Mexican Telecom Industry: (Un)wanted Monopoly?

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Mexican Telecom Industry: (Un)wanted Monopoly?

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Slim’s political connections combined with the weak regulatory system of Mexico enabled him to defend his companies against the accusations of monopolistic business practices. It is widely published that Telmex’s and Telcel’s market dominance can be attributed to hands off policy of Mexican legislature and no British or US government would have allowed this. Perez Motta says, “Mexico’s telecommunications regulatory framework and regulator remain weak and have failed, to some extent, to foster access and competition, Telmex has challenged CFC and (Comision Federal de Telecomunicaciones, or Cofetel) decisions before the courts and has been successful in delaying enforcement. All these circumstances have allowed it to maintain and exercise its market power through relative monopolistic practices.”37 Cofetel has been criticised for lacking teeth to enforce effective regulation. Researchers at Syracuse University note, “Since its creation, Cofetel has assumed what can only be described as a pro-Telmex role in implementing its regulatory duties. As a result, the incumbent enjoys a monopoly over local, long distance, cellular and Internet services in Mexico. Its highly dominant position is largely because regulators have failed miserably.” Whatever the reason may be, the Mexican economy and Mexican people are facing the consequences.

As a result, the incumbent enjoys a monopoly over local, long distance, cellular and Internet services in Mexico. Its highly dominant position is largely because regulators have failed miserably.”³⁸ Whatever the reason may be, the Mexican economy and Mexican people are facing the consequences.

Effects of Monopoly of Telmex and Telcel

“The great evil in economics is not communism, not socialism, not capitalism, not landlords or bosses, not unions, not feudalism or industrialization or automation, not progress or lack of it, and not any scarcity of natural resources. No, the great evil in economics is COERCIVE MONOPOLY.”³⁹
- Fred E. Foldvary

In the bid to sell Telmex, Mexican government hiked telephone tariffs. In 1990, it eliminated indirect taxes on telephone services and allowed Telmex to absorb the remaining taxes into the prices. As a result local calls, which accounted for major part of the revenue for telecom companies, increased from 16 pesos per minute to 115 pesos.⁴⁰ According to a 1992 World Bank report on Telmex sale, the biggest losers from the privatisation of Telmex were the consumers, who had to bare the additional burden of 92 trillion Mexican pesos in the form of higher charges. The government, domestic shareholders and employees gained 16, 43 and 23.5 trillion pesos respectively. The best gain was bagged by the foreign investors who captured 90% of the net benefits from the sale, translated into 67 trillion pesos. “The privatisation of Telmex, along with its attendant price-tax regulatory regime, has the result of `taxing’ consumers – a rather diffuse, unorganised group – and then distributing the gains among more well-defined groups, (foreign) shareholders, employees and the government.”⁴¹ However, the report projected that the consumers would benefit in the long run by reduced prices.

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37] “Why Mexican phones cost a bundle”, op.cit.
38] Ibid.
39] Foldvary E. Fred, “Natural monopolies”, http://www.progress.org/fold74.htm
40] Hansen Karen, “Privatization Of Mexico: Telmex”, http://www.50years.org/factsheets/telmex.html, April 1997
41] Hansen Karen, “Privatization Of Mexico: Telmex”, http://www.50years.org/factsheets/telmex.html, April 1997