Mexican Telecom Industry: (Un)wanted Monopoly?
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Themes: Economics
Pub Date : 2009
Countries : Mexico
Industry : Telecommunications
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Case Code : ME0018
Case Length : 16 Pages
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The projection proved to be a rather far fetched imagination. The Mexican customers are saddled
under high telephone charges since then. Owing to high charges, the usage rate (minutes of use per
subscriber per month) is very less in Mexico, thus resulting in deadweight loss42. Professor Noll
opines, “there is enormous loss of efficiency arising from the dominance of Telmex, especially with
respect to the underutilisation of the network (low minutes of use) and the low penetration of the
Internet.”43 He also says, “Mexico has low wire-line penetration, but many developing countries have
low wire-line penetration. The big problem is that Mexico does not offset this with high wireless
penetration. Moreover, wireless penetration is less than it seems because many intensive business
users carry cell phones for multiple carriers in order to take advantage of the much lower withinsystem
calling charges compared to the extremely high prices for inter-system calling.”44
Economists opine that high costs of telephone and Internet services that resulted from lack of
competition are hindering Mexican economy’s growth. In Mexico “high telephone and electricity
costs, blamed on monopolies, are driving many factories to countries like China.”45 Felipe Calderón,
who became the President of Mexico in December 2006, vowed to make Mexico more competitive
by dismantling monopolies. In November 2007, he affirmed once more, that increasing competition
in telecommunication industry was his priority. But, till mid 2008, there were not any significant move
against big companies. Some say that the telecom investigations which are ongoing will be a big test of
whether President Calderón and CFC are up to the task.
42] Deadweight loss refers to deficiency in resource utilisation due to inefficient allocation. It could also be defined as loss in total welfare
due to a monopoly market. A monopolist’s high prices and low output create deadweight loss.
Mexican Telecom Industry: (Un)wanted Monopoly?
43] Excerpt from an exclusive interview of Prof. Roger Noll conducted by the author. Please refer Annexure I for the full interview.
44] Ibid.
45] Bremer Catherine, “Stick to goals on monopolies, US tells Mexico”, http://www.reuters.com/article/companyNewsAndPR/
idUSN0127660320070202?sp=true, February 1st 2007