Mexico’s Meandering
Telecommunications Sector
México: How to tap progress
Ernesto M. Flores-Roux, PhD
Centro de Investigación y Docencia Económicas, A.C. – CIDE
Federal Reserve Bank of Dallas, Houston Branch
Houston, Texas, November 2, 2012
According to the OECD, Mexico has experienced a welfare loss equivalent
to 2.8% of GDP per year in the last 5 years, 1.8 p.p. of which are due to
excessive pricing
Welfare loss attributed to a dysfunctional
telecom sector
Loss in consumer surplus…
… due to unrealized subscriptions
… due to excessive pricing
Percentage of GDP
5.0
4.3
4.2
1.6
4.2
3.7
3.7
1.6
1.6
1.5
1.3
1.3
2000-2004:
4.2
3.4
1.2
3.4
2.6
2000
2.7
2.4
2001
2002
2003
2.4
2004
2.7
2005
2.4
2.2
0.9
0.6
1.0
2.2
2006
2005-2009:
2.8
1.5
1.6
2007
2008
0.1
0.9
Source: OECD. (2012) OECD Review of Telecommunications Policy and Regulation in Mexico.
2009
2
The amount of overpricing is higher than all but two taxes and is
equivalent to the gasoline subsidy
Public sector income
Billions of pesos (nominal) – 2011
Income tax (ISR)
689.0
Value added tax (IVA)
555.7
Pemex
386.5
CFE
271.6
Social contributions
169.4
Special purpose tax (IEPS)
69.9
Licensing
67.8
Flat rate business tax (IETU)
60.6
ISSSTE
37.0
Import tax
22.8
Cash deposits tax
19.3
IMSS
11.5
Source: SHCP (2012); OECD (2012)
162.0
Telecom overpricing
according to the OECD
166.0
Gasoline subsidy
3
If fixed telephony prices were similar to the OECD average, other basic
staples’ prices could increase significantly with no impact on the inflation
index
Potential price increases with no effects on the INPC if fixed
telephony were priced at OECD levels
Percentage over current price
119%
INPC Fixed telephony weight: 1.51934
Overpricing according to the OECD:
94.9%
Decrease potential: 0.77955
107%
63%
Eggs
INPC weight 0.62302
56%
51%
47%
41%
Pork
Fruits
Poultry
Milk
Tortillas
Beef
0.69147
1.17588
1.31802
1.44288
1.58664
1.79145
Source: INEGI (2010, 2012); OECD (2012)
4
If these prices were the consequence of a vibrant telecommunications
sector, there would be a trade-off to be considered. But that is not the
case. In the most comprehensive measure of the ICT sector, published by
the WEF, Mexico has lost between 12 and 32 positions in the last 10 years
Networked Readiness Index – NRI
Ranking of Mexico
Original sample of
countries (2002)
41
41
44
44
Overall ranking with
an increasing
sample size
49
44
48
51
55
60
58
56
58
58
58
67
78
78
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: World Economic Forum
76
2011
5
Penetration of basic services lags behind many countries
Broadband penetration
Average advertised speed
Fixed + Mobile, 2011
in Mbps
120 000
Korea
Sweden
Denmark
Norway
Finland
Japan
United States
Australia
Iceland
Switzerland
Luxembourg
Portugal
Netherlands
New Zealand
United Kingdom
Ireland
France
Czech Republic
Spain
Poland
Italy
Israel
Canada
Germany
Austria
Estonia
Slovenia
Greece
Slovak Republic
Belgium
Hungary
Chile
Mexico
Turkey
100 000
80 000
60 000
40 000
20 000
Mexico
0
20
40
60
80
100
120
140
160
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
GDP per cápita (PPP)
Source: OECD (2012)
6
In mobile telephony in Latin America, Mexico lags behind every country
except Cuba and Bolivia…
Mobile penetration
Mid 2012
Chile
El Salvador
Uruguay
Argentina
Brazil
Panama
Ecuador
Venezuela
Paraguay
Guatemala
Colombia
Honduras
Peru
Nicaragua
Dominican R.
Costa Rica
Mexico
Bolivia
Cuba
145.4
143.6
142.3
139.3
131.3
127.3
110.0
105.8
102.7
99.5
99.2
99.1
94.7
92.8
89.1
85.8
84.3
78.4
14.1
Source: World Economic Forum (2011); OECD (2011)
7
… and it is a market which is extremely concentrated
Telcel’s market share
Percentage
80%
78%
76%
74%
-2.5% in 4
years
72%
70%
70.3%
Source: WirelessIntelligence (2012); company reports
IV-2011
II-2011
IV-2010
II-2010
IV-2009
II-2009
IV-2008
II-2008
IV-2007
II-2007
IV-2006
II-2006
IV-2005
II-2005
IV-2004
II-2004
IV-2003
68%
8
Penetration is very uneven among income groups…
Penetration of ICTs in Mexican households
Per income level (deciles), 2010
Fixed
X
IX
VIII
VII
VI
V
IV
III
II
I
85
70
59
52
42
34
27
22
16
9
Mobile
X
IX
VIII
VII
VI
V
IV
III
II
I
41
Source: INEGI / ENIGH (2010) & ENDUTIH (2010)
92
86
80
77
72
66
57
49
37
22
64
Computers
X
IX
VIII
VII
VI
V
IV
III
II
I
Internet
78
56
42
30
20
13
10
5
3
2
26
X
IX
VIII
VII
VI
V
IV
III
II
I
67
43
29
22
12
9
6
3
2
1
19
9
… and the gap is growing between the rich and the poor: the internal
digital divide is growing very rapidly
Growth of ICTs in Mexican households
Per income level (deciles), 2010
Fixed
X
IX
-2
-8 VIII
-7 VII
VI
10.6
V
11.5
-8 IV
-7 III
-6 II
-5 I
Top 50%
Bottom 50%
Mobile
5
X
IX
VIII
VII
VI
V
IV
III
II
I
-0.5
7.8
9.4
10.2
9.8
11.8
8.6
5.5
5.2
0.9
Computers
X
IX
VIII
VII
VI
V
IV
III
-0.4
II
I
3.6
3.9
5.6
3.6
1.4
0.4
1
0.8
1.3
Internet
X
IX
VIII
VII
VI
V
IV
III
II
I
-0.2
18.3
11.6
8.5
9.2
3.4
1.1
1.7
0.6
0.3
-4.5
-7.5
9.8
3.9
3.6
0.6
10.2
0.7
x 0.6
x 2.5
x 5.8
x 14.6
Source: INEGI / ENIGH (2010) & ENDUTIH (2010)
10
Schools are not well equipped…
Penetration of Internet access in schools
Percentage, late 2010
DF
Nuevo León
Tamaulipas
Baja California Sur
Coahulia
Tabasco
Sinaloa
Chihuahua
Durango
Colima
Nayarit
Jalisco
Baja California
Tlaxcala
Sonora
Puebla
Morelos
Quintana Roo
Campeche
Oaxaca
Yucatán
México
Guanajuato
Querétaro
Hidalgo
San Luis Potosí
Aguascalientes
Michoacán
Chiapas
Veracruz
Zacatecas
Guerrero
Source: CIDE (2010)
79
65
61
60
56
52
49
46
45
41
38
36
35
33
33
33
32
28
29
27
26
26
26
25
25
19
14
13
12
9
8
5
Finland:
South Korea:
USA:
Chile:
100%
100%
>95%
75%
11
… and penetration in businesses is almost a mystery: no reliable statistics
exist
Penetration of Internet in businesses
Percentage, different years (as available)
10-49 employees
50-249 employees
More than 249 employees
South Korea
Spain
Canada (2007)
Israel (2008)
Mexico (2008)
EU 27
Italy
Greece
Mexico (more than
10 employees):
51.6
Source: OECD (2011); For Mexico, from 20 to 49 employees
12
The use of ICTs in government is also mediocre. In relative terms, it has
gotten significantly worse in the last three years
2011 ranking
Places gained (lost) in worldwide egovernment rankings
-16
-15
-12
-9
36
Chile
16
Germany
3
United Kingdom
40
Colombia
62
Panama
25
Russia
Mexico
51
Argentina
52
Brazil
55
China
72
2
6
7
10
Source: United Nations. e-Government Survey Report, 2008 & 2011
16
33
13
So what has gone wrong?
▪
Lack of government interest
▪
Not a national priority
▪
Inadequate laws and regulations
▪
Inadequate competition policy
▪
Abuse of injunctions
This can all be
translated into one
big issue:
Lack of institutions
▪
Dominance of one player
▪
Regulatory capture
▪
No enforcement of laws and regulations
14
So what can be done? First and foremost, institutions need to be fixed
▪
▪
Eliminate the
“double window”
▪
▪
▪
▪
Overlapping of functions does not provide checks
and balances and creates enormous stress in the
system
The “double window” gives all players significant
arbitrage opportunities
It also reduces accountability in public officers
If not done correctly, the proposed creation of the
Secretaría de Comunicaciones will worsen the
problem. This will determine, from the beginning,
the possibility of changing the status quo
Policy making and regulation need to be “MECEly”
divided (Mutually Exclusive, Completely Exhaustive)
Regulator must be able to fine players and set prices
(either retail or wholesale) and the policymaker
(SCT) ought to have no saying in the matter
15
Do “surgical work” to the different laws that rule the sector
▪
Fix the institutions – eliminate the “double
window”
▪
Allow foreign direct investment with no
restrictions
▪
Eliminate all bottlenecks and red tape contained
in the law (enormous discretionary power to SCT
and Cofetel)
▪
Allow Cofetel to determine “dominance”:
currently, only Cofeco can do that, creating a
“tercera ventanilla”
16
Change basic regulations
▪
Fix wholesale
markets
Develop dominant
player regulation
Eliminate red tape
▪
▪
▪
▪
▪
▪
▪
▪
▪
Interconnection (prices should be set by the regulator, not
negotiated between/among the players)
Transport
Unbundling
Resale
MVNO
If all else fails, create alternative networks (“a la Telebras”)
Develop (and enforce) asymmetric regulation for
dominant players
No discrimination /price differentiation
Interconnection rates
Eliminate all bottlenecks and red tape created by
regulation
17
Comply, enforce, and empower
▪
Guarantee that concession contracts are fully
complied with:
▪ For example, Telmex continuously violates its
concession contract, with no consequences
whatsoever:
▪ Bundling of services
▪ Actions that can be considered dumping
▪ Not allowing interconnection
▪ Rural investment
▪…
▪ This is NOT restricted to Telmex, by any means:
other players constantly abuse the system
▪
▪
Information – availability + publicity
Citizen channels (“customer service”)
Enforce what is
already available
Empower users
18
Mexico’s Meandering
Telecommunications Sector
México: How to tap progress
Ernesto M. Flores-Roux, PhD
Centro de Investigación y Docencia Económicas, A.C. – CIDE
[email protected]
[email protected]
Federal Reserve Bank of Dallas, Houston Branch
Houston, Texas, November 2, 2012
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Telecomunicaciones en América Latina en la última década