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Mexico’s Telecommunications Monopoly Thwarts Growth

Article by Erica Libby February 20, 2012 //   3 minute read

A recent OECD report cites “the increasing role played by the telecommunications sector as a means of improving productivity and economic growth while enabling governments to improve provision of public services.” Telecommunications are a critical aspect of infrastructure in emerging economies, enabling individuals and institutions to rapidly transfer information, engage in mobile banking, engage in community response through social networks, and spread information freely. Governments tend to control the telecommunications industry in underdeveloped or emerging economies, in order to guarantee the provision and consistency of telecommunications. But in Mexico, Carso Global Telecom, including América Móvil and Telmex, controls nearly 80% of the telecommunications business. Offered little price competition, individuals in Mexico in the 2005-2009 period overpaid $13.4 billion for phone and Internet services. OECD data show that the “dysfunctional Mexican telecommunication sector” has cost 1.8% of GDP per annum from 2005 to 2009. Mexico faces many challenges to rapid growth, most publicly, its drug wars and violence, but the lack of a competitive telecommunications industry is certainly a key factor. Mobile-phone penetration rates remain extremely low, at only 88%, in comparison to 119% in Brazil. Mexico has a long way to go in order to regain that lost 1.8% per annum GDP growth, but the country is taking regulatory steps, including giving greater power to the telephone regulator, Cofetel. Infrastructure is a critical part of economic growth whether in the form of telecommunications, roads or water systems. The infrastructure of the United States, one of the oldest systems in the developed world, is in desperate need of repairs that will cost upwards of $2 trillion. The recent financial crisis posed an opportunity to rebuild America while creating jobs. In the meantime, both Mexico and the United States face infrastructure problems that could continue to drag on growth and prevent rapid expansion.