VZCZCXRO4684
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0432/01 0481926
ZNR UUUUU ZZH
P 171926Z FEB 09
FM AMEMBASSY MEXICO
TO RUEAFCC/FCC WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 5140
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 000432 
 
SIPDIS 
SENSITIVE 
 
STATE FOR WHA/MEX, EEB/CIP 
STATE PASS TO USTR FOR CATHERINE HINCKLEY AND JOHN MELLE 
STATE PASS TO FCC 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EINV ETRD USTR MX
SUBJECT: TELECOMS 1377: SLOW PROGRESS IN MEXICO 
 
REF: STATE 4730 
 
¶1. (SBU) SUMMARY: Post thanks USTR for this opportunity to 
comment on telecom concerns in Mexico for the 2009 Section 
1377 Review.  Turnover in leadership at the Secretariat of 
Communications and Transportation (SCT), the uncertain 
authority and independence of the Federal Telecommunications 
Commission (Cofetel), and effective private sector court 
action continue to slow progress in the sector.  While there 
is movement on interconnection rates and regulatory 
challenges to the dominance of Telmex and Telcel, an opening 
in satellite service is unlikely and action on Nextel Mexico 
complaints is glacial.  Our comments below recap questions in 
the order posed in reftel.  END SUMMARY. 
 
Satellites and the WTO Schedule 
------------------------------- 
¶2. (SBU) While Mexico's WTO schedule of commitments does not 
restrict foreign ownership or require concessions for 
satellite services, the 1995 Federal Telecommunications Law 
(FTL, last revised in 2006) does.  The law opens up foreign 
direct investment in the sector to a 49% maximum, with mobile 
telephony exempted from the cap (article 12).  The FTL also 
imposes satellite-specific requirements for bilateral 
agreements (article 30) and for location of gateway earth 
stations on Mexican soil (article 57).  Mexico's Congress is 
currently considering legislation to expand foreign direct 
investment (FDI) in fixed telephony that could supplant 
article 12 of the FTL, except as it applies to satellites. 
The bill has fighting odds of passage, but language on 
satellite services is unlikely, given alleged ghost-writer 
Telefonica's focus on fixed lines and what Cofetel staff term 
political sensitivity to national security concerns. 
 
Termination Rates 
----------------- 
¶3. (SBU) Court action continues in line with regulator 
Cofetel's declared goal of transition to cost-based tariffs 
and concession-holders' efforts to impede implementation. 
Ernesto Flores, chief of staff to outgoing Under Secretary of 
Communications Purificacion Carpinteyro (the Under Secretary 
resigned under duress in January 2009), believes stays filed 
by industry will continue to dog progress.  Cofetel describes 
its current position as "waiting for judicial decisions." 
There are some signs of progress.  Incoming Under Secretary 
for Communications Gabriela Hernandez has called for movement 
on termination rates in her introductory media engagements. 
Cofetel introduced a long-awaited Technical Plan for 
Interconnection and Interoperability in February 2009. 
 
Telcel and Market Power 
----------------------- 
¶4. (SBU) The Federal Competition Commission (CFC) issued a 
preliminary finding in June 2008 that the four major mobile 
operators (Telcel, Movistar, Iusacell, and Unefon) all 
possessed market power over termination rates because they 
were the solitary providers capable of ending traffic to 
handsets contracted with them.  CFC's finding is a case study 
in "we're all guilty, so no one is guilty."  Once the finding 
is finalized, recourse to asymmetrical regulation of the four 
operators is an option.  Most industry players, regulators 
and watchers expect no such action.  Flores explains that SCT 
and Cofetel have limited legal depth compared to the private 
sector's legal teams and must pick their battles with care. 
 
¶5. (SBU) CFC narrowed its focus on Telcel in October 2008 
with a preliminary finding that Telcel has "substantial 
power" in Mexican mobile telephony.  CFC commissioners agreed 
this initial finding by split decision, 3 in favor and 2 
against.  The legal basis for the proceeding is chapter 5 of 
the 1992 Federal Economic Competition Law (last revised in 
2006).  CFC conducted its review of the mobile market at the 
request of Telcel competitor Movistar, the Telefonica 
subsidiary.  The inquest includes but is not limited to 
termination rates.  Telcel filed its rebuttal in December 
¶2008.  Eduardo Perez Motta, CFC president, describes the 
finding as "not a punishment" but "simply a description of 
(Telcel's) market participation."  If CFC finalizes the 
finding, to Cofetel falls the task of asymmetrical regulation. 
 
¶6. (SBU) Separately, Cofetel's Technical Plan for 
Interconnection and Interoperability provides that Cofetel 
formally identify the operator(s) with the largest number of 
fixed and mobile users.  Said operator(s) will have six 
months from notification to implement measures specified in 
the technical plan (article 11), including an annual public 
 
MEXICO 00000432  002 OF 002 
 
 
schedule of interconnection rates subject to negotiation with 
other concessionaires, installation of necessary 
interconnection capacity to service demand, disaggregation of 
bundled services for individual offer, and data-sharing with 
Cofetel.  Injunctions against the plan by operators are 
likely.  Telmex criticizes it as an expropriation of its 
assets, bad for rural users, and an invitation for other 
operators to piggyback on its infrastructure.  The day 
following publication, Telmex announced it would reduce 
infrastructure investment by 30%, citing regulatory 
uncertainty and the global downturn. 
 
Nextel Mexico 
------------- 
¶7. (SBU) Nextel Mexico's local service license application, 
six years outstanding, and its 31 digital trunking license 
renewal requests, three years outstanding, remain pending for 
political reasons.  Flores is clearly chagrined by the 
situation and says he has no explanation.  Nextel Mexico's 
vice president for government relations blames a rudderless 
SCT and claims competitors Telefonica and Iusacell are 
influencing the regulatory process to shield themselves from 
competition.  Cofetel asserts in official correspondence with 
the Embassy that Nextel Mexico withdrew its local service 
application in September 2006 -- a contention Nextel Mexico 
rejects.  Telefonica justifies its refusal of Nextel Mexico 
short message service (SMS) traffic on grounds that the 
latter company does not hold the necessary license -- which 
Telefonica would seem to be blocking.  Private sector 
vigilant enforcement of alleged violations of law not pursued 
by regulators is a common tactic in Mexico.  In January 2009, 
CFC opened an investigation into Telefonica's denial of SMS 
interconnection.  Cofetel, in receipt of at least two letters 
from Nextel Mexico on the subject, claims the company has 
nonetheless not formally presented an interconnection dispute 
for resolution under relevant definitions in the FTL. 
 
Spectrum Usage Fees 
------------------- 
¶8. (SBU) SCT foresees no changes to spectrum usage fees. 
With fees set out at the time a concession is granted, this 
would constitute a revision to the terms under which 
companies invested, according to Flores.  The Secretariat of 
Finance (Hacienda) would be the competent authority in any 
such decision. 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
BASSETT