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Telecom giant Telmex caught in Mexican anti-trust attack
New regulations could lead to price controls
by Tony Danby, Latin America Correspondent
Mexico’s anti-trust commission has introduced new resolutions accusing Carlos Slim's fixed-line telecoms giant Telmex of dominance that may trim the Mexican giant’s rates. However, according to industry analysts, the new anti-trust offensive is still uncertain of a marked success.
Carlos Slim, the world’s second richest man, built a multi-billion dollar global fixed and mobile telecoms empire after acquiring the former Mexican telecoms monopoly in the 1990s. As a result, Telmex and its sister mobile operation America Móvil have aggressively expanded across Latin America funded from his lucrative incumbent home-market.
But new anti-trust resolutions are starting to shake up the telecoms market. Mexico's anti-trust commission Federal Competition Commission (CFC) in July issued resolutions stating the dominance of Telmex in local transit and wholesale leasing of dedicated lines. CFC said that the incumbent operator was “dominant” in 191 areas of local telephony service.
Wally Swain, a telecoms analyst at the Yankee Group, says that this is the start of a process that will see Telmex and the regulators carefully maneuvering. “It’ll take six months or a year, but the result will eventually lead to Telmex needing to lower its rates.”
While Jose Otero, president of telecoms consultancy Signals Consulting, agrees that if the decision stands after being challenged in court, price ceilings for Telmex can be expected. “As a result of lower rates, Telmex’s revenues could be reduced in Mexico,” he added.
CFC declared that Telmex was dominant in dedicated lines for national and international long distance interconnection after assessing thousands of pages of evidence from the telecoms industry.
Diluting risks
Industry analysts, however, tone down the risk for Telmex’s position as the main player in the Mexican telecoms market. Otero says that Mexico’s regulatory framework still needs to be improved and the Federal Telecommunications Law needs to be updated — something that has been tried several times without much success. Otero adds that “New measures could have little to no impact if protectionist elements aren’t lifted that limit foreign investment for fixed services and tacitly restrict the number of pay TV players per region.”
In Otero’s opinion, axing these protectionist elements would provide better incentives for players such as Spain’s Telefónica to hike investment in the country. Then the Spanish can start offering fixed line services such as high speed-broadband connections and wholesale transport. He believes that the main challengers for Mexico’s fixed line markets are the cable TV operators such as the Yoo alliance — Empresas Cablevision SAB, Cablemas SA, TVI and Megacable Holdings SAB — as well as Axtel, Alestra and Maxcom.
Otero doesn’t expect rival operators, however, to gain a large stake of the total fixed telephony market. “Not even in Chile, a market characterized by strong liberalization and high level of competition, have new entrants been able to challenge the incumbent fixed line provider,” he recalls.
Other industry analysts also question the CFC’s ability to curtail the Mexican telecoms powerhouse. Jose Manuel Mercado, a consultant at Frost & Sullivan in Mexico, warns that the regulator isn’t as strong and as independent as it should be. “It’s clear for the entire sector that they don’t have the legal ability to clearly stop Telmex’s dominant position,” Mercado said.
Moreover, Mercado adds that although the commission stated that Telmex has market dominance, that doesn’t imply legal action will be taken against the company. “It’s just a statement,” he said.
New services
Jose Magana, an analyst at Pyramid Research, says that Telmex has a strong market share in the fixed line market, but this is a shrinking market. “Only fixed broadband and corporate services seeing growth,” he said. According to Magana, Telmex’s rivals need to enter the market cheaply and can do this by offering triple play packages, mobile voice and broadband services as well as technologies such as WIMAX and VoIP. “Telecoms regulations must therefore keep competition open and allow new technologies,” he urged.
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