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Monday June 21 10:22 AM ET
Mexico Becomes Major Wireless Phone
Testing Ground
By Fiona Ortiz
MEXICO CITY (Reuters) - For years the Mexican telephone industry has
trumpeted the technology of the future -- fixed wireless telephones for use
in homes and businesses for normal calls, Internet connections and data
transmission. These wireless phones look and operate just like conventional
ones, but the signals do not leave the home on a cable. Instead, a small
antenna sends voice or data over radio waves.
The technology, known in the industry as fixed wireless local loop, has
been promoted as the answer for developing countries, where traditional
phone companies have not been able to lay cable fast enough to keep up
with demand for phone lines. But wireless telephone networks have never
gotten off the ground on a large scale in urban areas here in Mexico or
anywhere else. One reason is that companies have resisted investing to set
up large networks of antennas only to be locked into charging low rates to
compete with the dominant traditional phone company. Another reason is
that governments have not promoted wireless by auctioning off the
necessary wavelengths.
MEXICO COMMITS TO WIRELESS
Now industry leaders, analysts and government officials say Mexico
will become the first country inthe world to test this type of telephone
service on a large scale, with large networks scheduled to come on line
this year and next. ''A lot of operators and governments will be looking to
Mexico to see how this market shakes out, especially with such quick
deployment,'' said Laurence Swasey, senior analyst at U.S. think tank
That's because wireless technology has become cheaper, the government
has auctioned off a large number of frequencies, and Mexicans are thirsty
for phone lines. The telephone density here is approximately 9.8 lines for
each 100 inhabitants, the lowest among Latin America's large economies.
''In Mexico we hope to use wireless telephones on a larger scale
than in any other country. It's working in Mexico,'' said Jorge Arreola,
a commissioner with the Federal Telecommunications Commission (Cofetel).
THE WIRELESS ALTERNATIVE
Until 1999 telecommunications monolith Telefonos de Mexico (Telmex)
was the only option for Mexicans who wanted a phone line hooked up in
their house. But the government has now opened the doors to competition,
auctioning off last year four wireless frequencies in every part of the country.
Four companies are planning to take on Telmex beginning this year and next,
building wireless antenna infrastructure, confident that they will attract clients.
Industry sources estimate that local telephone services represent some $5 billion
a year in telephone charges, and that the potential demand is for some 9.0 million
new lines in the next few years.
FOUR COMPANIES SET TO COMPETE
One of the first companies to get off the ground is Pegaso, which is completing
tests on a fixed wireless system in the northern border city of Tijuana and counts
among its owners the broadcaster Grupo Televisa, Leap Wireless International Inc.
(Nasdaq:LWIN - news) and vendor Qualcomm Inc. (Nasdaq:QCOM - news) .
With permits to operate in the entire country, and an initial investment of $1.3
billion, Pegaso hopes to attract 100,000 clients to its wireless system by late 1999.
Axtel, a subsidiary of Bell Canada International, has associated with Canadian
provider Northern Telcom Ltd. (Nortel) and launched fixed wireless service in
the northern industrial city of Monterrey in June. Axtel plans to cover 85 percent
of the population, with two million lines in the larger cities of the country, within
five years. Another important competitor is the second largest cellular telephone
company in the country, Iusacell, which plans to bring fixed wireless service to homes
in 22 cities beginning in January.
Perhaps the most ambitious plan is from a company once known as Unefon, and
recently purchased by the nation's No.2 broadcaster, TV Azteca . Azteca president
Carlos Salinas Pliego said his wireless company will launch nationwide in January
and have two million clients within five years. He said it will cost him less to
establish and run a wireless service, because he can use the Azteca television
stations to advertise and his chain of Elektra retail stores as sales points.
All of these companies need equipment from wireless infrastructure providers.
Analysts said one of the indications that wireless is taking off in Mexico is the
presence of major international telecommunications equipment providers such
as Swedish telecoms group Ericsson, Canada's Nortel Networks Corp.
(NYSE:NT - news) and U.S.-based Lucent Technologies .
Nobody expects Telmex -- which has been very aggressive in the long distance
market, where competition opened up two years ago -- to take any of this lying
down. The company, perhaps as a preventive measure, bid for and won wireless
frequencies nationwide. However, analysts said that due to the unsatisfied client
base in the country, the new companies will not mean a serious threat to Telmex.
NOT CHEAP, NOT RURAL
The companies and regulators admit that despite all this new competition, basic
home phone rate will not come down. That's partly because Telmex's basic monthly
home phone service rate is so low it does not pay for itself in houses that don't make
more than the 100 free calls Telmex gives them each month. Also, although wireless
has been touted as the best way to develop phone service in Mexico's remote rural areas,
analysts said it would take another 10 to 30 years for this technology to move to the
countryside. Experts said companies would have to make money in cities first, where
it costs between $5,000 and $7,000 per line to set up wireless infrastructure. Rural
systems are more expensive per line. |
