TowerXchange's analysis of the telco and towerco market in Mexico

Mexico is a country with a rapidly growing telecommunications market, driven by a growing population and increasing demand for mobile services. This has led to a highly competitive environment among mobile operators and telecommunications infrastructure companies, as they compete to provide the best services to customers.

Mexico's telecommunications market is dominated by three main mobile network operators: Telcel (owned by América Móvil), Movistar (owned by Telefónica) and AT&T Mexico (owned by a US telecom giant AT&T). In addition, Red Compartida, operates in the country as a shared network available for MVNOs using the 700 MHz LTE spectrum.

These three major mobile operators have invested heavily in building out their networks and infrastructure in Mexico, with a focus on expanding coverage and improving network quality. Telcel, for example, has invested over US$20 billion in network expansion and modernisation in Mexico over the past decade. This has resulted in a significant increase in network coverage and capacity, making it possible for more and more Mexicans to access mobile services.

In addition to the major mobile operators, there are also a number of smaller virtual operators active in Mexico. These companies have typically focused on niche markets, such as providing services to rural and remote areas, or targeting specific segments of the market, such as businesses or consumers.

América Móvil, the company owned by Carlos Slim, formerly the world's richest person, has long held a monopoly in the telecommunications market in Mexico. Telcel, the brand under which a subsidiary of América Móvil operates in the country, is the largest mobile operator in Mexico, with over 81 million subscribers. América Móvil, the parent company of Telcel, is the largest telecommunications company in Mexico and Latin America, with a market share of over 70% in the mobile market. AT&T Mexico is the third-largest mobile operator in Mexico, with over 20 million subscribers.

By 2014, América Móvil controlled about 80% of Mexico's landline market and 70% of the wireless market. Market domination resulted in lesser incentive for the company to improve service quality, cut costs and provide more affordable pricing offering to their clients. Questions have been raised regarding potential anti-competitive practices by competitors. As a result, on July 9, 2014 the Mexican Government passed wide-ranging telecommunications reforms, designed to make it easier for customers to switch phone companies. Under the new laws, the Mexican telecommunications regulator was required to establish a wholesale-only wireless network. In response, América Móvil has reduced its market share substantially, selling off assets worth up to US$7 billion.

The formation of Red Compartida came as the result of the Mexican Government's 2014-2016 attempt to overhaul the country’s telecommunications industry by introducing competition into the marketplace. In late 2016, the Mexican ministry of transport and communications - Secretariat of Infrastructure, Communications and Transportation (SICT) - announced that ALTÁN Redes, a private Mexican company, has won the tender process to launch the first fully wholesale mobile network deployed anywhere in the world.

The Red Compartida network is “wholesale only”. This means that the company which builds and operates the network isn't involved in providing mobile service to consumers. Instead, the operator provides access to the network to mobile operators, who in turn use the network capacity to provide a consumer mobile product. Access to the network for these operators is sold to the highest bidder at regular auctions.

The company began operations in 2018, and by early 2023, nearly 115 MVNOs are offering connectivity via its 700MHz network, offering mobile and fixed wireless coverage to 70% of the population of Mexico. The company’s coverage milestones approved by the regulator are 85% by January 2027 and 92.2% by January 2028.

But already in 2021, the owner of the new Mexican open access mobile operator, ALTAN Redes, filed for bankruptcy after running into financial difficulties. Bailed out by the Mexican government, it will now operate as a public-private partnership, with the Mexican state as the majority stakeholder.

In 2023, ALTAN Redes will be completing the restructuring process according to the plan approved by the Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones, IFT, and will continue with the deployment of the network’s national coverage, in order to fulfil its original purpose to promote competitiveness in the sector.

In January 2023, Mexico’s Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones, IFT) launched a multi-band 5G spectrum auction. Following the examples of the earlier 5G auctions in Brazil and Chile, the authorities aim to include the provision of services in neglected or underserved areas into the terms for spectrum acquisition.

In 2022, a total of 7,750MHz in the millimetre wave (mmWave) range has been identified as suitable for 5G use from 2023. In the open consultation, the regulator is keen to gauge feedback regarding the potential inclusion of unused spectrum in a number of other bands. This includes the PCS/2.5GHz spectrum that was returned by Movistar in 2020, when it signed the last mile wireless capacity access agreement with AT&T Mexico. The deal allowed Movistar to gain access to capacity on AT&T’s nationwide 3G and 4G networks, as well as any future access network technologies. The deal allowed Movistar to return its entire holding of 1900MHz and 2500MHz spectrum in 2020, generating US$104 million and terminating the coverage obligations attached to the 2500MHz band.

In mid-2022, Movistar (Telefonica Mexico) announced that it had finally completed the migration of its 3G and 4G data traffic onto the AT&T Mexico network - almost two-and-a-half years after signing an infrastructure-sharing agreement with the US-owned operator. 58,000 of Movistar’s network elements, such as antennas, towers and batteries, have been decommissioned following the completion of traffic migration to AT&T. Of that 13%, was transferred to other subsidiaries of Telefonica’s HispAm division, and 36% was sold on the market. The remaining equipment was recycled.

By utilising AT&T’s network, Movistar is now able to reach 83% of the population with 4G in 230 locations, up from 53% of the population and 38 locations in November 2019, when the agreement with AT&T was reached. However, Movistar insists that it has not become an MVNO, and continues to manage its own traffic, IT systems and customer service.

In 2022, citing the high price of the frequencies, AT&T has too returned blocks of spectrum in 10MHz of AWS spectrum and 3MHz in the 850MHz band covering various regions. AT&T’s actions should be of concern to the IFT, ahead of its planned 5G spectrum auction in 2023. Mexico has some of the highest spectrum prices in Latin America. Successful bidders pay an upfront fee as well as an annual frequency usage fee for the duration of the concession. With licences generally valid for around 20 years, the prices of the licences are far higher than the equivalent concessions in other markets.

In late 2022, Mexico’s Communications and Transportation Commission of the Chamber of Deputies, announced a push to reduce the price of spectrum rights in Mexico, which is believed to have been hampering the deployment of 5G in the country. The cost of spectrum use in Mexico is estimated to be up to 186% higher than the international average. The delayed 5G spectrum tender had cost the government around MXN4.5 billion (US$224.9 million) in 2022 alone.

The prohibitive costs of the concessions have also slowed down the deployment of technologies needed to provide faster connectivity to the population, needed in order to boost local and national business and other transitions, and to offer easier ways of communication and education for remote areas of the country. In such context, many industry players in Mexico doubt whether the long-awaited 5G spectrum auction will see the light in 2023 as has been yet again promised by the authorities.

The lack of competition among Mexico's telcos has been causing a certain degree of stagnation in the telecom tower sector for years. The main factors for this are Telcel's dominant position and the effective reduction of the number of the major clients from three to two with Movistar migrating its traffic to AT&T’s network. This means that the potential of the independent tower company business model has not been fully utilised in the country.

The biggest announcement in the country in 2022 has been the formation of América Móvil 's tower carve out Sites Latinoamerica. The newly created company was listed on the Mexican Stock Exchange on 27 September. The company currently offers multi-operator services in Argentina, Brazil, Chile, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Puerto Rico and Uruguay. The towerco has an initial inventory of 29,090 towers on an aggregate basis, 39% of which are in Brazil.

Notably, Sites currently does not operate in Mexico, where Telesites, an earlier América Móvil carve-out in 2015, still operates independently. In March 2022, Telesites completed its merger into Operadora de Sites Mexicanos (Opsimex). Opsimex now operates 20,302 towers in Mexico and Costa Rica and is the largest tower company in Mexico.

The potential merger of Opsimex and Sites may seem logical and beneficial, however, whether this deal will go ahead depends on the demands of the Mexican antitrust laws. Given the experience in the telco market, with the government effectively establishing a state-owned competitor, Opsimex shareholders may decide not to attempt the merger. In 2022, Opsimex achieved an enormous growth in revenue, citing the growth in sales, and the acquisition of 3,88 telecommunication towers. The company clearly benefits from its role as a market leader among independent tower operators in Mexico, which results in the ability to run inflation-linked price escalators and pass costs onto its wireless customers, maintaining above-average profitability.

The limited commercial potential currently offered by the Mexica's telecom market to independent tower companies, saw DigitalBridge and Macquarie Mexico Infrastructure Fund explore the sale of its portfolio company, a towerco Mexico Telecom Partners (MTP) in 2021 for the estimated sum of US$1bn. MTP, founded in 2014, currently has a portfolio of around 3,000 mobile towers in its ownership – up from just 550 at launch – making it one of the largest privately owned of independent wireless infrastructure companies in Mexico.

Although the company has been rumoured to attract unsolicited bidders previously, the sale didn't go ahead, at the time of publication in early 2023, MTP is keeping its position on the market, while exploring alternative sources of revenue that might work in such a challenging environment – dabbing in the data centre space and looking to non-telco companies as potential future clients. Time will tell whether these efforts are successful to keep the company afloat while the country’s telco structure changes and more funds become available for BTS and other staple towerco projects.

As of Q3 2022, American Tower owns 9,627 telecom towers in Mexico, along with a separate fibre portfolio. Outside Mexico, American Tower’s fibre business in Latin America is also active in Brazil, Argentina and Colombia. The company seemed to have been slowly growing its tower portfolio in the country over the last year, seeking to have better locations, and having greater efficiency in operations to create value.

Phoenix Tower International (PTI) currently holds a portfolio of around 700 towers in Mexico. The biggest single acquisition for Phoenix Tower here took place back in early 2019, when the towerco bought a portfolio of 500 wireless communication tower sites across Latin America from a US-based Uniti Group. The number included sites in Mexico, along with some additional ones in Colombia and Nicaragua. The Florida-based PTI went through an active acquisition drive in 2019, buying in quick succession tower portfolios from independent companies and operators in Bolivia, the Dominican Republic and Jamaica. Founded in 2013, PTI now owns and manages over 17,000 towers, along with substantial fibre assets in the US (including Puerto Rico and the US Virgin Islands), Chile, Costa Rica, Panama, El Salvador, Guatemala, Colombia, Peru, Mexico, the Dominican Republic, the French West Indies, Jamaica, Argentina, Ecuador and Bolivia.

In addition to these tower companies, a few other players with smaller portfolios operate in the country, the most notable among them being Torrecom (with over 260 sites), Centennial Towers, Tower One Wireless and MX Towers.

Despite the significant investments made by mobile operators and telecommunications infrastructure companies in Mexico, there are still challenges to be addressed in the market. One major challenge is the lack of competition in certain areas, particularly in rural and remote areas. This has led to higher prices and less choice for consumers in these areas, making it difficult for them to access mobile services.

Another major challenge facing the telecommunications market in Mexico is the lack of regulatory oversight and enforcement. This has led to a lack of transparency and accountability, making it difficult for consumers to understand the services they are paying for and to hold companies accountable for their actions.

Despite these challenges, the telecommunications market in Mexico is expected to continue growing in the future, driven by increasing demand for mobile services and the continued expansion and modernisation of networks and infrastructure. As such, mobile operators and telecommunications infrastructure companies in Mexico will continue to play a vital role in driving the development and growth of the country's telecommunications market.