Probe may force Slim to trim his sails

Mexico's antitrust chief said regulators will reopen an investigation of billionaire Carlos Slim's telephone companies, Telefonos de Mexico SAB and America Movil SAB, within about three weeks.

Eduardo Perez Motta, president of the Federal Competition Commission, made the comment during a speech in Mexico City. In July, he said the inquiry will determine whether Telefonos de Mexico and America Movil have monopolies in some regions, forcing regulators to create new rules to encourage competition.

"We'll talk about this probe in the next few days," Perez Motta said at a conference organized by the commission. "I don't think it will take more than three weeks to start."

Mexican regulators are renewing attempts to rein in Slim's dominance in telecommunications more than 16 years after he bought a former state phone monopoly. Telmex owns about 90 percent of Mexico's fixed telephone lines. America Movil's Telcel unit has 77 percent of wireless subscribers in the country.

Lack of competition in telecommunications, energy, transportation and financial services is stifling Mexico's growth and hurting consumers, Perez Motta said.

Mexico's $839 billion economy expanded 2.8 percent in the second quarter, lagging behind Brazil's 5.4 percent increase and Argentina's 8.7 percent advance.

The investigation may prompt the competition commission to declare Telefonos de Mexico, known as Telmex, and Telcel "dominant carriers", clearing the way for the Federal Telecommunications Commission to issue special regulations to curb their market power, Perez Motta said.

Perez Motta said the probe will test a new antitrust law enacted last year that gave the agency more power to punish anticompetitive practices. Courts have overturned every antitrust ruling against Telmex, including one in 1997 that declared the company dominant.

The competition commission also has issued opinions on airports tariffs and airlines over the past month.

"This debate about telecoms has to be public," Perez Motta said. "Some people have come to me and asked why we couldn't instead sit down at a small table and discuss these issues privately. I think this is what has to change in this country."

Perez Motta reiterated criticism that Telmex and Telcel rates in Mexico are among the highest within the 30 countries in the Organization for Economic Cooperation and Development. Telmex disputes the OECD figures because the study adjusts prices for the purchasing power of each country. Without the adjustment, Telmex rates are among the cheapest, General Counsel Javier Mondragon said at the same conference.

Telefonos de Mexico shares fell 0.6 percent to 20.34 pesos in Mexican trading yesterday. America Movil gained 1.1 percent to 35.62 pesos.

Telefonica conflict

The debate intensified when an executive from Spain's Telefonica SA stood up in the audience during a question-and- answer session and asked whether Telmex would need a court order before it started connecting calls to Telefonica's new fixed-line phone service. Telefonica is Slim's biggest competitor in Latin America.

"We've been seeking interconnection from Telmex for at least 18 months," said Jorge Arreola, director of legal affairs for Telefonica's Mexico unit.

Mondragon, a panelist at the conference, replied that Telmex doesn't want to be held liable for connecting calls to a company whose ownership violates the law. Telefonica owns 97.7 percent of the phone company Grupo de Telecomunicaciones Mexicano SA, in breach of a law capping foreign ownership of fixed-line telecommunications at 49 percent, he said.

Telmex has asked regulators for guidance, Mondragon said. "Tell them, Jorge, to hurry up and answer our question," he said.

Telefonica has been temporarily renting lines from Alestra SA, an AT&T Inc affiliate, to offer phone service in the city of Puebla since July, Arreola said. It operates the service at a loss, he said, with a flat monthly rate of about 75 pesos, or half Telmex's.

Telefonica obtained government permission to own more than 49 percent of its fixed-line phone company and plans to expand the service to six more cities in coming months, Arreola said. Control of the company is in the hands of Telefonica's Mexican partner, Luis Rubio, he said.

"If Telmex complies with these new regulations for convergence, it will be a radical shift in the competitive environment in Mexico," Arreola said.

Bloomberg News

(China Daily 10/31/2007 page16)