Mexico. Historically, Mexico was characterized by registering the highest telecommunications prices among OECD countries and the highest in the world. In previous years there was a gain in tariff competitiveness due to the significant decrease in the INPC in its Telecommunications component.
Two phases have been identifiable by price dynamics. First, of marked decline accompanied by some gain in competition indicators, followed by a stagnation and rigidity of prices and minimal gain in competition, even a trend of reconcentration is already identifiable, as described below.
Phases of Price Evolution
In the first phase, a marked downward price ramp took place, resulting in a reduction of 24.2% between March-2014 and July-2016; the decrease corresponding to the mobile segment reached 40.9% (INEGI).
This trajectory was attributable to three factors with different incidence and magnitude of impact.
One and the most important, the legal framework that determined the disappearance of the National Long Distance, the prohibition of discrimination of rates outside ('off-net') and inside the network ('on-net'), as well as the charge for the termination of calls in the network of the preponderant (AEP-T, América Móvil). Two, the market, due to the entry of a disruptive player (AT&T) and its competitive action by eliminating Roaming and International Long Distance charges, added to aggressive pricing schemes in postpaid and prepaid. And three, to a lesser extent, the asymmetric regulation that has been partially applied and that has even been reversed, as is the case of the so-called 'zero tariff' of interconnection.
In the second and current phase, the evolution of prices practically stagnates due to the relative exhaustion of the regulatory model. The INPC-Telecom fell by only 2.0% between 2016 and 2018, that is, almost two years without Mexican consumers benefiting from tariff improvements, putting at risk the advances in tariff competitiveness and, with it, the well-being of consumers, caused by the persistent lack of competition and even by a market reconcentration in favor of the AEP-T.
Prices and Consumer Welfare
According to the OECD measurement (http://bit.ly/2XtriS1, 2012), high prices translate into losses in consumer welfare, the effect of excessive and unjustified charges made for the consumption of services, derived from the lack of competition in the market and the charging of surcharges to the end user.
There, he pointed out that the losses amounted to 1.8% of GDP per year, equivalent to $284,720 million pesos. This amount is, for example, higher than the GDP generated by the manufacture of cars and trucks, by the mining industry and by animal husbandry and exploitation during that year. This loss in consumer welfare is also approximate to the federal budget allocated in the same year to Public Education and the payment of the Public Debt; exceeds 3.4 times that allocated to Social Development, by 3.3 times that of Communications and Transport and 2.5 times that dedicated to Public Health.
An update using the same methodology and sources from the OECD analysis documents that the decline in consumer well-being became 38% lower, to stand at 1.1% of GDP per year (The CIU, http://bit.ly/2WMUrdK). This, due to the price drop described and its consequent upward effect on its consumption and contracting of services.
But it should not be lost sight of the fact that this 1.1% is still a loss of consumer welfare that reaches $225,323 million pesos. It still remains an extraction of the consumer surplus resulting from the anti-competitive effect of the AEP-T on all market players.
In the three most recent quarters, a reconcentration in favor of the preponderant is documented, which reinforces the also persistent scenario of price stagnation.
This, in addition, sets the tone for greater losses in the well-being of Mexican consumers.
Text written by Ernesto Piedras of The Competitive Intelligence Unit.
