Mexico to Reform Telecommunications Sector
With the newly elected Mexican government in 2013 came a series of reforms in sectors such as education, energy, labor and telecommunications. The telecom reform proposed by the new President Enrique Peña Nieto features important opportunities for foreign investors and satellite communications service providers. The proposed telecom reform includes the creation of the Federal Telecommunications Institute (IFETEL) as an autonomous body directly funded by Congress, in contrast to the existing Federal Communications Commission (COFETEL), a specialized body under the Secretariat of Communications and Transport (SCT).
IFETEL will grant licenses and sanction non-conforming licensees. By comparison, COFETEL is a toothless entity that can only make recommendations to SCT, either regarding the issuing of licenses or the imposition of fines. In practice, most sanctions are not applied by SCT.
Perhaps the most important change affecting the satellite communications industry is the allowance of up to 100 percent foreign investment in Mexican telecommunications companies, including fixed satellite services. This is up from the current limit of 49 percent. Allowable foreign investment in TV broadcasting companies, currently prohibited, will be allowed up to 49 percent.
Governance and Competition
Seven commissioners appointed by the president and confirmed by the Senate by a two-thirds vote will govern IFETEL. An evaluation committee will select each commissioner from a pool of three to five candidates. By contrast, five commissioners that require no Senate confirmation govern COFETEL.
IFETEL will be able to declare “dominant” any telecommunications entity that captures 50 percent market share (by way of users, capacity, or network infrastructure). IFETEL will further have the power to divest companies in order to reduce their market share. This means that IFETEL will have the authority to declare as dominant companies such as Telmex and Telcel, the fixed and mobile telephony companies of Carlos Slim that currently hold 85 and 68 percent of the market, respectively.
Presently, COFETEL determines dominant status, but in practice the dominant status provisions are rarely applied. In addition, the new telecom rules will: prohibit cross-subsidies; auction two new open-air TV chains with national coverage; and impose limits on the acquisition of electromagnetic spectrum.
Courts and Other Measures
The new law proposes the creation of specialized telecommunications tribunals. IFETEL decisions will be appealable, but the decisions will not be suspended while appeals are in process. In the current system, COFETEL decisions can be suspended during appeals. Due to this factor, suspensions have essentially disabled declarations of dominance. The new law also proposes the creation of a government entity to hold 700MHz and 2.5GHz spectrum and offer Internet services. This entity will accept private investment and will negotiate spectrum capacity with service providers such as Telcel.
Concessions will be granted for telecoms services as long as concessionaries (licensees) comply with service-specific regulations and pay the corresponding regulatory fees. Today, concessions are service-specific and must be modified whenever a concessionaire seeks to offer a new service. Regulations for telecoms as well as radio and television will be merged into a single body of regulations.
Conclusion
Mexico is about to radically overhaul its telecoms regulations and open the satellite sector to up to 100 percent foreign investment. The telecom reform is being done at the constitutional level. That is, it will amend the Mexican constitution in order to guarantee lasting institutional change and provide investor certainty. In sum, the reform promises to create significant opportunities for satellite operators and service providers with subsidiaries in Mexico.
Raul Magallanes runs a Houston-based law firm focusing on telecommunications law. He may be reached at +1 (281) 317-1397 or by email at raul@ rmtelecomlaw.com.