Antitrust thrust

Mexico's government gets tougher on monopolists

Competition policy is moving up the Mexican government's agenda, following years of complaints that regulators have gone easy on private monopolies and duopolies in a number of sectors. The most egregious example is telecommunications, where services are dominated by Teléfonos de México (Telmex) and its mobile arm, América Móvil. Officials now seem more willing to move against Telmex’s power; if they do, this would be a watershed event, and suggest they might target other industries as well.

Criticism has been growing that sectors such as telecoms, beer, cement, energy, soft drinks, television, transport, medicine distribution and even tortillas are controlled by monopolies or by just a few dominant players that keep prices artificially high and benefit from a timid and politicised government anti-trust regulator, the Comisión Federal de Competencia (CFC, the Federal Competition Commission).

President Felipe Calderón has admitted that monopolies in Mexico are holding the country back, and promised to address the problem shortly after he took office in December 2006. He has yet to enact any new policies but has suggested that lifting barriers to entry, especially for new telecom companies, is needed in order to boost Mexico’s competitiveness.

But the CFC has been traditionally viewed as being too close to dominant businesses, and to Telmex in particular. The only notable measure taken by the agency to open the sector came in July 2005, when it ruled to limit the wireless bands that wireless companies would be allowed to accumulate, in a move to boost the entry of new players in the wireless market. Consequently, a single telecoms operator can now accumulate only 35 megahertz of spectrum in any one region; this prevents concentration by a single company.

Finally advancing

Showing his impatience, earlier this year the transport and communications secretary, Luis Tellez, was openly critical of the Comisión Federal de Telecomunicaciones (Cofetel, the Federal Telecommunications Commission) for what the Calderón government sees as hindrance of its goal of increasing competition in the sector, where costs are among the highest in the OECD countries.

The government now appears to be making progress. On November 16th Cofetel announced a resolution of three long-standing complaints related to interconnection agreements between Telmex and a number of cable and communications providers, notably Cablecom, Cablevisión and Telefónica México (Spain). Telmex had previously disputed a number of clauses in its interconnection agreements, and refused to implement them.

Further—and indicative of greater pressure from the executive branch—the head of the CFC, Eduardo Pérez Motta, said on November 27th that his office would soon start an investigation into possible monopolistic practices by Telmex in fixed-line telephony. This followed an announcement a day earlier of another initiative to assess the high fees that mobile-phone carriers charge rivals for completing calls to their customers. Though Mr Pérez Motta did not name names, this latter investigation will surely target mobile operator América Móvil.

Telmex and América Móvil are both controlled by Carlos Slim, Mexico’s wealthiest businessman and the wealthiest man in the world (tied with Bill Gates), according to Forbes magazine. Telmex operates 92% of all fixed phone lines in Mexico, while América Móvil has a 77% share of the wireless market. Mr Slim’s market dominance, and a good portion of his wealth, can be attributed to the hands-off policy of Mexican regulators to the monopolistic practices of these companies.

If the companies were to be classified as "dominant carriers" as a result of the CFC investigation, changes in regulations to dilute their dominance would then be warranted. This does not mean that immediate action would be taken, however. In both 1998 and 2001 the CFC determined that Telmex had dominant characteristics, but a court ruling judged that CFC lacked enough evidence to support the allegation. For its part Telmex defends its position arguing that many of its fixed lines (in rural areas) are not profitable and that many customers would be underserved were it not for its presence.

Regime change

Another policy question raised by the telecoms case is whether the Calderón administration will look into cartels and monopolistic behaviour in other sectors of the economy. In June the Supreme Court sent a positive signal to pro-competition advocates by striking down key elements of a new media law, the Federal Television and Radio Law, passed in 2006, and thereby eliminated certain privileges effectively granted to the broadcasting industry’s heavyweight, Televisa (with 70% of the market), and Mexico’s second-largest broadcaster, TV Azteca (with around 25%). However, broadcast television remains a battleground, where the dominant networks continue to use their political clout to resist any regulatory changes that might allow a third national rival to emerge.

The application of the law is another uncertainty. The Telmex case will put to the test a new anti-trust law, the Federal Law of Economic Competition, amended last year. Enforcement of the previous law had long been subject to criticism. The law technically prohibited monopolies per se, but in practice authorities focused exclusively on abuses of monopoly power. The president of the CFC and other officials made it clear in the past that the law would be applied only against companies that engaged in prohibited practices, not against firms that merely had the potential to exercise monopoly control. Critics say that this methodology was timid and reflected the politicised state of the CFC.

The new law is said to give the CFC more legal powers to issue resolutions that can be better enforced. However, it remains to be seen whether the agency will be willing to make controversial or politically difficult rulings. In the past its decisions have been cautious. Furthermore, even the president of the agency, Mr Pérez Motta, charges that the fines provided for under the revised law (a maximum of Ps75m, or around US$6.8m) are too low to act as an effective deterrent to anti-competitive practices.

The stakes in these cases go beyond just the industries involved. Mexico’s economy probably will never be sufficiently dynamic and globally competitive, or reach its full growth potential, until the government effectively takes on monopolies and duopolies (both public and private), politically connected and protected businessmen, and other vested interests (such as privileged unions) that impede innovation, competition and growth. Mr Calderón has certainly expressed a desire to address these issues; the telecoms investigation will be a big test of whether he and his regulators are up to the task.