The need to Deploy a New

Broadband Network in Mexico

Rafael del Villar Alrich* Eduardo Martínez Chombo*

Everardo Quezada González* Arcelia Rodríguez Aguirre*

December 16th, 2009

Summary
The Federal Government has established a 22% broadband penetration goal for 2012. The
current trends indicate that such goal is unlikely to be attained. In order to overcome this
scenario, our proposal contemplates: i) the deployment of a new wireless broadband
network with specific settlement coverage commitments nationwide that allows users
unlimited access to services and content, including telephone services, and competes in
the market, and; ii) a set of policies and actions addressed to develop healthy competition
in the provision of broadband services and to propitiate broadband universal coverage in
Mexico.

Classification JEL: L52, L86, L96.

Key Words: Telecommunications, broadband, wireless network, spectrum, coverage,

Assessment Model, fee.

                                                            
*
Federal Telecommunications Commission.
Correspondence directorate rvillar@cft.gob.mx.

** Opinions included in this document are the authors’ responsibility and they do not necessarily represent
the Federal Telecommunications Commission’s.

This study would not have been possible without the support of a number of people. We express our
gratefulness to them all, especially MS. Roberto Martínez Yllescas, Mexico representative of the regulatory
Group of the WiMAX Forum for accepting drafting the Technical Annex WiMAX for the 2.5 GHz band, Dr.
David Muñoz for his advice to optimize the model to define coverage obligations and, to INEGI for its
support with geographers and systems’ experts, particularly Doctor Natalia Volkow.
Table of Contents 

1.  Introduction ............................................................................................................................ 1 

2.  Broadband development in Mexico........................................................................................ 7 

2.1.  International comparisons and broadband penetration trend in Mexico. ................... 7 

2.2.  Factors that have affected broadband development in the country. .......................... 16 

2.3.  Additional measures to promote broadband in Mexico ............................................. 22 

3.  Wireless Networks for Broadband Development. ................................................................ 27 

3.1.  Importance of Open Wireless Networks for Broadband Penetration. ....................... 27 

3.2.  Relevance of the 2.5 GHz Band. International evidence and experience in Mexico. 43 

3.3.  Comparison of European and American models for the development of mobile
networks using the 2.5 GHz band. ............................................................................. 50 

4.  Importance of Public Policy: Deployment Investment Social Coverage ............................. 55 

5.  Complementary Public Investment for Broadband Development ........................................ 69 

6.  Business Assessment Model for a Broadband Network Relying in the 2.5 GHz band. ....... 72 

6.1.  Methodological proposal and motivation. ................................................................. 72 

6.2.  Description of the Busniess Evaluation Model in the 2.5 GHz band ......................... 73 

6.3.  Sensitivity Analysis. .................................................................................................... 80 

7.  Conclusions .......................................................................................................................... 90 

ANNEX A: Chronology of Requests and Authorizations of Additional Services Provisioning in the

2.5 GHz band………………………………………………………………………...…………….. 97

ANNEX B: Funding of new investment projects under a context of economic recession and credit
restriction ..…………………………….…………………………………………………………. 103
ANNEX C: Characteristics of a WiMAX network in the 2.5 GHz to 2.69 GHz band (very
prelimanry translation, no yet revised)..………………………………………...…….…………. 105
GLOSSARY…..…………………………………………………………………………………...112
 

ii 
 
1. Introduction
 

Broadband1 is an essential infrastructure for modern societies. Its impact on the economy
and on democratic processes is significant. It is have the goal that allows for the distribution
of a wide array of services to the population, such as education healthcare and financial
services. It is also fundamental to abate inequality and access to opportunity. It is an
enabling factor for growth and human development, as well as both the competitiveness of
the economy in the global marketplace. It is also an instrument of citizen participation in
the democratic process. The impact of this technology depends to a great extent on its
widespread access throughout society. 2

In Mexico the national development plan 2007 – 2012 has as a key objective for the
telecommunication sector and transportation to increase the coverage quality and
competitiveness of infrastructure. Moreover, it establishes as a goal for 2012 that Mexico
should be among the top 30 leading countries on the infrastructure, according to the
rankings of the World Economic Forum.3 In parallel, the sector plan for the
telecommunications and transportation sector established a penetration goal for broadband
services of 22% for 2012.

These objectives are clearly ambitious and posed a great challenge. Nevertheless,
international comparative indicators show that Mexico is behind many other countries of
comparable income levels. Furthermore, it is expected that, under current trends, it will not
be possible to obtain these objectives for the telecoms sector.4 In summary, Mexico has
lost competitiveness in different areas and has shifted, from being a leading country in
Latin America, to being a follower.5

                                                            
1
 in this document broadband is understood as the capacity to transmit data at high speed rates by 
telecommunications networks, either wireline or wireless. There is no consensus as to the speed threshold 
to consider any given connection as broadband, as this threshold has changed with the evolution of 
applications content. The Federal Communications Commission (FCC) considers broadband from a speed of 
200 kb per second (www.fcc.gov/cgb/broadband.html), while the Organization for Economic Development
and Cooperation (OECD) has adopted 256 kb per the broadband standard
(http://www.oecd.org/dataoecd/4/23/2496799.pdfy). The international telecommunications Union (ITU)
considers broadband to start from 1500 to 2000 kb per second
(http://www.itu.int/osg/spu/publications/birthofbroadband/faq-es.html). See the glossary for some definition
of the terms that are commonly used in this document.
2
 according to World Bank data (2009) the contribution of broadband to economic growth is greater than 
that for other telecommunications services such as fixed/mobile telephony and the Internet. 
3
 the world economic forum has placed Mexico as 69 out of a total of 133 countries, with respect to the 
development of infrastructure (the global information competitiveness technology report 2009 –  2010). 
4
 as will be shown in section 2, in the context of OECD countries, Mexico still shows one of the lowest 
penetration rates for broadband services and prices still rank among the highest for this group; for which 
quality of service is also in the lower bottom part of the distribution. 
5
 Naím Moisés, November 23, 2009, Financial Times. The author is chief editor of Foreign Policy Journal. 

1 
 
Among the factors that have inhibited the spread of broadband services in the country, lack
of competition is evident. There is growing evidence that the high concentration in the
market, together with the lack of an unbundling policy of the telephone network’s last mile,
have inhibited the rate of growth of broadband services in Mexico6. Other factors that have
influenced in the insufficient broadband growth is the late entry of cable companies into the
provision of this service, as well as a delay in the adoption of third-generation technologies
by mobile incumbents and the conditioning of broadband to the purchase of telephony
services7.

Lack of competition allows the incumbents to select the market they serve and to postpone
the deployment of new technologies, hence avoiding the depreciation of their assets and
sunk investments. In this context, the promotion of new competitors is necessary to foster
the acceleration in the appointment of last generation networks.

New wireless technologies offer the possibility of deploying broadband networks with large
coverage at a fast rate. Thus their adoption would allow to reduce the deficit of broadband
access throughout the country. An inhibitor to spread of these technologies lies in the lack
of effective use of the radio spectrum, either because it is currently underutilized or because
it is being used for lower social value services. In consequence, out of nearly 6000 MHz
that are available for public telecom services, only 326MHz are currently being used and it
is expected that up to 300MHz will be made available through the upcoming spectrum
auctions. This amount of spectrum is insufficient in view of the accelerated rate of growth
in the demand for broadband: according to the international telecommunications Union
(ITU), in order to meet the growing demand for mobile services, at least 760 MHz will be
necessary in the year 2010 at 1000 and up to 1280 MHz in the year 2020.

There are several alternatives to increase the allocated spectrum for telecommunication
services:

1. the 700 MHz band for voice and data, which is ideal for fourth generation mobile
services (4G) will allow for the entry of new operators, as well as for current
operators to count on more spectrum to satisfy the growing demand for data.
2. The 1.7 and 2.1 GHz band (denominated in the US as AWS or advanced wireless
services) for voice and data can be utilized for the provision of mobile third and
fourth generation services, by either new entrants or existing operators. 90 MHz of
120 MHz available in this band will be auctioned in the first half of 2010.

                                                            
6
 to this we also consider the fact that fixed line telephony in Mexico has stagnated, compared to developed 
countries. 19.1% in Mexico versus 40% penetration in OECD countries in 2008.  
7
 cable TV  companies running on analog programming also offer relevant only through the purchase of their 
pay‐TV service. Full digitalization of TV services will do to avoid these problems. However, so far the majority 
of these companies selected for a gradual transition to digital television, combining analog and digital 
programming, which is behind the packaged sale of broadband plus TV services. 

2 
 
 3. The 2.3 GHz and 2.5 GHz, for 4G services, ideal for the next generation of
broadband networks. For these new networks, voice services are in reality data
services.

The 3.5 GHz, for fixed voice and data, is ideal for the last generation of wireless networks
which competes with existing wireline networks. The auction program, as approved by the
SCT (ministry of communications and transportation) contemplates 150 MHz, yet to be
assigned.

Each of these alternatives present particular characteristics, which are differentiated by type
of technology, the phase of development of devices and the presence of operators using
either these bands or contiguous bands.

The world telecommunications sector is now preparing for the effects of a qualitative jump
of broadband wireless technologies, which leads to the possibility of building high capacity
broadband infrastructure at a dramatically lower cost than that previously seen in the
deployment of wireline networks, with the ensuing benefit to the development of the sector
and of consumers. This technology leap poses, nonetheless, a dilemma between solutions
that are apparently different for the provision of fourth-generation services. On the one
hand, there is WiMAX and on the other, LTE or long-term evolution.

WiMAX is based in the deployment of new networks for the transmission of data services
at great volume -of which the demand has exceeded the capacity of cellular voice networks.
On the other hand, LTE is based on the adaptation of existing mobile telephony networks to
the exponential increase in demand for broadband data. The fundamental difference
between these technologies lies in their business models. LTE represents the translation of
the mobile telephony business model to the new business of mobile broadband. i.e.
networks dedicated to the packaging of services and which restrict the use of devices that
are not directly controlled by the network. Under this type of service, even at applications
can be restricted that are not being authorized by the network operator. Contents can also be
restricted. LTE is still in its development phase and that is not definite clarity as to what
the services under LTE will be deployed. Expires identify possible deployment in the 2012
– 2014 timeframe.

WiMAX by contrast, is it is based on the principles us later networks, relies heavily on the
disrupted commercialization model of networks that are open to all kinds of devices and
contents [based on open standards], as well as on the sale of unbundled services.

In this context, the possibilities that are over for the accelerated development of broadband
in Mexico are sufficient size to react through the discussion about the urgency to push
forward the coverage of these services to a new frontier -- are the rules of increased
competition and higher quality of service to all segments of the population. There is
important to note that in this country there is a lack of sufficient information on the

3 
 
penetration of broadband. For example, there is no information on the penetration of
broadband services per region.

Notwithstanding the urgency to accelerate the rate of coverage for the services, any given
project that may be aimed at contribution to this goal should be appraised according to its
financial viability. This will depend to a great extent on the availability of spectrum, given
the trade-off between the cost of deploying the network and the available amount of
spectrum to do that; the more available spectrum, the less initial cost of deployment.

Following the first part on the development of broadband services in Mexico, this
document sets forth a diagnosis of the currently available spectrum for new broadband
networks in the country. The broad competition of this analysis is that the use of the 2.5
GHz spectrum under the WiMAX technology offers the most effective model to deploy a
nationwide network under the current presidential administration -- for WiMAX has
reached enough majority, as is already evident in numerous cases around the globe. IT
concentration of this analysis is that, in order to make effective use of the 2.5 GHz band,
specific deployment milestones or goals should be established, under the terms of the
licensees for this band. Such requirements are needed in view of the previous setbacks in
the issuing of wireless telecommunications licenses -- as measured by their deployment
record. Such was the case when the licenses for 3.4 GHz were issued after 10 years there
has not been a significant rollout of services in that band.

To date, the Ministry for communications and transportation and the federal
telecommunications commission have maintained lenience in their position towards
network deployment requirements. Hence it is customary to establish coverage
requirements for a certain percentage of population in given areas. As these obligations are
defined generic terms, usually this deployment focuses on the cities and other highly
populated locations. In consequence no incentives are generated so as to make the operators
contemplate coverage in rural areas with a lower rate of return on their investments. In
those cases where investment amount requirements are established there is also a
suboptimal outcome, for the operators then will tend to purchase the more expensive
technologies and infrastructure, which can be highly inefficient.

This document aims at establishing specific corporate requirements for new network in the
2.5 GHz band. That is, the definition of the towns and cities that are to be covered in order
to comply with the terms of the concession titles for this band. However, social objectives
related to coverage will be balanced against the objective of deploying the network quickly
enough in a financially viable manner.

This document holds that It is not only important to define coverage objectives for the new
network, but also to contemplate ways to guarantee the Enablement of conditions that will
allow for the compliance with those coverage requirements. In particular, previous to the

4 
 
renewal of these licenses for 2.5 GHz and to their being allowed to include additional
services, it would be fundamental that the applicants to these authorizations demonstrate
willingness and capacity to start an additional seven widespread deployment plan for the
network. Those who are in charge of the design, rollout, control and operation of the new
network should be able to demonstrate enough resources and skills, in order to deliver in
the shortest period of time and with world-class quality, in proportion to the country’s
current needs and infrastructure challenges.

In other words, beyond the maturity of the technology, it is key to count on market
knowledge, logistics-related knowledge, customer service and management that can meet
expectations. Consequently, the renewal and additional services to these licenses would be
justified as long as coverage obligations have been accepted in the consortium that would
be accountable for enough operational, technology and financial capacity to bring about
this new mobile data broadband network.

In the interest of guaranteeing the financial viability of this network project with enough
nationwide coverage, this document proposes to contemplate the possibility of the
government getting its payment for the use of the spectrum in the form of an equity
participation in the new consortium. This implies that, previous to the real world of the
licenses, the legal terms for government participation are established, as well as the
mechanisms and conditions for its eventual exit.

Is important to highlight the degree of coincidence between the coverage policy goals and
an additional set of policies that can enhance competition in the marketplace; namely those
that are related to the availability and access to basic components of network resources,
such as ducts, towers, rights of way and optical fiber. Thus for instance, one of the reasons
why the cost of broadband provision areas increases is the lack of access to the internet
backbone. To the extent that public policy addresses this problem, access to broadband
services in rural and low income areas will be improved; for example, by contributing with
additional optic fiber as part of its participation in the consortium's assets.

The government also recognizes that the development of the broadband network in the 2.5
GHz spectrum is not the only alternative for the development of broadband in this country.
Other alternatives need to be sought, such as the use of additional spectrum resources in the
700 MHz, 2.3 GHz and lower frequency bands), as well as the development of satellite
services.

Hence in the first section of this document, a diagnosis on the development of broadband
services in Mexico is made, which also includes international comparisons, which helped to
identify focus areas in the development of the sector. The second part elaborates on the
importance of wireless technologies for a widespread and fast broadband deployment and
the 2.5 GHz spectrum band is identified as the most able to deliver a satisfactory outcome

5 
 
in the shortest period of time. Section 3 elaborates on the importance of coverage goals and
milestones in the renewal of the concession licenses and a proposal on the definition of
these obligations is explained. Section 4 explores possible modality for the participation of
the government and section presents a systemic model which highlights the trade-offs and
correlations between policy variables, before getting to conclusions.

6 
 
2. Broadband development in Mexico.

2.1. International comparisons and broadband penetration trend in Mexico.

Impact of the telecommunication sector on growth

There is a consensus in the economic literature that the economic growth in Mexico has
been based mainly on the accrual of production factors (work, capital, raw material, etc.)
over the past decades, rather than productivity growth. On the other hand, productivity
improvements have been the determinant factor behind economic growth in countries that
performed better than Mexico (e.g., Jorgenson and Vu, 2005; Chiquiar and Ramos-France,
2009; and OCDE, 2009).

According to the OCDE (2009), the Mexican economy would have shown an annual
growth of 1.3 percent points higher than the average growth recorded by OCDE countries
between 1981 and 1999 if the country had implemented better macroeconomic policies and
structural changes, and instead, the Mexican economy grew 1.9 percent points below its
peers. The OCDE report specifically mentions that the main weaknesses include a lack of
infrastructure, as well as education and development of its financial markets when
compared to developed countries and fast growing emerging economies such as Chile,
Korea and Malaysia.

Other factors contributing to this poor economic performance are inadequate economic
policies; particularly those related to the regulatory framework (see Figure 2.1). This
inadequate regulatory framework has restrained competition, not facilitating access to new
competitors, and obstructs the availability of goods and services at competitive prices.
These in turn have obstructed a rapid and generalized adoption of new technologies and
processes, thereby affecting the productivity growth in the economy in general.

The deficient regulatory and institutional framework, as pointed out by the OCDE, has
resulted in high concentration levels and a lack of competition in many sectors, including
telecommunications. Therefore, the OCDE recommendations regarding policy to stimulate
economic recovery and development focus on promoting competition on existing networks
as well as reduce entry barriers in telecommunications in order to promote the adoption of
new technologies and continued infrastructure expansion.

7 
 
 Figure 2.1. Regulation in Products’ Markets (2008)

Korea  

Austria

Australia
Turkey
Poland

Mexico

Italy

Finland
Czech Republic

France
Luxembourg

Portugal

Sweden

Switzerland
New Zealand

Japan
Belgium

Germany

Hungary

Norway
Note: The scale ranges from a minimum value of 0 (least restrictions to competition) to 6 (maximum
restrictions to competition).
Source: OCDE (2009).

Importance of Information and Communication Technologies (ICT) in the economic

development

Information and Communication Technologies (ICT) are technologies of generalized use

that have a huge impact on the economic structure and development. ICT are characterized
by: i) they are widely used by society in diverse processes, activities and sectors; ii) they
enable, facilitate and complement all kinds of interactions and activities amongst economic
agents as well as the society at large; and iii) they create “positive externalities”, I.e., the
benefits for all users increases simply by virtue of an increasing number of users of the
technology. Given these characteristics, the benefits to be obtained from ICT, particularly
those related to telecommunications, depend increasing its adoption in general.

According to the World Bank (2009), low and medium income countries are in the best
position to take advantage of increasing the telecommunication services penetration of in
order to stimulate economic growth. The larger impact telecommunication services have on
developing countries is partly explained because they help resolve some pressing problems
such as reducing transaction costs, improve inventory management, improve productivity
and improve the efficeiny of markets in general. Similarly, the World Bank indicates that

8 
 
broadband is the telecommunications services that has the largest impact on economic
growth (see Figure 2.2). 8

Figure 2.2. The Effect of Telecommunications on Economic Growth

(Percentage increase in economic growth for a 10 points increase in penetration)
High income economies 
Low and medium income 
economies 

  Fixed  Mobile  Internet  Broadband 

Note: All results are statistically significant at a 1% level, except for broadband results in low and medium
income economies, which are significant at a 10% level.
Source: World Bank (2009).

Broadband’s economic importance lay in the fact that it is a powerful enabler of new
opportunities for any member of society. According to the Federal Communications
Commission of the United States of America (2009), broadband serves as a core platform
for education, training and information to improve the wellbeing of individuals
independently of their community or socio-economic environment; meanwhile companies
of all sizes benefit from a platform that facilitates innovation, reduces costs and allows
access to new markets; and finally for governments it represents a platform to improve their
efficiency, responsiveness and in general improve performance and accountability.

Some examples of broadband’s importance include: allowing small companies to use tools
that were formerly only within reach of large corporations; as a key element to attract
investments and business towards a given community; allows consumers to make more
informed decision; and promote a culture of transparency at various government levels .9

                                                            
8
The survey includes 120 countries and covers the 1980‐2006 period, World Bank (2009).
9
In accordance to the Corruption Perception Index of the International Transparency Organization, corruption
perception in Mexico has increased during the last years, by passing from position 72 in 2007 to the position
89 in 2009, out of a total of 180 countries analyzed. http://www.transparency.org.

9 
 
On the other hand, a lack of broadband adoption and low usage has significant adverse
impacts. For example, students that are not exposed to this communication medium find
themselves at an increasing disadvantage to their peers who have had exposure; workers
have less access to training and therebye more difficulty finding a employment; and
patients have access to less medical information which limits their alternatives for treatment
medical care given the ever increasing amount of medical information found in Internet.

Broadband empowers a citizen’s right to information by allowing them to information in an

easy and timely manner. Similarly, it provides them more opportunities to express
themselves and participate in forming the public opinion. Hence become active actors of
the democratic processes. Therefore, Broadband is a tool that enriches democracy with a
greater citizens participation making more informed decisions.

A high adoption and generalized use of ICT, particularly broadband penetration, has a
significant impact on the performance of economies and the democratic process. Given the
above, it is important to establish the conditions necessary to accelerate its adoption to be as
fast as possible and offer the largest coverage possible. This is not unlike the electric
industry and infrastructure such as the railroad, highways, etc. were in their time.

Factors that affect the development of Information and Communication Technologies

According to Pepper et al. (2009), ICT’s development is linked to many factors that can be
grouped in two big categories: 1) infrastructure, in broad terms, includes from the
physical infrastructure (telecommunication networks, equipment and other physical assets),
to the availability of human capital in the country (which reflects the capacity to manage
and develop those technologies); and 2) the ecosystem, which refers to the institutional
framework in which economic agents and factors that influence the sector’s innovation and
competitiveness interact (for instance, regulation and intensity of competition).

ICT development, particularly broadband, must be accompanied by a balanced

development of both infrastructure and the sector’s ecosystem. Figure 2.3 shows the
situation in several countries regarding the two categories. Focusing on Mexico, the country
shows important lags in both as compared to developed countries as well as emerging
economies with a similar level of development. Although the situation may not appear
disadvantageous compared Latin American countries; the lag is notable compared to
countries like Chile, China, India, Russia and even Turkey, to give some examples.

                                                                                                                                                                                     
 

10 
 
 Figure 2.3. Infrastructure and Ecosystem Development in the TICs sector
International Comparative

Best practices
Singapur.

Finlandia Hong Kong Suecia

Austria Islandia Suiza
Japón Dinamarca
Alemania Noruega
EU Estonia Holanda
Malasia Corea Canadá
Australia Reino Unido .
Belgica Luxembourgo
Ecosystem

Irlanda
Chile
Taiwan

China
India Rumania
Turquía

Rusia
Low development

México Polonia

Brasil

Venezuela

Low development Infrastructure Better practices

Note: Ecosystem variables: General business environment, ICT Regulation, ICT Market and Competition.
Infrastructure variables: ICT Skills, National networks and Internet access. See Pepper et al. (2009).
Source: World Economic Forum (FEM – Spanish initials).

Broadband development in Mexico, international comparison

Penetration (Boradband subscribers per 100 inhabitants). International indicators show

Mexico at a great disadvantage in terms of broadband penetration (see Figure 2.4). In June
2009, the country was in last place amongst OECD countries with a penetration of 8.4
subscribers per every 100 inhabitants. In spite of a growing penetration, the growth rates
are low compared with other OECD countries. For example, Mexico recorded a 5.6 percent
growth between June 2006 and June 2009, meanwhile the OECD average was 8.4 percent
for the same period. The lagging penetration growth is also noticeable compared to similar
developing countries such as Poland, Greece, Czech Republic.

11 
 
 Figure 2.4. Broadband Penetration
(subscribers per each 100 inhabitants, June 2009)

Belgium
Denmark

Korea
Iceland

France

Australia
Japan
New Zealand
Austria
Ireland
Holland

Norway

Sweden
Luxembourg

Spain

Czech Republic

Hungary

Poland
Turkey
Mexico
Switzerland

Finland
Canada

United Kingdom

USA

Slovakia
Germany

Greece
Italy

Portugal
Source: OCDE Broadband statistics.

Price and quality. The situation of broadband in Mexico also lags in price and quality with
respect to international standards. Regarding prices, the lowest monthly fee for residential
service in Mexico is among the five most expensive rates amongst OECD countries.
Meanwhile, the average speed in Mexico was 1.7 Megabits per second (Mbits/s), while the
OECD average was 13.7 Mbit/s. Similarly, fastest offering in Mexico was the lowest in the
OCDE (see Figure 2.5). Speed tests in 29 countries done by the Berkman Center (2009)
corroborate the above, placing Mexico as the country with the lowest connection speeds for
transmission (upload) and reception (download) of data. The result is a combination of high
prices and low quality (measured in speed terms) service. Said combination results in a
price per Mbit/s amongst the most expensive in the OECD (see Figure 2.6).

It is important to point out that OECD studies that compare rates using the price per Mbit/s.
This is a standardized variable allowing comparisons when different speeds are being
offered. However, it does not consider restrictions which users in Mexico are subject to, for
example:

12 
 
 Japan
Mexico Finland
Turkey Denmark
Canada France
Poland Iceland
Hungary Korea
Belgium Sweden

Source: OCDE Broadband statistics.

Source: OCDE Broadband statistics.
Czech Republic Holland
USA Germany
Slovakia
Norway
Portugal
Spain
Norway
USA
Austria
Portugal
Spain
Australia
Switzerland

 
Luxembourg
Ireland
Austria
Luxembourg
Canada
Germany
New Zealand
Italy Switzerland
United Kingdom
Greece
(Mbit/s, September 2008)

Holland Ireland
Iceland
United Kingdom
Greece
Czech Republic
Denmark
Slovakia
New Zealand
Belgium
(Dollars PPP, October 2005, logarithmic scale)
Australia
Hungary
Finland
Italy
Sweden
Poland
Figure 2.5. Maximum Broadband Service Speed Offered

Korea
Figure 2.6. Price Range per Mbit/s for Broadband Service

France Turkey
Japan Mexico

 
 

1) Broadband is often offered only as a package with other services such as the
telephony. Therefore, the user must also contract the operator’s fixed telephone

13 
 service to receive broadband access.

2) Offer in Mexico is restrained to low speeds. Even when consumers are willing to
pay higher prices for faster and better quality Broadband, no one offers higher
speeds in the market. Therefore, the standardized price comparisons do not
consider the lost benefit for users as a result of not having the option for broadband
with the higher speedsalready available in other countries.

As summarized in Table 2.1, below, Mexico shows a low performance in penetration, price
and quality with respect to other OECD members. This should be an alert regarding the
urgency of implementing policy to promote broadband adoption in the short-term.
Table 2.1. Mexico’s position in Broadband indicators amongst 30 OECD countries

Broadband indicator  Position*  Source 

Broadband penetration per inhabitant  Last.  OCDE 
Fixed broadband penetration per home  29th  OCDE 
3G Mobile service penetration  29th  GlobalComms 
WiFi Hotspots penetration  26th   Jwire 
Average speed – Mbps for reception (download)  Last.  Berkman  
Average speed – Mbps for sending (upload)  Last.  Berkman  
Average latency  29 th  Berkman  
Maximum speed offered by the main provider  Last.  OCDE 
Average speed of the biggest provider’s offers  Last.  OCDE 
Price for low speed service (256 kbps - 2Mbps)  Last.  OCDE 
Price for medium speed service (2.5 - 10Mbps)  27 th  OCDE 
Price for high speed service (10 - 32Mbps)**  Service not OCDE 
available 
Price for connection service higher than 35Mbps.**  Service not OCDE 
available 
* Better performance in descending order.
**Services with these speeds are not currently offered in Mexico.
Source: Berkman Center for Internet & Society at Harvard University (2009).

It is important to mention that Mexican authorities have emphasized the country’s

international ranking, rather than identifying countries whose policies are appropriate for
Mexico, and learn from them. In other words, the purpose of international comparisons is
as a tool to identify policies adopted by countries that have positive and negative results in

14 
 
various areas of interest, for instance, broadband penetration or the price for a particular
service.

Perspectives of Broadband Development in Mexico

According to international comparisons, the lag with respect to other countries will
contineu to grow further weakening Mexico’s competitiveness if the current trend of slow
Boradband adoption continues. This is independent of the likelyhood that the 22%
penetration goal for 2012, established in the Federal Government’s National Development
Plan, will not be met. Current estimates based on the actual trends indicate that only a 16%
penetration will be achieved by that year, (Merrill Lynch Global Wireline Matrix 2009)
(see Figure 2.7).

Figure 2.7. Broadband Penetration Projections Based on the Current Trend

Observed
Projection by Analysts
Purpose

Source: Observed data COFETEL. Forecasts, Merrill Lynch Global Wireline Matrix 2009.

If we take into consideration the impact of Broadband penetration on the economic growth
reported by the World Bank (2009), the 6 percentage point difference between the
administration’s goal and the current estimate for 2012, would represent approximately 0.8
points of economic growth that no longer occurs that year. Despite being a “rough”
estimate, this simple exercise suggests a cost (“opportunity costs” in economic terms) of
postponing or not establishing public policies intended to stimulate broadband adoption.
This cost has to be considered in assessing any economic policy for the sector.

15 
 
 2.2. Factors that have affected broadband development in the country.

The current administration has discussed several policy proposals for the
telecommunication sector, including broadband. Following are some of the factors that
have affected broadband adoption in Mexico, and measures needed to stimulate the sector.

Concentration of fixed telephony service and unbundling local loop

Mexico’s broadband lag is the consequence of several factors of which the lack of
competition stands out as the primary culprit. For instance, DSL technology allows third
parties to offer broadband over traditional telephony networks.10 Therefore, the telephony
network could be a vehicle to introduce competition and increase broadband adoptions in
the country. Nonetheless, introducing competition using/leasing the “last mile” has not
been possible in Mexico. Mexico is the only OECD country that does not have such a
policy in place (see Table 2.2). Amongst the main reasons Telcel and Telmex recurred to an
court injunction against the Technical Plan for Interconnection, published by COFETEL in
February 2009, was because it established some infrastructure sharing and unbundling of
“last miles”, both wired and wireless. Telmex and Telcel are undoubtedly the main fixed
and mobile telephony services in the country. Telmex represents around 85% of the market
and Telcel more than 70%. Therefore, their position to not accept these pro-competitive
measures directly affects broadband adoption in the country. It’s worth mentioning that
Telmex has supported last mile unbundling policies in other countries, Chile in 2004.11

On the other hand, the global trend of declining fixed telephony subscribers, which is also
present in Mexico, will eventually limit the potential broadband adoption through that
network. This is particularly concerning for Mexico, because this inflection is occurring at
a point where penetration levels are very low. According to information by COFETEL, the
number of fixed telephony lines per every one hundred inhabitants was 18.7 in 2005, and
by mid 2009 it reached 19.1.12 According to the International Telecommunications Union,
in said penetration is generally above 40 lines per 100 inhabitants in developed countries.

                                                            
10
With the DSL technology by the same copper pair of the fixed telephone network data are transmitted in
high frequencies, and voice in the lowest frequencies. With the DOCSIS technology of coaxial wire, it is also
possible permitting that third parties provide broadband services through TV cable networks.
11
 Answer to the document “Reference Framework-Regulation for Networks’ Unblunding Services” prepared
by the sectorial regulator of Chile in 2004. In its answer, Telmex recommended that (i) unbundling company
must be endowed to irrestrictly provide all services with its concession, (ii) that the sectorial authority must
supervise the no discriminatory treatment in the unbundling supply, (iii) that the telephone network must
provide information that allows planning to the unbundling companies, among other pro-competitive
recommendations. See. Del Villar (2009).
12
Even, there have been several quarters in which drops in the fixed telephone service penetration have been
observed, this in accordance to information by COFETEL.

16 
 
Without the unbundling alternative, companies have focused on competeing between
networks (for example, the cable TV networks versus the fixed telephony network), and not
between services, such as providing broadband service, as occurs in most other OECD
countries. Hence, the importance of making the deployment of new broadband networks
feasible has become paramount.
Table 2.2. Global telecommunication policies and practices according to the Berkman
Center for Internet and Society at Harvard University

1) Transferring the experience of open access regulations of the first transition for the
broadband to the following generation conductivity, currently occupies a core role in
countries’ planning.

Our most surprising and significant finding is that “open access” policies – unbundling of
the “last mile”, capacity lease, sale of services, co-location and/or functional separation –
are: (i) accepted, almost universally, as they have played a central role in the diffusion of
broadband first generation in most of the countries that have shown a high performance,
and; (ii) central reference for the for the next generation broadband technologies planning.

The importance that those policies have in other countries is particularly surprising within
the context of the public policy debates that have been occurring during the last decade in
the United States of America (and in Mexico). Despite that the Congress of the United
States of America adopted several open access rules in the Telecommunications Act,
approved in 1996 almost unanimously; the Federal Communication Commission (FCC)
decided abandoning that regulation mode for broadband in a series of decisions in 2001
and 2002. Ever since, the instrumentation of open access policies has been mostly a
closed matter in the public policy debates in the United States.

However, evidence suggests that transferring the experience of open access policies to the
next technological generation is playing a core role in the current planning exercises in
countries with better performance.  

17 
 
(Table 2.2 continued…)
2) Open access policies have sought incrementing competition levels and reducing
access barriers; they focus in using the telecommunications raw materials’ regulation to
improve efficiency in the broadband market competition.

3) Evidence suggests that the emphasis of other countries, with better practices in
open access policies is well supported.
Japan, Denmark, Holland, Norway, Sweden, France, United Kingdom, New Zeeland:
The open access policy, particularly the last mile unbundling, played an important role to
facilitate the competitive entrance of new operators in many of the countries observed.
Generally, even when there is competition among networks, operators who have entered under
the last mile unbundling mode have been an important detonator of competition in the market.
The competition introduced through the open access has trend to impulse investment and
improve speeds, technological progress, price reduction, or services innovation. 

Japan, South Korea, France, Germany, United Kingdom, Canada:

A regulator committed to the open access policy implementation is more important than the
formal adoption of the policy.

Germany and Canada:

The last mile unbundling was formally available, but weakly implemented, competition was
limited to entering entities with own infrastructure, with weak results. 

Japan, South Korea, Sweden, Holland, France, United Kingdom, Group of Regulators of the
European Union, New Zeeland:
The open access rules are being currently applied in the transition towards new generation
networks, especially optic fiber. 

Japan, South Korea, Denmark, Norway, Sweden, Holland, United Kingdom, France, Germany,
Italy, New Zeeland:
Competition among networks generally complements, instead of substituting competition, based
on the access to infrastructure. 

Japan, South Korea, Denmark, Norway, Sweden, Holland, United Kingdom, France:
Competitors have the Inclination to enter the field through the last mile unbundling access and
capacity lease. 

Group of Regulators of the European Union, Holland, France, Germany, Switzerland, United
Kingdom:
High costs predicted for the transition to the new generation are impelling the countries and
companies to seek for mechanisms to share costs, risks and infrastructures, instead of only
focusing in the creation of redundant infrastructures to secure competition. 

Source: Berkman Center for Internet & Society at Harvard University (2009).

18 
 
Inclusion of other fixed networks in the provision of broadband services

Although the 1995 Federal Telecommunications Act (LFT – by it initials in Spanish) does
not restrict wired public telecommunication networks from providing new services, it was
not until 2003 that cable TV companies were permited to offer broadband service, while it
was already permited in twenty-six OECD countries in 2002. Broadband adoption on these
networks was also slow because they were not authorized to provide telephony until the end
of 2006.

Authorizing cable companies to provide telephony service inspired a larger number of

participants in the market. There are currently more than 250 permits to provide broadband
Internet service through cable TV companies. According to data from the National Cable
TV Association, 20% of their affiliates’ customers have a broadband Internet subscription.

In spite of new broadband providers entering the sector since 2003, broadband adoption via
cable networks has not been enough to match the Broadband growth trends in other
countries. While competitive wired networks have grown and contributed to broadband
adoption, it has been slow due factors such as the high cost of deploying these fixed
networks, the high cost for traffic transport and difficulties getting backhaul links and
interconnexction in a timely fashion.  

Broadband and personal computer penetration

The main Internet access provider reapetedly states that the low broadband penetration is
due to the lack of computer equipment in the general population.13 Thereby diverting the
broadband discussion toward factors related to a lack of computers and the low purchasing
power of potential customers.

The National Survey on Availability and Usage of Information Technologies in Homes

(ENDUTIH) by INEGI, indicate that from 2001 to 2008 aproximately one of every two
homes with a computer connected to Internet (see Figure 2.8)14. One would expect a larger
percentage of to connect to the internet over this period given the growing need to connect
to the Internet for educational, information and entertainment purposes combined with the

                                                            
13
 See, e.g., Teléfonos de México, Annual report 2006, Letter to shareholders page 3.
www.telmex.com/mx/corporativo/pdf/pt_descarga.jsp?a=informe_anual_2006.pdf
14
 ON December 18, INEGI published preliminary results of the ENDUTIH corresponding to the annual
inquiry conducted in July 2009, as there are significant discrepancies between the information compiles by
COFETEL about operators and the reported by the latter ENDUTIH, the INEGI is been requested several
review, which will resolve in the months to come.

19 
 
tendency of users to connect from their homes rather than other sites as well as the growing
number of computers per home.

Figure 2.8. Computer Equipment and Internet Connection Availability in Homes

(homes percentage)
Homes with computer
Homes with Internet connection
Homes percentage

Source: INEGI, Statistics on Availability and Use of Information and Communication Technologies at Homes
(ENDUTIH).

Even with the recent increase in competition providing Internt access, 54% of homes with a
computer that were interviewed in 2008 stated that the lack of economic resources was the
main reason for not having Internet access at home. There is a double causality. In the
degree that broadband becomes more accessible, the demand of computers will increase. In
turn, as computers and software becoming less expensive, demand for broadband will be
stimutaled. 15

On the other hand, the 2008 National Survey on Income and Expenditures of in Homes
indicates that homes in the bottom two deciles practically do not have Internet access.16
Furthermore, those with access are likely to be dial-up users (see Table 2.3). This suggests
a need for specific actions such that lower income homes may have broadband service.

                                                            
15
 From 2001 to 2008 the annual average growth of homes with computers was 14.5%. In accordance to
preliminary results of INEGI, this growth decreased 4.7% from 2008 to 2009. This result may be explained in
part by the deceleration in the acquisition of computers by homes before the higher uncertainty and less
income due to the economic crisis.
16
Even in the fifth decile only one of every ten homes has access to Internet.

20 
 
 Table 2.3. Homes with Telecommunication Services
per Decile of Income (2008)
(penetration, homes percentage)
Fixed Mobile
Decile Internet
tel. tel.
I 11.8 12.6 1.2
II 16.8 24.6 2.9
III 24.6 31.2 5.6
IV 28.8 42.1 7.7
V 33.0 49.6 9.9
VI 41.2 53.4 10.1
VII 46.3 61.8 15.0
VIII 56.0 67.7 16.1
IX 64.9 75.1 24.5
X 78.5 83.1 35.1
Total 40.2 50.1 12.8

Source: INEGI, National Inquiry of Income and Expenses at Homes, 2008.

Broadband penetration, restriction in the use of Internet and services packaging

An attractive aspect of broadband service is that many goods and services can be provided
over this medium; suc as telephony service based on Voice over Internet Protocol (VOIP).
Operators have restricted the use of certain Internet applications reducing the value of
broadband service for potential users. For example, Telmex used to forbid their broadband
customers (Prodigy Infinitum) to send voice traffic using VoIP (Clause 18 of the Prodigy
Infinitum Contract). Telmex modified this clause in April 2007, thereby allowing its
broadband subscriber to contract telephony services over IP from other companies,
provided that those companies are duely authorized to provide said service.

As for mobile services, operators restrict access to certain applications, content and Internet
services, limiting the benefit of data services. They specifically restrict telephony services
over IP.

As previously mentioned, authorities limited the broadband offer by not allowing cable TV
companies to offer complementary services that have a very low marginal cost but a large
demand, such as telephony service or Voice over IP, until 2006. Some of these restrictions
and limitations are illustrated in Del Villar (2009). The current administration has
authorized practically all applications from cable TV companies for value added services.

21 
 
At this time, the largest fixed telephony operator in the country does not offer broadband
independently from the telephone service. This practice discourages customers from using
Voice over IP services from other operators, given that they must subscribe to and pat for
telephony service from the broadband provider anyways. The bundling of services is likely
to have a negative impact on Broadban adoption, given that one factor motivating Broadban
demand is precisely access to less expensive Voice over IP service to avoid using the
traditional telephony service. In other words, forcing users to subscribe to an obsolete and
more expensive voice service reduces broadband’s attractiveness.

Recently, however, the Federal Competition Commission (COFECO) resolved that the
bundling of telephony and broadband services by Telmex does not represent an anti-
competitive practice, arguing that the bundling of those services is a response to market
demand rather than a restriction impeding broadband users from contracting third party
voice services.17

2.3. Additional measures to promote broadband in Mexico

 

The measures described below can stimulate broadband adoption, by either facilitating
access or making the service less expensive. Table 2.4 shows some of the most relevant
measures in addition to those already mentioned in section 2.2.
Table 2.4. Some policies to stimulate Broadband adoption

1) Policies to stimulate the supply:

• Availability of dark fiber for lease
• Sharing ducts, posts and other rights of way at cost based rates
• Opening direct foreign investment in the sector
• Interconnection rates based on cost and capacity
• Introduction of mobile broadband virtual operators

2) Policies to stimulate the demand:

• Unlimited access to content, application and services, and the use of any terminal
equipment that does not harm the network.
• Ability to subscribe to broadband service not bundled with the telephony service
Source: Own preparation.

                                                            
17
 Resolution by the Federal Commission of Competition, File Number DE-33-2007, resolution dated August
20, 2009, http://www.cfc.gob.mx/docs/pdf/vpde-033-2007.pdf. 

22 
 
Leasing dark fiber

Any telecommunications operator servicing end users needs to send traffic through inter
city transport networks in order to carry traffic to other regions or countries. In Mexico,
most of the optic fiber networks for inter city transport owned by diverse companies are
concentrated within the zone delimited by the three main urban centers of Guadalajara,
Monterrey and Mexico City. This infrastructure is scarce in lesser developed zones. For
example, only the Telmex and the Federal Electricity Commission (CFE) networks exist in
the southeast of the country. CFE is a state company providing electric power service.

A key element for third parties deploying last mile broadband networks is to have access to
inter city transport networks, because it’s an essential part of the data carrying process. The
high costs for inter city transport in regions where optic fiber is scarce have contributed to
the low development of broadband networks in said locations. Creating conditions that
make deployment broadband networks in unserved areas economically feasible must be a
priority public policy goal.

The competition offering inter city transport capacity would reduce its price and contribute
to the deployment of local broadband networks. One way to introduce more competition in
this market, in addition to selling CFE capacity, is the long-term lease of dark fiber (I.e.,
optic fiber threads without transmission equipment) in the intercity transport segments
where the only transport networks that exist are Telmex and CFE. Executive office
recently decided to offer two of CFE’s optic fiber threads in long-term lease auction.
However, it is necessary to make a larger number of optic fiber threads available through
this type of contracts in order to achieve a higher impact on the market.

Sharing towers, ducts, posts and rights of way at cost based rates

Infrastructure such as ducts, towers, posts and rights of way are essential resources in
providing telecommunication services, because they are not replicable by competitors due
to their high cost and long-time lead time needed to install them. For example, installing
ducts represents up to 80% the total cost of lying of an optic fiber network (see section 6).
The shared use of this infrastructure can significantly reduce an operator’s costs to expand
their network.

Infrastructure sharing is consistent with state and municipal urban planning policies that
seek to avoid towers agglomeration (which has even provoked permits denials), in addition
to eliminating the nuisance casued by such civil works.

Several countries (e.g., United States of America, Australia, Canada, Germany, Spain,
Hong Kong, India, Italy, Japan, France, Portugal, Sweden and United Kingdom) have
already implemented such a policy. In some cases, they imposed the obligation to share
23 
 
such infrastructure on all operators, and in other cases only on the larger operators. There
is a diversity of regulations on rates for leasing said infrastructure. France, Portugal and
Italy, conduct a public bid overseen by the authority. In Canada and United States of
America rates are determined by the authority based on costs models. Others are done by
negotiation between the parties; where the authority intervenes if they cannot agree.

Authorities should implement regulation such that operators lease their infrastructure
(ducts, towers, posts, rights of way, etc.) under equitable conditions to operators that so
request it. The above under a rate structure based on a costs model that allows third parties
access to said infrastructure that maintain operators’ the incentives to invest. Infrastructure
leasing avoids unnecessary third party investments and lessees get an additional source of
funds.

Opening sector to direct foreign investment

Restrictions on foreign investment participation in telecommunication companies (limited

to 49%, except for the mobile telephony service) inhibits the entrance of new operators and
creates unnecessary financing restrictions for existing operators. In respond to the
technologic changes in the sector, licensees must have a flexible financial structure that
enables them to access any capital market in order to be able to acquire technologies that
offer the to provide new services.

It is important to mention that 22 of the thirty OECD member countries lack any foreign
direct foreign investment restrictions in the telecommunication sector. In fact, only
Mexico, Canada and Korea have restrictions that impede new operators from having a
majority foreign ownership. The other OECD countries that impose restrictions do it on the
foreign ownership in the main operators, and not for the newcomers, precisely due to the
benefit they generate to users. Therefore, eliminating foreign ownership restrictions on
operators is recomendable,18 or at least on the main operators in the fixed telephony, mobile
telephony and broadband markets.

Interconnection rates based on cost and capacity

                                                            
18
Foreign investment would only be subject to the authorization by the National Commission of Foreign
Investment, as it happens in the mobile telephone service.

24 
 
The interconnection rates is one of the main elements in an operators’ cost structure.
Therefore, it has direct repercussions on the the rates paid by the public and the
development of competition, telephony and broadband services. The Fundamental Plan for
Interconnection (COFETEL, 2009) establishes that interconnection rates must be based on
cost, which opens the door to the IP interconnection – if an operator offers IP
interconnection, it must make it extensive to other operators to prevent discrimination – and
allows interconnection based on capacity and not only by time.

Traffic growth between networks is requiring higher interconnection capacities. Therefore,

it is important to implement new methods that fit the operato’s needs to collect
interconnection services, such as establishing capcity based interconnection rates (e.g., a
monthly rent per unit equivalent to multiples of two megabits per second to send any
amount of minutes that the interconnected operator may require). This method gives
operators greater flexibility to offer wider range of services to their users.

Introducing mobile broadband virtual operators

Mobile virtual network operators offer mobile voice and data services by using the capacity
of other operators who own the license to deploy networks in mobile frequency bands.
This represents a mechanism that allows new operators to enter the market by eliminating
the need to have a spectrum license. There are several frameworks: i) a simple distributor
or reseller framework; ii) a wholesale capacity framework by the “virtual” operator, and
sale of its own service to the end user; or iii) through the sublease of frequencies, where the
lessor installs its own network elements.

More favorable wholesale terms than those the wholesaler offers its own customers, taking
into consideration purchase volumes and non-incurred costs to avoid choking profit
margins, are needed in order to ensure the development of mobile virtual network
operators.

Unlimited access to content, application and services, and use of terminal equipment

Eliminating restrictions or limits on access to content, applications and services has great
relevance for broadband demand and adoption, as well as the development of the
telecommunication sector in general.

25 
 
Along this line, regulations in other countries that at their proper time were established for
fixed telephony networks gain relevance. Innovation and development of the sector, and
specifically the Internet, has been closely related to the possibility that users may use any
kind of terminal device provided it does not harm the network (obligation imposed on
AT&T by the FCC of the United States in 1968), and allowing fixed telephony users to
subscribe to any Internet service provider without having to pay an additional rate to the
telephony operator (FCC, Enhanced Service Provider Exception of 1983).

By allowing users to connect any terminal device that complies with the technical
requirements of the fixed telephony network propitiated the development of new devices
such as automatic answering machines, faxes and eventually modems in order to connect to
the Internet.19 Therefore, regulation had a profound positive impact on the sector’s
development. Similarly, permitting independent Internet Service Providers to use the fixed
telephony network without them having to make a special payment to the owners of said
networks propitiated a great innovation of services, content and applications through
Internet.

One should note that similar obligations have not been established on mobile telephone
networks, which, as ecplained in section 3.1, have experienced much higher growth than
the fixed telephony networks; and therefore, these restrictions acquire more relevance than
they had just a few years ago.

Mobile telephony networks have a common practice of exclusive or quasi-exclusive

agreements between network operators and equipment providers, as well as blocking
cellular telephones and personal digital assistants (PDA) from other operators. Blocking
prevents the use of terminal equipment on networks other than the one belonging to the
operator that provides the service. This practice increases the costs for consumers to change
operators. It appears that the history of fixed telephony prior to the 60s, when the use of
equipment on the networks was restricted, repeats itself.

Based on the experience of the Internet’s rapid adoption and the history of the fixed
telephony regulation, it would be valuable to ensure that the existence of a broadband
network that does not restrict access to content and services over that network, and which
allows the use of any kind of device that complies with the network's technical
specifications. Such policies would guarantee the rapid and widespread adoption of
                                                            
19
Until the end of the 60s, AT&T, the monopoly of fixed telephone services in USA, accepted as terminal
equipment only the equipment provided by the same company. There was no competition in the manufacture
of telephonic equipment, which caused a slow innovation process in that segment of the industry for several
years. However, during the 40s and 50s some devices were developed, which coupled to the AT&T network
could provide new characteristics to the service and they may even offer new telecommunication services.
An example of those devices was the “Carterfone”, a device that communicated a mobile radio service with a
telephone.

26 
 
broadband amongst the population and encourage competition amongst equipment
providers, which eventually reduces their price.

Stand-alone broadband service offering

Technically, fixed and mobile telephony networks are able to provide broadband service
independently from the telephony service. This is currently a common practice in several
countries (e.g., United States of America, Canada, France, Austria, Belgium, Italy, Holland,
Norway, Sweden and Australia) where mayor operators offer the services independently.
This creates incentives that expand telecommunication services, as there are a growing
number of consumers who already have a mobile telephony service that would prefer to not
subscribe to a fixed telephony service, but would want the fixed broadband service.

As mentioned in section 2.2, the sale of broadband service tied to a fixed telephony service
is a disincentive for consumers to access the broadband service, because they have to incur
in the additional expense involved contracting a telephony service which they may not
want.

3. Wireless Networks for Broadband Development.

3.1. Importance of Open Wireless Networks for Broadband Penetration.

Wireless networks importance

In the last years, wireless technologies have emerged as a means to offer users broadband
services. Compared to wired technologies, wireless technologies do not require digging
trenches and getting rights of way to install a physical connection to end-users, enabling
operators to reduce fixed costs and have a faster network deployment. These savings may
be significant if we consider that civil engineering costs in a wired network, including
trenches, ducts, posts, cable, and rights of way, represent 30% to 80% of the network’s
capital expenditures20. According to Raghunathan (2005), the cost per user in a wired
network in many cases reaches three times the cost per user in a wireless network.

Wireless technologies also offer mobility. Increasingly, consumers are demanding greater
flexibility in regards to the location and timing where they may access telecommunications

                                                            
20
See European Regulatory Group (2007), p.17; Office of Communications (2008), p.40; and OCDE (2008),
p.20.

27 
 
services. This trend in consumers’ preferences may be better matched by wireless
networks.

Because of these advantages, wireless networks have witnessed an accelerated growth

during the last years. Figure 3.1 shows the growth of mobile and fixed telephone
subscribers worldwide. A similar trend has occurred in Mexico, however, in comparison to
other countries, the vast majority of mobile users have low-speed access services known as
second generation or 2G (see Figure 3.2). The lower adoption of 3G services in Mexico is
partly due to the fact that mobile operators have migrated only lately to 3G technologies.
Currently, the number of 3G subscribers is showing a strong growth, although it is starting
from a small subscriber base (GlobalComms 3.0 reported in Federal Communications
Commission, 2009).

Figure 3.1. Fixed and MobileTelephone Subscribers Worldwide

Cellular Services Subscribers

Fixed Telephone Lines

Source: ITU

28 
 
 Figure 3.2. Penetration of Mobile Services of Third Generation
(Subscribers per every 100 inhabitants, March 2009)

Source: Telegeography GlobalComms 3.0, reported in Berkman Center for

Internet & Society at Harvard University (2009).

Table 3.1 shows the importance that radio-electric spectrum has in providing
telecommunications services (revenues generated by commercial services using the
spectrum). According to calculations made from information reported by
telecommunications companies to COFETEL and from the study conducted by the Media
Agencies Association on the value of the media industry in 2008, revenues generated by
services using the spectrum accounted for 66% of the total revenues of the
telecommunications and media sectors.21 Almost half of these revenues were attained by
2G and 3G cellular operators.

Despite the economic importance that spectrum use has, wireless technologies still cannot
match the speeds offered by wireline technologies. For instance, fiber to the home
networks currently offer 2.5 to 63 times higher speeds than wireless technologies available
today22, although at higher costs.

                                                            
21
To calculate income of services that use the radio-electric spectrum, income for mobile telephone services,
paging, trunking, satellite and a percentage of the income for local services and restricted TV were
considered; as for what corresponds to telecommunication services, and advertising expenses in open TV and
radio, the ones corresponding to communication media services were considered.
22
See OCDE (2008), p. 26.

29 
 
Table 3.1. Annual Revenues generated by Services Using the Spectrum in Mexico
(2008)

Service Total % using Revenues from

Revenue spectrum services using the
(millions) spectrum
Telecommunications:
• Mobile telephony 173,314.8 100% 173,314.8
• Paging and Trunking 24,019.6 100% 24,019.6
• Satellite 3,993.6 100% 3,993.6
• Local Services1 63,792.9 8.2% 5,231.0
• Restricted TV2 21,000.6 48% 10,017.3
• Long Distance 36,273.3 0%
• Other3 8,053.3 0%
Total 330,449 216,576.3

Media
• TV Broadcast 31,394 100% 31,394
• Radio 4,820 100% 4,820
• Press 4,552 0%
• Magazines 2,252 0%
• Exterior 4,591 0%
• Restricted TV 3,181 0%
• Other4 2,825 0%
Total 53,986 36,214

TOTAL 384,435 252,790.3

% of the Total 66%
1
Local service revenues reported in Axtel’s 2008 Financial Report were equivalent to 8.2%
of the industry’s total revenues from such services.
2
Satellite restricted TV service revenues reported in Televisa’s 2008 Financial Report were
equivalent to 43.6% of the industry’s total revenues, and MVS estimated MMDS restricted
TV service revenues accountes for 4.1% of the industry’s total revenues. MVS reported an
average of close to 720,000 users during 2008, and received an estimated average revenue
per user of 100 pesos per month. Since Dish Mexico started operations until the end of 2008,
its revenues were not significant in 2008.
3
Includes new public telephony service licensees and companies that only provide value
added services.
4
Includes movies and Internet.
Source: Directorate of Statistic Information on Markets (COFETEL) and Media Agencies
Association, “Value of the Media Industry 2008”.

30 
 
Social Value of Spectrum

The spectrum is a public domain good used by mobile and fixed service providers. These
services compete directly and/or indirectly with the services provided by wired network
operators. As mentioned above, services that use the spectrum are already generating 66%
of the telecommunications and media sectors total revenues, which in 2009 represented
4.2% of the GDP.23 In fact, wireless networks currently have a much higher firm value
than wired networks.

From the licensees’ (investors) point of view, spectrum value depends on the investment
return they may obtain by offering telecommunications services (called the producer's
surplus). From society’s point of view the value of spectrum comes from the benefits
gained by consumers, the productive sector and the government from the services provided
through the spectrum. While there are direct benefits, namely job generation, investments
and taxes collected from spectrum licensees, there are other indirect ones that improve
people’s quality of life (e.g., health, education) and increase productivity and
competitiveness of the economy. These benefits are higher as spectrum is used more
intensively and as services become widely available.

The social value of using the spectrum includes:

• the producer’s surplus (revenues less costs of providing telecommunications

services by spectrum licensees);

• the consumer’s surplus (difference between the consumers’ willingness to pay for
telecommunications services using the spectrum and the actual price payed for such
services);

• benefits associated to spectrum fees paid to the government;

• the benefits accrued to the expansion of the country’s economic activity and higher
competitiveness, as well as the ones attained from the improvement of people’s
quality of life.

Estimates suggest that the consumer’s surplus exceeds by far the producer’s surplus.
Hazlett and Muñoz (2009a and 2009b) find that the change in consumer’s surplus as a
consequence of allocating spectrum to mobile telephony services is more than 10 times the
increase in producer’s surplus. For the specific case of Mexico, Hazlett and Muñoz
(2009b) estimated that the increase in consumer’s surplus for the allocation of 100 MHz to
                                                            
23
Own estimate with information from the Directorate of Statistic Information on Markets COFETEL (based
on the National Accounts System of INEGI).

31 
 
mobile telephony services is in the excess of 14 billion dollars, while the producer’s surplus
increase is only of 2 billion dollars. These estimates were based on voice services; thus
they do not consider the economic benefits associated to the provision of broadband
services.

The fact that the social value of spectrum considerably exceeds its private valuation makes
the allocation of this resource a policy issue of great importance. Therefore, in order to
extract the maximum social benefit, the spectrum should to be allocated to those that use it,
develop it and exploit it the best (i.e., those who make the most efficient use of this
resource). Within the context of the Mexican market and the current technological
innovations, the allocation of additional spectrum must provide higher competition and
service coverage. If spectrum is granted to incumbent operators, it is possible that they
may only seek to obtain such spectrum to avoid the entry of new competitors and not to
develop it. By blocking competition, incumbent operators could avoid investment
cannibalization (i.e., incumbents avoid the depreciation of their investments made by not
developing the new band). To keep the market closed to new entrants, incumbents may
even offer paying the Government a large fee. In such case, the producer’s and consumer’s
surpluses are not attained, nor the benefits to the population and productive sectors
mentioned above.

Broadband Wireless Technologies (LTE, WiMAX)

HSPA (High Speed Packet Access), EV-DO (Evolution Data Optimized) and WiMAX
(Worldwide Interoperability for Microwave Access) are competing technologies in the
development of mobile broadband networks. HSPA and EV-DO are 3G technologies that
are focused on the provision of the mobile telephony service. HSPA is the evolution of
GSM cellular technology, which currently dominates the mobile telephony market
worldwide, with more than 3 billion users (Informs Telecoms & Media, 2008). In Mexico,
this technology is being used by Telcel and Telefónica in their 2G networks. On the other
hand, EV-DO is the evolution of CDMA technology which is being used in Mexico by
Iusacell in its 2G network. Both, HSPA and EV-DO are planned to migrate to a new
technology called LTE (Long Term Evolution),24 which according to Qualcomm it will be
commercially available by the second half of 201025 for only few frequency bands and with
limited terminal equipment availability. In the United States, the development of LTE
networks is focus in the 700 MHz band. In fact, Verizon already announced plans to start
the deployment of an LTE network in the beginning of 2011. In Europe, the development
                                                            
24
LTE is not an evolution of above technologies but a new design of the mobile services concept.
25
Qualcomm (2009), p.2.

32 
 
of this technology will start first in the 2.5 GHz band. Telenor and TeliaSonera have
announced the deployment of LTE networks in Norway and Sweden in the beginning of
2010 in this band. However large scale deployments of LTE networks are expected to
happen until 2012-2013.26

On the other hand, WiMAX is a new technology whose basic standard was defined in 2001.
The development of this technology was propeled mainly by companies belonging to the
Internet and computer industries, which grouped together into an association called
WiMAX Forum. Although in the beginning WiMAX technology only supported fixed
wireless services, a mobile version of this technology was made available since 2005.
However, instead of being centered in mobile telephony services, this technology has
focused in providing mobile broadband services. In fact, WiMax based networks are
already offering these services in more than 10 countries.

The main frequency bands that were identified for the deployment of mobile WiMAX
networks are the 700 MHz, 2.3 GHz, 2.5 GHz and 3.5GHz bands. However, in the future
other bands could be identified for mobile WiMAX network deployments as the
International Telecommunications Union (ITU) included WiMAX in the IMT-2000
systems family in 2007, to which 3G technologies belong. The degree of development of
mobile WiMAX in the mentioned bands is unequal. While in the 2.5 GHz band mobile
networks have already been deployed, it is expected that until the next years the 3.5 GHz
band will be used for this purpose.

The development of WiMAX introduced important technological innovations in wireless

technologies, such as the use of the IP protocol, new frequencies modulation techniques
like OFDM (Orthogonal Frequency Division Multiplex) and the transmission and reception
of signals within the same frequency channel. Despite these innovations allow a more
efficient use of the spectrum, most incumbent cellular operators in the world have opposed
the development and adoption of this technology, as it cannot be build on their current 2G
networks. In fact, LTE was the answer by existing cellular operators and equipment
providers to WiMAX; as it incorporates many of its innovations such as the IP protocol and
the OFDM frequency modulation technique. For such reason, no significant differences are
expected between WiMAX and LTE in terms of the speeds that can be offered to end-users.

                                                            
26
Informs Telecom & Media (2009), “Analysing the commercialization of LTE”.

33 
 
Main difference between WiMAX and LTE

Where a big difference is expected between WiMAX and LTE is in the type of business
model that network operators will adopt. Since the origins of WiMAX come from the
Internet world, i.e., where end-users have access to the content and services of their choice,
it is expected that operators using this technology will favor free and unlimited access to
content, applications and services –including VOIP – available in the Internet, in exchange
of a monthly flat rate. On the contrary, it is expected that operators using LTE will keep
current commercial practices applied by cellular operators, such as restrictions or
limitations in the access to contents, applications and services available in the Internet, as
well as the bundling of voice and broadband services. On the other hand, LTE will enjoy
more probably larger scale economies, as cellular operators are backing up the development
and adoption of this technology.27

The elimination of restrictions or limitations in the access to content, applications and

services in the Internet, as already mentioned, is of great relevance for the development of
broadband, as it increases the attractiveness of this service for consumers and it stimulates
the innovation of new services and applications. Thus, by encouraging the development of
WiMAX and its open architecture business model, in both the network and applications
layers, competition would not only be fostered but also mobile network users will be able
to have unlimited access to content, applications and services available in the Internet.28

The importance of allocating enough spectrum for the deployment of new wireless
networks

In highly concentrated markets such as the telecommunications market in Mexico,

operators have no incentives to rapidly incorporate technological improvements into their
networks, as they seek to avoid the depreciation of the investments already made. New
competitors can trigger technological development by two mechanisms: first, as they do not
have historical investments they have the choice to introduce new technologies in the
deployment of their networks, and second, their presence puts pressure on incumbents to
accelerate the adoption of technological improvements because otherwise they could loose
market share.

                                                            
27
 Recently, the GSM Association, in which numerous existing cellular operators and equipment providers 
participate, commissioned the survey “2.6GHz Spectrum Band: Unique Opportunity to Realize Global Mobile 
Broadband” which outstands the benefits of the LTE technology, Global View Partners (2009). 
28
 As for the scale level that WiMAX may reach, this depends on the success of its service offer and of 
exogenous factors as the policy to foment broadband. 

34 
 
However, in a highly concentrated telecommunications market, a succesfull entry requires
that the new operator reaches wide network coverage; as well as to offer a disruptive
service that allows him to position himself in the market. In order to have a fast and wide
deployment of a new network access to large amounts of capital is necessary. This
condition puts a great financial pressure on new entrants, and in general it results in a
market entry barrier.

The trade-off that exists between capital expenditures to deploy a network and spectrum
bandwidth availability makes spectrum allocation a key ingredient in making new entrants’
projects viable. Allowing the accumulation of spectrum holdings by new entrants has been
a useful tool to increase competition in telecommunications markets. Examples are the
authorization of the Sprint-Nextel and ClearWire merger in the United States for the
development of a new national broadband network based on WiMAX technology in the 2.5
GHz band, and the authorization by the Federal Competition Commission in Mexico of the
various spectrum acquisitions by Nextel Mexico in the trunking frequency bands.

Example 1: in November 2008, the FCC approved the merger between Sprint-Nextel,
company that was already established in the mobile telephony market, and ClearWire, a
new entrant that provided a significant amount of spectrum in the 2.5 GHz band to the new
company. The two companies separately had initiated the deployment of wireless network
based on WiMAX technology for the provision of mobile voice and broadband services.
Geographically their networks did not overlap.

In the analysis made by the FCC of the Sprint-Nextel and ClearWire merger a wide
relevant market definition was used. Contrary to the analysis of other mobile telephone
companies mergers (Sprint/Nextel, for instance), which were only based on the mobile
voice market, the FCC considered adequate to use a relevant market definition that included
several old generation voice and data services (2G and 2.5G) together with the emerging
mobile broadband services which were offered in different frequency bands such as
Cellular, PCS, SMR, 700 MHz, BRS and AWS-1.29

The explanation provided by the FCC for adopting this relevant market definition was that
because of the fast evolution of telecommunications markets and services, any potential
competitive harms should be identified in the markets in which similar services to those
that were going to be offered by the new company were being provisioned. With this
definition, the FCC acknowledged that the industry was in a transition process: from the

                                                            
29
From the concentration analysis of 43 markets, only in one was found that Sprint-Nextel had more than
34% of the spectrum available for telephone and broadband services (Honolulu). Also an analysis on the
concentration in the market of fixed broadband was made, without having found concentration risks. Federal
Communications Commission (2008).

35 
 
provision of voice and data services over old generation wireless networks towards their
provision over wireless broadband networks.

The merger of the two companies was authorized by the FCC since no evidence was found
that the transaction would cause concentration in the relevant market. On the contrary, the
regulatory authority found an important pro-competitive public benefit that could result
from such merger (Federal Communication Commission, 2008).

Example 2: another example in which authorities have allowed the accumulation of

spectrum holdings by new operators entering the telecommunications market by using a
new technology was the case of Nextel Mexico (NII Holdings), which is a company that
orginally focused in providing trunking services in Mexico.

Since 1994, Nextel Investments Company started acquiring enterprises engaged in

providing trunking services.30 The acquisitions were aimed at offering the trunking service
with a Motorola digital technology named iDEN 3:1 in the 400 and 800 MHz bands.31 The
Federal Competition Commission (COFECO), authorized such acquisitions in 1996
arguing that as digitalization would allowed the provision of paging services as well as
access to the telephone network, the acquisitions would foster competition in the cellular
telephone market.32 In 1996, Nextel Group already concentrated 63% of the frequencies
allocated to trunking services in Mexico City, and 31% in Guadalajara and Monterrey. 33 In
2000 the acquisition of Telecomunicaciones Móviles de México was authorized34 despite
the fact that, in 13 out of 18 Basic Service Areas, spectrum caps were surpassed as a result

                                                            
30
Federal Commission of Competition (1995), pages. 99-101.
31
The digitalization of the RMEF service implies an improvement in the efficient use of the spectrum
because, different from the analogical technology, allows that every communication channel may be shared
among several users. The analogical service basically consists of a service of fleets dispatch, whereas the
digital service also allows mobile radio-location services for individuals and access to the telephone network..
32
The operation was authorized subject to: a) Any acquisition or accumulation of spectrum frequencies be
notified; b) The obligation to maintain the analogical service; and c) In a term of 18 months, present a report
on the RMEF market, which includes the digital and analogical trunking situation. Resolution of October 17,
1996: Nextel Investments / Radio Cel / Corporation Mobilcom /Mobil Digital in the Federal Commission of
Competition (1996).
33
Federal Commission of Competition (1996), pages. 31-33.
34
In the resolutions of COFECO of October 26, 2000, besides the arguments of former resolutions, it was also
considered that the operation contracts bound the seller to: a) Not to participate nationwide in dispatch
services, when the operation, had some effects only in certain regions; b) Not to participate in the trunking
digital markets with other technology than the one they are currently using; and c) Not to participate in the
900 MHz band. Nextel de México / Telecomunicaciones Móviles de México / Radiocom del Pacífico and
Inversiones Nextel de México / Infra Mobil / Radio Cel, in the Federal Commission of Competition (2000),
pages. 206-215.

36 
 
of the aquisition.35 Once more, In 2003, COFECO authorized the acquisition of a new
company, Delta Comunicaciones Digitales, which allowed Nextel to use the frequencies
851.0-865.975 / 806.0-820.975 MHz.36 In this last acquisition, COFECO supported its
resolution in part with COFETEL’s argument that digital technology in the provision of
trunking services required a minimum of 60 to 100 frequency channels for a viable
operation.

The accumulation of spectrum in these examples played an important role in enabling new
operators –using new technologies–to enter the mobile broadband market in the first case,
and to the mobile telephony market in the second case. Under a narrow relevant market
definition the examples described above would have resulted in an undue spectrum
concentration. However, in both cases, the regulatory authorities’ idea of a positive impact
of innovation and competition in the transition process prevailed.

Spectrum availability in Mexico

The spectrum range which is of practical use for telecommunications services has varied in
size and applications throughout time because of technological changes and regulatory
decisions. Currently, this spectrum range goes from 54 kilohertz (kHz) to 80 Gigahertz
(GHz)37. Frequencies that are currently used for the provision of telecommunications and
radio-broadcasting services to end-users go from 54 Megahertz (MHz) to 6 GHz, almost
6,000 MHz.

Out of this spectrum range, in Mexico only 1500 MHz are being used (see Table 3.2), of
which 770.5 MHz (in the trunking bands, cellular, PCS, 3.5 GHz and unlicensed bands) are
used for fixed and mobile two-way services such as telephony and Internet access.
Spectrum allocation has been particularly limited for mobile services (176 MHz have been
allocated in the trunking, cellular and PCS bands), which have shown an increasing demand
                                                            
35
Criteria used by COFECO to consider if the concentration is excessive and may represent risks for
competition are the thresholds. In particular, COFECO considers that a concentration has few possibilities to
affect competition conditions in the markets, if: 1. the Herfindahl Index does not increase more than 75
points, 2.- the Herfindahl Index is smaller than 2,000 points, 3.- the Dominance Index decreases, and 4.- the
Dominance Index value is smaller than 2,500 points. See Federal Commission of Competition (1998).
36
In the COFECO resolution of April 3, 2003, the same arguments that in above resolutions were presented,
but they were added with the consideration that COFETEL held that digital technology in the provision of the
RMEF service required a minimum of 60-100 frequency channels to make the operation being viable. On the
other hand, it was also considered that there were other digital technologies as the Terrestrial Trunked Radio
(TETRA) technology, and that there was availability in the 400 MHz band to enable developing said
technologies. Federal Commission of Competition (2003), Inversiones Nextel de México /Delta
Comunicaciones Digitales, pages. 120-122.
37
1 GHz equals 1,000,000 KHz.

37 
 
in the past years. Although the spectrum auctions that are currently in progress (90 MHz in
the AWS band and 30 MHz in the PCS band) will help to reduce such gap, the spectrum
that will be added as a result of them will not be sufficient to meet the future demand of
mobile services. According to ITU (2006) estimates such demand will require at least 760
MHz in 2010 and 1280 MHz in 2020.

Table 3.2. Main Spectrum Uses in Mexico for Terrestrial Services

Band Frequency range Authorized Services Bandwidth
AM 54 – 1630 kHz Radio 1.6 MHz
TV VHF 54 – 88 MHz, 108 – 216 MHz TV 142 MHz
FM 88 – 108 MHz Radio 20 MHz
UHF 470 – 806 MHz TV 336 MHz
Trunking 806 – 824 MHz, 851 – 869 MHz Mobile services 36 MHz
Cellular 824 – 849 MHz, 869 – 894 MHz Mobile services 50 MHz
900 MHz 902 – 928 MHz Unlicensed 26 MHz
AWS 1710 – 1770 MHz, 2110 – 2170 Mobile services 90 MHz to be
MHz auctioned
PCS 1850 – 1910 MHz, 1930 – 1990 Mobile services 90 MHz (30 MHz are
MHz pending to be
allocated in 8 of the 9
regions)
DECT 1920 – 1930 MHz Unlicensed 10 MHz
WiFi 2400 – 2483.5 MHz Unlicensed 83.5 MHz
MMDS 2500 – 2690 MHz Restricted TV and 190 MHz
two-way data
transmission and
carriage
3.5 GHz 3400 – 3700 MHz Fixed and mobile 150 MHz (150 MHz
services are pending to be
allocated)
5 GHz 5150 – 5350 MHz Unlicensed 200 MHz
5.8 GHz 5725 – 5850 MHz Unlicensed 125 MHz
Total spectrum used 1,458.5 MHz
Note: AM-Modulated Amplitude, FM-Modulated Frequency, VHF-Very High Frequency, UHF-Ultra High
Frequency, AWS-Advanced Wireless Services, PCS-Personal Communications Services, MMDS-Multi-
channel, Multi-point Distribution System.
Source: Own elaboration with information of the National Table of Radio-electric Spectrum Attributions and
of COFETEL.

38 
 
Spectrum demand growth for mobile services will be triggered mainly by the growth of
broadband users, whose data consumption averages in between 30 (with smartphones) and
450 (with laptops) times that of a voice user.38 It is expected that in the next years, annual
data consumption growth in mobile networks will be closed to 100% (see Figure 3.3). This
growth will force mobile operators to expand their network capacity in order to avoid
service quality deterioration. In the United States, the high growth of AT&T’s mobile
network usage (5000% during the last three years) because of iphone users has caused
network overloading resulting in dropped calls, few service availability, delay in text and
voice messages, and slower Internet access speeds (Wortham, 2009).

High data traffic growth in mobile networks is ones of the main reasons why operators are
demanding more frequencies. Verizon, who already holds 90 MHz in the United States,
has stated that is willing to acquire more than 100 MHz in the next 5 years if available.
Other operators as Clearwire and NGMN Alliance have stated that at least 120 MHz are
required to meet consumers’ needs and to be able to offer true mobile broadband.39

Figure 3.3. Data Traffic in Mobile Networks

Petabytes/month

Source: Cisco VNI, 2009, presented in Federal Communications Commission (2009)

In Mexico, mobile telephone operators do not even hold 60 MHz in the regions where they
have the most spectrum, and in some regions they have less than 30 MHz (see Table 3.3).
This is the case of Telefonica in region 9, which includes Mexico City, where it has not
been able to introduce HSPA services (3G) because of the lack of spectrum. For the
upcoming spectrum auctions, COFECO set a spectrum cap of 80 MHz that applies to
holdings in the trunking, Cellular, PCS and AWS bands. This amount of spectrum will not
be sufficient to meet the demand for mobile services if current traffic growth projections in
mobile networks hold. To illustrate this, lets assume that traffic in mobile networks will

                                                            
38
 Federal Communications Commission, 2009, p.70. 
39
 Federal Communications Commission, 2009, p.71. 

39 
 
grow annually at a conservative rate of 50% in the next 5 years, i.e., after this period traffic
will be approximately 8 times bigger than today’s. If we assume that in the same time span
technological progress will allow network capacity to double, then operators will require 4
times more spectrum in five years from now.

Table 3.3. Spectrum Holdings of Mobile Operators in Mexico’s Cellular Regions (in
MHz)
Operator /
Cellular 1 2 3 4 5 6 7 8 9
Region
Telcel 48.4 48.4 53.3 53.3 48.4 53.3 48.4 48.4 53.3
Telefónica 50 50 50 51.9 30 30 30 30 30
Iusacell/Unefón 31.6 31.6 31.6 31.6 51.6 56.6 51.6 51.6 56.6
Nextel* 9.3 18.4 17.4 14.7 21.4 19.2 21.5 21.5 20
* Nextel licenses do not conform exactly to the country´s division by cellular regions; it is a combination of
“road axis” and Basic Service Areas.
Source: Own preparation with information by COFETEL.

Other bands that could be used in Mexico to meet the demand for mobile services in the
next years, and which have already been licensed in other countries for these services are
the 700 MHz, 900 MHz, 2.3 GHz, 2.5 GHz and 3.5 GHz bands, which combined add up
more than 650 MHz.

The 700 MHz band in Mexico is currently attributed to TV broadcasting services, which
corresponds to UHF channels 52 to 69 (108 MHz). By using digital TV technology and
after swithching-off analogue TV transmissions, the spectrum that could be used for two-
way transmission services in the UHF and VHF bands would be no less than 336 MHz. In
700 MHz band, there are currently 30 channels that are being used by local TV
broadcasting stations, 26 of which are in the border with the US and 5 in the central part of
the country. The transition policy towards digital TV that is currently in place does not
considers freeing the 700 MHz band but until 2021; thus, the current transition policy needs
to be revised in order to speed up the analogue switch-off to enable the use of this band for
other services.

As for the 900 MHz band, this band is mainly used in Mexico for point-to-point links by
Pronósticos para la Asistencia Pública, CFE, PEMEX, which are public entities, as well as
by Teléfonos de México (Telmex). There are approximately 40 MHz available in the upper
part of this band that could be auctioned. However, this spectrum size would be only
usefull for the implementation of TDD (Time Division Duplex) systems – the uplink and
downlink transmissions use the same frequency channel– as FDD (frequency division
duplex) systems – the uplink and downlink transmissions use different frequency channels,
40 
 
would not be feasible to implement in this band as they require a separation between the
uplink and downlink channels. This band would be very useful for current mobile
operators, as the propagation characteristics of this band are similar to those of the cellular
band (800 MHz). This would allow them to use most of their current tower infrastructure
for the development of the 900 MHz band.

In the 2.3 GHz band, there are 80 MHz available that were originally used for point-to-
point links by Pemex and Telmex. Similar to the spectrum available in the 900 MHz band,
the allocation of the spectrum available in the 2.3 GHz band requires a bidding process that
could take up to 3 years or even more in light of past experiences (see Table 3.4).

Table 3.4. Timing of Spectrum Auctions in Mexico

Band First steps Available for its Approximate lagging

use time
PCS 1995 1998 3 years
FWA 1995 1998 3 years
MMDS 1995 2000 5 years
PCS 2005 2003 2005 2 years
PCS 2010 2003 In progress 7 years
AWS (1.7-2.1 GHz) 2006 In progress 4 years
700 MHz 2006 -- --
Source: Own preparation.

The 2.5 GHz band is currently used by microwave restricted TV service (MMDS)
licensees. Unlike the 2.3 GHz band, the 2.5 GHz band was allocated in the United States
and Canada for the development of mobile broadband networks; hence, roaming
agreements could be arranged with service providers in such countries, besides that Mexico
could benefit from the economies of scale that could be generated in those countries in the
production of terminal equipments. Another advantage of the 2.5 GHz band is that it has
already been allocated; therefore, a bidding process that could take several years is not
required for the deployment of a new broadband network.

There are higher frequency bands that could be used. For instance, the 3.5 GHz band was
identified by the WiMAX Forum for the development of mobile WiMAX networks.
However, there are no mobile networks currently operating in such band and, according to
specialists, 40 this is not foreseen to happen in the near future. A study conducted by the
                                                            
40
Consultations were conducted among specialists who work in companies which manufacture network
equipment.

41 
 
WiMAX Forum in 2007 shows that capital expenditures needed to develop a mobile
network in the 3.5 GHz band are higher than in the 2.5 GHz band as 40% more base
stations are required due to the shorter signals’ reach in the 3.5 GHz band (WiMAX Forum,
2007).41 This disadvantage widens in areas with low traffic demand, where more than the
double of base stations are required in the 3.5 GHz band compared to the 2.5 GHz band
(WiMAX Forum, 2009).

Spectrum bandwidth plays also an important factor in the cost differentials among
frequency bands. According to the financial valuation model presented in section 6, the
difference in the number of base stations required for a mobile network in the 3.5 GHz
band, in comparison with the 2.5 GHz band, increases as more spectrum bandwidth is used.
For example, while 30% more base stations are required in the 3.5 GHz band than in the 2.5
GHz band when 30 MHz are used, 50% more base stations are requiered when spectrum
bandwidth increases to 120 MHz.

Eventhough the 3.5 GHz band has not been yet used for deploying mobile broadband
networks, it has been widely used for the provision of fixed wireless services. In Mexico, a
portion of this band (150 MHz) was allocated to three operators (Telmex, Unefón42 and
Axtel), out of which only Axtel has given a significant use to it by offering fixed wireless
services to almost one million subscribers in 40 cities around the country. COFETEL has
planned auctioning another 150 MHz in this band (50 MHz in the 3.4 – 3.6 GHz range and
100 MHz in the 3.6 – 3.7 GHz range), out of which 25 MHz (3.675 - 3.7 GHz) are not
entirely free yet as there have been complaints from satellite operators in the C band about
harmful interferences with their services. On the other hand, in the United States there has
been an initiative to grant non-exclusive licenses in the upper part of the band (3.65 - 3.7
GHz), which could cause interference with equipments operating in the northern border of
the country.

Operators have also shown interest in using unlicensed bands to provide voice and data
services. These bands have the disadvantage that, because of being unlicensed, interference
among equipments cannot be avoided; therefore, service quality cannot be 100%
guaranteed, aside from the possibility of band overcrowding. In Mexico, the 902 – 928
MHz, 2,400 – 2483.5 MHz, 5,150 – 5,350 MHz and 5,725 – 5850 MHz bands have been
declared unlicensed, which in total add up 434.5 MHz. The 2.4 GHz band has been used
by Telmex to provide its broadband users with Internet access in public places and
restaurants (hotspots), as well as by other operators for point-to-point links. Recently,

                                                            
41
The exercise conducted by the WiMAX Forum compares the performance of the same wireless technology
in different frequency bands maintaining all the other factors constant; therefore, the difference in the number
of radio-bases is explained only for the variation in the frequency bands used.
42
Unefón assigned the spectrum concessions to Nextel in 2004, however, Nextel is not exploiting or using the
band either.

42 
 
COFETEL declared the 1920 – 1930 MHz band as unlicensed for the use of low power
transmitters, 43 following the recommendations of the Inter-American Telecommunications
Commission and the experience had in other countries such as the United States.

3.2. Relevance of the 2.5 GHz Band. International evidence and experience in
Mexico.

Recommendations of the International Telecommunications Union on the use of the

2.5-2.69 GHz band

The World Radio-communications Conference (WRC) of 2000 – regulatory entity of the

International Telecommunications Union (ITU) in charge of issuing binding standards that
govern the spectrum use worldwide, i.e., the Radio-communications Regulations–
identified the 2.5 GHz band for its possible use for International Mobile
Telecommunication systems (IMT 2000).44

By Resolution 223 (ITU, 2000) of that same year, the ITU invited to study the implications
that would involve sharing the IMT 2000 systems with other services. In the following
years, this was the central topic of the ITU works. On the same resolution, flexibility on the
amount of spectrum that should be allocated to IMT 2000 systems and on the transition
plan necessary for their implementation by member countries was emphasis.

In 2007, ITU through the CMR issued Recommendation M.1036-3 (ITU, 2007), by which
it requested member countries (that had already granted permit to use the IMT 2000
systems) to make the 2.5 - 2.7 GHz band available or part of it to develop IMT 2000
systems. In this recommendation, ITU sets that member countries may adopt the model of
their choice from among three possible band plans, which are shown in Table 3.5:

                                                            
43
COFETEL resolution of December 14, 2009. There are equipments available in this band which use DECT
technology, that allow fixed wireless telephone service provision to 1,400 users in a coverage area of 3-4
square kilometers. The voice service may be complemented with data services (Internet), by using WiFi
technology in the 2.4 GHz and 5.8 GHz bands.
44
IMT-2000 systems include WCDMA, CDMA2000, TD-CDMA/TD-SCDMA, UWC-136(EDGE), DECT
and WiMAX technologies. WiMAX technology was included as part of the IMT-2000 systems until 2007.
These systems in the future would surely include LTE technology. 

43 
 
 Table 3.5. Band plans recommended for the 2500-2690 MHz band
(excludes satellite components)

Frequency Mobile station Central Base station Duplex Central block usage
distribution transmitter block transmitter separation45
(MHz) (MHz) (MHz) (MHz)

C1 2500-2570 50 2620-2690 120 TDD

C2 2500-2570 50 2620-2690 120 FDD DL (external)
C3 Flexible between FDD and TDD
Note 1- Administrations may totally or partially implement these bandplans by taking into account other
services in that band.
Note 2- In C1, to facilitate the FDD equipment installation, any guard band to secure compatibility with
adjacent bands shall be decided at a national leveland shall be kept at its minimum necessary, this in
accordance with the report ITU-R M.2045.
Note 3- In C3, Administrations may use the band only for TDD or for some combination of TDD and
FDD. Administrations may use any duplex separation TDD or duplex direction FDD. However, when
Administrations decide implementing mixed FDD/TDD channels with a fixed duplex separation for
FDD, the duplex separation and the duplex direction shown in C1 are preferable.
Source: ITU (2007)

Development of the 2.5-2.69 GHz band in Mexico

The MMDS (Multichannel Multipoint Distribution Service) technology used to provide

restricted TV services was developed in the 1980s. In Mexico, MMDS was attributed to
the 2500-2690 MHz band (2.5 GHz band). The “concession” granting process on the 2.5
GHz band took place in the period from 1988 to 2000.

The first 2.5 GHz spectrum band concessions for restricted TV services were granted
between the end of the 80s and beginning of the 90s, in Mexico City (and Metropolitan
area), Puebla, Veracurz, Monterrey and Guadalajara (with their corresponding nearby urban
areas). Pursuant to the legislation, the 2.5 GHz band concessions were granted in a first
come, first served basis (articles 14 and 15 of the General Communication Ways Act and
15 of the Telecommunications Regulation). At the end of President Salinas de Gortari’s
Administration, several 2.5 GHz band concessions were granted in the cities of Culiacán,
Hermosillo, Cd. Juárez, León, Mérida, Oaxaca, Pachuca, Querétaro, Saltillo, San Luis
Potosí, Toluca, Torreón, Tuxtla Gutiérrez and Villahermosa. Although these concessions

                                                            
45
FDD technologies require a 120MHz separation between the downlink and uplink channels. Therefore, the
only way to use frequencies 2570 - 2620MHz with an FDD technology is expanding the upper limit of the
2690 - 2740MHz band.

44 
 
were published in the Federal Official Gazette they were delivered until October 1995 after
the Telecommunications Federal Law (LFT) was enacted.46

Between 1997 and 2000, the 2.5 GHz band for restricted TV and audio services in the rest
of the country was allocated through an auction mechanism, pursuant to the 1995
Telecommunications Law. A geographic division by basic service areas (ABS – Spanish
initials) was set for such auctions to foster the provision of services in populations with
more than 50,000 inhabitants and to assure at the same time the sustainable provision of
such services.

Since 1996 COFETEL proposed adopting the model followed by Ireland that consisted in
granting to one single licensee the 190MHz of the band in each service area. This policy
was adopted to give economic feasibility to the band concessionaires, i.e., allows their
restricted TV service to compete successfully with the cable TV industry offering.
COFETEL considered additionally that by keeping together the 190 MHz interferences
would be minimized. This policy contrasted with the one adopted in the United States
which split the band among 8 different licensees per service area.

Currently, the 2.5 GHz band is distributed among their licensees as shown in Figure 3.4 (in
the map you cannot appreciate questions such as: the 6 MHz awarded to the Autonomous
University of Nuevo León in the city of Monterrey, and the 6 MHz pair channels that MVS
has in areas of the Ultravisión Group, which were granted for radio digital services before
the LFT was enacted).

At the end of 2009 there were 26 due concessions in this band, 16 of restricted television
service and 10 of restricted audio service (see Table 3.6). These concessions represent, in
terms of the covered population, around 12% of the spectrum concessioned in the 2.5 GHz
band. The rest of the concessions expire mostly between 2018 and 2020. It should be noted
that the concession of Mexico City expires in November 2013. 47

                                                            
46
Concession requests resolved favorably by SCT were published in the Federal Official Gazette and in the
major newspaper, in order to receive comments from third parties that could be potencially affected. The
Consultive Technical Commission of General Ways of Communications issued its opinion regarding these
comments so SCT could finally resolved on the concession granting.
47
 A chronology of the process for the authorization of Internet access services in the 2.5-2.69 GHz
band is in Table 3.7 and Annex A.

45 
 
 Table 3.6. Due Concessions in the 2.5 GHz Band
(sorted by due date)
Broad band 
Coverage  Concessionaire  Service  Due Date 
(MHz) 
Puebla  Ultravisión  Restricted TV  September 12, 05  144 
Villahermosa  MVS Multivisión  Restricted TV  October 02, 05  144 
Tuxtla Gutierrez  MVS Multivisión  Restricted TV  October 02, 05  24 
San Luis Potosí  MVS Multivisión  Restricted TV  October 02, 05  24 
Mérida  MVS Multivisión  Restricted TV  October 02, 05  96 
Oaxaca  MVS Multivisión  Restricted TV  October 02, 05  48 
Querétaro  MVS Multivisión  Restricted TV  October 02, 05  108 
Toluca  MVS Multivisión  Restricted TV  October 02, 05  24 
Pachuca  MVS Multivisión  Restricted TV  October 02, 05  24 
Culiacán  MVS Multivisión  Restricted TV  October 02, 05  48 
Hermosillo  MVS Multivisión  Restricted TV  October 02, 05  48 
Ciudad Juárez  Megacable  Restricted TV  October 02, 05  24 
Saltillo  Grupo RGT  Restricted TV  October 02, 05  166 
Veracruz  Ultravisión  Restricted TV  May 06, 06  144 
Monterrey  MVS Multivisión  Restricted Audio  March 12, 07  12 
Guadalajara  MVS Multivisión  Restricted Audio  March 12, 07  12 
Distrito Federal  MVS Multivisión  Restricted Audio  March 12, 07  12 
Tijuana  MVS Multivisión  Restricted Audio  March 12, 07  12 
Mexicali  MVS Multivisión  Restricted Audio  March 12, 07  12 
Cancún  MVS Multivisión  Restricted Audio  March 12, 07  12 
Acapulco  MVS Multivisión  Restricted Audio  March 12, 07  12 
Veracruz  MVS Multivisión  Restricted Audio  March 12, 07  12 
Cuernavaca  MVS Multivisión  Restricted Audio  March 12, 07  12 
Puebla  MVS Multivisión  Restricted Audio  March 12, 07  12 
Monterrey  MVS Multivisión  Restricted TV  January 21, 09  144 
Guadalajara  MVS Multivisión  Restricted TV  January 21, 09  144 
Source: Own elaboration base on COFETEL information.

46 
 
Figure 3.4 MMDS Licensees in México

47 
 
Table 3.7. Documentary history of the provision of Internet access services in the
2.5-2.69 GHz band.

At the beginning of the 90s, the usefulness of the 2.5 GHz band for data transmission was
known in the sector. At the same time that the microwave restricted TV and audio market was
being created through the 2.5 GHz band auction, operators showed interest in incorporating
two-way services that allowed the interaction with users. This interest resulted in the creation
of the National Association of Telecommunications Wireless Services (ANSITEL).

The possibility that MMDS operators could provide two-way transmission services was
discussed with the sector’s authorities. The first formal record of this discussion was the
application that ANSITEL filed at the Underministry of Communications in January 2000 for
the creation of a commission in charge of studying such possibility.

Besides the legal issue involving the authorization of additional services required for the
provision of two-way transmission services, the use of 12 MHz in the 2150-2162 MHz band
for the return (uplink) channel was also discussed. These frequencies were being used
successfully in the US since the 70s together with the instructive TV fixed services (ITFS) in
the 2.5 GHz band. At that time, the operation of FDD systems were found more convenient for
technical reasons and the 2150-2162 MHz band was considered adequate for using it as the
return channel.

During the year 2000, SCT and COFETEL answered ANSITEL’s request, and in June 2000,
the guidelines for authorizing two-way data transmission services were established, such as the
methodology for determining the amount of the authorization fee and licensing of the 2150-
2162 MHz band, which had to be auctioned pursuant to the LFT of 1995.

In regards to the amount of the fee, the authorities set as a reference the winning bids of the
3.4-3.7 GHz band auction that was conducted in 1997. Such bids only considered the
authorization for fixed telecommunications services, excluding mobile services until one of the
following two conditions were fulfilled: a) that in the country or abroad, the commercial
provision of mobile services in the 3.4 a 3.7 GHz band started, or b) that the concessionaire
paid an additional fee, which would be defined according to the winning bids in the 1850 a
1990 MHz band auction that was carried in 1997.

In that same year, ANSITEL substantially decreased its activity as representative of the MMDS
operators’ interests, making every time more predominant the individual and direct interaction
between the MMDS concessionaires and the authorities.

48 
 
(Table 3.7 continuation)
MMDS operators, apparently, had the perception that the 2150-2162 MHz band auction would
delay the authorization process of additional services. One of the MMDS concessionaires, MVS,
requested both authorities, SCT and COFETEL, to reconsider their decision as it implicitly
subjected the authorization of additional services to the auctioning of the 2150-2162 MHz band,
and instead authorize the use of the 2.5 GHz band for both the uplink and downlink channels
despite that it would limit the capacity of the services that they would be able to provide.

In August 2000, COFETEL resolved that the proposal to use the frequencies in the 2150 MHz
band as the return channel was viable. Also, fixed telecommunications services were authorized
for a minimum of 24 MHz if the service originally licensed was restricted TV and audio; and a
minimum of 12 MHz if the service originally licensed was restricted audio only. It was also
established that MMDS operators could freely determine the number of MHz that would be used
for the provision of additional services; hence no upper limit was set. The authorization fee
calculation methodology and the ban made for the provisioning of mobile service were hold in the
same terms as in the decision of June 2000.

In 2001, when the fiscal payment framework (“derechos”) for the use of the 2.5 GHz band was
established, the progress attained on this matter was stopped and legal injunctions (“amparos”)
started. It was not until the second semester of 2002 that the works on the authorizations for
additional services in the band were resumed, among them the approval by the Ministry of Finance
(SHCP – Spanish initials) of the authorization fee calculation methodology. After SHCP gave the
approval to the SCT to collect the fees for the authorization of additional services (which was
based on the proposal discussed since 2000) in the beginning of 2003, the SCT started granting the
first authorizations for two-way data transmission services to MMDS concessionaires.

Thru the agreement published in the Federal Official Gazette on December 18, 2003, the SCT
authorized MMDS concessionaires the provision of two-way transmission fixed services. The
terms under which the authorizations were granted excluded voice services (fixed and mobile local
telephony and long distance) and set a maximum of 72 MHz for the provision of additional
services. The authorization fee amount was approved by the SHCP in January 2003.

In 2005, the agreement published in the Federal Official Gazette on January 5 authorized MMDS
concessionaires to carry local service traffic through point-to-point links in the 2.5 GHz band. The
authorization fee for the provision of two-way data transmission fixed services and local service
traffic carriage was set in the same termis as the one established in January 2003.

Finally, the Agreement published in the Federal Official Gazette on October 3, 2006 (Convergence
Agreement) authorized restricted TV and/or audio concessionaires, including MMDS operators, to
provide the local telephony fixed service, and authorized the local telephony concessionaires to
provide restricted TV and/or audio services. This agreement left unchange the 72 MHz limit for
the provision of additional services that was established in the agreements of 2003 and 2005.

49 
 
 3.3. Comparison of European and American models for the development of
mobile networks using the 2.5 GHz band.

Development of the 2.5-2.69 GHz Band in the United States and Europe

The 2.5 GHz band was firstly used in the United States in the beginning of the 70s, when
licenses were authorized for educational and religious institutions and minorities with the
purpose of encouraging innovation and pluralism as well as improving the country’s
democracy (the service was named Instructional Television Fixed Service or IFTS). These
licenses included an obligation to transmit a minimum educational content and were
granted in a first come first served basis in groups of 4 and 8 channels (6 MHz each) at a
local level. Previously, the use of the 2150-2162 MHz band (known as MDS, Multipoint
Distribution Service) had been authorized. Latter on, with the growth in the demand of
video services, a portion of the 2.5 GHz band was re-allocated to restricted TV services and
IFTS licensees were allowed to lease their excess capacity for the provision of commercial
services by third parties. 48

The allocation process of this band in the United States resulted in a band that was divided
among several licensees in small and discontinuous spectrum blocks and in a local scale.
This situation led to a consolidation process that had the purpose of enabling the 2.5 GHz
band licensees to compete against cable TV companies, in the first place, and with
telephone companies in the second place when technological progress allowed them to
provide two-way data transmission services.

Since the year 2000, MMDS operators in the United States started offering two-way data
transmission services. From then on, the band has been migrating towards the provision of
broadband services. This process was facilitated with the transition plan implemented by
the FCC in 2005, which allowed licensees to re-locate their channels (see Figure 3.5).49
This transition plan considered holding 50 MHz in the middle of the band for restricted TV
services.50

Currently in the US, most of the 2.5 GHz band is in the hands of a single operator (see
Figure 3.5), after the two biggest licensees, Clearwire and Sprint-Nextel, were authorized
                                                            
48
See FCC, “Report and Order”, 95-230, June 30, 1995.
49
http://wireless.fcc.gov/services/index.htm?job=licensing_2&id=ebs_brs
50
As the restricted TV services require high power transmissions, separating a block for those services in the
new band plan had the purpose to avoid that those services would cause harmful interferences to the new
broadband services (which integrated voice, data and video) that weretransmitted with low power.

50 
 
by the FCC to merge their operations in November 2008. In the document whereby the
transaction is authorized (Federal Communications Commission, 2000), the FCC pointed
out that the merger had the potential of fostering competition by enabling a new competitor
to enter the telephony and broadband market.51

Figure 3.5. Current Status of the 2.5 GHz Band in the US.*
 

1 MHz
MMDS
Guard
Band Operators

Note: Clearwire achieved consolidating the band in the USA based on private negotiations that were later on
sanctioned by the FCC. The use of the band in TDD (Time Division Duplex) by Clearwire was an exclusive
decision taken by the operator and not by the regulatory authority. The FCC decision to hold a block of 42
MHz in the core of the band was to allow the co-existance of broadband services (low power) and restricted
TV services (high power) in the band without limitin the use of the 42 MHz block be used for low power
services. What was not permitted was the possibility to use the 72 MHz blocks in both ends of theband for
high power transmissions; therefore, in several of big cities were Clearwire is deploying a network, it is using
150 MHz, leaving available in such cases no more than 30MHz for high power transmissions,.
* This chart shows, in general terms, the current status of the band in the US as the spectrum that Clearwire
holds throughout the whole country is not homogeneous.
Source: Own preparation based on information by the Federal Communications Commission
(http://wireless.fcc.gov/services/brsebs/data/BRS-EBS-BandPlans.pdf) and operators.

Differently from the United States, most European countries did not allocated the 2.5 GHz
band for restricted TV services and it was largely kept unused for many years. Currently,
several European countries are in the process of auctioning the band for the provision of
broadband access. Norway and Sweden completed the auction in 2007 and 2008
respectively. The licensing of the 2.5 GHz band in Europe is a consequence of the
Electronic Communications Committee of the European Conference for Postal and
Telecommunication Administrations decision, published in November 2002, which
compelled member countries to make the 2.5 GHz band available for its use by IMT-2000
systems by January 2008 (Electronic Communications Committee, 2002).

The Electronic Communications Committee additionally determined, in March 2005, two

possible band plans for the 2.5 GHz band (see Figure 3.6) with the purpose of harmonizing

                                                            
51
Ibid, paragraph 28 y 84.

51 
 
it among European countries (Electronic Communications Committee, 2005). According to
the 2005 decision, the objective of both band plans was the efficient use of the 2.5 GHz
band by IMT-2000 technologies; thus, as these technologies operate mainly FDD systems
both band plans were FDD based. This explains the decision of allocating 140 MHz
(divided in two 70 MHz blocks) to FDD systems, as it was the maximum spectrum that
could be possibly used by FDD systems given the 120 MHz separation needed between the
uplink and downlink channels. The remaining 50 MHz in the middle of the band– ranging
from 2570 to 2620 MHz – were allocated in alternative 1 to TDD systems such as
WiMAX; and in alternative 2 to FDD systems that could operate the uplink channel in a
different band.52

Figure 3.6. Band Plan Alternatives in Europe for the 2.5 GHz Band
Alternative 1: IMT-2000/UMTS band plan

Blocks of FDD uplinks Blocks of FDD downlinks

Channels in FDD are 6 MHz.

Alternative 2: IMT-2000/UMTS band plan

FDD downlinks (external)

Blocks of FDD uplinks Blocks of FDD downlinks
Block 2570-2620 MHz is reserved for FDD that is paired out of band 2500-2690 MHz

Source: Electronic Communications Committee (2005)

                                                            
52
 To be able to develop the entire 2.5 GHz band under a FDD framework exclusively, another 50 MHz
outside the band have to be used. In this scenario, a band of 240 MHz would be available, which could be
used for broadband services that use FDD, either WiMAX or LTE.

52 
 
Comparison between the 2.5 GHz band plans in the United States and Europe

The planning and use of the 2.5 GHz band in Europe differs largely from that of the United
States. In the first place, in Europe the band was not originally allocated to restricted TV
services and remained largely unused (see Table 3.8). This represents an advantage for
European countries to allocate the band for the provision of broadband services without the
need to go thru a transition process like in the United States and Mexico.

The band plans established in Europe and the US for the 2.5 GHz band also differ. While
in the former most part the 2.5 GHz band is allocated to FDD systems (140 MHz out of 190
MHz), in the latter the band plan favors the use of TDD systems. The difference between
TDD and FDD systems, as already mentioned, is that TDD systems use the same frequency
channel for the uplink and downlink transmissiones, while FDD systems use different
frequency channels. This difference has an implication on how efficient these two systems
are in providing broadband services. FDD systems can only be efficient when traffic
patterns of broadband users are 50% download traffic and 50% upload traffic, as FDD
systems use the same uplink and downlink size channel. On the contrary, TDD systems can
adapt to different traffic patterns as they are capable of allocating the bandwidth available
in different proportions to the uplink and downlink transmissions. An issue that has to be
considered in the European model is the natural influence that European network
equipment manufacturers have had in the 2.5 GHz band plan, as the technology produced
by these manufacturers is mainly based on FDD systems.

An additional difference between the US and European model, is that the 2.5 GHz band is
perceived in Europe as a “extension” band for existing cellular networks. By contrast, in
the US this band was considered as an opportunity to introduce competition to the mobile
telephony and broadband markets. This difference can be explained by the contrasting
broadband penetration levels in the US and Europe. Because of the lower broadband
penetration rate in the US as compared to Europe, a bigger sense of urgency exists in the
former country to introduce competition into the broadband market.

53 
 
Table 3.8. Comparison between the 2.5 GHz Planning Models for in the United States
and Europe

United States Europe

It was initially used for instructive The band was not allocated but
TV services during the 70s, later on until short time ago for third and
Band usage for restricted TV services in the 80s- fourth generation technologies.
90s and finally for voice, data and
video integrated services.
The band has a total of 202 MHz. 140 MHz are allocated to FDD
The operator has flexibility to decide systemas, and the remaining 50
the use and technology in the band. MHz were allocated to TDD
He also has the first choice to reach systems or for FDD systems that
an agreement with the operator(s) use a return channel outside the
with whom he shares the band in the band. The band plan is the result
Band plan service area where this applies. In of a decision taken by regulators.
most cases he reached an agreement
to reserve 50 MHz (in the core of the
band) for high power applications
and the remaining 140 MHz for low
power applications.

Broadband Medium penetration High penetration

service
penetration
Source: Own preparation.

Finally, an important issue that should be considered when designing a band plan is that it
should enable the interoperability among domestic networks and foreign ones so that
international roaming services can be provided and scale economies can be profit from.
Mexico could benefit more from adopting the band plan of the United States. The US is
Mexico’s main commercial partner and neighboring country and is one of the largest
markets in the world, besides that by adopting the same band plan interferences could be
more easily manage53.

                                                            
53
The report prepared for the GSM Association “The 2.6GHz Spectrum Band: Unique Opportunity to Realize
Global Mobile Broadband”, Global View Partners (2009), acknowledges the importance of International
coordination in the planning of the radio-electric spectrum among neighbor countries, and makes emphasis in
the considerable interference that the FDD and TDD connivance means, if the necessary measures are not
taken no the implied costs are assumed.

54 
 
4. Importance of Public Policy: Deployment Investment Social Coverage
 
The networks coverage policy adopted in the past

The benefits that broadband access offers to society lie in the provision of services, content
and applications, as those help improving population’s life quality and welfare. Such
benefits also include communication, access to the most complete existing information, and
the availability of applications that allow or facilitate access to educational and health
services that contribute to improve skills and labor productivity.

Nowadays, there is not a social coverage in the country that allows the low-income
population having access to broadband, thus propitiating a notorious unequality in
development opportunities among the various socio-economic levels.

In the National Broadband Planning Workshops organized by the FCC from August to
November 2009, it was stated that broadband has enabled many communities to be
connected thus making them more attractive for new investment. However, broadband
access in many communities of that country is not enough to attract such new investment
(Federal Communications Commission, 2009).

The private sector develops an investment project if it is profitable compared with other
investment alternatives. Although with such investment economic value is generated,
investors’ decision does not incorporate the social value generated by the consumption of
goods or services it produces. From the operators’ perspective providing broadband service
to less dense areas or with lower economic income is not commercially viable due to their
low return. Consequently, the social benefits that could be attained if an important
population segment adopted such technology get lost.

Acknowledging the economic and social benefits broadband offers (see Table 4.1), public
policy should be oriented to design instruments that enable broadband to be accessible for
all the population, especially considering that inequality of opportunities is one of the main
factors that hamper the possibility of coming out of poverty.

55 
 
 Table 4.1. Costs of not Adopting Communication and Information Technologies,
Some Examples

Activities carried out by adopters. Exclusion implications.

• Education. Students who do not have access

to this information mean are in a
INEGI reported that for 2008, “the use of Internet as a
disadvantageous position for their
resource for school homework or learning, was the activity
education process.
that most of the informers mentioned (43.5 %).. This points
out to support the importance that such mean has in the
education process”.*
• Consumer Welfare. Individuals with no access to
Internet have limited capacity to
The Internet purchase patterns study, by the Asociación
obtain information about goods
Mexicana de Internet (Internet Mexican Association) points
and services’ diversity and prices.
out that, before making a purchase, 90% of Internet users
Having more information offers
interviewed compares prices in Internet and stores, and 57%
the possibility to get better prices.
reported that could obtain better prices in Internet.

67% of the interviewed considered that in Internet they find

objects that are not sold in their location.**
* National Institute of Statistics and Geography, “Household statistics on the availability and use of
information and communication technologies, 2008”, p. 6.
** Asociación Mexicana de Internet, “Electronic commerce study 2009”. Executive summary,
http://www.amipci.org.mx/estudios/temp/AMIPCI_ECOMMERCE_2009-0344452001257356617OB.pdf.
Source: Own preparation based on information from INEGI and Asociación Mexicana de Internet.

Creating a new broadband wireless network represents an opportunity to expand service

coverage in the short term in areas where telecommunication services have not been
acceptably developed, mainly in rural areas.

As operators play a preponderant role in broadband networks deployment in the country,

the design of commitments to which they shall be bound upon the concession is
fundamental. Naturally, such design has to maintain the balance between the coverage
policy purposes and the business plan viability.

Expanding telecommunication networks coverage has been a core element of the sector
policy for several countries. The ample array of open access policies that have been
adopted in many advanced countries, such as interconnection, leasing of the last mile,
rights-of-way & tower sharing, access to electric networks posts to deploy optic fiber
networks, and in general, policies that lower operators’ Internet connection cost will
undoubtedly make the deployment of broadband networks economically viable in
settlements that not long ago was unthinkable that the market could serve, i.e., rural and

56 
 
low income areas. These kinds of policies are powerful instruments to enable coverage to
expand and to make broadband service accessible to the population at reasonable prices.

In Mexico, up to know, it has not been possible instrumenting but a reduced number of
open access policies to promote broadband networks development. Although, as
abovementioned, the social benefits of deploying broadband networks are much higher, by
large, than the fixed and mobile telephone service benefits, the new broadband wireless
networks of fourth generation, that could make viable the access to broadband for most of
the population, also allow providing fixed and mobile telephone services under the Internet
protocol at lower prices. Under this scenario, establishing coverage goals for the proposed
broadband network acquires particular relevance. In fact, we propose for the new
broadband network coverage goals more ambitious than the ones set at their time for the
current telecommunication network. Those coverage goals could be establised in the
concession titles, as it is a usual practice for the local and long-distance fixed telephone
service networks as well as for the mobile service concessions. What is different with
respect to what has been done in the past is that the degree of preparation and detail of such
goals would be much higher. To develop such goals is required an effort even higher than
the one made with the modification of the Teléfonos de México concession title in 1990.
Below we describe a methodology to define coverage obligations and their scope.

In addition to open access policies and to the obligations that may be established in the
concession titles for a new broadband network, it is convenient preparing satellite coverage
plans with public funds for those settlements that due to their isolated geographical
situation and low income are not economically viable to be served with ground networks.54
It is worthwile to mention that the current Digital Community Centers Plan has been very
successful; nevertheless, the satellite capacity destined to such program has been
insufficient. Access speed in digital centers sometimes is even lower than 10 kbps in peak
hours, and such speed is shared by several computers.

Below, we describe the network expansion obligations set in the Telmex concession title
and the coverage obligations, in terms of population percentages, set for other operators.

i) Coverage obligations in terms of subscribers growth.

Telmex concession title established the obligation to expand the number of basic service
lines in operation at a minimum annual average rate of 12% from August 1990 to

                                                            
54
Examples of these programs are: rural telephony of the SCT, basic telephony designed with the Fund for
Telecommunications Social Coverage, Internet access through Digital Community Centers of the e-Mexico
National System (currently Coordination of the Information and Knowledge Society of the SCT).

57 
 
December 1994.55 Likewise, Telmex was obligated to offer basic telephone service with
automatic switching in all towns with more than 5,000 inhabitants, in accordance with the
General Census of Population and Housing of 1990, before December 31, 1994.

The obligations to expand the number of lines increased service penetration. However,
those obligations were only applicable for the first 4 years of the concession. The Table 4.2
shows the average annual growth rates of fixed lines in 5-year periods. It is notorious that
Telmex did not reach the average annual growth rate of the period 1990-1994 in any of the
following periods.

Table 4.2. Telmex telephone lines in service (thousands)

Year lines Year lines Year lines Year lines Year lines
1985 3,704 1990 5,353 1995 8,801 2000 12,069 2005 18,375

1986 3,899 1991 6,025 1996 8,826 2001 13,372 2006 18,251

1987 4,123 1992 6,754 1997 9,254 2002 14,446 2007 17,800

1988 4,381 1993 7,621 1998 9,927 2003 15,683 2008 17,589

989 4,847 1994 8,493 1999 10,878 2004 17,172 est. 2009 17,599
Average
7.0% 12.2% 5.4% 9.2% -1.1%
annual
growth
Source: Market Statistical Information Directorate, COFETEL; and Telmex financial reports (annual
and quarterly). Information to December.

It is worthwhile to highlight that those obligations were set for a period in which Telmex
was the only fixed telephone service provider in the country. In a competitive scenario, it
could be very difficult for operators to meet that kinds of obligations, as their competitors
have the incentive of reducing prices to prevent them from fulfilling their obligations, and
thereby, being sanctioned.

ii) Coverage obligations as percentage of the population.

The obligation to cover a percentage of the population in specific areas is common in the
existing concession titles. However, those being obligations of general nature, their
compliance could be met with low investment levels if coverage concentrates in high
density areas. Consequently, those obligations do not create incentives for operators to

                                                            
55
Condition 3.2 Expansion and Modernization Programs, amendments of the concession title of Telefonos de
Mexico.

58 
 
provide services in rural or disadvantaged urban areas, where the investments return is
lower, despite attending those areas is socially desirable. These kinds of obligations
propitiate a higher geographic concentration of the telecommunication services provision;
thereby, they do not resolve the problem of inequality in access to telecommunication
services among population.

In Table 4.3 is shown the coverage commitments set in the spectrum concessions for 1.9
and 3.4 GHz bands, which were granted at the end of 1998.

Table 4.3. Coverage Obligations for 1.9 and 3.4 GHz Bands

Coverage commitments
(conditions in concession titles for public telecommunications networks and frequency bands)
Regions 1,2,3,4 and 9 Within a 3 year-term offer services to municipalities or political delegations
where 20% of the total region population inhabits.
Baja California, Baja California Sur, Sonora,
Sinaloa, Chihuahua, Durango, Coahuila,
Within a 5 year-term offer services to municipalities or political delegations
Nuevo León, Tamaulipas, Distrito Federal,
México, Morelos and Hidalgo. where 50% of the total regional population inhabits.
Regions 5,6 and 7 Within a 5 year-term offer services in municipalities or political delegations
where 40% of the total region population inhabits
Chiapas, Tabasco, Yucatán, Campeche,
Quintana Roo, Jalisco, Nayarit, Colima,
Michoacán, Aguascalientes, San Luis Potosí,
Zacatecas, Guanajuato, Querétaro.
Region 8 Within a 3 year-term: minimum 5 municipalities

Puebla, Tlaxcala, Veracruz, Oaxaca y Within a 5 year-term: minimum 10 municipalities

Guerrero.

Quinquennial network coverage 6 months before the expiration of every quinquennial period, agree with
program COFETEL the coverage program.

Note: A Municipality or Political Delegation is considered as served, when the service is available in a geographic area where 40%
(forty percent) of the municipality or political delegation’s population inhabits.
Source: Several operators’ concession titles.

iii) Specific coverage commitments.

As remarked in the preceeding section, coverage commitments set in the operators’

concession titles since Telmex privatization have not generated incentives to investment in
rural areas. Other schemes, as establishing investment levels have the same disadvantages
regarding the lack of incentives to expand coverage already described, and those
disadvantages may even distort operators' investment decisions if they acquire excessively
expensive technologies or less efficient equipment in order to meet the commited
investment levels.

Thus, when proposing the development of a new broadband network with nationwide
coverage, it is necessary a different scheme. In particular, the proposal is to establish
specific coverage commitments, i.e., the specific definition of towns or locations that the
concessioner shall cover as part of its obligations contained in the concession title.

59 
 
Criteria supporting locations’ selection must be in line with the basic purpose of providing
the widest broadband possible coverage to the population within the shortest possible time.
It should be outlined that there is a marked complementariness between specific obligations
which are possible establishing and pro-competition measures abovementioned. For
example, one of the main factors that disincentivate broadband provision in rural areas is
the high cost for internet connection. As authorities instrument policies that effectively
abate that cost, deployment in low income and rural areas becomes viable; i.e., authorities
may extend coverage commitments to a larger number of locations as cost decreases.

Other Government’s instrument to achieve a wider coverage of a new broadband network is

the spectrum fee. Authorities may establish wider coverage obligations providing they are
ready to establish smaller spectrum fee for the concession.

Methodological proposal to define network’s coverage in the 2.5-2.69 GHz band.

Optimization model to define specific coverage commitments.

In planning the deployment of any telecommunication wireless network and determining

network equipment requirements (radio base stations, centrals, repeaters, etc.), a core
element for the analysis are the characteristics of the zone to cover,56 i.e. population size,
population density -inhabitants per km2-, buildings structure and orography. Those factors
determine the equipment and investment required to meet the demand expected in said
zone.

Usually, in planning telecommunication networks, based on the characteristic

abovementioned, areas or zones are classified in three groups: dense urban, urban and rural.

Dense urban areas present the most complex operation scenarion due to their high
demography and numerous tall buildings. The number of radio base stations, to cover a
defined area and to meet the users' mobility patterns, is the largest of the three groups.
Urban zones present a smaller degree of technical difficulty as buildings are usually smaller
and more spread than in the preceding scenario. Network planning for such areas also
considers coverage and capacity requirements that every radio base station must provide. In
other words, in urban zones it is not generally possible expanding cell radius all what could
be technically possible, because it looses capacity to meet demand. By reducing the cells'
radius, the capacity and quality provided by the network increase.  

It should be mention that, both urban zones, but particularly dense ones, are the first areas
                                                            
56
In order to determine the infrastructure required for the network, operators resolve two problems. The first
one is to define the equipment requirements to cover an area, and the second one is to define the equipment
requirements to maintain the network’s capacity (i.e., broadband and services quality). In this section we
focus in the coverage requirements. Probably, one or a small number of radio base stations in a rural area may
provide good quality services in the medium term, before requiring more investment to increase capacity.

60 
 
incorporated in business plans; therefore, they do not represent the purpose of the specific
coverage analysis to define the commitments of the broadband network.

Finally, rural zones have, wide open spaces between constructions, scarce buildings and the
lowest demographic density. That represents an advantage for the scope and propagation of
signals from base stations and, therefore, for meeting the demand as the cells are bigger
(see Table 4.4) and the expected demand is lower. According to information about the
WiMAX technology,57 there are base stations to operate in the 2.5 GHz band that may
reach up to 8 km in open spaces. There is also complementary equipment that could
propagate the signal inside buildings. Likewise, for rural zones, there are technological
solutions that allow base stations reaching a radius up to 25 km only by software
modifications of the equipment that is already operating in the mobile broadband WiMAX
IEEE 802.16e standard.

Although investment in towers and electronic equipment is lower in rural areas, there are
other higher investment component costs, like the investment to connect such areas with the
backbone through optic fiber or microwave. Such investment depends on the distance to
urban areas or to other rural areas connected to the backbone. Along this line, deploying a
broadband network in rural areas that operators are committed to serve must consider,
among other factors, the impact of such investment costs on the project' financial viability
as well as the Internet connectioncost and the spectrum fee. We highlight such variables as
the development of optic fiber infrastructure to reach rural areas, the Internet connection
cost and the spectrum fee are policy instruments that the Government could use to promote
broadband coverage in rural areas.

                                                            
57
 Interview with the WiMAX Forum regulatory group representative. 

61 
 
 Table 4.4. Technical aspects of broadband fixed service provisioning in rural areas.

Broadband service provision, besides the network equipment (base stations, repeaters,
etc.), requires that users have WiMAX devices to be connected to the base station. These
may be incorporated or not to the user’s terminal equipment (for instance,. computers).
Should terminal equipment do not include such WiMAX devices, installing an additional
terminal unit at the subscriber’s facility (known as customer peripheral equipment or CPE)
becomes necessary, as it will serve as a bridge between the user’s terminal equipment and
the base station. CPE could be external, antennas placed on the subscriber’s roof; interior,
placed inside the customer’s facility; or as USB devices placed directly on the user’s
terminal equipment.
Every CPE equipment has different ranges with respect to base stations, as it is shown in
the following table.

Specifications:
Cell radius: 20 km with external CPE
Coverage area: 1,256 km2.
CPE type Scope range between base Coverage % with respect
station and CPE to external CPE
Exterior* 20 km** 100%
Interior 10.6 km 53%
USB 2.8 km 14%
*Antenna elevated 1 meter above roof level.
**Depends on the specifications required to the equipment manufacturer
Note: Coverage ranges are: the ones offered by equipment manufacturers under ideal propagation, ground
and construction materials conditions. However, such ranges could be shorter depending on the
characteristics of the area and population density. For instance, it would be expected having shorter ranges in
urban and dense urban areas than in rural areas.

Rural settlement selection for the 2.5 GHz band.

The first step to determine rural areas that may be included in specific coverage
commitments is to establish the population of those areas. There are census criteria used by
the National Institute of Statistics and Geography (INEGI) to delimit urban from rural
areas. This analysis considers rural areas defined by INEGI and also locations that fit in the
description abovementioned description: areas with low density and scarce and disperse
buildings.

For the new broadband network coverage program it is proposed including settlements with
more than 500 inhabitants in order to cover around 90% of the population. Although, it is
not considered to install base stations exclusively for settlements with less than 500

62 
 
inhabitants,58 installing base stations for settlements with more than 500 inhabitants will
cover a not yet defined number of such smaller settlements because, in many cases, the cell
radius will reach nearby smaller towns.

Certainly, many settlements with less than 500 inhabitants will be left without coverage.
Those locations must be served through a social program that primarily uses low frequency
technologies; for instance the available ones in 450 MHz. Settlements not covered with
such technology may be served by satellite.

As for settlements with more than 500 inhabitants, according to the Population and
Housing National Count 2005 by INEGI,, 61.5 million inhabitants (59.6% of the national
population) live in towns bigger than 30,000 inhabitants, and 31.4 million inhabitants
(30.4% of the national population) live in 16,445 smaller towns, between 30,000 and 500
inhabitants.

It is expected that cities with over 30,000 inhabitants will be served by the new network as
it is in its best business interest, even if they are not included in the coverage obligations.
That is why in the exercise described below we focused in settlements of up to 30,000
inhabitants. Those settlements are considered rural settelemets in this analysis.

Although, it is questionable considering settlements between 20,000 and 30,000 inhabitants

as rural, there is an important number of locations that fall within this range that are
geographically isolated from urban centers and therefore in risk to be left out of the
commercial deployment programs of the new network. Such is the case, for instance, of
Pinotepa Nacional (Oaxaca); Champoton and Escarcega (both at Campeche); Huatusco
(Veracruz) and Santiago Papasquiaro (Durango).

Description of a heuristic method using operation research technics to assign base

stations to rural settlements between 500 and 30,000 inhabitants.

A heuristic method algorithm, developed by Dr. David Muñoz59 was used to estimate a
100% coverage of rural settlements that range from 500 to 30,000 inhabitants, 16,445
settlemets60, with the lowest cost in terms of the number of base stations.

                                                            
58
It is convenient pointing out that the country has close to 171 thousand locations with less than 500
inhabitants, and 10% of the national population lives in those.
59
Researcher of the Instituto Tecnológico Autónomo de México. (Autonomous Technological Institute of
Mexico)
60
The method allows covering also a smaller percentage of those locations, providing the rural radio bases
number that shall be installed in those zones is restricted.

63 
 
For the estimation it was assumed that every base statation may serve nearby rural
settlements within a 20 km radius. This problem is known in the literature as the location-
allocation problem.61

When the number of locations that must be served is large (for instance, more than 100), it
is known that the solution to the services location problem with fixed location of the
demand cannot be identified within a reasonable computer time; therefore, the advice is to
use some heuristic method that allows finding an approximation to the optimum within a
reasonable time.

The algorithm used to obtain the location problem solution is a variant of the algorithm
reported in Muñoz (2009). It is based on an iterative process that makes the location search
of the place where the base station is going to be installed, by considering that such base
station should covers the largest possible population of the set of settlements between 500
and 30,000 inhabitants. Once the first radio base is located, the algorithm carries out the
search of the location of the second base station, in the same terms as the first iteration and
so on.62. The algorithm uses 3 data inputs: number of settlements, antenna radius (base
station) and maximum number of base stations. The process ends when the maximum
number of radio bases exogenously allowed has been exhausted, or when all settlements
have already been covered.63 The result is the location of the set of cells, i.e., base stations,
and the settlements that each cell covers.

Although, the optimization process just described shows the proposal’s feasibility, its
proper implementation depends on a more complete analysis that includes detailed
information geographically referenced in regards to orography, demography and economic
activity aspects.
Results of the Services Location Algorithm with Identified demand.

According to the result from the algorithm to cover all the 16,445 rural settlements it is
required 3,237 base stations, each one with a radius scope of 20 km (see Figure 4.1).
However, this approximation underestimates the base station number needed, as the
orography of areas that cover such base stations is not considered. It will not be possible to
obtain cells with a 20km radius in all cases. In hilly areas, for example, the usual
requirement is 30% additional base stations.

                                                            
61
See Muñoz 2009, chapter 10.
62
Instead of considering the “artificial” separation of locations of more and of less than 500 inhabitants, the
ideal would have been applying the algorithm all over the country’s locations. Unfortunately, the computer
time that to do that process would take, made the optimization issue unattainable within a reasonable time.
63
Should the goal is covering all locations; a sufficiently big number of radio bases is indicated.

64 
 
Figure 4.1. Coverage over the 16,445 rural locations between 500 and 30,000 inhabitants (20 km radius)

65 
 
Coverage commitments in the 16,445 settlements that have between 500 and 30,000
inhabitants.

The coverage of the vast majority of the 16,445 settlements between 500 and 30,000
inhabitants, and a number of settlements, not yet determined, with less than 500 inhabitants
that could be served because of their proximity from other settlements is proposed.
Nevertheless, it is not clear that the concessionaire’s business plan may be economically
viable considering this coverage, particularly if: (i) the network deployment is required to
be completed in a short period of time; (ii) spectrum bandwidth authorized requires the
licensee to make and unnecessarily high investment; (iii) the government establishes a high
fee for authorizing the use of the frequencies; (iv) the government demands the fee to be
payed in cash instead of equity,64 and; (v) the Internet connection cost that concessionaires
have to pay in such settlemnets is very high.65 In other words, the ambitious coverage plan
proposed for the new network must be framed within a national integral policy for
broadband promotion in the country.

From a public policy standpoint and given the important benefits that universal broadband
service has, especially for the rural and lower income population, a commitment to offer
such service to all rural settlements between 500 and 30,000 inhabitants and nearby
settlements is proposed. Now, this commitment may be distributed along the life of the
concession, or it may be established that it has to be met within the first years of the
concession term. Certainly, requiring the network to cover in the short term the 16,445
settlements, or a close number of settlements, may make the business plan unviable.
Despite this, it is crucial to establish that a very important part of the network deployment
should occur in the first years of the project, in a way such that no doubt about the good use
of the spectrum –a public good– is made. This would also enable the Federal Government
to requiere the concessionaire’s compliance or even to revoke the concession in case that
such conditions are not met, thus avoiding that the spectrum is kept by private hands that do
not develop the band for many years. Setting ambitious coverage obligations is also
justified because of the positive impact that telecommunications services have on economic
growth, particularly broadband services (see Figure 2.2). As described in more detail in
section 2.1, the social value of the spectrum is much higher than its market value.

                                                            
64
As the Federal Government accepts consortium shares as payment for the authorization to use the
band, the project’s risks diminishes, the debt level required also reduces and the business plan
profitability raises (see section 6).
65
To connect a location to internet, deployment of an optic fiber network or microwaves up to the
existing carrying network is required. The cost for the internet connection is the addition of the cost
to deploy said network and hiring the carrying service. As it will be shown in section 6 which
describes the financial model to asses the network, the cost for internet connection is the most
important operational cost of a broadband network.

66 
 
Furthermore, in the current economic crisis, the investments made for developing the
network are countercyclical and stimulate economic activity.

Figure 4.2 shows the proposednetwork deployment plan for rural coverage.

Figure 4.2. Network deployment in rural settlements between 500 and 30,000
inhabitants as a percentage of the population covered

 
3 years  10 years 

Source: Own preparation.

As for the question as to which rural settlements must be deployed first, the criterion of
deploying the network in the settlements that are financially more attractive first is
proposed to be adopted, i.e., the ones that have the highest revenue potential 66 and the
lowest capital and operational costs. This criterion is considered to be the most aligned
withthe entrepreneurs’ natural incentives. Investments in rural settlements that represent the
biggest burden for the licensee would be made when the network’s financial condition
allows funding the deployment in such places with the project’s own cash flows.67

                                                            
66
The highest potential income is generated by rural areas with higher population density and
higher economic activity.
67
Additionally, it is possible making a conditional deployment design that shares risks between
operators and the government; however, it should be cautious about the fact that conditioning
variables be really hexogenous for the operator; in a way such that he/she does not have the
capability to influence them, for instance, network deployment may be subject to the costs
connecting rural areas to the Internet, but, as it is an endogenous variable, the operator could have
incentives to reduce actions inclined to extending the backbone network to these areas.

67 
 
A common problem that governments face with all types of licensees to whom conditions
or obligations are imposed and which materialize over time is the incentive that such
licensees have to bargain the content of those conditions or obligations in the future. This
re-negotiation is facilitated if obligations are not clear or precise; hence, it is important that
coverage obligations are set precisely. Specifically, a list of the settlements to be covered in
every year with their corresponding coverage monitoring program shall be prepared. The
purpose is that possible delays in the compliance of coverage obligations can be detected
timely and corrected.

Private entities would accept meeting the coverage program, by establishing it in their
concession titles. On its side, the government commits to authorize a sufficient amount of
spectrum bandwidth to allow a fast and ambitious network deployment and for the network
to have enough capacity to meet the expected services demand in a medium andlong term;
e.g., the next 10 years. The spectrum fee that the Government sets for authorizing the use of
spectrum must be consistent with the established coverage obligations, the internet
connection cost level and the payment structure of the fee (see section 6). In any event, the
project’s financial viability should not be compromised.

Necessary conditions that guarantee coverage obligations compliance.

Requiring concessionaires to comply with the coverage obligations can be done more easily
if such obligations are set in the concession title. Additionally, it is advisable to guarantee
the necessary conditions for the compliance of such obligations, previously to granting the
concessions. Particularly, previous to the concession renewal and authorization of
additional services provision in the 2.5 GHz band, it would be desirable that concession
applicants show clear signs of their capability and interest to make a wide network
deployment. The creation of investors’ consortium –nationwide or regional– including
operators, current band concesssionaires and equipment suppliers, is recommendable for
that purpose. Said consortium should include investors with enough financial resources and
incentives to “guarantee” the network deployment plan required, as well as companies that
may contribute with complementary skills that could facilitate a fast network deployment.
This consortium would be a necessary condition that guarantees the feasibility of the
project.

If it is required or desirable to reduce the project’s risk and increase its viability the
spectrum fee could be paid with equity. In this case, before the renewal and authorization of
additional services provisioning is made, it would be convenient to establish the
government’s mode of participation in the new entity, as well as the mechanisms,
conditions and term for its eventual exit.

68 
 
It should be emphasized that the renewal and authorization of additional services
provisioning in the 2.5 GHz band would be only justified when coverage obligations had
been accepted and the consortium that would give viability to the new mobile broadband
network had been created.

5. Complementary Public Investment for Broadband Development

 

Governments in several countries are encouraging the construction of basic infrastructure

necessary for the development of broadband networks; as it has been the case of electric
and road infrastructure in the past, for example.

International experience shows a large variety of forms in which the government could
foster broadband development. For instance, the Spanish government has recently
announced universal broadband access at one megabit/second for 2011.68 Likewise, the
United Kingdom announced its goal of having universal broadband access at 2
megabits/second broadband in 2012. South Korea has an ambitious educational project to
stimulate broadband adoption among the population, besides its active role in the provision
of fiber optic capacity. Laslty, some local governments in Sweden have a direct
participation in the build-out of optic fiber networks.69 Public investment in fiber optic
networks in Sweden, South Korea and Japan, have enable these countries to become
worldwide leaders in the deployment of fiber optic networks (Berkman Center, 2009).

The current economic and financial crisis has motivated announcements of public
investments in the sector in several countries. Among the OECD countries, the projects in
Luxembourg, Australia and New Zealand outstand, althought they still have to be carried
out. Countries that have committed important public funds to support broadband
development are the United States, United Kingdom, Portugal and Finland, as can be
noticed in Table 5.1.

                                                            
68
Press release, Ministry of Industry Tourism and Trade of Spain, November 17th, 2009.
69
Federal Communications Commission, National Broadband Plan Workshop, International Lessons,
Washington, D.C. Tuesday, August 18, 2009. http://www.broadband.gov/docs/ws_07_int_lessons.pdf

69 
 
 Table 5.1. Public Investment in Broadband Networks Worldwide

Government
Participation in terms
of the USA Economy
Country Investment Planned Governmen Participation
adjusted by
population size,
(millions of dollars)
Australia AUD 43 mm AUD 4.7 mm (re-allotted funds) 45,853
AUD 6.3 mm (projected bonds) 61,463
Austria EUR 125 m EUR 25 m 1,050
Canada CAD 225 m CAD 225 m 1,677
Finland EUR 66 m EUR 66 m 3,920
France EUR 750 m Unknown Unknown
European Union EUR 1 mm EUR 1 mm 912
Germany EUR 150 m EUR 150 m (uncertain) 657
Italy EUR 1.25 mm EUR 1.25 mm (not committed yet) 7,770
Japan JPY 185 mm JPY 185 mm 3,820
South Korea USD 27 mm ~USD 1 mm 6,330
Luxembourg EUR 195 m EUR 195 m 126,000
New Zealand NZD 1.7 mm NZD 850 m (not committed yet) 58,300
Portugal EUR 50 m + EUR 61 m EUR 111 m + EUR 61 m 4,700
United Kingdom GBP 200 m GBP 200 m 1,530 + 1,150-1,340
+ GBP 150-170 m per year + GBP 150-170 m per year per year
United States USD 7.2 mm USD 7.2 mm 7,200
Note: Data on investment planned and Governmental Participation are reflected in local currency, except for
South Korea that is in American dollars. For the government participation in terms of the USA economy,
information has been adjusted to the buying power parity (PPP Spanish initials), and also adjusted to
approximate investment to a population similar to the USA (investment per-capita in PPP multiplied by a
population of 307 million).
Source: Berkman Center for Internet & Society at Harvard University (2009), page 164.

The government’s role in stimulating the deployment of broadband network infrastructure

and the adoption of broadband services by the population may take different forms:

• facilitate access to inputs (infrastructure sharing rules, making available more

spectrum, facilitating the granting of rights of way for the construction of towers,
ducts and posts),

• foster competition in the sector,

• mitigate the risk of investments, either by public-private partnerships or by public

loans, and

70 
 
 • support the production and provision of terminal equipment at reasonable costs, as
well as the creation of programs that encourage broadband adoption.

Despite the advantages that government participation has for promoting wide and fast
broadband network deployments, there is always the risk of crowding out private
investments. On this regard, the guidelines established by the European Union in
September 2009 for public investments in the sector (European Commission, 2009)70
become relevant. As for new generation networks, the guidelines allow public investment
mainly in areas that have no service available or where coverage is insufficient. The
guidelines allow public investment even when private operators offering broadband and
triple play services exist, provided that they do not have plans to develop new generation
network in the following three years.

The European Union’s guidelines also specify that when state aid is granted to private
operators, such aid must be accompanied by the obligation to offer access to third parties.
For publicly funded networks, the guidelines set obligations regarding technological
neutrality and infrastructure unbundling. They also consider the participation of the
government in infrastructure and construction projects, either directly or thru private
companies, and they establish as well disinvestment rules for government to avoid the
overcrowding of private investments and promote competition.

The European experience also illustrates the importance that public participation has for the
stimulus of the so called passive elements of the network, i.e., ducts, towers, posts and fiber
optic cables, which can be shared among operators. For this purpose, the European
Commission recommended to make mandatory the laying of fiber optic cables in new
infrastructure projects (i.e. roads, electric networks and carrying in general) and buildings,
facilitate the attainment of rights of way by network operators, or require infrastructure
sharing among network operators (European Commission, 2009).71 In the case of Mexico,
there is a general deficit of passive infrastructure elements availability, which is crucial for
the development of telecommunications services in general. Government’s participation
could become a key factor in the provision of these elements.

                                                            
70
“The main goal of the Directions regarding broadband is fomenting the ample and quick deployment of
broadband networks, and at the same time preserving the market dynamics and competition in a sector that is
entirely liberalized.” European Commission, September, 2009, “State aid: The Commission adopts some
Directions about broadband networks”.
http://ec.europa.eu/competition/consultations/2009_broadband_guidelines/index.html
71
In accordance to the European Commission, the obligation to share infrastructure must apply to
all operators and companies not related to the sector, and not only to incumbent operators
(European Commission, 2009). In diverse European countries as France, Portugal, Italy and
Germany, incumbent operators are obliged to share their ducts.

71 
 
Therefore, it would be convenient, as was the case in Europe, to establish the obligation to
include basic telecommunications infrastructure in projects that receive public funds. Such
infrastructure should be required to be actually made available to operators through an open
access and non-discrimination framework.

In Mexico, the CFE’s infrastructure of posts and fiber optic cables seems to be the most
important case by which the State could contribute to the development of
telecommunications networks. Also, the government’s future investment in CFE’s fiber
optic network expansion should follow the same guidelines as the ones established in
Europe.

Government involvement is also important on the demand side, for example, by promoting
broadband usage with programs that educate and explain its benefits and how can it be
used. Another way the government could encourage broadband adoption is by supporting
the installation of companies engaged in the production of netbooks and lap-tops, so low-
cost terminal equipment can be available to the population.

6. Business Assessment Model for a Broadband Network Relying in the 2.5

GHz band.

6.1. Methodological proposal and motivation.

As mentioned in the above chapters, the 2.5 GHz band represents an opportunity to extend
coverage and increase competition in the provision of broadband services in Mexico. To
attain these goals, the assessment of various public policy alternatives that the Government
has to develop the band is required. These alternatives could include the total or partial
renewal of the concessions that current concessionaires have, or even the total take-back of
the band to be later on re-allocated through a bidding process. This last alternative, as well
as the partial renewal of the concessions with a reduced spectrum bandwidth could cause
that a new broadband network will not be developed in the next years.72

In order to analyze how the business model is affected by factors such as coverage
obligations, spectrum bandwidth and the concession renewal fee, we propose a
methodology similar to the one used by companies to assess the profitability of investment
projects such as the discounted cash flow model. This model calculates the present value of
the revenues, capital and operational expenditures of a project (in this case a mobile
                                                            
72
In accordance with several surveys conducted, those alternatives could lead band concessionaires
to recur to the amparo trial; therefore, “freezing” the band for several years. That, without
considering the time needed to carry out the auction.

72 
 
broadband network in the 2.5 GHz band) within a defined timeframe. The net present value
of these cash flows equals the investor’s value of the project. This value allows us to
estimate the investor’s willingness to pay for the spectrum allocated to the project, as well
as the spectrum bandwidth size that would enable him to generate a reasonable return on
his investment.

To assess the cash flows of a mobile network, the financial valuation model WiROI73 was
used. This model was developed by the consulting company Wireless 2020 and was
adapted and calibrated to the Mexican market specific conditions with the support of
domestic and international experts. The WiROI model is flexible and easy to manage as it
allows the modification of many different variables, and specific simulation exercises of
interest may be adapted. Those exercises allowed us to obtain valuable information about
the main barriers that the development of a new mobile network faces as well as the impact
that Government complementary policies could have on such development, as for example
infrastructure sharing, interconnection rates and backbone network access availability.

6.2. Description of the Busniess Evaluation Model in the 2.5 GHz band

The model considers a broadband mobile network using WiMAX technology. Although
LTE technologies are going to offer similar speeds, it is not yet available in the market and
we have no information regarding equipment costs. Anyway, it is expected that when LTE
becomes available, the costs of that technology will be similar to those of WiMAX; thus,
the results of this analysis must be similar to the ones that would be obtained by assessing a
LTE network.

As for the network coverage, it was assumed that on its third year of deployment the
network would reach national coverage, reaching 89% of the country’s population, i.e., 95
million inhabitants out of which 21 million would be living in rural areas (see Table 6.1).
As a comparison, the Telcel’s network reached 95% of the population at the end of 2008
according to information provided by the company. As pointed out in section 4 the types of
geographic area covered are three: dense urban with high demographic density and high
buildings (more than 6 levels); urban with high/medium demographic density and buildings
not higher than 6 levels in average; and finally rural where demographic density is low and
more open spaces are available.

                                                            
73
The WiROI model has been used in more than 30 countries to test financial profitability of
mobile networks based on WiMAX technology. http://www.wireless2020.net/.

73 
 
 Table 6.1. Network Coverage

Zone / 2
Population Homes Area (km )
type

Dense 10,503,000 2,693,077 695

urban

Urban 63,456,641 15,477,230 16,264

Rural 21,165,187 4,810,270 104,587

Total 95,124,828 22,980,577 121,546

Source: Own preparation

The model considers a fast network deployment, covering 100% of the dense urban
population planned, 50% of the urban and 25% of the rural in the first year; 100% of the
urban population planned and 50% of the rural in the second year; and 100% of the total
population planned in the third year. The network deployment kick off could begin in April
2010.

The services offered by the network are mobile broadband and mobile telephone service.
The mobile broadband service consists of an unlimited access to contents available in
Internet at various speeds and without traffic restrictions for a monthly flat rate. The
minimum guaranteed speeds that the network offers range from 512 kbps to 4,096 kbps.
Prices proposed for the mobile broadband service plans are shown in Table 6.2. This
service is not conditioned to the purchase of telephone services or to any other service or
equipment.
Table 6.2. Mobile broadband service rates

Minimum Residential Commercial

guaranteed speed (pesos/ month) (pesos/month)

512 kbps $240

1024 kbps $310 $580
2048 kbps $370 $780
4096 kbps $980
Source: Own preparation.

Besides the broadband service, users may hire the mobile telephone IP protocol service.
The model considers a package of minutes to fixed and mobile telephone numbers, either
local or domestic long distance for a monthly rent. The residential package considered

74 
 
offers 400 minutes for 100 pesos per month, and the commercial package offers 800
minutes for 200 pesos per month. A 30 cents of a peso per minute rate applies to any
telephone number if the minutes included in the package are exceeded.74

Calculation of the Networks’ Cash Flows

The revenues and operational and capital expenditures were calculated for the mobile
network for a 10 year time span. As revenues and expenditures depend on the level of
service demand, the network’s number of users and traffic for each year were forcasted. For
that purpose, the broadband potential market size was defined as the number of people and
businesses interested and with sufficient economic buying power to acquire the services
that would be offered by the network.

The potential market was split in two segments: residential and commercial. For the
residential market segment, households with income above 5 minimum salaries were
considered. According to several experts in telecommunications service marketing, this
income level represents the minimum income that a household needs to be able to acquire
telecommunications services. In 2008 there were 11.9 million households with at least such
income level according to the National Survey on Households’ Income and Expenditures
conducted by INEGI. The number of broadband lines that a husehold could hire was also
considered, not only as a function of the household’s income level but also of the number
of household’s members in between 15 and 60 years old. According to the information and
communication technologies survey of INEGI (ENDUTIH 2008), between 85% and 90%
of all Internet users fall within this age range. It was also assumed that the households
which adopt the service would hire an average of 1.2 and 1.6 subscriptions (some homes
would have more than one subscription depending on their social-economic level). This
results in a potential residential market of 14.3 to 19 million subscribers. Given the trend
towards the personalization of telecommunications services a larger number of
subscriptions per household in urban areas is possible in the future.

In the commercial segment, it was considered that 70% of small and medium size
companies in the country are capable of hiring the service and are also interested in doing
so (according to the Economic Census of INEGI there are 3 million small and medium size
companies in the country). It was assumed that each company would hire in average
between 1.5 and 2.5 subscriptions, therefore, the potential commercial market would be in
the order of 3.2 millions and 5.3 millions subscribers.
                                                            
74
This rate is based on costs and thereby the following calling structure was considered: 30% to
fixed phones, 20% on-net calls, and 50% to other mobile phones. The costs considered were 11
cents of a peso per minute for fixed telephones, 15 cents for on-net calls, and 50 cents to other
mobile phones.

75 
 
After the potential residential and commercial markets were calculated, the network’s
number of users and the traffic were estimated in the next 10 years. This estimation was
based on market demand and supply factors such as service rates, number of suppliers in
the market and prices of complementary goods such as terminal equipments (see Table
6.1).

Figure 6.1. Network’s Broadband and Telephone Service Users (millions)

Source: Own preparation.

After determining the demand, the mobile network was dimensioned, i.e., the number of
sites and backhaul links were defined, among other network elements, to meet the specified
demand. Network elements can be classified in the ones belonging to the access network
and the ones belonging to the core network (See Table 6.2). The access network is mainly
comprised by the base stations and access nodes which have the task to connect users to the
mobile network; whereas the core network provides the connectivity to the Internet cloud
and to the public telephone network. The core network may be described as the network’s
brain that controls such tasks as authenticating users access to the network, managing users’
mobility and interconnecting them to other networks.

76 
 
 Figure 6.2. Network Diagram

CORE NETWORK

PublicTelephone
Network

(optic fiber)
ACCESS
NETWORK

Source: Own preparation.

The network’s capital and operational expenditures are then calculated by pricing the
network elements dimensioned. The network element prices considered in the model were
consulted with domestic and international experts so they reflected real market conditions.
Prices are reflected in dollars so that the model can be compared with similar models in
other countries. In Tables 6.3 - 6.6 network cost assumptions used in the model are shown.
Assumptions related to the sites and backhaul links within the access network were also
made. In the first case, it was assumed that 75% of the network sites were new; hence,
costs related to land acquisition/leasing and tower installation had to be incurred. In the
second case, it was assumed that 90% of the network’s base stations were connected to the
first access node through microwave links, and the remaining ones by leased wired links.
The lifespam of network equipment was assumed of 8 years.

Table 6.3. Assumptions of Capital Expenditures

Sites Acquisition and Construction – Existing sites* $20,000

Sites Acquisition and Construction – New sites* $90,000
Cost to Provide T1/E1* $1,000
Cost to Provide DS3* $4,800
Cost for Wireless Transport Links* $15,000
Capacity of Wireless Trasport Links (Mbps) 45 Mbps

77 
 
 Radio-base (Macrocell) 1 Channel* $50,000
Radio-base (Macrocell) 2 Channels* $65,000
Radio-base (Macrocell) 3 Channels* $80,000
Radio-base (Macrocell) 4 Channels* $95,000
Capital Maintenance Expenditures 5.0%
Reduction in the Equipment Pricing for the Central 5.0%
Network
*Figures in dollars
Source: Own preparation based on commercial information.

Table 6.4. Assumptions of Operational Expenditures – International Internet

Connection

Year 1 2 3 4 5 6 7 8 9 10
Cost per Mbps per $96 $89 $83 $77 $72 $67 $62 $58 $54 $50
month (dollars)
Percentage of 95% 93% 91% 89% 88% 86% 84% 82% 81% 79%
International
Internet Traffic
Source: Own preparation based on commercial information.

Table 6.5. Assumptions of Operational Expenditures

Cost of a E1 / month and Price Annual Drop* $1,000 5.0%

Cost of a DS3 / month and Price Annual Drop* $2,500 5.0%

Advertising – Trademark launching campaign $/HH* $2.00

Total number of target homes (000's) 22,981
Trademark launching campaign * $45,961
Amount spent in year 1 50%
Amount spent in year 2 35%
Amount spent in year 3 15%

Expenditures for tower leasing per month* $700

Maintenance of towers and expenditure for public services per month* $200
Expense in wireless carrying leasing incremental per month* $200
Operation expenditure for wireless carrying as % of the capital expense 6%
accrued in wireless carrying
Percentage of new additions through indirect channels 40%
Sales commission of the indirect channel* $50
*Figures in dollars
Source: Own preparation based on commercial information.

78 
 
 Table 6.6. Assumptions of Operational Expenditures – Annual Data

Year 1 2 3 4 5 6 7 8 9 10
Other advertising (% 6.0% 5.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
of sales)
Cost for residential $35 $35 $35 $35 $35 $35 $35 $35 $35 $35
promotions for
Addition*
Cost for promotions to $60 $60 $60 $60 $60 $60 $60 $60 $60 $60
businesses per
Addition*
Customer service $2.0 $1.5 $1.5 $1.5 $1.5 $1.5 $1.5 $1.5 $1.5 $1.5
($/subscriber/month)*
Invoicing expenditures $1 $1 $1 $1 $1 $1 $1 $1 $1 $1
($/subscriber/month)*
General expenditures 25% 24% 23% 22% 21% 20% 20% 20% 20% 20%
for Management as %
of the Operation
Expenditures less
Transmission
Expenditure for 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
uncollectible (% of
service income)
*Figures in dollars
Source: Own preparation based on commercial information.

Taxes and interests derived from financial loans were also included in the model. In the
case of taxes, an effective rate of 20% was assumed, which is consistent with the fact that
telecommunications companies have important capital expenditures that can be deducted
from tax payments. As for interest payments, an annual interest rate of 10% was assumed.

Finally, to calculate the project’s net present value, network cash flows were discounted at
a 16% rate. This rate was defined from the Weighted Average Cost of Capital (WACC)
estimated for a company under similar conditions such as Clearwire Corporation, who
recently started the operation of a WiMAX network in the 2.5 GHz band in the United
States, plus an additional premium reflecting Mexico’s country risk75. The WACC
represents the company’s funding cost, weighted by its different sources, such as debt and
capital. The weighted average cost was calculated based on the contribution that each
source has in the company’s total funding. The following expression shows how the
WACC was calculated.

                                                            
75
WACC reported for Clearwire in the third quarter of 2009 was 14.3%. In accordance to the EMBI
index published by J.P. Morgan, the country risk of Mexico before the global financial crisis started
in October 2008 ranged between 100 and 200 base points compared to the treasury bonds of USA.

79 
 
 Debt re Capital
WACC=rd× + ×
Debt + Capital (1-t) Debt + Capital

Where rd represents the cost of debt, re the cost of capital, and t the corporate tax rate.

6.3. Sensitivity Analysis.

The model described in the above section was used to simulate changes in the main
variables such as spectrum bandwidth allocated to the project, access to existing sites,
internet connection cost, interconnection rate and the concession renewal fee level. The
exercise allowed analyzing the impact that these variables have in the network’s total costs
and profitability. The results of this analysis are presented below.

Coverage vs. Costs vs. Concession Fee

As the network coverage is extended from urban to rural areas, the profitability of the
network decreases. Every new base station installed in a rural area generates fewer
revenues as smaller amounts of population are covered and with a lower buying power.
Also, the Internet connection cost in rural areas is much higher than in urban areas where a
larger number of long distance networks are available. Thus, network costs increase more
than proportionally than revenues when coverage is extended to rural areas.

The above has significatn implications on the amount of fee that the Government may
collect whe granting spectrum concessions. Because the profitability of a wireless network
project would diminish if rural coverage obligations are set by the Government, the
investors’ willingness to pay for a spectrum concession would be lower (see Figure 6.3).

80 
 
 Figure 6.3. Relation between Coverage and Concession Fee

Source: Own preparation.

The model could not be used to measure the quantitative impact that coverage obligations
have on the concession fee, as there is not detailed information about backbone and Internet
connection costs as well as service penetration at a local level. As mentioned above, the
Internet connection cost varies significantly across different geographic areas.76 The basic
model considers a country average Internet connection cost which is not realistic for the
whole country, as in rural areas operators pay a much higher cost.

Spectrum bandwidth vs. Capital and Operational Expenditures and Concession Fee
The spectrum bandwidth available for the development of a wireless network impacts the
network’s operational and capital expenditures importantly. Spectrum bandwidth
determines a base station’s transmission and reception capacity. This capacity may be
incremented through spectrum re-use, meaning the process of installing a larger number of
base stations in a given geographic area. Thus, the wider the spectrum bandwidth available,
the less number of base stations required to meet a given traffic demand; and hence, the
lower the network’s operational and capital expenditures (see Figure 6.4).

                                                            
76
Internet connection costs are vary greatrly accross ther several regions of the country. At border cities with
the U.S.A., it is possible to get rates of $15 USD per megabit per second per month (Mbps). However, in
medium size cities of the country which are far from the north border, prices rise to more than $120 USD per
month for the same access speed. In the central and south part of the country prices sometimes reach more
than $1,500 USD per month for the same speed access. (Those tariffs are for dedicated capacity clear-channel
type). In many small towns simply there are no options to access the backbone network, therefore, local
operators are not able to offer broadband services.

81 
 
 Figure 6.4. Base stations required given the spectrum bandwidth available*

*Telcel currently has more than 10,000 radiobases installed.

Source: Own preparation.

Spectrum bandwidth not only affects the network’s costs but also the concession fee that
the network operator would be willing to pay to the Government. As more spectrum
bandwidth is made available to the network, the operator would be willing to pay more for
the concession as network costs would be lower. The effect could even be higher if we
consider that the remaining spectrum bandwidth could be allocated to other operators that
would compete directly with the services provided by the network. Therefore, by making
available a large spectrum bandwidth to the network, the amount of spectrum fee would not
only be increased because it would lower the operator’s network costs, but also because it
would reduce the competitive pressures that the operator would face in the market.

Types of services and rates (importance of offering voice over IP, feasibility to provide
ample services at competitive prices)

The network’s services demand would be stimulated if the provision of mobile broadband
is complemented with other services such as voice services. This is due to the interest of
users in having the mobile telephony services, particularly in the first years. The supply of
voice services increases the value that broadband access has for end-users, thus increasing
the network’s capacity to attract new customers. The provision of additional services by the
network would allow it to have a larger number of subscribers and higher revenues, thus
making the business project more viable.

82 
 
Spectrum Fee (assessment of the cost for spectrum usage)

The fee that the Government collects for the use of spectrum represents a significant cost in
the deployment of a new wireless network. If the spectrum fee is set too high, it could make
the business project non viable; and therefore inhibit the development of the new network.
This fee may represent a bigger burden for new entrants as they don’t have the cash flows
that an incumbent operator generates. In such cases, new entrants need to borrow from third
parties in order to pay for the fee; therefore, incurring in a higher funding cost. Annex B
shows that under the current financial environment there are important liquidity restrictions,
uncertainty and volatility which mainly affect new operators.

To estimate the impact that spectrum fees have on network costs we considered a one-shot
fee in the range of 200 and 1,000 million dollars. According to the model developed, the
one-shot fee represented between 6% and 25% of total network costs (capital and
operational expenditures) accumulated in the first 3 years. As the proposal considers a fast
network deployment, most of the capital expenditures are realized during the first years of
the project (see Figures 6.5 and 6.6).

As the spectrum fee represents a significant cost of the network’s construction and
operation, it is convenient for the Government to accept the collection of such fee through
company shares. This option would allow concessionaires to reduce the need for funding
and the expenditures realized during the first years of the project. The Government would
receive the spectrum fee in cash until it sells its shares. Depending on the value assigned to
the spectrum, the project’s funding requirements would be reduced between 13% and 43%
because of the government’s equity ownership (see Figures 6.7 and 6.8). For instance, if the
spectrum was valued in 600 million dollars, funding requirements would decrease from
2,570 to 1,771 million dollars, a 31% reduction. This could have a significant impact on
reducing the risk of the project.

83 
 
  Figure 6.5. Impact of the Figure 6.6. Impact of the
Spectrum Fee on Network Costs Spectrum Fee on Network Costs
(accumulated in 3 years) (accumulated in 10 years)
 
)

Figure 6.7. Funding requirements Figure 6.8. Reduction in funding

(millions of dollars), giventhe requirements, given the spectrum
spectrum value value

Source: Own preparation. Source: Own preparation.

84 
 
Internet connection cost

The Internet connection includes the inter-urban data carriage and the international port
connection (as there is no network access point or NAP in Mexico for the exchange of
Internet traffic). It represents one of the main cost elements in the provision of broadband
services in Mexico. One of the reasons that explain this is the high market concentration
level that exists in the provision of backbone services; in Mexico there are only two
backbone networks with national coverage, which are Telmex’s and CFE’s. Although there
are other backbone network providers in the country (Alestra, Avantel, Bestel and
Marcatel), their network coverage is much smaller than the two mentioned above.

The availability of backbone networks and capacity is unequal throughout the various
regions of the country. While in the region delimited by the main cities of the country
(Mexico, Guadalajara and Monterrey) competition among several backbone networks
exists, in less developed areas such infrastructure is scarce, particularly in the southeast part
of the country. In these regions the unavailability of this infrastructure is common, and
when it exists, the costs of accessing it may represent up to 70% of the broadband service
operational cost; raising the service rate at such level that it becomes unviable for parties
interested in providing broadband services in those areas.77

The model used shows that network costs are very sensitive to changes in the Internet
connection cost (see Figures 6.9 and 6.10).78 This cost may represent between 6% and 37%
of total network costs accumulated in 10 years, when this cost ranges from 20 to 200
dollars per Mbps per month. In Mexico, the international Internet connection cost averages
100 dollars per Mbps per month, much higher than the average cost in the US of 30 dollars
per Mbps per month.

The existence of a NAP in Mexico would avoid operators having to carry the Internet
traffic up to the United States, thus reducing their backbone costs. Another measure that
could help reduce the Internet connection cost in Mexico is for the Government to make
rights of way and key infrastructure such as towers, posts and ducts at roads readily
available for the development of new backbone networks. The costs related to such
infrastructure may represent up to 80% of the construction costs of an optic fiber network
(European Regulatory Group 2007 and Office of Communications 2008).

                                                            
77
See foot note of page 74.
78
The regional differences in Internet connection costs are not considered in the WiROI model, it only uses a
national cost average.

85 
 
  Figure 6.9. International Internet Figure 6.10. International
Connection Costs, given the cost per Internet Connection Cost as
 
Mbps per month (millions of dollars) % of the network total costs
 

 
Source: Own preparation. Source: Own preparation.
 

Interconnection Costs

Historically, interconnection rates in Mexico have been established above costs,

particularly the mobile interconnection rate (see Del Villar 2009). Besides affecting the
service rates applied to end-users, high interconnection rates negatively impact competition
among telecommunications service providers. As the interconnection rate moves away
from its cost level, larger networks face a lower average termination cost than smaller
networks. This is because a bigger proportion of a large network’s traffic originates and
terminates within the network, making only a small percentage of total traffic pay
interconnection. This case is illustrated in Table 6.7 where three companies that have the
same cost structure but with different market share are compared (i.e., they operate with the
same efficiency and their origination and termination costs are identical). The
interconnection rate is the same for the various companies, as the law demands reciprocity
among networks when similar interconnection services are offered.

86 
 
 Table 6.7. Example of the Impact that High Interconnection Rates have on
Competitors

Company % Termina- Intercon- % Traffic* Average

Market tion Cost nection Cost
Share (I) Tariff Within Intercon- (I)(e)+(II)(f)
(II) the nection 100
net- (f)
work
(e)
A 75 1.00 2.00 75 25 1.25

B 20 1.00 2.00 20 80 1.80

C 5 1.00 2.00 5 95 1.95

Source: Own preparation.

As opposed to large networks, a high proportion of voice traffic in small networks ends up
in different networks; hence, it is to be expected that interconnection costs in this type of
networks are important, even more when interconnection rates are high. According to the
model developed, the interconnection costs represent 14% of the network’s total costs
accumulated in 10 years (see Figure 6.11), making it the second most important cost
element in the network following the international Internet connection.

Although high interconnection rates may imply higher costs for smaller size networks, it is
also true that they may represent an important source of income. For instance, existing
mobile operators have received significant revenues as a result of the asymmetric
interconnection rates that exist between mobile and fixed networks. Currently, the mobile
termination rate is more than 10 times the fixed termination rate. This situation explains in
part the stagnation that fixed services have had in the last years, and may have also affected
negatively broadband penetration levels in the country as fixed networks, have been so far
the main way through which broadband service have been provided.

87 
 
 Figure 6.11. Interconnection Costs as a
percentage of the Network’s Total Costs

Source: Own preparation

Access to Related Infrastructure (sites)

One of the most important elements in the development of a mobile network is the land or
sites where towers and antennas are placed. Access to sites with a good location is a key
factor for the efficient planning and development of a wireless network. The best sites in a
city are located in the roofs of high buildings as they avoid the blocking of signals by other
buildings and thus the creation of shadows. Access to these sites by a new entrant is not
easy; as usually they are already taken by incumbent operators. Therefore, to promote the
entry of new competitors into the market, regulatory authorities in various countries have
implemented policies aimed at fostering site and tower sharing among mobile operators. In
India, for example, a public registry of the towers installed by operators exists
(Telecommunications Regulatory Authority of India, 2007), thus facilitating the access to
such infrastructure by third parties.

In Mexico such regulations are not in place; therefore, most of the times a new entrant has
to build its own sites, which raises the network deployment costs.79 The cost savings that
could be generated by site and tower sharing may be significant, depending on the number
of operators that share them. According to the model used, capital expenditures
accumulated in 10 years could be reduced by more than 30% if the ne network had access

                                                            
79
In Mexico, the company American Towers leases operators co-location spaces in towers, however, it has a
small number of sites in the country and it offers the leasing at high prices.

88 
 
to existing sites. This represents more that one billion dollars in cost savings (see figure
6.12 to 6.13).

Figure 6.12. Capital Expenditures* of Figure 6.13. Site Expenditures as a

a Mobile network, given the proportion percentage of the Network’s Costs*,
of shared sites (millions of dollars) given the proportion of shared sites

*Expenditures accumulated in 10 years

Source: Own preparation. Source: Own preparation.

89 
 
7. Conclusions
 

Throughout the last three years, policies aimed at promoting competition and the
development of telecommunications in general, as well as broadband in particular have
been analyzed inside government in cooperation with other stakeholders from multiple
angles. Our conclusions are similar to those in many other countries; among which we
highlight the strategic value of adopting the focus on the provision of wholesale
infrastructure network services, for such are the services required by license holders, in
order to deploy and operate networks in a context of healthy competition. This perspective
allows for the design of regulations that can level the playing field among distinct operators
and therefore open space for new players; as well as for concrete policy decisions and
actions that are necessary to make viable the deployment of networks that can effectively
accelerate the penetration of broadband to broader segments of the population.

As to regulation, insistence has been made on the importance of: (i) interconnection across
networks, which is directly linked to the development of fair competition in fixed and
mobile telephony and to the development of broadband, since voice services are still the
most important source of income even among operators who offer broadband; (ii) the
leasing of last mile at regulated rates, which enables third parties to offer broadband
without owning this infrastructure, as is the case in the most successful countries in the
development of broadband80; (iii) infrastructure sharing for the operators to deploy
networks with greater capacity and lower cost, hence taking advantage of existing network
infrastructure – sites, towers, pipes, optic fiber, etc81; (iv) encourage the main operators to
offer broadband services with unrestricted access to contents applications and services and
independently of the offer of other telecommunications services, then stimulating the
demand for broadband by consumers who wish to sign up for this service only, without
being forced to also purchase telephony.

Among the strategic complementary actions by the government to foster the penetration of
broadband, the following can be contemplated:

• Make CFE idle infrastructure available, such as optic fiber posts; and also take
advantage of rights of way currently under the jurisdiction of this company.
• Facilitate access by operators to government infrastructure -- public buildings
rooftops, sewage, pipes, plots of land--; as well as to that held by public utility
companies; such as in the case of posts, and electric transmission towers, as well as
the available optic fiber.

                                                            
80
 See Berkman Center (2009). 
81
 See European Commission (2009). 

90 
 
 • Foster the installation of an Internet traffic exchange, which would reduce costs of
transport to the operators in accessing the Internet backbone.
• Contemplate the installation of passive network infrastructure as part of the building
of the low-income housing projects -- that is, physical spaces for antennas and
structured cabling in these new projects for the eventual transmission and reception
of signals--; which facilitates access to information technologies and
communications for their inhabitants.

These last options serve to illustrate the array of possibilities at the reach of government to
directly contribute to a greater depth and granularity of broadband network infrastructure
throughout the country.

Even as new wireless technologies open a great opportunity to deploy broadband networks
with wide coverage at an accelerated pace, problems with the allocation of radio electric
spectrum have inhibited their use: there is available spectrum that has not been used and
also part of the allocated spectrum is currently underutilized. The challenge in the
development of broadband is not related to the quantity of available spectrum, but rather its
efficient allocation and the incentives that economic agents face in order to deploy
networks that can effectively compete in the marketplace.

The challenge that the country faces is to foster the development of broadband networks
that guarantees their viability in the long run and that extends their coverage nationwide.
Notwithstanding the fact that the development of broadband in the country calls for a strong
support from the public sector, as has been the case in other network industries, this does
not mean that the government should be a substitute to the market; on the contrary, it can
encourage private investments by establishing the right incentives to the private sector for a
wider coverage of broadband that are compatible with a stronger competition in this sector.

This document proposes an alternative for the government to promote effective use of the
spectrum for the development of wireless broadband networks. From our diagnosis of the
available spectrum, we conclude that the most viable model in the short run; that is, in the
course of the present administration, lies in the effective use of the 2.5 GHz band. In order
to secure the development of the band, it is necessary to establish specific coverage
milestones. The renewal of spectrum licenses for this band and the permit to offer
additional services would be justified only when these milestones have been accepted under
a formal commitment and the applicants have demonstrated their capacity to make their
project viable under the terms of their concession titles.

The central elements of our proposal to foster and promote the development of a new
national broadband network are the following:

91 
 
 1. Coverage policy: to establish goals so as to cover nearly 90% of the population;
these should be included in the concession licenses, taking into account the financial
viability of deploying the network;
2. Government fee on spectrum usage: as a good percent of spectrum is currently idle
or underutilized, it is proposed to better take advantage of this public good in
enough quantity for a fast and ambitious deployment of this new national broadband
network -- as described in Annex C, from the technical analyses provided by
industry. Moreover, it may be convenient to charge a fee through some form of
equity participation by the government -- which might reduce the risk of the project
and make more viable and ambitious coverage plan. Furthermore, the participation
of government would allow it to have a direct influence on the procompetitive
character of a consortium that will develop this network. In such a case, previous to
the issuing of the new concessions/licenses it will be necessary to establish the
modality of government participation in the new entity, as well as the mechanisms,
conditions and eventual exit strategy.
3. Access and network neutrality: consistent with the above, in the interest of
guaranteeing conditions for effective competition in the sector, it is considered
crucial that the new network does not restrict the provision of services/content and it
also allows use of any device which complies with the technical specifications of
the network. In particular, telephony service shall be included as an associated
service to broadband.
4. Policies for the development of terminal equipment/devices: this implies policies to
facilitate the quick implementation of affordability schemes for terminal devices or
customer premises equipment; for example, the installation of manufacturing
operations in Mexico for the provision of laptops, networks, and other low-cost
devices; which would not only encourage the fast adoption of broadband amongst
the population but also the creation of employment.

It is important to stress that, notwithstanding the advantages in cost and timeliness of an

ambitious wireless broadband network deployment in the 2.5 GHz band, as is analyzed by
this document, the current and future broadband capacity expansion needs for Mexico will
require the complementary development of other wireless networks in other frequency
bands, as well as the expectation of satellite services to extend coverage in isolated areas.

92 
 
References
Mexican Association of Internet (2009), “Electronic commerce survey 2009".
http://www.amipci.org.mx/estudios/temp/AMIPCI_ECOMMERCE_2009-
0344452001257356617OB.pdf

World Bank (2009), Information and Communications for Development 2009.

Berkman Center for Internet & Society at Harvard University (2009), “Next Generation
Connectivity: A review of broadband Internet transitions and policy from around the
world”.
Chiquiar, Daniel and Manuel Ramos-France (2009), “Competitiveness and Growth of the
Mexican Economy”, Research document, Bank of Mexico, November 2009.
http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-
investigacion/banxico/index.html
European Commission (2008), “Decision on the harmonization of the 2 500-2 690 MHz
frequency band for terrestrial systems capable of providing electronic communications services in
the Community”.

European Commission (2009), “Community Guidelines for the application of State aid
rules in relation to rapid deployment of broadband networks”,
http://ec.europa.eu/competition/consultations/2009_broadband_guidelines/index.html 

Federal Commission of Competition (1995), “Annual report 1994-95”, 1st. issue, Mexico.

Federal Commission of Competition (1996), “Economic Competition Report, Second

semester 1996”, 1st. issue, Mexico.

Federal Commission of Competition (1998), “Resolution by which the method to calculate

indexes to define the concentration degree that exists in the relevant market and the criteria
for its application is informed”, Official Gazette of the Federation, July 24, 1998.
Federal Commission of Competition (2000), Economic Competition Gazette, Year 3 no. 8
September - December, 2000.

Federal Commission of Competition (2003), Economic Competition Gazette, Year 6 no.

15, January – April, 2003.

Federal Telecommunications Commission (2009), “Core Technical Plan for

Interconnection and Interoperability” Official Gazette of the Federation, February 10, 2009.

Del Villar, Rafael (2009), “Competition and Equity in Telecommunications”, en Levy,

Santiago y Michael Walton, editors, (2009), No Growth without Equity? Inequality,
Interests and Competition in Mexico, Palgrave Macmillan and World Bank.
Electronic Communications Committee (2002), “Decision on the designation of frequency
band 2500-2690 MHz for UMTS/IMT-2000”, ECC/DEC/(02)06.

93 
 
Electronic Communications Committee (2005), “Decision on harmonized utilization of
spectrum for IMT-2000/UMTS systems operating within the band 2500-2690 MHz”,
ECC/DEC/(05)05.
European Regulatory Group (2007), “ERG Opinion on Regulatory Principles of NGA”.
Federal Communications Commission (2000), “Memorandum, opinion and order, in the
matter of Sprint Nextel Corporation and ClearWire Corporation. Applications for consent
to transfer control of licenses, leases and authorizations”, FCC 08-259, November 7, 2008.
Federal Communications Commission (2009), “National Broadband Plan”, September
Commission Meeting.
World Economic Forum (2009), The Global Information Technology Report 2008-2009.
Global View Partners (2009), “The 2.6 GHz Spectrum Band, Unique Opportunity to
Realize Global Mobile Broadband”, Report prepared for the GSM Association, December
2009.
Hazlett, Thomas & Roberto Muñoz (2009a), “A Welfare Analysis of Spectrum Allocation
Policies”, Rand Journal of Economics, Vol. 40, No. 3, p. 424-454.

Hazlett, Thomas y Roberto Muñoz (2009b), “Spectrum allocation in Latin America: An

economic analysis”, Information Economics and Policy, No. 21, p.261-278.

Informa Telecom & Media (2009), “Analysing the commercialization of LTE”, Industry
Research.
National Institute of Statistics and Geography (2008), “Statistics on the availability and use
of information and communications technologies at homes, 2008”.

National Institute of Statistics and Geography (2009), “Statistics on availability and use of
information and communication technologies at homes, 2009”. Communication no. 338/09,
December 18, 2009.

Jorgenson, Dale W. y Khuong Vu (2005) “Information Technology and the World

Economy”. Scandinavian Journal of Economics, Vol. 107, No. 4, December 2005, pages
21.
Melrose, E. (2000), “Tender/bid of bands MDS1/2 and its relation with IMT 2000 mobile
third generation. Note for the plenum”, General Division of Engineering and Technology of
COFETEL.

Muñoz, David F. (2009), Operations Administration, Approach for Business Processes

Administration, Editorial Cengage.
OECD (2008), “Developments in Fiber Technologies and Investment”, Working Party on
Communication Infrastructures and Services Policy, DSTI/ICCP/CISP(2007)4/FINAL.

94 
 
OECD (2009), Economic Survey, Mexico.
Office of Communications (2008), “Next Generation New Build: Promoting higher speed
broadband in new build housing developments”, public consultation.
Pepper, Robert; Enrique J. Rueda-Sabater; Brian C. Boeggeman y John Garrity (2009)
“From Mobility to Ubiquity: Ensuring the Power and Promise of Internet Connectivity…
for Anyone, Anywhere, Anytime”, en The Global Information Technology Report 2008-
2009, World Economic Forum.
Qiang, Christine Zhen-Wei (2009), “Telecommunications and Economic Growth”,
manuscript, World Bank, reported in Information and Communications for Development
2009, World Bank.
Qualcomm (2009), “LTE – An Optimized OFDMA Solution for Wider Bandwidth
Spectrum”,
http://www.qualcomm.com/common/documents/white_papers/LTE_Whitepaper_051109.p
df
Rahunathan, Adithya (2005), “The Economic Advantage of Wireless Infrastructure for
Development”, Inter-American Development Bank, Sustainable Development Department
Technical Papers Series.
Ministry of Communication and Transportation (2003), “Agreement by which annexes B or
C to concession titles are added -as applicable- to install, operate and develop public
telecommunications networks, which comprise the TV and/or audio services restricted by
ground microwaves, through frequency bands of the radio electric spectrum for determined
use, awarded to licensees by the relevant title, to include the data two-way transmission
fixed service”, Official Gazette of the Federation, December 18, 2003.

Ministry of Communication and Transportation (2005), “Agreement by which fifth

agreement is modified and a second paragraph is added to agreements first, second, third,
and fourth, as well as attachment C or D, as applicable, to include -the Service to Carry
Local Service Signals and the Form to Notify the initiation of the signals carrying service
provision for the local service- to the agreement by which annexes B or C are added – as
applicable- to concession titles; to install, operate and develop public telecommunications
networks that comprise the TV and/or audio services restricted by ground microwave
through frequency bands of the radio electric spectrum for determined use, awarded to
licensees by the relevant title, to include the data two-way transmission fixed service"
Official Gazette of the Federation, January 5, 2005.

Ministry of Communication and Transportation (2006), “Convergence agreement for local

telephone and TV and/or audio fixed services restricted that are provided through wired and
wireless public networks”, Official Gazette of the Federation, October 3, 2006

95 
 
Under Ministry of Communications (SCT), “Licenses granted for TV and/or audio services
restricted through frequency bands of the radio electric spectrum",

http://dgpt.sct.gob.mx/fileadmin/concesiones/comunicaciones/tv_restringida_mmds_inalam
.pdf, consulted in November, 2009.

Telecommunications Regulatory Authority of India (2007), “Recommendations on

Infrastructure Sharing”.

Telmex license title, published in the Official Gazette of the Federation on December 10,
1990.

International Telecommunications Union (2000), RESOLUTION 223 (WRC-2000):

“Additional frequency bands identified for IMT-2000”, World Radio communications
Conference (Istanbul).

International Telecommunications Union (2006), “Estimated Spectrum bandwidth

requirements for the future development of IMT-2000 and IMT-Advanced”, Report ITU-R
M.2078.
International Telecommunications Union (2007) RECOMMENDATION ITU-R M.1036-3:
“Frequency arrangements of the terrestrial component of International Mobile
Telecommunications-2000 (IMT-2000) in the bands 806-960 MHz, 1710-2025 MHz, 2110-
2200 MHz and 2500-2690 MHz”.

WiMAX Forum (2007), “A Comparative Analysis of Mobile WiMax Deployment

Alternatives in the Access Network”.
WiMAX Forum (2009), “Business Case Scenarios in the Deployment of a WiMAX
Network”, White Paper.
Wortham, Jenna (2009), “Customers Angered as iPhones Overload AT&T”, The New York
Times.

96 
 
ANNEX A:

Chronology of Requests and Authorizations of Additional Services Provisioning in the

2.5 GHz band.

• 1999, December 3:
COFECO issued a recommendation to the COFETEL that any services which are
technologically feasible and in accordance with National Framework of Frequency
Attributes be permitted in on the 2500 to 2690 MHz bands in order to promote competition
in public bids to grant concessions for these bands.

• 2000, January 19:

Several MMDS concessionaires, through the National Association of Wireless
Telecommunications Services (ANSITEL), requested that the Under-Secretary of
Communications of the SCT create a mixed commission with the objective of allowing the
restricted TV, audio and data licensees to obtain the return channels in order to provide the
two-way data transmission services. Concessionaires should provide additional
telecommunication services resulting in a more efficient use of the spectrum.

• 2000, May 31:

The Under Secretary of Communications of SCT sends an official notification to
COFETEL regarding ANSITEL request that concessionaires of the 2.5 GHz band obtain
the return channels in order to provide two-way data transmission service. The notice had a
draft for a favorable response to ANSITEL request attached, the main elements of the
proposed response include:
1. Concessionaires shall pay a fee for the additional services that are authorized, which
shall be those that are technically feasible (audio, video, associated audio and video,
voice, data).
2. The fee shall be defined based on the payments made under the public auction for
the 3.4 to 3.7 GHz band conducted by COFETEL in 1997, which comprises the
same services of ANSITEL’s interest.
3. The reference value for each region that MMDS concessionaires are to pay shall be
the average amount paid in each region in bids for 3.4 - 3.7 GHz, which results from
dividing the total amount paid for each region between the number of winning
bidders in said region. Likewise, given that the license titles for band 3.4 - 3.7 GHz
were for 20 years, it will be adjusted for the difference of the effective terms of the
licenses.
4. The MMDS licensees’ fee does not include the ability to provide mobile services.
These can be provided when:

97 
 
 a) Mobile services are commercially available in band 3.4 a 3.7 GHz. either in
the country or abroad. Or
b) The concessionaire pays a separate fee, which would be defined based on the
fees paid for in the public auction for the 1850 - 1990 MHz band conducted
by COFETEL in 1997, and by analogy applying the same methodology
proposed in the annex of the official notification.

• 2000, June 14:

COFETEL issued the opinion requested by SCT, through the agreement P/140600/132 bis
of the XVIII Ordinary Meeting of 2000. Said resolution included the guidelines to carry out
authorizations, among them:
o In order to determine the fee, taking into consideration that the service of interest is
fixed wireless access, the winning bids of the 1997 auction for 3.4 - 3.7 GHz bands will
be used. It is specifically established that it will use as the parameter the average price
per MHz per home paid in said auction for 3.4 - 3.7 GHz that corresponds to the
cellular region to which the coverage area awarded to the MMDS concessionaire.
o The reference value to determine the fee is established as the multiplication of the
average price per MHz per home, the amount of MHz subject to the additional services
authorized in the coverage area of the MMDS concessionaire, and the homes in said
area.
o To determine the fee for a specific area, the payments that the concessionaire has made
for the 2.5 GHz band, adjusted to the MHz to be used for the services being offered,
shall be deducted from the reference value.
o The proposed methodology is subject to the approval by the SHCP.
o The fee does not authorize MMDS concessionaires to provide mobile services. These
can be provided when:
1. mobile services are commercially available in 3.4 - 3.7 GHz band in the country or
abroad; or
2. The concessionaire pays an additional fee, to be determined based on the fees paid
in the public auction of the 1850 - 1990 MHz band in 1997.

• 2000, June 15:

COFETEL notifies the Under Secretary of Communications of the Commission’s opinion
(P/140600/132 bis). The methodology to calculate a fee is attached to this document.

• 2000, June 27:

98 
 
The General Directorate for Telecommunication Policy of the SCT responded to the
ANSITEL request (official notice 1062). The content of the notification made by
COFETEL on June 15 is communicated in this official notice.82

• 2000, July:
Based on official notification 1062 several MMDS concessionaires started the proceedings
intended to obtain authorizations to provide additional telecommunication services, among
of which are contemplated: local telephone service, long distance, data transmission,
Internet, fixed wireless access, mobile wireless access, signal carrying.

• 2000, August 29:

COFETEL issues Resolution P/290800/0216 in response the requests made by the MMDS
concessionaires.83
The resolution does not establish limits on the amount of spectrum in the 2.5 GHz band
which may be authorized to provide additional services, as it is established that:
MMDS concessionaires must request the change of use of a specified number of MHz to
provide additional services, which cannot be less than 24 MHz in the case of TV and
restricted audio concessions, or less than 12 MHz for concessions that only contemplate
the restricted radio service.
Likewise, it presents three scenarios for the application authorization process that MMDS
concessionaires are to carry out:
o The provision of unidirectional services will only require obtaining the value
added services registration issued by COFETEL.
o The provision of data two-way data transmission services shall be made by the
SCT, pursuant to the procedure established for cable licensees, with prior opinion
by the COFETEL.
o The provision of other fixed services (for example, telephony services) shall be
made by the SCT, with prior opinion by the COFETEL, following the procedure to
obtain a license for a public local telecommunications network pursuant to the
respective Agreement of January 5, 1996.
o The resolution, reiterates that the fee comprises any technically feasible service,
except for mobile services which must comply with what is provided in official
notice 1062 of June 27, 2000.
                                                            
82
Additionally, in SCT and in COFETEL was considered using band 2150-2162 MHz for the return channels
for the additional services provided in band 2.5 GHz. To grant this band, pursuant to the provided in the LFT,
a public bid should be conducted.
83
By this agreement COFETEL resolves that it is viable that the additional services authorization
may be given independent from the proposed bid for band 2150-2162 MHz for the return
frequencies.

99 
 
• 2000, September 12:
The General Coordination of Telecommunication Services of the COFETEL notifies the
General Directorate of Telecommunication Policy of the SCT of COFETEL resolution
number P/290800/0216.

• 2000, September 21:

The Under-Secretary of Communications of the SCT communicates COFETEL’s
resolution (P/290800/0216) issued August 29 to licensee MVS.

• 2000, September 22:

MVS submits a request to the Under-Secretary of Communications of SCT, to modify its
license title for the Federal District in order to use 24 MHz to provide additional services,
as well as request the title for a public telecommunication network in order to offer said
services.

• 2000, October 11:

COFETEL issues an official notice communicating to the Under Secretary of
Communications of SCT the agreement of Plenum of the Commission held that same day
(P/EXT/111000/0009), which contains its opinion regarding MVS writ of September 22.
o A favorable opinion that MVS be able to change the use of 24 MHz in the
metropolitan area of the Federal District.
o That MVS pay the fee whose amount is defined based on the methodology
approved by the SHCP.

• 2000, October 19:

The Under Secretary of Communications of the SCT communicates the procedures which
the concessionaire MVS must follow to obtain the authorization to provide additional
services he requested using the 24 MHz. The same guidelines as those in the official notice
of the Under Secretary of Communications of the SCT on September 21 were established.
Similarly, the official notice states that the start of providing the authorized additional
services authorized is subject to the payment of the fee, to be determined pursuant to the
official notice 1062 of June 27, 2000.

• 2000, November 27:

The General Directorate of Telecommunication Policy of SCT informs the General
Directorate of Programming, Organization and Budget of the SCT that on October 19th, the
MMDS licensees were granted authorizations to provide additional services, amongst
which includes local telephony, long distance and two-way data transmission, Similarly, it
submits the methodology to calculate the fee (as defined in official notice 1062 June 2000)
for approval by the SHCP.

100 
 
• 2000, November:
Internal communications between SCT, COFETEL and SHCP begin regarding the
determination made by the COFETEL for the fees, which continue through the beginning
of 2001.

• 2002, June 4:
The Unit for Income Policy of SHCP submits the methodology to calculate the fees to be
collected for the authorization for additional fixed services in MMDS band, as well as the
request to validate the data and assumptions to be used in the methodology, for
consideration by the SCT.

• 2002, December 17:

In response to the official notice dated June 4, 2002, the General Directorate of
Telecommunication Policy of SCT sends the evaluation, opinion and information requested
to the Unit for Income Policy of the SHCP regarding:
a) the methodology to define the fee for the authorization for additional fixed service
of two-way data transmission;
b) the information to be validate, and
c) The additional information.

• 2003, January 31:

SHCP authorizes SCT to collect from the concessionaires the annual fees per MHz granted
to provide the two-way data transmission service. (General guidelines of the fee framework
are enclosed in the official notice).

• 2003, March:
The SCT begins to formally deliver the modified concession titles to MMDS
concessionaires in order to provide two-way fixed data transmission service. Two MMDS
concessions are modified for two-way data transmission services on July 2004 using this
procedure.

• 2003, December 18:

The SCT published the Agreement which adds Annexes B or C to the concession titles for
restricted TV and/or audio services via terrestrial microwaves, by which licensees of these
services are permitted to provide the two-way fixed data transmission service using a
maximum of 72 MHz, subject to the payment of fees corresponding to the amount of MHz
used for that purpose.

101 
 
• 2005, January 5:
The SCT published the Agreement that permits the restricted TV and/or audio via terrestrial
microwaves to provide transport services for the local service of other licensees. The
Agreement maintains maximum of 72 MHz for said service, and that the two-way data
transmission is subject to a fee.

• 2006, October 3:
The SCT published the Convergence Agreement, eliminating the restriction to a maximum
of 72 MHz to provide two-way fixed data transmission service as well as to provide
transport for local services.

102 
 
ANNEX B:

The funding of new investment projects in a context of economic recession and credit
restriction

Building a new broadband network in the country will require large investments during the
initial years of deployment in order to provide national coverage. Furthermore, positive
income flows are not expected to begin until three or four years after the project has started.
In a context internationally characterized by funding restrictions, the characteristics of this
project generate higher risks concerning its financial viability. Therefore, its
implementation requires a strong and feasible funding base.

Both internal and external funding sources have been reduced due to the current the
economic contraction and the astringent conditions that limit access to international
financial markets (see Banxico (2009)). For example, experts outline that funding for
foreign trade transactions has been quite difficult in 2009.

Another example is the trend in funding by private companies, excluding the financial
sector, the balance in US dollars of external funding fell by 4.9 percent during the second
quarter of 2009. Similarly, although the differential in rates between corporate debt
instruments abroad of private companies that reside in Mexico have decreased, they
continue to be at levels higher than the ones observed prior to 2008.

Among factors pointed out by the Banco de México that contribute to the deterioration of
financing options has been a redistribution of funding between the public and private
sectors. As a result, the growing demand for funds by the public sector worldwide, a result
of the economic stimulus policies based on expanding public expenditures by various
governments in order face the effects of the global economic crisis, has resulted in a less
funding available to the private sector, which is known as the “crowding out” effect.

Debt markets worldwide are focusing on projects that offer higher interest rates in a short
term. Therefore, funding infrastructure projects, which typically require funding at low
interest rates at a long term, is currently at a disadvantage on the debt and bonds markets,
where credit institutions may diversify risks better.

103 
 
 Foreign funding to Private Companies, excluding Financial Services
Growing rates and rates differentials
Foreign funding to Companies Rates differential for corporate
in Dollars debt instruments abroad for non-
Annual variances in percentages financial Resident Private
Companies 1/
Base Points

Issue

Source: Banco de México (2009).

In this financing context, consolidated companies have a funding advantage when starting
new projects because they can secure funding based on the company’s existing cash flow or
using their assets as collateral in order to fund said projects. However, the cost of these
funds not only depend on the rate of interest that creditors grant, but also a cost for the
companies backing the project and absorbing project risk. This cost can be observed in a
higher volatility in the market capitalization of those companie

s, reflecting riskier assets. An example is the higher volatility seen in Clearwire and Sprint-
Nextel shares, whom are investors of a new broadband WiMAX network in the United
States of America, compared to the volatility of the share price of companies such as
AT&T and Verizon. This volatility is five times higher in terms of variances, and more than
double in terms of standard deviation.

Distribution of Percentage Variations in the Price of Shares of Mobile Operators in the United
States of America

Operator Variance Standard Deviation

Clearwire 32.85 5.73
Sprint-Nextel 28.03 5.29
AT&T 4.74 2.18
Verizon 4.21 2.05
Reference: Banco de México (2009), Report on inflation July – September 2009.
http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/informes-
periodicos/trimestral-inflacion/index.html.

104 
 
ANNEX C:

Characteristics of a WiMAX network in the 2.5 GHz to 2.69 GHz band. (very
prelimanry translation, no yet revised)

Prepared by Teacher Roberto Martinez Yllescas, Mexico representative of the

regulatory group of the WiMAX forum.

Before the Mexican authorities, the WiMAX forum has manifested several considerations
regarding the deployment of broadband networks in the 2.5-2.69 GHz band based on the
said technology. In general observations made by the Regulatory Group of the WiMAX
forum maybe grouped in:

1. Types of services that the network may offer, which are multiple, based on the
switching of data packages and they include voice.
2. Networks’ capacity, measured by a basic metrics, which is the effective capacity to
deliver data, in English known as throughput.
3. Planning the use of frequencies and spectral efficiency.
4. Coverage

Regarding the first aspect, emphasis that the Forum makes about the need to keep a flexible
regulatory approach outstands, as it is not currently possible previse all services and
applications that could be mounted on the IP technology; in the short term mobile voice
services will mature towards the experience of using cellular networks, but it will take from
2 to 4 years–i.e., the time horizon within which it is foreseeable that the data broadband for
cellular networks, also known as LTE (English initials for the technology named Long
Term Evolution) matures.

As for networks’ capacity of maximum effective data delivery(throughput), the Forum

analysis has taken into account scenarios for frequencies channels of three sizes; i.e.,
5MHz, 10 MHz and 20 MHz. Despite that, 40 MHz channels are already prevised for
systems under profile IEEE 802.16m; as summarized below:

105 
 
Effective delivery rates for downlink (B) and uplink (S) data for B:S 1:0 & B:S 0:1,
respectively.84

Link
Only downlink (1:0) Only uplink (0:1)
Bandwidth

5 MHz 32.8 Mbps 14.5 Mbps

10 MHz 65.5 Mbps 29.6 Mbps

20 MHz 311.2 Mbps 326.6 Mbps

40 MHz 622.4 Mbps 653.2 Mbps

Effective delivery of downlink and uplink data for rate B: S equivalent to 5:3.

Link
Downlink Uplink
Bandwidth

5 MHz 19.8 Mbps 8.2 Mbps

10 MHz 39.6 Mbps 16.8 Mbps

20 MHz 189.1 Mbps 116.2 Mbps

40 MHz 378.3 Mbps 232.5 Mbps

                                                            
84
 For both, the 5MHz and the 10MHz bandwidth, the amount of 6.56 bits/Hertz is implicit, which are the
result of a 2x2antenna configuration, which is valid for version 1.0 of the WiMAX 802.16e equipment profile.
For the bandwidth for 20 MHz channels, you obtain 15.56 bits per downlink Hertz and 16.33 bts/uplink
Hertz; although this last ratio seems counterintuitive, this is consistent with version 2.0 of the WiMAX
802.16m technology, assuming an antenna 4x4 configuration, the same for the uplink as for the downlink. As
the ‘overhead’ or control overrate is higher in the data downlink, the uplink numbers for 20 and 40 MHz are
higher. Should this assumption would seem kind of unrealistic those rates may be reduced to half, by
assuming 2 transmission antennas in the mobile station, or in an equivalent fashion, a transmission antenna at
the mobile station by using the collaborative spatial multiplexing (i.e., 2 mobile stations, each one with 1
transmission antenna simultaneously operating to upload data). In conclusion: the higher bandwidth ratios for
channels of 20 and 40 MHz (802.16m) have to do with the use of 4x4 antennas configuration; as compared to
the 5 MHz y 10 MHz (802.16e) channels, where the antenna configuration is assumed as 2x2. The numbers
to upload data in channels of 20 and 40 MHz may be reduced to half, providing you wish to take into account
more conventional implementations of 1 or 2 transmission antennas at stations. 

106 
 
Well now, two are the dimensions that frequently affect the capacity of a WiMAX network:
amount of spectra available and capital investment effort to deploy the network. Both
feedback each other as illustrated below.

The less is the spectra; a larger number of base stations must be deployed in order to meet
the effective data delivery requirement. Besides, the more number of base stations is due to
support the access to the back bone or transportation network (backhaul). This increment in
base and link stations to the back bone depends on the specific capacity of the data effective
delivery that must be guaranteed and the number of users to whom the service shall be
guaranteed. Thereby, the cost will increase for urban and rural zones.

For the scenario of maintaining capital investment constant to deploy the network, it is
possible guaranteeing a fixed capacity for data effective delivery using more spectrum,
which minimizes the demand of network infrastructure (number of base stations, access
points to the carrying backbone, etc.), as the channels expansion (by additional spectrum) is
more efficient from the capital and operation costs’ perspective (CAPEX, OPEX) than the
scenario of deploying a larger number of base stations.

In order to increase the effective data delivery capacity in a region, before a growing
demand, it becomes indispensable deploying additional channels, which may only be
possible if the operator counts on enough spectra available. Two specific options may help:
a) deployment of additional base stations, which is less effective than deploying additional
channels, because installing more base stations generates additional technical issues to be
resolved; besides this option offers a smaller gain in the effective data delivery capacity; b)
Increases the number of transmission and reception antennas per base station. However,
this involves practical difficulties; e.g., if a base station with two antennas has already been
deployed, it is difficult adding two more antennas.

As for the relation between the effective bandwidth capacity and the demographic density
to cover by a WiMAX network deployment that may be increased using the following
methods, with their various combinations: deploying more base stations with a smaller
coverage (microcellular system), using wider channels, adopting a higher sectoring degree
and developing multiple antenna technologies. However, there are specific limits on those
methods. If it was possible using additional spectra, the requirement for the number of
physical sites, as well as, for the infrastructure to access the carrying network and back
bone decreases significantly. For that reason, the optimum method to guarantee the data
delivery capacity in densely populated areas is the having available sufficient spectra
resources.

107 
 
Well now, aspects derived from users’ density in a defined geographical area send you to
key considerations regarding frequencies planning, and consequently, spectral efficiency.85

Frequencies planning, spins around the purpose to maximize the bandwidth capacity with
the best use of the spectral resource available. At the same time, said capacity varies in the
coverage zone due to the various interference levels or to several rates between signal-
interference-noise (SINRs- English initials).

There is a direct relationship between the spectral efficiency of a particular technology and
the amount of investment required to deploy a network: while better is the spectral
efficiency, less is the investment cost. In other words, the bigger data effective delivery
capacity is for a defined and fixed amount of spectrum, the less is the number of base
stations (keeping a cells radius size constant); thereby, the investment amount required
shall be less. Currently, as in the immediate future, the use of technologies as MIMO-
OFDMA offers the highest spectral efficiency to deliver great volume data, compared to the
CDMA and TDMA technologies, which are present in the cellular networks designed under
the voice services paradigm. In order to increase spectra efficiency, advanced antennas
systems are required. That translates into a higher requirement of transmission and
reception components- MODEM/Channel cards, antennas, etc.

In this context, as part of the process to plan frequencies, there are two methods to reuse
frequencies:

a) Should there is enough spectra resources, the operator may deploy a frequencies reuse
plan. (FRP, English initials) n=3 (re-use 3) during the first stage of the deployment, this in
order to accelerate the technology adoption. This may improve the usage experience of
users exposed to a higher level of interference at the cell’s boundaries, as it allows simpler
and flexible arrangements for the installation of antennas and stations in physical sites.

b) However, should spectra availability is limited, FRP system n=1 may provide a data
effective delivery capacity reasonable in deployment scenarios by additional technologies;
such as FFR (Fractional Frequency Reuse) or Fractional Frequency Reuse. Despite that, it
is desirable improving users’ experience at the cells’ external limits without having to
spend significant efforts to manage radio resources. In general, the deployment of FRP n=1
(reuse 1) requires a more sophisticated management of radio resources than the FRP n=3
                                                            
85
Spectral Efficiency Definition: spectral efficiency is defined as the information effectively transmitted (in
bits) over the required time (in seconds) to transmit it, divided by the bandwidth used per channel (in Hz).
Spectral efficiency is expressed in bits per second per Hz (b/s/Hz) and represents a measure as to how
efficiently a radio-electric limited frequency spectrum is used through a defined wireless technology, under
specific channel conditions: propagation environment (en route loss model), connection at link level (channel
model, etc.).

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(reuse 3) because FRP n=1 regularly requires more time to tune up the system’s parameters
all over the network.

In conclusion, availability of sufficient spectra, which allows using higher frequencies

reuse patterns, may allow a higher data effective delivery level all along and all the width
of the network’s coverage area.

Eventually, operators must increase their network capacity, as they grow their subscribers
thereby the bandwidth demand. Then, as a solution, considering adding channels to every
network sector becomes necessary and for that purpose it is possible:

i) Increasing the channel size (more spectrum for wider channels), which avoids higher
costs in infrastructure or

ii) Stacking, or adding more sectors (infrastructure) to the current sites, but this is
associated to higher costs for the deployment and operation, as it requires additional
equipment, installation, plus making a new cells’ planning and increment the interference
between sectors severely affects the service average quality as the usage experience at
cells’ edge;

iii) Adding new sites (physical template): which, besides the equipment, also involves
costs, as the ones for installation; it also increases interference due to the new sites
increment (the signal propagates over the same distance aside the number of sites deployed:
the more sites, the more interference in the network is unavoidable). Besides, this approach
is not always useful in urban areas densely populated due to space limitations to build sites,
and also the rent or purchase of same.

Back to the concern due to interference risks, it is usually possible reducing it under the
frequencies reuse pattern FRP n=1 (reuse-1) to the reuse-3 levels by applying low network
load factors for reuse-1 (this is of approximately 30% or smaller). However, this election
has a great impact in the use quality due to a less quality of the data effective delivery per
sector; i.e., that the network would not be in conditions to meet the effective bandwidth
basic requirements. Applying fractional frequency re-use (FFR), may help improving some
of the networks’ performance parameters, such as bandwidth at cells’ edge, but at the cost
of reducing the average performance per sector.

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In conclusion, frequencies’ planning affects the CAPEX and OPEX directly, as both relate
to the number of sites required for the network’s coverage and capacity. A network
planning process using a high number of sites will unavoidable require more CAPEX and
OPEX, while frequencies’ planning with a smaller number of sites would require less
CAPEX and OPEX.

Said the above regarding the convenience to count on spectra sufficient resources, the topic
as to how much spectra is satisfactory to deploy a mobile data competitive network at a
great capacity with national coverage is be discussed. The question points directly to the
most recent demand trends for bandwidth, in order to take into account the one that is
anticipated for the following 10 years.

Although it is difficult predicting demand to 10 years, current trends show a rapid

increment in the demand for broadband mobile applications; thereby, it is being duplicated
every year or every two years. On the other hand, the technological advancement in these
applications will lead to a higher efficiency in the spectra usage; thus, the pressure in the
increment of the broadband demand via mobile applications will be a bit better for the
spectral efficiency due to the improvements in the technology.

In this context, estimating the minimum necessary spectra depends on several factors as the
current and estimated demand for mobile applications, the technology penetration among
the population of a specific region, the type of services, the physical characteristics of areas
where the technology is to be deployed, the demographic density, etc.

Based on the recommendations given by the WiMAX Forum in 2007, the minimum spectra
recommendation for the current deployments was at that time 30 MHz. Despite that, the
demand is increasing to unimaginable rates, which substantially increases the spectra needs.
e.g., an annalist of the consulting company Yankee Group estimates that mobile traffic will
show an average growth rate per user of 130 per cent from 2008 to 2012—i. e., 1 MB
traffic in 2008 will be equivalent to 28 MB in 2012”.86

Despite current improvements and the expected ones in the spectral efficiency, and of other
efforts, the amount of spectra needed to deliver mobile broadband services will continue
growing. In the United States of America AT&T has made comments to the FCC,
presenting that systems 4G type will need 40-80 MHz spectra.87 Please note that this

                                                            
86
Jennifer Pigg (Vice President, Yankee Group) “Mobile Backhaul: Will the Levees Hold?” June, 2009.

See http://shop.yankeegroup.com/product/188/Mobile-Backhaul:-Will-the-Levees-Hold. 
87
Comment of AT&T Inc., NBP Public Notice #6, Spectrum for Broadband, pages 12-13. 

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spectrum is additional to the current spectra concentrations that those operators already
hold to provide other voice services. In the United States, several operators have access to
lower frequencies spectra, including AWS, PCS, etc. Sprint/Clearwire has access to
substantial spectra concentrations (100-150 MHz) in the 2.5-2.69 GHz band to compete
with the concentrations other operators currently have in various bands.

As for coverage, this has a direct effect in the planning of cells and sectors depending on
the area characteristics. The more extensive it is, the more number of sites will be needed to
meet the coverage requirements. On the other hand, the more densely populated is the
coverage estimated area, the more spectra will be required to meet the data traffic demand,
in a cost-efficiency way.

The purpose to lay the network with the highest coverage within the shorter possible time
involves planning in accordance to the cells’ radius, which also affects directly CAPEX and
OPEX costs, as it dictates the number of physical sites required, which must be leased or
built, plus properly maintained during the network’s deployment and operation,
respectively. The smallest is the radius of a cell, the larger is the number of cells; thereby,
the CAPEX and OPEX costs will be higher.
In general terms, there is a dilemma between the size of the cells’ radius and the data
effective delivery capacity. When a network is designed; both, coverage as capacity must
be carefully considered. The number of cells is defined based on coverage for areas with
the most traffic, and also for the ones of the least traffic. Thus, in the ones of most traffic, it
becomes necessary installing more cells or sectors. In other words, the cells’ radius size –
distance between base stations— must be reduced in order to increase the total network
capacity. To achieve this, without reducing the cells’ radius size, the channels size
extension is a possible solution.

However, the design of a network in a densely populated urban zone is, by large, impelled
by the effective data delivery capacity requirements (subscribers demand), more than by
coverage requirements. This is truth, in general terms; both, for the initial stage, as for the
later ones in the network deployment. Well now, the network design in suburban areas is
typically impelled by coverage requirements more than by bandwidth demand by the
subscribers. This is generally truth, during the first stage of the network deployment. As the
number of subscribers in suburban areas increases, the requirements for the effective data
delivery capacity become more important; at such a degree that those suburban areas could
eventually face capacity restrictions for the network. The situation for rural zones presents a
similar phenomenon at a slower pace.

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GLOSSARY

Open access: Lease of the elements or components of a network by one operator from
other operators. Usually access to those elements is granted at regulated
tariffs.
Bandwidth: Amount of data that may be transferred through a connection or transmission
link. Usually measured in bits per second.
Broadband: Capacity to transmit information at a high speed through
telecommunication networks either wired or wireless.
Frequency Bands:
Portions or ranges of the radio electric spectra
Bit: Basic information unit in computers and in telecommunications that
may take the value of 0 or 1.
Byte: 8 bits

Kilobit: 210 bits = 1024 bits

Megabit: 220 bits = 1,048,576 bits

Gigabit: 230 bits = 1,073,741,824 bits

Cell: Corresponds to a geographical area relatively small of coverage defined

by factors such as frequency band, power level, and line of sight. In the
mobile telephone service context, cells may be classified in three ample
descriptive categories: macro cells, micro cells y peak cells.
Last mile unbundling:
Leasing of the transmission link of the last mile of a network by one
operator from other operators.
Transmission Link:
Capacity through which traffic is carried, consisting of a transmission
mean of any technology.
Terminal Equipment:
Device used by users to connect to the operator’s network.
Radio-electric Spectrum:

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 It makes reference to the complete range of electromagnetic waves
frequencies that rage from 0 hertz to 1023 hertz, out of which only one
part are currently useful for telecommunication services.
Dark Fiber: Optic fiber not connected to lighting equipment that allows transmitting
information.
Interconnection: Physical and logical connection between two telecommunications public
networks, which allows users of one of the networks to communicate
with users of the other and vice versa.
Internet: Is a public data network that interconnects private and public terminal
equipment. This network uses the internet protocol to transfer
information (data packets) from one point to another point of the
network.
Latency: Is the amount of lagging time between the request of a data transmission
and the moment in which said transmission is initiated.
Access Nodes: Element of the network that takes charge of the delivery and traffic
signaling between the user and the operator’s network. It also controls
radio-base performance.
Central Nodes: It is a center that sends the radio-base traffic. It allows establishing calls
between users, and at the same time it manages mobility, delivery and
traffic interchange needs.
Operator: Licensee of a Public Telecommunications Network who provides
telecommunications services through same.
Protocol: A set of procedures and rules for the origination, carrying and
termination of data communications. Among other characteristics,
protocols define the form and pattern that information transmission must
follow.
International Port:
Center that contains the equipment and systems that enable the traffic
interchange between telecommunication Networks of different
countries.
Radio base: Transmission and reception station in a fixed location, integrated by one
or several transmission and reception antennas, microwave dishes and
electronic equipments used to send mobile telephone traffic. It serves as
a bridge between users in a cell and the mobile operator network.
Roaming (Itinerancy):

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 Telecommunications service provided by a mobile network operator to a
user of other operator, when such user is out of the service coverage
area. That user is usually named visitor user.
Second Generation Mobile Systems (2G):
Digital wireless technologies mainly used for voice communication.
Transmission standards of these technologies may be split into: TDMA
and CDMA. The main 2G technologies are GSM, IS-95 (cdmaOne),
PDC and iDEN, IS-136 (AMPS)
Third Generation Mobile Systems (3G):
Digital wireless technologies used for voice and data communications.
Those technologies allow higher transmission speeds than the 2G
Technologies; approximately 14 Mbits per second; thereby, they use
spectra more efficiently. Technologies 3G include GSM EDGE, UMTS,
CDMA2000 and DECT.
Fourth Generation Mobile Systems (4G):
Digital wireless technologies that use the Internet protocol to transmit
information. Those technologies allow transmission speeds higher than
3G technologies, higher than 100 Mbits per second. Among those
technologies WiMAX and LTE are included.
Site: Physical space where a radio-base is installed.
Last Mile: Transmission link between the user’s terminal equipment and the first
access node to the operator network.
Traffic: All emission, transmission or reception of signs, signals, data, written,
images, voice, sounds or information of any nature that is carried
through the operator’s network.
Data Transmission:
Carrying or sending traffic through a physical or virtual mean of any
technology.
Interurban Transportation (Backbone):
High speed transmission links that allow carrying traffic among various
central nodes of the operator’s network.
Interurban Transportation (Backhaul):
Transmission links that allow carrying traffic from a radio-base to other
point of the operator’s network; e.g., towards a central node of the
network.

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English Title: "Deploying a New Wireless Broadband Network in Mexico".

Key words: Telecommunications, broadband, wireless network, spectrum, coverage,

evaluation model.

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