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
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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.
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 Secretaría 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
1]Mariscal Judith, “Telecommunication Reform in Mexico: and Institutional Perspective”, http://www.telecomcide.org/documentos/
008DTDAP-JMariscal-Telecommunication_Reform_Institucional-03.pdf, page 7
Mexican Telecom Industry: (Un)wanted Monopoly?
Mexican Telecommunication Industry – A Overview
2] Ministry of Trade and Industrial Development
3] “Telecommunication Reform in Mexico: and Institutional Perspective”, op.cit., page 14
4] Ibid., page 15