The Dominance of Slim Comes Under Question in Mexico

Does the wide-bodied presence of Mexican telephone giant Telmex hurt the competitiveness of the country’s ICT market? Even if the businesses of the Carso Group – the global …

Does the wide-bodied presence of Mexican telephone giant Telmex hurt the competitiveness of the country’s ICT market? Even if the businesses of the Carso Group – the global conglomerate owned by Carlos Slim – are not technically a monopoly, the specter of this dominance is apparent in virtually every part of the telecom services delivery chain in Mexico.

Slim might reject the claim that Telmex is a monopoly. However, it will be difficult for the Mexican tycoon to ever free himself of the “Mr. Monopoly” nickname as The Wall Street Journal labeled him in an article published in August 2007 here. With over 200 companies under his control at that time – including telecommunications, cigarettes, construction, mining, bicycles, soft-drinks, airlines, hotels, railways, banking and printing – the newspaper pointed out it that was difficult to spend one day in Mexico and not contribute to Mr. Slim’s pockets.

Competitiveness

Ernesto Piedras, Professor at the Mexico Autonomous Institute of Technology (ITAM) and General Director at CIU, a regional market research and consulting firm, thinks that while the Carso Group “does not favor practices of more and better competition”, there are both negative and positive effects  of its dominant position.

“When (in 1990) Telmex was privatized and was bought by Slim, no competitor existed in the Mexican market.  So he assumed an investment commitment that he not only fulfilled but exceeded and was only stopped by the crisis of 1995. Telmex then became a very aggressive company that modernized technology after decades of state administration,” Piedas explains.

Mónica Mistretta, a business technology analyst and publisher of InformationWeek Mexico, praises Slim’s ability to modernize and manage Telmex:  “In addition to improving the service in a radical way, he got the union – that acted as if it were the owner of the company – on his side and did it so intelligently that there were no labor strikes.” Nevertheless, Mistretta emphasizes that those achievements were only possible because it was a “de facto monopoly.”

Piedras agrees, since he believes the positive and negative aspects took place simultaneously: the implementation of strategies to prevent and reduce competition, accompanied by the regulatory polices of each national administrations, with the exception of the current one. “I have lots of evidence that the government of (Felipe) Calderón is the first one that as an authority has moved away from Slim’s influence”, he argues.

Last April, Mr. Calderón sent the Mexican Congress a reform proposal to combat monopolies, oligopolies and anti competitive practices which entailed punishments between 3 and 10 years for those who interrupted free market competition. The initiative, which is still held in the Chamber of Deputies, also included a monetary punishment that was equivalent to 10% of the revenue of the company who had absolute monopolization practices, and 8% in the case of relative monopolization practices.

Currently, the sanctions are measured in minimum wages – which do nothing to discourage unlawful practices.

Aside from anti-monopolization policies, the experts we interviewed believe that the government should take other measures to encourage more competition.  José Mavignier, Industry Manager in Latin America, from Frost & Sullivan, thinks that the most important thing to do is regulate the networks in the ‘last mile’ of telecom delivery, so that it’s possible to reach clients through the network of the service provider itself. He also argues that it would be convenient for the government to offer fiscal benefits to favor investment in low income populations.

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Innovation

Mr. Piedras, like others, believes that the service offered to the Mexican consumer is very poor in comparison with other markets: “Bad quality, high prices and insufficient coverage are things that Slim puts forward with the argument that ‘it’s not that our services are expensive, but that the average Mexican is poor’.”

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