Background: On 11 March 2013 at the Federal Electricity Commission Tech Museum, President Enrique Peña Nieto presented a telecommunications initiative to reform Article 71 of the Constitution, devised by the Pact for Mexico (a political party alliance including the PRI, PRD, and PAN). The reform will drastically change the telecommunication landscape by opening it up to new competition, affecting entrenched telecom monopolies.

The reform will create two new national television networks and require satellite and cable TV companies to retransmit broadcast television signals. Regarding telephones, it requires reformulation of cell and landline costs, and opens the sector up to foreign investment. Foreign businesses will be permitted to own up to 49 percent (up from zero percent) of radio firms, and can increase their stake to 100 percent (up from 49 percent) in other telecommunications operations. Finally, it includes the establishment of the Federal Telecommunications Institute (IFT) with the authority to break up monopolies of 50 percent of the domestic market, revoke broadcast licenses, and implement new regulations favoring small telecommunications business.

While the industry is worth US$30 billion, the Organization for Economic Cooperation and Development estimates US$129 billion was lost in overcharges and missed opportunities between 2005 and 2009, setting back Mexican economic growth by nearly 2 percent yearly. However, since the announcement, América Móvil shares fell more than eight percent, reaching lows that have not been recorded since 2009. Televisa shares were also affected, dropping 2.44 percent. Drops in both companies’ shares affected the Bolsa Mexicana de Valores, causing it to fall at least 1.33 percent. Yet, Standard & Poor indicated the perception of Mexico’s economy could increase by 33 percent in the upcoming months as a result, a change that would give Mexico greater access to credit at lower interest rates.

Even though the initiative took four months to negotiate amongst the Pact for Mexico, the President of the Chamber of Deputies Francisco Arroyo Vieyra believes the first round of voting will happen before Easter vacation on 28 March 2013 and it approved by the end of April 2013. Legislators want to push through the legislation quickly before the influential telecom tycoons water down reforms. On 13 March 2013, more than 300 deputies signed to support the bill when it was presented in the Commission on Constitutional Points, in the Chamber of Deputies. Both Chambers of Congress and more than 50 percent of state legislatures must approve the bill to amend the Constitution.

Commentary: Telecom reform is just another angle of Peña Nieto’s push to improve Mexico’s image through economic growth. For years the sector has been dominated by inefficient and costly monopolies, limiting cell phone penetration, which is rapidly expanding in the rest of Latin America. Breaking up monopolies and creating greater competition reduce costs for individuals and increase exposure to varied (political) viewpoints. During the last election, the dominant television monopoly Televisa broadcast coverage that heavily favored Peña Nieto.

Amending the Constitution in this instance provides more opportunities for foreign companies to enter the market. Spanish company Teléfonica stands to benefit the most from entering the market, and will likely seek to control 20 percent of the market share. However, Carlos Slim does not have to worry about losing his billions; these reforms could shift monopolies to other market segments. President of the Federal Commission on Competition (CFC) argued the amendments could allow América Móvil to enter the television market, which it was previously barred from entering. Access to new markets explains the celebratory response to proposed reforms by América Móvil and other monopolies.