In Q311, the Mexican market reached mobile penetration of 87.5%, up from 86.5% penetration in Q211. This was due to 1.172mn net additions being recorded. This figure is lower than the net additions in Q211, but still shows there is robust growth left in the Mexican mobile market.

In Q112, the credibility of regulator Cofetel was dealt a number of blows. Firstly, its president, Mony de Swaan, was put under investigation following claims that he awarded two contracts worth roughly US$200,000 for businesses run by close friends. Corruption and partiality have historically been common across sectors of the Mexican economy. Despite a strong anti-corruption framework, such practices still remain widespread and enforcement of such laws is sometimes lacking.

Secondly, an OECD report found that the cost to the Mexican economy of the inefficiencies in the sector was US$25bn a year or 1.8% GDP per annum. Prices are among the highest within the OECD, despite the average income being among the lowest, as the result of a lack of competition. This leaves many Mexicans unable to afford telecommunications services and creates a huge drag on the economy. The report suggested that restrictions on foreign FDI should be eliminated, the courts procedure should be reformed and the regulator given greater authority and independence. BMI welcomes these suggestions, but hold reservations over the extent to which these suggestions will be put into practice.

There are mixed signs this quarter that regulators are improving competition. Telcel reached an agreement with a selection of fixed-line and mobile operators to reduce interconnection fees after it was declared a dominant player in the mobile market in November 2011. The company announced it is to progressively lower interconnection fees until 2014, when the rate will be around MXP0.24. This marks a U-turn in attitude for Mexico's largest mobile operator, which fiercely contested the interconnection fee cuts implemented by regulator Cofetel in Q111. BMI welcomes the cuts, but we do not believe Telcel's dominance faces a serious challenge in the near future.

Particularly given the block on Televisa's proposed US$1.6bn purchase of a 50% stake in the mobile operator Iusacell. On February 2 2012 the regulator announced this deal will not be allowed to pass, voicing concerns that it would cause problems of collusion in the advertising and broadcasting market, in which Televisa has a 70% share and Iusacell's parent company TV Azteca has a 30% share.

However, BMI believes the benefits of increased competition in the mobile market would have outweighed the possible adverse effects on the broadcasting sector. We believe other factors, besides the effect on the competitive environment, would have influenced the decision.

On November 14 2011, America Movil increased its ownership of Telmex from 60% to 92.79% through a shareholder buyout offer. It agreed to pay MXP62.1bn (US$4.1bn) for the extra shares, financed through selling bonds in international markets. After disappointing Q311 results, BMI believes the move bodes well for America Movil, which will be able to further integrate its mobile and fixed-line operations in its domestic market.

A result of this, Telmex delisted its shares from the New York Stock Exchange, Nasdaq and Madrid's Latibex at the end of Q411. Shareholders of the firm have approved the decision to delist its shares from overseas markets and the termination of the operator's depositary receipts programme. However, trading in the firm's shares will continue on the Mexican stock exchange.

In terms of forecasts, BMI has downgraded our mobile forecasts, but only slightly, as a result of concerns over the competitive environment. We now expect 112.3mn subscribers at the end of 2016, or 92.6% penetration. In the broadband sector, we have raised our forecasts, as a result of strong growth in fixed broadband take-up in the first three quarters of 2011. We expect broadband subscriptions to increase to 28.2mn by 2016, or 23.25% penetration. This figure includes mobile broadband subscriptions, which we believe will cannibalise fixed-line through our forecast period.

Click here to open the POPUP