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2G/3G/4G

Can Mexico's Wholesale 4G Plan Defy the Odds?

Warning signs
Altán sees its coverage goals as an important differentiator, noting that existing 4G networks serve only about 50% of the population. The 4.5G capabilities of the Huawei and Nokia technologies might also be seen to constitute an advantage over some legacy networks. Yet the difficulty of profiting from mobile Internet business in more remote communities at least partly explains why coverage remains poor. According to a 2015 forecast from consulting firm PwC, smartphone penetration will rise from just 17.9% of the population at the end of 2014 to 61.9% by the end of 2020. While impressive, that increase will still leave nearly four in ten Mexicans without the main means of getting online used in many other countries.

A shared or wholesale 4G network could, of course, help operators to address some of the cost challenges of expanding their networks. But the network giants -- which include América Móvil S.A. de C.V. and Spain's Telefónica -- are unlikely to accept any kind of diminished role in communities they already serve. In a conference call earlier this year about its fourth-quarter results, América Móvil told analysts that competing on the strength of its network assets remained a priority. "To have the best network, the best coverage, quality in the fixed and in the wireless … we are still going to aim for that," said Daniel Hajj Aboumrad, the operator's CEO.

The launch of another network, then, will put further pressure on prices, making it even harder for Red Compartida to generate a healthy return on its investment. Having snapped up Mexican airwaves during an auction last year, US-based AT&T Inc. (NYSE: T) is in an expansionist mood south of the border, slashing prices in a bid to win market share. The average customer at América Móvil was spending just 132 Mexican pesos ($7) each month in the final quarter of 2016, 11.5% less than in the year-earlier period. New mobile virtual network operators could be a thorn in the side of the incumbents, but thin profit margins will make it hard for them to put down roots.

There are also warning signs from other parts of the world. While network operators have frequently been willing to share some of their assets with infrastructure rivals, government-mandated wholesale schemes have rarely had the desired impact. Australia's national broadband network initiative seems perennially mired in controversy about costs to the taxpayer. In Russia, meanwhile, a Mexico-like plan to develop a wholesale 4G network fell apart when one of the mobile operators that was supposed to use it acquired the venture's assets.

What counts in Altán's favor are its deep-pocketed investors and friends in high places. The choice of fierce rivals Nokia and Huawei to address different regions is a canny one, putting pressure on each vendor to keep pace with the other. And by taking advantage of emerging technologies as the network is built, Altán could unlock new mobile network opportunities ahead of other players.

Wholesale-only mobile ventures have made little progress elsewhere, despite their economic attractions. Tough as it will be to pull off, a success story in one of the world's most competitive mobile markets could make others take a fresh interest.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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