Mexico Takes Aim at a Titan in Telecom

By ELISABETH MALKIN

Published: May 8, 2011

MEXICO CITY — In the two decades that Carlos Slim Helú has turned a crumbling Mexican phone monopoly into a continental telecom giant, he has successfully fought off competitors and challenged authorities who wanted to limit his companies’ control.

Peter Foley/Bloomberg News

Officials are beginning to challenge Carlos Slim’s telecommunications empire.

But over the last few weeks, a series of developments is threatening to chip away at Mr. Slim’s dominance.

First, Mexico’s antitrust agency imposed a $1 billion fine on the wireless company Telcel, the local unit of Mr. Slim’s pan-Latin companyAmérica Móvil. Then, at the end of last month, the Mexican congress approved a tough new antimonopoly law that raises fines for monopolistic practices and permits prison terms for executives who have been found to engage in them.

Last week, a Supreme Court ruling halted a legal maneuver that Mr. Slim’s companies had used to fight lower tariffs. The decision gives new heft to the country’s telecom regulator as it begins to slash the high interconnection fees that América Móvil charges other companies.

The flurry of activity after years of inaction suggests that at last Mexican authorities may be willing to challenge Mr. Slim and make good on their pledge to provide a more competitive environment for the telecommunications industry.

The actions also send a signal to other large companies in Mexico that they too may soon come under closer scrutiny. For years, powerful companies have resisted regulation by tying up rulings in the courts and using their political influence.

It is too early to tell, though, how effective the efforts will be and whether they will stick.

América Móvil’s Mexican units, the mobile carrier Telcel and the fixed-line firm Telmex, will continue their legal challenges, and analysts say the fine may not be paid for years, if ever. Meanwhile, Telmex now claims more than 80 percent of all fixed lines and Telcel more than 70 percent of wireless phones.

Despite the new antitrust law, Mexican lawmakers and regulators have stalled on other measures to haul telecommunications rules into the 21st century.

And as the July 2012 general election approaches, political support for tougher regulation against Mr. Slim — widely reported to be the world’s wealthiest man — and other magnates may wane as parties jockey for support from the business elite. (Mr. Slim is the second-largest shareholder in The New York Times, behind the Sulzberger family, and in 2009 extended a $250 million loan to The Times, which the company says it intends to repay in early 2012.)

“The big companies believe that when the law is applied to them it’s because of personal animosity and that the law only applies to their enemies,” said Eduardo Pérez Motta, the president of the Federal Competition Commission, which imposed the billion-dollar fine. “They think it is a country of favors, friendships and privileges.”

Executives at Mr. Slim’s companies argue that they benefit the Mexican people by reaching the country’s poorer communities, while their competitors want to sell only to the rich. Indeed, in almost half of the country, Telmex is the only company with any infrastructure at all, because its concession requires it to be there.

In public appearances, Mr. Slim responds to questions about monopoly power by arguing that he has taken on powerful international competitors such as AT&T and that there are multiple players in the Mexican market. He often hands out charts showing how Mexico compares favorably to many other developing countries in mobile coverage, and argues that international studies showing that Mexico’s prices are high are skewed by exchange rates. He also says that he faces a barrier because regulators refuse to grant him a pay-TV license, while cable companies now compete with him by offering phone and Internet service.

Business competition is viewed as an important issue for Mexico’s economic future. Studies from the World Bank and the Organization for Economic Cooperation and Development suggest that Mexico’s monopolies stunt its growth. Although the economy expanded an estimated 5 percent in the first quarter, that pace still lags other large Latin American economies.

Big companies control many basic goods and services, including cement, beer, corn flour, and medicine distribution. The resulting high prices, Mr. Pérez Motta argues, harden Mexico’s gap between rich and poor because it forces poor families to spend more of their income on staples.

It is the fight over telecommunications, though, that has grabbed the recent attention.

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Posted on May 9, 2011, in Uncategorized. Bookmark the permalink. Leave a comment.

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