Q&A: Javier Lozano Alarcon, Javier Lozano & Asociados

Friday, May 10, 2002

While the Fox administration's national connectivity project e-Mexico has received substantial coverage and publicity in local and international press, little attention has been given to the Fondo de Cobertura Social, a universal service program that would boost teledensity in underserved areas of the country. Earlier this year the government earmarked 750mn pesos (around US$80mn) for the fund from the communications ministry's annual budget.

However, the version of the country's new telecoms law released this week provided little in the way of guidance to the development of the fund. To glean more information and a better perspective about what has been happening with the universal service fund, BNamericas spoke with Javier Lozano Alarcon of Mexican telecoms consultancy Javier Lozano & Asociados.

BNamericas: Where does the universal service fund stand at the moment?

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Lozano: The government authorized 750mm pesos earlier in the year from the federal budget for the fund, the money to be administered through a trust. It would be a transparent mechanism for administering the money.

On April 15 the finance ministry was supposed to issue rules regarding the management of the fund, taking into account recommendations from members of government ministries as well as representatives from the private sector. To this date - May 9 - the finance ministry has not said anything.

So this is where we stand now. We have the amount, 750mn pesos. But we do not have the rules, we do not know the criteria, the committee, the fund, the trust, anything.

I have written to [the finance ministry] to ask them what is happening, but they have not given any response.

BNamericas: What do you think of the funding? Would you describe 750mn pesos as too little, or just about right?

Lozano: The amount is not nearly enough, with respect to the needs of the country. Teledensity in Mexico, at 13%, is very low, compared to developed countries, but even compared to parts of Latin America. We need to bring up teledensity - that is the objective [of the fund]. In Mexico there is also an enormous digital divide. In states like Chiapas and Oaxaca teledensity is only 4%, but in Mexico City it is 34%. Improving teledensity and narrowing the digital divide requires an investment far greater than [US$80mn].

BNamericas: What has the parliamentary commission (CPT) responsible for framing the new telecoms law done to address the fund, and how would you assess their handling of the issue?

Lozano: They have done very little [to institutionalize the fund]. At the moment the 750mn pesos allocated to the fund are just for this year. There is no certainty that for next year we will have an equal or higher level of money.

Also, nowhere in the draft of the new law does it lay out an obligation for carriers to put money into the fund. The only thing it says is that eventually - eventually - it calls for different mechanisms to require operators to put money into the fund.

What I have proposed to congress is that they scrap the telecoms tax [implemented earlier this year] and instead require all operators to set aside 1% of gross annual revenues for the fund. That number could be raised to 2% over five years.

This makes a lot of sense. We are proposing [telecoms tax money] would go to the fund, instead of to treasury for the general budget. The operators would prefer this because now the money they are paying taxes on goes back to their sector. A stronger, well-financed fund lets the national telecommunications market grow larger, and this means more infrastructure, revenues, and ultimately taxes.

BNamericas: Just to clarify, how does the current tax structure work?

Lozano: The current tax is incredible. It was originally to be levied on all parts of the industry, but it ended up applying only to the mobile market. Contract users are automatically taxed 10%, while prepaid users are taxed 10% as well, though only on prepaid cards valued over 200 pesos (about US$22).

Congress did this because they still think the cell phone is a luxury. Well, that is good news for Mexico. We have 22 million mobile phones in Mexico. That must mean we have 22 million rich people in Mexico. The mobile phone is not a luxury item. It is nonsense to have this kind of discrimination against the mobile [market].

BNamericas: Has there ever been any kind of universal service fund in Mexico?

Lozano: There has never been a fund like this. When I was secretary of telecommunications, we had a rural telephony program where we installed public telephone lines in small towns with populations between 100 and 500 persons. There are 32,000 small towns around the country. We put telephones in all these towns, often with the help of cellular and satellite operators [for towns placed outside of the fixed line network]. But this was a very straightforward program, without the flexibility of opportunities that the fund could have.

BNamericas: The e-Mexico project has received a lot of attention. Do you see the universal service fund benefiting from synergies with e-Mexico?

Lozano: No, not really. At the end of the day e-Mexico should be everything: connectivity, convergence, all kinds of services. The universal service fund is a very specific project; it has the one goal of improving teledensity. E-Mexico does not necessarily mean more telephone lines. It is more about cybercenters, social programs and improved government services and communication. E-Mexico really has a different scope, and a different structure.

About the interviewee:

Javier Lozano Alarcon is the president of the telecoms strategy consultancy Javier Lozano & Asociados, based in Mexico City. Lozano has served in various government posts, most recently as Social Communications Undersecretary (1999), President of telecom industry regulator Cofetel (1998) and Communications Undersecretary (1996), where he coordinated radio and TV concessions, and a rural telephony program that placed 28,000 public phones in small villages around the country. He also served as chairman of Mexico's Telecommunications Council and of the Mexican Postal Service (1997). As Cofetel's president he oversaw the consolidation of local area codes, improvements in interconnection rate frameworks and an explosion in mobile telephony following the institution of a calling party pays (CPP) billing system, among other things.