A Tale of Two Bands and other telecom stories

It was the best of times for MVS in 1989, now forth largest telecom operator in Mexico.  By then, it was awarded with a part of the 2.5 Ghz band of the spectrum.  With time, it negotiated and obtained 90% of the band that nobody wanted. Originally planned for microwave CATV, MVS pioneered in pre-wimax technology partnering with Intel and Clearwire on 2003.

By 2005 its first concession titles started to expire and engaged into negotiations with Ministry of Communications (SCT), and on 2008, MVS launched Dish in Mexico.  With billing help from Carlos Slim, this project successfully targeted low-income segment. On 2010, negotiations with SCT failed.

On 2011, MVS pitched to SCT a project called “Broadband for Everyone” (Banda Ancha Para Todos) teaming up Clearwire, Intel and Alestra (former Mexican Partner of ATT) to offer broadband under a carrier-of-carriers model. MVS had an estimate of 55 million of users.   The Project was upheld on negotiations until 2012, but received the approval from Anti-trust Commission (COFECO) and at first by Telecom Commission (COFETEL), which thereafter revoked.

It was the worst of times for MVS on August 8, 2012. SCT started the recovery of 2.5 Ghz band from all concessionaires, even those that expire on 2020.  This action would affect 11 telecom operators, heavily to MVS, owner of 190 Mhz.  The arguments were the low use of that band from MVS.   Thereafter, SCT argued consideration.  Supposedly, Government set price of renewal for $2 Billion USD and MVS offered $860 Million USD returning 50 Ghz. MVS further argues that it will pay a consideration adjusted to income per capita of Mexican consumer.

Aside from legal and technical arguments, MVS made serious accusations to Government on favoring Televisa with the recovery proceeding and future re-auction, but Government denied them. Furthermore, MVS escalated this proceeding associating the recovery with the firing/rehiring scandal of radio journalist Mrs. Carmen Aristegui during February 2011, adding up a freedom of speech element to the story.

Leaving aside scandals, the recall proceeding is on its way.  SCT has even declared that might resolve on making a partial recovery or not making it at all.  A Federal Court has already denied an injunction on the grounds of public interest of recovery for implementing new technologies, but there is still one pending to be resolved.  Mr. Vargas and his lawyers have anticipated a 5-year litigation with an uncertain outcome.  Other concessionaires have presented constitutional injunctions.

On the other side, we have the 700 Mhz band or “digital dividend”.  COFETEL already started works to segment that band.  Currently, Mexico uses most of that band for free-to-air TV, being Televisa a main player on that.  Supposedly, a document is being prepared by the Regulatory Prospective Unit and will be presented to COFETEL Commissioners for approval.  From official documents, it appears that the band will be used for mobile broadband, but timeframes, auction and recovery, if any, are yet to be determined. When digital TV is fully deployed by 2015, this band would be freed and re-auctioned.

Calderon Administration is leaving on December 2012, and there is not enough public information to foresee the outcome, but one thing is certain: if parties follow the way of the court, victory will be pyrrhic for either of them.

However, no matter what path SCT and COFETEL will follow, five key resolutions from Supreme Court will play main role on their forthcoming decisions on those bands:

  • Government has the right to recover spectrum for implementing new technologies. Will Government have the right timing and resources to overhaul telecom regulation before we face spectrum scarcity, and then price increases? Is carrier of carriers a feasible model for broadband? Again, Calderon administration is handing over to next one, and this process might affect the pace of telecom agenda.
  • Government has the right to receive a consideration for spectrum use.  Under official information, Government followed rules for setting up consideration based on average OECD income per capita. However, as MVS argues that such adjustment must be according to Mexican income.  Economists have wide debates over spectrum valuation and there is not a fair market price on that, so Mexico needs to develop its own valuation method rather than importing or referring to other countries auctions.
  • Renewals of concession titles are not automatic for radio and TV.  Right holders must participate in an auction against other competitors, but will have the right of first refusal on a tie-in.  Certainly, this criterion may be applied to other spectrum-based services, but it is a grey area whether or not could be applied to recovery proceeding.
  • Authorities must not privilege economic terms over benefits to society in spectrum auctions.  And here is where MVS, having a relatively small market share on CATV and barely any on broadband, may benefit its cause.
  • Internet is a basic service necessary for the development of the Country. In this resolution, Supreme Court makes a small cameo on declaring right to internet access.  This basic service status does not automatically translates into a universal service policy, but certainly, is a basis for supporting the need of expediting development of broadband infrastructure before mobile internet users breaks down operators backbones, again.

Mr. Peña Nieto´s incoming administration must accelerate pending telecom tasks such as implementation of service level interconnection agreement, evangelization for digital TV transition, universal internet access policy, media regulation, COFETEL autonomy, privacy policy, just to name a few.  Seems titanic, but in fact some public discussions have been around for a long time, and is just a matter of get things done.

Post-script

There seems a groom outlook going around believing that Mexican telecom industry is a war between a telephone tycoon and a media mogul. I believe it is more than that. It is certainly a contact sport with a political show on half time.

However, nobody is acknowledging three factors that are moving this industry ahead. The first, NGOs and organized citizens are demanding updates on regulation of telecom and media. The second, technology is not static and disruptive technologies, such as IP solutions, will eventually break the status quo. The last one, cost for content production has been dramatically reduced, and traditional media does not longer monopolize popular and marketable content.

Bottom line, the big data age is just a tool for the ideas age.  Now, content is king.  Think of that before you build your next business.

 

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