Telecom innovation is one of the key drivers of digital transformation, economic growth, and social development in the modern world. Telecom innovation refers to the creation and adoption of new technologies, applications, and services that enhance the performance, efficiency, and quality of telecommunication networks and systems. Telecom innovation can also enable new business models, markets, and opportunities for various sectors and industries.
Mexico is a country with a large and dynamic telecom market, which has experienced significant changes and reforms in the last decade. According to the GSMA, Mexico had 125 million mobile subscribers, 92 million mobile internet users, and 25 million fixed broadband connections in 2020. The telecom sector contributed 3.5% of Mexico’s GDP and supported 1.4 million jobs in the same year. The telecom sector also plays an important role in enabling digital inclusion, e-government, e-commerce, e-health, e-education, and other digital services in Mexico.
However, Mexico’s telecom sector also faces some challenges and risks that need to be addressed and overcome. Some of these challenges are related to the regulatory and legal uncertainty that has been created by the policy changes proposed by Mexico’s President, who aims to reverse some of the key aspects of the previous energy reform of 2013 and strengthen the role and control of the state-owned companies, Pemex and CFE, over the oil, gas, and electricity markets. Other challenges are related to the infrastructure development, human capital formation, investment attraction, and collaboration with other sectors and countries.
In this blog post, we will discuss some of the main challenges and opportunities for telecom innovation in Mexico in the coming years, as well as some of the strategies and actions that can be taken to foster a more innovative and competitive telecom sector in Mexico.
The regulatory and legal uncertainty
One of the main challenges for telecom innovation in Mexico is the regulatory and legal uncertainty that has been created by AMLO’s proposal to reform the constitution and reverse some of the previous energy reforms. This proposal has implications for the telecom sector, as it could affect the roles and performance of the state-owned companies, Pemex and CFE, as well as the private sector participation and investment in the oil, gas, and electricity markets. These markets are closely linked to the telecom sector, as they depend on reliable and affordable electricity supply for their operations and services.
The proposal also seeks to reduce the regulatory and legal autonomy of the energy sector agencies, such as CENACE, CRE, and CNH. This could have a negative impact on the telecom sector agencies, such as IFT, COFETEL, and SCT, which are responsible for regulating and promoting competition, investment, innovation, quality, and consumer protection in the telecom sector. The proposal could undermine their independence, authority, capacity, and resources to carry out their functions effectively.
The proposal has been met with strong opposition and criticism from various stakeholders, including private companies, industry associations, civil society organizations, and international partners. They argue that the proposal would violate Mexico’s commitments under trade agreements, such as USMCA and CPTPP, as well as international treaties on climate change and human rights. They also warn that the proposal would undermine Mexico’s energy security, competitiveness, and sustainability, as well as discourage investment and innovation in the sector.
The proposal is currently under discussion in Congress, where AMLO’s coalition has a majority in both chambers. However, to approve a constitutional reform, a two-thirds majority is required in each chamber, as well as the ratification of at least 17 out of 32 state legislatures. Therefore, the outcome of the proposal is still uncertain and depends on the political negotiations and alliances that will take place in the coming months.
To overcome this challenge, it is essential to maintain a clear and stable regulatory and legal framework that respects the rights and obligations of all parties involved in the telecom sector, as well as the commitments and agreements that Mexico has signed with its trade partners and international organizations. It is also important to foster a constructive dialogue and collaboration between the public and private sectors, as well as civil society and academia, to find common ground and solutions that can balance the interests and needs of all stakeholders.
The infrastructure development
Another challenge for telecom innovation in Mexico is the infrastructure development that is needed to support the deployment and adoption of new technologies, applications, and services that enhance the performance, efficiency, and quality of telecommunication networks and systems. Some of these technologies include 5G, Internet of Things (IoT), cloud computing, artificial intelligence, and big data.
According to the ITU, Mexico ranked 67th out of 176 countries in the ICT Development Index in 2017, which measures the level of ICT access, use, and skills in a country. Mexico also ranked 59th out of 141 countries in the Network Readiness Index in 2019, which measures the ability of a country to leverage ICT for increased competitiveness and well-being. These rankings show that Mexico has room for improvement in terms of its ICT infrastructure development, especially compared to other OECD countries.
One of the main barriers for ICT infrastructure development in Mexico is the lack of investment and financing from both public and private sources. According to the World Bank, Mexico invested only 2.5% of its GDP in infrastructure in 2018, which is below the average of 3.5% for Latin America and the Caribbean, and far below the recommended level of 5% for emerging economies. The telecom sector also suffers from low investment levels, as it accounted for only 0.6% of Mexico’s GDP in 2018, which is below the average of 1.4% for OECD countries.
To overcome this challenge, it is necessary to increase and diversify the sources and mechanisms of investment and financing for ICT infrastructure development in Mexico. Some of these sources and mechanisms include public-private partnerships, concessional loans, guarantees, subsidies, grants, bonds, and crowdfunding. It is also important to create a favorable and attractive environment for investment and financing, by reducing regulatory and legal barriers, improving transparency and accountability, enhancing risk management and mitigation, and providing incentives and benefits for investors and financiers.
The human capital formation
Another challenge for telecom innovation in Mexico is the human capital formation that is required to create and adopt new technologies, applications, and services that enhance the performance, efficiency, and quality of telecommunication networks and systems. Human capital refers to the skills, knowledge, abilities, and attitudes of people that enable them to perform productive activities and contribute to economic and social development. Human capital is essential for telecom innovation, as it determines the capacity and potential of individuals, organizations, and countries to generate, adapt, and use ICT.
According to the World Economic Forum, Mexico ranked 97th out of 133 countries in the Human Capital Index in 2020, which measures the extent to which countries develop and deploy their human capital potential. Mexico also ranked 57th out of 63 countries in the IMD World Talent Ranking in 2020, which measures the ability of countries to attract, develop, and retain talent. These rankings show that Mexico has a low level of human capital development, especially compared to other OECD countries.
One of the main factors that affect human capital formation in Mexico is the quality and relevance of education and training systems. According to UNESCO, Mexico had a literacy rate of 95.3% for adults and 98.5% for youth in 2018, which is below the average of 99% for OECD countries. Mexico also had a gross enrollment ratio of 37.5% for tertiary education in 2018, which is below the average of 70.6% for OECD countries. Moreover, according to INEGI, only 20.2% of Mexicans aged 25 years or older had completed tertiary education in 2020, which is below the average of 38% for OECD countries.
To overcome this challenge, it is crucial to improve the quality and relevance of education and training systems in Mexico, by aligning them with the current and future needs and demands of the telecom sector and the digital economy. Some of the actions that can be taken include updating curricula and standards, enhancing teacher training and evaluation, increasing access and equity, promoting lifelong learning and continuous education, strengthening links between academia and industry, fostering digital literacy and skills development, and encouraging innovation and entrepreneurship.
The collaboration with other sectors and countries
Another challenge for telecom innovation in Mexico is the collaboration with other sectors and countries that can provide synergies, complementarities, and opportunities for creating and adopting new technologies, applications, and services that enhance the performance, efficiency, and quality of telecommunication networks and systems. Collaboration refers to the process of working together with others to achieve common goals and objectives. Collaboration can also enable the sharing of resources, knowledge, experiences, and best practices.
According to the Global Innovation Index, Mexico ranked 55th out of 131 countries in innovation performance in 2020, which measures the level of innovation outputs and outcomes in a country. Mexico also ranked 61st out of 141 countries in innovation capability in 2019.