Several leading telecom infrastructure equipment developers, who have global operational experience, are offering bids for the upcoming state-owned mobile network project in Mexico. The project is valued at an astounding $10 billion, and the Mexican government has decided to complete the vendor selection process by mid-2015. The government has undertaken this massive project to instill competition in the highly monopolistic telecom industry.
As per a recent Reuters report, a government spokesperson has been quoted as saying Ericsson AB (ERIC) and Alcatel-Lucent SA (ALU) have formed a consortium and submitted a bid for this project. We believe that other major telecom vendors like Nokia Networks (NOK) may also follow suit.
The mobile network development project will significantly help small carriers such as Grupo Iusacell and Movistar, a subsidiary of Telefonica SA (TEF). These small telecom operators can use this state-owned network for their wireless coverage instead of installing their own network, which is highly capital intensive.
The government of Mexico has clearly decided to reform its telecommunications sector. In this regard, the regulatory body Federal Telecommunications Institute (IFT) identified telecom behemoth America Movil S.A.B. (AMX) as the dominant player in this market. America Movil’s wireline division, Telmex, currently controls around 80% of the Mexican market, whereas its wireless division, Telcel, holds about a 70% market share. Notably, the IFT wants to restrict the maximum hold of a company in a market to 50%.
As stringent measures, IFT will ban America Movil from charging national roaming fees. Further, the company will have to share its infrastructure with other operators particularly in the local loop (last mileage) segment. Interconnection fees levied by America Movil will also be closely monitored. The company is currently exploring various options to disinvest parts of its fixed and mobile telephony assets to comply with the government regulation.
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