The Mexican government has finally announced that it will complete the much-awaited wireless spectrum (radio bandwidth) auctions in the country by the end of June 2010. In November 2009, the Mexican telecom regulator Cofetel divulged the bidding rules for the radio-electric spectrum to be offered to qualified bidders in two separate auctions.

The regulator will announce the winners within 30 days of the submission of bids on May 25, 2010. Interested bidders have to be approved by the Mexican antitrust watchdog Federal Competition Commission.

In the first auction, Cofetel will offer nine blocks of frequencies in the 1,850 megahertz (MHz) – 1,990 MHz band across eight of Mexico’s nine wireless operating regions including the capital, Mexico City. The regulator will offer seven blocks of frequencies in the 1,710 MHz and 2,170 MHz band in the second auction, which will cover all nine operating regions.

Eventual winners at the second spectrum auction (1,710 MHz and 2,170 MHz) will get nationwide coverage and secure the necessary bandwidth frequency that supports advanced 3G wireless services.

The impending spectrum auction, which was announced in late 2007, was delayed due to prolonged negotiations among the Federal Competition Commission, Cofetel and the Mexican Communications and Transportation Ministry. The auction is aimed at fostering the growth of incumbent operators while opening the door for new wireless entrants, which will promote competition in the country.

With an approximately 74% mobile penetration, the Mexican wireless market offers ample opportunity for growth. Despite the economic headwinds, the country’s cellular market continues to grow at a respectable pace. With a roughly 72% share, America Movil’s (AMX) largest subsidiary Telcel dominates the Mexican wireless market, leveraging its well-known brand, extensive distribution network and nationwide coverage.

Spanish telecom giant Telefonica’s (TEF) Mexican subsidiary Movistar is the second-largest player in the market, with a 20% share. Movistar is desperately seeking greater bandwidth capacity to roll out 3G services in Mexico City, which will enable it to compete more effectively with Telcel.

While both Telcel and Movistar will be the principal bidders in the forthcoming spectrum auction, Mexico’s largest media company Grupo Televisa (TV) is expected to be the other leading participant in the bid. Televisa is warming up to offer mobile services in Mexico through its cable unit Cablevision. Smaller domestic mobile operators like Grupo Iusacell and NII Holdings (NIHD) may also bid at the auction.

The upcoming spectrum auction will open the Mexican wireless market to more competition and reduce monopolistic trends in the industry. Moreover, it will further boost wireless demand in Mexico as 3G services enable a wider access to advanced data applications.

Zacks Investment Research

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