FreedomPop, a Skype co-founder-funded startup, challenges Mexican telcos with an offer consumers can’t refuse: free call and data plans
In a joint venture with DISH Mexico, LA-based FreedomPop is the latest company to try and break into the Mexican mobile virtual network operator (MVNO) market. Though it uses the network of the country’s dominant provider, América Móvil, it hopes to compete against it and other MVNOs, with freemium data packages in the next few months. Notably, Niklas Zennstrom, one of Skype’s co-founders, is one of the startup’s funders.
FreedomPop’s entry will, alongside other MVNOs already present, increase competitiveness in Mexico’s mobile telecommunications industry, which is the second largest wireless market in the Americas. MVNOs first entered the field in 2007, and so far account for a very small market share (1%) despite efforts by regulators to promote their rollout. There is a plan for implementing “a shared network of wholesale telecommunication services” as an alternative infrastructure option, according to a study from Chambers & Partners.
But as GSMA Intelligence has noted, MVNOs may need even greater differentiation “to compete with incumbent network investment” by offering mobile broadband, gaming, and e-commerce services alongside low-cost plans for “light users.”
The Pan-American telecommunications giant América Móvil is now in fierce competition with rival Telefonica-Movistar of Spain in signing agreements with multiple MVNOs, and has an advantage here due to its larger coverage area, more than 90 percent, compared to Movistar’s 70 percent.
MVNO expansion has been made possible due to a sea change in Mexico’s telecommunications laws, which for decades favored incumbent monopolists and locked out smaller operators.
New market entrants
Telcel, the Mexican cellular subsidiary of América Móvil, grew out of the state monopolist Telmex, which was privatized in the 1990s. Most of its assets were snapped up by Carlos Slim under the umbrella of Grupo Carso Telecom (now América Móvil) and it has dominated the industry since.
Telcel’s successful expansion was driven by a focus on lower-income markets nationwide, and enabled by Mexico’s lax monopoly laws. Other carriers challenged these laws time and again, but nothing happened until 2013. That year and the next, the ruling party led a political alliance that finally overturned existing legislation, paving the way for more liberal investment laws and stricter enforcement of anti-monopoly measures.
The pay-TV market, though similarly oligopolistic, is a bit more competitive with the largest player, SKY Mexico, “only” controlling about half of it. DISH Mexico has been catching up on it, and the reforms have also benefited this sector.
Foreign firms like Movistar and AT&T, which have a strong presence throughout the rest of Latin America, have so far been the main beneficiaries of the reforms. AT&T in particular has acquired several smaller operators that controlled about a tenth of the market combined. It is now pouring billions into expanding there, including 4G LTE infrastructure building as 2G/3G is still the norm, and willing to operate at a considerable loss doing so.
América Móvil has fought back by outspending AT&T on new spectrum allocation and rolling out its own 4G coverage in the major urban areas. By law, though, it must reduce its market share to 50% before the end of the decade.