Tariffs on imported equipment raise operating costs and reduce margins in companies in the sector. And the increase in the cost of devices limits the adoption of services, harming millions without mobile connectivity.
Carlos Roberto Hernández*
International trade is at a crossroads, and the threat of tariffs calls into question the essence of globalization. Without yet knowing the final tariff scheme, it is essential to analyze the current panorama of the telecommunications sector in Mexico to anticipate impacts and define key challenges.
The technological complexity, the large investments necessary to provide services and the slow returns on investment predict negative effects on different fronts for this sector, among which the following stand out.
Investment Uncertainty and Cost Increases
The telecommunications sector, which requires large investments and faces prolonged returns, is severely affected by volatile business scenarios. Faced with uncertainty in the projection of long-term revenues, operators contain their investments.
This circumstance takes on special relevance when considering the historical infrastructure deficit and the delay in the modernization of infrastructure in Mexico. For example, according to IFT figures at the end of 2024, no operator exceeds 85% of guaranteed population coverage to provide 4G, despite the fact that this technology has been on the market for more than 12 years.
Likewise, when analyzing the differentiated coverage, it is identified that the operator with the highest coverage in 5G only reaches 39.5% of the population, while in the United States 4G coverage reaches 99% and 5G exceeds 90%.
In addition to this investment situation, dependence on imported technological equipment means that any alteration in the international trade balance increases the cost of these inputs.
Although economic theory suggests that, under conditions of lower demand, prices should fall, abrupt imbalances can have the opposite effect, raising the cost structure of firms.
This increase in inputs puts downward pressure on operating margins: at the end of 2024, América Móvil reported an EBITDA margin of 41.3%, compared to 16.4% for AT&T and 9.0% for Telefónica. A rise in costs could widen these differences, weakening competition and even precipitating the exit of some operators from the market.
Lower Purchasing Power of Users
Additionally, the trade war is expected to have a double impact on Mexico's economy. On the one hand, tariffs have a direct impact on exports of various goods and services; on the other, a reduction in the economic activity of the countries to which Mexico exports would result in a fall in the national Gross Domestic Product (GDP).
The close relationship between GDP performance and revenues in the telecommunications sector warns that a contraction in the economy will result in a decrease in consumers' purchasing power, which will negatively affect the demand and consumption of connectivity services.
Increase in the Cost of Equipment for Access to Telecommunications and Reduction in Income
Essential equipment for accessing telecommunications services (such as smartphones, televisions, set-top boxes, computers, routers, and tablets) is mostly imported – for example, smartphones are assembled in China – and is sensitive to variations in the international trade balance. Imposing tariffs on these products would raise their prices, which could significantly decrease the adoption of connectivity services.
According to ENDUTIH 2023, there are still 7.42 million people in Mexico without mobile telephony due to lack of economic resources; An increase in the cost of equipment would exacerbate this situation, reversing recent advances in the adoption of mobile connectivity.
In addition, a rise in the price of devices would reduce demand, directly affecting operators' revenues: as of the fourth quarter of 2024, just over a quarter (27.9%) of mobile revenues depended on the sale of equipment. This knock-on effect would put pressure on operating margins and could ultimately weaken competition in the sector.
Final Thoughts
In the current environment, the volatility of global markets and the difficulties in obtaining resources to close the digital divide and modernize infrastructure are critical obstacles for the future of the telecommunications sector in Mexico. At the same time, the transformation of the regulatory framework adds complexity to the strategic redesign of the industry in the medium and long term.
The success of the new regulation will depend on a strategic analysis that simplifies this complexity into clear and stable rules, boosting competition and sectoral development. To do this, a comprehensive commitment to digital transformation and inclusion is required, which generates conditions conducive to modernizing networks and achieving universal connectivity.
This analysis does not intend to definitively project the impact of the new trade scenario, but to draw a map that reveals the vulnerability of the sector to drastic changes in international trade. Continuous monitoring of the market is crucial to make strategic decisions that minimize adverse effects, drive transformation, and strengthen the competitiveness of the industry.
*Carlos Roberto Hernández, is part of the market analysis firm The Competitive Intelligence Unit, The CIU.
