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Summary

The contract awarded to the Altan consortium to build and manage a wholesale 700MHz network in Mexico is an important milestone for the controversial regulatory plan to create the network, which was included in the government’s constitutional reforms in 2013 and aims to develop a more competitive environment and cover unconnected residents. The bidding process entailed several delays and last-minute disputes, and the network is expected to require over $7bn of investment. The award is an important accomplishment for the current administration, which expects the network to be launched before the end of its term.

Altan foresees a positive business case for wholesale network

Mexico’s highly concentrated telecommunications market features penetration below the regional average and low levels of competition, with Telmex/America Movil having been the dominant operator since privatization. The government has taken unprecedented regulatory measures to address the situation, one of the most controversial being to include in the Constitution the development of a private wholesale network using a 90MHz block in the 700MHz band, implementing the Asia-Pacific Telecommunity band plan. Existing mobile network operators were not allowed to bid in the auction, though they have stated that they are not interested in using the network since they already have their own LTE coverage. Rental by existing operators and government services are expected to be the network’s main sources of revenue. Ovum does not expect the network to be able to turn a profit solely by serving MVNOs.

Altan’s main shareholder is Morgan Stanley Infrastructure, which has a 33.38% holding. The China-Mexico Fund that was set up in 2014 and is managed by the World Bank International Finance Corporation has a 23.36% share. Minor shareholders include Spanish businessman Eugenio Galdon (3.34%), who acts as the face of the joint venture in the local media, and Mexican operators Megacable (4%) and Axtel (4%).

The wholesale network is set to be a public/private partnership, under which the federal government will provide the fiber of the Federal Electricity Company and 90MHz of spectrum in the 700MHz band for 20 years, but no additional contributions. The contract terms require Altan to cover 85% of the population by 2025, though Altan has set its own target of 92.2%. The network is set to be launched in March 2018, covering 30% of the population and 25 “magical” towns – popular tourist destinations promoted by the government.

In the last stages of the tender, the other final contestant, Rivada Consortium Networks, led by Ireland-based businessman Declan Ganley, was disqualified for not submitting a MXN1bn bond in time. Rivada’s legal attempt to delay the bidding process was rejected in court, showing the complexities involved in the process.

The good news for Mexico is that in a complicated economic and political moment, on the heels of the election of Donald Trump as the next US president, at least one consortium foresees a profitable business case in committing to a potentially high-risk $7bn investment without international precedent. Many operators had initially expected the tender to fail to attract any viable bidders.

Appendix

Further reading

Mexico Update, TE0001-001052 (September 2016)

Digital Divide: Mexico Conectado addresses the unconnected,TE0001-001058 (November 2016)

Mexico (Country Regulation Overview), TE0007-000951(November 2015)

Author

Sonia Agnese, Senior Analyst, Latin America

sonia.agnese@ovum.com

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