Mexico Looks to Increase Competition, Foreign Investment in Communications Industries

The more the merrier: Major telecom reform measure marks turning point in regulatory approach. 

[Blogmeister’s Note: We welcome a new guest contributor, Ernesto Velarde-Danache, an attorney with offices in Mexico and Texas who is familiar with Mexico’s regulatory activities vis-à-vis its telecommunications industries. Ernesto has provided us with the following recap of a new law recently passed by the Mexican national legislature. As outlined below, the law, which is awaiting ratification by a majority of Mexico’s states, will have a major impact both on Mexico’s telecom industries and on foreign investors who might now be able to participate in those industries.]

For so many years important sectors of the telecommunications industry in Mexico have been under the control of the Mexican government or in the hands of a few private investors. This practice has been systematically denounced as oligopolistic by both Mexican and foreign entrepreneurs frustrated by the lack of opportunities within the sector.

Fortunately, this situation is nearing a most anticipated end. The Mexican congress recently approved a bill that, once approved by the majority of the Mexican states’ legislatures, will result in unprecedented opportunity for Mexican and foreign investors who have been waiting for this dramatic and, for many, most welcome breakthrough.

Under the new law, foreign investors will be allowed to invest up to 100% in the telecom industry. Historically, foreigners have been limited to owning no more than a 49% interest in Mexican telecom businesses. The new law will also dramatically change Mexico’s long-time bar against foreign ownership of any share of Mexican broadcast stations. The new law permits foreign investment in broadcast stations up to the higher of: (a) 49% of the corporate capital, or (b) the percentage of corporate capital investment made available to Mexican nationals in the investor’s home country.

Final approval by the necessary majority of state governments is viewed as a near certainty and likely to be completed within a matter of months. Once that occurs, the telecom and TV sectors – each long dominated by one or two companies – will be open to competition, ideally affording the Mexican people access to services that have historically been prohibitively expensive for many. The new law will elevate broadband Internet access to a constitutional right to be made available to all by the federal authorities in Mexico. Cable “must carry and must offer” mechanisms will be implemented and will become a legal obligation for cable TV systems.

As a result and as evidence of the very important and positive impact that this reform will have, the bidding process for two new private, nation-wide television networks will soon commence. Additional licenses to operate will be offered for those willing to invest in the national television system.

In an effort to make the telecom industry more effective and its operation less bureaucratic, the new law also creates the Instituto Federal de Telecomunicaciones (Ifetel), an autonomous and independent agency roughly equivalent to the U.S.’s FCC. It will be responsible for regulating, promoting and supervising the telecom industry. Its regulatory authority will include oversight of competition, with powers similar to the Antitrust Division of the U.S. Department of Justice, including the power to order divestitures to correct anti-competitive circumstances. (Precisely how that power may ultimately be exercised has not yet been determined.)

This new law constitutes a fundamental reform that will change both Mexico itself and the perception of Mexico that many outside the country have. It will also create new opportunities for foreign investment and involvement in Mexican communications industries.

[Blogmeister’s End-note: Should you have any questions regarding Mexico’s new telecommunications reforms, you may contact our blogger, Ernesto Velarde-Danache, or FHH’s own Francisco Montero.]

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