Talk Is Not Cheap: Carlos Slim's Telecom Monopoly Costing Mexican Economy Billions

on April 02 2013 12:39 PM
  • Slim Carlos 2013
    Carlos Slim. Reuters
  • Carlos Slim
    Mexican telecom tycoon Carlos Slim has an estimated net worth of $72 billion. REUTERS
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The world’s richest man, Mexican telecom tycoon Carlos Slim, has drawn criticism from the U.S. trade office over his monopoly, which it says has stifled foreign investment and competition that could otherwise improve services and increase industry revenue.

The Office of the U.S. Trade Representative pointed out in its 2013 National Trade Estimate Report on Foreign Trade Barriers that Slim’s America Movil (NYSE:AMX), the parent company of landline service provider Telmex and wireless carrier Telcel, “dominates both the fixed and mobile segments of the Mexican telecommunications market.”

In 2012, Telmex accounted for 80 percent of landline customers and Telcel held 70 percent of Mexico’s wireless subscribers.

The trade agency added that Slim has been able to maintain “market dominance” over Mexico’s telecommunications sector due to weak regulations and a dysfunctional legal system to address such concerns.

“Enhancing competition in Mexico’s telecommunications sector continues to be a challenge,” the report said. “A combination of weak regulatory oversight and an inefficient court process has meant that disputes involving this carrier with respect to the terms of competition in the market have lingered for years.”

In particular, the report emphasizes the need for La Comisión Federal de Telecomunicaciones (Cofetel), the federal industry regulator, to have greater autonomy and authority to regulate prices and termination fees, adding that Slim’s companies have consistently blocked such efforts through the courts, though it did not account for the impact of a decision last October by Mexico’s Supreme Court that allows Cofetel to set interconnection rates between competing companies, making it easier for customers to switch service providers.

The report did mention the ruling, describing it as “a major step forward” which “should result in smoother implementation of such orders in the future.”

Other obstacles remain to the potential diversification of Mexico’s telecom market, such as Telmex and Telcel’s control over communication networks that lock out competitors.

As a result, customers pay some of the highest rates for wireless and landline services, which the Organization for Economic Cooperation and Development says has discouraged many people from signing up.

According to a January 2012 OECD report on Mexico’s telecom sector, high rates cost the industry $192.2 billion in lost revenue between 2005 and 2009, or 1.8 percent of GDP per year.

“This massive cost to the Mexican economy is a wake-up call to regulators and competition authorities about the fundamental importance of rules and regulations that ensure open and fair competition, are enforced by a strong regulator, and deliver good quality of services and at low prices,” the OECD said in a statement.

Slim's net worth is estimated at around $73 billion.

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