 5G technology in attracting investment, the implementation of a policy that either maintains or reduces the cost of inputs for operators emerges as a strategic move. Such a policy has the potential to exert a profound impact on economic growth, enhancing teledensity and catalyzing positive effects on GDP, job creation, digital markets, and the broader digitization of growth-oriented activities. These measures are indispensable for unlocking Mexico’s vast potential and strengthening regional competitiveness in the sphere of nearshoring.
Mexico City | February | 2 | 2024