Slamming doors is costly

The exit of another telecommunications company perpetuates a statistic that will not change without more competition: 23.5% of the Mexican population lives in digital poverty.

They say there are two happy moments for those who own a sailboat: when they buy it and when they sell it.

The metaphor could apply to Telefónica Movistar, which a week ago ended its attempt to grow in Mexico and finished handing over the third and last part of the radio spectrum to the Mexican government and migrating all of its network traffic to AT&T Mexico.

What happened in our country to one of the most important telecommunications operators in Latin America? It came up against a quasi-monopolistic market (with América Móvil holding 73% of revenues) and the cost of a basic input at prices out of range compared to other countries. This is the cost of the radio-electric spectrum, that "invisible" channel through which telephone services run.

As a national asset, the spectrum is auctioned by the government (via the regulatory body, which is the IFT) and each telecommunications company comes forward and buys pieces of it.

This is common all over the world and is a resource that every Finance Ministry is looking forward to. And especially in our country, which has the most expensive spectrum price in Latin America. In addition, we have another peculiarity in Mexico: the cost of the spectrum is set by Congress, while in the rest of the world it is set by the market.

As with any input, companies factor it into their costs and it is prorated for the size of the business (or number of customers) they have.

If I pay 100 pesos and I have a thousand clients, my cost for the input of that radio spectrum is less than the one who paid 100 pesos, but has 20 clients.

Today, after the telecommunications reforms that sought greater competition and less preponderance, Telcel still holds 73% of market revenues and the remaining 27% is shared by the other companies that arrived attracted by the opening of such an attractive market as the Mexican one.

With these revenues -and an even cost of the radio-electric spectrum- this necessary input represents 3% of its revenues for the company founded by Carlos Slim. But for a player the size of AT&T Mexico, the state input represents 14% of its revenues.

In November 2019, the owner of the Telefónica Movistar sailboat got tired of paying high costs to subsist as the second player in a sector that let it embrace only 18% of the market and surprised many by announcing that it was abandoning its spectrum space (which would come to be the Navy) and migrating its customers to AT&T Mexico's network.

The Mexican sailboat venture generated only 2.5% of the Spanish conglomerate's revenues and a lot of headaches. Constant proposals to reconsider the way in which the cost of radio-electric space should be charged -which hit a wall- were the straw that broke the camel's (or the boat's) back.

Without the large fixed cost of a huge installed capacity of infrastructure (which it also sold) such as towers, antennas, masts and power plants, nor the financial debt they had to cover to reassure their shareholders and with so little room for growth, the best idea was to look for that second happy moment and sell everything.

Since June 30 (when it handed over the last part of its spectrum blocks) Telefónica is almost a mobile virtual network operator (MVNO) in the country with some 23 million customers.

Telefónica Movistar continues to provide service to its subscribers, marketing and billing, while AT&T Mexico operates all the physical infrastructure required by this new ally.

The advantages for the Spanish companies are that since this agreement they have significant savings in opex (or operating expenses) and above all in capex (investment) related to network and frequency spectrum costs.

What does the end of Telefónica's venture in Mexico mean for the national coffers? An annual fixed fee of 4,500 million pesos that they will no longer receive.

"The spectrum cost issue continues exactly in the same terms since 2019. There has been no reduction, no change in policy regarding privileging connectivity over collection," said Ana de Saracho, director of public affairs, regulation and wholesale at Telefonica Mexico in an interview a few days ago to the news site bnamericas.

And, to put the finger on the issue of revenue, Telefónica and other operators with a minority market presence have often proposed that spectrum costs should be proportional to the size of the operator.

If a giant has seven out of every 10 connections, its spectrum cost should be of that level, while those who are far away fighting for second and third place (with a little less than 30% of the market) should pay a proportional amount. This adjustment may allow to increase investment and with it the deployment to more areas of the country and lower the costs of mobile telephony.

The lack of more even rules to trigger competition always affects those who have the least: the smallest network deployments were made in areas that are unprofitable or have a small population and are therefore often isolated and without access to telecommunications.

A study by the Internet Society Foundation and the World Data Lab estimated that 18% of the world's population, 1.4 billion people, live in "digital poverty".

In Mexico we are above that global average and today 23.5% of Mexicans live in digital poverty (about 32.2 million people). This puts us almost in the same percentage range as Ghana, Morocco and Barbados.

"The Internet belongs to those who can pay for it, and this is beginning to be a discussion about the accessibility of rights," said Senator Emilio Álvarez Icaza a few weeks ago.

Slamming doors is expensive in the short term, but much more expensive in the long term to guarantee the human right to telecommunications.

Here, too, the wine-colored flag's premise of "the (digital) poor first" should be used.

@ba_anderson

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