In an interview with Mobile World Live (MWL) last August, Thaddeus Arroyo, then the CEO of AT&T Mexico, was adamant that regulator IFT would not only “take the appropriate measures” to achieve the reforms it set out with the 2014 telecoms law, but accelerate the process.
Among the lofty goals targeted, the reform’s main aim was to reduce the dominance of market leader America Movil by promoting competition and level the playing field with laws designed to help existing and incoming players gain a stronger foothold.
But, fast forward to more than a year later, and IFT has arguably done the exact opposite to what Arroyo, who has since moved on to head up AT&T Business, had been so confident about some 14 months ago.
Last week, the regulator confirmed that rules allowing America Movil to charge rivals for terminating calls on their networks will be re-introduced, marking a major win for the under-fire operator.
And more significantly, the move represented the first major roll back of those very reforms introduced just three years ago.
Starting from 1 January 2018, America Movil can charge rivals like AT&T and Telefonica for terminating calls on its network, ending so called “zero-rated” termination.
America Movil has long argued that those rules in particular were “asymmetrical” as rivals were still able to charge America Movil for the same practice, and they had “led to a loss of business rights”, with significant impact on margins.
The Financial Times reported last month that on average, America Movil had been hit by a fall of 40 per cent in cellphone charges for users, since the law was put into place.
So, while America Movil’s argument had merit, and even held up with the Mexican Supreme court, the reversal was a slap in the face for AT&T, which entered the market on the back of those 2014 reforms.
In an emailed statement to MWL, AT&T said the decision “helps the preponderant and harms consumers and competitors.”
“We are disappointed because the new interconnection tariff is a step backwards on the path towards delivering on the objective of the reforms,” an AT&T spokesperson added.
Indeed, Arroyo said in his interview last year that the company had only invested in Mexico (through the acquisitions of smaller operators Iusacell and Nextel for a combined $4.4 billion) because of the Mexican government’s drive to shake-up the industry.
At the time, he also tipped IFT to ensure that the reforms have a “lasting effect”, unlike previous efforts, while maintaining faith in the regulator’s ability to reduce America Movil’s dominance.
IFT defended the move in its own statement last week, stating that the establishment of interconnection tariffs based on costs “is a regulatory policy mechanism that aims to balance competition”, among other factors.
But, was it really necessary, at this stage, to re-introduce rules that are favourable to America Movil? Arguably not.
While there is now indeed increased competition in Mexico, in the shape of AT&T – one of the largest operators in the world – mobile subscriber figures from the end of September show that America Movil still has a stronghold firmly in place.
The company, which operates in the mobile market through subsidiary Telcel, had 73.3 million subscribers at the end of the period, compared to AT&T’s 13.8 million and Telefonica’s 24.5 million, giving it a market share of around 65 per cent, down slightly from its 70 per cent in Q4 2013.
A doomed task
Without debating whether such a slight decline is good enough in the broader context, Wally Swain (pictured), SVP emerging markets at 451 research, told MWL that, in all truth, “any attempt to manipulate the playing field after a player has already achieved 70 per cent plus market share is probably doomed”.
“Only hopelessly incompetent government telcos have been successfully dislodged from their high-market share positions, mostly by shooting themselves in the foot,” he said. “America Movil has not done that.”
And while the interconnection decision was a blow, and will have an impact on future investment in Mexico, Swain believes the decision is unlikely to lead to AT&T reevaluating its position in the country.
“AT&T was attracted to the market by the Mexican government’s openness to new players and zero-rated termination was part of that openness,” he said. “Defeat does not change the government’s stance and a smart company like AT&T probably ran a scenario where termination fees went back to where they were previously. This decision will hurt, no doubt, but probably not make them change their minds about Mexico.”
But, that’s not to say that the future of the company’s Mexican adventure is not in question.
A more likely threat to AT&T’s position could be a repeal of the North America Free Trade Agreement (NAFTA), which US President Trump is apparently seeking (Trump’s opinion on Mexico is also not the best kept secret.).
But, Swain believes it could be Spain-based Telefonica that soon embarks on a more serious re-examination of its position in Mexico.
“They have never been happy with the situation there,” Swain said. “This may be the final straw.”
Meanwhile, at America Movil, I won’t go as far as saying it’s a case of ‘as you were’. But it’s very tempting.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.