This study was carried out by the OECD Directorate for Science, Technology and Industry (DSTI) under the auspices of the Committee for Information, Computer and Communications Policy (ICCP Committee). It was requested by the Government of Mexico, at the behest of the Federal Telecommunications Commission (Comisión Federal de Telecomunicaciones, COFETEL), through the Mexican Ministry of Transport and Communications (Secretaría de Comunicaciones y Transportes, SCT), both being in charge of representing Mexico at the ICCP Committee.

OECD countries have recognised the increasing role played by the telecommunications sector as a means of improving productivity and economic growth while enabling governments to improve provision of public services. Mexico, with the lowest GDP per capita in the OECD, a high inequality of income distribution, and a relatively high rural population, needs the socio-economic boost provided by greater access to more efficient communication services, in particular high speed broadband. The welfare loss attributed to the dysfunctional Mexican telecommunication sector is estimated at USD 129.2 billion (2005-2009) or 1.8% GDP per annum.

Chapter 1 describes the chief elements of a largely inefficient telecommunications industry, which features among the highest consumer prices in the OECD, little competition, and low market penetration rates at a significant cost to the economy and welfare of the Mexican population. The chapter clearly attributes this outcome to the failure of an effective policy and regulatory framework, and the behaviour of an incumbent operator with significant market power.

Chapter 2 examines the design of regulatory structures, and the results of policy development and reform, in a relatively newly liberalised market. It reviews the interplay of a highly complex set of policy decision variables, including the impact of converging technologies, anti-competitive behaviour, consumer protection, pricing/quality issues, and next generation access.

This final chapter concludes that the unsatisfactory performance of the telecommunications industry in Mexico is the result of the relentless behaviour of an incumbent fixed and mobile provider with significant market power and a dysfunctional legal system that promotes an inefficient industry which is unattractive to international partnerships and therefore is damaging to the economic potential of the country. It then outlines a series of remedies, such as providing the telecommunication regulator with effective powers to create conditions of competition, greater transparency in regulatory processes and a clearer allocation of responsibilities between the Ministry responsible for the telecommunication sector and the regulator.

Econometric techniques were used to evaluate loss in consumer surplus caused by a supposedly low degree of competition in the Mexican telecommunication sector, and to estimate the prices for telecommunication services and the corresponding numbers of subscriptions to telecommunication services that would have been observed in Mexico if there had been more competition in the Mexican telecommunication sector. The estimation applied a 3SLS technique to OECD telecommunication pricing data (price baskets for the mobile and fixed telecommunication and the evolution of a representative broadband subscription over time for broadband); OECD data on the number of subscriptions (number of fixed paths, number of mobile subscriptions and number of broadband subscriptions); and OECD/World Bank data concerning various factors affecting the number of subscriptions or the costs of those subscriptions (such as population size, age distribution, level of education, degree of urbanisation and population density).