Telecommunications: cutting off a dominator

By Adam Thomson

Financial Times

May 9 2007 06:02

Last month, Carlos Slim, the Mexican businessman, jumped into second place on the list of the world’s wealthiest individuals. The news came just a few weeks after Forbes, which compiles the list, confirmed that Mr Slim’s fortune had grown far quicker than that of anyone else last year – at an average rate of $52m a day.

Mr Slim, now 67, presides over a business empire that extends from mining to retail and creeps into just about every aspect of Mexican life. But if there is one thing that explains the huge growth in his wealth over the past few years, it is Telmex, Mexico’s largest fixed line telephone company, and América Móvil, its cellular spin-off.

Together, these companies dominate the telecommunications market in Mexico. More than a decade after its purchase as part of the government’s privatisation programme in the 1990s, Telmex continues to control more than 90 per cent of the country’s fixed lines. Meanwhile, Telcel, the Mexican subsidiary of América Móvil, controls an estimated 80 per cent of the country’s cellular market.

The problem, experts say, is that such dominance has kept telecommunications prices in Mexico unreasonably high and competition to a minimum. “It is just not an attractive market [for investment],” says Gabriel Sosa, a professor at the Autonomous Metropolitan University in Mexico City. “These companies have done everything in their power to stifle competition.”

Indeed, a recent study by the Organisation for Economic Co-operation and Development (OECD) showed that Mexico had some of the most expensive telephone charges of all OECD members. Even Felipe Calderón, the centre-right president, has spoken out on the issue: in a recent interview with the Financial Times, he said that telephone charges were too high.

Some industry analysts have pointed to the advances in technology and convergence – the process by which telecommunications, internet and video can be sent through a single network – as a way to introduce greater competition into the sector and therefore lower prices.

One ray of hope, they say, is the numerous cable television companies operating in Mexico, which have shown increasing interest in offering their customers television, internet and telephone in one packet.
This packet, sometimes known as “triple play”, is already on offer to residents in five Mexican cities, though not in the capital. For example, in Monterrey, the industrial capital of northern Mexico, TVCable Digital, a Mexican company that has teamed up with Marcatel, a local telephone operator, has invested $10m to lay 400km of triple play network.

At 499 pesos a month, excluding value added tax (VAT), the packet may not sound wildly attractive to customers living in the US. But that is still about 20 per cent cheaper than it costs at present to purchase the same services separately.

Meanwhile, Cablevisión, the biggest cable provider in the capital, says it plans to start offering its 600,000 customers telephone services through a triple-play package later this year.

Alejandro Puente, who heads the chamber of cable telecommunications providers (Canitec), which represents the country’s cable television companies, says that there has been a positive change towards the granting of telecommunications licenses and introducing greater competition since Mr Calderón’s administration came to power last December. One sign of that change, he says, is that in January alone the government granted cable companies 20 direct licenses to provide local telephone services. “We have been fighting for years to compete in the sector and now, finally, it is starting to happen.”

Yet, for all the optimism, there is a long way to go and several barriers to overcome. One is so-called interconnectivity, which involves the ability of small and medium-sized telephone providers to hook up to Telmex’s extensive network so they provide national coverage.

With some exceptions – Cablemás, a local cable company in the northern border city of Tijuana, is one of the few that have negotiated a deal with Telmex – progress has been slow.

Luis Téllez, the government’s telecommunications secretary, says that part of the problem is the Federal Commission of Telecommunications (Cofetel), the sector’s regulatory body, which sets the rules and enjoys considerable autonomy from the federal government.

In a recent interview with the FT, Mr Téllez accused the body of foot-dragging. He also said it sometimes lost sight of its role in defending consumers. “Cofetel does not always act in the best interests of the people,” he said.

Another problem is portability – the ability of Telmex’s customers to take their telephone numbers with them when they switch providers. Héctor Osuna, who heads Cofetel, admits that resolving this problem has taken longer than he would have liked. But he also says he is confident that Mexico will have portability by the end of this year.

Mr Puente believes that one opportunity to have reduced the importance of the two companies would have been to prevent them from bidding in a new round of auctions for spectrum that Cofetel expects to take place in the second half of this year.

In fact, the auctions for the spectrum, which occupies the 3.4Ghz-3.7Ghz frequencies and will allow companies to offer customers services such as wireless broadband connections, are almost certain to involve Mr Slim. Furthermore, many analysts doubt whether excluding him from bidding is the answer.
But they also say that until the government takes firm action to encourage greater competition, Mr Slim will continue to maintain an iron grip on Mexican telecommunications.

Disponible en: http://www.ft.com/cms/s/4128064a-fdca-11db-8d62-000b5df10621.html