Mexican Telecom Industry: (Un)wanted Monopoly?

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Mexican Telecom Industry: (Un)wanted Monopoly?

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Few competitors have managed to break through the market share of 90% held by Telmex (by 2008). The necessary institutional and legal support to create a competitive market was absent during the reform process. Roger Noll (Noll) an economist at Stanford University, who advised Mexican government on privatisation of Telmex believes, “the key error was not to set up an independent regulator in advance of the sale.”8 Thus, a private monopoly replaced a public monopoly. In spite of Telmex’s monopoly in wire-line, the Mexican government allowed Slim to enter the wireless market too. In 2000,Telmex’s cellular operations in and outside Mexico were spun-off and the new company hence formed was named America Movil, which went on to become Latin America’s largest mobile phone operator. The Mexican arm of America Movil, named Telcel, enjoys a similar kind of dominance as, its fixed-line sister concern, Telmex does. Monopoly of Telmex and Telcel

While Telmex got natural monopoly through privatisation, Slim implemented ‘Gillette Plan’⁹ to establish Telcel’s dominance in the mobile market. Following this strategy, mobile phones were sold at cheaper prices, as once the customer bought a mobile phone they needed prepaid phone cards to use it constantly. The strategy worked well and the company made huge profits. According to a report in 2008, “America Movil, the largest cell phone operator in Latin America, provides service to 7 out of every 10 mobile users in Mexico, well ahead of the No. 2 operator, Movistar, the brand of Spain’s Telefonica.”¹⁰

Telmex’s direct competitors include fixed line companies such as Axtel, Alestra, Maxcom Telecomunicaciones and cable TV companies like Megacable Holdings. In 2006, Mexico had around 20 million fixed lines in service, out of which Telmex had 18.3 million fixed lines in service. The number of fixed line subscribers is going down in Mexico as customers are switching to wireless services. In the first quarter of 2008, Telmex had 17.8 million fixed lines in service with 90% of the market share while all the other operators having decimal share.

Telcel operates on GSM technology, while the other operators Telfonica’s Movistar is based on GSM and Grupo Lusacell (merged with Unefon) is into CDMA technology. Digital trunking operator Nextel de México is emerging as a strong competitor for post-paid business customers. For the first quarter of 2008, Mexico had 71 million mobile subscribers out of its population of 109 million people. Telcel, Movistar, Lusacell and Nextel had 51.4 million, 13.3 million, (just under) 4 million and 2.3 million subscribers, translating to a market share of 72.5%, 18.7%, 5.6% and 3.2% respectively.

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8]Authers John and Silver Sara, “Slim’s pickings: Latin America’s richest man eyes up his next undervalued target MEXICO”, http:// search.ft.com/ftArticle?queryText=carlos%20slim&page=4&y=9&aje=false&x=15&id=050425001205&ct=0, April 25th 2005
9]Slim’s Gillette plan is modelled on the Gillette’s practice of selling shavers for a low price and then making profits on the replacement razor blades.
10] Aspin Chris, “Mexico widens power probe of Slim’s America Movil”, http://www.reuters.com/article/marketsNews/ idINN3022791220080430?rpc=44& pageNumber=1&virtualBrandChannel=0, April 30th 2008