Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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Taking on Mexico’s Monopolies

by Shannon K. O'Neil
April 18, 2011

Mexican businessman Carlos Slim (Andres Stapff/Courtesy Reuters).

Last Friday, Mexico’s regulatory agency, the Federal Competition Commission, fined Carlos Slim’s Telcel US$1 billion for monopoly practices associated with high interconnection fees on its network. Controlling over 70% of the market, Telcel’s interconnection fees put competitors at a severe disadvantage due to the high costs charged to other fixed and mobile line operators when their subscribers call those on Telcel’s network.

This is the largest fine in Mexico’s history. Though the previous 2007 case against Telcel remains sealed, the maximum first time violation is roughly $8 million – peanuts compared to this ruling.  As important as the money, this would be the second strike against Telcel. In contrast to U.S. laws,  in Mexico the regulators have to build up a fine-based case for monopolistic behavior. With one more ruling against it, the Mexican government could in theory break up Telcel.

This is just the start of the battle. The mobile giant has an army of lawyers – rumored to have a budget as large as the regulatory agency itself– and the appeals process and countersuits will likely take years. But it is a surprising, and welcome, step. And it comes at a time when one of Mexico’s other giants — Televisa, the largest multimedia conglomerate in the Spanish-speaking world — announced its intention to move into the wireless market by buying a 50% stake in Iusacell, a much smaller mobile company (representing less than 2% of the market).

This investment brings together somewhat strange bedfellows, as the other half is owned by Ricardo Salinas Pliego, owner of Televisa’s sole rival, TV Azteca. This acquisition too has to pass the regulatory test. Watching the dramatic shifts occurring in the U.S. media markets, Mexico’s two networks are surely trying to protect and expand their businesses – entering into the new digital world. These steps have also led Mexican business into other virtually untested territory – encroaching on each other’s turf. In response to Televisa’s and TV Azteca’s challenge, Slim’s empire –which ranges from telecommunications to retail to construction and real estate – has pulled its advertising spots (and pesos) from the networks.

Back in 2006, Calderón campaigned on dismantling Mexico’s monopolies and increasing competition. For those hoping for change, the last four years have been disappointing. No new TV networks were licensed, control over distribution channels for several basic goods were left untouched, and his bill to fine monopolies (and jail their CEOs) stalled in Congress. But perhaps with this fine – aided by Mexico’s titans’ own battles – this legacy could change.

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