<h1>A Copper Cage for Mexico</h1> <h2>by Dr. Mark White<br> Partner, White & Associates</h2><br> <h4>4 May 1996</h4> <p> Telmex lobbied the Communications and Transportation Secretariat (SCT for its Spanish initials) for a high interconnection fee to subsidize local service expansion, while the new long distance carriers lobbied for a low fee to make long distance more affordable for users once they hook up to the network. The SCT balanced these competing interests and came up with an intermediate fee after weeks of Solomonic reflection. To accomplish both these laudable objectives, though, the best thing the SCT could do is simply deregulate both local and long-distance telephony.

Advances in digital technology have reduced and will continue to reduce telecommunications costs exponentially, and in the critical area of digital cellular telephony, the pace of reductions has exceeded even that of Moore's law. As regular readers know, Moore said that the doubling of transistors on each new generation of chips brings the costs of computing down by half about every eighteen months. George Gilder reports that putting some critical wireless applications on chips recently brought the costs of digital cellular down by a factor of 10 in one year!

Plummeting digital cellular costs reduce the distances at which wired telephony is cheaper than wireless telephony. Pretty soon, wireless telephony will be cheaper than wired telephony at practically any distance, even at the low wage rates that Mexico's capital shortage imposes on telephone installers. Once that crossover point is reached, the cheapest way to hook up any new customer to local service will be fixed cellular. However, costs will not stop dropping simply because wireless telephony is cheaper than wired telephony. Instead, costs will keep dropping and dropping, eventually making it cheaper to install a new wireless line than repair a wired line. Soon, the poorest of Mexico's poor will be able to afford fixed and mobile cellular services.

As I noted February 5th, pretty soon every Mexican should have affordable access to digital services even the world's wealthiest corporations couldn't buy in 1965. It is clear, though, that unleashing the advance in digital technologies will make those services affordable, and that cross subsidies from long distance won't make much of a difference. It's ironic, then, that regulators give Telmex some of the highest local service cross subsidies in the world while standing in the way of IUSACELL's efforts to bring wireless telephony to the outskirts of Toluca with advanced digital cellular technologies.

The currently living human generations stand on the brink of a combinatorical explosion in technologies. Every new technology that an individual or team develops today can potentially combine with all the other technology that individuals or teams have developed throughout the entirety of human history to create another distinct technology for human use. Not all technologies add value -- one can hook an ox to an airframe, but the result doesn't help anyone much. However, the combinatorical growth in available technologies should lead to a near-combinatorical growth in useful technologies.

Unfortunately, regulatory agencies like the SCT seem unable to keep up with the exponential growth in the digital cellular capacity that a peso can buy (yes, it's even beating the inflation rate), much less the combinatorical growth in technologies that can make much better communications services available to millions of Mexicans suffering relative isolation and information deprivation today (services that will make the telephone service part of the consumer basket for price indices pretty much incomparable from year to year). Regulation has always slowed the adaptation of Mexico's economy to new technologies, but as technological innovation accelerates, the costs of regulatory lags will go higher and higher.

Technologists have called wire networks "copper cages" which trap the companies that own them. When digital cellular wireless lines cost less than maintaining existing wire lines, today's telephone companies will have no choice but to pull up their lines and sell them for copper and plastic scrap -- if scrap prices justify the operation. Even at today's costs, it seems pointless to subsidize the expansion of the wired network when Mexico should be gaining experience and technological skills in wireless networks. The British have offered Mexico help in orienting Mexico's governmental agencies towards total quality in service. Britain's total deregulation of local telephony exemplifies the highest quality service that a government communications agency can offer its citizens in these times of accelerating change.

Readers with questions or comments for Dr. White can call 011(525)595-6045, fax 011(525)683-5874, or email white@profmexis.sar.net

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