Digital Latam: The Reality and Cost of Spectrum Rights

Digital Latam: The Reality and Cost of Spectrum Rights

At the beginning of this year, I was reflecting with a friend about the absence of a National Digital Strategy in Mexico – that is, an action plan to promote the digital transformation of  Mexican society, to facilitate connectivity and, above all, to promote the adoption of technologies and their use for the benefit of everyone in their daily activities.

It is clear that connectivity is not everything, and we tend to confuse it with the notion of the availability of services. Clearly, the fact that a service is available does not mean that a person can necessarily afford it and even less so that they will use it in their daily activities.

Government works for the benefit of the people and, sooner or later, all governments face reality: the reality of the status quo and its limitations but also the reality of other possibilities which other countries demonstrate to be both feasible and beneficial to society and that express themselves in attracting investments that generate jobs, promote wellbeing and result in better ways to work, educate and have fun. This reality, we agreed, would compel the Mexican government to make decisions to boost telecommunications activity and the digital economy.

Already this was a difficult time – in the months prior, we had heard about the change in Telefónica’s strategy: to stop being an infrastructure operator and to become a virtual operator instead. In Mexico, the company had already begun to return part of its spectrum and had established a plan to return the entire spectrum by 2022. This was because, in Mexico, the cost of spectrum represented a barrier to competition in the market. Although the Constitution states that spectrum for commercial use will be assigned through public bidding, the price paid through this process only represents approximately 10% of the total cost of the spectrum. The other 90% comes from payments for the use of spectrum under the Federal Law of Rights.

Telefónica is not leaving the country but changing its model to operate under the AT&T infrastructure network. As a result, in the mobile telecommunications market at the retail level, there remain only two providers, Telcel and AT&T. In addition, there is Altán Redes, which provides an exclusively a wholesale offer in the 700 MHz band.

This is a reality check: Mexico is losing a mobile telecommunications infrastructure company and the market is becoming more concentrated, the main reason for this being the cost of spectrum use rights established by law.

The significance of this reality has been brought home by the impact of the coronavirus pandemic. Over the course of six months, it has shown us that telecommunications are a fundamental tool, both for maintaining economic activity and, above all, for keeping in touch. Thus, many companies have entered the world of remote working, some with little preparation, all driven by a reality that demanded a safe distance to be maintained in the face of the pandemic. This lesson has not been exclusive to Mexico but has been felt throughout the world. In this way, several companies managed to maintain a level of activity and began to make plans in the face of the coming economic crisis. They have realised that remote working allows them to reduce the cost of rent and office furniture, a significant factor for companies in a lower income environment requiring lower expenses.

There are several other examples, in the fields of education, virtual events and other activities, that have been maintained thanks to the resilience of telecommunications networks. Unfortunately, the government sector has not been an example to follow, although some local offices have made real efforts to provide services and continue day to day work on-line an . There is also the case of the Federal Telecommunications Institute in Mexico, which has maintained its remote activity during the pandemic and increased the amount of of online procedures.

The International Telecommunications Union has been a great promoter of telecommunications at this time. It has continued to work intensively, remotely, and has recently launched the Connect2Recover programme to strengthen infrastructure in countries affected by Covid-19.

In this way, reality provides clear examples of how telecommunications can be used for applications beyond entertainment. Optimists predict the acceleration of these applications with the arrival of 5G and the positive impact of this on industrial activity in the medium term. This is why they consider it essential for companies to invest in 5G technology.

In line with its work plan, the Federal Telecommunication Institute is conducting a public consultation regarding the tender that could be carried out for the 800 MHz, AWS, PCS and 2.5 GHz bands (Tender No. IFT-10). Some people consider the current economic circumstance to be a complex one in which to carry out this tender in the short term.

At the same time, we are confronted with a stark reality. The pandemic has shown the great inequalities in the country between people who can connect to services and know how to take advantage of them and others who cannot access services, either because they cannot afford them, because they do not have the necessary equipment or, in fewer cases, because the service is not available.

The ENDUTIH 2019 (National Survey on the Availability and Use of Home Information Technologies conducted in 2019 by INEGI and reported on 17 February 2020) highlights that 76.6% of the urban population uses the Internet, while in rural areas the user population is 47.7%. 56.4% of households have Internet, either through a fixed or mobile connection. The three main devices for connecting users to the Internet are: smartphones, 95.3%; laptops, 33.2%; and desktop computers, 28.9%. Thus, 44.3% of the country’s households have a computer.

In the month of September 2020, we commemorated the independence of our country in the midst of an unprecedented economic and health crisis. On 30 July, INEGI reported an 18.9% drop in Gross Domestic Product compared to the same quarter of 2019. The Secretary of the Treasury, Arturo Herrera, warned that Mexico could experience its worst economic crisis since 1932.

The stark reality is that there has been a significant impact on the country’s economy and that coronavirus will continue to be with us for a long time, until a vaccine becomes available and can be delivered to the entire population.

To recap:

  • Mexico is experiencing a situation in which the cost of spectrum rights has been a barrier to the permanence of a major telecommunications company.
  • Telecommunications have shown their usefulness and potential in the context of the pandemic.
  • There is technological change in progress in terms of spectrum use with the arrival of 5G and other technologies. This change requires investments.
  • The IFT could carry out the spectrum tender for mobile telecommunications services in various frequency bands.
  • 6% of the population does not have access to the Internet and 44.3% of households have a computer.
  • The current economic crisis will last until at least 2021.
  • The health crisis will continue until we have a vaccine that is widely applicable.

Faced with this situation, what does the government of Mexico propose?

It proposes removing the Undersecretariat of Communications, who would generate the government’s public telecommunications policy, and increasing the amount of rights established by the Federal Law of Rights.

Could this lead to an increase in the prices of telecommunications services? Expert Ramiro Tovar Landa does not think this is likely because there is a close relationship between the price and the contracting of a service. For this reason, companies are likely to reduce investments in spectrum and infrastructure.

I agree with this opinion: the market would contract in response to rights payments that are fixed depending on the spectrum that one has. This is clear because the purchasing power of most people is not expected to grow. Therefore, if prices were to be raised, this could lead to fewer people being connected. In this sense, companies would have to reduce their expenses and investments. That is why it would be unfeasible to carry out the IFT-10 Tender and even the introduction of 5G at this time, since companies are unlikely to invest heavily in the technology.

The economic situation is recognised by all to be critical, which is why measures that promote economic growth, particularly in the telecommunications sector, which has proven fundamental to people’s performance, are urgently necessary. The initiative of the Federal Law of Rights would cause this situation of investment reduction in telecommunications, but it has also opened up a discussion about the barrier that rights laws currently represent to better and more extensive telecommunications services.

It is time to reflect on aims that go further than a profit-seeking approach to rights in 2021 and to promote the growth of telecommunications coverage and services.

For this reason, although it is desirable to reduce rights, an often-proposed alternative is that of Universal Service projects which support the rights payments in two ways:

  1. through connectivity projects that allow the construction of shared infrastructure for areas that lack service; and
  2. through connectivity projects that allow people who do not have economic capacity to have telecommunications equipment and services.

These initiatives require the motivation to generate digital skills in people who do not have access to services and to increase the capacity of those who already have access to services and can take advantage of it to the benefit of their economic activity.

This moment of reflection is opportune to make the best decisions in the country’s interests.

 

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