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Cablegate: Mexican Telecommunication Policy Targets Telmex

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FM AMEMBASSY MEXICO
TO RHEHNSC/NSC WASHINGTON DC PRIORITY
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RUEHC/SECSTATE WASHDC PRIORITY 8425
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

118838
2007-08-14 15:31:00
07MEXICO4334
Embassy Mexico
UNCLASSIFIED//FOR OFFICIAL USE ONLY
07STATE45618
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DE RUEHME #4334/01 2261531
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FM AMEMBASSY MEXICO
TO RHEHNSC/NSC WASHINGTON DC PRIORITY
RUEAFCC/FCC WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 8425
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 MEXICO 004334

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/MEX AND EB/CIP
STATE PASS TO USTR FOR JONATHAN MCHALE AND CATHERINE
HINCKLEY
FCC FOR HELEN DOMENICI, KATHRYN O'BRIEN, AND DAVID FURTH,
FCC FOR LARRY OLSON, BRIAN MARENCO AND EMILY TALAGA
NTIA FOR KARL NEBBIA AND JANE COFFIN
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD
ITA FOR MICHELLE O'NEILL AND DAMON GREER

E.O. 12958: N/A
TAGS: ECON ECPS ENIV PGOV MX
SUBJECT: MEXICAN TELECOMMUNICATION POLICY TARGETS TELMEX

REF: STATE 45618

Summary
-------

1. (SBU) On August 3, as part of the Ninth Meeting of the
High Level Consultative Commission (HLCC) on
Telecommunications, Rafael del Villar, Under Secretary for
Communications at the Secretariat of Communications and
Transportation (SCT), briefed a small group of Department of
State (DOS), Federal Communications Commission (FCC), and
Department of Commerce (DOC) officials on Mexican President
Felipe Calderon's telecommunications policy. SCT Secretary
Luis Tellez Kuenzler joined the meeting and supported del
Villar's assertions. Del Villar emphasized that SCT's
primary concern is the lack of penetration of landline
telephone and broadband services. Among other proposals, del
Villar suggested that while participating in the upcoming
Security and Prosperity Partnership in Canada, the three
Leaders propose to dramatically lower long distance
interconnection rates to make calling within North America
within reach for even the poorest citizens. With the "social
good" argument as a backbone, it appears that the SCT and
possibly the Calderon Government may try to tackle the
Mexican telecom monopoly, Telmex's dominance in the sector.
End Summary.

Clarifying Roles in the Sector
------------------------------

2. (SBU) Summarizing the current state of Mexico's telecom
sector, del Villar said the Calderon administration will seek
to clarify the roles SCT, the Federal Telecommunications
Commission (Cofetel), and the Federal Competition Commission
(Cofeco) play in the sector. He highlighted the political
role of the SCT as a planning and policy body with the power
to decide which radio frequency bands will be auctioned and
when. He stated that, for the first time since 1990 (when
Telmex was privatized), the SCT is more willing to support
competition and openness than the regulator (Cofetel), a
situation he termed a "political anomaly." Also, for the
first time in Mexican history, the President is keenly aware
of the important issues facing the telecom sector and is
creating a political climate that is conducive to moving
forward with telecom policy. He pointed out that Cofetel is
a part of the SCT (and hence Executive Branch) and not an
independent regulator like the FCC in the U.S. He also
stressed that the SCT currently enjoys an excellent working
relationship with Cofeco.

Social Good Argument
--------------------

3.(SBU) Del Villar observed that the rural areas of Mexico
have been devastated by migration. He cited "heroic
families" in which the husband travels to the U.S. to work to
send money home, yet his wife is left in Mexico, unable to
call her husband in the U.S. because of prohibitively high
telecommunication rates. High fixed and mobile
interconnection rates; the lack of unlimited calling plans;
and the need for technology to decrease overall telecom costs
drive SCT telecom policy. He reiterated Mexico's commitment
to "Calling Party Pays," but also his concern with the level
of tariffs. He might seek to implement a "Bill and Keep"
regime in mobile telephony in Mexico in which each network
agrees to terminate calls from the other network at no
charge. Cofetel is in the process of developing its
Fundamental Technical Plan for Interconnection and is holding
a second period for public comment that ends August 10.

Broadband Penetration Lacking
-----------------------------

4. (SBU) Del Villar suggested possible policy changes to
promote broadband penetration in Mexico. Broadband network
"unbundling" would foster increased network investment by
outside players. Del Villar added that Mexico would label
this proposal "leasing of the last mile" to avoid any

MEXICO 00004334 002 OF 003


negative stigma. He noted that while this policy would be
tough to implement, it was nonetheless being considered
because SCT has not seen sufficient investment by Telmex in
its network. Second, he suggested that Mexico allow the
resale of broadband in the marketplace. Third, because
approximately twenty-six percent of Mexican mobile users do
not have access to a fixed line, he would like broadband to
be offered on a stand-alone basis instead of solely with a
package. Last, he suggested one option for Mexico might be
public-private partnerships in which the government might be
the owner of spectrum that is operated by a local government
or community mechanism. Mexico, he continued, has the
spectrum available to do this with the ultimate goal being
increased rural access to the Internet.

Broadcasting Sector in the Hands of the President
--------------------------------------------- ---

5. (SBU) Throughout the conversation, del Villar was
careful to reiterate that he was referring only to Mexican
telecommunications policy, not broadcasting. Because of the
political fallout that licensing a third broadcasting network
would cause, the decision on whether to move forward rests
with President Calderon. Del Villar did mention that through
changes in the existing licenses of current broadcasters, the
Government may impose a "must carry / must offer" policy. He
noted SCT fears Telmex collusion with Televisa in the video
services market to secure cheap content, while squeezing out
other smaller potential competitors.

Spectrum Negotiations
---------------------

6. (SBU) The U.S. and Mexican delegations also held spectrum
negotiations during a three-day HLCC working level meeting
(July 31-August 2) immediately prior to the Ninth HLCC on
August 3. As a result, at the Ninth HLCC the principals
signed three documents:(A)A Permanent Protocol concerning the
allotment and use of the 138-144 MHz band for terrestrial
non-broadcasting radio communication services along the
U.S.-Mexican border; (B) A Joint Statement of the principals
at the Ninth HLCC; and (C) A Directory of Bilateral Issues
for 2007-2009 (DBI). In terms of ongoing negotiations to
reconfigure the allotment plan of the 800 MHz band, del
Villar noted that the SCT is actively engaged in negotiations
with Nextel Mexico and Intercomunicacion del Pacifico, a
subsidiary of Telmex, the two most affected Mexican carriers.
The SCT also requested assistance from the FCC in determining
a realistic cost for network carrier actions to relocate the
affected Mexican carriers within the 800 MHz band as well as
to move them to an alternate band.

7. (SBU) On the topic of increasing broadband penetration by
means of near-term spectrum auctions, (para.4 above), in the
three-day working level meeting, SCT and Cofetel officials
pressed U.S. representatives to identify additional radio
bands suitable for broadband applications and place them in
the DBI so that new cross-border sharing agreements could be
reached. These bands included: 420-450 MHz, 698-806 MHz
("700 MHz"), 2300-2400 MHz and 3300-3700 MHz bands. All of
these bands were included in the DBI except the 2300-2400 MHz
which will be discussed informally in upcoming HLCC working
level teleconferences. (The U.S. and Mexico currently have
an agreement in place for the 2310-2360 MHz band for the
Digital Audio Radio Satellite Service used extensively by
U.S. providers XM Satellite Radio and Sirius Satellite
Radio). SCT and Cofetel also mentioned their interest in
amending the existing Protocol for Personal Communications
Services in the 1850-1990 MHz band to also support wireless
broadband.

The three HLCC documents that were signed will be posted
shortly on the Department's public website at :
http://www.state.gov/e/eeb/cip/c622.htm.

Improvements for Cross Border Security Communications
--------------------------------------------- --------

8. (SBU) Representatives of Mexico's Secretariat of Public

MEXICO 00004334 003 OF 003


Safety (SSP) and the U.S. Department of Homeland Security
reported in the working level meeting that the HLCC Security
Communications Task Group plans to complete its Plan for the
Long Term Solution for Cross Border Security Communications
shortly and submit the Plan to the HLCC for adoption. The
Plan reportedly includes establishment of six cross border
microwave links in the 7-8.5 GHz band that will allow voice,
data and video intercommunications between communications
centers of law enforcement agencies on both sides. In the
principals meeting, DOS also mentioned the need for a second
phase of the "Long Term Solution" that would address
reciprocal licensing for mobile and portable equipment of
public safety agencies on both sides as well as improving
mutual-aid communications for specific individual public
safety agencies on each side. These are the continuing
actions described in reftel, and the Plan will be distributed
to border consulates when completed.

Del Villar Proposes a North America-wide Calling Area
--------------------------------------------- --------

9. (SBU) Lowering interconnection rates is high on SCT's
agenda, justified to the public and the industry by the
"social good" argument. At the meeting, del Villar and
Tellez said that if the U.S., Canada and Mexico could come to
an agreement to trilaterally lower interconnection rates for
telephony across the region, this would help the GOM to
convince Telmex to relinquish some hold on the sector.

Comment
-------
10. (SBU) Telmex seems to be feeling the pressure as there is
already speculation in the industry that the monopoly will
file an injunction against Cofetel's proposed interconnection
plan. The SCT appears to have firmly taken control of
telecommunications policy in Mexico and has an arsenal of
ideas for progress in the sector. In telecommunication
negotiations, we are seeing unprecedented levels of positive
engagement from our Mexican counterparts. SCT Under
Secretary del Villar has a lot of energy and progressive

SIPDIS
ideas, now it's a matter of how much momentum he can gather
to push for change in the industry. End comment.

11. (U) This cable was prepared jointly with collaboration
of members of the U.S. delegation from EEB/CIP.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
BASSETT

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