Mexico Telecommunications Report Q3 2012

With its relatively low telecoms penetration, Mexico harbours one of the more attractive investment potential among the countries in Latin America and this is reflected in BMIs Telecoms Risk/Reward Ratings for the region. While we are cautiously optimistic of Mexicos short-term growth story, the skewed competitive landscape in favour of incumbents Telcel and Telmex, and the regulators inability to improve the situation threaten to prevent the growth prospects from materialising.

Our mobile subscriber forecast for Mexico was downgraded after the sector unexpectedly contracted in Q411. However, we continue to see strong growth in the prepaid dominant mobile market.

Our forecast for Mexican mobile ARPU rates envisages the average ARPU for the market falling to MXN138 by the end of 2016. With considerable pressures on operators to expand services and continue driving growth, Mexico looks set to experience a definite downward trend for ARPU. Meanwhile, due to a lack of new data from the regulator, we have retained our subscriber forecasts for the number of internet users, as well as fixed-line and broadband subscribers in Mexico.

BMI continues to be concerned about Mexicos Regulatory Environment and the unlevel playing field. In Q112, the credibility of regulator Cofetel was dealt a number of blows. Firstly, its president, Mony de Swaan, was put under investigation following claims that he awarded two contracts worth roughly US$200,000 for businesses run by close friends. Secondly, an OECD report found that the cost to the Mexican economy of the inefficiencies in the sector was US$25bn a year or 1.8% GDP per annum.

However, in March 2012, Mexican antitrust watchdog, Comisión Federal de Competencia (Cofeco), rejected an appeal filed by local telecoms operator América Móvil against a ruling that it holds a dominant position in the market for mobile call termination. The move may result in asymmetric regulation on the operators wireless unit Telcel by the Cofetel. Nevertheless, more steps are required to erode the dominance of América Móvil.

Mexico remained in third position in BMIs Latin America Telecoms Risk/Reward Ratings for Q312, although its scores fell the most, compared with all the other countries. Despite Mexicos continued vulnerability to external shocks, we forecast economic growth will be bolstered by solid private consumption and robust investment in the coming quarters. As such, we maintain our above-consensus real GDP growth forecast of 3.4% for 2012, and are upgrading our 2013 forecast from 2.7% to 3.0%.

The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.