The economic committee of Mexico's lower house has approved reforms allowing the lifting of the 49% foreign investment cap in fixed line telecoms companies, local press reported.
With support from most factions and the abstention of the opposition party PRD, the motion was approved and now awaits debate in the full lower house of congress.
The ruling seeks to "reform legislation on foreign investment, to establish adequate conditions for promoting investment in the telephony sector and related services, with the aim of having users benefit from the increased competition."
With the proposal, foreign investors could own up to a 100% in local telephony businesses.
The economic committee's secretary and member of the PRD party, Fausto Mendoza, criticized the ruling saying that it would favor companies like Spain's Telefónica (NYSE: TEF) without obliging such companies to invest in rural or underserved areas not seen as profitable.
Incumbent Telmex (NYSE: TMX) has always used this argument to defend the foreign investment cap law.
Mendoza added that the reform proposal also failed to add a reciprocity clause entitling Mexican companies to invest in the basic telephony business in those countries of origin of the potential new foreign investors in Mexico.
Mauricio Ortiz, member of the institutional revolution party PRI underscored the importance of the reform.
"We want companies to compete in fixed telephony and eventually reduce the rates in Mexico," Ortiz said.
Ernesto Piedras, director of the Competitive Intelligence Unit, told BNamericas that Mexico is suffering from a severe lack of investment in infrastructure, not only in telecommunications but in all sectors.
In the case of telecommunications, the expansion of Telmex in recent years to the rest of Latin America has distracted resources that could have been spent in Mexico, meanwhile the investments made by the other smaller operators are insufficient for a country as big as Mexico.
"Infrastructure has fallen into a state of relative abandonment. You can point to privatizations but they do not necessarily bring in additional capital, they are rather transfers of ownership of the same amount of capital," Piedras said.
The economist said he is optimistic for the current administration of President Felipe Calderón, who has talked a lot about the importance of infrastructure.
"So now we have to make that happen, and the big problem is how," Piedras said.
Besides the possibility of lifting the foreign investment cap, the government is also hoping that new players will enter the market with the upcoming auctions for 3G and WiMax licenses.
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