Country overview: Mexico Mobile driving growth, innovation and opportunity Copyright © 2016 GSM Association COUNTRY OVERVIEW: MEXICO The GSMA represents the interests of mobile operators This report is authored by GSMA Intelligence, the definitive worldwide, uniting nearly 800 operators with more source of global mobile operator data, analysis and than 250 companies in the broader mobile ecosystem, forecasts; and a publisher of authoritative industry reports including handset and device makers, software and research. Our data covers every operator group, companies, equipment providers and Internet companies, network and MVNO in every country worldwide – from as well as organisations in adjacent industry sectors. The Afghanistan to Zimbabwe. 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Our team of analysts and experts produce regular thought-leading research reports across a range of industry topics. www.gsmaintelligence.com [email protected] COUNTRY OVERVIEW: MEXICO Contents EXECUTIVE SUMMARY 2 1 CONTEXT 8 1.1 Mexico in numbers 8 1.2 Snapshot of the Mexican mobile market 10 1.3 Contribution of the mobile sector to the economy of Mexico 12 1.4 Contribution of the mobile sector to employment in Mexico 14 2 THE MEXICAN MOBILE MARKET TO DATE 16 2.1 Low mobile adoption in Mexico 17 2.2 Market reforms target mobile sector modernisation 25 2.3 Positive outlook for affordability and adoption 29 3 ECOSYSTEM EXPANSION AND INNOVATION 37 3.1 Mobile operators: supporting the development of the mobile ecosystem 40 3.2 Start-ups: favourable environment driving investment and success 43 4 THE ROLE OF THE MOBILE SECTOR IN FUTURE ECONOMIC GROWTH 48 4.1 Impact of mobile sector on economy continues to grow 49 4.2 Mobile well placed to help meet policy goals 54 APPENDIX 55 Methodology for unique subscriber estimates 55 Methodology for economic estimates 57 COUNTRY OVERVIEW: MEXICO Executive Summary 69% of the Mexican population subscribe to mobile services Mexico is the second largest mobile market in Latin penetration rate equal to that of Brazil but lower than America with 89 million unique mobile subscribers1, that of many other markets across Latin America, equivalent to 69% of the population. In recent such as Chile (93%), Uruguay (92%) and Argentina years, unique subscriber growth in Mexico has been (91%). relatively slow, resulting in a unique subscriber 1. Unique users who have subscribed to mobile services at the end of the period, excluding M2M. Subscribers differ from connections such that a unique user can have multiple connections (see Appendix for more information) 2 | Executive Summary COUNTRY OVERVIEW: MEXICO The mobile sector contributes 3.5% to Mexico’s total GDP In 2015 the mobile sector made a total contribution well as productivity and efficiency gains through the of more than $40 billion in value-added terms, use of mobile technology. Approximately 335,000 equivalent to nearly 3.5% of Mexico’s total GDP. This jobs were also supported by the mobile ecosystem. includes both direct and indirect contributions, as Reforms stimulating price declines, competition and investment In 2014, market reforms were implemented to • Seven MVNOs have launched since 2014, and over kick-start the market and address major challenges 15 more are expected over the next few years. that had hindered the adoption of mobile services. • Mobile prices fallen by 17% between December These challenges included a concentrated market 2014 and December 2015, and are now among the stifling investment and innovation in the country, cheapest in the region.2 and high prices making mobile affordability an issue, particularly for over half of the population that lives • Inflation reached a record low of 2.13% in 2015.3 in poverty. • Foreign direct investment in telecoms in 2015 4 The impact of the reforms, not just on the telco reached $2.7 billion, 10% of total FDI in Mexico. sector but also the wider economy (thanks to • Venture-capital (VC) funding in Mexico-based reforms in the transport and energy sectors too), has start-ups surpassed $1 billion in 2014, an almost been significant: six-fold increase on the previous five years 5 • AT&T entered the market in 2015 with an combined. aggressive pricing strategy and plans for a major expansion of its 4G network. Meanwhile, Telcel continued to expand and upgrade its 4G network across the country, and Movistar took steps to expand coverage into areas where it was not yet present. 2. Source: IFT 3. Source: INEGI 4. Source: Cuarto informe trimestral estadístico 2015, IFT, May 2016 5. Source: CB Insights Executive Summary | 3 COUNTRY OVERVIEW: MEXICO Increasing affordability leading to growing adoption of advanced mobile services The combination of a steadily growing economy, The challenge is to close the coverage gap, and record-low inflation and declining mobile prices is satisfy latent demand for advanced services by contributing to accelerating subscriber penetration, developing local content and improving digital migration to mobile broadband (3G and above) skills. Technology migration is leading to growing services and rising smartphone adoption. By the end usage of advanced mobile services, particularly IP of 2015, 36% of the population in Mexico subscribed messaging and social media: four out of five mobile to mobile broadband services, up from less than a phone users in Mexico use IP messaging and access quarter in 2013. In parallel, smartphones accounted social networks, higher than regional average. for half of total connections, almost double the However, affordability is affected by high taxes and adoption rate of 2014 (27%). fees applied to mobile services in Mexico, which generate significant costs for consumers and mobile operators. Favourable environment leading to increased investment and innovation Aided by a favourable regulatory environment, Mobile is the key technology to help Mexico realise proximity to the US, a youthful tech-savvy its innovation potential, and it is crucial for the population, the accelerating migration to advanced entire mobile value chain to support entrepreneurs mobile services, growing risk capital and plentiful and start-ups to aid their development. For on-the-ground accelerators, the mobile ecosystem in example, mobile operators are increasingly Mexico is expanding rapidly. becoming involved in emerging areas such as IoT/ M2M, digital commerce, mobile security and all- Hailed as one of the most dynamic start-up scenes IP communications; the government is helping in Latin America, Mexico is attracting a high share support start-ups and small and medium-sized of risk capital relative to regional peers. In the last businesses with funding via the Instituto Nacional del two years, Mexico accounted for more than a third Emprendedor (INADEM); and various accelerators/ of regional VC funding (70% of which came from the incubators such as Startup Mexico, 500 Mexico City Internet and mobile sectors), an over-performance and Naranya*LABS are helping entrepreneurs to considering it accounts for 20% of regional unique thrive and take advantage of huge scale potential in 6 subscribers. Mexico. 6. Source: CB Insights 4 | Executive Summary COUNTRY OVERVIEW: MEXICO Mobile driving productivity and economic growth – a positive outlook for 2020 Mobile operators in Mexico are expected to invest and a similar shift is expected in device ownership; more than $11 billion in the next four years as they smartphone adoption is expected to increase to develop and enhance their networks, particularly 70% of connections over the next five years. As the in the rollout of 4G services to cover 85% of the value chain grows, the total economic contribution population by 2020. Based on this foundation of the mobile sector could reach $52 billion by 2020, and supported by an improved economic outlook, representing 3.8% of Mexico’s GDP, up from 3.5% in mobile broadband penetration will rise from 36% 2015. of the population in 2015 to around 63% by 2020, Figure 1 Mexico technology evolution 16% 31% SMARTPHONE ADOPTION 40% Percentage of connections 70% 67% 88% 7% 36% 12% 50% 63% Percentage of population Percentage 11% 41% 8% 33% 22% 12% 13% 2% 0% 0% 2000 2005 2010 2015 2020 Voice only Not Mobile internet Mobile internet subscribers subscribed 2G subscribers 3G+4G subscribers Source: GSMA Intelligence Note: smartphone adoption is percentage of connections Executive Summary | 5 Employment Cellular M2M connections 2015 2015 MEXICO 335,000 Jobs 4 million 2020 Unique subscribers and SIM connections 13 million 2015 CONNECTIONS* 88m *Excluding M2M Capital expenditure Mobile industry contribution to GDP 69% PENETRATION RATE 2015 104m 2015 2020 81% PENETRATION RATE $2bn 2015 3.5% 114m 2020 129m 2016-2020 84% PENETRATION RATE 95% PENETRATION RATE $11bn 2020 Smartphones 4G 3.8% % of connections Population coverage Mobile operator and GSMA activities