The Sweet Spot of the Mexican Telecom Reform (Part 3/3)

Photo credit: datenfluss by Willi Heidelbach

I hope you have read the First and Second Parts of this Post.  If not, feel free to catch up here and here. This is part 3 of 3-part post on the recently published Mexican Telecom Reform. Follow me to explore the great opportunities to come.

Content is King.

After the Reform, all CATV/FTA telecom operators have the obligations of must-carry/must-offer (MC/MO). This part of the Reform is not trivial, as FTA channels are widely accepted in Mexico. This provision ends up with several legal battles between CATVs and FTAs. Mexico has a 94.7% of coverage of FTA and a 26.7% of CATV, with average annual growing of 16% (Cable/DTH). MC/MO has increased the value of content displayed on FTA, as coverage will be extended to CATVs. In turn, CATVs can acquire clients, as in many parts of Mexico highest rating channels/shows are FTA-only and do not cover all the country.

It is expected that during 2014, IFETEL will publish the tender for a national network of free-to-air Digital TV, which will increase the need for content. Market will decide whether this bidding is worth the money.

Plus, VOD in Mexico is growing. Xbox and Claro Video (Telmex) have just agreed to distribute content through XBox Live. Cinepolis, biggest cinema chain of Mexico has launched VOD with parallel release dates for theaters and VOD. The list of competitors is growing to join Blockbuster (not yet launched in Mexico), Vudu and Netflix.

Industries like animation and video home can find several channels of distribution. Independent producers can get into the market, as Mexico imports several contents (like Asian animation), but domestic industry is growing, and of course, there is the option for BTL marketing services in movies, which also may be eligible for tax-deduction. Content is accumulative and is adaptable to a wide range of distribution channels, so this is why content is king now.

Beware of the fine print of the Internet services.

Internet services represent a challenge to Telecom Reform. Currently, most of those services are regulated by value added registrations, consumer protection law (enforced by PROFECO) and privacy law (enforced by IFAI). The development of Internet services has broken the envelope by far. The mere registration will not solve the problems of data protection, data collection, fair use of data, service-level terms of use, giving data to authorities, cross-border rendering of services, among others. Now that IFETEL has authorities, including antitrust, a full review of such services must be done.

Social networks are a great example of new complex services that require going further. However, Bitcoin is the perfect example: A decentralized currency challenging the policies and tradition of central banks around the world. For now, Mexico would regulate Bitcon like many countries, by Banco de Mexico (central bank), and by Banking Commission for payment processors. Physical currency would be prohibited. And of course, Tax Law would be updated for miners to accumulate income.

In the long term, Bitcoin could be the legacy technology for One-Net integrating financial services with retail, telecom, education and other services. Current regulation could give Bitcoin developers an advantage for exploring business possibilities on P2P. But it is time to think about a solution that includes the future of Internet services involving IFETEL.

Smart Objects, Naive Law.

Mexico is following the world legal trend for regulating the Internet of things: It has no regulation.  If the machines would rise today, they would be put in stand-by until IFETEL updates regulation on homologation/certification of smart devices, telecom licenses sending data on public networks, resolve the dilemma on who is guilty when an illegal act takes place with a given IP address, and so on the list.

On the other side, data protection and privacy is the biggest problem to tackle, but the IFAI (personal information agency) is in charge. Coordination is a key. The opportunities are for manufacturers of electronic devices, as Mexico has a vast installed capacity and faces a good moment for manufacturing. Also, the opportunity is for privacy hardware and software companies, for manufacturing/developing in Mexico, as well as for selling to the inner market while demands for privacy and security increases.

Internet of things is a work in progress, and regulation has to remain as neutral as possible to promote growing of this technology, but what if the internet of things could detect and whistle-blow counterfeits? Could health IT use full potential for diagnosis?  Could it be integrated into humans to create the internet of everything?

Infrastructure is everybody’s game.

Currently, telecom operators need to present a business plan and an investment commitment in order to get a license. One of the targets of the Reform is to remove such barriers, and give flexibility to operators to manage the license “under their own risk”. Investment minimum requirements could just remain to spectrum and satellite tenders, as they are linked to public assets. Report and other basic obligations sure will remain. The expected growth of the Reform will increase demand for infrastructure. Infrastructure used for telecom services does not necessarily mean acquiring and maintaining a license or become regulated by IFETEL.

Currently, active telecom infrastructure used by operators is regulated (by license, permits or registration), while passive has not regulation at all. Infrastructure owned by non-operators is not regulated by telecom law. The spirit of this Reform will merge all authorizations into one single type of telecom license, introducing the concept of essential facilities. Most probably, all telecom infrastructures of operators will be subject to interconnection under the essential facilities doctrine. However, it is not certain what will happen to infrastructure from non-operators. Probably will be subject to regular commercial law.

Also, while the Reform will increase data speed in Mexico, such speed will not go up instantly. In the meantime, there will be a need for infrastructure dedicated to transport, IXPs, local cloud servers, muxing, etc., as operators will not catch up so fast to follow the growing demand. Opportunities for lease, financial lease and lease-back are on the landscape.

In relation to telecom hotels, on March 2012, the Federal Government started a telecom-hotel program so operators can use federal buildings for installing infrastructure. Still, a lot of opportunities for constructors, security and encrypting services companies.

A game-changer?

Does this Reform have what it takes to disrupt the status quo and create open markets?

Yes it has. The opportunities are growing, and could be exponential, as new technologies are being deployed into Mexico. It is a first-mover advantage. Followers will fight uphill.

It is not possible to learn in advance how the market will react, but this Reform combined with the growing number of users and volume of consumption of telecom services in Mexico, predicts that the table is set.

Now that I have shared my spots, it is your turn. What is your sweet spot of this Reform?

About the author

Alberto Esenaro

I am a Mexican lawyer with experience in technology, energy, automotive, infrastructure and business. Worked for law firms, international companies and Government bodies on business advice, regulatory compliance and litigation.

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About Author

Alberto Esenaro

I am a Mexican lawyer with experience in technology, energy, automotive, infrastructure and business. Worked for law firms, international companies and Government bodies on business advice, regulatory compliance and litigation.

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