Mexico opens up phone market - will Telmex suffer?

Mexico is proving to be one of the world's most difficult markets to expose to competition, due primarily to opposition from Mexico 's key fixed-line operator Telmex (Telefonos de Mexico).

Now a major move to open Mexico up to competition has been taken. The country's Communications and Transportation Secretariat is to introduce legislation which will permit cable television operators the right to enter by the end of this year a sector worth US$12 billion.

Allowing cable TV players (and there around 200 of them) to participate is perceived as a positive one for consumers in Mexico . The cable operators themselves are aspiring towards 'triple play' whereby they are spending heavily to offer television, Internet and voice services in one single package. One such operator, Canitec, is optimistic: "We could see prices drop by 30% or more," declared its president Alejandro Puente Cordoba.

Crucial to the success of the proposals is the concept that cable operators will no longer be required by Mexican law to team up with existing telephone companies to offer voice services. This situation has helped Telmex, as most business has been barred from the Mexican market.

In the recent past several key observers of telecoms in Mexico have expressed their desire to see Mexico enjoy the benefits of a more level playing-field. For example, Guillermo Ortiz, highly respected in the banking industry, has declared that Telmex is adversely affecting Mexico 's global ability to compete because Mexican citizens and enterprises are lumbered with telecoms tariffs which are among the highest anywhere.

This time the critic is a Mexican official specifically entrusted with an anti-trust agenda, namely Eduardo Perez Motta. As Mexico 's top antitrust official, he has hit out at the objections to the proposals from Telmex. From the Telmex perspective what is wrong is that Telmex has to comply with certain requirements before offering television services. By contrast cable operators can participate in telecoms immediately.

More specifically, the most difficult aspect for Telmex is "portability," meaning that Telmex must produce a system whereby customers who leave Telmex for telecoms services from a cable TV company must be able to take their numbers with them.

The Director of Legal Affairs for Telmex, Javier Mondragon Alarcon, is concerned about cost: "Who should pay for this portability?" he has demanded. Cable firms, in his opinion, would cherry-pick the Telmex customers in urban areas who paid the most. Those in the rural areas, or who were low spenders, may be ignored by their new suppliers. Telmex, by contrast, was required to supply services to these latter categories.

Eduardo Perez Motta, however, has pushed home his attack, describing the Telmex version as "absolutely false." Number portability is vital - it will help open the telephone market to competition and will make sure it functions smoothly. Telmex must indeed meet this and other requirements if it wants to move into television as a condition of moving into television. Telmex had in the past been over-hesitant when complying with regulators.

"We can't trust them," were the words of an anti-trust campaigner.

The next steps

Mexico 's economic development was being retarded, in the view of the Communications Secretariat whose declaration is very much appreciated by the competitors to Telmex. It may not be a consolation to Telmex, but Mexico is showing an urge to dissolve all the oligopolies in general, as they are causing the previously-mentioned sluggishness in performance.

Of course, it is naïve to expect an overnight transformation in Mexican telecoms. Cable TV customers may well change their telephony supplier, but they are little more than 3% of the population.

There is even then the threat of a legal case brought by Telmex. Add together the threat to Telmex plus its track-record of bringing law-suits plus the already overburdened Mexican courts and the sum total is that change will be lost without trace for years in complex litigation.

There is actually some good news. Telmex does support the spirit of the Mexican Government's so-called convergence agreement, which seeks to bring more players into the telecommunications market.