Mexican Telecom Industry: (Un)wanted Monopoly?

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Mexican Telecom Industry: (Un)wanted Monopoly?

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In conjunction with the above, the competition laws around the world also prohibit two types of monopolistic behaviours under abuse of dominance provisions. They are exploitative conduct and exclusionary conduct.21 However, Mexican competition law does not prosecute exploitative practices such as charging monopolistic prices, but encourages actions against exclusionary abuses. “Unlawful conduct is defined solely in terms of exclusionary practices at the expense of competitors or other firms in the chain of distribution, and not in terms of exploitative practices at the expense of consumers.”22 There is no provision for fair competition under this law, neither does it talk about protecting the interest of small enterprises and restricting business concentration. Even though both Mexican constitution and LFCE ban monopoly, no section of law deals with monopoly as such or with abuse of dominance. Competition and Regulation in Context of Mexican Telecom Industry

“You don’t tug on Superman’s cape, you don’t spit into the wind, you don’t pull the mask of that old Lone Ranger and you don’t mess around Slim.”²³
- Jim Croce

Until 1995, in Mexico the national telephone industry was regulated by SCT. In 1996, a Presidential decree created Cofetel as an autonomous entity from SCT to regulate and develop the Mexican Telecom Industry. Cofetel is responsible for implementing regulations and technical standards. It is also responsible for resolving the conflicts between competitors regarding interconnection fees. Cofetel has operational and technical autonomy but lacks political autonomy. It limits to suggesting on major issues to SCT and SCT retains the power to grant all concessions – it is the final deciding authority. Once a decision is made, Cofetel implements it.

Telmex is regulated through price cap.²⁴ The price cap consists of a basket of five services – installation charges; monthly rental fee; local measured services; national or domestic long-distance and international long-distance. Leased lines²⁵ are not under the price cap, Telmex is not regulated in that aspect. From time to time, the value of basket is re-estimated by the government and it requires Telmex to pass the benefits of productivity and efficiency to the customers to reduce the real value of basket by a definite percentage. The reduction is equal to 4.5% per year. Annual price increase is calculated by deducting 4.5% from the rate of inflation for the respective year. Owing to technological improvements and augmented efficiency, “Telmex has experienced productivity gains in excess of the 4.5% target, allowing it to earn increasing profits while not raising prices as fast as is allowed under the price-cap formula.”²⁶ Telmex sends a letter to the Cofetel with the rates, then Cofetel decides whether the rates have to be registered or not. Once the rates are registered, it’s a sort of consent that the rates are applicable.

Competition entered the Mexican long-distance market in 1997 and later in other segments of telecommunications like local service and mobile market. Since foreign investment was limited to 49%, AT&T entered the long-distance market as a joint venture with Alestra. Worldcom followed suit by joining with Avantel, but Telmex retorted with patriotic marketing and advertising. In 1998, Avantel intended to introduce long-distance calls from public phones using prepaid cards. As majority of the public phones were operated by Telmex, Avantel was denied a free number by Telmex – a prerequisite for long-distance calls – and the initiative faced major obstacle. Avantel also faced high interconnection fees. When it took Telmex to court for monopolistic practices – Telmex kept it at bay by getting a judge to issue an arrest warrant for the top lawyer of Avantel. “Avantel eventually defaulted on its debt in 2001, much of which were scooped by Mr. Slim and later sold for a profit.”²⁷ Frank Voytek, AT&T’s representative on Alestra’s board says, “Our expectation when we made our investment was that the regulator would enforce the regulations”.²⁸

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21] A dominant firm when it uses its monopoly power to exploit the customers or the suppliers, it is known as exploitative conduct. Charging monopoly prices to customers and paying low prices to suppliers are examples of exploitative conduct. A conduct which aims at excluding competition to maintain market power is termed as exclusionary conduct. Refusal to deal, filing lawsuits in order to suppress competitors and increasing rival costs are some of the examples of exclusionary abuse.
22] “Competition Law and Policy in Mexico: An OECD PEER REVIEW”, op.cit., page 25
23] Friday Bill, “Once Upon a Time in Norte America: The Rise of Carlos Slim”, http://www.losangeles.broowaha.com/article.php?id=962, March 14th 2007
24] Price cap is the maximum value for a price index of basic residential and business services.
25] A leased line is a symmetric telecommunications line connecting two locations. It does not have a telephone number and each side of the line is permanently connected to the other. Leased lines can be used for telephone, data or Internet services.
26] “Priorities for Telecommunications Reform in Mexico”, op.cit., page 17
27] Luhnow David, “The Secrets of World’s Richest Man” , http://online.wsj.com/article/SB118615255900587380.html?mod=US-Business- News, August 4th 2007
28] Preston Julia, “INTERNATIONAL BUSINESS; Competitors of Telmex Say It Still Acts Like a Monopoly”, http://query.nytimes.com/gst/ fullpage.html?res=9802E1DB163FF937A35757C0A9669C8B63&sec=&spon=&pagewanted=2, April 4th 2000