Mexico Shaking Up Its Telecoms Sector

Carlos Slim, chairman and CEO of Telmex, Telcel, and America Movil, arrives at the White House on May 19, 2010

Photo by Brendan Smialowski/Getty Images

Speaking of utility regulation, Mexico’s telecommunications sector is a notorious mess. When Daron Acemoglu and James Robinson sat down to write a book about the role of institutions in laying the groundwork for economic growth, this was the example they reached for of bad institutions. The world’s richest man, Carlos Slim, got so rich by being a skilled and savvy manager of an exploitative telephone monopoly in a large middle-income country. And not only does Telmex monopolize phone, but a rival firm Televisa monopolizes the TV market.

And for years and years and years the situation just seemed unfixable. Mexican politics are corrupt, Mexican telecommunications are poorly regulated, and corruption entrenches the wealthy of the poorly regulated telecommunications monopolists who use their wealth to entrench the bad regulations.

But earlier this month president Enrique Peña Nieto rolled out a package of reforms that’s now set for passage through Congress. And it looks, frankly, like pretty visionary stuff. There’s going to be a new stronger regulatory entity with more powers, including the ability to get especially tough on entities that control more than 50 percent of a given marketplace. There’s a smart plan to try to pit the two big monopolists against each other, by forcing both companies to open their home markets to the rival from the other sector. There’s also a plan to increase the level of foreign ownership that’s allowed—the cap on radio will rise from 0 percent to 49 percent and on TV from 49 percent to 100 percent—to make it easier to raise capital to fund new entry and more competition.

An OECD report on Mexican telecommunications policy contended that poor telecoms regulation was costing the Mexican economy about 1.8 percent of GDP, largely through high prices and slow uptake of broadband internet. That’s huge. If this new plan works, it’ll be an enormous win for Mexicans.