The Federal Competition Commission has recently been involved in decisions on some of Mexico's most prominent competition cases in the field of telecommunications. In addition to issuing a resolution to cap the accumulation of spectrum,(1) the commission imposed the highest-ever penalty for relative monopolistic practices in the mobile call market in May 2011(2) and issued a definitive declaration of dominance regarding mobile call services in November 2011.(3) Most recently, in January 2012 it issued a resolution regarding a merger in the mobile phone line market between the only two providers of network television in Mexico.(4) Meanwhile, the Federal Telecommunications Commission has been dealing with significant issues in the sector, such as the regulation of interconnection rates between mobile phone companies(5) and the public tender for a third television network. These high-profile cases and developments have raised public awareness of the regulatory deficiencies that must be overcome in seeking to enhance competition in Mexico's telecommunications markets.
On February 12 2012 the Organisation for Economic Cooperation and Development (OECD) presented the results of a study of Mexico's telecommunications policies and regulations. The report aims to provide factual analysis and interpretation of the problems and perceived inadequacies in the institutional framework; it also highlights the risks of failing to address deficiencies in the sector. The report indicates:
- high levels of concentration in all relevant markets in the sector;
- an absence of asymmetric regulation for economic agents with high market power;
- low penetration indices for telecommunications;
- entry barriers that impede foreign investment;
- excessive litigation of telecommunications matters in non-specialised courts;
- a need to empower regulators to impose greater penalties for unfair or non-compliant conduct; and
- a resistance to change among the public and private entities involved in the sector, a lack of coordination between government agencies and the corresponding difficulties faced by the authorities in implementing reform.
The OECD highlights Mexico's competition problems by comparing it with other OECD members. América Móvil/Telmex/Telcel controls 80% of Mexico's fixed phone lines, 70% of its mobile phone lines and 74% of its broadband network. In other media, Televisa controls 70% of analogue network television, 45% of cable television and 60% of satellite television.
The report states that due to a lack of competition within the telecommunications sector, Mexico ranks last for investment by head of population, despite high demand and a need for wider coverage. It also indicates that this lack of competition has resulted in low penetration, in terms of subscriptions for every 100 inhabitants, in the markets for fixed phone lines, mobile phone lines and broadband, in which Mexico ranks 34th, 33rd and 32nd out of the OECD's 34 member states.
Although the OECD applauds some of Mexico's efforts to promote competition, it considers them insufficient overall. The daily opportunity cost of taking no action is estimated at $71 million and the average annual loss to consumer welfare as a result of excessive pricing for services(5) is estimated at $25.8 billion, the equivalent of 1.8% of Mexico's gross domestic product.(6)
The report has provoked strong views. Some commentators support its conclusions, whereas others consider that it fails to address the complete set of policy issues, or see it as a justification for government actions against América Móvil/Telmex/Telcel. Whatever the reaction to the report, it is clear that little progress has been achieved in recent years towards the government's three objectives of convergence, coverage and competition. The government faces the considerable challenge of achieving these aims and improving conditions in the sector at a time when the policy agenda is inevitably influenced by the forthcoming presidential elections in July 2012.
For further information on this topic please contact Lucia Ojeda Cardenas at SAI Law & Economics by telephone (+52 55 59 85 6618 ), fax (+52 55 59 85 6628) or email ([email protected]).
Endnotes
(5) See also File Number 240/2011 (amparo en revisión) before the Supreme Court.
(5) Based on the period from 2005 to 2009.
(6) According to a clarification issued subsequently by the OECD, these figures were calculated by analysing the economic loss that Mexican consumers suffer as a result of paying prices that are higher than they would be in a competitive environment, and takes into consideration the loss suffered by potential consumers who are unable to enter the market due to high prices.