Policies for the creation of telecommunications infrastructure in Mexico: A critique

This paper analyzes the project launched by the Secretaría de Comunicaciones y Transportes (Secretariat of Communications and Transport - SCT) to place existing telecommunications transmission infrastructure, which belongs to the Comisión Federal de Electricidad (Federal Electricity Commission - CFE), on the market. The network’s largely idle surplus capacity represents a vital resource given that Mexico’s telecommunications infrastructure is clearly insufficient to support the economic growth of the nation and improve social standards.

 

The assessment presented in this paper argues that the tender will timidly meet the goals of increasing competition, exerting pressure to reduce prices, increasing available bandwidth capacity and enhancing the network’s coverage. Indeed, the proposal is inadequate since only one pair of fiber optic strands will be made available while there are up to 30 additional surplus strands. We are convinced that the tender as proposed by the Federal Government lacks critical elements for transforming the telecommunications industry in Mexico. We are faced with a unique opportunity to encourage the development of coverage and competition in the sector, and provide significant incentives for increasing investment. As the proposal is based on creating an artificial shortage of a national good, the end result will be an economically inefficient solution in terms of competition and coverage. Worse, it will establish acquired rights for small private groups, reducing the possibility of modifying the ineffective status quo and missing yet another economic opportunity for diminishing the digital exclusion of the country’s poor.

 

This paper presents public policy alternatives together with the economic models that support them. We identify four general alternatives: (1) Submit more fiber optic strands out for tender, (2) Liberalize rights-of-way, (3) Include additional coverage requirements and (4) Open the tender proposal to companies that supply wholesale transport services (“carrier of carriers”) under different ownership schemes. These options are not mutually exclusive; in fact, the sum of all of them could generate a positive discontinuity in the development of the telecommunications sector in the dimensions of both competition and coverage, in contrast to the tender proposal currently underway.