Connecting the Unconnected: The Effect of Mexico's Telecommunications Reform on Service Adoption and a Comparison with Other Latin American Countries

Abstract

This paper examines the effect that Mexico’s Telecommunications Reform (2013-2016) has had on the adoption of the main telecommunications services, namely land line, mobile and broadband Internet services. The implementation of the Reform began in 2013 with the aim of fostering competition and thereby bridging the market efficiency gap. It also proposed a significant shift in policy on digital inclusion by launching a scheme to provide a universal broadband service. This service would be based on newly developed infrastructure and a wholesale shared network, operated through a public-private partnership, in order to bridge the access gap (2013-2018).

In a previous paper presented at TPRC44, we described some of the effects that the Reform had on market concentration and on the observed variation in the prices of telecommunication services. In addition, we analyzed the impact of these price changes on income distribution and consumer welfare.

The present study intends to add analytical value to the econometric models adopted in our previous work. These new models include additional variables relating to economic and institutional environments and educational achievement, allowing for a more robust assessment of the Reform’s impact on both the end consumer and the economy as a whole.

Specifically, this new analysis seeks to answer three main questions.

Firstly, it aims to find out what effect the Reform has had on the adoption of telecommunications services. This analysis also includes a set of control variables related to the economy and institutional environment and the level of education attained by the population (2006-2016).

Secondly, it aims to identify the potential effects on levels of inflation in the economy brought about by the Reform and subsequent decreases in the prices of the main telecommunication services. Increased competition in the telecommunications markets is conducive to a reduction in prices for these services, even when the growth of the economy and exchange rate variations (Mexican pesos to US dollars) over the same period are taken into account.

The third question is an international comparison. We seek to determine how improvements in teledensity in Mexico compare to other Latin American countries with similar economic and institutional conditions which have not undergone a telecommunications reform as in the case of Mexico.

Hypothesis and Models

In relation to the questions raised above, we propose the following three hypotheses:

H1: The Reform has had a positive and significant effect on the adoption of land line, mobile and broadband Internet services. In order to test this hypothesis we propose the following model:

St = β1 β2Reft β3Edu1t β4 Edu2t β5 Gdpt β6It β7Ginit β8Instit ε

Where:

St = Number of subscriptions per 100 inhabitants.

Reft = Presence or absence of the Telecommunications Reform (dummy variable).

Edu1t = High School Enrollment Gdpt = Gross National Product (GNP) at constant market prices.

It = Investment in the telecommunications sector at constant market prices.

Ginit = Gini coefficient (as a measure of income distribution).

Instit = The quality of democratic institutions and rule of law index.

H2: The Reform has had a significant downward effect on telecommunications service prices, and this effect is significantly greater than the effect of price trends (inflation) in the economy as a whole.

INPt = β1 β2Reft β3Gdpt β4Ert ε

Where:

INPt = Variation in prices for telecommunications services.

INPt1 =Variation in land line services.

INPt2 = Variation in mobile services.

INPt3 = Variation in broadband services.

Reft = Presence or absence of the Telecommunications Reform, 2013-2016 (dummy variable).

Gdpt = Gross National Product (GNP) at constant market prices.

Ert = Exchange rate variation (Mexican pesos to US dollars).

H3: The Telecommunications Reform in Mexico can be seen to have had a positive and significant effect on the adoption of the main telecommunications services (land line, mobile and broadband Internet services) when teledensity in Mexico is compared to that of services in other Latin American countries.

Specifically, a comparison is made with Latin American countries having similar economies to Mexico but which have not undergone a telecommunications reform (Argentina, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru and Uruguay).

St = β1 β2Reft β3Edu1t β4 Edu2t β5 Gdpt β6It β7Ginit β8Instit ε

Where:

St = Number of subscriptions per 100 inhabitants.

St1 = Teledensity of land line subscriptions.

St2 = Teledensity of mobile subscriptions.

St3 = Teledensity of broadband subscriptions.

Reft = Presence or absence of the Telecommunications Reform, 2013-2016 (dummy variable).

Edu1t = High school enrollment

Edu2t = Higher education enrollment

Gdpt = Gross National Product (GNP) at constant market prices.

It = Private Investment in telecommunications services at constant market prices.

Ginit = Gini coefficient (as a measure of income distribution).

Instit = The quality of democratic institutions and rule of law index. Gdpt = Gross National Product (GNP) at constant market prices.

Ert = Exchange rate variation (Mexican pesos to US dollars).

This evaluation of the impact of Mexico’s Telecommunication Reform provides a means to assess the effect that regulatory changes have had on social welfare and the potential recovery of Mexico’s economic growth.

Keywords: Antitrust, Regulation, Competition, Institutions

JEL Classification: CO1, D4, L44