Mexican Telecom Industry: (Un)wanted Monopoly?

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Themes: Economics
Pub Date : 2009
Countries : Mexico
Industry : Telecommunications

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Case Code : ME0018
Case Length : 16 Pages
Price: INR 250;

Mexican Telecom Industry: (Un)wanted Monopoly?

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Mexican Telecom Industry: (Un)wanted Monopoly?

Mexico’s telecommunications industry, to a large extent is dominated by wire-line operator Telmex and mobile operator Telcel. Both belong to Carlos Slim – the world’s richest man as per Fortune’s list in August 2007. Telmex provides local, domestic long-distance and international fixed-line voice services, Internet and data communications, while Telcel provides wireless services. Both Telmex and Telcel hold a mammoth portion of the market share in the Mexican telecommunication industry. In this context, these companies have been constantly criticised that they take undue advantage of their dominance and thwart competition in the industry. It is also said that the weak regulatory authorities and flaws in regulations abetted the Mexican telecom giants in ensuring low competition. However, these companies defend themselves by arguing that they invest more than their competitors and provide good services throughout the country including low-margined rural areas.

Mexican Telecommunication Industry – A Overview

Before privatisation, Mexico’s national telephone company – Telefonos de Mexico (Telmex), suffered from high operating costs, under-investment, service delivery shortcomings, low reliability and thus, tarnished image. The quality of its basic services was far below the normal standards, while value-added services were non-existent. For instance, the wait for a new telephone connection was above 3 years and tariff structure was prohibitive. Amid these inefficiencies, voices were raised in favour of privatising the company.

In 1989, President Carlos Salinas de Gortari decided to privatise the company. “Once privatisation was decided upon…policymakers had to decide whether, to maintain Telmex as a vertically integrated or…separate it horizontally, that is, to sell the different telephone services separately: local services, long distance, cellular, value-added services.”1 The key players involved in the policy reform were – National Investors, Telephone Union, Telmex, Foreign Investors, World Bank, Secretariat of Communications and Transport (SCT) and Secretarķa de Comercio y Fomento Industrial (SECOFI)2. National investors, Telephone union, Telmex and SCT preferred vertically integrated firm, whereas foreign investors, World Bank and SECOFI favoured market segmentation.3 Policymakers believed that market segmentation would enhance social welfare. However, because of time constraint for formulating and implementing the same, government decided to maintain Telmex as a vertically integrated firm. “An additional constraint, not openly acknowledged by policymakers, was given by the need to respond to preferences from newly established alliances that favoured an integrated firm.”4

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1]Mariscal Judith, “Telecommunication Reform in Mexico: and Institutional Perspective”, http://www.telecomcide.org/documentos/ 008DTDAP-JMariscal-Telecommunication_Reform_Institucional-03.pdf, page 7
2] Ministry of Trade and Industrial Development
3] “Telecommunication Reform in Mexico: and Institutional Perspective”, op.cit., page 14
4] Ibid., page 15