Mexican Regulator Imposes Rules on Telmex

LOS ANGELES (03/29/2000) - The process to revamp Mexican telecommunications continued on Monday when the regulatory agency in charge of that market hit dominant carrier Teléfonos de México SA de CV (Telmex) with special rules to foster competition.

The Mexican Federal Telecommunications Commission (Cofetel) notified Telmex that, as the country's telecommunications network concessionaire, it has to fulfill specific obligations "in order to develop a healthy and fair competition in Mexico," according to a statement from Cofetel.

Telmex, meanwhile, shot back by labeling the rules illegal. The rules would take effect in four months and address areas such as tariff prices and providing information to competitors. Telmex said it plans to use everything in its power to defend itself from what it considers an unfair action. Telmex has the right to appeal Cofetel's decision before a federal court.

"This is a positive advance for Mexico's telecommunications. Cofetel is acting to stop the game against the technology development in the country and it is using the available legal resources," said José Garcés, Mexico's telecommunication analyst for Mexico City-based Select-International Data Corp.

(IDC).

Telmex's competitors -- in particular Alestra, partly owned by AT&T Corp., and Avantel, partly owned by MCI Worldcom Inc. -- have complained regularly about what they claim is anti-competitive behavior on Telmex's part.

Competitors complain about what they say are excessive interconnection tariffs charged by Telmex, as well as lack of access to Telmex's network. Competitors have also delayed and not agreed with a debt that Telmex has said amounts to hundreds of millions of dollars for access fees and adapting its network for competition, Dow Jones reported Tuesday. Telmex offered to credit its rivals up to US$10 million per month, according to Dow Jones.

Alestra, Avantel and Telmex stopped a new round of talks related to the debt that started in January. Alestra officially stepped out of the talks last Wednesday, and Avantel withdrew from the talks a day later.

Government regulators "have tolerated Telmex excesses, and used their attribution to reject or delay authorizations asked by competitors ... so far there is no constructive or reasonable proposal to reach an agreement, therefore the new stage of negotiations has stagnated," said Avantel in a statement issued in response to Telmex Chairman Carlos Slim's keynote during the announcement of details of its "joint venture" with Microsoft Corp. to open a Web portal for Latin America. [See "MS ESC: Gates Details Microsoft's LatAm Portal, " March 21.]"We do not have any official response to Cofetel's rules, since they are so recent and we need to make a serious review and follow-up, but Telmex's position delays our recovery from the huge investment we have made," said Diego Arrazola, Avantel's corporate communications underdirector, in an interview. He added that the investment amounts to more than $1 billion.

"We had big expectations on the talks", said Enrique García, press director of Cofetel, adding, "If Telmex appeals, the whole process will be delayed even more, which can affect other competitors."

"Traditionally, Cofetel has been like a dog that barks but does not bite. The Commission has in a way supported Telmex by delaying this and other smaller competitors' licenses to develop its telecom offers," said analyst Carlos Guzmán, of the Washington, D.C.-based Americas Telecom Consultants. "With these mandatory regulations we may see the start of real vigorous steps towards anti-monopoly positions in Mexican telecommunications sector."

Guzmán added that the competitor's parent companies are also making a lot of pressure on them to reach an agreement. "They need to see profits from their billionaire investments," he said.

"This was a necessary step from the government," said Jorge Escribano, Alestra's information director, in an interview. The regulations "are an authority's public recognition of the importance of implementing measures that rule telecommunications in this country. Its bottom line: if, in the future, the process has to rely on management procedures, the government will have to adopt measures to open the road for competition."

Escribano said that beyond recovering investment, Alestra and AT&T's concerns are related to the implementation of a healthy competitive environment in Mexico, which will ignite the country's inclusion in the global economy.

To date, Alestra's investment totals $920 million and will increase by $1 billion this year, Escribano said.

According to a March 15 Financial Times report, "Cofetel's President Jorge Nicolín denies the agency is stalling. ... It is (Cofetel) running a 'legal risk' if it goes ahead, given an initial court ruling in December which questions whether Cofetel violated a technical procedure in declaring Telmex dominant. ... The battle has also divided government ministries between those who favor competition and those who believe 'Telmex is Mexico'."

The government regulator ordered a four-month deadline for Telmex to confirm, modify or totally reject the regulations.

Telmex officials weren't available for comment.

Mexico is among the Latin American countries that have reformed or are in the process of updating telecom rules, which observers have described as archaic.

Other countries are Argentina, Venezuela, Chile, Perú and Brazil. This week, Brazil's telecom regulator, Anatel, was touted by credit-rating company Fitch IBCA for overseeing and promoting the opening of the Brazilian telecommunications market. [See "Opening of Brazil's Telecom Market Successful So Far," March 27.]Avantel, in Mexico City, can be reached at +525-242-1027 or at http://www.avantel.com.mx. Alestra, in Mexico City, can be reached at +525-201-5011 or at http://www.alestra.com.mx. Telmex, in Mexico City, can be reached at http://telmex.com.mx/.

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