On January 21, 2010, the Federal Competition Commission of Mexico (Comisión Federal de Competencia, also known as "CFC" or "Cofeco") issued a ruling confirming that Telcel has substantial power in the market for mobile telephony services in Mexico. Cofeco’s decision was adopted by a majority of 3 to 2 in its Junta del Pleno, Cofeco’s highest decision body. The relevant proceeding was started by Cofeco at the request of a user of Telcel’s services that argued that Telcel had substantial power in the relevant market and therefore should have specific obligations applying to its rates.

According to the Mexican Ley Federal de Telecomunicaciones (Federal Telecommunications Law), Cofeco’s determination of the existence of substantial power is required before the Mexican Ministry of Telecommunications and Transportation (Secretaría de Comunicaciones y Transportes) may impose on a carrier, such as a Telcel, specific obligations related to rates, quality of service, and information. The Telecommunication Law indicates that the purpose of these obligations is that the rates of each service, including interconnection rates, allow at least recovery of long term average incremental cost.

The CFC defined that the relevant market is the mobile telephony service at the national level, including cellular based services, wireless mobile access and digital trunking. During this process Cofeco requested information of the other principal participants in this market in Mexico, including Telefónica, Nextel, Iusacell, Unefon and Telcel.

As a result of its analysis, Cofeco determined that high concentration in the market for mobile telephony services in Mexico may jeopardize competition and free market participation. Cofeco's decision indicates that Telcel leads this market in Mexico with a share four times that of its closest competitor, in terms of subscribers, and five times in terms of revenues. These facts – coupled with Telcel’s high profits, its capacity to attract new subscribers, and the existence of significant entry barriers – convinced Cofeco that Telcel has substantial power in the relevant market.

Telcel, a Mexican company that is part of the telephone consortium America Móvil, which is headed by Mr. Carlos Slim, has publicly announced its disagreement with this decision and that it will seek appropriate legal remedies. Telcel may initiate a proceeding before the CFC requesting a reconsideration of its decision and then a constitutional review of the decision before Mexican courts.

This Cofeco decision may cause Telcel to act more cautiously in the relationship with third parties to avoid incurring liability for monopolistic practices. A final determination by CFC as to the existence of a monopolistic practice will entitle any person affected by such practice to bring an action to claim and indemnity for losses and damages from the perpetrator.

A Spanish version of the Cofeco decision may be found at: http://www.cfc.gob.mx