Mexico’s Move Could Lead to Big Savings for U.S. Callers
Mexican authorities Tuesday slashed the fees paid by U.S. phone giants MCI WorldCom and AT&T; Corp. for passing long-distance calls through to Mexican subscribers, soothing a major irritant in cross-border trade.
The 53% drop in the interconnection rate and the removal of a hefty surcharge could eventually mean substantial savings for U.S. callers, who placed 2.4 billion minutes of calls to Mexico in 1996--or 12% of all international calls made from the United States.
But for now, the windfall is more likely to help MCI and AT&T; to reduce the heavy losses they have swallowed since entering Mexico’s $4-billion long-distance market two years ago. MCI WorldCom appears headed toward an $80-million loss this year alone on its Mexican joint venture and AT&T; even more, the companies said.
Both firms ascribe the losses to unfair competition by Telmex, the privatized and newly aggressive Mexican phone company, which delivers incoming international calls through its nationwide network. Telmex, meanwhile, earned about $850 million from handling international calls last year.
The ruling by the Mexican Federal Telecommunications Commission, known as Cofetel, still leaves some sore points unresolved in the bitter squabbles between the U.S. phone companies and Telmex. But a number of major complaints by the U.S. firms appeared to be addressed.
Furthermore, the regulatory order appeared to remove obstacles that threaten to derail the new Sprint-Telmex joint venture, which began offering phone service to the Mexican American community in the southeastern United States this fall.
The U.S. Federal Communications Commission last month threatened to repeal its approval of the Telmex-Sprint venture unless Telmex ended its alleged anti-competitive practices against MCI WorldCom and AT&T; in Mexico.
None of the companies was willing to comment Tuesday on Cofetel’s ruling, saying they wanted to study the fine print first. A deal negotiated among most of the players in August fell apart because of disagreements about details. This time, the commission ruled by regulatory fiat.
Telmex, a former monopoly that still is the sole provider of local phone service in Mexico, has argued that the American firms have captured 28% of its long-distance market in Mexico since January 1997, proving that competition exists. Further, Telmex says it has invested $14 billion in recent years to create the domestic network that the foreign companies rely on, and the fees are funding further expansion of the grid.
Avantel, MCI’s joint venture in Mexico, then won a court order in April allowing it to stop paying the contested fees to Telmex until the matter was decided. Avantel and Alestra, AT&T;’s joint venture here, say Telmex’s fees are far higher than elsewhere in the world. In January, MCI said it was delaying $900 million in further investment in Mexico until the dispute was resolved.
The Mexican commission’s new rules cut the interconnection fee charged to U.S. companies by 53% to 2.6 cents a minute. The order also removes a controversial 58% surcharge on the separate settlement rate charged by Telmex to complete international calls to Mexico through its huge local network.
“This puts Mexico at the same competitive levels as other countries,” said Javier Lozano, the head of Cofetel. “This starts a new phase toward more ordered regulation . . . and healthy competition.”
He announced the changes on long-distance rules as part of a package of measures including a new phone-number system for Mexico and revised cellular phone regulations.
Luis Lopez, chief executive of the Arizona-based Sprint-Telmex venture, said in a telephone interview, “Mexico is making real, hard decisions. These are big issues with a lot of money involved.”
Consumers have saved about 50% in reduced charges as competition has taken hold in the last two years and long-distance rates have plunged in the cross-border market. The cost of local calls, however, has gone up nearly that much, prompting accusations that Telmex is using local revenue to subsidize its competitive battle against foreign firms.
The settlement rate, which is negotiated between phone companies rather than set by governments, remains the core dispute. Telmex has agreed to phase it down from 37.5 cents a minute this year to 34.5 cents in 1999 and 19 cents in 2000. The U.S. companies and the FCC are happy with the 19-cent target but not with what they see as the snail-paced reductions.
