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

From: [email-masked]
Date: Mon, 12 Apr 2004 20:24:54 -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the country’s nine regions has been replaced by a competitive national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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