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Cris&na Ruiz de Velasco

Mexico: Regulatory Reforms Driving Compe&&on and Connec&vity

Execu&ve Director, Interna&onal External Affairs AT&T, Mexico


AT&T in Mexico

Mexico Telecommunica&ons Market Structure

Telecom & Media Reform

Market Trends in Mexico

Outline


Why Mexico? •  To create the first-‐ever North American Mobile Service area covering over 400 million

consumers and businesses in Mexico and the United States •  Mexico has the second largest economy and one of the highest per capita GDPs in La&n America

Why Now? •  The reforms encourage more compe&&on and more investment to flow into the country •  Mexico’s strong economic outlook, growing popula&on and growing middle class

What can we expect? •  Deploy 4G LTE network to cover 100 million people in Mexico by the end of 2018 •  Invest about $3 billion dollars from 2015 to late 2018 •  Provide the same mobile experience for customers and businesses in Mexico and the United States

Crea&ng a North American network with world-‐class mobile service AT&T in Mexico: Connec&ng Locally, Thinking Globally


Mexican Telecom Sector is more dynamic than the whole economy

Mx Telecom Index ( )

Source: Data from The Compe&&ve Intelligence Unit and INEGI, 2015


Telecommunica&ons Market Value: Perspec&ves

Revenues Annual Growth 2012 2013 2014 2015 2016

Segment Mobile 8.6% 2.6% -‐1.0% 1.7% 5.7% Fixed -‐5.6% 0.2% 1.7% -‐5.9% -‐3.6% Pay TV 11.2% 9.6% 14.2% 7.5% 12.7%

Total Telecom 4.0% 2.7% 1.7% 0.2% 4.1%

Telecommunica+on Sector: Annual Revenues Distribu+on (billions of pesos)

128.4 130.5 122.9 118.5

246.4 244.0 248.1 262.2

51.4 58.7 63.1 71.1

0%

20%

40%

60%

80%

100%

2013 2014 2015 2016 Segmento Fijo Segmento Móvil Segmento TV de Paga Fixed Mobile Pay TV

Mobile segment represents 57% of the Telecom Sector and is growing at faster rates than the whole Industry

Source: The Compe&&ve Intelligence Unit with data from Mexican network operators, 2015


Encouraging compe&&on in the broadcast and telecommunica&ons sectors.

Crea&ng condi&ons for the expansion of broadband services.

Suppor&ng the freedom of speech and informa&on, as well as access to Informa&on and Communica&on Technologies (ICT).

Promo&ng long term benefits for users.

Telecommunica&ons Reform made AT&T’s entry into the market possible Main Objec&ves of Telecom & Media Reform


IFT Powers

Regulatory decisions cannot be suspended

Exclusive compe&&on authority for telecommunica&ons and broadcas&ng industries

IFT

Asymmetric regula&on, entry barriers removal and ordering dives&ture of assets

License gran&ng and spectrum management

Declara&on of dominant/preponderant agents and other an&-‐trust mahers

Sanc&ons (in some cases based on a percentage of revenues)

New Injunc&ons environment

100% in telecommunica&on services Foreign Investment

Limits

Crea&on of specialized courts

49% in broadcas&ng services (subject to reciprocity)

Reforms introduced efficiencies to the telecommunica&ons sector in Mexico Main Changes in the Legal & Regulatory Framework


50

55

60

65

70

75

80

Decrease in the Prices of Mobile Services

Na&onal Consumer Price Index, Mobile Communica&ons Services Component

Decrease of 8.6% in prices of Mexican mobile communica+on since the enactment of the Reform Launch of service packaging strategies and disrup+ve offerings

The AT&T disrup&ve offers have accelerated the decline of prices

Entry into force of the Reform

Source: The Compe&&ve Intelligence Unit with data from INEGI, 2015


Broadband Subscrip&ons – Fixed & Wireless

In 2013, mobile broadband subscrip&ons overcame those of fixed broadband –  2 years later, mobile broadband subscribers will reach 32.6 million

Growing trajectory in mobile broadband adop&on is superior to any other telecom service

11.7 13.5

15.4 16 17.5 18.6

2.7

7.5 11.3

16.6

22.8

32.6

0

5

10

15

20

25

30

35

2010 2011 2012 2013 2014 2015*

Fixed Broadband Wireless Vroadband

Broadband Subscrip+ons (millions)

Wireless Broadband Source: The Compe&&ve Intelligence Unit, 2015


•  Smartphones penetra&on over total mobile lines has doubled in the last 3 years *Forecast

Smartphone Penetra&on & Total Mobile Lines in Mexico

•  The growth has been driven by the increasing variety of devices offered in the market and price decreases due to brand compe&&on and technological development

65.5% (68.4 million)

24.39% (24.41 million)

4.58% (3.81 million)

8.77% (8.01 million)

15.42% (14.49 million)

34.86% (36.4 million)

2008 2.63%

2009 4.6%

2010 8.8%

2011 15.4%

2012 24.4%

2013 34.9%

2014 50.7%

2015* 70%

50.7% (53.33 million)

2.63% (2.06 million)

55.2% (59.4

million)

2008 2009 2010 2011 2012 2013 2014 1Q15 2Q15 3Q15

59.9% (64.4

million)

The growing adop&on of Smartphones will accelerate the use of mobile broadband

Source: The Compe&&ve Intelligence Unit, 2015


Tablet Adop&on in the Mexican Market

•  Poten&al market: 41.36 million people over 9 years old

•  Tablet penetra&on 3Q15: 13.9% –  Annual Growth: 82%

2.7 3.0 3.3 3.7 4.2 4.7 5.4 6.2 7.0 8.1 9.3 11.0 12.6 14.5 16.9

20.1

0

5

10

15

20

25 1Q

12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15*

3Q15*

4Q15*

Millions

*Forecast

Country Tablet Penetra+on

Brazil 11.4%

Argen+na 10.3%

Latam 10.1%

Growing adop&on of tablets will also accelerate the use of mobile broadband



App Adop&on by Mexican Consumers

Applica&ons adop&on is highly correlated with expansion of mobile devices penetra&on (Smartphones and Tablets)

Applica&ons Adop&on

9.4%

19.7% 28.5%

42.4%

64.5%

109%

64%

45% 49% 52%

0%

20%

40%

60%

80%

100%

120%

0%

10%

20%

30%

40%

50%

60%

70%

2011 2012 2013 2014 2015*

Grow

th Rate

Pene

tra&

on

Penetra&on Growth Rate *Forecast

Mexican popula&on shows digital skills for the use of all mobile services



Social Network Growth in Mexico

Social Network Penetra&on by Age Social Network Access by Mobile Device

58.2%

64.3%

67.0%

62.9%

56.0%

40.9%

26.6%

10-‐15

16-‐20

21-‐25

26-‐30

31-‐40

41-‐50

More than 50

82% 77%

15%

1% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Use of social networks is one of the most important drivers for mobile broadband adop&on



•  The increasing adop&on of mobile broadband services, coupled with compe&&ve offers from AT&T will drive growth in connec&vity

•  The growing adop&on of smartphones in the Mexican market will facilitate the consump&on of mobile services, par&cularly mobile broadband

•  Although the tablet market in Mexico remains small, forecasts show higher consump&on of mobile services

•  The Mexican market shows no serious restric&on on digital skills: society does not register major skills obstacles to adopt mobile services

•  Another important growth driver of the mobile market is the widespread adop&on of social networks and instant messaging

–  The mobile phone is becoming the main access to these services.

Adop&on trends in services and devices exhibit robust growth of the mobile market in Mexico Outcomes Arising from Market Trends


•  AT&T arrived in the Mexican market at the right &me (&me to market)

•  The reform has generated significant changes

•  In the short &me that AT&T has been in the Mexican mobile market, it has transformed the market with disrup&ve commercial offerings

•  AT&T will bring world-‐class mobile services that will make this innova&on

•  We set ourselves the goal of being the leading operator in Mexico over the next 10 years

It’s the right moment to create a world-‐class mobile service in Mexico Conclusions

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