Carlos Slim’s Telecom Stranglehold Is Up Against Its Most Serious Challenge So Far

Michael Teague  |

In fact, Slim’s former status as the world’s wealthiest human being and the future of his largely dominant phone company America Movil are interrelated. During Mexico’s presidential elections of last year, the eventual winner Enrique Pena Nieto was seeking to bring the deposed and somewhat disgraced Institutional Revolutionary Party (PRI) back to power after an absence of twelve years.

In order to do so, Pena Nieto was more or less forced to make deals with opposition parties among whose main grievances were the cronyism that exists between the country’s political and economic elites, of which Carlos Slim is perhaps one of the most common symbols.

The opposition parties were also crucial to Nieto’s victory because of his main rival for the election, Andres Manuel Lopez Obrador, believed by many Mexicans to have been the real winner of the 2006 election that was decided by the tiniest of margins in favor of Felippe Calderon. While Obrador’s 2012 campaign at the head of the Party of the Democratic Revolution (PRD) did not have the momentum of his 2006 bid, losing by almost 7 percentage points, his credentials as a populist opposition candidate had long been established.

Thus, looking to make good on campaign promises to break the back of dynastic monopolies in certain areas of the Mexican economy, particularly in telecom and television, Pena Nieto’s administration unveiled anti-trust legislation in March that would give government regulators the power to force dominant companies to sell off assets.

The mere proposal of that legislation caused a sell-off in shares of Slim’s America Movil that shaved $3 billion off of the magnate’s personal fortune, making him only the second wealthiest person alive behind Bill Gates. The legislation has now made its way through Mexico’s congress with Pena Nieto largely expected to sign it into law on Monday.

Regardless of the sincerity under which it was devised, the implementation of the reform does not appear to be a mere threat on the part of the current administration. To be sure, they have not picked a very difficult target; the company’s Telmex subsidiary controls 80 percent of the fixed-line market, while the Telcel subsidiary owns 70 percent of the country’s mobile services. All in all, America Movil has 260 million wireless subscribers firmly in hand, and uses its vast wealth to thwart any legal attempts against its dominance in the courts.

Furthermore, the company charges rates that are out of all proportion with the financial capacity of many Mexicans. And OECD study found last year that America Movil overcharged to the tune of some $13.4 billion per year between 2005 and 2009, and was able to do so as a direct result of a lack of competition.

When Slim bought Telmex back in 1990 and took it private, he at first built out the company into Latin America’s most promising telecommunications network. But the desire to trammel the competition and control the market at all costs ended up hurting both the company and the industry, as competitors such as Verizon (VZ) and Vodafone (VOD) who could have helped spur growth and lower prices instead left the country in frustration.

The new law provides for the creation of regulatory agency called Ifetel, which would have the power to force the monopolies like America Movil and its television colleague Televisa, owned by Emilio Azcarraga that controls more than 60 percent of the television market, to share infrastructure with rivals at much more affordable prices.

Ifetel will be created in the next three months, and will have six months after that to decide whether or not a company is dominant, and if so, whether or not a company has maintained this dominance fairly. Based on that determination, a company may or may not be forced to break up.

Interestingly, regulators in Mexico have said that they have spoken with U.S. government officials about how to go about breaking up huge corporate monopolies, as happened with Standard Oil back in 1911, and AT&T (T) in 1984. While it could be argued that both of these companies have since returned to their monopolistic positions, there is no doubt that their breaking up lead to more breathing room for competition to flourish.

Mexico is often portrayed as a near-failed state, mentioned at times in the same sentence as places such as Afghanistan. Though the country’s politics have often been extremely brutal, like with the dirty wars of the ‘60s and ‘70s when many dissidents simply vanished never to be seen again, and now with the bloodbath between the drug cartels that continues to spiral out of control, the government still has the wherewithal to take some action against corporate entities that are clearly perceived as harmful to the functioning of the country’s market economy.

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