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RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3905/01 1951756
ZNR UUUUU ZZH
R 141756Z JUL 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 2155
INFO RUEAFCC/FCC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 03 MEXICO 003905 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX AND EB/CIP 
STATE PLEASE PASS TO USTR JONATHAN MCHALE AND FCC EMILY 
TALAGA 
 
E.O. 12958: N/A 
TAGS: ECON MX ECPS ETRD EINV
SUBJECT: POLITICAL CHANGES BRINGS UNCERTAINTY TO MEXICAN 
FEDERAL TELECOM COMMISSION 
 
REF: A. MEXICO 01080 
 
     ¶B. MEXICO 01716 
 
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SUMMARY 
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¶1.  (U) The Mexican Congress' passage in March 2006 of the 
Radio and Television Law has brought some uncertainty to 
Mexico's communication sector.  All of the previous Federal 
Telecommunications Commissioners resigned shortly after its 
passage leaving the Federal Telecommunications Commission 
(COFETEL) more than two months without any decisionmakers. 
In addition, the Senate's rejection of the majority of the 
Fox Administration's initial nominees to COFETEL, coupled 
with a constitutional challenge to the new law filed by 47 
Senators and several communitarian radio operators, have many 
wondering whether the new Commission and President can 
quickly implement much needed changes in order to make room 
for new technologies and convergence.  Well-regarded telecom 
consultant Ernesto Piedras believes the new COFETEL board 
will need time to settle in since only one member has 
institutional knowledge of the current items on their agenda. 
 He is concerned that the new Commission lacks an economic 
specialist who can analyze the financial impact of COFETEL 
measures, but he hopes that the new Commission will help 
build consensus with industry in order to address current and 
future technologies.  End Summary. 
 
------------------------ 
RADIO AND TELEVISION LAW 
------------------------ 
 
¶2.  (U) On March 30, the Mexican Congress passed the Radio 
and Television Law (reftels).  Per the new law, the President 
had 30 days to appoint four new COFETEL Commissioners and a 
President.  Unlike the last commission, the commissioners' 
terms will be staggered to service lengths of 5,6, 7, and 8 
years.  The President will also serve an 8 year term.  The 
Permanent Committee of Congress rejected Fox's first list of 
commissioners except Jose Luis Peralta, a COFETEL engineer 
who filed a lawsuit against COFETEL but dropped it days after 
being named to the Commission for an 8 year term.  According 
to press reports, the other nominees were rejected because 
they lacked sufficient experience in the sector (a 
constitutional requirement) or they had significant ties to 
Fox, the Partido Accion Nacional (PAN), the Finance Ministry, 
and Televisa.  Two weeks ago, Fox sent a new list of 
commissioners to the Senate that included Francisco Gonzalez 
Abarca for a five year term, Eduardo Ruiz Vega, a telecom 
consultant and academic, for a 6 year term, Partido 
Revolucionario Institucional (PRI) Senator Ernesto Gil 
Elorduy for a seven year term, and PAN Senator Hector Osuna 
for an 8 year term as COFETEL President. The inclusion of two 
Senators seemed to come as a surprise to many experts 
especially since Senator Osuna had told many people that he 
would be running for Governor of Baja California in 2008 (his 
office has told us he will not run and is now focusing on 
this new endeavor) and the other Senator has no 
telecommunications experience.  Another surprise was the 
exclusion of a well-respected academic and consultant Ernesto 
Piedras.  Piedras surprisingly supported adoption of the 
Radio and Television law and was frequently mentioned during 
the "search" for commissioners. 
 
¶3.  (U) Econoff and Econ Specialist met with telecom 
consultant, Director of the Intelligence Competitive Unit, 
and academic from the Mexican Autonomous Technological 
Institute (ITAM), Ernesto Piedras to discuss the most recent 
telecom-related political events as well as what is on the 
horizon for industry and government. 
 
¶4.  (U) Piedras stated that Televisa, TV Azteca, and Telmex 
pressured PRI and PAN congressmen to quickly approve the 
Radio and Television law in order to give them some 
protection in the case of a Partido de la Revolucion 
Democratica (PRD) Andres Manuel Lopez Obrador victory. 
Despite some colleagues' strong criticism of the law, Piedras 
feels it is the first positive step towards modernizing the 
sector and moving forward with convergence.  By staggering 
the commissioners' terms, he believes continuity will be 
given to COFETEL's projects. 
 
¶5.  (SBU) Piedras admitted that the law has some holes but 
believes that COFETEL could approve regulations to close the 
 
MEXICO 00003905  002 OF 003 
 
 
gap but warns such a process should be open and include input 
from industry, legislators, government officials, consumers, 
and academics.  Although, the process could take up to two 
years, he believes SCT has already written regulations and 
could share them with industry.  Piedras claims most of the 
opposition to the law came from communitarian radio station 
owners who argued that it promotes unfair competition. 
Piedras alleged some of these stations in Guerrero and 
Chiapas are being utilized by radical leftist groups in 
Bolivia, Venezuela, and Mexico's PRD to send messages. 
 
¶6.  (U) Forty-seven Mexican Senators and several 
communitarian radio operators filed a Constitutional 
challenge to the new law citing that it violates the 
Constitution.  Piedras can't find any sufficient legal 
grounds for this challenge to proceed and believes it is 
unlikely that the Supreme Court would reverse the law because 
that would mean nullifying the COFETEL board and the sector 
can't continue to fall behind while waiting for a new 
Commission to be named. 
 
--------------- 
THE NEW COFETEL 
--------------- 
 
¶7.  (SBU) Piedras says the sector supports the new COFETEL 
but understands that it will have to work closely with it to 
accomplish its goals.  He admits that there is some fear 
among companies that COFETEL will be partial and favor 
dominant players like Telmex, Televisa, and TV Azteca 
especially with two politicians on the Commission.  Piedras 
pointed out that one Senator lacks telecommunications 
experience and that the Commission has a lawyer and an 
engineer, but it is doesn't have an economist.  Piedras said 
he was informed that Telmex requested his name be removed 
from the President's list of potential nominees.  Piedras 
suggests the Commission create a Consultation Council made up 
of industry, consumers, specialists, and academics to ensure 
follow-up on key projects.  Currently, consumers are not able 
to participate in the regulatory process. 
 
---------------------------- 
MERGING THE OLD WITH THE NEW 
---------------------------- 
 
¶8.  (SBU) Piedras noted that industry has been divided on 
many issues and they must start a healing process to unite to 
work on common objectives.  He also urged the President and 
the Secretariat of Communications and Transport (SCT) to 
construct a Telecommunications Policy Plan to prepare for 
convergence and "new generation" technologies.  However, 
according to Piedras, the GOM has yet to implement a clear 
and consistent convergence policy.  The convergence agreement 
is conflicting.  The agreement fails to give autonomy to 
cable TV companies to provide telephone services directly, 
yet a modified version of the agreement will give Telmex 
video services immediately.  Telmex, ironically believes that 
Nextel's concession doesn't allow it to provide mobile phone 
services.  Piedras says Mexico's convergence policy does not 
encompass all services, what he refers to as "quadruple" play 
because it doesn't include mobile phone services. 
 
¶9.  (SBU) Piedras believes COFETEL and the SCT have to focus 
on constructing regulations to prepare for these changes.  He 
believes that COFETEL, SCT, and industry have spent too much 
time stuck on past regulatory decisions.  Since some Mexican 
officials believe Voice over Internet Protocol (VoIP) 
businesses are free-riders, they have avoided dealing with 
them and the technology they market.  In addition, previous 
commissions have not made the decision to use electrical wire 
for telecom services even though the Federal Electricity 
Commission is ready to install it. 
 
---------------------- 
WHAT NEEDS TO BE DONE? 
---------------------- 
 
¶10.  (SBU) While noting that Mexico prefers an independent 
approach, Piedras believes foreign companies need to pressure 
the government for change.  By sharing best practices, 
foreign industry and governments can also show the GOM what 
they can do to help Mexico stay competitive.  In addition, 
Piedras hopes that regional frameworks such as the Security 
and Prosperity Partnership (SPP) can help to strengthen and 
standardize Mexican regulations.  Piedras promotes using 
 
MEXICO 00003905  003 OF 003 
 
 
conferences to educate the public, but warns that sponsorship 
must be from a credible source.  Although Piedras believes 
the work of IMCO, the Mexican Competitiveness Institute, is 
good because it provides basic, easy-to-understand 
statistical analysis, he cautions that the Institute thrives 
on resources from the private sector and special interests 
and that their results could be skewed.  Piedras stressed 
that Mexico cannot move forward without somehow including the 
voice of the consumer.  "If they participate more, they can 
demand more competition and cheaper prices", he said. 
 
------- 
COMMENT 
------- 
 
¶11.  (SBU) Piedras is one of Mexico's most well-respected 
experts on telecommunications and technology.  Econoff was 
surprised that he was so active in supporting passage of the 
Radio and Television Law.  His support placed him against 
other experts like Javier Lozano, former Undersecretary of 
Communications, former COFETEL President and potentially the 
next Secretary of Communications and Transport in a Calderon 
Government.  Lozano has claimed that the new law would 
violate the Constitution and merely increase the powers of 
established monopolies.  As is widely known, the question of 
monopoly influence in Mexican telecommunications remains 
central to liberalization in this sector, including key 
issues such as how will spectrum freed up under 
digitalization will be recognized and utilized. 
 
¶12.  (SBU) Piedras is correct when he says industry groups 
(including the monopolies) must unite to work on common 
objectives.  Without industry pressure, COFETEL will be slow 
to move on any new measures.  That said, initial 
conversations with the COFETEL President's office and press 
reports indicate the Commission has a steep learning curve 
and will likely proceed quite cautiously.  For the moment, we 
continue to expect few changes in the near-term and little 
movement towards implementing new generation technologies. 
 
 
 
 
 
 
 
 
 
 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
 
GARZA