POLITICAL CHANGES BRINGS UNCERTAINTY TO MEXICAN

UNCLAS SECTION 01 OF 03 MEXICO 003905

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/MEX AND EB/CIP
STATE PLEASE PASS TO USTR JONATHAN MCHALE AND FCC EMILY
TALAGA

E.O. 12958: N/A
TAGS: ECON MX ECPS ETRD EINV
SUBJECT: POLITICAL CHANGES BRINGS UNCERTAINTY TO MEXICAN
FEDERAL TELECOM COMMISSION

REF: A. MEXICO 01080


B. MEXICO 01716

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SUMMARY
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1. (U) The Mexican Congress' passage in March 2006 of the
Radio and Television Law has brought some uncertainty to
Mexico's communication sector. All of the previous Federal
Telecommunications Commissioners resigned shortly after its
passage leaving the Federal Telecommunications Commission
(COFETEL) more than two months without any decisionmakers.
In addition, the Senate's rejection of the majority of the
Fox Administration's initial nominees to COFETEL, coupled
with a constitutional challenge to the new law filed by 47
Senators and several communitarian radio operators, have many
wondering whether the new Commission and President can
quickly implement much needed changes in order to make room
for new technologies and convergence. Well-regarded telecom
consultant Ernesto Piedras believes the new COFETEL board
will need time to settle in since only one member has
institutional knowledge of the current items on their agenda.
He is concerned that the new Commission lacks an economic
specialist who can analyze the financial impact of COFETEL
measures, but he hopes that the new Commission will help
build consensus with industry in order to address current and
future technologies. End Summary.

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RADIO AND TELEVISION LAW
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2. (U) On March 30, the Mexican Congress passed the Radio
and Television Law (reftels). Per the new law, the President
had 30 days to appoint four new COFETEL Commissioners and a
President. Unlike the last commission, the commissioners'
terms will be staggered to service lengths of 5,6, 7, and 8
years. The President will also serve an 8 year term. The
Permanent Committee of Congress rejected Fox's first list of
commissioners except Jose Luis Peralta, a COFETEL engineer
who filed a lawsuit against COFETEL but dropped it days after
being named to the Commission for an 8 year term. According
to press reports, the other nominees were rejected because
they lacked sufficient experience in the sector (a
constitutional requirement) or they had significant ties to
Fox, the Partido Accion Nacional (PAN),the Finance Ministry,
and Televisa. Two weeks ago, Fox sent a new list of
commissioners to the Senate that included Francisco Gonzalez
Abarca for a five year term, Eduardo Ruiz Vega, a telecom
consultant and academic, for a 6 year term, Partido
Revolucionario Institucional (PRI) Senator Ernesto Gil
Elorduy for a seven year term, and PAN Senator Hector Osuna
for an 8 year term as COFETEL President. The inclusion of two
Senators seemed to come as a surprise to many experts
especially since Senator Osuna had told many people that he
would be running for Governor of Baja California in 2008 (his
office has told us he will not run and is now focusing on
this new endeavor) and the other Senator has no
telecommunications experience. Another surprise was the
exclusion of a well-respected academic and consultant Ernesto
Piedras. Piedras surprisingly supported adoption of the
Radio and Television law and was frequently mentioned during
the "search" for commissioners.


3. (U) Econoff and Econ Specialist met with telecom
consultant, Director of the Intelligence Competitive Unit,
and academic from the Mexican Autonomous Technological
Institute (ITAM),Ernesto Piedras to discuss the most recent
telecom-related political events as well as what is on the
horizon for industry and government.


4. (U) Piedras stated that Televisa, TV Azteca, and Telmex
pressured PRI and PAN congressmen to quickly approve the
Radio and Television law in order to give them some
protection in the case of a Partido de la Revolucion
Democratica (PRD) Andres Manuel Lopez Obrador victory.
Despite some colleagues' strong criticism of the law, Piedras
feels it is the first positive step towards modernizing the
sector and moving forward with convergence. By staggering
the commissioners' terms, he believes continuity will be
given to COFETEL's projects.


5. (SBU) Piedras admitted that the law has some holes but
believes that COFETEL could approve regulations to close the

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gap but warns such a process should be open and include input
from industry, legislators, government officials, consumers,
and academics. Although, the process could take up to two
years, he believes SCT has already written regulations and
could share them with industry. Piedras claims most of the
opposition to the law came from communitarian radio station
owners who argued that it promotes unfair competition.
Piedras alleged some of these stations in Guerrero and
Chiapas are being utilized by radical leftist groups in
Bolivia, Venezuela, and Mexico's PRD to send messages.


6. (U) Forty-seven Mexican Senators and several
communitarian radio operators filed a Constitutional
challenge to the new law citing that it violates the
Constitution. Piedras can't find any sufficient legal
grounds for this challenge to proceed and believes it is
unlikely that the Supreme Court would reverse the law because
that would mean nullifying the COFETEL board and the sector
can't continue to fall behind while waiting for a new
Commission to be named.

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THE NEW COFETEL
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7. (SBU) Piedras says the sector supports the new COFETEL
but understands that it will have to work closely with it to
accomplish its goals. He admits that there is some fear
among companies that COFETEL will be partial and favor
dominant players like Telmex, Televisa, and TV Azteca
especially with two politicians on the Commission. Piedras
pointed out that one Senator lacks telecommunications
experience and that the Commission has a lawyer and an
engineer, but it is doesn't have an economist. Piedras said
he was informed that Telmex requested his name be removed
from the President's list of potential nominees. Piedras
suggests the Commission create a Consultation Council made up
of industry, consumers, specialists, and academics to ensure
follow-up on key projects. Currently, consumers are not able
to participate in the regulatory process.

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MERGING THE OLD WITH THE NEW
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8. (SBU) Piedras noted that industry has been divided on
many issues and they must start a healing process to unite to
work on common objectives. He also urged the President and
the Secretariat of Communications and Transport (SCT) to
construct a Telecommunications Policy Plan to prepare for
convergence and "new generation" technologies. However,
according to Piedras, the GOM has yet to implement a clear
and consistent convergence policy. The convergence agreement
is conflicting. The agreement fails to give autonomy to
cable TV companies to provide telephone services directly,
yet a modified version of the agreement will give Telmex
video services immediately. Telmex, ironically believes that
Nextel's concession doesn't allow it to provide mobile phone
services. Piedras says Mexico's convergence policy does not
encompass all services, what he refers to as "quadruple" play
because it doesn't include mobile phone services.


9. (SBU) Piedras believes COFETEL and the SCT have to focus
on constructing regulations to prepare for these changes. He
believes that COFETEL, SCT, and industry have spent too much
time stuck on past regulatory decisions. Since some Mexican
officials believe Voice over Internet Protocol (VoIP)
businesses are free-riders, they have avoided dealing with
them and the technology they market. In addition, previous
commissions have not made the decision to use electrical wire
for telecom services even though the Federal Electricity
Commission is ready to install it.

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WHAT NEEDS TO BE DONE?
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10. (SBU) While noting that Mexico prefers an independent
approach, Piedras believes foreign companies need to pressure
the government for change. By sharing best practices,
foreign industry and governments can also show the GOM what
they can do to help Mexico stay competitive. In addition,
Piedras hopes that regional frameworks such as the Security
and Prosperity Partnership (SPP) can help to strengthen and
standardize Mexican regulations. Piedras promotes using

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conferences to educate the public, but warns that sponsorship
must be from a credible source. Although Piedras believes
the work of IMCO, the Mexican Competitiveness Institute, is
good because it provides basic, easy-to-understand
statistical analysis, he cautions that the Institute thrives
on resources from the private sector and special interests
and that their results could be skewed. Piedras stressed
that Mexico cannot move forward without somehow including the
voice of the consumer. "If they participate more, they can
demand more competition and cheaper prices", he said.

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COMMENT
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11. (SBU) Piedras is one of Mexico's most well-respected
experts on telecommunications and technology. Econoff was
surprised that he was so active in supporting passage of the
Radio and Television Law. His support placed him against
other experts like Javier Lozano, former Undersecretary of
Communications, former COFETEL President and potentially the
next Secretary of Communications and Transport in a Calderon
Government. Lozano has claimed that the new law would
violate the Constitution and merely increase the powers of
established monopolies. As is widely known, the question of
monopoly influence in Mexican telecommunications remains
central to liberalization in this sector, including key
issues such as how will spectrum freed up under
digitalization will be recognized and utilized.


12. (SBU) Piedras is correct when he says industry groups
(including the monopolies) must unite to work on common
objectives. Without industry pressure, COFETEL will be slow
to move on any new measures. That said, initial
conversations with the COFETEL President's office and press
reports indicate the Commission has a steep learning curve
and will likely proceed quite cautiously. For the moment, we
continue to expect few changes in the near-term and little
movement towards implementing new generation technologies.












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