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The Mexican government confirmed last week that it is to auction off swathes of new spectrum in a bid to ramp up high-speed network services in the country and stimulate competition in a market dominated by local mobile giant, America Movil. Mexico’s Communications and Transport Minister Juan Molinar told reporters that frequencies in the 1.7GHz and 1.9GHz bands will be sold off in an auction that could begin in the next few weeks.
It is hoped that the auction will pave the way for at least one new market entrant to enter Mexico’s mobile sector, and the country’s largest cable TV operator – Televisa – has already hinted that it could be interested in bidding. Televisa owns cable TV firms Cablevision, Cablemas and Cablevision Monterrey, and is thought to be looking to bundle mobile services alongside its existing television, Internet and fixed-line telephony offerings.
America Movil is owned by Mexican tycoon Carlos Slim and its local mobile subsidiary, Telcel, is the largest mobile operator in terms of connections in the entire Americas region. It is also the only operator in Mexico to have rolled out WCDMA to date. According to the latest Wireless Intelligence data, Telcel had 1.2 million WCDMA and WCDMA-HSPA connections by the end of the second quarter. Despite accounting for a relatively small proportion of its total connections (around 2.15 percent), Telcel’s high-speed network is already having a positive impact on the operator’s bottom line. Telcel noted in its 2Q09 earnings that data revenues jumped 45 percent year-on-year, which helped service revenues rise to nearly MXN30 billion (US$2.2 billion), a rise of 7.4 percent. WCDMA data revenue also appears to be compensating for a decline in the operator’s average price per voice minute, which fell by 16.4 percent to US$0.05 over the year but led to only a minor decline in ARPU, which dropped to MXN172 from MXN178 a year earlier.
Telcel maintains a dominant 72.2 percent market share with over 58 million connections in 2Q09 but is facing increasing competition from Spain’s Telefonica. The two fierce rivals accounted for over 97 percent of the 1 million net new connections added in Mexico in 2Q09, Telcel taking 54.7 percent and Telefonica 42.4 percent. Telcel is concentrating on postpaid connections, which account for only 8 percent of its total customer base but nearly half of its net additions in 2Q09.
Meanwhile, Telefonica’s Mexican subsidiary showed strong growth in 2Q09 after a weak performance in the first quarter of the year. Net additions of 424,800 were more than double that recorded in 1Q09 and the operator is now outstripping Telcel in terms of annual connections growth. However, despite data now accounting for over 20 percent of the operator’s service revenue, Telefonica is feeling the effects of being unable to compete with Telcel in high-speed data services. Telefonica’s ARPU dropped by 5.6 percent to EUR7.3 in the first half of the year, despite the improvement in 2Q09 (ARPU declined by 9.7 percent year-on-year in 1Q09 and by 1.4 percent in 2Q09).
The other two mobile operators in Mexico are struggling to compete with the two dominant players. Third-placed player Iusacell – an operator once controlled by Verizon and Vodafone – has been offering high-speed services via its 1xEV-DO network in parts of the country since 2005. However, the operator is currently in a debt restructuring programme and is therefore unlikely to feature in the upcoming spectrum auctions. Iusacell continues to lose customers and saw its connections base drop by 12.4 percent (to 3.5 million) in the year to 2Q09, according to our figures. Fourth-placed Nextel, which uses the iDEN push-to-talk technology, has maintained steady connections growth but remains a niche player.
Matt Ablott, Analyst, Wireless Intelligence
Telcel has already stolen a march on its rivals via the launch of its WCDMA/HSPA network in the 850MHz band, which is now 18 months old and surpassed the 1 million connections milestone in 2Q09. WCDMA connections are now driving impressive data revenue growth at the operator and helping offset declines in voice. The network has also played a role in keeping a cap on churn following the introduction of number portability in Mexico last year, a policy that usually negatively affects the market leader. Telcel has also supported the network with some attractive devices, most notably Apple’s iPhone 3G, which it has offered on an exclusive basis since July 2008. The rules for the upcoming spectrum auction have yet to be finalised but expect to see Telcel and Telefonica compete to buy-up as much as they are allowed. Telefonica is looking particularly bullish in Mexico at the moment (certainly compared to elsewhere in the Central America region) and could be planning an aggressive WCDMA deployment once it has the necessary spectrum to do so. It is likely that some spectrum will be reserved for a new player. As Mexico has historically been a tough market for major international operators, the country’s powerful cable TV operators seem the most likely candidates. But however the auction unfolds, Telcel’s dominance is unlikely to be seriously challenged in the short to medium term.