Plan to Open Up Mexican Telecom

Federal regulators have taken the boldest step yet to pry open Mexico’s fixed-line telephone market to competition and loosen the grip of telecom giant Telmex, which has long enjoyed a near monopoly here.

An official with Mexico’s Communications and Transportation Secretariat said Tuesday that the agency would craft regulations that would allow cable television companies to jump into the $12-billion market, perhaps as soon as December.

The move is seen as a victory for Mexican consumers as well as the nation’s approximately 200 cable operators, some of which have spent millions of dollars upgrading their infrastructure for the chance to offer television, Internet and voice services in a package known in the industry as “triple play.”

Up to now, Mexican law has required the cable operators to team up with existing telephone companies to offer voice services, a barrier that has shut most out of that business in a market where Telmex, or Telefonos de Mexico, controls 94% of the nation’s fixed lines.

“We could see prices drop by 30% or more,” said Alejandro Puente Cordoba, president of national cable television trade group Canitec.

The communications secretariat’s announcement was much awaited by Telmex’s competitors. The challenge to Telmex, which is controlled by billionaire Carlos Slim, the world’s third-richest man, signifies a new willingness by regulators to take on the oligopolies that experts say have slowed Mexico’s economic development.

Still, analysts warned that the proposed opening wouldn’t quickly transform Mexico’s telecom market, one of the world’s least competitive and most expensive. Cable TV customers are the most likely to switch over their phone service. But they number only 3.4 million in a nation of 106 million people, nearly half of whom live in poverty.

And the proposed rules are strongly opposed by Telmex, which has a history of using Mexico’s overburdened courts to tie up regulations it dislikes for years. A Telmex spokesman declined to say whether the company planned a lawsuit to fight the regulations. But industry watchers said they would be surprised if the company didn’t.

“I think they’ll take some legal action to slow it down,” said Juan Ignacio Fernandez, an Oregon-based Latin America telecommunications analyst with Gartner Inc. “If the tools are available for them to delay opening a market or implementing market changes, they will use them.”

A Telmex spokesman said the company supported the spirit of the government’s so-called convergence agreement, which seeks to bring more players into the telecommunications market.

Under present law, Mexican telephone and cable companies can offer Internet access in addition to their core services. The plan, which is slated to go into effect Nov. 30, would give all firms the chance to offer their customers a third product -- the triple play -- by allowing telephone companies to move into television and cable operators to offer voice services directly to their customers.

What Telmex opposes is the government’s stipulating that the phone giant meet some requirements before it is allowed to offer television service while permitting cable operators to jump in immediately.

The most contentious of those requirements is “portability,” which would require Telmex to come up with a system enabling its telephone customers who defect to cable operators to take their phone numbers with them.

“Who should pay for this portability?” asked Javier Mondragon Alarcon, director of legal affairs for Telmex, in a telephone interview Tuesday.

Mondragon said cable firms would be allowed to cherry-pick Telmex’s high-income customers in urban markets without being required to offer telephone services to low-income consumers or invest in rural areas, as it has been forced to do.

In a statement last week, the company accused the nation’s Federal Competition Commission, which pushed for inclusion of the portability and other requirements for Telmex, of being “anti-consumer” and protecting “monopolistic” cable companies.

In an interview Monday, Eduardo Perez Motta, Mexico’s top antitrust official, called Telmex’s claims “absolutely false.” He said issues such as number portability were essential to opening Mexico’s telephone market to competition and ensuring that it functioned smoothly. Telmex must be forced to meet this and other requirements as a condition of moving into television because of the company’s history of dragging its feet on agreements with regulators, he said.

“We can’t trust them,” he said.

Perez Motta is the latest high-profile Mexican official to criticize Telmex. This year, the nation’s respected central banker, Guillermo Ortiz, accused the company of saddling Mexican consumers and businesses with some of the highest rates in the world, a factor he said was hurting the nation’s international competitiveness.

Analysts said it remained to be seen how successful regulators were at reining in Telmex’s power and bringing real competition to the market. But they said the convergence agreement appeared to be a small step in the right direction.

“The longer you have a virtual monopoly in Mexico, the longer you are going to have consumers that are negatively affected,” said Colombia-based analyst Jose Otero, president of Signals Telecom Consulting in Miami.

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Staff writer Carlos Martinez contributed to this report.

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Begin text of infobox

Telmex at a glance

Employees: 78,891 as of September

2005 revenue: $15 billion

Number of phone lines: 18.6 million, up from 5 million when Telmex was privatized in 1990

Growth potential: There is one phone line for every seven users in Mexico.

Market share: Telmex controls 94% of land lines. Carlos Slim, who holds a controlling stake in Telmex, also controls America Movil, the leading wireless carrier.

Latin America ventures: Telmex has operations in Argentina, Brazil, Chile, Colombia and Peru.

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Sources: Telmex, Times research

Los Angeles Times