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President Enrique Peña Nieto with leaders of the PAN and PRD opposition parties pledging a Pact for Mexico. (Photo: Mexican Presidency)
Monday, March 25, 2013
Perspectives

Mexico Coalition Boosts Reform Outlook


PRI, PAN and PRD coalition increases chances of telecom, fiscal and energy reform approval.

BY CARLOS CARDENAS
Exclusive Analysis


On March 11, 2013, the government unveiled a telecom reform bill aimed at breaking the telecom and broadcast monopolies and allowing more foreign investment into the sector. The reform would allow up to 49 percent foreign ownership of broadcast media networks, and 100 percent foreign ownership of telecom firms, currently limited to 49 percent.

The proposed changes would enable the tendering of licenses for two new national TV networks. Currently dominant networks Televisa and Azteca TV would be barred from participating in the new auction. The reform also creates an independent regulator to assign licenses and with powers to force the divestment of firms that do not comply with competition regulations. The bill has already been approved by the Lower House and it is likely to pass in the Senate.

The reform conveys a variety of opportunities even for current dominant players. While Carlos Slim's America Movil may stand to lose revenue from price cuts and increased competition, benefits are likely to arise if it is able to enter the television market and offer the "triple play" packages that it offers elsewhere in Latin America. Slim has therefore welcomed the reforms.

The introduction of this bill is part of a wider effort by President Peña Nieto to introduce key reforms in the labor, telecom, fiscal, and energy sectors. This development is highly significant, as Peña Nieto's PRI party had opposed changes to regulation of these sectors for decades. However, attracting greater FDI into Mexico is likely to prove sufficient incentive to allow for the new regulations to pass. The PRI has already begun introducing regulations in other sectors with this purpose. In early March the PRI reformed statutes that previously had banned the participation of foreign firms in the oil sector.

Peña Nieto's PRI has the power to pass such reforms, as its coalition with the opposition PAN party gives them a controlling majority in Congress. Furthermore, Peña Nieto has also managed to include PAN and the leftist PRD party on an economic development plan known as the Mexican Pact. Fiscal and energy reform, in which the government has hinted the possibility of joint ventures, will follow most likely this year. Peña Nieto is likely to try to push through these reforms before the 2015 mid-term elections. However, the longer he takes to introduce changes, the higher the risks that the current reform momentum will fade and that he will lose opposition support.

Carlos Cardenas is the Deputy Head of Latin America Forecasting at Exclusive Analysis, recently acquired by IHS.

 

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