EconomyFinancialThe race has already begun: How Carlos Slim's company...

The race has already begun: How Carlos Slim's company plans to bring 5G to Mexico

On February 22, Carlos Slim Domit, president of the board of directors of América Móvil, announced an investment of 1.8 billion dollars in infrastructure. The figure was for the long-awaited launch of its 5G service, which will initially reach 20 cities with a combined 46 million inhabitants. Added to the announcement of the launch of the AT&T network, last December, the race for the development of 5G finally became a reality in Mexico.

This technology is one of the great bets of the Slim family company. In it, he sees the possibility of increasing his sales through the improvement of his Average Revenue per User (ARPU) in the postpaid modality, that is, the expense generated by the consumer for mobile telephony services, which in the first quarter of the year it was 162 pesos and at the end of 2021 it was 163. Telcel is already the company with the best ARPU in the sector, followed by AT&T, with 141 pesos. In the case of Virtual Mobile Operators it is 80 pesos and that of Telefónica, 62 pesos.

In addition, at the end of last year, the company, which according to data from the Federal Institute of Telecommunications (IFT) concentrates 63.3% of the mobile market in the country, registered 80.5 million subscribers, which in the first quarter of this year increased to 81.

“Our 5G network will be a competitive advantage in our customer attraction and retention strategy and will allow us to offer new products and solutions to our corporate customers,” the company said in its first quarter financial report.

Daniel Hajj, CEO of the company, explained that part of the strategy in Mexico is to design 5G postpaid plans that give more data for higher spending, ranging from 599 to 1,499 pesos. “These plans focus on providing more 5G data by paying a little more, but it will be a little different in each country, depending on the competition,” he explained in a conference with analysts.

The challenge of the new infrastructure

For the sector specialists consulted, the announcement of the deployment of 5G by América Móvil is positive for the country, since it will require greater investment and the possibility of promoting industry 4.0. Of course, they consider that the company will face several challenges for its development. One of them is to get users to migrate to the fifth generation of networks.

Adopting a new technology is a complex process because, initially, the practicality it can have on a day-to-day basis is not seen. This also happened with the transition from 3G to 4G.

Elena Estavillo, former commissioner of the IFT, assures that little knowledge about the specific applications that may be attractive to industry and governments may initially detract from 5G. And to this is added the lack of a broad and collaborative strategy to guide efforts to close the gaps in connectivity and technological skills. “The challenges are several, such as the demand for this technology and the little access for different groups of the population. “, He says.

But in addition to this factor, América Móvil faces another: the economic crisis. The company is committed to paying and moving users to the new technology through postpaid plans, whose segment has decreased since the arrival of the pandemic in 2020 and due to the inflation that currently squeezes users’ pockets. According to the company’s financial data, at the end of 2019 it reported 14.3 million users in this modality, while in 2021 there were 14.5. And in the first quarter of this year, the company acknowledged that 34,000 postpaid lines were disconnected.

“[Inflation] is a factor that goes against it. 5G is a technology that is more expensive in its equipment and requires greater investment efforts. Inflation is causing the equipment to not become cheaper and that does not make it easy for people to acquire them, alternatives have to be sought,” says Luis Fernando Borjón, former IFT commissioner.

To access 5G, users not only need a postpaid plan, but also a phone that is suitable for this technology. And although the prices of smartphones for 5G will gradually lower their costs, the semiconductor crisis continues to put pressure on the rates of these devices because there is still not enough supply of chips to manufacture them and this is delaying their entry into the country. . Telcel currently has equipment from manufacturers such as Samsung, Huawei, Honor, Nokia, Xiaomi or Oppo, among others, for its prepaid plans.

Jesús Romo, director of the Telconomia consultancy, points out that in the face of inflation, consumers have begun to moderate their spending, favoring essential products, so changing cell phones or acquiring one for 5G will be complicated for now. In addition, the pandemic changed consumption habits: now, users take more than two years to change their phone.

“The pandemic showed us something very important about spending, because as soon as the economic impact began in the second quarter of 2020, there was a decrease in postpaid lines and a serious decrease in smartphone sales.

With the economic perspective, it is very likely that users prefer to keep the equipment they already have or adapt their plan, but not go to a prepaid 5G, but try to maintain a rate that they already have integrated into their spending, “says Romo .

Given this context, both analysts assure that, for now, 5G will not be able to give the company controlled by Carlos Slim more mobile market, but it will be able to maintain it.

América Móvil with an advantage?

For América Móvil to reach 5G, it had to weave its network for 10 years, since 4G started. Daniel Hajj assured that in recent years the company has dedicated itself to expanding its transmission network, renewing its system and automating the operation of its networks, transferring its applications to the cloud. In addition, it has more than 20,000 radio bases, of which 95% already have fiber optics, necessary for communication to travel faster.

It also has the 3.5 GHz spectrum band, which it can exploit to provide 5G services due to the authorization it received from the IFT in February of this year. This, unlike AT&T, which has that band, but not the authorization of the regulatory body to use it to offer fifth generation networks.

And despite the fact that it has the largest infrastructure in the country, the analysts consulted consider that this does not represent a problem in terms of market concentration, since the network it has deployed can be used by AT&T, since América Móvil is obliged to share its infrastructure as part of the asymmetric measures imposed on it for being a preponderant economic agent (AEP).

“I don’t think it has an advantage in itself just because it has more infrastructure, if it starts to use 5G technology, it doesn’t restrict the technology for others. On the contrary, it favors them because it can be used by other operators”, says Luis Fernando Borjón.

Analysts assure that although América Móvil has the largest infrastructure, it will not exempt it from facing the challenge of spectrum cost, since it will require more bands to continue building its 5G network in a more mature manner.

Telecommunications operators in Mexico, such as Telcel and AT&T, pay up to 89% more than the total cost of the bands and the right to the radioelectric spectrum, while other countries, such as Germany, Italy, Greece, the Netherlands and other Europeans, only pay the 5% of the total cost to access the bands, according to The CIU.

The consultant points out that in Mexico, telecommunications companies allocate between 22 and 30% of their annual income for the use and right of the spectrum, an input that is the backbone for them to provide connectivity services and increase their presence in the country. . Last year, América Móvil allocated 8,606 million pesos for this concept.

This year, the IFT plans to launch the auction of spectrum bands that are suitable for 5G, such as 600 MHz, L band and 3.5 MHz; however, there is a risk that the call will be deserted, like last year’s IFT-10 due to the high cost they represent.

“The spectrum will be a barrier for América Móvil and the other operators and even more so if the government does not undertake public policies to make it more accessible. In other countries alternatives are being sought, but here it is still seen for collection purposes. The purchase of bands represents an important part of the cost of the operation for the companies,” says Borjón.

During the launch of Telcel’s 5G, Daniel Hajj commented that América Móvil was still analyzing whether it would compete in the IFT tender for the purchase of 5G bands.

Pay TV, Slim’s dream

Carlos Slim’s company has managed to start its path through 5G, but there is another sector that still resists it. Telmex, a subsidiary of América Móvil, has sought for more than 10 years to enter the pay television market, whose segment is led by Grupo Televisa, with a 63.9% share.

Last year, the company reissued an application to the telecommunications regulatory body to obtain permission to offer cable television, because its concession as a telecommunications operator prevents it from accessing this area. However, the IFT denied him entry.

But next year could be different. In 2023, the regulator will have to deliver to Telmex its new concession title together with the new operating conditions and that barrier to entry could be eliminated.

Estavillo points out that the IFT is considering the possibility of eliminating the restriction, but will have to weigh possible consequences in a broad competitive environment. “We still have to keep pushing for a level floor, healthy competition and free competition, because these conditions are still very precarious,” he says.

The delivery of the new concession title will be a relevant moment for the IFT, which will have to review whether the service restriction can be removed, because in the fixed sector this company has already lowered its market share. According to data from the regulatory body, Telmex has managed to reduce its participation in this segment in the last five years, since it went from 60.3% in 2017 to 46.2% in June 2021, although in the mobile market it still holds 63.3%.

“The IFT has already begun to take steps in this review in some markets and it depends on how they are going to see it, if they are going to make a division of the fixed and mobile market,” explains the former commissioner of the regulatory body of the telecommunications sector. “It is something that will be very interesting to see how the regulator will solve it and how it could improve having more fiber optic networks. In the end, you have to see the user, the fact that there may be more investments towards fiber optics will result in a better service for users”.

In this segment, pay television operators are the ones that invest the most in fiber optics to support their internet services, so the entry of a new competitor could help improve this market.

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