Subject: [NEXTEL-1] Mexico’s New Spectrum Auction

From: [email-masked]
Date: Mon, 12 Apr 2004 19:55:54 -0400

Mexico’s New Spectrum Auction
By Jose F. Otero, InfoAmericas Information

Technology & Telecom Practice Director Mobile telephony was introduced
in Mexico
in 1989 when Iusacell arrived on the scene. Like so many other emerging
markets,
mobile demand outpaced supply for fixed telephony, driving massive
investment and
a changing line-up of operators. Over 15 years, Mexico’s mobile industry
has
matured, absorbing new technologies, and new payment plans as it
broadened its
customer base. Falling ARPUs have led to consolidation of the sector,
and steady
increases in network capacity utilization. The original configuration of
a duopoly in
each of the country’s nine regions has been replaced by a competitive
national
multi-operator environment. Three cellular/PCS operators offer national
coverage:
Telcel, Telefonica Moviles (TMM) and Unefon. But lack of spectrum has
limited the
scope of other operators. Iusacell lacks spectrum in two regions. And
Nextel’s radio
trunking operations have been limited to regions were it has obtained
spectrum by
acquiring analog operators, or where it has migrated subscribers to an
iDEN network
deployed to substitute for the inherited trunking network.
..............................

.. Bandwidth Bottlenecks InfoAmericas believes that the sector has
suffered from the
inability of the telecom regulator Cofetel to effectively auction mobile
spectrum.
Additional spectrum is needed both to remove obstacles that some
operators face in
competing in specific parts of the country and to allow operators to
grow without
undermining quality of service. The lack of adequate spectrum has also
hampered the
country’s ability to attract new foreign operators that are looking at
the Mexican
market but aren’t interested in purchasing an established operator as
TMM did. These
prospective investors include AT&T Wireless and Telecom Italia Mobile
(TIM).
Unlike other countries in the region, notably Brazil, Mexico did not
establish a
calendar for auctioning PCS licenses for every region of the country. As
a result,
regions 3 and 5 still had no new spectrum following the last auction in
May 1998.
Recent events suggest that at least two operators — Nextel and Telcel —
are still
interested in purchasing additional licenses. Nextel needs to expand to
other regional
markets, while Telcel needs more capacity to continue migration to
GSM/GPRS at
1900 MHz. With 23.7 million subscribers at the end of 2003, Telcel is
running out of
capacity in densely-populated areas where penetration tends to be
higher, such as
the Federal District (Region 9). Telcel, with 35MHz already has more
spectrum in
Region 9 than its competitors, since the Grupo Salinas companies
continue to
operate as separate entities. Experience from InfoAmericas telecom
engagements in
Mexico indicates that existing players will be most interested in a new
round of
auctions for regional mobile spectrum. Foreign operators are mainly
interested in
nationwide licenses, although as seen in Brazil’s C-band auction, a
national offer
doesn’t necessarily guarantee the arrival of a suitor. The impact of a
new auction
process on each one of the operators in the sector is briefly reviewed
in the following
sections. .............................

............. Telcel The consequences of the delays in auctioning
spectrum became clear
when Telcel announced that it had decided to pay US $268 million to rent
8.4MHz of
capacity from Unefon to continue deploying its GSM/GPRS network
nationally. This
action was apparently forced on Telcel since it means extra income for
one of its
competitors, which has now been able to stabilize its finances.
Nonetheless, this
expansion of capacity will allow Telcel to accelerate the launch of EDGE
high-speed
mobile data services which will increase revenues per subscriber. The
EDGE
maximum demonstrated on commercial networks is 200 Kbps but the average
speed
is 100-130 Kbps. EDGE services will also allow Telcel to offer
high-speed internet
connections to users of its fixed wireless services. An increase in the
use of data
services by Telcel subscribers would oblige the operator to purchase
more spectrum
at the 1900 MHz frequency so it will certainly be a player in any new
auction. Still,
Telcel has not announced when it will expand its deployment of GSM/GPRS
to the
spectrum it already holds at 850MHz. InfoAmericas analysis indicates
that this
expansion may not be possible in the short term because of the large
number of
subscribers that use TDMA and AMPS handsets and the high cost of
migrating them
to GSM/GPRS handsets. .............................

................ Unefon and Iusacell The inflow of US $268 million from
Telcel for spectrum
rental has allowed Unefon to stabilize its financial situation and
redirect its efforts
towards expanding coverage, launching CDMA2000 1x and starting tests of
CDMA2000 EV-DO. Unefon would not likely be interested in acquiring
additional
PCS 1900 MHz spectrum. But the deployment of CDMA2000 combined with
expanded coverage would increase competitive pressure on Telcel and TMM.
The
data transfer speeds demonstrated by Telcel’s technologies are faster
than those of
either GSM/GPRS or EDGE. Moreover, InfoAmericas expects Unefon to
continue its
positioning as a "cheap operator" at price points below those currently
offered by the
market....... As sister companies within Grupo Salinas, Iusacell and
Unefon will
probably reach an agreement to share networks similar to the partnership
between
Cingular and AT&T Wireless in the US – provided that disputes with
Iusacell
creditors are resolved. This implies that the coverage of both operators
would be
similar, reducing infrastructure investment requirements and providing
Iusacell with
national coverage. In this scenario, Iusacell would not take part in the
spectrum
auction, since resources would be allocated to network improvements and
rationalization, not network expansion. Once these two operators start
sharing
networks, perhaps in a lead-up to a merger, the synergies with other
Grupo Salinas
companies would be harnessed to create more attractive service packages
as well as
specialized and exclusive solutions. ............................

....................... Telefonica Moviles Delays in auctioning spectrum
have had the most
impact on TMM. Instead of entering the market as a new operator, it
followed a
strategy of buying established operators. In the process, TMM acquired
both
spectrum licenses and an established customer base. But it also
inherited a number
of logistical complications such as backhaul services for each radio
base station, and
other arrangements that required significant new investment. The
decision to migrate
to GSM/GPRS as well as a low handset replacement rate suggests that TMM
would
have preferred to purchase new spectrum rather than juggling three
networks:
cdmaOne in 850 MHz, cdmaOne in 1900 MHz and GSM/GPRS. The high
concentration of spectrum will probably limit this operator's
participation in a new
auction to additional PCS spectrum in areas where it only owns 10MHz:
regions 5, 7
and 9. TMM will also continue its aggressive strategy of increasing
market
penetration with the launch of EDGE services in the next 12 months
depending on the
availability of these types of terminals at low
cost....................................

. Nextel Nextel Mexico is the most pressed to purchase spectrum in the
new round of
auctions, because it needs more capacity at the 800MHz frequency to
expand its
services to new markets. This need is magnified by the possibility that
mobile
operators will launch push-to-talk (PTT) services. Unefon has already
announced its
intention to offer this service. InfoAmericas believes that the launch
of PTT by mobile
operators will not have a significant impact on Nextel's existing
customer base, in
particular its large corporate customers. However, PTT does pose a
threat in those
areas where Nextel does not offer services, because if it entered as the
second PTT
operator it would not have the same "captive" client base for PTT
services as an
incumbent operator. This is especially true for SMEs which are
considered the most
attractive market with most potential for PTT services. Nextel will
likely focus on
securing 800 MHz spectrum, but this does not rule out an incursion into
the PCS
spectrum considering the lack of a clear migration path to higher data
transmission
speeds for iDEN operators. ............................

..... Both mobile operators already in the Mexican market and those
sitting on the
sidelines looking in have demonstrated varying levels of interest in the
release of new
mobile spectrum licenses. The Mexican government presides over a
significant
opportunity to raise needed capital and expand foreign direct
investment. It remains
to be seen if, when and how it will act.

http://mx.invertia.com/foros/allthread.asp?thread=17736
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