Mexico Wants State-Owned Mobile Network – End Slim Monopoly

Mexico has received its first bid from a consortium to build a $10 billion state-owned mobile network, a linchpin of efforts to break the hold of Carlos Slim’s America Movil on telecom services.

Telecom equipment makers Alcatel-Lucent and Ericsson helped the consortium craft the proposal submitted to the government, four sources said.

Mexico’s government, which estimates that the network will require an investment of about $10 billion over 10 years, wants to pick a winner in mid-2015, two sources said.

If the consortium’s bid wins, those companies could be key suppliers of mobile antennae and other gear as well as manage the network, although they have not signed formal contracts yet, two sources said.

A spokesman for Mexico’s telecommunications and transport ministry (SCT) confirmed that it had received a proposal. Alcatel-Lucent declined to comment, and Ericsson did not respond to a request for comment.

The submission of the first bid, ahead of a government tender, is a major step in Mexico’s effort to inject competition into a market where America Movil holds 70 percent of mobile subscriptions and more than 60 per cent of fixed lines.

If successful, the state-owned network would help No. 2 mobile carrier Telefonica (TEF.MC) and third-ranked Iusacell to compete with Slim by giving them better coverage without having to bear the cost of building the network. An American Movil spokeswoman did not immediately comment on the company’s view of the project.

The project could attract new competitors, known as MVNOs, which offer services on networks they do not own.

The network is also a test case of an industrywide trend toward sharing telecoms infrastructure to cut costs and improve services, especially in rural areas where operators are often reluctant to build, given the poor return on investment.

However, if the project is mismanaged, experts warn it could deter operators from investing in their own networks, undermining efforts to improve services.

Other companies are also interested in building Mexico’s new network. China’s Huawei, the world’s second-biggest telecom gear maker after Ericsson, has had several meetings with government officials on the topic, one source said.

In an emailed statement, Huawei declined to say if it would bid for the contract, adding that it was “natural” for a company of its size to be invited to participate in the project.

President Enrique Pena Nieto has bet that opening up the telecom sector will boost economic growth, going so far as to put the mobile network project into the constitution, with a completion date of late 2018, to prevent lobbying efforts to halt it.

Mexicans pay the highest prices for the slowest median broadband speeds in the 34-nation Organisation for Economic Co-operation and Development, and mobile penetration is among the lowest in Latin America.

To fix the problem, Mexico’s Congress has passed reforms to strengthen the telecoms regulator and declare America Movil a dominant player in the market, imposing tighter regulation.

The government also proposed a plan – which has only been tried in Rwanda – to donate the country’s fourth-generation wireless airwaves to a company that would build a national network.

That company will have exclusive use of 90 MHz of the 700 MHz wireless spectrum, freed up in the transition from analog to digital broadcasting. It will then rent capacity at regulated tariffs to telecom operators like Telefonica and Iusacell, which will continue to serve customers directly.

“Without a shared network … it will be impossible to have sufficient telecoms service coverage, keeping our country behind,” Communications and Transport Secretary Gerardo Ruiz Esparza said earlier this year.

Using rules introduced two years ago, a consortium has presented an “unsolicited proposal” to the SCT, said the four sources, who requested anonymity because the bid was not yet public.

The government rewards companies presenting unsolicited proposals for being proactive, giving them an edge in the bidding process.

The consortium, which has tapped the expertise of eight veteran telecoms executives, lawyers, and bankers, is still searching for funding as well as an industrial partner, said one of the people, adding that the World Bank’s International Finance Corp private-sector investment arm is providing help in both areas.

The IFC is helping a consortium find a strategic partner and someone to arrange a financing package, a spokeswoman said.

The ministry now must weigh the advantages of accepting the proposal, which then allows it to use the studies and ideas included, against the risk of deterring other bids by anointing a front-runner.

Telecom operators are wary of the plan, saying the private sector would use the spectrum more efficiently. Governments usually auction it off to operators that then build networks.

Economist Scott Wallsten of the Washington-based Technology Policy Institute said donating the spectrum was a kind of subsidy that could deter operators from investing and ultimately harm the whole reform effort.

“This will make sure that the state ends up being really the only competitor,” Wallsten said. “It could sink the reforms.”