John Rudasill was steamed.
If only he’d told his director of Mexican operations to stuff his pockets with pesos when securing phone lines for a new trucking terminal in Monterrey. A savvier hombre would have known this was a job to be done with cash. But Rudasill, president of computer services for Carolina Freight, has American business expectations. As the director stood in line all day for a phone-line application, then queued up at a bank to get the money to pay for it, then stood in line again to turn it all in, Rudasill could only wait. Eleven months later, the phone line worked.
Forget the gyrating peso. Ignore the 40 percent inflation rate. And don’t even think about the North American Free Trade Agreement. One of the biggest obstacles to doing business in Mexico is just getting a phone line. Nearly forgotten in the rumbling of the economic and political rollercoaster (see related story, at right) is the rickety state of Mexico’s telecommunications infrastructure.
Although 15,600 miles of fiber-optic cable snake through the country, primarily between Guadalajara and Mexico City, huge gaps remain. In Mexico City, cellular-telephone capacity is saturated. And just a few miles outside any commercial center, communication takes on a distinctly third-world flavor as general stores hawk access to long-distance phone lines.
All that is expected to change soon when hopefuls such as Bell Atlantic, AT&T Corp., and MCI Communications Corp. move into the Mexican market. The country’s telephone utility, Telefonos de Mexico (Telmex), was privatized several years ago and will lose its monopoly in 1996, opening up licenses for three more providers. It’s a huge opportunity: Telecom traffic between Mexico and the United States is already the second-largest cross-border stream in the world, accounting for 2 billion minutes annually.
Will Mexico’s telecom expansion make life easier for the John Rudasills of U.S. business? Maybe. But listen up: If history is any guide, it’ll take more time, money, schmoozing, and supervision than you were planning on.
What’s shaping up is a Mexican hat dance with billions of dollars at stake. There are currently eight telephone lines per 100 people in Mexico today, and that figure is expected to triple in the next five years, analysts say.
To increase their chances with the nepotistic government, each of the big three phone companies has teamed up with a local partner. Bell Atlantic has paired up with Grupo IUSACELL, which could give it a leg up in the cellular market. IUSACELL is the only company in Mexico licensed to operate cellular networks, which it does in four of Mexico’s nine regions, including Mexico City and Guadalajara. AT&T has a deal with Grupo Alfa, a $2.5 billion diversified company that is just now getting into telecommunications. And MCI is working with financial giant Grupo Banacci to provide long-distance and international service to about 110,000 business customers.
Because of Banacci’s government ties, MCI is considered a shoe-in for one of the licenses, says David Goodtree, an analyst at Forrester Research Inc., in Cambridge, Mass. But there are also a number of homegrown companies, including Grupo Domos and Grupo Pulsar, who, by themselves or with partners in other countries, are vying for a share of the market.
One potential prize is wireless. Grupo Pulsar has petitioned the government for a nationwide license to offer local loop service at 3.5Hz, a technology developed by the British firm Ionica. If approved, it would help to ease the overcrowding on limited land-line bandwidth.
For now, at least, the would-be providers are basing their infrastructure plans on guesswork. The government hasn’t laid out any ground rules for long distance interconnection, much less indicated how much the licenses will cost. The only thing they know is where the likely points of access to Mexico’s fiber-optic network will be, says Linda Barrabee, an analyst for Pyramid Research Inc., also in Cambridge.
Telmex, meanwhile, isn’t going away. Spurred on by the competition, it is rushing to upgrade services. For the past five years, the utility has been laying down a fiber-optic network that parallels the country’s copper-wire network, and that can handle the bandwidth businesses and their IT infrastructures need these days. In 1994, Telmex installed about 824,000 phone lines, the most ever in any year.
“In general, there has been some improvement” in Telmex’s service, says Rudasill, whose company has operated three shipping depots in Mexico for several years.
Will the recent devaluation of the peso affect the foreign companies’ plans to compete for the Mexican market? Not likely, Barabee says.But the peso’s problems will probably hamper Mexican companies’ efforts to raise capital. As they negotiate options for an invisible playing field, all U.S. businesses can be sure of is, sadly, nothing at all.
Until the new infrastructure is established, companies moving into Mexico should expect to trip over a few wires. Take Gillette Corp. With plants in 28 countries and distribution in more than 200 countries, Gillette is no stranger to the rigors of international business. But when it tried to digitize its Mexican voice and data communications, the $6 billion industrial giant’s experience was about as much fun as shaving with a rusty razor.
Gilette’s odyssey began in 1992 with a plan to digitize a 9,600-bps analog line between the United States and a plant in the border town of Mexicali. Fourteen months later, the multiplexed digital line was operational. And that was just the line to one of Gillette’s three Mexican plants. Getting satisfactory service to the other Mexican plants has proved to be just as difficult and time-consuming.
The reason for the delay? Bureaucracy, says Rick Manzer, Gillette’s director of telecommunications.
And Mexican connections aren’t cheap, adds Dan Stewart, telecommunications specialist for Gillette’s Papermate plant, in Santa Monica, Calif. For a digital link that costs about $300 per month in the United States, Telmex charges closer to $1,000 per month.
Paying for phone lines is one problem; proper installation is another. Close supervision is the key to success. It’s not uncommon for Telmex workers to simply “throw the wires on the roof,” Stewart says. With that kind of installation, a hard rain can knock out service.
Even properly laid lines are not always reliable. Good service is directly proportional to the distance between a company’s facility and the Telmex fiber-optic network. But even companies close to the network have bizarre experiences, usually attributed to a combination of language differences and a lower level of technical expertise among Mexican laborers. In one case, Gillette’s connection was held up for some time because the baud rate on the Mexican equipment was not set correctly. The problem was so b asic by U.S. standards that it took several weeks to nail down.
Hewlett-Packard Co., which has had a Mexican presence for almost 30 years, has also had difficulties maintaining connections although through no fault of Telmex. According to Steven Michalove, a network consultant at HP’s Atlanta offices, the line between HP’s facility in the suburbs of Mexico City once disappeared–literally. “Somebody actually dug the fiber up and stole it,” Michalove says, apparently because they thought it was copper cable, which commands a high resale value.
Other pioneers say the best way to deal with the state of affairs is to scale back expectations. Pathfinder International, a non-profit family-planning agency, has focused its services on underdeveloped nations from Bangladesh to Mexico, so coping with less-than-optimal data communications is old hat for John Talbot, systems manager. “I never really viewed Mexico as all that special,” Talbot says. “In fact, [communication reliability] is often better in Mexico.”
Only about 20 percent of all calls to Mexico have any type of problem, he says, while he can expect a 50 percent failure rate with other developing countries. “Usually it’s not a problem with the call going through, but with a longer message where we have to maintain modem connections for a longer length of time.”
Talbot’s solution: Keep it simple. From the organization’s headquarters in Watertown, Mass., Talbot uses Lotus’ cc:Mail and dial-up lines to communicate with Pathfinder’s two offices in Mexico City. Every 2 hours, the headquarters system establishes a router-to-router link over the dial-up lines, transfers any messages, and then hangs up.
As is the case in many other cultures, the red tape involved in establishing communications in Mexico can be cut by knowing the right people. Aside from the disappearing cable, HP has had few problems getting the service it needs, because it leverages longstanding relationships, says Brad Whitworth, HP’s international public affairs manager.
Likewise, Gillette’s best success came when it went through a third party to set up a communications link between the United States and Mexico City, Manzer says. “I can’t tell you how he did it,” he says, but Manzer suspects at least part of the consultant’s success stemmed from his contacts in the Mexican telecommunications bureaucracy.
When it comes down to the wire, nothing greases the wheels of commerce like a warm handshake. “You have to get a relationship built,” Carolina Freight’s Rudasill says. “It’s the people knowing you and you knowing them.”