This GT Alert provides a general overview of the Decree enacting the Federal Telecommunications and Broadcasting Law (the “Law”), and the Law for the Public Broadcasting System of the Mexican State; and amending, adding and derogating several provisions in Telecommunications and Broadcasting (the “Decree”), published in the Official Gazette on July 14, 2014. The Decree entered into force on August 13, 2014.

The Decree derives from the constitutional reform on telecommunications, broadcasting and economic competition published in the Official Gazette on June 11, 2013 (the “Constitutional Reform”). The Constitutional Reform reshaped the telecommunications and broadcasting legal framework.

The Constitutional Reform eliminated the Federal Telecommunications Commission and created the Federal Telecommunications Institute (“FTI”) as an autonomous agency with capacity as regulator and also competition authority for the telecommunications and broadcasting industries.

The FTI is vested with the authority to regulate, promote and oversee the use and enjoyment of the radio frequency spectrum, orbital resources, satellite services, telecommunication networks, as well as the provision of broadcasting and telecommunication services. The FTI is further empowered to regulate access to active and passive broadcasting and telecommunications infrastructure, as well as to other essential facilities related thereto.

Following the Constitutional Reform, foreign investment limitations were removed allowing foreign direct investment up to 100% for telecommunications and satellite services, and up to 49% for broadcasting services, subject to a standard of reciprocity.

In line with the Constitutional Reform, the Law sets forth that the general rules, actions or omissions of the FTI may be solely challenged through a constitutional proceeding (amparo indirecto) and no injunction shall be granted against them. In the event of decisions resulting from a proceeding followed in the form of a trial, only the final decision may be challenged. To hear such proceedings, specialized federal courts were created for telecommunications, broadcasting and competition.

The Law, among others, (i) sets forth the criteria according to which an economic agent may be considered as dominant in the telecommunications or broadcasting sectors, as well as the measures to be imposed on the dominant agent as a result thereof; (ii) regulates the radio spectrum; (iii) lays down the guidelines applicable to “must carry” and “must offer” obligations; (iv) allows parties to express interest for the Federal Government to obtain orbital resources and facilitates access to the exploitation of landing rights, and (v) determines the procedures pursuant to which the digital switchover will take place; as described henceforth.

Dominance  

The Constitutional Reform sets forth that the FTI was required to determine the existence of a dominant agent both in the broadcasting and telecommunications sectors, and impose such measures deemed necessary to prevent any harm to competition and fair trade, within 180 calendar days following the date on which FTI´s board members were appointed, which occurred on September 10, 2013. Additionally, the FTI was required to put into place measures to allow for the effective unbundling of the local network of the dominant agent in the telecommunications sector.

The Constitutional Reform provides that a dominant agent shall be that person or group of persons that, by virtue of their nationwide market share in the provision of broadcasting or telecommunications services, have directly or indirectly a nationwide market share above 50%, measured by the number of users, subscribers, audience, network traffic or used network capacity.

Pursuant to the foregoing on March 6, 2014, the FTI issued both (a) the resolution by which it determined the existence of a dominant agent in the broadcasting sector and imposed such measures deemed necessary to prevent any harm to competition and fair trade, and (b) the resolution by which it determined the existence of a dominant agent in the telecommunications sector and imposed such measures deemed necessary to prevent any harm to competition and fair trade.

The FTI found that the economic interest group formed by, among others, Grupo Televisa, S.A.B. de C.V. (NYSE:TV; BMV: TLEVISA CPO) (collectively “Televisa”), has a dominant position in the broadcasting sector. Measures imposed by FTI came into force on March 21, 2014. The measures imposed are related to access to and use of infrastructure, audiovisual content, advertising sales, and information.

Televisa is required to grant all free-to-air licensed commercial television broadcasters access to and use of its broadcasting infrastructure, but excluding television studios, on a non-discriminatory and non-exclusive basis, except where a broadcaster holds a license to use and enjoy 12 MHz or more of radio frequencies on the corresponding area. Such infrastructure shall be made available within 20 business days following the date of the request, under the same terms it is made available to Televisa’s own operations.

Televisa is barred from acquiring on an exclusive basis transmission rights for Mexico or any part thereof over audiovisual content deemed relevant by the FTI, which is defined as all matches played by Mexico’s professional men’s national soccer team, opening and closing ceremonies of the Olympic Games, opening and closing ceremonies of the FIFA World Cup and its opening, quarter-finals, semi-finals and final matches, and the final matches of the Mexican professional premier soccer league.

In the event Televisa offers to its affiliates, subsidiaries, related parties or third parties any free-to-air television channels for any platform other than broadcasted television, it shall offer such channels to any other person requesting them for that platform under the same terms and conditions.

Televisa shall make public through its webpage and deliver to the FTI information related to the advertising services it offers in broadcast television, including terms, conditions, tariffs, discount plans, rebates, and form agreements, applicable to each such services.

On the other hand, the FTI also determined the group of entities that are part of the economic interest group that holds a dominant position in the telecommunications sector.

The FTI imposed measures related to mobile telecommunications services, fixed telecommunications services, unbundling of the local network, and audiovisual content. Also, on March 26, 2014, the FTI issued a resolution by which it determined the applicable tariffs that such dominant agent may charge other concessionaires of public telecommunication networks for providing origination, termination and transit services, which shall be in force from April 6th to December 31, 2014, except for termination charges as explained below.

The Decree provides that FTI’s resolutions with respect to the dominant agents in both the broadcasting and telecommunications sectors shall continue in force, except that the dominant agent in the telecommunications sector shall not charge other concessionaires of public telecommunication networks for the termination of fixed and mobile traffic in its network, including voice calls and text messages.

On July 8, 2014, such dominant agent issued a press release indicating that its board of directors had resolved to take actions to reduce its national market share below 50% to cease being considered a dominant agent in the telecommunications sector, and to that purpose the board had resolved to sell at market value certain assets to a new sound and experienced carrier independent from such dominant agent, with strong economic and technical resources. Such actions include the divestiture of base stations, towers and infrastructure, which will be made available to third parties.

Radio spectrum

Every year, on or before December 31, the FTI shall submit for comments for a period of 30 business days a program detailing the radiofrequencies suitable for commercial exploitation that will be publicly auctioned. Any interested party may request the inclusion of additional or different radiofrequencies or coverage areas. The FTI shall render a final decision within the following 30 business days. Radiofrequency licenses for commercial purposes shall only be granted to Mexican individuals or entities for an initial term of up to 20 years. Please note that a fee will be assessed taking into account, among other elements, domestic and international references to market value.

The Law provides that, with the prior authorization of the FTI, holders of radio frequency licenses may lease their radiofrequencies to holders of a master license.

Mobile Virtual Network Operator (MVNO)

Authorization from the FTI is required to establish and operate as a reseller of telecommunications services. Such authorization shall be granted for an initial term of up to 10 years.

Resellers of telecommunications services have the right to: acquire wholesale services offered by concessionaires, sell their own services or resell services and capacity acquired from concessionaires of public telecommunications networks, and receive telephone numbers or acquire them from concessionaires of public telecommunications networks.

“Must carry” and “must offer”

The Law, in line with the Constitutional Reform, sets forth certain “must carry” and “must offer” provisions.

In such respect, broadcasting concessionaires are bound to allow pay-TV operators to retransmit their signal, within the same geographic coverage zone without charge and on a non-discriminatory basis. This retransmission shall be comprehensive, simultaneous and without any changes, including advertisement, and with the same signal quality as broadcasted.

Also, pay-TV companies are required to retransmit broadcasted signals without charge and on a non-discriminatory basis, within the same geographic coverage zone. Likewise, such signal must be retransmitted comprehensively and simultaneously, with no modifications, including advertisement and with the same signal quality as broadcasted. This retransmission shall be included with no additional cost to subscribers.

In the case of companies providing satellite pay-TV, they shall mandatorily retransmit broadcasted signals covering 50% or more of the Mexican territory. Also, all pay-TV service providers shall retransmit those signals that are broadcasted by public federal institutions.

Telecommunications or broadcasting operators that have been declared dominant in any of the telecommunications or broadcasting markets in terms of the Decree shall not enjoy free content and retransmission, and may not reflect such costs as an additional cost for subscribers. The FTI may revoke the concession of dominant operators that benefit directly or indirectly from the no-fee rule through other concessionaires, whose concessions may likewise also be revoked.

The FTI may determine, in terms of the Law and the Federal Economic Competition Law, that there are competition conditions in broadcasting and telecommunications markets, which will result in the termination of the obligations to offer and retransmit broadcasted signals without charge.

Satellite services

Geostationary orbital positions and satellite orbits, as well as their corresponding associated frequency bands, are defined as “orbital resources” and their commercial use and exploitation shall be allowed by the FTI by means of concessions awarded through public auctions and upon the payment of applicable fees.

The Law also sets forth a procedure for any party to express interest to the FTI in order for the Federal Government to obtain orbital resources in favor of the Mexican State. Following procedure, and provided that certain prerequisites and formalities are met, the Ministry of Communications and Transportation (the “Ministry”) shall undertake the corresponding arrangements before the International Telecommunications Union to start the respective coordination process, for which the Ministry shall have the collaboration of the FTI.

In the event that Mexico obtains priority over the requested orbital resources, the FTI shall directly grant the concession to the interested party, upon the payment of certain consideration.

As far as landing rights are concerned, some of the most relevant terms of the Law are as follows:

• Landing rights are to be granted by means of an “authorization” given by the FTI, instead of a concession as the former law provided.

• The requisites and other terms to request landing rights authorizations shall be set forth by the FTI by means of general application rules (reglas de carácter general).

• The term for the FTI to determine whether to grant landing rights authorizations shall be no longer than 30 business days. In the event that the FTI does not respond during such term, it shall be understood that the authorization has been granted and the FTI shall issue the corresponding authorization within the following 30 business days.

• The term of the landing rights authorization shall be for up to 10 years, which may be extended for similar terms, provided that the authorized party: (i) requests such extension within the year that is previous to the last fifth of the initial term; (ii) is in compliance with the obligations deriving from the authorization; and, (iii) accepts the conditions to be set forth by the FTI.

With respect to the state reserve, the Ministry, in coordination with other government agencies and entities, shall determine the satellite capacity that concessionaires of orbital resources as well as landing rights holders shall provide to the state as “state reserve” (reserva del estado), in order for the Mexican government to use such capacity for national security networks, social services and other needs.

The obligation to provide the state reserve capacity may be complied with though: (i) a monetary payment (numerario); or, (ii) the actual provision of the required satellite capacity, upon determination of the Ministry.

Digital switchover

One of the transitory articles of the Decree states that digital switchover shall be finalized by December 31, 2015.

The Ministry and the FTI shall implement campaigns for the delivery and distribution of decoding and receiving equipment.

The FTI must conclude the transmission of analog broadcasting signals throughout Mexico by no later than December 31, 2015, once a 90% penetration level is reached in terms of low income households, as defined by the Ministry of Social Development, with decoding and receiving equipment that are able to receive digital broadcasting signals.

The Law contains other relevant aspects, including without limitation the following:

• The Law sets forth several users’ rights, among which it is worth to note: (i) number portability without charge, (ii) mandatory notification of any modification to contract terms, (iii) for prepaid mobile services, the return of unused balances and free balance inquiry, (iv) right to ask for and receive an unlocking code for mobile equipment, and (v) as of January 1, 2015, national long distance services charges shall be eliminated.

• In order to promote equal conditions among users, rights for disabled users are established.

• The Law is based on the principle of net neutrality.

• The FTI and the Ministry of Internal Affairs are vested with powers regarding media content, with the latter being in charge of monitoring the content of radio and television.

• The FTI has the authority to monitor the maximum time that is allowed for the transmission of advertisements. Additionally, publicity and propaganda that is presented as news or journalistic work is prohibited.