Mexico's antitrust authority CFC (Cofeco) recently won a legal battle upholding its decision to allow bidders no more than 35MHz of 1900MHz spectrum that was auctioned in 2005. This puts an end to temporary injunctions that allowed bidders to claim up to 65MHz and means the government must now re-auction any spectrum awarded in excess of the 35MHz permitted.
By José F Otero, president Signals Telecom Consulting
However, the CFC's win is fairly meaningless because the authorities will find it very difficult to sell the excess spectrum to players that are not already established and that would be prepared to invest in a mobile network aimed at the mass market.
The experience of mobile operator Movistar says it all. This Telefónica subsidiary entered the market in 2002 with the purchase of Celulares del Norte and Pegaso PCS, which provided the operator with an established subscriber base and installed network (with the possibility of being switched to GSM/GPRS). However, this new competition against Telcel, a unit of América Móvil, unleashed a fierce battle in which the high terminal subsidies offered by Movistar had little impact on its attempt to expand rapidly the subscriber base.
Signals believes that companies with a possible interest in acquiring 1900MHz bandwidth would fundamentally be interested in offering services aimed at niche segments - mostly SMEs or the corporate business sector, which does not quite meet Cofeco's plan to boost mobile competition in Mexico's mass market. This is nothing new in Mexico's mobile market since AT&T Wireless - before being purchased by Cingular Wireless - expressed interest in purchasing PCS spectrum to offer solely GSM/GPRS roaming services in areas with a high level of visitors from the US, like Cancún and Tijuana.
The new spectrum could be attractive to companies wishing to incorporate new services to their portfolio, such as Axtel and/or Alestra. However, they would not be willing to invest the hundreds of millions of dollars needed to purchase the infrastructure and terminals, rent the locations, pay for advertising and meet other costs inherent in the creation of a mobile network.
Signals believes that if the 49% foreign investment cap for fixed telephony companies is successfully eliminated, the Mexico branch of Telefónica will look at Axtel as an acquisition target and as a consequence any increase in Axtel's shares - principally by acquiring Alestra or cable operators - would place a higher value on the company if it were to receive a takeover offer. In addition, if the process to re-auction spectrum requires startup and investment, it could dissuade Axtel from making an offer for a 1900MHz spectrum license.
The other candidate on the market, Nextel México, lost one of its best incentives for acquiring a concession for PCS spectrum when it purchased Cosmofrecuencias, since it now has the right to issue its own numbers and will no longer have to rent them from Axtel. Considering this, Nextel México's strategy - focused on covering urban areas and motorways - allows the company to limit investments in infrastructure. And this detail turns the digital trunking operator into the main candidate that would benefit from the 1900MHz spectrum re-auction, especially from the 20MHz available in region 9 that covers the federal district. Signals believes Nextel México will be forced to find a migration route for its technology, considering the absence of an iDEN route and the fact that the quantity of new terminals available for the technology will drop in the short to mid-term because of US operator Sprint Nextel's decision to gradually migrate its iDEN subscriber base to CDMA2000 1x/EVDO rev A/B.
Signals considers it highly unlikely - if not impossible - that a company not already established in Mexico's telecommunications market would step forward to purchase the spectrum in seven of the country's nine cellular/PCS regions. If Mexican authorities are interested in prompting competition in the mass market, it would be more efficient to try to boost the number of companies offering mobile services by means of supporting mobile virtual network services (MVNOs) and offering guarantees against possible uncompetitive practices from established operators. Mobile services via MVNO would be a more attractive alternative because of lower entry costs, especially for companies like Axtel and Alestra and even for cable companies like Megacable or Cablevisión.
Finally, the loss of 1900MHz bandwidth could cause Telcel - and to a lesser degree Movistar - to delay the launch of UMTS/HSDPA services in this band as there is still no tender scheduled for IMT-2000 spectrum bands in this market. The main consequence is that the launch of this type of 3G technology in the domestic market will be pushed back, guaranteeing Iusacell/Unefon as the sole operator offering commercial 3G services in Mexico on its CDMA2000 EVDO network.
Jose F Otero is president and founder of the international consultancy Signals Telecom Consulting. He can be contacted at email@example.com.
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