The War for Competition in Mexican Telecoms

Implications: Few sectors better show the struggles and dilemmas in the Mexican competitiveness arena than the telecom industry. There coexist monopolistic structures with the lack of reforms, both viewed as main hurdles to boosting world-class competition. Following is a summary of the highlights of the half-day conference held on October 29 to honor the Day of Competition, where the antitrust commission, Comisión Federal de Competencia (CFC), announced the upcoming investigation on Telmex/AMX dominance.

Analysis: A common view between the World Bank or OECD and think-tanks like the Mexican Institute for Competitiveness (IMCO) is that the Mexican economy grows, but not at the pace it should. In some industries there are encouraging signs of increasing competition, but still not the competition in strategic sectors nor the competition levels that are required to attract and retain greater amounts of investment.

Few sectors better show the struggles and dilemmas in the Mexican competitiveness arena than the telecom industry. There coexist monopolistic structures with the lack of reforms, both viewed as main hurdles to boosting world-class competition.

This was one of prevalent perceptions in the half-day conference held on October 29 to honor the Day of Competition, an event sponsored by the antitrust commission, Comisión Federal de Competencia (CFC).

CFC clearly achieved its goal of facilitating an intense and participative debate among the players of the telecom industry. There was a positive note with regard to the imminent availability of a large alternative network to Telmex’s relevant network. The Mexican utility, Comisión Federal de Electricidad (CFE), announced that on November 5 it will sign the first contracts as carrier’s carrier for the use of its 20,000 kilometers of fiber optic by long distance operators (Telmex has 22,000 kms.). This will function as a trunk network connecting cities. Over time, CFE will also be able to provide telecom operators with a secondary network by using its power distribution network all over the territory – a huge network to be added to the significant capacity which is currently available.

The conference was partly devoted to airing proposals to strengthen competition – such as liberating fixed telephony to foreign investment and allowing for the establishment of a third large TV channel – but also served well to the exchange of recriminations.

The Spanish company Telefónica Movistar denounced Telmex for denying in practice to grant interconnection, as it was requested 18 months ago. Telmex responded accusing Telefonica of violating the Foreign Investment Law by having an overwhelming share majority of 97.7 per cent in GTM (Grupo de Telecomunicación Mexicana), clearly exceeding the 49 per cent permitted. Cablevisión, the largest TV cable company, and Canitec, the chamber of cable companies, joined Telefónica in denouncing the violation of their right to interconnection.

But it was a brief statement what grabed the attention of participants and the media. The head of CFC, Eduardo Pérez, describing the commission’s policies and actions to foster competition, mentioned the establishment of asymmetric regulations for dominant players. Responding to a question from the audience, he said that within three weeks the CFC will initiate an investigation of dominance against Telmex and AMX. This assertion came as a confirmation of a previous announcement made on July by Mr. Pérez, in the sense that CFC was preparing to launch such an action, sending tremors along the industry and knocking down the shares of those companies in the market.

Whether this investigation by CFC will be well constructed and thus successful is another story. But with the mother of all battles looming on the horizon, it seems that the war for competition in the telecom industry is a more serious matter.