Mexico - Convergence, Broadband and Internet market

Transcription

1 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 1 Telecommunications and Information Highways Mexico - Convergence, Broadband and Internet market 1. SYNOPSIS Broadband, especially ADSL, is one of the fastest growing telecom markets in Mexico. The shift from dialup to broadband became apparent in 2005, when dial-up accounts started to decrease, while broadband soared by around 122%. WiMAX made a first appearance in Mexico in December 2005, when fixed-line operator Axtel launched high-speed Internet access in Monterrey over a WiMAX network supplied by Intel. Mexico s first triple play service, combining cable TV, Internet, and telephony, was launched in March 2005 by fixed-line provider Maxcom and local cable TV operator SIT. A second triple play package followed in September 2005, offered by fixed-line provider Axtel and cable TV operator Cablemás. 2. INTERNET MARKET 2.1 OVERVIEW OF THE INTERNET IN MEXICO The Internet began in Mexico in Until liberalisation in 1997, Internet services were expensive and of poor quality, mostly due to the difficulties faced by Internet Service Providers (ISPs). Telmex often forced ISPs to wait for months before providing new lines and increasing routing capacity, and ISPs accused Telmex of anti-competitive practices. Since then, however, the Internet market has become the fastest growing segment in the country s telecom sector. In terms of market size, Mexico is the second largest Internet market in Latin America after Brazil. In terms of penetration, Mexico occupies approximately the fifth place in Latin America (excluding the Caribbean islands), behind Chile, Uruguay, Costa Rica, and Guyana. While the Internet appears to be available everywhere in Mexico, actually only a small fraction of the population uses it. Penetration is limited by the fact that around 35% of the population lives on a subsistence income, and 18% lives in extreme poverty. The main drivers for Internet growth include the widespread availability of Internet cafés; the financed bundled packages (PC + Internet access) offered by Telmex; the free access provided for a while by Terra and Tutopia; and the prepaid Internet service offered by Todito and Terra. In order to promote Internet uptake, the government conceived an ambitious project, called e-mexico, aimed at transforming the country into a digital economy. Part of this project involved the installation of cybercafés throughout the country. An e-mexico project was developed in , aimed at wiring the entire country to the Internet, then offering free accounts to every Mexican, and universal access to educational, health and government services. By 2003, a national satellite

2 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 2 network has been set up to reach places without fixed lines. ViaSat enabled the satellite connections with more than 3,100 LinkStar broadband VSATs installed, and PanAmSat (Archived) (see separate report) agreed to provide free satellite Ku-band space on its Galaxy 3 C satellite Internet statistics Table 1 Internet users, annual and penetration Year Users Annual Penetration ,222,000 n/a 1.3% ,822, % 1.9% ,058, % 5.1% ,410, % 7.4% ,765, % 10.6% ,219, % 11.8% ,036, % 13.2% ,100, % 16.1% (Source: Paul Budde Communication based on ITU and AMIPCI data) Note: Internet users are those accessing the Internet from school, university or work, as well as from individual household or business accounts. Subscribers are individuals who pay for Internet access accounts. Table 2 Internet users by access technologies Access type Dial-up 47% 47% 44% 26% Cable 10% 12% 13% 20% Wireless 1% 2% 5% 5% ADSL 10% 18% 26% 43% Dedicated 12% 12% 7% 3% Other 20% 9% 5% 3% (Source: Paul Budde Communication based on AMIPCI data) Table 3 Internet subscribers by access technology Year Coaxial Dial Up XDSL cable Other Total ,023, , ,300 1,135, ,772,600 5,300 64,500 41,300 1,883, ,864,900 78, ,100 29,300 2,096, ,016, , ,800 34,100 2,444, ,129, , ,100 33,300 3,166, ,671,900 1,606, ,000 31,500 3,972,900 (Source: Paul Budde Communication based on Cofetel) Note: Other includes ISDN, wireless and dedicated access

3 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 3 Table 4 Internet host computers and annual Year Hosts Annual ,180 n/a , % , % , % , % , % ,107, % ,333, % ,523, % (Source: ITU) Note: A host is a domain name that has an IP address record associated with it. This would be any computer system connected to the Internet via full or part-time, direct or dial-up connections. 2.2 ISP MARKET The de-regulation of value-added services in 1995 promoted the mushrooming of ISPs, which multiplied from 23 in 1995 to more than 90 licensed providers in But not many of these managed to become commercially viable businesses, and were all too soon washed away by the wave of bankruptcy that swept through the Internet sector. According to a study carried out in mid-2003, the surviving ISPs were the ones that diversified, providing other services besides Internet access, such as e-commerce and portal facilities. In mid-2005, there were 15 major ISPs out of around 350 companies registered to provide ISP services. Low-cost suppliers such as DataNet and Internet de Mexico were purchased by USbased PSINet and StarMedia in early In mid-2000, AOL entered the Mexican Internet market and quickly gained market share. Telmex/Prodigy remains the dominant carrier and the major provider of local lines and interconnection links to ISPs. Telmex s backbone is the main path to the US Internet nodes that route all of Mexico s Internet access. The company provides customers with PC purchase programs and access payments through their monthly phone bill. The phenomenon of free Internet access began in Mexico The first free access was Terra Libre, launched in November 1999 by Telefónica s Terra Networks Mexico (Terra). In early 2002, however, Terra Libre transformed from a free Internet access service into a prepaid system, and was renamed Terra Prepago. Two other free access services were Gratis1.com (a joint venture of Chase Capital Partners, New York-based StarMedia Network, and others) and Tutopia (a subsidiary of Miami s IFX Corp). Uptake of free Internet was slow: in July 2000, only about 420,000 people out of the 6 million total users were availing themselves of free access. Sluggish connections plagued free providers, and re-routing of calls often lead to expensive

4 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 4 long-distance telephone charges. By end-2003, free Internet access had virtually disappeared. Growing competition among ISPs in Mexico led two companies to introduce prepaid access plans: Terra and Todito.com (owned TV Azteca) mirrored the payments model perfected by mobile phone companies. Todito introduced its prepaid Internet access program in July 2001, and Terra in January Both ISPs used their prepaid plans to extend services to residential low-end customers, although their execution strategies and target markets differed. Terra s approach was virtual, with its distribution strategy confined to the Internet. Its prepaid programme aimed to court young adults already familiar with the cyberworld. Todito s approach more closely followed the strategy used by Mexican mobile phone companies, with prepaid Internet access Todito Cards sold at retail outlets. Terra s prepaid system was taken over by Alestra in January BROADBAND MARKET 3.1 OVERVIEW Mexico has a Broadband Mexico project to advance the country s entry into the information society. Broadband especially Asymmetrical Digital Subscriber Line (ADSL) is one of the fastest growing telecom markets in Mexico. The shift from dialup to broadband became apparent in 2005, when dial-up accounts started to decrease at the rate of 21% annually, while broadband soared by around 122%. According to Pyramid Research, broadband services will generate approximately 52% of Mexican Internet services revenues by Besides ADSL, broadband access in Mexico is available via cable (either copper or fibre optic), satellite, or radio. WiFi and WiMAX, emergent technologies in Mexico, are considered a solution to overcome low Internet access penetration. Cable modems and ISDN dominated Mexico s broadband market in 2001, with a 41% and 44% market share respectively. ADSL represented only 12% of active broadband Internet access accounts in But by 2005, use of ISDN had dwindled to less than 1%, and the broadband market was dominated by ADSL with a market share of around 70%. Major ISPs and broadband players in Mexico include: Prodigy Telmex s ISP (see below). Terra Telefónica s Terra Networks Mexico (Terra) launched Mexico s first free dial-up service, Terra Libre, in November In January 2002, Terra Libre d to Terra Prepago, a prepaid dial-up access. In January 2005, Alestra signed a commercial agreement with Terra whereby it took over the management of Terra s prepaid dial-up operations. Terra retained the management of its Terra Banda Ancha ADSL service, its Mexican Internet portal and web mail services. Maxcom fixed-line network operator, offering Internet access since Services include dial-up and ADSL access. It became Mexico s first triple player in March 2005, when it launched converged cable TV, broadband and telephone

5 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 5 services in alliance with local cable operator Sistemas Interactivos de Telecomunicaciones (SIT). Tutopia a company belonging to the IFX Networks group, began operations in Mexico in It offers dial-up and DSL broadband access. Avantel began to offer dial-up access in In alliance with MVS Multivisión, it launched a wireless broadband/voip package, branded NetVoice, in February It also offers a range of Internet and data processing services for corporate customers. Alestra controlled by AT&T Corporation, fixed-line operator Alestra provides Internet services since July 1998, including dial-up access, dedicated Internet, and a range of Internet services for corporate clients. It launched Masternet, also in alliance with MVS, in February 2005, 15 days after the launch of NetVoice. Axtel based in Monterrey, local ex carrier Axtel launched Internet access using wireless technology in It offers dial-up and dedicated access, and broadband through digital radio Point to Multipoint, Point to Point and fibre optic systems. MVS Multivisión launched a bi-directional wireless broadband service branded E-Go in June 2002, using Multichannel Multipoint Distribution Systems (MMDS) technology. MetroRED México Red de Telecomunicaciones (MetroRED) was licensed in May 1999 and began operations in January 2000 as a Carrier of Carriers, providing last mile interconnection. It offers dial-up and dedicated Internet access for corporate clients. Several companies offer cable modem broadband. The major ones are Megacable, Cablemás, Cablevisión, and InterCable (see the chapter on cable modems). 3.2 ADSL Commercial ADSL service made its first appearance in Mexico in September The market more than tripled between September 2002 and March 2003, and grew by around 200% in According to a report by Point Topic Ltd, in 2004 Mexico ranked highest in America and second in the world in terms of broadband growth rate. The boom continued in 2005, with an annual increase of 131%. The main provider is Telmex, through its ADSL service Prodigy. Other companies offering ADSL services include Maxcom, Tutopia, and Terra (Terra Banda Ancha) Prodigy (Telmex) Telmex (Archived) (see separate report) is Mexico s leading ISP through its Prodigy service. In 1998, Telmex invested in Prodigy Communications Corporation, jointly with its controlling shareholder Carso Global Telecom. Prodigy is a leading ISP in the USA.

6 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 6 In November 2001, Telmex sold its 18% interest in Prodigy to SBC Communications. Pursuant to a licence agreement, Telmex retains the right to use the Prodigy brand name in Mexico free of charge and in perpetuity. Prodigy services include: Prodigy con Computadora package including a desktop or laptop PC plus subscription to Prodigy Internet or Prodigy Infinitum; Prodigy Internet dial-up Internet access; Prodigy Infinitum ADSL services; Prodigy Móvil WiFi access services. In June 1999, Telmex launched Prodigy Internet Plus, a package including a multimedia PC, a personal web page, an account and two years of unlimited dial-up access time. Prodigy Internet Plus became the largest provider of financing for PC purchases. From mid-1999 to early 2004, it financed 614,000 personal computers. It was replaced with Prodigy con Computadora, which offers computers at discounted prices for both dialup and ADSL Prodigy services. Telmex launched Prodigy Infinitum in February Initially, the service was limited to high-income areas in major cities, including Mexico City, Monterrey, Guadalajara, Merida, Puebla, Ciudad Juarez, Veracruz and Leon. Telmex slashed its ADSL service by about 50% in January By early 2006, Prodigy Infinitum was available in approximately 1,200 Mexican cities. Telmex and Microsoft jointly operate a Spanish language Internet portal, T1msn.com, in competition with the Spanish-language portals offered by TV Azteca (Todito) and Telefonica (Terra). Table 5 Prodigy ADSL subscriber lines and annual Year Lines Annual ,000 n/a , % , % ,033, % (Source: Paul Budde Communication, based on company data) 3.3 CABLE MODEMS Though not as popular as ADSL, cable modem grew at the respectable rate of 114% in 2005, and its share of the total broadband market was around 29%. Major companies that offer cable modem broadband services: Megacable the market leader. It provides Internet access since December 1997 through its trademark, Meg@Red, with two-way broadband access. It was the first Multiple Systems Operator (MSO) to go ahead with a cable modem roll out.

7 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 7 Cablemás the second largest cable TV company in Mexico, Cablemás offers cable modem broadband under the brand name Cablered. Cablevisión launched broadband through cable modem in It was the first company to offer this service in Mexico City, where it remains the leading cable modem provider. InterCable sister company of Cablevisión Monterrey, a unit of Multimedios Redes. It was established in 1996, and offers cable modem broadband over fibre optic and coaxial cables, as well as dial-up and wireless high-speed Internet access. Table 6 Megacable cable modem clients and annual Year Subscribers Annual ,000 n/a , % , % , % 2005 (June) 220, % (Source: Paul Budde Communication based on company data) Table 7 Cablered cable modem clients and annual Year Subscribers Annual ,200 n/a , % , % 2005 (Sept) 100, % (Source: Paul Budde Communication based on company data) Table 8 Cablevisión cable modem clients and annual Year Subscribers Annual ,800 n/a , % , % 2005 (Sep) 51, % (Source: Paul Budde Communication based on company data) 3.4 WIRELESS BROADBAND WiFi Wireless Fidelity (WiFi) is a wireless networking technology for PCs and PDAs that allows multiple devices to share a single high-speed Internet connection over a distance of about 300 feet. It uses unregulated spectrum for establishing a network

8 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 8 connection, and is often used for wireless local area networks, or to network a group of PCs without wires. WiFi can be found in homes, offices and public places such as coffee shops, hotels, shopping malls and airports worldwide. Public sites with readily accessible wireless networks are known as hotspots. WiFi made its first appearance in Mexico in March 2003, when Telmex launched Prodigy Móvil, a service based on the WiFi IEE802.11b norm, at speeds of up to 11Mb/s and at a range of 20 and 100 meters. WiFi hotspots were set up in restaurants, coffee shops, hotels and other commercial establishments, primarily in metropolitan and tourist areas. Telmex signed a WiFi roaming deal with US-based SBC Communications in July In early 2005, Prodigy Móvil offered WiFi access in over 50 cities WiMAX Worldwide Interoperability for Microwave Access (WiMAX) is a wireless networking technology that allows usage over greater distances and at higher speeds than WiFi. In collaboration with Intel, and using equipment based on the Intel PRO/Wireless 5116 broadband interface, fixed-line operator Axtel was the first company to implement WiMAX in Mexico. In November 2005, it signed an agreement with Intel to develop a WiMAX network. It launched high-speed Internet access for residential and small business users in Monterrey, using WiMAX technology, in December Axtel plans to expand its WiMAX network nationwide by Network rollout is urban, with a coverage radius of about 2.5km. Wireless broadband provider MVS Net announced, in January 2006, that it planned to launch wholesale WiMAX wireless broadband in several Mexican cities by mid-2006, in partnership with US-based WiMAX provider NextNet Wireless. MVS Net is a subsidiary of MVS Comunicaciones, which also owns MMDS pay TV provider MVS Multivisión. By early 2006, MVS Net was finalising construction of wireless broadband networks in Mexico City, Guadalajara, Monterrey, Toluca, and Mexcali Internet via satellite Broadband satellite access is available in Mexico through Hughes Network Systems (HNS), which operates a satellite-based broadband Internet access service marketed as DirecWAY. HNS has been operating in Mexico since 1987 and is the country s VSAT market leader. A wholly owned subsidiary of the DirecTV Group, HNS is a global provider of broadband satellite network solutions for businesses, governments, and consumers. Tachyon Inc has provided two-way satellite broadband access in Mexico since The service enables high performance access in areas where high-speed lines and

9 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 9 telephone connections are not available. Tachyon s broadband satellite services are designed for use by corporations and government institutions that depend on highspeed Internet access. The company operates in North America, Mexico, parts of Central America and the Caribbean, Europe and portions of the Middle East and Africa. In February 2003, GlobalSat introduced the Intelsat Broadband Service to Mexico, targeting the small office/home market, small and medium-sized enterprises (SMEs), and remote offices of multinational corporations. GlobalSat is a provider of satellitebased telecom services with worldwide coverage. The Intelsat Broadband Service is offered to service providers on a wholesale basis, and is then distributed through incountry and regional service providers to end-users. 4. CONVERGENCE 4.1 OVERVIEW OF MEDIA CONVERGENCE In its broadest sense, convergence in the communications industry means combining various services voice and data transmission, Internet access, video, cable TV and/or other multimedia broadband applications into a single package. Latin America has only recently begun to develop convergence strategies, combining various services such as voice and data transmission, Internet access, video, cable TV and/or other multimedia broadband applications into a single package. Convergence strategies are an attractive option in Mexico, a country with a soaring broadband sector and low teledensity. Although VoIP is suffering from regulatory restrictions, it is nevertheless gaining popularity, with more and more companies looking to incorporate Internet telephony with their broadband offerings. Alestra and Multivisión (MVS) launched converged VoIP telephony and Internet services, branded NetVoice, in February Also in February 2005, Avantel launched a wireless broadband and VoIP package for the residential market, branded NetVoice. Fixed/mobile convergence was first developed in Mexico, in July 2004, through an alliance between Avantel and Telefónica Móviles México (TEM México). Avantel contributed its Virtual Private Network (VPN) product, fibre and microwave backbone to the alliance, while TEM México contributed its GPRS network for lastmile high-speed connectivity. While real fixed/mobile convergence goes beyond bundling services and into the seamless connectivity space, this first attempt of competing players to work together represents an important strategic move. The first product of the alliance was a connectivity solution for ATMs, launched in August 2004.

10 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 10 A major area of convergence is the bundling of broadband with pay TV. All the larger cable TV companies have or are developing Internet initiatives. See separate report: Global Convergence Massive Media Changes Analysis. 4.2 TRIPLE PLAY MODELS The triple play strategy, combining fixed-line telephony, Internet and cable TV, promises to be the bright star for the future of cable TV companies. In mid-2003, the Under Ministry for Communications and Technology Development Secretaría de Comunicaciones y Transportes (SCT) began drafting a triple play proposal. The original draft allowed any cable TV company to offer data communication via Internet, and eventually also local telephone services. This met with strong opposition on the part of Telmex and other telephone companies. The SCT finally legalized the provision of telephony by cable TV operators in June But it set a proviso: in order to guarantee quality of service, cable TV operators could only offer telephony services if they first paired up with a telephone company. This ruling met with strong opposition from cable TV companies. A report released in mid-2004 by the National Chamber of the Cable TV Industry the Cámara Nacional de la Industria de Televisión por Cable (Canitec) stated that cable companies in Mexico had invested around US$500 million to launch voice services. At that time, operators of cable TV rumoured to be interested in telephony included: Cablemas, Cablevisión, Grupo HEVI, Megacable, Telecable and TV Internacional. In March 2005, the first triple play services in Mexico were launched in Querétaro by fixed-line telecom provider Maxcom and local cable operator Sistemas Interactivos de Telecomunicaciones (SIT). The two companies connected their networks to offer cable television, Internet and basic telephony services. The companies saw huge potential in the market, as SIT cables already served nearly 150,000 homes in Querétaro. Another company, Megacable, intended to add telephony into its service package which includes cable TV and high-speed Internet. It anticipated that, by 2006, it would generate a third of its income through Internet services, a third through video services and a third through telephony. In August 2003, Megacable received a permit from the SCT to commence a first experimental voice service via coaxial cable. But commercial implementation was delayed by the legal developments requiring cable TV companies to partner with telephony companies in order to offer triple play services. In May 2005, fixed-line provider Axtel revealed that it was teaming up with cable TV operator Cablemás to launch a triple play package in the cities where the two companies networks overlap. The two companies launched triple play operations in September 2005, in the city of Tijuana, offering converged fixed telephony, Internet, and cable TV services.

11 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 11 Cablevisión announced plans to launch voice telephony services by end-2005 as a carriers carrier. The launch would coincide with the completion of the company s network digitalisation program; the project was 50% complete in June PAY TV Mexico s media markets are dominated by a few large players and pay TV is no exception, with Televisa (which controls TV cable operator Cablevisión and satellite TV provider Sky Mexico) and MVS (which owns MMDS operator Multivision) being the leading operators. In early 2004, new rules were issued against geographical monopolies in the cable TV market, and licences were awarded to new entrants to compete in the same areas as the established operators. Concessionaires of all three pay TV technologies co-exist in Mexico: cable television, MMDS, and Direct-to-Home (DTH). Table 9 Pay TV subscribers, annual and penetration Year Cable Annual Penetrati DTH MMDS Total TV on ,383, , ,000 1,802,000 +7% 1.9% ,617, , ,000 2,213, % 2.3% ,959, , ,000 2,805, % 2.9% ,220, , ,000 3,234, % 3.3% ,499, , ,000 3,696, % 3.7% ,524, , ,000 3,769,000 +2% 3.7% ,647,000 1,000, ,000 4,150, % 4.0% ,888,000 1,074, ,000 4,641, % 4.4% ,193,200 1,147, ,300 5,183, % (Sept) 4.9% (Source: Paul Budde Communication based on Cofetel data) Cable TV Cable TV operators are subject to the Telecommunications Law, and since February 2000, have been subject to the Restricted Television and Audio Services Regulations. Cable operators are classified as public telecom networks, and are therefore also subject to the Federal Television and Radio Law and the Federal Television, Radio and Film Industry Regulations. Cable TV exists in Mexico since 1954, but it only began to develop as an industry in Growth was modest, however, until the late 1980s.

12 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 12 There are now more than 800 cable companies in Mexico, with seven cable system operators in the areas surrounding Mexico City alone. Consolidation is likely, since three companies hold almost half of the market. In late 2005, Megacable s market share was around 18%, Cablemás around 15% and Cablevisión around 13% Megacable Megacable SA de CV is the leading cable TV operator in Mexico in terms of subscriber numbers. It has nationwide coverage, but operates principally on the Pacific and Gulf coasts, including: Guadalajara, the second largest city in Mexico; Hermosillo, the largest city in the state of Sonora; and Veracruz, the largest city in the state of Veracruz. Megacable Comunicaciones de Mexico (MCM) was spun off from Megacable in November MCM has a licence to operate a broadband network in Mexico City, Monterrey and Guadalajara. In Mexico City, it provides local voice service as well as high-speed Internet access, principally to commercial customers. RCN Corporation owns around 49% of Grupo Megacable, and Mexican Mazon and Echevarria families around 51%. RCN first purchased 40% of Megacable from Mazon Corporativo in January 1995, and increased its interest to around 49% in July RCN formally emerged from a Chapter 11 restructuring process in December Megacable s services are offered over a 96% two-way Hybrid Fibre Coax (HFC) network, more than 11,000km in length. The company began to deploy digital TV services in August It also provides Internet access since 1998 through its trademark, Meg@Red, with two-way broadband access. Table 10 Megacable pay TV subscribers and annual Year Subscribers Annual ,000 n/a , % , % , % 2005 (June) 570,000 +4% (Source: Paul Budde Communication based on company data) Grupo Cablemás The Cablemás group is Mexico s second largest cable TV operator in terms of subscriber numbers. It operates in the northeast, central, centre south and southeast regions of the country. The company is controlled by members of the Alvarez family, along with minority backing from investment funds Citicorp Venture Capital and Olmeca.

13 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 13 Founded by Alejandro Álvarez Guerrero, the Cablemás group brings together the operations of various cable TV systems in Mexico. The groups first operator was Visión por Cable de México, which began cable TV operations in Tijuana in Between 1970 and 1975, various other operations were launched in other parts of Mexico. In order to centralise and standardise all the various operators under one administration, the group TV por Cable Nacional was created in In 1997, the group was renamed Cablemás, and all the group operations adopted the name as their trademark. In June 2003, Cablemás acquired and consolidated the Grupo Megapo, a provider in Southern Mexico, further extending its footprint. The company operates a 11,275km network, of which 71% had bi-directional capacity in September Cablemás also offers high-speed Internet access by cable modem through its Cablered division. Table 11 Cablemás cable TV subscribers and annual Year Subscribers Annual ,000 n/a , % ,600 +5% 2005 (Sept) 466, % (Source: Paul Budde Communication based on company data) Cablevisión Although Cablevisión is the countrys number three cable TV company, it is the leading provider of cable TV and cable modem broadband in Mexico City and surrounding areas. Its service packages offer multiple channels of entertainment, news and informational programming. Listed on the Mexican Stock Ex since April 2002, Cablevisión is owned 51% by Grupo Televisa and 49% by public investors. It was originally a 51:41 joint venture between Televisa and América Móvil, until América Móvil sold its stake through an IPO on the Mexican Stock Ex in April Established in October 1966, Cablevisión pioneered cable TV in Mexico. In October 2000, it signed a three-year deal worth $128 million with Motorola, for the provision of telecom services and cable equipment. Known as Elite Alliance, this agreement set the standard for Latin American cable operators as they transitioned to become Multiple Service Operators (MSOs). Using Motorola s interactive digital broadband platform, a variety of multimedia communications services were introduced in 2000 and 2001, such as interactive television (itv) and other enhanced program services, including TV-based Internet access and cable modem broadband.

14 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 14 To expand its subscriber base and combat piracy, Cablevisión began switching its analogue subscriber base to digital service in November By September 2005, Cablevisión s network consisted of approximately 9,107km of coaxial cable and 1,624km of fibre optic cable, with approximately 71% bi-directional capability; 100% of the network operated at a speed of at least 450MHz, while 58% operated at 870MHz or more. The company aims to upgrade its entire network into a broadband bi-directional HFC network. During , Cablevisión experienced a period of dwindling subscriber numbers and financial losses. Besides the general economic recession in Latin America, the company blamed its subscriber falloff on cable piracy, a serious problem in Mexico, where it is estimated that for every three cable subscribers there is one household stealing the signal. The company hopes to resolve the problem by shifting to digital cable, which is more difficult to pirate. Cablevisión experienced a turnaround in 2005, with a 19% year-to-year increase in subscribers at September Table 12 Cablevisión pay TV subscribers and annual Year Subscribers Annual ,500 n/a , % ,400-9% ,400-12% ,000-3% 2005 (Sept) 406, % (Source: Paul Budde Communication based on company data) Cablevisión Monterrey Cablevisión Monterrey is a unit of Multimedios Redes, a company belonging to Multimedios Estrellas de Oro, a wholly Mexican conglomerate involved in radio, TV, public telecom networks, newspapers, magazines, entertainment centres and restaurants. Cablevisión Monterrey is the cable TV market leader in the city of Monterrey. It operates over a hybrid (fibre optic and coaxial) 4,500km cable network, in the metropolitan area of Monterrey and neighbouring towns. Its sister company InterCable, also a unit of Multimedios Redes, provides dial-up Internet access, wireless broadband and cable modem access.

15 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM Multichannel Multipoint Distribution Systems (MMDS) MMDS technology uses terrestrial microwave bands to transmit programming signals. It has lower channel capacity than cable, and lower costs of installation, as there is no physical network. Digital MMDS systems can also offer high-speed Internet access. Mexico s first MMDS service appeared in September 1989, when MVS Multivisión went on air in Mexico City. The government issued a number of MMDS concessions between 1995 and Of the 20 MMDS concessionaires listed by Cofetel in late 2005, most never started operations. The main MMDS operator remains MVS Multivisión MVS Multivisión The MVS Comunicaciones Group is owned by the Vargas family. It provides payper-view TV, broadband, Internet and other services through MMDS frequencies. Group companies include MVS Multivisión (MMDS pay TV services), MVS Net (wireless broadband), five TV channels, MASTV, MVS Radio, MVS Telenet, and several others. Founded by Don Joaquín Vargas Gómez, MVS was granted nationwide MMDS licences of 194MHz in the 2.5 to 2.7GHz band in Due to objections raised by competitors, however, the company was not able to freely use them until late In September 1989, MVS Multivisión was born with the idea of creating a pay-per-view TV system using MMDS frequencies. Later, Guajardo merged his Internet and radio companies with MVS, creating a holding company known as MVS Comunicaciones. MVS s MMDS services cover all the major metropolitan areas in Mexico, including: Guadulajara, Monterrey, Acapulco, Culiacán, Durango, Hermosillo, Mazatlán, Mexicali, Morelia, Poza Rica and Tijuana. Most of the company s customers, however, are located in Mexico City. MVS launched a bi-directional Internet access service in Mexico City, in June 2002, using NexNet equipment. In September 2002, the company launched MASTV, a low priced pay TV package with only a few quality channels, targeting the less affluent sections of the population Direct-to-Home (DTH) Satellite TV Under the Telecommunications Law, concessions to occupy and exploit geostationary orbit positions and satellite orbits assigned to Mexico are granted through public bid. The concessions may be awarded to foreign satellite systems capable of covering the Mexican territory, provided that there is reciprocity. Only companies incorporated in accordance with Mexican law with no controlling foreign participation are granted

16 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 16 satellite concessions. Within five years of receiving the concessions, recipients must have a satellite in orbit. Concessions to broadcast DTH satellite services are for an initial term of up to 30 years, and are renewable for up to 30 years. A concession may be revoked or terminated prior to the end of its term in certain circumstances. Six concessions to provide satellite TV DTH service have been issued to date. Of these, only two, Sky Mexico and Direct TV, actually became operational. Sky Mexico used to be the DTH market leader, with an approximate 80% market share. After it absorbed DirecTV in October 2004 it became the only operating DTH satellite TV company in Mexico Sky Mexico Grupo Televisa has a 60% interest in Innova, which provides DTH satellite television services under the Sky TV brand name. Innova s other shareholders are News Corp with a 30% interest, and Liberty Media with a 10% interest. Following News Corp s acquisition of rival DTH operator DirecTV in December 2003, the two competing companies have merged throughout Latin America. While in all the other countries Sky TV was merged into DirecTV, in Mexico Televisa bought out News Corp, therefore DirecTV merged its operations into Sky Mexico in October DirecTV customers were offered the opportunity to migrate to Sky Mexico. DirecTV had approximately 300,000 subscribers. Grupo Televisa received a 30-year concession in May 1996 to operate DTH satellite services in Mexico utilising SatMex satellites. In November 2000, it received a new concession to operate DTH satellite services using the foreign-owned PAS-9 satellite system. This concession expires in Table 13 Sky DTH subscribers and annual Year Subscribers Annual ,000 n/a , % , % ,800 +7% , % ,002, % 2005 (Sept) 1,216, % (Source: Paul Budde Communication, based on company data)

17 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM INTERACTIVE TV Both Sky and DirecTV launched Interactive TV (itv) in late 2000 a service that allows subscribers to shop on the Internet via their TV. Cablevisión Mexico is one of the regional leaders in itv, having launched Motorola s interactive digital platform in October 2000, the first such online access in Latin America. In July 2003, it launched Microsoft s Interactive Program Guide (IPG) for television. TV This was the first commercial deployment of Microsoft TV IPG in Latin America. 4.5 DIGITAL TERRESTRIAL TV In early 1999, Televisa began to test High Definition Television Transmissions (HDTV), becoming one of the first in Latin America to broadcast signals in the new format. These were only demonstration broadcasts of HDTV signals in Mexico City for two hours during the weekends. In April 2004, the Under Ministry for Communications and Technology Development (SCT) announced that TV digitisation would begin during 2004 and would include six stages of three years each, concluding in Operators would temporarily be allocated an additional channel, to transmit simultaneously both analogue and digital formats. The SCT further clarified that any Digital Terrestrial TV broadcasts would eventually need to be HDTV. To implement SCTs plan, it was estimated that TV operators would have to invest around US$2.5 billion to upgrade their equipment. Users would also need to invest in new high-definition television sets. During the first half of 2005, Cablevisión in Mexico City began to offer 5 HDTV channels. Also in 2005, TV Azteca contracted Harris Corporation to provide digital TV transmitters and HDTV encoding equipment for Mexico City, Guadalajara and Monterrey by the third quarter of 2005, and for Matamoros, Reynosa, Nuevo Laredo, Ciudad Juarez, Mexicali and Tijuana by mid In January 2006, Televisa s XEFB-TV and Multimedios XHAW-TV in Monterrey began HDTV transmissions on UHF channels 48 and 50, respectively. XETV in Tijuana, Baja California, had also started transmitting in HDTV. Mexican viewers with HDTV sets receive picture resolution six times sharper than standard definition analogue sets, while viewers without HDTV sets continue to receive analogue TV signals. 5. RELATED REPORTS For further information on Mexico s telecom market, see separate reports: Mexico - Key Statistics, Telecom Market and Regulatory Overview; Mexico - Fixed-Line Market and Infrastructure - Overview and Statistics;

18 Mexico - Convergence, Broadband and Internet market.doc 10/05/2006 3:24 AM 18 Mexico - Mobile Market - Overview and Statistics. For information relating to: Telecommunications in individual Latin American markets, see: Latin America; Major telecommunications players in Latin American markets, see: Companies in Latin America; Worldwide activities in the telecommunications industry, see: Global Overviews; Technical information relating to the telecommunications industry, see: Technologies, Terminology and Glossary. Copyright Paul Budde Communication Pty Ltd, All rights reserved. This material is subject to the laws of copyright and is restricted to registered licence-holders who have entered into a Corporate, a Multi-User or a Single-User licence agreement with BuddeComm. It is an offence, punishable by AU$250,000, for the licenceholder to make the material available to any unauthorised person, either via messaging or by placing it on a network. We offer very attractive multi-user and Intranet services. To arrange for additional user licences please contact us George Downes Drive, BUCKETTY NSW 2250 AUSTRALIA Telephone: Fax: pbc@budde.com.au Web: