The 2013 Constitutional amendment  clearly spelled out a mandate of herculean proportions to the Mexican telecom regulator (Instituto Federal de Telecomunicaciones or "IFT"): identify the preponderant agent ( "PA") and impose measures to eliminate barriers and foster competition, including the unbundling of the "essential elements" of the PA's network (local loop) and, if applicable, its accounting, functional or structural separation, in order to permit unfettered access to, among others, the physical, technical and logical means of interconnection between any terminal point of the PA network and the access point of another carrier and to further allow other concessionaires to select the local loop elements required and the access point, via regulated tariff, technical and quality service requirements in a non-discriminatory fashion. 

The IFT issued the Preponderance Resolutions for the Telecommunications Sector on March, 2014 identifying the America Movil group companies as the PE, and later in the Biennial Preponderance Resolution for the Telecommunications Sector of February, 2017 which, for all practical purposes, kicked off the process for the adoption by IFT of the Functional Separation Resolution on February 27, 2018 just made available on the IFT's website (the "Resolution"). 

These are the key features of the Resolution: 

  • Wholesale Entities. 
    • Incorporation of two wholesale local loop entities (one for Telmex and one for its northern Mexico affiliate, Telnor) to hold and operate the local loop assets, as well as the local dedicated access links and passive infrastructure associated to the local loop network and any other wholesale services identified in the Resolution ("LLCo") 

    • The LLCo's must own and control all the network elements, human resources, operations systems, data bases and tools generally which are necessary for the efficient and actual provision of the wholesale services in a non-discriminatory fashion. 

    • The LLCo's will own its separate branding and trade dress, have separate offices for its key officers, but it also anticipated that the employees of the LLCo's and the Divisions will be sharing office space going forward.  

    • The LLCo's must comply with corporate governance rules, adopt a code of conduct, business productivity  plan, procedures manual and a code of ethics, implement audit and compliance committees, have an independent auditor, and independent board members, provided, however, the control of the LLCo's shall remain with the PA. 

  • Wholesale Divisions. 

    • Functional separation within Telmex and Telnor via the operation of a wholesale division to provide all other wholesale services not provided by the LLCo's in a non discriminatory fashion (the "Wholesale Divisions"). 

    • The Wholesale Divisions' services shall include dedicated access links between different localities, long distance dedicated access links, interconnection services, resale and other related services.   

    • The Wholesale Divisions must have their own business and strategic plans, and individualized financial results reporting.  

    • The Wholesale Divisions will adopt a code of conduct which will regulate the professional activities, communication and sharing of information between the Wholesale Divisions and the retail business of the PA and between the Wholesale Divisions and the LLCo's.  

The above measures do not substitute the PA obligations; they are additional measures which supplement the PA regime.  The LLCo's shall become PA regulated entities upon their incorporation and so will the Wholesale Divisions. 

The Resolution must be fully implemented in two years time.  The Resolution is seen by many as a necessary set of minimum measures to comply with the Constitutional mandate of fostering competition and elimination of competitive barriers.  Not surprisingly it also has been criticized by some because it stops short of mandating a breakup of the PA. The PA has vowed to challenge the Resolution in court.  The Mexican court system now has the historical responsibility of sorting the challenges associated with paving the way for a Mexican version of a breakup of Ma Telmex a la Green 36 year later. 

The full text of the Resolution can be found at http://www.ift.org.mx/conocenos/pleno/sesiones/vii-ordinaria-del-pleno-27-de-febrero-de-2018