Mexican telecom regulator, the Federal Telecommunications Institute (IFT or Ifetel), recently approved swaps of frequency blocks and a spectrum rental deal between AT&T Inc. T and Telefonica SA TEF. Per the deal, AT&T will use spectrum in the range of frequencies in the 1.7-2.1 GHz band in some regions, whereas Telefonica will use frequency ranges of the 1.9 GHz band. Both AT&T and Telefonica are major rivals of the incumbent America Movil SAB AMX that controls nearly 70% of the Mexican telecom market share.
In 2014, the government of Mexico introduced reforms within its telecommunications sector, intensifying competition therein. The IFT seeks to restrict the maximum hold of a company in the market to 50%. Mexican cable MSO (multi service operator) Grupo Televisa S.A. TV has also received a go-ahead from the IFT to foray into the wireless space. However, the company is yet to take any decision in this regard.
Meanwhile, the Mexican government has decided to auction 80 MHz of wireless spectrum across various Advanced Wireless Services (AWS) bands. Of the total spectrums to be sold, 30 MHz will be for AWS-1 bands (1710-1725 MHz/2110-2125 MHz) while the remaining 50 MHz will be for AWS-3 bands (1755-1780 MHz/2155-2180 MHz). Notably, AWS spectrums are highly coveted for the deployment of 4G LTE networks. The auction is scheduled to start from Feb 15, 2016.
The IFT has decided to use the combinatorial clock auction (CCA) format for this spectrum auction, which will enable it to divide the frequencies into various slots so that participants can bid for different packages of spectrums as per their needs. The regulator is expected to sell 5 MHz blocks of paired spectrum.
Individual carriers will be allowed to bid for multiple blocks subject to the maximum amount of airwaves it can acquire. The imposition of a cap on spectrum holding is designed to ensure that new entrants also get a level playing field that will help instil healthy competition in this highly monopolistic Mexican wireless market.
Mexico is the largest economy in the Latin American region with a growing middle class population that is eager to spend more on high-speed mobile networks for optimal use of smartphones and tablets. Also, the wireless penetration rate is still relatively lower in the country. Thus, an investment in the nation may bode well for the telecom operators in the long run.
AT&T currently carries a Zacks Rank #2 (Buy) while Telefonica has a Zacks Rank #4 (Sell).
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