Introduction
The globalization, fueled by various factors including telecommunications, now faces a real threat from the contemporary version of protectionism. The Mexican telecommunications sector finds itself at a critical juncture amidst volatile global trade conditions and the potential implementation of multiple tariffs.
Challenges Facing Mexico’s Telecom Sector
The telecommunications industry in Mexico is capital-intensive, with operators facing high deployment costs and lengthy periods to recoup their investments. Uncertainty surrounding the return on investment has led to a halt in funding, which is particularly concerning given Mexico’s existing gaps in coverage, quality, and provision of next-generation services.
Infrastructure and 4G Coverage
- By the end of 2024, no operator in Mexico had surpassed 85% population coverage with 4G, a technology that has been in circulation for over a decade.
- In 5G, the situation is even more dire, with coverage reaching only 40% of the population, far below the 90% achieved in countries like the United States.
Impact of Tariffs and Imported Equipment
The sector’s reliance on imported equipment, such as routers, smartphones, decoders, and networks, makes any international trade tension translate into increased costs and investment disincentives for operators.
- As a result of uncertainty and additional costs from tariff imposition, the already disproportionate operational margins among operators would further diminish their investment capacity.
- For instance, America Movil boasts a 41.3% EBITDA margin, while AT&T and Telefónica have 16.4% and 9.0%, respectively.
Further pressure on operational costs for operators could exacerbate these differences, potentially leading to the exit of players and weakening competition, which may reduce options for end-users.
Broader Societal Impact
The consequences of this new trade order extend beyond businesses, affecting household purchasing power and individual users.
- The increased cost of imported devices will directly impact citizens’ ability to access digital services. According to ENDUTIH 2023, over 7.4 million Mexicans lack mobile phone services due to financial constraints.
- Should equipment prices rise, this number could increase, reversing progress in digital inclusion.
- Lower adoption of services would also mean reduced income for operators. By the end of 2024, 27.9% of mobile revenues came from equipment sales. A decline in these sales would trigger a chain reaction, affecting the sector’s profitability and investment capacity.
Call for Clear Policies and Strategic Planning
The telecom sector in Mexico urgently requires clear and stable policies. Regulatory rules should foster effective competition, attract investments, and enable strategic planning for medium- to long-term goals.
- An integrated strategy is needed to ensure continued growth in connectivity access.
- Bridging the digital divide necessitates universal access to modern networks, affordable device and service prices, and equitable conditions among operators.
In the current geopolitical landscape, telecommunications should be at the heart of economic and social development strategies.
Key Questions and Answers
- Q: What challenges does Mexico’s telecom sector face?
A: The sector faces challenges such as capital intensity, high deployment costs, and uncertainty surrounding investment returns. Additionally, reliance on imported equipment exposes the industry to potential tariff-induced cost increases and reduced investment capacity.
- Q: How does protectionism impact the telecom sector in Mexico?
A: Protectionist measures, such as tariffs, increase costs for imported equipment and reduce investment capacity in the telecom sector. This can lead to reduced competition, fewer options for end-users, and hindered progress in digital inclusion.
- Q: What are the broader societal impacts of these challenges?
A: The enlarged cost of imported devices limits citizens’ access to digital services, potentially increasing the number of unconnected households. Lower adoption of telecom services also affects operators’ income, creating a ripple effect that impacts the sector’s profitability and investment capacity.
- Q: What policy changes are needed for the Mexican telecom sector?
A: Clear, stable policies are required to foster effective competition, attract investments, and enable strategic planning. An integrated strategy should ensure continued growth in connectivity access and bridge the digital divide through universal network access, affordable devices, and equitable conditions among operators.
