Strong Foothold

The much-awaited reforms in the Mexican telecommunications sector were passed into law in June 2013. What are your expectations?

This is the first time that there has been a reform that deals with the different issues needed to create changes in the telecommunications sector. The barriers to entry in this market have not budged for many years; they have existed for a long time and have made competition difficult. This reform does contain the necessary changes and establishes asymmetrical regulation. This involves treating the incumbent differently. This altered treatment demands that access has to be provided on an equal basis and at a reasonable cost with a prompt delivery. The new legislation also eliminates exclusivity regarding suppliers of terminals and on contracts that are frequently negotiated based on the incumbent’s size and power. For example, I am referring to the providers of smart hones that give the incumbent a window of two or three months, a period within which other service providers cannot have access to those phones and therefore suffer a competitive disadvantage. Exclusivity concerns also distribution, and there are many ways that distribution chains can be forced to give the incumbent exclusivity, such as contracts designed so that commercial chains obtain a greater retribution if they allow only the dominant firm to distribute its services. It also refers to the provision of the last mile to competitors by the incumbent. This last issue has always been a problem. All these elements have been considered in the constitutional reforms. These reforms will certainly break the monopoly in Mexico, but in order for this to be implemented in practice and have the effects desired by the President and congress, we need bylaws that ensure the implementation of the constitutional reform, and that has not yet happened. It is expected to take place over the course of the next few weeks. It is critical that these bylaws include elements that mirror the intent and content of the constitution. If the goals of the constitutional reforms are to be achieved, the bylaws must support and guide the resolutions of the new Institute of Telecommunications (IFETEL)

What kind of a timeframe are you looking at?

We cannot really say how fast the commission is going to act; its members could start right away or they could take their time. We will have to wait and see, as the processing of the bylaws through congress faces a number of hurdles: there are other priority reforms waiting to be considered, such as the tax and energy reforms. A reasonable time frame is December of this year.

How has the company managed to win a 20% market share?

It has been a combination of factors, but key among these has been the construction of a network that has national coverage and can provide excellent quality of service. When comparing the performance of the different networks, ours invariably ends up on the top in terms of speed and reliability, and it is also top in terms of quality of service and geographical coverage. We have also been creative in designing campaigns and products that are attractive to our customers; we have tariffs and products that are quite original—and frequently copied by others. By the time our commercial innovations are copied, we are generally ahead in the acquisition of customers. Another innovation that we have been able to achieve is in technological progress and the ability to introduce it. For instance we are the first and only ones to have introduced voice messages that are automatically converted into text. We were also the first to introduce value-added services in our smartphones. Being the first to introduce innovations is a true advantage in this market, and it is how we were able to get a foothold.

What kind of innovations are you looking to introduce next year?

We have just begun promoting a wireless internet service designed to be installed in 20- to 40-story buildings that offers full coverage within the structure, without cables or wires. We are also using a model copied from Indian telecom systems, which consists of inviting people who are willing to invest in extending services to remote rural areas. The investors take the commercial and credit risk, and we connect our network with their structures and share the income. We have already had a few successes and we are exploring more remote areas every day.

What is your view on the transfer of technology from Spain to Mexico and the future of machine-to-machine (M2M) technologies?

We are certainly involved, but it is still a challenge we have to surmount regarding the large Mexican corporations. At the most basic level we are providing GPRS services and data transmission on ATMs. There are many applications that we are working on in terms of these possibilities. Telefónica does research in the UK on the latest technology for end-to-end applications. As an example of technological deployments, we are the only telecommunications provider in Mexico with a wireless signal within Mexico City’s subway; others cover only the stations.

How does Mexico fit into Telefónica’s operations within Latin America?

We are comparatively small in relation to the size of the market; our revenue is about 11% of the wireless market. That is exceptionally small, but we are relatively larger if you consider other criteria. We have 20 million customers and a very large investment in the geographical area that makes us larger than other medium-sized firms in the telecommunications industry. However, we still have a long way to go if we want to become true competitors.

What are some of Telefónica’s main CSR activities in Mexico?

The Telefónica Foundation helps children who would have to leave their studies in order to work. We are broadening its scope at the moment, and the corporation would like to be able to reach a much larger number of children. We currently attend 30,000 children directly, which is a small number if you consider the size of the problem. We are therefore doing more to support them through technological methods and specifically through smartphones and tablets, especially for learning mathematics. Many video games use advanced technology, and children are actually learning while they use these. We want to build on the knowledge that these children already possess.

© The Business Year – April 2014