Mobile Communications

AT&T marches into Mexico's newly open cellphone market

General Santa Anna, whose army defeated the Texans at The Alamo and killed Daniel Boone, would be headed back north if he knew that the Gringo is marching back into Mexico again: AT&T is entering the Mexican cell phone market.

Thinking about this in terms of history, there is some irony that AT&T — which from 1882 until 1985 operated as America’s unchallenged telephone monopoly —is headed to Mexico to take on Mexico’s phone monopoly. The monopoly there is America Movil, with 70% of the Mexican market and a quarter of a billion subscribers across Latin America. Its owner is Carlos Slim, one of the world’s richest men.

AT&T has seized this opportunity as changes in the law in Mexico have thrown the market wide open. The new telecom law requires that wireless carriers with 50% or more of the market open up their network infrastructure to competing carriers. Seeking to avoid that, America Movil said it will sell off assets to shrink to 49% of the market. But business news outlet El Negocio said that AT&T’s plans will complicate that.

President Enrique Peña Nieto’s telecom bill did not pass without opposition. Critics said that it would just strengthen the conglomerates. They were also opposed to provisions in the law designed to collect data for the purposes of national security. They pointed out that the bill was passed at the height of the 2014 World Cup, when all of Mexico was distracted. Those who were not following football massed outside the Senate where they used jamming equipment to block the 3G wireless signal as legislators debated inside. 

When President Nieto was voted into office he promised to focus on modernizing the economy and education. He attacked on three fronts. First, he opened up the government-owned petroleum industry to private investment. Then he took on the teachers union, whose jobs are handed down through inheritance. And in 2014 his telecom bill was passed.

That bill also targets the television market, another area dominated by monopolies, where Televisa and TV Azteca own 96% of the broadcast market. Lest he become a monopolist there as well, Carlos Slim is banned from buying the two newly created TV channels for 18 months, as are Televisa and TV Azteca.

Unlike some of the other carriers, AT&T will not need Slim’s mobile network.  AT&T executives say their plan for profits and growth is to use their own system.  To give them a head start, AT&T bought two Mexican cell phone companies, Nextel and Iusacell.  (Nextel in Latin America is not the same as American Nextel purchased by Sprint. Nextel in Latin America operates as a franchise.)

Currently Spain’s Telefonica is the number two cellular provider in Mexico, operating under the Movistar brand. Forbes Mexico says that AT&T in two years could take Movistar’s place.

The new bill also gets rid of long distance charges, which are levied when a subscriber calls from one state to another. Already Telcel and most of the other Mexican carriers do not charge rates for Mexicans calling another state, or the United States, as so many Mexicans have family there or go back and forth.

As one would expect a monopoly to behave, Telcel is known for high rates, spotty service, and long lines for customer service.  Lots of people buy prepaid minutes to avoid a long contract or because they have no credit card or enough food in the cabinet. Plus the desire to avoid Telcel is end in itself: on an expatriate forum, one foreigner wrote that he uses prepaid minutes because “it's an all-day deal to sign up for a [American Movil] plan.”

How expensive is cellular service in Mexico?

So how does the Mexican cell phone market compare with other markets around the world? Are the Mexicans being charged monopoly rates?

Below we look at some of the carriers operating in Mexico and the rates they charge.  We pick as a benchmark what Verizon Wireless customers in the USA would pay for 3GB and unlimited calling with a contract.  For that Verizon charges $45 per month.  As for what they charge for text messages, why bother measuring those because everyone on the planet seems to uses WhatsApp instead. In Mexico, it is included along with Facebook and Twitter for free.

America Movil

There are no unlimited voice plans at America Movil.  To make paying for that somewhat less painful, customers can pick 5 phone numbers of families, friends, or co-workers and the first 5 minutes are free. A 1,500 minute plan, with 3GB of data, costs $999 pesos ($60 USD) per month. This includes a 16% VAT tax. 

At American Movil, there is no requirement that the consumer purchase their phone from the company.  Customers who want to break their 1, 2, or 3 year contract pay a penalty. Customers who want to leave and change to another carrier can take their number with them.  To assist with that process, one competitor, the UK’s Virgin Mobile, who is new to the Mexican market, even provides the manufacturer’s code to unlock the mobile device. That presumably costs the spurned carrier money as such pricey phones like the iPhone 6 are paid by the customer over time. (Virgin Mobile operates in Mexico as a virtual network operator, meaning they do not own their own cell towers but rent network capacity from other carriers.)


What about Movistar?  With 16% of the Mexican market today, the Spanish company offers this contract plan: 3GB plan, which includes unlimited streaming Spotify music, and unlimited calling for 999 pesos ($60). That is the same 3GB as Telcel albeit but with no cap on voice minutes plus all the music one wants to hear, supported by advertising, of course.


Nextel Mexico will be the first of the two companies to change its name to AT&T. After that comes Iusacell. 

What about  their prepaid plan? We have not yet looked at one of those. With the Nextel prepaid plan, rates falls in linear fashion as the amount the customer buys goes up: from a minimum of 10 pesos (less than a dollar) to a maximum of 1,000 pesos ($60 USD). The rate starts at 0.75 pesos per minute ($0.05 USD) dropping to 0.20 ($0.01 USD).  All of these prepaid minutes include the Radio Prip streaming music at 0.01 peso per second ($0.04 per minute).

For 1,000 pesos, the customer gets 5 GB. For 10 to 30 pesos, the cost per MB is the same as cost per minute, i.e., if it's 75 pesos per minute it’s 75 pesos per MB. So to download a 2GB film paying 10 pesos ($0.60 USD) would cost $90 USD, far more than a box full of movies that they sell at Walmart Mexico. Such plans obviously hurt the poor more than the middle class, as the poor cannot afford to buy many minutes up front.

To give us something to compare that with, contrast the Nextel plan with the TMobile prepaid in the USA where you can get 5 MB per day for $5 and 30 minutes per month of voice calling for $3.

Some people in Mexico do in fact use the American service TMobile.  That way they can call the USA as a local call and avoid the expensive Mexican market.  Expat forums say if you do that too long TMobile will cancel your service.

So will AT&T, Telefonica, and others not even in business there yet drive down rates in Mexico? Telefonica in other countries in Latin America is expensive. So not much would change there unless they were pushed.  Perhaps AT&T can bring to the Mexican market some of the cutthroat capitalism that makes things like cellular service in the USA and smartphones much less expensive than in Mexico.


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Walker Rowe

Walker Rowe is a US citizen living and working in Santiago, Chile. There he edits the online magazine and writes the blog "The Avocado Republic" about life in rural Chile.

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