AQ Feature

Telecommunications: Mexico's New Reform

On June 10, Mexican President Enrique Peña Nieto signed a constitutional amendment that transformed the government’s role in telecommunications and expanded its power to curtail media monopolies. The amendment has seismic potential for Mexico’s telecom industry and for its political future.

One of two flagship reforms that emerged from the Pacto por México, an informal working group comprising government and the three major political parties, the amendment gives government three distinct roles in telecom. First, through creation of the Instituto Federal de Telecomunicaciones (Federal Telecommunications Institute—IFETEL), a regulatory agency with constitutional status, the state reasserted its role as telecom regulator.

IFETEL’s mandate is to guarantee economic competition and content plurality and to encourage universal coverage, convergence, quality and, importantly, access. It has the authority to sanction or even split up companies engaged in monopolistic practices, and to establish ad hoc restrictions to minimize undue market advantages for dominant players in the industry—defined as companies that capture 50 percent market share through their number of users, capacity or network infrastructure.

Unlike the existing Comisión Federal de Telecomunicaciones (Federal Communications Commission—COFETEL), IFETEL will be independent from the executive and legislative branches, and will function as the telecom sector’s exclusive anti-trust agency.

IFETEL will be headed by a body appointed through a three-step process designed to be more stringent than the criteria for appointing Supreme Court justices, which involves only the Executive and the Senate. Candidate selection will involve an open, competitive process that is subject to a technical evaluations committee, which, together with higher education institutions, will submit three to five candidates to the president, from which one will be proposed to the Senate for confirmation.

The telecom reform also mandates that the federal government set up a nonprofit, public service broadcast company to provide objective information and to broadcast independently produced content. It will be governed by a director advised by a citizens’ council, both of which are to be appointed by the Senate. In addition, the government will build a backbone network to ensure equal access for all carriers.

What makes the reform powerful is that much of the regulation is embedded in Article 6 of the Constitution, which establishes the right to free speech. Grounding this in the Constitution underlines the fact that the new telecom reform is as much about the audience as it is about the speaker. It reinforces the government’s role in making sure smaller voices are not drowned out by power, money or bias.

But the reform’s success is not ensured. The government must first reign in powerful actors.

Mexico’s telecom sector is dominated by a few enormously powerful players. Carlos Slim, the richest man in the world, received the lion’s share of the telephone market when Telmex, the government’s telephone monopoly, was cheaply transferred, unaltered, into his hands in the early 1990s.

The television market is split between two mass media companies: Televisa, which controls 321 of the 566 commercial frequencies, and the newer TV Azteca—built with public funds and then also cheaply privatized to a single player (Ricardo Salinas) in the 1990s. TV Azteca has roughly 211 frequencies. Together, the two companies control 94 percent of commercial TV frequencies (62 percent of all frequencies) and almost all of the market.

Radio is and has long been concentrated: 80 percent of commercial stations are in the hands of only 13 groups. Internet access is dominated by either Slim’s Telmex or local cable competitors that are often Televisa subsidiaries.

All of these businesses were built or acquired through privileged and opaque relationships. They thrived in a symbiotic relationship with the Partido Revolucionario Institucional (PRI) throughout the twentieth century, in which docile entrepreneurs provided political support to the party and government while receiving economic benefits and access. When the PRI was ousted from office in 2000, the roles were reversed. Industry increasingly called the shots and a docile government protected their economic ambitions.

The telecom monopolists have bullied authorities into approving blatantly unconstitutional laws (Ley Televisa in 2006) and pushed them to the sidelines as they took justice into their own hands (“El Chiquihuitazo” in 2002). For years, pressure prevented the authorities from declaring Slim’s telephone monopoly a dominant player. That changed on April 18, when the Supreme Court ruled that Telmex was a dominant player—a culmination of attempts for such a ruling that started in 2007.

In 2007, soon after the Supreme Court struck down the Ley Televisa law—legislation that granted private broadcasters privileges such as permanent rights over the spectrum and entry barriers to new competitors—Congress enacted a major reform aimed at preventing the interference of telecom companies in the electoral process, but otherwise left the telecom market untouched. The message sent to the telecommunications industry was clear: keep out of the political process and you can have your economic windfalls.

The reform gave the electoral authorities, namely the Federal Electoral Institute (IFE), the power to prevent telecom companies from indirectly favoring a candidate by doing things such as charging campaigns different advertisement rates. But the formula did not work. Early on, the two television giants refused to follow the guidelines for transmitted campaign ads and then strong-armed electoral authorities into condoning their actions. The new IFETEL, however, will be harder to push around or cajole and will have the power to impose sanctions that affect the rights and privileges of specific telecom companies that break the law.

The result: until now, television has remained Mexico’s king-maker. This benefitted Enrique Peña Nieto. When he was governor of the state of Mexico, he was television’s darling. That gave him a national platform leading up to the 2012 election. In proposing and pushing through the new telecommunications reform, he neutralizes, at least in part, the criticism that he is the product and puppet of the TV stations.

More important, through this reform, he faced up to a challenge sidestepped by other leaders before him: heading off the growing efforts by media and telecom monopolies to capture government by promoting the election of favored candidates—including family members—to office.

Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Telecommunications, Mexico