The Effect of Institutions on the Access and Adoption of Telecommunication Services in Mexico, 2013-2017

Abstract

The article analyses the impact of the Telecommunications and Broadcasting Reform in the development of a new institutional environment for this industry, also, on fostering competition and on the proposal of a new generation universal service policies, with an emphasis on access to broadband Internet. Between 2013 and 2014, the Reform laid the foundations for a new institutional framework with the establishment of the Federal Institute of Telecommunications, a new regulatory institution, and public policy, with the power and autonomy to promote competition in this sector in a convergent manner (telecommunications and broadcasting). In this new institutional environment, substantive measures were implemented to promote competition through declarations of market power by sector, through the figure of a preponderant economic agent. In March 2014, Grupo America Movil and Grupo Televisa were declared preponderant and subject to asymmetric regulation, which would lead to leveling the playing field, favoring competition. However, the impact of reforms designed to foster competition in the markets for telecommunications and broadcasting services will take time to mature and show results, through the greater participation of other companies. Nevertheless, it is possible to assert that the levels of markets contestability have increased, which refers to the real possibility or the credible threat about the participation of new contenders in these markets, which leads to the current participants to behave competitively. This contestability is due to the strength of the institutional environment, greater legal certainty associated with the Reform, in charge of defining and implementing the regulations and policies of the sector, including those related to the promotion of competition, the threat about the entry of new players is a sufficient incentive for market participants to behave competitively. The most critical pending issue consists of the adoption of telecommunications services by a broader sector of the population in Mexico. In this regard an analysis was carried out with two econometric tools: the analysis of fixed effects (2014-2017) and the synthetic analysis, which puts Mexico's achievements in adoption in a comparative perspective, to other Latin American countries with similar level of development to Mexico (2014-2016). Although there is a decrease in prices, especially in cellular services, this did not have the expected effect on adoption. The two econometric exercises, consistently, confirm that the institutional, regulatory and digital inclusion policy changes associated with the Reform have not yet had a significant effect on the adoption of telecommunications services. The gap is particularly evident in the case of mobile cellular services, in which Mexico shows a considerable lag and to a lesser degree in fixed-line services. The second pending issue is access to the broadband Internet. Until the first quarter of 2018, only 40 percent of the promised sites by Mexico Connected Program is functioning, and 32 percent of these were narrow band. These findings lead us to conclude that the government faces difficulties in offering an adequate response through a public policy of digital inclusion that adequately responds to the connectivity needs of the population in poverty.