This article is part of New Europe’s: Our World in 2017

Mexico – The Internet allows people to bridge the gap: inequality that stems from income, gender, age, disability, or geography is reduced by this inclusive global system. However, exclusion from the Internet widens such gaps as no single technology of the past. Thus, for a country like Mexico, that strives for social inclusion, reducing the digital divide means bridging all gaps.

During the last four decades, most telecommunications markets evolved from a public State-owned telephone monopoly to multiple network private operators. In many countries, competition and regulation sufficed to create a healthy, competitive, high-quality and affordable services sector; in others, market forces and attempts to regulate have simply not been enough.

As President Peña Nieto´s administration took office, Mexico´s telecommunication markets belonged to the latter.

The State-owned telephone company had been privatized in 1990 and the sector opened to competition in 1995. After two decades of delayed, ineffective, or frustrated regulation, the OECD estimated the welfare loss attributed to inefficiencies of the telecommunication sector at 1.8% of Mexico´s GDP every year. Half of that loss corresponds to services that were actually never hired because prices were unaffordable, hence affecting disproportionately lower-income households.

In 2013-2014, a constitutional reform promoted by the government was enacted by all political parties, in a welcome reminder that democratic institutions can produce, by consensus, sound public policy to redress social wrongs. Common goals included recognition of broadband access as a fundamental right; promotion of competition and consequent social welfare gains identified by the OECD; independent and effective regulation; expeditious justice; increased investment in infrastructure with resultant coverage and quality improvement.

To attain these goals, Mexico´s telecommunications reform enacted new rules for the development of the sector, including the following:

• Asymmetric regulation. The severity of the diagnosis called for proportional medicine. A specific set of rules was established for an operator with over 50% of the users, networks and other indicators of market power. This operator, now designated “preponderant agent”, is subject to asymmetric regulation –measures applied to no other operator. For example, the preponderant agent must provide open access to its infrastructure and services for commercialization by its competitors.

• Unlimited foreign direct investment (FDI). Before the reform, FDI in the telecommunication sector was limited to 49%. It is now open to 100%.

• Independence of the regulator. To shield technical decisions from political influence, an independent regulator holds authority both over telecommunications and economic competition. The role of the government in this new framework is limited to public policy.

• Specialized and expeditious justice. Specialized telecommunication courts were created reducing the time to analyze and resolve lawsuits, and increasing its technical proficiency. In addition, any ruling by the regulator cannot be suspended until a court’s sentence is given, thus ensuring regulatory timeliness and legal certainty.

The most recent data on the sector confirms that the telecommunications reform is delivering good results, both for consumers and industry:

• Consistent, historically-unprecedented decline of prices of telecommunications services. Domestic long distance charges were eliminated, international long distance rates have fallen by 40%, and prices for mobile telephony decreased in real terms by 43% (2013-2016).

• Affordable services as a driver for Internet use. As prices dropped, the number of Internet users in the country rose from 41 to 62 million (2012-2015), and mobile broadband subscriptions grew from 23 to 56 per 100 inhabitants (2013-2016). It is worth noting that in 2015 the growth in the number of mobile broadband subscriptions in Mexico was the highest among OECD countries (+21.3%).

• Telecommunications, amongst the sectors with the greatest dynamism in the national economy. During 2015, the GDP of the telecommunication sector reported an annual growth rate of 11%, four times the national GDP growth rate for that year.

• Investment, on an impressive rise. Before the reform, FDI generated by the telecommunication sector was less than 1% of the national total. During 2015 it accounted for almost 10%.

Clear rules, a predictable regulatory environment and an open government attracted investments such as AT&T´s. The company invested 4.4 Billion USD to acquire two existing operators and has announced its plans to invest another 3 Billion USD in its Mexican network, towards a “North American Mobile Service Area” covering 400 million people in Mexico and the United States of America (USA).

Thus, foreign players are helping to capitalize on past underinvestment in the sector, adding to local competition. For example, the Economist Intelligence Unit has stated that AT&T´s move in eliminating international long-distance fees from Mexico to the USA contributed to the decline in prices, since the new market dynamic forced competitors to offer similar conditions.

More investment and enhanced competition will come to the Mexican telecommunication markets. On 2015, Mexico became the first country in Latin America to transition to digital television and completely free its digital dividend spectrum for a more productive use on mobile Internet and telephony. Using this valuable spectrum, the Mexican government tendered the creation of a wholesale mobile network of high quality and coverage. Altán, the winning consortium, committed to a population coverage of 92.2% with an estimated investment of 4.0 Billion USD for the initial years.

After only three years of the enactment of the reform, results have been impressive: price reduction, Internet use expansion, the sector´s GDP on an impressive rise, investment on much-needed infrastructure. Transforming Mexico´s telecommunication sector has proved worthwhile, as it contributes to bridge all gaps.