Contact Center Solutions Featured Article

Telefonos de Mexico to Split Off Rural Operations

March 10, 2011

Nothing in the communications business is quite as predictable as disputes between buyers and sellers of capacity, interconnection and termination services. Put simply, buyers think they pay too much, while sellers insist the charges are based on actual costs. The situation is no different in Mexico than in the United States or elsewhere. 


Telefonos de Mexico, the country’s dominant fixed-line phone carrier, has been facing complaints from service providers that buy access and other services that Telefonos de Mexico is overcharging for its services. Perhaps in part to clarify the actual cost basis, Telefonos de Mexico now plans to split its rural operations into a separate company, a move that should provide more clarity on actual costs in those areas.

The new company, called Telmex Social, would serve 46 percent of the country where there is no serious and direct landline competition. The new company would represent about 12 percent of the parent company’s 15.5 million lines in service. 

Telefonos de Mexico claims those lines operate with small profits or losses, a claim that would be not out of character with similar operations in just about any other country. Network cost always is inversely related to population density, as U.S. data from the Federal Communications Commission shows. In fact, the existence of "high cost funds" and "universal service funds" provide evidence of such cost disparities.

There are other issues, though. Since the AT&T breakup in 1983, regulators and markets have been adjusting to a huge change in the fundamental economics of providing services. In the pre-1983 monopoly business, rates deliberately were set such that business revenue subsidized consumer service, and long-distance service revenues subsidized local service. Once the old system was dismantled, that began to change, but only slowly, over time. 

The upshot is that contestants in now-different parts of the value chain have different perspectives on the rates charged for various inter-carrier business services. Over time, the industry has slowly begun to make more transparent the actual costs for services and capabilities in the various parts of the network. That is a contentious issue, however, since one carrier's costs are another carrier's revenues. 

Over time, the Federal Communications Commission has undertaken to make hidden subsidies in telephone rate structures more transparent, to reduce the absolute amount of the subsidies, and to remove usage-based charges for services whose costs are largely fixed. But those moves always are contentious, since current revenue in many cases is based on those legacy arrangements. 

Telefonos de Mexico appears to be attempting to address such issues by separating its urban, higher-density and rural, lower-density operations, a move that presumably will clarify the actual costs in each setting. 

 


Gary Kim is a contributing editor for ContactCenterSolutions. To read more of Gary’s articles, please visit his columnist page.

Edited by Tammy Wolf



Home