Kick-Start your connect: broadband companies set to ravage Mexico's virgin market. (Cover).

Whether you're the owner of a coffee plantation in the boonies of Chiapas, a small businessman in Veracruz, or an executive waiting through the interminable traffic of the capital with nothing to do but chat up your driver, high-speed internet access is now only a mouse click away.

While broadband technologies have been slow to take off in Mexico, a range of new products are bringing consumers more--if still relatively costly--options, and the industry is expected to steadily grow. New broadband technologies could eventually span the information superhighway across Mexico's digital divide, bringing millions online without prohibitive costly investments.

Broadband, a term that was first coined to describe large bandwidth connections designed to allow simultaneous streams of voice, video and data, has become synonymous with any system of high-speed access. The range of technologies now offers speeds anywhere from 10 times to thousands of times the speed of dialup connections.

During the heady days of the new economy, start-ups envisioned a whole range of special services that would provide added value to broadband. But truly marketable services are still in the development stages, and the main attraction of broadband remains its speed.

BEHIND THE TIM ES

While other emerging markets like Chile have quickly rolled out leading edge technologies, Mexico has lagged behind.

Due primarily to the poverty of most Mexicans and often higher-than-First-World prices, Internet penetration remains abysmal. Generous estimates place around 3% of the population online at home or work.

Telmex, the dominant player in the field, boasts less than 1.2 million Internet customers, the vast majority using dial-up service. According to technology research firm Select, there were only around 210,000 broadband connections in the country by the end of 2002.

Besides the wealth factor, entire regions of the nation have remained out of reach of available broadband services. Only now do newer, lower cost technologies promise to spread throughout the nation.

Many critics also cite the reluctance of Telmex to roll out services. The monopoly only launched its DSL (popular shorthand for digital subscriber line) service in March of last year, after more than six years of deliberation.

But now the entrenched giant has unrolled its new Infinitum brand of asymetric DSL or ASDL that offers service affordable to the upper middle class and small businesses.

Telmex--one of the few telecoms in the world showing impressive profits in the midst of a global downturn--now boasts DSL service in 180 cities nationwide and is aggressively seeking new customers.

"Everyone blames Telmex, but maybe their conservative stance was wiser," said Felipe Gonzalez, an independent telecom analyst. "At least they aren't in bankruptcy like the global proponents of bleeding-edge tech."

While Telmex is still flush with cash, other companies are hemorrhaging after years of large capital expenditures followed by the evaporation of investor enthusiasm to back telecoms. Axtel, Maxcom, Alestra and Avantel are all struggling under significant debt loads that could lead to bankruptcy, Gonzalez said.

While Telmex and early competitors like Alestra and Avantel battled out stakes to provide high-cost dedicated lines for big companies, smaller companies were left out of the loop. Now, products like Infinitum place high-speed Internet within the budget of small companies and providers are beginning to develop portfolios of products tailored for smaller businesses, said Select's senior Internet analyst Gabriel Moreno.

Providers are also developing value-added services tailored for smaller businesses, like Application Service Providers (ASP).

ASPs manage and distribute software from a central location, allowing users to "rent" rather than buy expensive software applications. The format promises to allow smaller companies access to top-line software applications, web hosting, as well as accounting, billing and online storage services.

NEW AND OLD CHALLENGERS

As in all aspects of the telecommunications sector, Telmex is the dominant Internet provider. Besides its dial-up customers, they serve 99% of all DSL and older ISDN (integrated service digital provider) broadband connections.

But in the niche of broadband, cable companies currently hold the largest market share, drawing in 55% of the sector's revenue. Megacable and Intercable have established strongholds in Guadalajara and Monterrey, respectively. Megacable, with their brand Megared, have expanded into over 20 smaller cities throughout the north and central states of the republic. But analysts predict cable's hold on the market will slip with the introduction of DSL and wireless services.

Wireless broadband services are the new industry wager. Second generation systems have evolved enough to offer reliable service that rivals DSL for speed and cost, with the added bonus of portability. Privately owned media-powerhouse MVS Multivision recently burst onto the scene after teaming up with Minneapolis-based NextNet Wireless to offer the i-go system. Late in 2002, they unrolled what is billed as the world's most ambitious wireless deployment with saturation coverage of Mexico City.

But that's only the beginning. While Mexico's lack of infrastructure means rural areas are completely off the map for DSL or cable services, wireless technologies open up less-costly avenues into smaller markets.

Internet division MVS Net will test smaller cities' appetite for wireless when they expand service to Cordoba in Veracruz and Mexicali in Baja California in the coming months. The company will unroll services in Monterrey and Guadalajara by year-end, when it hopes to have at least 25,000 subscribers. MVS Net plans to be positioned in all 60 cities covered under its frequency license within two years, said company CEO Jose Antonio Abad.

"We know Telmex will remain the dominant player--they are moving very fast now," Abad said. "But we have a one-and-a-half to two-year window to penetrate the market."

Telecosmo, a unit of Ricardo Salinas Pliego's business empire, is offering a similar wireless system. AT&T-backed Alestra may also be poised to take a share of the market. NextNet has packaged and branded the same small wireless modems used by MVS for Alestra. However, due to Alestra's shaky situation as they renegotiate their debt, the company has yet to confirm its commitment to the project.

While wireless technologies will gain a stronger foothold in the future, DSL is projected to lead the way, analysts say. Cable companies have gained a lot of experience in recent years, and after bolstering their residential customers, they too are now targeting smaller businesses.

According to Select data, revenue from broadband services reached US$76 million in 2002, a fraction of the nation's US$8.5 billion telecom market.

Twice-shy tech analysts are no longer predicting the dizzying growth rates touted before the tech bust. Now, annual growth rates for subscribers are now expected to hover around 50 to 60% per year through 2006.

WHAT COMPETITION?

While the Organization for Economic Cooperation and Development (OECD) says open access to infrastructure is the key to introducing more vital competition into the sector, Mexico shows few signs of enacting new legislation to tame Telmex's dominance.

Moreover, the nation's telecom regulatory body, Cofetel, still kowtows to Telmex, its ranks packed with former company employees.

After years of work, a reputedly conservative reform of the nation's telecom law has been shelved in the congressional freezer. Midterm elections this year for control of the lower house of Congress all but assure that any substantial reform--like forcing Telmex to open up its "last mile" of wires so other Internet Service Providers can offer their own DSL services--will remain stalled, industry sources say.

Eduardo Diaz Corona, one of Telmex's Internet project leaders, said any move to force it to share its infrastructure would put the breaks on development.

"If we have to hand over our network at cost, we aren't going to continue investing," Diaz said.

But analysts say there is plenty of money to go around, and if other ISPs are allowed to piggyback on Telmex's infrastructure for a price, everyone will win and the industry will become more dynamic.

While Congress is waffling on regulatory changes, the Fox administration is promoting greater access for broadband technologies through its e-Mexico program. While public-private partnerships are only beginning to take off, federal and state initiatives are starting to bring the Internet into rural backwaters that lack even basic phone service.

All these new and cheaper technologies mean every year more services will reach greater and greater markets. With government aid and enthusiasm, more of Mexico's vast population left out of the technological revolution will connect for the first time. The educational and commercial benefits could be astounding.

In a sign of the times, global satellite company Intelsat in February announced its entrance into the Mexican market in partnership with hardware distributor Globalsat. Soon, without any infrastructure beyond a small satellite dish, the most remote point in Mexico can become a blip on the information superhighway.

"This technology is ideal for many regions in Mexico and can bring high-speed access to points where fiber optic cables don't reach," said Rueben Levcovitz, Intelsat's VP of LatAm sales. "With satellite links we can help the people of Mexico enter a whole new world."

Michael O'Bayle is a Mexico City-based freelance writer.