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Reforms in the telecom industry pave the way for manufacturing

There is a picture of a digitalized image of a telephone therefore representing the telecommunications industry.
28 Jan 2014

The past several years have laid the groundwork for significant transformation in Mexico's economic outlook, but the most recent changes to the energy, telecommunications and education sectors have acted as the catalysts to substantial change. The reforms have been crucial for the country as it works to expand offshore manufacturing options for international businesses that wish to produce goods and component parts in the region. Under the "Pact for Mexico," President Enrique Pena Nieto has pushed for improvements in the way the country delivers energy to its citizen and businesses equally, fundamentally changed the way educators can achieve employment and altered the landscape for telecommunication firms.

Telecom reforms encourage competition
Some of the largest obstacles facing manufacturers looking to expand into Mexico are operational costs associated with energy and communications. Until President Pena Nieto passed telecom reform, America Movil and Telmex owner Carlos Slim has assumed a majority share of control over the mobile phone and communications sector in Mexico. This situation has led Slim to become a multi-billionaire because of the monopoly his companies have over the offerings and rates available to consumers. However, Project Syndicate, an online source for political news, indicated the potential consequences of telecom reforms will have a lasting impact on companies looking to manufacture in Mexico.

According to the site, telecom reforms will allow more individuals in Mexico to take advantage of mobile coverage, the cost of telecom plans will potentially decrease and more competition among various groups will breed enhanced quality. In order to achieve this, government officials have worked to break down protective barriers that have allowed Mexican companies to maintain an advantage over other contenders in the sector. With an open market, businesses operating in Mexico will be able to make strategic decisions based on their needs and capabilities instead of having to settle for whatever options are made available by existing telecom firms.

Virgin Mobile seeks inroads into Mexico
In keeping with the idea of a more open telecom market, World Finance recently reported Virgin Mobile founder Richard Branson announced he is aiming to enter into the Mexican telecom sector. According to the online financial news source, this isn't the first foray into the Latin American market for Branson. Virgin Mobile Latin America was formed in 2010 and has since entered the Chilean and Colombian market. In Chile, there have been roughly 200,000 individuals who have signed up for Virgin Mobile. In 2011, Branson began working toward becoming the No. 1 mobile virtual network operator in Latin American through funding arrangements with telecom officials in various countries.

The opportunity Branson sees in Mexico comes as a result of regulatory reforms enacted by the government. For example, the reforms established by President Pena Nieto limit companies to maintain 50 percent market share domestically. In other words, the 80 percent control of landlines and roughly 70 percent command of the mobile market currently held by Carlos Slim will face restrictions. Formed in September 2013, the Federal Telecommunications Institute will have the regulatory power to approve or deny telecom agreements, World Finance indicated. Meanwhile, there will also be similar limitations on foreign investments in the Mexican market, meaning Branson and the Spanish firm Telefonica won't be able to dominate either.

The gain for manufacturers looking to offshore in Mexico will be a telecommunications sector that potentially offers better pricing models because of increased competition from multiple players. In addition to a labor force that is highly skilled and works for competitive wages, international businesses also depend on affordable communication capabilities. Companies can maintain safe manufacturing operations with reliable and efficient mobile or landline services, which reforms have set in motion.

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