Mexico 5G spectrum auction faces limited operator interest due to high fees, observes GlobalData

Press release by Globaldata

May 16, 2024

Mexico’s 5G auction faces hurdles as high spectrum fees deter operator interest. The upcoming Licitacion IFT-12, announced by the Federal Telecommunications Institute (IFT), aims to drive 5G expansion but is met with caution due to prohibitive annual fees. Despite offering sought-after 600 MHz and L-Band blocks, concerns linger as past spectrum license returns highlight the financial strain on operators, potentially impacting the auction’s outcome, according to GlobalData, a leading data and analytics company.

The IFT initiated a public consultation on 7 May 2024. The bidding is set to take place in 2025 and features the 600 MHz and L-Band (1427-1518 MHz), both of which are primed for 5G, a generation of mobile technologies that is projected to concentrate 53% of the mobile subscriptions in Mexico by 2028, per GlobalData’s estimates.

Jesus Romo, Research Director at GlobalData, comments: “The proposed auction combines ‘fresh spectrum’ in the L-Band and 600 MHz, and ‘leftovers’ in the 800 MHz, 1.7/2.1 GHz, 1.9 GHz and 2.5 GHz bands, some of which were actually licenses returned by Telefonica and AT&T due to prohibitive annual fees. The 3.5 GHz band is excluded from this auction, but Telcel and AT&T Mexico already own licenses in this range.”

The IFT’s decision to offer most of the spectrum in local blocks, except for the L-Band and a single 10 MHz block of the 600 MHz band, indicates a strategic move towards smaller geographical markets.

Romo adds: “This segmentation could result in lower spectrum fees for winners, as fees are determined by bandwidth held and coverage area. Spectrum fees was a factor in Telefonica’s decision to return all of its mobile spectrum in Mexico. Spectrum fees is set by the Mexican Legislative Branch, with input from the Executive, and is not likely to be reduced in the short-term, especially during an election year.”

The IFT proposed a combination of spectrum caps that consider holdings in sub 1 GHz bands, and aggregate spectrum holdings per operator, that appear to be designed with the current market structure in mind. The design will potentially allow AT&T and Telcel to obtain low-band spectrum to enhance 5G coverage. But the auction could also allow Altan Redes to expand the spectrum portfolio of the “Red Compartida” it operates, a pure wireless wholesaler that currently holds the entirety of the 700 MHz band in Mexico.

Altan Redes redes is currently the main host of the mobile network operators (MVNOs), a segment that has grown noticeable in the last two years and currently holds 11.8% of the mobile subscriptions, per GlobalData’s estimates.

Romo concludes: “For Altan Redes, the 2.5 GHz band could be appealing as a capacity band, but it is unclear if it has the resources to obtain the spectrum at current market prices, without subsidies to the annual spectrum fees, especially since Altan was bailed out by the federal government in 2023. For AT&T and Telcel, the spectrum fees from the 600 MHz are likely to limit appetite, since spectrum fees for sub 1 GHz bands tend to be superior to higher bands and will add to the annual costs of the operators.”