Mexican Telecom Industry: (Un)wanted Monopoly?

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Mexican Telecom Industry: (Un)wanted Monopoly?

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Having established their monopoly, both Telmex and Telcel have been charging high prices for all its services including Internet services. However, excessive charges are denied to such an extent that once, Slim even raised questions on the credibility of OECD. In an interview with BusinessWeek in 2007, “he called the OECD charges false and denied he’s a monopolist.”11 Even, the Comision Federal de Telecomunicaciones (Cofetel)12 denies the accusations of over pricing. It states that Telmex’s charges have risen by less than inflation since 1998 and the prices were frozen since 2001. Further, it claims that local call prices are at or below international averages and it has forced Telmex to expand the network. But according to Professor Noll, the international comparisons are unrealistic, since many foreign companies offer packages including free long-distance calls or unlimited local calls.13 He opines, “Prices were bound to fall because of the nature of technology in the sector. If there have been improvements, it’s because reductions in costs have caused the profit-maximising monopoly price to fall. It’s still the profit-maximising monopoly price.”14

Added to imposing higher prices on customers, Telmex is also accused of charging competitors high interconnection fees. In Mexico, the charges are said to be high above the average cost incurred for interconnection service. For instance, in 2000, Avantel’s¹⁵ 60% of the revenue directly went to Telmex in the form of interconnectivity fees. By all accounts, the revenues of Telmex and Telcel can be attributed to the fact that they have abused their dominant position, by over-charging customers and competitors. Regulatory frame work and anti-competitive authorities are blamed for letting both the companies’ scot free.

Regulation in Mexico

Article 13 of the Federal Law of Economic Competition of Mexico defines a company as monopoly, by examining whether it can unilaterally set the prices or restrict the supply in the relevant market without the competitive agents being able to act or to potentially counteract that power.

In 1993, to ban anti-competitive behaviour by companies, Mexico adopted Federal Law of Economic Competition (LFCE). The competition policy goals of LFCE are: “to protect the competitive process and free market access by preventing monopolies, monopolistic practices and other restraints of the efficient functioning of markets for goods and services.”¹⁶ Comisión Federal de Competencia (CFC)¹⁷ was created to enforce LFCE. CFC is responsible for investigating abusive monopoly practices of companies. It also determines the companies, which have dominant position in any sector.

LFCE classifies monopolistic practices as absolute and relative. Absolute monopolistic practices are prohibited. This include four types of horizontal agreements¹⁸ between competitors such as price fixing, output restriction, market division and bid rigging. Whereas, relative monopolistic practices are not termed illegal unless a company is found to have substantial power in the respective market. Vertical agreements¹⁹ like vertical market division, resale price maintenance, tied sales, exclusive dealing and refusal to deal are considered to be relative monopolistic practices. Other horizontal practices are also termed as relative practices – collectively treated as a catch-all provision – that will unduly damage or impair the process of competition and free access to production, processing, distribution and marketing of goods and services.²⁰

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11] Smith Geri, “Carlos Slim’s Fat Fortune”, http://www.businessweek.com/globalbiz/content/jul2007/gb2007073_887601.htm, July 4th 2007
12] Federal Telecommunications Commission
13] “Slims pickings: Latin Americas richest man eyes up his next undervalued target MEXICO”, op.cit.
14] Ibid.
15] Avantel, a long-distant company, competitor of Telmex, entered the Mexican long-distance market in 1995.
16] “Competition Law and Policy in Mexico: An OECD PEER REVIEW”, http://www.oecd.org/dataoecd/57/9/31430869.pdf, page 11
17] Federal Competition Commission
18] An agreement between competing firms in the same industry, which may result in reduced competition.
19] An agreement between two or more companies operating at different levels of production, distribution or supply chain. These arrangements can, but not limited to, substantially prevent or lessen competition and thus can potentially violate antitrust laws.
20] “Competition Law and Policy in Mexico: An OECD PEER REVIEW”, op.cit., page 19