A few days ago, the Telecommunications Reform in Mexico marked a decade since its enactment, which represented a landmark for the creation of effective competition and the efficient development of telecommunications markets in the country.
The Telecommunications Reform has not only promoted ventures by virtual mobile operators (OMV) that compete with traditional ones, but has also resulted in a greater adoption of digital services that have caused a proliferation of startups that provide solutions through a smartphone and mobile data.
What did the Mexican Telecommunications Reform consist of and how did startups take advantage of it?
Ten years ago, the Mexican legislative power defined access to Information and Communication Technologies (ICT) as a constitutional right, created the Federal Institute of Telecommunications (IFT), defined the figure of the preponderant economic agent (AEP-T), eliminated long distance and national roaming, proscribed tariff discrimination in services within and outside networks, among other elements.
By the end of 2022, OMVs were already capturing 7.7% of the market, according to data from the consultancy The Competitive Intelligence Unit (CIU). This represents exponential growth in revenue and more than 10 million users or consumers who are part of a market snatched away from large corporations.
This also leads to a circumstantial issue that radically changed digital consumption habits and the search for a more personalized offer.
In the midst of the pandemic, when social distancing made the need to stay connected as much as possible pressing, OMVs proliferated to solve the main connectivity problems: coverage saturation and very high rates.
What do tech startups solve in the Mexican telecommunications market?
Some cases stand out. In 2021, inXel was launched in Mexico, an OMV that began to operate away from the networks of this country’s traditional operators –Telcel, AT&T or Movistar–, through Altán, which has 8,000 radio base stations and covers 80 million people in the country.
The objective of inXel was “to reach areas where connectivity is lacking. We contribute to closing the digital gap in some small towns in Mexico. We don’t want to be an option but a solution that consumers are looking for for their speed, price and connection problems,” stated Andrés Serra, CEO of inXel at its launch.
InXel entered to compete with low-cost plans with other OMVs such as Weex, Flash Mobile and Virgin Mobile, one of the market leaders.
Like this small company, at the end of 2021, the Monterrey-based company Grupo Inten also entered the market, with an offer of internet through modems and SIM cards in areas of difficult connectivity, such as magic towns and rural areas, also thanks to the 4.5 LTE broadband of Altán Networks.
“As a result of the pandemic, families began to see the internet as a personal issue, before in a house everyone connected to the same modem, but derived from the contingency, users have thought about having an internet contract per person to ensure the quality of the connection”, explained at that time Jorge Alvarado, financial director of Grupo Inten.
This allowed an explosion of OMVs. According to an analysis by the IFT at the end of that year, the participation of these small competitors in Mexico’s mobile market went from 1.66% in 2019 to 2.68% in 2021.
With already 10 million users at the end of 2022, the winners of the market are the OMVs that run by verticals, those linked to self-service stores, clothing brands and influencers, analyzes The CIU —of course, commodities prevail.
Although the concentration of the mobile phone and data business is still with traditional players, today there is an acceleration and intensification in the adoption and consumption of telecommunications services among individuals, households and companies in the country, benefiting from lower prices, greater availability, better quality and a growing diversity of supply alternatives.
This acceleration in adoption has benefited the existence and proliferation of startups offering digital financial, consumer, health, education, and other services.
Democratic connectivity to increase the digital market
Santiago Zavala, managing partner of 500 Global in Latin America, recalls that in the nascent Latin American entrepreneurial ecosystem, back in 2013, the fact that people could have internet and mobile apps on their cell phones gave the possibility to create startups with different proposals, very Silicon Valley style.
2015 and 2016 was a first stage, Zavala affirms, where companies like Clip or Konfío, with which the fund worked from an early stage, began to attract investors’ attention and thus the entrepreneurial ecosystem began to be built. “We were in a time of half evangelizing, of convincing ourselves and convincing others that this could be done,” says the investor.
For Zavala, from 2016 to 2019 was a turning point, but definitely, in 2020 connectivity greatly favored the growth of startups. “In the pandemic where digitalization was almost forced, the companies that were ready to take advantage of that, did it and we saw the first unicorns in the country”, he explains.
Juan José Galnares, president of Clip, a unicorn startup that promotes digital payments, believes there is enough market for more competitors, as Mexico is a country with a great opportunity for digital solutions to grow, as it has not yet fully digitalized as more advanced economies have done.
“There is a large young population, with greater penetration to high-end cell phones, mobile data has dropped dramatically since the last regulation in Mexico, this is what we lacked, infrastructure, this has also promoted the boom of the last mile that did not exist five years ago,” Galnares delves.
In Mexico, there are 93.1 million internet users, which represents 78.6% of the population aged 6 or over, according to the National Survey on Availability and Use of Information Technologies in Households (ENDUTIH) 2022.
Pedro Rivas, General Manager of Mercado Pago in Mexico, agrees. He assures that digital services have become exponentially popular since the birth of the smartphone, the use of mobile data, and the simplification of user experience, from games to financial services, which opened a window to anyone with a smartphone.
The ENDUTIH recorded 93.8 million cell phone users, equivalent to 79.2% of the study population. Part of this growth, the statistics indicate, is due to the Telecommunications Reform.
For the growth of Mercado Pago – a business born in the digital era – to have existed, it was necessary for there to be mass adoption of smart mobile devices; this allows democratizing these financial services practically to the entire population.
Greater penetration of mobile internet will favor that in the coming years Mexico will have an unthinkable amount of startups a long time ago, adds the president of Clip.
“The next decade will be very exciting,” says Zavala referring to how startups will take advantage of the great connectivity that exists today, partly benefited by the context given by the Telecommunications Reform.