Mexico’s “Red Compartida” wireless reform is probably the most ambitious restructuring of the cellular-phone market anywhere in the world. So naturally it is starting to make the incumbent operators nervous. That’s a sure sign that the reformers are on the right track.
Wireless telephone markets everywhere are dominated by a handful of large players. In many countries—including Mexico—there is one big player, and then perhaps one or two much smaller operators that struggle to compete against the local behemoth.
This structure is the product of how radio spectrum has traditionally been allocated—with spectrum auctions every ten years or so. The dominant incumbents typically win nearly all of this essential input to mobile communications.
Mexico’s Red Compartida can put an end to this oligopolistic model and set up instead an open and transparent wholesale market for wireless bandwidth. A single network operator would sell network access to all comers at competitively determined prices. At a stroke, this would eliminate the spectrum-license bottleneck and dramatically lower barriers to entry in wireless.
It’s a fantastic idea, which is why existing players are now trying to kill it. Mexico’s smaller players could benefit greatly from open access to a huge 90MHz LTE network, but at least some of them may have decided that they’d benefit even more if they got the spectrum, and didn’t have to compete with others for it.
Mexico’s incumbent carriers—Telmex’s Telcel, Telefonica Mexico and AT&T’s new venture—are barred from bidding directly for Red Compartida. And so they are trying to hold the project hostage to their approval. No bidder, they claim, can succeed without their backing.
AT&T is said to be particularly discomfited by Red Compartida. The U.S. phone giant spent $4.4 billion earlier this year to buy two small Mexican carriers badly in need of network upgrades. AT&T is seen by some in the Mexican government as a poster child of the success of Mexico’s reforms (which extend beyond the Red Compartida project). Last month one commentator in the Mexican press wrote that the rest of the reforms have gone so well (as evidenced by falling prices and AT&T’s entry into the market) that Mexico doesn’t need Red Compartida at all; the government should throw in the towel and license the spectrum in a more traditional manner.
Over the summer, AT&T CEO Randall Stephenson announced at a meeting with Mexican President Enrique Peña Nieto that AT&T planned to invest $3 billion upgrading its outdated Mexican networks. That’s real money, but Red Compartida was never about keeping the incumbents happy. If that had been the intent, the 90 MHz of spectrum set aside for the project could have been doled out to the existing players directly.
Properly understood, Red Compartida is a huge opportunity for all three major carriers in Mexico. The envisioned wholesale market will comprise some 40% of available spectrum. In an Open Access Wireless Market, the carriers, as well as new entrants, will be free to bid for capacity exactly when and where they need it on the network and around the country, freeing up capital for other uses and facilitating much more efficient use of network resources.
The wireless industry has always been an oligopoly, except where it was a monopoly. Carriers are used to limited competition among a small number of players–not just in Mexico, but all over the world. Genuine market opening must be alarming to those used to the old ways of doing things. But in the long run the incumbents may even benefit, not least because lower barriers to entry and greater efficiency will tend to increase the value of the spectrum they already control. Certainly, Google, Apple, and Microsoft benefit from the explosion of innovation that the Internet ecosystem brings. Red Compartida brings that ecosystem to mobile communications. Incumbent carriers can compete with good products and services or they can vanish. Either way Mexico enjoys a vibrant communications market that is vital for economic development.
Mexico’s Red Compartida was conceived out of the conviction that half-measures would never suffice to make Mexico’s wireless market fully competitive. That’s as true now as it was when the government started. AT&T’s entry into Mexico is a victory for reform, but Red Compartida bids to open the door to a myriad of innovators and new businesses, ones not dependent on the investment decisions of any single carrier or group of incumbents.
Red Compartida does not need the blessing of those incumbents to flourish and succeed. Let’s hope that a government with the vision to propose the world’s first competitive, wholesale-only wireless market has the courage to see the project through.