Wireless Competition Heats Up In Mexico
December 8, 1998
Inter@ctive Week via NewsEdge Corporation : With all due respect to NAFTA-basher H. Ross Perot, if there is a giant sucking sound to be heard along the border between the U.S. and Mexico these days, it could be the noise generated by more than $1 billion worth of wireless infrastructure gear streaming southward this year.
The decision by Mexico's government last year to open telecom services to competition has sparked some intense infrastructure development projects, especially in the wireless services market. For Mexico's new wireless competitors, the rewards for getting to market quickly could be great: With one phone for every 10 people, Mexico has one of the lowest teledensities among the emerging economies.
1999 Will Turn It On
"Looking back, 1998 will be known as the year for deploying infrastructure for wireless buildout in Mexico," says Perry LaForge, executive director at the CDMA Development Group (CDG), a nonprofit trade association that promotes the use of Code Division Multiple Access (CDMA) wireless systems. "Looking ahead, 1999 will be known as the year that wireless service gets up and running and brings Mexico's telecommunications systems into the future. "
In the past year, almost every wireless infrastructure manufacturer has been involved in a network development project in Mexico.
One of the busiest has been Motorola Inc.'s Cellular Infrastructure Group (CIG), which supplies CDMA infrastructure gear to seven service providers in Mexico. Early this year, Motorola CIG (www.mot.com) secured agreements with four of the largest regional wireless operators in the country -- Baja Celular Mexicana, Movitel del Noroeste, Telefonia Celular del Norte and Celular de Telefonia -- to supply those companies with CDMA digital cellular phone technology that will reach about 20 million potential customers.
Motorola CIG expects to add more wireless operators to its customer list over the next year. The Mexican government's decision to authorize "calling party pays" service should spur more wireless development, says Jorge Duron, area operations manager at Motorola CIG in Mexico.
"The companies that we're working with primarily are looking at building out systems for mobile services because the teledensity of the country is so poor," Duron says. "It wouldn't surprise me to find that they will begin to offer other services over the next year as the government opens up more opportunity for competition."
Qualcomm Inc. (www.qualcomm.com) and its wireless services spin-off Leap Wireless International Inc. (www.leapwireless.com) also have been working toward a CDMA buildout in Mexico through an agreement reached with Alcatel (www.alcatel.com) and Pegaso Telecomunicaciones, a consortium that includes the AIG-GE Capital Latin America Infrastructure Fund, Citicorp Equity Capital Latin America, Grupo Pegaso, Grupo Tele-visa, Leap and Nissho Iwai Corp.
Under the agreement, Qualcomm will supply about $650 million of infrastructure equipment, program management and deployment services, and Alcatel will supply $270 million in billing systems, construction, customer care, engineering, microwave access, mobile switches and transmission equipment. Leap and Pegaso will operate the system and market it to consumers.
Pegaso will start with wireless buildout in Mexico's four largest cities -- Mexico City, Guadalajara, Monterrey and Tijuana -- which now account for about 75 percent of all cellular traffic. A service trial is scheduled to begin this month in Tijuana, followed by commercial service for Mexico City and Tijuana in March. The other cities will follow with commercial service immediately thereafter.
While Motorola and Qualcomm are focused on wireless services in urban markets, equipment maker Telular Corp. has signed an agreement with the Rural Telephony Division of Telcel to deploy fixed wireless terminals in the interior regions of Mexico. The aim of the Telular/Telcel project is to bring basic telecom service to the 8.5 million people in rural interior Mexico who lack basic telecommunications services, says Richard Beckley, senior vice president of sales at Telular (www.telular.com).
Although the details of the agreement haven't been released for competitive reasons, Telular says it is providing a "significant number" of Advanced Mobile Phone System fixed wireless terminals, which enable standard phone systems, fax, modem and alarm systems to utilize available cellular wireless service for primary or backup communications.
Initially, Beckley expects most of the terminals to be used for pay-phone services to the rural areas of Mexico. As Telcel becomes more comfortable with the technology, however, Beckley believes the terminals will be installed for use in small and home-based businesses as well as for residential phone customers' needs.
"I believe we'll see wireless solutions being deployed on a wide scale to address the telecommunications needs in Mexico," Beckley says. "The capacity of the wireline carrier is exhausted, and they can't install the wireline fast enough or at a reasonable enough cost to provide the service. "
The emphasis on wireless buildouts reflects wireless technology's inherent cost advantages over wireline, Beckley says. "A cellular carrier can run out, throw up a base station and within a matter of days be able to service thousands of callers," he adds. "It just makes sense that they would be looking to wireless, which is a more economical, faster system that can solve their problems."
The Internet, Too
CDMA advocate LaForge says Mexico's new wireless competitors have only scratched the surface in terms of addressing the need for telecommunications in the country. While he says the initial benefit of wireless infrastructure buildout in Mexico is to deliver basic voice service, he sees the bigger picture as one that will include wireless bridging the gap between the Mexican people and the Internet.
"There is no question that wireless buildout is needed in Mexico," he says. "The largest roaming border in the world is between the United States and Mexico, and the call traffic between the two countries is substantial. Wireless buildout will address the roaming needs and the calling needs on both sides of the border, while also providing the Mexican people with a way to access the Internet, which isn't currently addressed through wireline or cable modems in Mexico."
CDG (www.cdg.org) will open an office in Latin America within the next few months to help spur wireless deployment. LaForge says Latin American countries lag behind the U.S. by about three years in terms of wireless buildout, but he says that lag time places the countries in a good position for the buildout.
"Mexico and other Latin American countries are going to reap the benefit of the experiences of other countries that already have built out their systems," he says. "Mexico already knows the wireless systems work, and they can see the acceptance of users around the world. Now it's just a matter of timing -- of who can get their systems up and running the fastest. "
The Run For The Border
Major equipment contracts announced so far this year by service providers in Mexico:
Jan.: Motorola Inc.'s Cellular Infrastructure Group wins a $40 million contract to deliver Code Division Multiple Access (CDMA) wireless infrastructure to four carriers -- Bajacel, Cedetel, Movitel and Norcel.
May: Qualcomm Inc. announces a wireless local loop and CDMA buildout for Grupo Pegaso, a company in which it holds an equity interest. Value of the contract is undisclosed.
July: Northern Telecom Ltd. signs a five-year, $700 million contract to build out a CDMA network for Unefon.
Oct.: Lucent Technologies Inc. announces a $50 million broadband local network initiative for MCM Telecom.
Nov.: Alcatel is picked by Pegaso, now 33 percent-owned by Qualcomm spin-off Leap Wireless International Inc., to supply personal communications services infrastructure equipment for a nationwide network buildout. Estimated value: $270 million.
<<Inter@ctive Week -- 12-07-98>>
[Copyright 1998, Ziff Wire]
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