Mexican Telecom Industry: (Un)wanted Monopoly?

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Mexican Telecom Industry: (Un)wanted Monopoly?

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It has not been easy to compete in Mexican mobile market too. OECD referring to Telcel in its report (Economic survey of Mexico 2007: Improving infrastructure in Mexico) declared, “In the mobile telephone market, in particular, the dominant firm is using its market power to squeeze out other players”.33 But Slim has always maintained that he likes competition, and commented that, “We have never opposed the entry of a competitor, let them come on in.”34 In 2004, Movistar, the second largest mobile operator in Mexico, to increase market share, started selling mobile handsets at a cheaper price. But many of its sold phones were never used. Movistar discovered that Telcel purchased its handsets, replaced the chip and resold them. Movistar filed a case against Telcel. In 2006, CFC announced Telcel guilty of monopolistic practices as it refused to allow SMS exchange with Nextel. In November 2007, Movistar filed many complaints against Telcel and Telmex with CFC. It appealed CFC to compel both the companies to connect its competitors to their network on fair terms. In 2007, government started an investigation into dominance and monopolistic practices of Telmex in broadband Internet.

In 2008, as many as eight probes were initiated against Telmex and Telcel, of which six are investigating Telmex’s dominance related issues, while one is into interconnection fee of Telcel and another to determine whether Telcel wields substantial power in Mexican mobile market. Eduardo Perez Motta, president of CFC said that these investigations would be concluded by mid-2008. All eyes are set on the results of the ongoing investigations, competitors are hoping that after investigations are through, both Telmex and Telcel will be made to reduce the interconnection fees.

CFC’s and Cofetel’s major constraint are their limited powers and the amparos filed against their rulings. These amparos delay regulatory rulings against the companies. Also, time and again, Telmex and Telcel have used skilful lobbying and legal battles to defend themselves against regulation and antitrust prosecution. Telmex has repeatedly delayed signing interconnection agreement with competitors. Due to its dominant position, it does not respect the interconnection fee fixed by Cofetel and continues to charge high tariff per minute. Mexico’s constitution has always banned monopolies, but it is a country where corruption is widely spread. Nearly 62% of the companies have admitted to the fact that they reserve money to bribe government officials.³⁵ Slim is alleged to have friends in high places. Actions to curtail Telmex’s monopoly power during Carlos Salinas, Ernesto Zedillo and Vicente Fox administrations have not yielded desired results. There were rumours that President Carlos Salinas, who sold Telmex to Slim, secretly benefited from the sale. Critics believe Slim alone has not crushed competition; he had help from Mexican Presidents Ernesto Zedillo and Vincent Fox. In 2000, President Vincent Fox appointed Pedro Cerisola, a former employee of Telmex as Secretary to SCT. During his tenure (till 2006), he was alleged for protecting Telmex’s interests. Denise Dresser, a political analyst and professor at the Instituto Tecnológico Autónomo de México says, “Mexico has a dense, intricate web of connections and personal ties between the government and the business class, this ends up creating a government that doesn’t defend the public interest, that isn’t willing to go out and regulate in the name of the consumer, it is rather willing to help its friends, its allies and, in some cases, its business partners thrive at the expense of the Mexican people”.³⁶

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33] “Economic survey of Mexico 2007:Improving infrastructure in Mexico”, http://www.oecd.org/document/8/ 0,3343,en_2649_34569_39415560_1_1_1_1,00.html , October 4th 2007
34] Malkin Elisabeth, “New Commitment to Charity by Mexican Phone Tycoon”, http://www.nytimes.com/2007/06/28/business/worldbusiness/ 28slim.html?_r=1&scp= 5&sq=&st=nyt&oref=slogin, June 28th 2007
35] Varsavsky Martin, “Carlos Slim is the richest man in the world: Should Mexicans be proud?”, http://english.martinvarsavsky.net/ general/carlos-slim-is-the-richest-man-in-the-world-should-mexicans-be-proud.html, July 21st 2007
36] Coster Helen, “Slim’s Chance”, http://members.forbes.com/forbes/2007/0326/134.html, March 26th 2007