E-commerce and Internet industry in Mexico

Mexico… What are the first things that come to your mind when you hear the name of this wonderful country in North America? Sombrero, poncho, cactuses, prairie, specific dishes, tequila...mmm… All those things are wonderful but we have to stop dreaming of them as today we are going to talk about Internet and e-commerce progress stage in this country. Mexico is the most populous Spanish-speaking country in the world and the second most-populous country in Latin America, after Portuguese speaking Brazil. Well, let’s see what level this country managed to reach in the IT and e-commerce sphere. 

Telmex (Teléfonos de México) that was privatized in 1990 has dominated in the telecommunications industry, and now it appears to be the largest Internet service provider in the country. In 2007 Telmex had around 90% market share and the Telmex’s sister company America Myvil dominated on cellular market having about 74% market share (as the Calderon government in November 2007 stated). Telmex has modified its operations and absorbed Internet service and mobile telephony. It has also spread its services to Colombia, Peru, Chile, Argentina, Brazil, Uruguay, Ecuador and the United States. A series of legal challenges to Telmex’s alleged anti-competitive behavior brought by US entrants into the mobile and fixed-line markets culminated in a WTO ruling in mid-2004 against Mexico, as www.globaltechforum.eiu.com says.

 

A very important fact about Mexico that it is crossed by two high altitude mountain ranges extending from the Rocky Mountains makes providing landline telephone service at remote mountainous areas difficult and results in high prices, lack of investment in infrastructure and new technology with the penetration of line-phones per capita lower compared to other Latin American countries, with 20 million lines. Mobile telephony is reaching all areas at a lower cost, due to reduced investments in required infrastructure, so the total number of mobile lines in Mexico is almost three times that of landlines, with an estimated 57 million lines. Cofetel (Comisión Federal de Telecomunicaciones) helps government to regulate the telecommunications industry in the whole country. The enhancement of the powers of Cofetel and a number of agreements led to reducing Telmex’s interconnection costs that was combined with economic activity acceleration, the new technologies implementation and significant increases in infrastructure investment. This had a considerable impact for a rapid rise in telecoms income and teledensity. A telecoms reform, that was supposed to increase Cofetel’s powers while combating anti-competitive practice, was represented by the Fox government, but it was blocked by an opposition-dominated Congress. Until passes, Telmex’s dominance will not be challenged and important issues, such as the expansion of coverage in rural areas, and will stay on a wait, as Economist Intelligence Unit confirms.

 

Thus, for now one of the fastest growing telecom markets in Mexico is broadband, especially ADSL. The shift from dialup to broadband became apparent in 2005, when dial-up accounts started to decrease, while broadband soared by around 122%. In 2005 fixed-line operator Axtel implemented high-speed Internet access in Monterrey, making a first appearance of WiMAX in Mexico in December. Triple play service has started its activity in Mexico, combining cable TV, Internet, and telephony (as of www.internetworldstats.com). As for VoIP, it has gained great popularity, especially with small and medium businesses.

 

The development of Mexico’s IT industry, like the telecom sector, was affected by personal incomes growth, the presentation of new technologies, and slowly declining prices. PC ownership rose to 10.7% in 2004, in line with many other countries in the region, while Internet penetration rose to 13%. Thus with a population of over 109 million and a fixed-line teledensity of less than 20%, Mexico’s telecom sector stays significant potential for growth over the next 5-10 years. (www.globaltechforum.eiu.com)

 

Today Mexico’s IT market is the second-largest in Latin America, after Brazil. According to the survey, conducted in 2007 by the Information Technology and Innovation Foundation (ITIF) in 2007, Mexico took the 29th position among 30 most developed countries from the point of Internet access speed and cost view (Internet penetration rate, average download speed and cost of 1 Mbit per month were taken into consideration). Mexico’s penetration rate was 16% (against 42% of Portugal and 90% of South Korea that occupied the first position). Average download speed is just 1.1 Mbit per sec (compare to Japan that has 61.0 Mbit per sec). For all that Internet access in Mexico is the most expensive among these 30 countries: $ 60.01 per 1 Mb (thus it would cost you just $ 0.27 in Japan or $8.1 in Portugal). However, the registration in the zone of the Internet Mexoco code top-level domain, or ccTLD, .com.mx is not too much expensive - just $109 (as http://www.rwgusa.com says).

 

As for the population’s access to the Internet, it’s important to say that the period of 2000-2008 years revealed 773.8 % growth, as reported by internetworldstats.com. Thus, in 2000 there were 2,712,400 users in the country (or 2.7 %). In the year 2006 the figure jumped significantly up to the amount of 20,200,000 (19.2 %). In May 2007, the Mexican Internet Association (Asociación Mexicana de Internet, AMIPCI) reported 22.7 million users; 78% of personal computer Internet access is broadband access. And 2008 showed that the number of users equaled 27,400,000 that is 24.9% of the population (almost one fourth of the population).

 

The development of the e-commerce sector, that is still small in Mexico, is boosted by the Internet access growth and improved credit cards usage. And, though large, established Mexican companies now have websites, they are slowly introducing e-commerce options to their business plans. However e-commerce is expected to grow steadily as more Mexicans use the Internet, banks and large online merchants are steadily increasing their e-commerce offerings. A lot of small enterprises still lack online presence, due to the lack of expertise in software and technology. Meanwhile, strong economic links to the US and relatively low-cost labor continue to support Mexico’s IT infrastructure.

 

Started in the early 1990s, e-commerce in Mexico has already extended into the main sectors of the economy generating from its inception high optimism in both business and government circles. The Journal of E-Government Policy and Regulation, described e-commerce development in Mexico, and named five general propositions:
•    global, more than domestic factors drive the spread of e-commerce in Mexico;
•    micro and small enterprises are the least likely to engage in e-commerce vis-à-vis larger establishments;
•    B-to-C e-commerce has grown more at the sectoral level than at that the national level;
•    government policies are essential for e-commerce growth;
•    the existence of an adequate legal framework is a crucial condition for e-commerce to develop. 

 

Mexico’s ranking in ecommerce development has declined in recent years, falling from 31st place in 2003 and 36th place in 2005. As the Economist Intelligence Unit estimated in 2006, Mexico was ranked 39th out of 68 countries. In 2001 the government launched “e-Mexico” initiative that still continues to offer health, education, e-commerce and government services online. But the program’s presence remains limited, owing to under-funding and the mammoth task of putting government information online.

 

According to www.globaltechforum.eiu.com, in 2007 a group of e-commerce industry leaders from Canada, Mexico and the United States formed guidelines on e-commerce taxation, security and spam to be presented to legislators in their respective countries. This plan supports the idea of making permanent and binding the World Trade Organization present practice of not applying customs duties to electronic transmissions. However, by end-August 2006 there had been no firm resolution from this initiative. 

 

Globaltechforum.eiu also says, that like most countries in Latin America, Mexico struggles to collect taxes. The notion of identifying e-commerce or Internet firms for their tax liability is now unworkable, mainly because of the lack of sufficient guidelines and legislation. Changes to the consumer-protection law made in 2000 require suppliers to identify themselves; this could eventually lead to closer official supervision of e-commerce transactions. 

 

One of the most active Mexico’s retail website is Sanborns.com that offers its customers a variety of electronics, books, music, gifts and pharmaceuticals. One more popular e-commerce portal, that is also a news provider, is Todito.com. It has ties with Mexico’s second-largest broadcaster TV Azteca and a large specialty retailer Grupo Elektra. Mexican consumers also enjoy using some US retailers, including Amazon.com, more frequently.

 

The e-commerce development in Mexico stands as a lasting phenomenon that may eventually lead to the significant rise of the economy based on the Internet and other digital technologies, not just to the formation of an isolated "e-sector", as economists say. Meanwhile Mexico’s Internet and e-commerce infrastructure is developing rapidly and, as you can see, has huge potential growth, that makes Mexico one of the most interesting and attractive for e-business markets all over the world.