Return to the main menu for MexicoDuring the last ten years, telecommunications has been the most dynamic industry in Mexico. It has grown more than the whole Mexican economy. This industry has been characterized by rapid change. Until 1996, Telephones of Mexico (Telefonos de Mexico - TelMex) had a monopoly on telephone services, including public telephony. In 1990, the Mexican government decided to sell TelMex, a direct descendent of a company founded by a Swede, Lars Magnus Ericsson, who introduced the first telephone in Mexico in 1878. Following the privatization of TelMex, serious modernization has taken place. Large investments have been made to improve both fixed networks and cellular services. Since 1997, long-distance telecommunications has seen increased competition, due to further liberalization of the market. With the enactment of a new Telecommunications Law on June 8, 1995, 11 companies received concessions to offer public telephone services. Another five companies have since applied for their concessions (4).
Public Telephone
The Mexican market for telephones and pay phones is a segment of the telecommunications market which is estimated to continue its growth over the next couple of years. In 1996, the Mexican market for telephones and pay phones amounted to US $43.4 million. For 1997, this market grew about 5.5 percent to US $45.8 million. In 1998, the Mexican market for telephones and pay phones is expected to grow another 6.3 percent to US $48.7 million. Over the following two years, this market is estimated to grow at a 6.5 percent rate (5).
According to the 1995-2000 Program for the Development of the Communications and Transport Sectors, the telephone density is projected to be 20 telephones per 100 (or 200 phones per 1000) inhabitants by the year 2000. In addition, the projected telephone booth density is five booths per 1,000 inhabitants. This program is ambitious since the current telephone density is 9.6 telephones per 100 (or 96 phones per 1000) inhabitants and the present telephone booth density is just two booths per 1,000 inhabitants (6).
Five of the 11 companies which received concessions to offer public telephone services have installed 1,000 telephones. Originally, they planned to install 80,000 public telephones during 1997 at an estimated cost of US $900 million. Those US $900 million include the cost of creating the needed infrastructure to connect the public telephones to TelMex's telephone network.
Currently, there are seven telephone firms offering long distance service. Another eleven firms offer telephone services, including local service. TelMex is the largest Mexican telecommunications firm.
In 1996, American manufacturers of telephones and pay phones had a 27.8 import market share. Japan is the second-largest supplier to the Mexican market (7). In recent years, Asian manufacturers have taken away market share from U.S. and European firms. Asian suppliers of these products base their sales strategy on price.
On August 9, 1996, the Comision Federal de Telecomunicaciones (COFETE) was created. COFETE now has the authority to regulate the telecommunications industry. In addition to telephone and wireless communications, COFETE is also responsible for oversight of satellites and telegraphy.
In a 1995 study, the International Telecommunications Union projected that, between 1995 and 2000, Mexico will spend US$12.6 billion on network modernization and expansion. Relating the current cellular subscriber base (800,000) to the existing number of wire lines in service (8,800,000) and holding that ratio constant, an expenditure in cellular equipment of US$1.145 billion can be projected. This is equivalent to 53 percent of the projected expenditure on wireless telephony (8).
In the coming years, domestic production is expected to substitute, to some extent, imports of telephones and pay phones. Some products such as video phones are not produced or assembled in Mexico.
Cellular Systems
Mexico’s main restriction is a limitation on foreign investment in telephone and value-added services to a 49% equity position. In cellular telephony, however, foreign investors may participate up to 100% (9). Nevertheless, foreign investor may only participate through a Mexican corporation. The growth of Mexico's cellular network has been impressive and offers excellent export prospects for U.S. suppliers over the next few years.
The driving forces behind the growth of the cellular market have been poor regular (wire-line) telephone service and the high cost of equipment associated with land-based systems. In 1991-92, there were 20,000 cellular users. Currently, there are more than 800,000 subscribers nation-wide divided between Telcel, a subsidiary of Telmex, and six competitors.
Two U.S. and one European equipment firms dominate equipment sales to cellular telecommunications providers in Mexico. Motorola holds a strong equity position in four of the six independent (consolidated out of the original ten) cellular systems in Mexico and provides all of the technology for those operations. Bell Atlantic also participates in the service market. Ericsson (Sweden) plays an imposing role in both land-line and cellular systems, and its equipment and standards dominate Mexico's leading nation-wide cellular system, Telcel.
Satellites
The Mexican market for satellite services was US $149.1 million, US $101.1 million, and US $99.9 million dollars during 1994, 1995 and 1996 respectively. This market is expected to grow at average annual rate of seven percent in 1997-1998 (10). Providers of satellite services are optimistic about the potential of the market for 1998 and beyond. Good business opportunities exist due to the growing need for satellite communications. Satellite communications is a good option for Mexico because it is mountainous and therefore, often too costly to lay-down cable-based networks.
Data transmission is the most requested satellite service and maintenance is second. The satellite services segment represents approximately 40 percent of the total satellite market. Satellite equipment represents the remaining 60 percent of the market. However, the services segment is more profitable than the equipment segment. It is estimated that the mark-ups in the services segment are 30 to 40 percent higher than those in the equipment segment.
Major Telecommunication Companies
Domestic production includes that of foreign suppliers having manufacturing operations in Mexico. Among the foreign suppliers already established in Mexico are: Alcatel, AT&T, GTE, Northern Telecom and Samsung. Most of these manufacturers plan to increase their production in order to export from Mexico to other countries. Low production costs provide the major competitive advantage for domestic producers. All foreign producers have plants similar to those in their country of origin. The latter allows them to offer products with the same level of quality as those produced in other plants.
The following is a list of the major American telephone and pay phone manufacturers already operating in Mexico: Ameritech, BellSouth, GTE, Lucent Technologies (formerly AT&T), SB Communications (Southwestern Bell) (11).
Last update: December 18, 1998.
