Wherever you look in the world of operators, where there is good competition there is a healthy market and the result of an unhealthy market invariably leads to higher prices, due to market dominance.
Nowhere is this better demonstrated than in Mexican broadband, where Telmex holds something close to a 60% market share of fixed line broadband and some of the most expensive broadband across Latin America.
Which is why the regulator there, the Federal Telecommunications Institute (IFT) has told Carlos Slim, the billionaire owner of Telmex that he must separate out the wholesale and the retail sides of the business, to promote local loop unbundling.
Local loop unbundling is a bit like socialism – depending on where you are from it is either a) the only answer or b) has never achieved any good. But the real truth is that where ruthless organizations gain the upper hand in broadband, it is a good tool to allow rivals to invest in broadband, create competition and bring prices down. It has worked in France, the UK, Hong Kong and a few other places in the world, but it was made virtually illegal in the US, after being invented there, by the actions of a court which said that it would not let the FCC impose a wholesale provision prices.
The US doesn’t have anything like the need for broadband separation as Mexico has and neither does most of Europe. Telmex is simply too dominant, and other extensions of America Movil have similar advantages in cellular and content outside of Mexico (it is not allowed to operate a content business within Mexico because of the IFT).
But there is some trouble in store, as America Movil had put a plan of action to the IFT which it thought it had managed to “sell” and the IFT has come back and called for real fundamental changes way beyond those Telmex had envisaged – which means it plans to appeal, but the IFT is unlikely to be refused at this point.
It has asked for a functional separation on the units of Telmex and Telnor and given the company two years to execute it – calling for a register of transferable assets and sufficient cash to run the business; and for it to offer unbundling services; submit a quarterly compliance plan; operate to an non-discriminatory code of ethics; report to a Board of Directors, the majority of which are independent; and support an audit committee and another on compliance. It must operate from a different address; use a different brand name; use different IT systems and management; and have no staff who also work for Telmex.
This is rather similar to the moves which Ofcom in the UK have foisted upon British Telecom, after years of BT flaunting laws on helping unbundlers set up broadband lines and giving preference to British Telecom customers time and time again.
Telmex will still own the business, as does BT and OpenReach in the UK, but a full separation has been threatened if BT does not behave.
The Mexican regulator refers to the plan as the one which Telmex proposed but a statement from Telmex insists that this has gone a lot further than its suggested market remedy. The fact that it has been given two years, suggests that the IFT knew there would be an appeal, but that it can be held comfortably within that time, and the two year time frame can still prevail.
The fact that Americal Movil has a cellular market share in Mexico of 72%, down from 84% some 5 years ago, means the regulator has yet to get to grips with the main problem, of creating competition in cellular markets.
The remainder of Latin America has also fallen under the spell of America Movil, which is one of the most aggressive suppliers continent wide for fixed broadband, telephony, cellular and pay TV, and its dominance at home in Mexico has meant it could use those excessive profits to leverage takeover deals not only across Latin America, but in Europe as well, making Carlos Slim one of the richest men in the world, his empire built out of one of the poorest populations in the planet.
As the competition slowly comes back to Mexico and the rest of Latin America, it is likely that both the average broadband customer and the economy will both get boosts from this move, but it will take similar moves from other Latin America regulators to complete the job. The last thing the continent wants is to take control away from Carlos slim, and end up giving it to a US corporation like AT&T, although that is quite possible.