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Mexico’s landmark auction to start in February

The auction of AWS spectrum in Mexico, which is part of a major shake-up of Latin America’s second largest telecoms market, will start on February 15. This will come just after the sale of 700 MHz spectrum, which Mexico is reserving for a shared 4G network, and which it will award from January 29.

Mexico’s young and aggressive telecoms regulator Ifetel pledged this week that it would clear the 700 MHz airwaves by the middle of December, well ahead of the sale. This process will start on December 17 in six states. In some countries, mobile operators have faced a long wait between acquiring licences and being able to deploy networks, because of phased or delayed programs to move incumbent broadcaster users.

But the AWS process, which will offer a total of 80 MHz of spectrum in the coveted midrange bands for LTE (1.7-2.1 GHz), will be more indicative of the shifts in Mexico’s competitive landscape.

Ifetel has outlined the details of the auction, and given operators a deadline of December 17 to submit applications. The fascinating aspect of the auction is whether an outside player will bid, and further accelerate the process, kicked off by the new regulator in 2013, of breaking the market stranglehold of Carlos Slim’s Telmex and America Movil companies. America Movil has 70% share in the mobile market while Telefonica has 20%. Ifetel’s aim is to ensure that no player has more than 50%, and it has already forced Movil to divest some assets.

With AT&T very active in Mexico following its acquisitions of Iusacell, Nextel Mexico and DirecTV, the US firm could buy 4G spectrum to consolidate its new cross-border region of operation. And cableco Grupo Televisa recently gained permission to offer wireless services, so could embark on a quad play push in 2016 if it bids in this auction.

The regulator – set up two years ago to replace the creaking Cofetel and inject new competition into Mexican telecoms and media – has previously said that the auction would be open to existing carriers and “potential new operators wishing to deploy a wireless network in Mexico”. It is imposing caps on the amount of spectrum any one provider can own.

In total, Ifetel will offer 30 MHz of spectrum, in three 10 MHz blocks, in the AWS-1 band (1710-1725 MHz/2110-2125 MHz), plus five 10 MHz blocks of AWS-3 frequencies (1755-1780 MHz/2155-2180 MHz). These join the 60 MHz of AWS-1 spectrum awarded in 2010. The band plan aligns with that of the US, which will help AT&T in any pan-regional activities. AT&T has built out LTE in its domestic market in 700 MHz initially, but has recently started adding capacity in AWS-1.

The Mexican auction will use a combinatorial clock auction (CCA) format, a popular if complicated process for 4G auctions, but one never previously used in Latin America. This divides the frequencies into slots so that participants can bid for different packages of airwaves. Final details of the auction, including reserve prices, will be published later this month.

All this is in stark contrast to Mexico’s first AWS auction in July 2010. The much-criticized design of the auction, particularly its spectrum caps, meant there was only one bidder for the national licences – a joint venture between Grupo Televisa and Nextel Mexico, which only had to pay the minimum price of $14.1m. Caps and other conditions meant that Cofetel subsequently annulled the sale of a second nationwide licence. The process also saw America Movil’s Telcel unit amass holdings across the whole country by buying 21 regional 10 MHz blocks, while Telefonica Movistar won six 10 MHz blocks in six of the nine mobile regions.

That left the major players in control, precluded new entrants, and helps explain why, almost five years after the auction, only 35% of POPs are covered by LTE, according to GSMA Intelligence, and Mexico has about 5m LTE connections, in a population of over 122m. It is the only major Latin American country with less than 100% cellphone penetration.

Meanwhile, the 700 MHz Shared Network project will now be driven mainly by another regulator, SCT (Secretario de Comunicaciones y Transportes), since it is regarded more as a core national infrastructure project rather than a spectrum/services initiative. SCT has issued an invitation this week for interested parties to participate in the tender. The tender itself will be managed by financial advisor Bank of America Merrill Lynch and local agency Transparencia Mexicana.

The Shared Network will have exclusive use of a 90 MHz block of spectrum in the 700 MHz band, a move that was written into Mexico’s constitution in 2013. Consortia of private companies can bid for the right to build and run the network, which would then lease capacity to mobile providers. The project is valued at around $7bn over 10 years – this figure has been reduced from an initial projection of $10bn, mainly because it will involve fewer cell towers than originally expected (about 12,000 rather than 20,000).

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