On March 24th, President Peña presented several initiatives to the Senate, including the Federal Law of Telecommunications and Radio Broadcasting, the Law of the Public System of Radio Broadcasting, as well as changes to other 11 amendments that will regulate the Constitutional telecommunications reform, issued on June 2013. The several changes proposed include innovative mechanisms to regulate the interconnection, the dynamics of the radio broadcasting’s secondary market, the multiple use of private and public infrastructure in an asymmetric way, the network’s neutrality, the policy for re-broadcasting, the mechanisms for sanctioning any non-compliance with the law, several geo-localization issues, security and databases, eliminating the long-roaming and distance call schemes, rights of way, posts and pipelines that will enhance the network expansion, among others. It can be observed that the content of the Presidential proposal has a high degree of technical complexity. However, one of the most relevant questions to be asked is perhaps a bit simpler: what do users gain with this reform?
As a matter of fact, a major weakness of these initiatives relies on the issue of protecting consumers. The proposed legal framework only intends to protect users with the current Federal Law of Consumer Protection, providing the Federal Consumer Protection Office (PROFECO), along with the regulating entity – the Federal Telecommunications Institute (IFT) – with the power to monitor users’ legal complaints, review their contracts and write down any sanctions on the Public Registry of Concessions. There is a disparity between introducing innovative telecommunication reforms and the patronizing and stultifying protection system as well as the almost complete lack of participation of consumers in Mexico: the initiative sees competition as adding more competitors rather than a benefit for consumers; in other words, it sees competition as an end rather than a means. That way, secondary legislation will hardly provide any added value for consumers as well as an efficient action scheme.
Regarding competition measuring, the criteria used to determine ownership is based on sectors rather than relevant markets, and this can create gaps that can lead to technical confusions as well as inaccuracies. IFT would only use a 50% or plus participation criteria as a way to determine such dominance. In complex markets where media cross-ownership promotes the emergence of economic clusters with substantial and diverse powers, it is essential to provide the regulating entity with more flexible tools that will enable it to analyze and strengthen lawsuits against major consortiums that will defend their market participation, seeking to maximize their profits as well as to defend their interests. The disadvantage of the aforementioned criteria, just like it occurred in the U.S. in the 1970s, when the ATT monopoly was dismantled, is that it enhances a lack of new investment until the market share of the companies that have been labeled as dominant has decreased under the 50% threshold, something that would represent a substantial decay in quality service for consumers.
Another relevant aspect of the regulatory proposal is the clarification of powers attributed to IFT and other federal public offices. From the aforementioned, one can observe the attempt of sharing power amongst several stakeholders and the avoidance of allowing the concentration of functions into a single Constitutional autonomous macro-regulator. That way, it is possible to clearly set the map for potential political struggle that will end in a scenario where the government will have to be involved within the dynamics of the sector’s markets. The main problem with this institutional design seems more political than economic: the initiative contains a remarked attempt for political control using an allegedly independent regulator.
Theoretically, this reform’s targets have been set taking into account consumer’s wellbeing as well as economic growth criteria. If this is not achieved in practice, all these changes will have served no purpose. Knowing that the lack of effective competition within the telecommunications market costs Mexican taxpayers 26 billion dollars per year in losses due to inefficiency, less employment and a subpar benefit for consumers, will Mexican legislators be able to provide legislation that is adequate to these needs? This is a question that will not take long in being answered.
CIDAC
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