Mexico Takes Aim at a Titan in Telecom

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.

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

Carlos Slim
Carlos Slim

First, Mexico’s antitrust agency imposed a $1 billion fine on the wireless company Telcel, the local unit of Mr. Slim’s pan-Latin company América 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.

"Your country doesn't interest me."

In part this is because it involves Mr. Slim, 71, whose wealth has turned him into Mexico’s most contradictory business personality. Forbes estimates his fortune at $74 billion, swelled by other interests in banking, infrastructure and mining.

While some Mexicans admire his acumen, others say they believe that his control over the $35 billion telecommunications market has done enormous damage to the economy.

Although prices for many services have come down over the last few years, Mexico’s telecoms still rank among the more expensive of the 34 mostly developed countries in the O.E.C.D., though Mr. Slim argues against the organization’s adjustment for exchange rates.

In broadband penetration, Mexico is at the bottom of the O.E.C.D. table and is falling behind countries like Brazil and Argentina.

Over the years, though, foreign telecommunications companies have mostly given up on Mexico because of the dominance of Telmex and Telcel. Last year, the government auctioned off radio spectrum in a bid to bring a new mobile competitor into the fray, and regulators tried to drum up interest from foreign investors.

“They said ‘Your country doesn’t interest me,’ ” said Mony de Swaan, the president of the Federal Telecommunications Commission, the main regulator.

They complained about the high fees they would have to pay Telcel to complete calls placed to phones on its network and also about foreign investment limits and Mr. Slim. “They said ‘I won’t compete with this gentleman,’ ” Mr. de Swaan said.

Now, Mr. Slim faces a strong homegrown rival. Televisa, the dominant Mexican broadcaster and one of the largest Spanish-language media companies in the world, has been building its own telecommunications network.

Controlled by the billionaire Emilio Azcárraga, 43, Televisa already offers phone and Internet service through its cable subsidiaries. Last month, it bought 50 percent of a small cellphone company, Iusacell, for $1.6 billion.

“You need someone with deep pockets for mobile,” said Jana Palacios Prieto, an analyst with the Mexican Competitiveness Institute. “They are a credible threat.”

Televisa says the government still has far to go to level the playing field. “Decisions that the government should have taken years ago are just being taken,” said Javier Tejado Dondé, Televisa’s director of information, “and they will be challenged in court. So, to say that we have reached a totally pro-competitive moment — I see that as very far off.”

But Mr. Azcárraga and Ricardo Salinas Pliego, who controls Iusacell and who has called for further regulation, have their own history of fighting back against regulation. Between them, they operate a virtual duopoly in broadcast television, more evidence, critics say, of how dominant a handful of powerful companies are in Mexico’s economy.

“What we’re seeing today is the government acting to channel the monopolies, not eliminate them,” said Ernesto Piedras, director of the Competitive Intelligence Unit, a telecom consultancy.

Since February, when Mr. Slim’s companies withdrew all their television advertising, he and the broadcasters have been in open warfare. Both sides ran ad campaigns accusing each other of bilking consumers and freezing out the competition.

That brought a reaction from the authorities.

In April, Mr. Pérez Motta of the Federal Competition Commission announced the fine against Telcel. The ruling argues that Telcel displaces competitors by charging them higher interconnection fees than it implicitly charges itself when it offers its customers free calls to Telcel phones.

Telcel called the commission’s timing opportunistic. “It appears that they are interfering in a dispute between carriers and taking sides in the general argument,” said Alejandro Cantú, general counsel for América Móvil. At the heart of all the disputes are the fees. Almost all Telcel’s competitors say the price Telcel wants them to pay is too high. Over all, these fees cost Mexican consumers an additional $6 billion a year, according to estimates from the competition commission. Mr. de Swaan’s agency has begun setting them at about 40 percent of what Telcel argues it needs to cover costs. The Supreme Court ruling requires the new lower fees to remain in place while disputes wind their way through the courts.

Mr. Cantú said Telcel still planned to contest the new fees.