Back to the drawing board: It's going to take a little imagination and a lot of government incentives to bring rural telephony up to snuff. (Close-Up).

After almost a decade of breathtaking technological advances and local telecom-sector aperture, rural telephony is still just a castle in the air. Odd, perhaps, in a country where the state, more specifically the Communications and Transport Secretariat (SCT), is obliged by law to develop and promote telephone coverage in rural, and low-income areas.

It's bad enough that Mexico's average 12.5 telephone lines per 100 inhabitants (12.5/100) is half that of regional neighbors Argentina, Brazil and Chile, but equally depressing is the gaping hole between the Federal District's 33.4/100 and a rural state like Chiapas with 3.6/100. It's a tall order, no doubt, to bring access to rural areas, given the cost of telecom infrastructure, but the availability of wireless technology has made it significantly cheaper than before.

The administration of former President Zedillo was the first to recognize wireless potential in the unenviable task of communicating thousands of small, isolated communities throughout the nation. Although a six-year project undertaken by the SCT at that time fell short of its target, it did manage to hook up over 20,000 such communities.

Nevertheless, today there are still thousands of communities nationwide without any form of telephone communication. These villages, with no more than 500 inhabitants, typically suffer high levels of poverty, and lack many other basic services. While the majority are located in isolated and difficult-to-reach areas, it is worth noting that many of these communities are a mere 30-minute drive from Mexico City.

SO WHAT's THE MATTER?

The sudden explosion of telecom development throughout the 1990s, which outgrew the overall economy fourfold, was also wildly disproportionate. The cutting-edge technology and services that are increasingly available to the nation's large towns and cities are a stark contrast to the embryonic stalemate of telecom in the countryside.

New telecom companies such as Alestra, Avantel, Axtel and Maxcom have mostly focused their efforts on the more profitable urban and corporate services markets, and even so are struggling to generate profit against Telefonos de Mexico (Telmex). They have often argued that once they attain a critical mass of profitable market share in cities, then the next natural step will be the less profitable rural market. The question is, can we afford to wait that long?

It isn't difficult to understand why isolated and impoverished communities are still bad business for Mexico's struggling wireless players, nor is it unreasonable to acknowledge the government's inability to fund this development on its own. Indeed, it has long been evident that the problem of rural telephony's high investments for low revenues can only be tackled through a private and public partnership.

UNITED WE STAND

Stepping back again, one flawed ingredient to President Zedillo's rural telecom plan was to force private players to allocate portions of their income to help finance rural networks. Indeed, the same well-intentioned idea has been taken up by the administration of President Vicente Fox, but as before, we have yet to see meaningful and effective implementation.

Although both the SCT and Cofetel are calling on legislators to develop a new Telecommunications Law to promote and facilitate investments and market competition, there is evidently a pressing need for more and better incentives (such as tax breaks), and government support.

One good example of lack of government support is the case of Miditel, one of the smallest (20,000 lines) and precious few local operators taking wireless rural telephony seriously. Unfortunately, the firm has spent the last few years waging a tedious legal battle against the government and rival companies over frequency concessions, which has seriously thwarted its rural development plans. Beyond many of the reasons behind its ongoing legal woes, it would stand to reason that government should give such firms preferential treatment over their larger rivals, but it hasn't.

Matthew Gower is BUSINESS MEXICO'S associate editor.