The effect of asymmetric regulation on market competition: the case of the 2013 Telecomm Reform in Mexico

Abstract We examine the economic effects of the 2013 Telecommunications Reform in Mexico that implemented asymmetric regulation on the largest telecommunications operator in the country. This regulation imposed on the “preponderant” telecommunications operator, defined as the operator with more than 50% of the connections of all the sector, a series of requirements aimed to increase market competition and facilitate entry in the sector. We investigate the effects of this regulation on market competition using quarterly data from the Mexican telecommunications operators in the period 2010.3-2017.3. Results provide evidence that the asymmetric regulations fostered competition in two ways: they fostered entry into the sector, which resulted in a decrease of the market share of the preponderant agent, driven by a decrease in the market share of prepaid lines; and at the same time intensified competition by increasing the quality of the services provided by the preponderant agent, which resulted in a net gain in the number of lines transferred to this agent, and an increase in the number of postpaid lines.