Mexico. In recent days, the plenary session of the Federal Institute of Telecommunications, IFT, approved the 'tariff freedom' for the preponderant economic agent in Telecommunications (AEP-T América Móvil, Telmex-Telcel, Telnor) in the provision of the wholesale service of disaggregation of the local network in 52 municipalities of the country.
This is despite the fact that the entire industry (with the exception of the AEP-T), analysts, former officials of the regulatory body, associations and chambers, among many other experienced voices, warned of the unconstitutionality and contravention of the USMCA of the measure, as well as manifested marked risks of reconcentration of the market and consequent harmful effects on competition, the efficient development of the sector and the welfare of consumers.
With this decision, a new route has been constituted for the AEP-T to continue to concentrate its market share even more at the national level, strengthen its positioning, further advantage its competitors, categorically reduce its incentives to develop and improve its infrastructure, impose greater barriers to the effectiveness of the asymmetric regulation that is applicable to it, among other ways of competitive regression.
The expectation is that, with all this, a propitious scenario will begin to be configured that will return us to virtually monopolistic times, in which high prices for services were set at their discretion, suboptimal amounts of investment in infrastructure were exercised to improve the quality of these and in which competitors could not offer services under conditions similar to those of the AEP-T.
Disaggregation of the Local Network: Tariff Increase and Inefficiency
As anticipated in the opinions to the public consultation on tariff freedom, after the decision of the IFT, the AEP-T will have full capacity to increase the rates of the wholesale service of disaggregation of the local network, a circumstance that contributes to the low effectiveness of the measure from the application of barriers and delaying behaviors that competitors have faced to offer fixed services under similar conditions as that.
In international experience, wholesale services have been deregulated as there has been a significant record of unbundled access in favour of competitors.
This has not been verified in the Mexican market, so the disaggregation of the local network will be even less effective in its task of leveling the competitive ground between players.
Infrastructure Investment: Disincentives and Sub-pity
According to statistics from the Telecommunications Information Bank (BIT) published by the same IFT, the AEP-T reduced in the last five years its contribution to the development of telecommunications infrastructure, a circumstance that will be reinforced from the tariff freedom.
For example, in the fixed segment, the AEP-T reduced its contribution to aggregate capitalization by almost half, going from exercising 47.9% of resources in 2015 to only 23.6% of the total in 2020. While in the case of the mobile market it has contained its contribution by approximately 40%, registering 30.7% of the total amount of investment in 2020, taking distance from the 49.3% exercised in 2015.
Additionally, as they are municipalities that are located in the main cities of the country, the profitability and investment capacity of competing operators will be put at risk, by returning tariff control to the preponderant.
Plans to expand and improve the networks of these players will also be halted, to the detriment of compliance with the constitutional mandate of universal coverage and optimal quality of telecommunications services.
Prices of Services: Consequent Rise
From the tariff freedom, an increase in the prices of wholesale services is projected, higher than those defined and approved by the IFT, which will bring with it an increase in prices for end users, especially for those who have contracted services with competitors, who will face more adverse access conditions.
This fact would reduce the leadership in tariff terms held by operators other than the preponderant one and would bring us closer again, to a scenario of discretionary pricing by the latter, which is known for establishing unjustifiably high levels to the detriment of consumer welfare.
Competitive Imbalance: Greater Market Reconcentration
Another foreseeable effect of greater concern is the additional revenue reconcentration that would take place from this inconsistent regulatory determination, which would add to the upward trajectory already recorded in the market share of the mobile revenue preponderant. Based on the existing interdependence between the fixed and mobile markets, being the same main operator at national level.
In this regard, since Q1-2018, this operator undertook a categorical trend of reconcentration of revenues in the mobile telecommunications market that reached a maximum level of 72.8% of the total in Q2-2021. This is practically the same as it registered (73.0%) since it was declared as a preponderant economic agent in the sector.
Deregulation for Competitive Regression
Undoubtedly, this regulatory determination constitutes a regression to past times of low competitiveness and lack of competition in the telecommunications sector. No indicator suggests that there are conditions to proceed with the deregulation of the preponderant, instead this has strengthened its position in the market, even after two revisions of the mechanisms of asymmetric regulation and competitive leveling.
Again, competition has lost a battle that adds to the judicial elimination of the 'zero' interconnection regime in favor of competitors and the ineffectiveness of measures such as the equivalence of inputs and the technical and economic replicability of the AEP's offers.
In its decision, the IFT has chosen to contravene the Constitution, international treaties, its constitutional mandate to promote competition, and yet to undermine the interest and well-being of consumers; all to favor a single player, América Móvil.
Thus, the IFT has failed competition, the efficient development of markets, households and companies, institutions, and has become an organ that condemns the country to the pernicious effects of the lack of competition, by serving the interests of the Preponderant Economic Agent in Telecommunications.
Analysis by The Competitive Intelligence Unit, CIU.
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