Monopoly versus the Platform Economy in Mexico

I’m just back from Mexico City where I had the opportunity to study its emerging sharing economy. If you’re imaging Chilango-styled hipster start-ups and totopo-infused maker labs, brace yourself, because when you push past the fancy talk and inspired design, what Mexico really offers is a master course in the political economy of peer-to-peer sharing.

Before heading out on my trip, I checked in with a friend from OuiShare, Barcelona, who organized collaborative economy events in CDMX last year. He warned me that “Mexico isn’t as advanced” in the collaborative economy space as European nations.

So I hopped online to do some background research. I found all sorts of upbeat propaganda-style business stories about Mexico’s supposedly burgeoning innovation sector. But the startups in these stories were few and far between. A little investigation showed that they were often still-born. A Mexican friend at Open Media pointed out that foreign investors balk at currencies that aren’t able to repatriate returns.

Meanwhile, I found all sorts of reports about Mexico’s 2014 Telecommunications Reform. The reform was clearly a really big deal, with wide-ranging effects, but its relevance to the platform economy was not immediately obvious to me. With little else to go on, I decided to take a leap of faith and explore further.

Mexico’s 2014 Telco Policy Reform

When Mexico privatized its state-run telecommunications company in the early 1990s, as part of the neoliberal reforms that swept the planet at that time, it was bought up by Grupo Carso which is owned by Carlos Slim, who later became the world’s richest person. By the early 2010s, Slim’s company, America Movil, had gobbled up large swaths of the cell phone market in Latin America, and alongside Telmex, held a near monopoly on landline, internet and mobile telecommunications services in Mexico. As a result, Mexican consumers faced some of the highest telecommunications prices in the world.

Source: http://www.economist.com/taxonomy/term/34/14587780?page=58

And, unsurprisingly, telecommunications penetration reflected pricing:

Source: http://www.economist.com/taxonomy/term/34/14587780?page=58

When President Enrique Peña Nieto came to office in 2012, he faced slow economic growth, high unemployment, and a series of highly intractable social issues related to organized crime. Finding himself uncomfortably wedged between Criminals and Capitalists, he opted to take on monopoly economic power in Mexico. This invariably meant taking on Carlos Slim and his telecommunications monopoly.

The history of monopoly in Mexico is long and deep, reaching back into a period known as the Porfiriato (1884–1911), which foregrounds the establishment of the country’s modern democratic system. Why would Peña Nieto decide to lock horns with such a sacred cow?

For one thing, monopoly provision of basic services is strangling Mexico’s economy. High telecommunications costs undermine tech innovation, for example, and that has all sorts of negative implications for the Mexican economy, from slow job creation to brain drain. For another thing, monopolies mean high prices for consumer services like electricity. By lowering prices, Peña Nieto could achieve populist gains with voters.

The story of the 2012–2014 telecommunications battle is long and complex, and has been covered extensively elsewhere. For our immediate purposes, we can focus on the outcome. The new telecommunications law obliged telecommunications players who held more than 50% of the market (i.e. Carlos Slim and Telcel) to provide competitors with open access to infrastructure until such time as the playing field became more level. These legal reforms paved the way for new entrants into Mexico’s telecommunications marketplace, causing prices to drop and subscriptions to increase (at least in urban areas — more on this later).

Certainly this is a good thing for Mexican consumers. Anti-monopoly policy has increased mobile penetration, and it has put money in people’s pockets (again, particularly in urban areas). But what does this have to do with the platform economy? I spent much of my time in Mexico trying to figure this out.

Telco Reform and the Platform Economy

At first I played with the idea that telco reforms were part of an effort to spark economic growth in Mexico. Lowering the cost of data and increasing cell and internet penetration rates would create a more favourable context for tech innovation. There is no doubt that this was an intention of the reforms. And indeed, Mexico has its share of sharing economy startups such as CarrotMX, Yaxi, Ergomotos, and Parkeo.

But the more I talked to local experts, the more I came to understand that the link between telecommunications and the platform economy is not a particularly virtuous one in the case of Mexico.

Partly this is the result of jurisdictional issues. You see, the sharing economy is predominantly an urban phenomenon in Mexico. Neighbours tend to share more readily in rural areas on the basis of face-to-face relationships. The lower density of people in rural areas makes peer-to-peer platforms less feasible. And in the case of Mexico, Telmex never did reach infrastructure into rural or marginalized areas, so telecommunications reforms have done little to change cell phone and internet penetration rates there. As a result, sharing economy initiatives tend to be most relevant to urban populations.

Enter the newly formed City of Mexico (CDMX) under the leadership of Miguel Ángel Mancera. Mancera faces the same difficult economic conditions as Peña Nieto, but he faces these problems at the local level in one of the largest cities in the world. Certainly Mancera is under a great deal of pressure to promote economic growth, generate jobs, and improve service provision to Chilangos.

Unfortunately, his strategies are largely at odds with federal policy frameworks. Remember that Peña Nieto’s federal telecommunication reforms have made it much more possible for urban Mexican’s to have cell phones. These populations have embraced social media and sharing economy apps enthusiastically in the past 3 years. This could have been an excellent opportunity to promote innovation in Mexico City, along the lines of what has been done in Seoul, Korea.

But when Cabify and especially Uber entered CDMX — with all the bravado that Uber is famous for — their informal economy jobs offered an easy solution to high unemployment rates, and their low rates offered a populist win with voters (see La Política Online).

The upshot is that CDMX allows international companies to profit by offering a service that is in direct competition with the very Mexican start-up companies that federal policy sought to incentivize.

As if this were not enough, as competition has heated up among telecommunications operators in Mexico, they’ve sought new ways to distinguish themselves among consumers. One of their strategies is zero rating, which is the practice of waiving data charges associated with particular applications or services. Zero rating is widely considered to be an anticompetitive practice because it creates an unfair advantage for services that become effectively free to consumers (see Carlos Brito of R3D).

And yet, several telcos in Mexico zero rate Uber, giving it an unfair advantage over native sharing economy tech start-ups (such as Yaxi), not to mention the traditional taxi sector.

Finally, there is the issue of the online payment systems that go hand-in-hand with sharing economy applications. Of course, one need only use a credit card to pay for sharing economy services. But what if you could use a mobile banking application such as M-Pesa, which is already right there on your phone? Mobile banking has been slow to evolve in Mexico, which is not surprising given the history of monopoly telecommunications pricing. But Telcel and Banamex have had a long-standing agreement in place to collaborate on mobile banking.

This raises the possibility that telecommunications and banking companies will collaborate to create backbone infrastructure for sharing economy initiatives in Mexico.

Monopoly versus the Platform Economy in Mexico

And so we come full circle to the issue of monopolies in Mexico. In the short term, it is certainly true that Peña Nieto’s telco reforms have introduced greater competition into the Mexican marketplace. But as that marketplace accommodates itself to the wave of disruptions caused by the platform economy, and new strategies emerge to position old companies, questions remain about deeply entrenched monopoly power in Mexico.

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