Mexico’s experiment with a wholesale-only mobile network

Author: Martyn Roetter
Published: 2016-11-04

Mexico will later this month announce the winning bidder for the deployment of Red Compartida, a pioneering wholesale-only wireless open access network (WOAN) with usage rights to 2 X 45 MHz of spectrum in the 700 MHz band. In addition to the 700 MHz spectrum, the winning network will have the right to use a pair of fibers deployed by Mexican electric utility CFE in its infrastructure.

The country is embarking on an experiment of which there are few examples around the world, and none of them a success so far. But the government has little choice as the wholesale network is called for in a constitutional reform approved in 2014, designed to increase competition in the Mexican telecoms sector. The sector has long been dominated by Carlos Slim’s America Movil, resulting in poor services and high prices.

Only two consortia, neither of which have existing mobile operators as partners, have submitted bids for running Red Compartida. The first, Altan, is led by Spanish businessman Eugenio Galdon who founded the Spanish cable operator Grupo Corporativo Ono SA, which was bought for $10 bn by Vodafone in 2014. The major investors in Altan, accounting for 60% of its capital, are Morgan Stanley and the World Bank’s International Finance Corporation (IFC). Altan also includes several smaller investment entities and two minor Mexican fixed-line operators, Axtel and Megacable. If Altan wins the contract, Axtel and Megacable will have non-voting shares in the business to meet a requirement that operators not exert any significant influence in the network’s governance.

U.S. and Irish capital are behind the second consortium, Rivada, which comprises Rivada Networks and Spectrum Frontier LP. Rivada Networks is a U.S.-based company whose largest shareholder and CEO is Irish entrepreneur Declan Ganley. It specializes in providing wireless systems to public safety and emergency/disaster response agencies. Rivada has patented a technology to enable leasing of spectrum to service providers through competitive auctions in real-time. This technology may form part of Rivada’s bid, offering an innovative approach for delivering wholesale capacity in specific locations, and with leases of varying duration.

The new wholesale network is projected to require investment of $7 billion to build out 12,000 cell sites covering at least 85% of the population by 2023 and deliver minimum speeds to users of 4 Mbps (downlink) and 1 Mbps (uplink). The target start date for operation is March 2018.

Skepticism regarding the success of Red Compartida abounds. Mobile operators prefer to own their spectrum and deploy their own networks. Their willingness to buy capacity from the wholesale network is critical for the concept to succeed. In Kenya, a proposal for a similar network went nowhere once the largest operator, Vodafone-managed Safaricom, pulled out of negotiations. The only significant wholesale-only network currently in operation is in Rwanda through a partnership between Korea Telecom and the Rwandan government, but its commercial viability is still unproven.

This type of network also raises risks of monopoly abuses from its owners, due to its sole control of valuable spectrum and the related challenge of ensuring wholesale access is provided on fair, affordable and non-discriminatory terms. A further concern is competition based on innovative infrastructures is precluded, since all retail providers make use of the same network facilities. The conditions associated with the Red Compartida license are designed to mitigate at least some of these concerns.

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