Spectrum concentration and market competition. Implications for the use of caps in Mexico

Increasing demand for quality, high speed mobile services, and the expected socioeconomic benefits associated to them, have turned the attention to the need for radio spectrum with specific characteristics. The underlying reason is that such services require spectrum which is a scarce and highly valuable input. Consequently, many countries have reassigned portions of spectrum in order to maximize the efficiency in its use. Mexico has been no exception to this trend but its efforts have to be accompanied by public policies that take into account key development and sector specific goals. One such goal is effective competition in telecommunications, which can be hampered by spectrum concentration. With this in mind, this paper shows that besides increased spectrum availability, what matters is its distribution among the operators. It does so by empirically testing the influence of spectrum concentration on competition in the cellular market. Results indicate a positive relation between the two variables and the paper presents Mexico as a case study in which spectrum has been unequally distributed and the mobile market has exhibited high concentration levels. Based on this example, the paper discusses regulatory options, focusing on spectrum caps.