Telecommunications Reform 2.0: How to Strengthen Mexico's ICT Sector beyond 2025

The twenty-first century has been characterized by the disruption of information and communications technology (ICT) services driving productivity gains, expanding access to education and healthcare, and impacting all sectors of the economy. Second-generation, or 2G, cellular technology marked the migration from mobile services to digital. 3G expanded the technological frontier of mobile services through high-speed internet access for services such as navigation, gaming, and real-time interactions with other users. These applications became even more efficient with 4G. Now, 5G has the potential to catalyze global economic growth due to its almost immediate response time and the massive number of connections it will allow. When accounting for all of these generations of technology, Latin America’s mobile subscriber rate is projected to grow by nearly 50 million by 2025, with approximately half of new subscribers coming from Brazil and Mexico.

In the long term, all countries will benefit from the transversal effects of the innovations, productivity, security, and deployment of the 5G network and other digitization efforts; however, deployment will not be enough to guarantee its adoption. Successful expansion of 5G and broadband connectivity within the telecommunications sector will greatly depend on promoting an investment-friendly climate and a digital culture with the ability to leverage 5G and the modernization of regulatory barriers that currently hold the sector back from its full potential.

Unfortunately, within Latin America and the Caribbean, Mexico is one of the countries that has failed to update its regulatory frameworks to keep pace with the rate of technological progress. In 2021, Mexico ranked 56 out of 64 economies in a world digital competitiveness ranking by the International Institute for Management Development (IMD). Lagging reform efforts keep Mexico behind the curve in terms of competitiveness. Since the Federal Telecommunications Act of 1995, the Mexican government has only implemented large-scale reform on one occasion. The 2013 telecommunications reforms lifted restrictions on foreign direct investment and created the Federal Institute of Telecommunications (IFT) as an independent regulatory agency, two important steps in making the sector more competitive. Since the 2013 reforms, the IFT reported that the consumer price index for ICT services in Mexico decreased by 28.7 percent over the last nine years and the number of users increased, demonstrating the positive effect reforms had on the industry.

Nonetheless, since President Andrés Manuel López Obrador assumed office in 2018, the ICT sector has been hampered by his administration’s direct efforts to diminish the IFT’s regulatory power and the lack of success of the administration’s flagship telecommunications initiative, Internet para Todos. As it stands, the ICT sector faces several obstacles with respect to its potential growth in the next decade. From a public policy level, high spectrum fees set by the Mexican government present a major obstacle for telecommunications operators to expand broadband connectivity and mobile service to citizens in Mexico’s most rural regions. Additionally, the IFT’s relative lack of regulatory authority—due to the government’s attempts to undercut its influence—prevents the creation of a more competitive ICT market. The growth of the sector is further constrained by the lack of strong incentives in public policies and lackluster digital education efforts that would enable more productivity from new technologies.

Thus, telecommunications reform in Mexico is long overdue, and further reform will be required to usher in a twenty-first-century digital economy. As the 2024 Mexican general election nears, the ICT sector should be a major discussion in the campaign given its centrality to future economic growth and development.

Additional Reforms Are Necessary to Face Current Challenges

The 2013 telecommunications reforms were instrumental in transforming Mexico’s ICT sector to become more competitive. After lifting the restrictions on foreign investment, Mexico’s mobile telephone market witnessed the entrance of foreign companies. In 2015, for instance, AT&T entered Mexico’s telecommunications market with the acquisition of Lusacell and has since invested heavily in the mobile telephone market, now comprising 16 percent of the market for mobile telephone operators. Despite the entrance of new firms and increased competition, the playing field remains relatively tilted. América Móvil’s Telcel, for example, still controls 70 percent of mobile internet services and more than 62 percent of the mobile telephone market. While the 2013 reforms that lifted restrictions on foreign investment helped spur increased competition, there are other domestic factors that have not permitted Mexico to completely unblock certain anti-competitive maneuvers and thus change the outlook of its ICT sector.

Additionally, the creation of the IFT in 2013, a move protected by constitutional reforms, represented a monumental shift in Mexico’s ICT landscape. Moreover, as agreed upon in the telecommunications chapter of the United States-Mexico-Canada Agreement (USMCA), each North American country is responsible for establishing an independent regulatory body with considerable authority. As such, the IFT is protected both domestically and internationally. Despite these constitutional and legal protections, the IFT is constrained by the Federal Telecommunications and Broadcasting Law given that at least five IFT commissioners are needed to make certain important telecommunications decisions. Since February 2022, the IFT has operated with only four presiding commissioners, as President López Obrador refuses to nominate another commissioner. In this context, further reform is necessary to enhance the independent nature of the IFT as a regulatory body that can operate without major interference.

Despite the progress made by the 2013 reforms nine years ago, Mexico’s ICT sector still faces several challenges, and it is evident that other reforms will be necessary to enhance the development of the industry. Foreign investment and the creation of an independent regulatory body cannot resolve the sector’s challenges on their own. Current areas that will require additional reforms include spectrum policy, promoting competition, and ensuring the IFT’s ability to implement measures that will expand broadband connectivity, a lack of digital education, and cybersecurity policy. 

A string of anticompetitive practices feed into Mexico’s dubious distinction as one of the most concentrated telecommunications markets in the world. These begin with the very transactions that grant consumers access to telecommunications in the first place. For instance, the convenience store giant Oxxo appears to sell only Telcel and its proprietary OXXO CEL SIM cards. Neither company has confirmed the existence of an exclusive deal between Telcel and Oxxo; however, with over 20,000 stores, Oxxo exerts significant influence on the distribution channels for SIM cards and other mobile technologies in Mexico. Accordingly, the chain’s practice of effectively limiting offerings to a single carrier has opened an investigation from the IFT due to the possible commission of monopolistic practices in distribution and marketing of SIM cards.

Another ongoing challenge that necessitates reform is the lack of success in expanding broadband and mobile coverage to Mexico’s most geographically inaccessible and impoverished regions. The way that the López Obrador administration has moved along its Internet para Todos program, which is now administered by the Federal Electricity Commission (CFE) and will begin deployment of below-market rate internet coverage this year, has exacerbated a lack of competition. Entering the market as a state-owned mobile operator, CFE’s Internet para Todos was granted a concession to begin operations by the IFT with the explicit condition that it will not compete in areas where existing mobile operators provide services, such as Telcel, Telefónica, and AT&T. Over the past few months, CFE has reported that it will install 2,800 antennas for telecommunications that will reach 6.4 million people in over 18,000 communities. While this step has the potential to expand broadband coverage, CFE must be careful not to disincentivize private sector investment in the ICT sector. (The government’s track record here is not encouraging.) Mexico’s government has spent around $900 million on the program since 2020, but has achieved coverage of only 70 percent of the country—well short of its reduced goal of 92 percent coverage, which it is expected to reach only in 2028. Differences in how to achieve expanded broadband and mobile coverage between the public and private sectors and the IFT represents another area ripe for reform efforts that could allow for Mexico’s ICT sector to expand digital connectivity more efficiently and increase competition within the industry.

In addition to these IFT-related challenges, Mexico’s lack of widespread digital education is another area that past reform efforts have not targeted. Nearly 40 percent of Mexican adults lack basic computer skills according to the Organization for Economic Cooperation and Development (OECD). With the importance of the ICT sector accelerating during the Covid-19 pandemic for businesses and schools among other sectors of society, digital education will only continue to rise as a preeminent factor in Mexico’s ICT sector. Moreover, even if Mexico achieves large-scale deployment of the newest technologies, without adoption of these technologies by Mexican citizens, the country will not witness the benefits of the digital revolution. With this context, it will be crucial for Mexico to establish educational reform that catalyzes a more comprehensive digital culture and makes the ICT sector more attractive for young talent.

As broadband connectivity increases and more of the Mexican population moves online, the country will also be at increased risk for cyberattacks and ransomware attacks, especially given the low culture of cybersecurity awareness and Mexico’s sophisticated criminal organizations. Within Latin America and the Caribbean, Mexico already represents 17 percent of the region’s overall attacks. While Mexico adopted a National Cybersecurity Strategy in 2017, this strategy left much of the control with the armed forces and did not establish a centralized framework for responding to the increasing amount of cyberattacks in the country, and there has been relatively little progress on implementation of any other large-scale reform for a cybersecurity law or framework. The lack of a regulatory framework and a centralized cybersecurity agency, like the United States’ Cybersecurity and Infrastructure Security Agency (CISA), will complicate Mexico’s ongoing efforts to combat cyberattacks as the ICT sector continues to grow. In the absence of prior reform, additional reform efforts will be necessary in the cyber arena to ensure that Mexico can take advantage of its growing ICT sector and diminish the negative effects of cyberattacks.

Adumbrating Reform 2.0

With the importance of the ICT sector growing year after year, reform must keep pace with the level of technological progress. In a country like Mexico, where some citizens still do not have access to internet and mobile service while others are ready to install the newest 5G network, it is even more important to ensure that reform efforts allow this widespread digital transformation to occur. As evidenced by the current challenges facing Mexico’s ICT sector, further reforms that move beyond the 2013 reforms could help the country to resolve ongoing challenges and remove unnecessary regulatory barriers that stymie progress. ICT sector reform 2.0 should be comprised of the following four areas: spectrum policy, the expansion of broadband connectivity, digital education, and cybersecurity.

First, the most pressing reform pertains to spectrum policy. Several reports have shown that lower spectrum fees are a key ingredient for stimulating the growth of the ICT sector. By increasing the regulatory independence and authority of the IFT, Mexico can allow the agency to perform its role and avoid artificially high spectrum fees and scarcity, provide greater consumer benefits, and create a path for enhanced economic growth.

Second, Mexico should review its competition policy and prohibit any exclusive arrangements by Telcel. In addition, the government should also implement reforms targeted at the challenges of expanding broadband coverage. For example, Brazil recently built requirements into a 5G spectrum auction in the form of credits for telecommunications operators as a public incentive for operators to expand coverage in rural areas. This reform would strengthen the ability of the private sector to expand coverage throughout Mexico and require less public sector resources through CFE’s Internet para Todos. Finally, the IFT could establish a “rocket docket” or shot clock on resolving complaints against Telcel for violations of its rules or anti-competitive behavior.

Third, there must be reform within the digital education arena that changes the current trajectory of the lack of talent and digital mindset in Mexico’s ICT sector. In this regard, Mexico could reform the General Federal Law of Education to explicitly include digital and ICT education as a constitutional right. Similar proposals have been laid out in the Chamber of Deputies in 2022, with the ultimate goal of strengthening the digital and technological culture of Mexico as it strives to adopt the newest technologies.

Fourth, reform in the cybersecurity realm will also be necessary for Mexico as the ICT sector continues to develop. To combat increasing cybersecurity threats, the Mexican government should consider deploying a general policy framework in a new reform that allows for the creation of a centralized cybersecurity agency. There have been several calls for a new cybersecurity law and framework. Opposition political platforms could push to ensure that these proposals move forward. Another important aspect of this reform should include protection for critical infrastructure and data that has been subject to increasing ransomware attacks in North America, such as the Colonial Pipeline attack in the United States. In establishing a cybersecurity law, Mexico will be able to better protect one of the most important sectors for its economic growth in the next decade. The call to cybersecurity feels all the more urgent in the wake of the “Guacamaya leaks,” when a hacktivist group allegedly stole six terabytes of sensitive information from Mexico’s government.

América Móvil’s continued market dominance and seeming omnipresence, despite the pro-competitive reforms enshrined in the Mexican constitution and USMCA, are symptomatic of a broader failure by Mexico’s government to strengthen competition in the telecommunications sector. But outside actors can also take steps to nudge the government of Mexico onto a more beneficial course. For example, as the 2024 Mexican general election begins, new ideas to promote investment in 5G and a more competitive ICT sector should take center stage. By refusing to empower the IFT to take the necessary steps to promote competition in Mexico’s telecommunications industry, and by failing to reform an anti-competitive spectrum pricing scheme, the Mexican government will not meet the commitments it made to the United States and Canada under the USMCA. Should the Mexican government continue to ignore these issues, to the detriment of its telecommunications sector, it is possible that a challenge could be brought by the United States or Canada under the USMCA’s dispute resolution process.

Mexico has the potential to become a leader in the telecommunications sector and the ability to increase North American competitiveness in a sector of tremendous global importance. By enacting a new series of telecommunications reforms, Mexico would be able to take full advantage of the emerging opportunities in the ICT sector and establish the country as a competitive market within the region and around the globe.

Ryan C. Berg is director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Andrew Sady-Kennedy is a former intern with the CSIS Americas Program.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Andrew Sady-Kennedy

Former Intern, Americas Program