International Business: SPOTLIGHT ON MEXICO : Despite NAFTA, Barriers Remain for Small Businesses : Trade: Competition is tough in industries where monopolies still exist, as one U.S. entrepreneur found out.

Getting cut off is hardly a surprise for telephone callers in Mexico, but Brad Tirpak was shocked when it happened to him.

Tirpak runs an international long-distance service called Access Telecom that rents 800-number lines owned by Telefonos de Mexico, the national telephone monopoly.

His customers used the lines to call the United States and place long-distance calls at a savings of up to 22% over Telmex rates. The company had just begun to turn a profit after months of investment and losses when, without warning or explanation, Telmex cut off Tirpak’s eight lines.

“This is a clear-cut example of a large company squishing a small company, with no reservations about doing it,” Tirpak said. Telmex officials would not comment.

Tirpak’s case is an exceptionally blatant illustration of the barriers that small and medium-sized U.S. companies may face if they try to carve a niche for themselves in a Mexican market geared to big corporations.

Telmex had the right to cut off Tirpak because it has a legal monopoly on long-distance service until 1996. Other corporations in supposedly competitive markets are more subtle but just as ruthless, small-business owners complain.

While Mexico passed its first anti-monopoly law more than a century ago, its first trust-busting agency, the Federal Competition Commission, is barely a year old.

In its first annual report, the commission acknowledged that it is fighting to reverse a decades-long trend toward monopolies, fostered by regulations that created artificial barriers to the entry of new competitors and the lack of a vigorous competition policy. Government concessions--exclusive, long-term contracts of the type Telmex received--also played a role, according to the commission.

“The Mexican economy has inherited a substantial number of business activities where competition has been needlessly curbed,” the report said. “This may have a negative effect on efficiency and equity for many years to come.”

The commission took a vigorous approach to breaking up monopolies in its first year--investigating price fixing among banks offering credit cards, forcing the government oil monopoly Petroleos Mexicanos to offer more gasoline station franchises, and even taking on Telmex indirectly by setting conditions for a merger between two copper wire companies--one owned by Telmex shareholders--that are major suppliers to the phone company.

However, the report notes that “conduct regulation is always an imperfect substitute for a market structure which forces firms to compete.”

Even the government itself has found the adjustment to an anti-monopoly mentality difficult. Only one of the commission’s first 17 anti-monopoly suits was decided in favor of the company making the complaint. The rest were dismissed, several on the recommendation of state governments or federal agencies.

Further, federal programs to support small companies are geared mainly to helping suppliers of major corporations, which provide orders that are used almost like collateral for small-business loans. Entrepreneurs who want to compete with, rather than supply, major companies face a struggle, as Tirpak learned.

He got the idea for Access when he was a graduate student doing field work in Mexico during the 1993 spring semester. He tried to call his U.S. bank’s 800 number and found it didn’t work in Mexico. His original idea was to create a way for callers to reach U.S. 800 numbers from Mexico.

He incorporated the company on graduation day, excited to be in on the ground floor of the continental business cooperation promised by the North American Free Trade Agreement, which was then being negotiated. Tirpak signed a three-year contract with MCI to provide him with 800 lines out of Mexico. MCI, in turn, bought the service from Telmex.

“We provide lines to the United States for overseas companies,” said Alan Garratt, a spokesman for MCI. “Most use them within the company. MCI does not inquire into the reasons for the service.”

As Tirpak began marketing his service, he found that potential customers were interested in more than calling U.S. 800 numbers. They wanted to call all over the country, especially once he learned that he could contract with a variety of U.S. long-distance carriers and offer his callers the cheapest rate available.

“We did not make money the first six months,” Tirpak said. But by December, his call volume was high enough that he could renegotiate a better rate with MCI. He used the additional income to hire more salespeople, garnering a staff of seven by early July, when his volume of calls reached 9,600 a week for 400 clients. At that rate, Tirpak had a $3-million-a-year business.

The morning of July 19, Tirpak signed up a new client and made a test call. It was the last call Access Telecom would place.

By the time he returned to his office, his lines were down. A few hours of checking revealed that the problem was not technical. Service had been cut off.

“MCI is caught in the middle,” said Garratt. “Telmex, under their rules, is allowed to discontinue this type of service up until 1996,” when long-distance competition is to begin.

Tirpak received the same explanation from Mexican Communications and Transportation Ministry officials.

Based on his experience, he said, “it’s hard for me to say that small and medium firms should invest in Mexico. Go to Tennessee and get some tax breaks instead.”

He does not have much real hope of keeping his company in business, but he figures he’ll try try to negotiate a deal with Telmex. “I put a year and a half into it,” he said. “I might as well give it another two months.”