Mexican Market: A Real Scorcher
By Sheila Galatowitsch
Like a fire doused with kerosene, the launch of calling party pays in Mexico last year set subscriber numbers ablaze and the
blow-back burned a couple of carriers.
Mexico's carriers now serve 7.6 million subscribers, more than doubling 1998's record 93 percent growth. And with cellular
penetration rates below 8 percent, there's still plenty of room to grow. Indeed, at these rates, Mexico's cellular penetration likely
will surpass wireline penetration in 2001.
The situation in part reflects the possibilities for cellular success in Third World countries where terrain and distance and lack of a
middle class have kept wireline buildout at a modest level--but where the advantages of wireless communications and a cash, not
credit, economy has propelled subscriber numbers.
Two record years in a row caught Mexican carriers-and analysts-by surprise. No one had predicted such rapid growth, which
has been aided in part by Mexico's economic performance and another year of strong prepaid business. The mobile market in
Mexico is heading toward a critical mass, says Juan Fernandez, Latin American analyst for Gartner Group's Dataquest in San
Jose, Calif. "If there were any cultural barriers to using a cell phone before, they eroded as exposure increased," he says.
The year also was marked by the entry of an aggressive new competitor, Pegaso PCS, which launched service in four of
Mexico's largest cities on its way to a nationwide buildout. In an effort to establish its own national footprint, the No.2 carrier,
Grupo Iusacell, made plays to acquire several regional operators. Meanwhile, the entrenched carrier Telcel managed to increase
its already dominant market share even as network congestion led to complaints that its cellular service was the country's worst.
The poor service was related directly to the unforeseen growth. Telcel, the wireless arm of the national fixed-line carrier Telmex
and the only carrier present in all nine cellular regions, says it will spend $900 million to enhance capacity and improve the quality
of service it provides to 70 percent of the nation's mobile subscribers. Telcel will move quickly to improve service, says Fernandez.
"They are committed to defending their territory."
Acting less like a former monopoly and more like an upstart, Telcel last year made its prepaid cards available on every street
corner, a strategy that helped it earn another 7 percent market share. The carrier is scrambling to get as many people connected
to the public network as possible, then sign them up for value-added services such as Internet access, says Leslie Arathoon, Latin
American research manager at Pyramid Research, a Cambridge, Mass., branch of the Economist Intelligence Unit.
Seeking to expand beyond the four regions where it offers service, Iusacell, which is controlled by Bell Atlantic International
Wireless, last year began acquisition talks with Baja Celular, Movitel, Norcel and Cedetel in northern Mexico and Portatel in the
south.
The synergies between the carriers had long been recognized, but talks with Motorola, part owner of the regional companies, fell
through. Analysts speculate that the equipment maker, fearful of losing out on future infrastructure contracts, drove a tough
bargain with Iusacell. The carrier, which offers nationwide service through roaming agreements, last year rolled out a "one single
rate" plan and completed a $350 million bond offering to enhance digital network capacity, increase coverage and fund recent
capital expenditures. Although Iusacell owns PCS licenses in two northern regions of the country, it has not yet announced any
buildout plans.
Newcomer Pegaso garnered 110,000 subscribers in its first year of business, ending the year with a launch in Mexico City where
it sold 50,000 phones during the first three weeks of operation. The carrier says its innovations, such as billing rounded to the
second and the "phone in a box" retailing concept, helped increase demand for mobile service last year. It also is wooing Mexico's
predominately prepaid subscriber base with services like roaming, call waiting and voice mail not offered with other prepaid plans.
The carrier's PCS network, the only exclusively digital network in Mexico, gives it an advantage in offering such services. Telcel
and Iusacell, meanwhile, serve the bulk of their subscribers on analog networks, but both are migrating subscribers to digital
platforms.
By year-end, Pyramid Research expects Mexico's mobile market to climb to 11 million subscribers, reaching nearly 15 million in
2001. By then, a new carrier, Unefon, may have entered the market, if it has completed work on its fixed wireless network
priority. While no one expects Mexico's mobile market to double again in 2000, indicators point to another year of scorching
growth, marked by fierce competition. Says Fernandez: "Nobody will go to sleep thinking they own anything."
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