Antitrust and Telecommunications Reform in Mexico

Since its independence, Mexico has been subject to the control of small groups of powerful people that inherited privileges from strong institutions of the Spanish Crown, that ruled the country since the fall of the Aztec Empire. Mexican history has been full of fratricidal struggles by groups that had a different ideology on how to run the country.

After the Mexican revolution of 1910, a change in power took place, ousting the XIX Century establishment of the dictator, General Porfirio Diaz. However, some of the fortunes that came from such establishment regrouped and aligned with the revolutionary hierarchy.

After the revolution, during and after the Second World War, Mexico grew at a very fast pace, developing the so called "Mexican Miracle", when the country developed a public policy called "desarrollo estabilizador" (stabilized growth). Such policy was mainly based in substitution of imports, by establishing sheltered markets by catering to foreign and domestic interests that were willing to risk capital by investing in Mexico in a highly protected environment.

If an investor wanted to enter the Mexican market, it was necessary to make a deal with the government, by making a commitment to risk capital, and create jobs, in consideration of having the government close the borders to competing products and inputs to manufacture the given products and controlling prices in a high rate.

This economic policy indeed created a high growth of the economy and generated a lot of jobs, principally in Central Mexico, but also generated a new cast of privileged groups that associated with the revolutionary leaders, creating a culture of easy money making in a monopolistic closed market.

In the late fifties President Lopez Mateos, nationalized power generation and distribution, and in the late seventies, President Echeverria started to buy businesses that had grown out of the protected markets policy, and by the eighties the Mexican economy was under government control of about 80% of it economy, when the system collapsed because of wide spread corruption in government controlled companies that were inefficient, and government uncontrolled spending.

In the early nineties, President Salinas, started a spread policy of divesting government owned companies that were viable, selling to Carlos Slim and his group of investors the government share of Telefonos de Mexico (Telmex). The government also sold the Mexican banks that had been nationalized in the eighties by President Lopez Portillo.

On the private sector side, many Mexican companies and investors continued working side by side with the government in creating protected environments for their business, derived either by collusion with government officials or from government "economic growth" policies, thus, the transportation sector, electronic media, beer, steel and cement consortiums, agriculture distribution, milk and poultry agribusinesses and others grew under protected monopolistic environments.

Upon the advent of the North American Free Trade Agreement "NAFTA", President Salinas created the first Antitrust Law in 1992. Such law establishes the first Antitrust Board ("Comision Federal de Competencia" or "COFECO"). This law was mainly modeled from the Sherman Act of the United States. However, the law lacked the establishment of an efficient set of rules that could isolate the strength of the regulator from a peculiar constitutional control recourse that exists in Mexico, modeled from a Spanish judicial tradition, the "Amparo". This is a constitutional recourse that permits any private individual or entity to stop any act of authority that allegedly violates the plaintiff's constitutional rights, of having the actions of any authority be based on the letter of the law or its legal interpretation.

Using the Amparo, the powerful monopolies of Mexico made almost impossible for the antimonopoly regulator to effectively stop absolute or relative monopolistic practices, to the degree that, for instance, it took for COFECTO eighteen year of heavy litigation against Telmex (the telecommunications monopoly) to rule that Telmex had dominance in the telecommunications' market, that generates an estimated annual income of about twenty six billion dollars.

From the year 2000, after the Partido Accion Nacional took office, ousting PRI from a 71 year of full power at the federal level, and during the twelve years of PAN's federal administrations, there were constant failed intents to make changes in the law and in the constitution to strengthen COFECO's ability to fight monopolies, until the year 2011, when Congress enacted a wide spread reform in the Federal Antitrust Law making COFECO stronger, and initiating a wide spread reform of Amparo Law, that could effectible stop the abuse of this recourse made by dominant companies.

In the year 2012, PRI, through Enrique Peña Nieto, came back to power, with a voting result of 38%, with a controversial campaign where it is alleged that he was backed-up with illegal campaign contributions coming from the monopolistic groups of Mexico, including the electronic media. To lower political pressure coming from multiple political groups that obtain force and independence after the PAN destroyed the vertical power structure that PRI developed in its long lasting rule of Mexico, President Peña called the two main opposing parties, the PAN and the left wing Partido de la Revolución Democratica or "PRD", to enter into a 94 points agreement to carry out a wide spread transformation for Mexico, in multiple structural and political aspects, ranging from education to electoral reform, with a big component of economic (antitrust, telecommunications and energy) , financial and tax reform. About 90% of these reforms had been proposed by PAN leadership in the prior twelve years, but were denied by the PRI/PRD opposition.

Two of these very important reforms were the antitrust and telecommunications reforms. These reforms are made from a constitutional base, to avoid the risk that federal law may be maneuvered by Congress, subject to the pressure of powerful monopolistic lobby. Because constitutional amendments need a qualified majority of 2/3 of Congressmen and Senators present with a majority quorum, and subject to the ratification of the majority of state congresses, it is quite difficult for the monopolistic forces to prevail in achieving their goals in this constitutional reform environment.

As a result of this presidential initiative that was the result of a complicated negotiation between the leaderships of the government, PRI, PAN and PRD, a profound reform was made in these fields.

We will now highlight the principal changes made:

1. General principle that the right to be informed shall be a warrant by the State, including the access to information technology and radio communications (electronic media), for the freedom of speech in an economic free environment.
2. A general declaration that telecommunications are public services of general interest, that the State warrants to be provided under an economic free environment, quality, universal, multicultural and free from ideological intervention, interconnected and convergent, continues, with free access and without any illegal intervention.
3. The State will warrant that all broadcast shall be rendered as a public service in an economic free environment, with open competition, securing quality that brings culture to all the public, preserving the diversity and pursuing the truth in information, preserving national identity values and education.
4. Prohibition of broadcasting of advertising in form of news reports.
5. Mandate to legislate in broadcasting contents and broadcasters liabilities in third party contents, without affecting the right of free speech.
6. 100% foreign investment in telecommunications fields.
7. Up to 49% in broadcasting provided international reciprocity exists.
8. The establishment of a government agency that will regulate public radio and television.
9. Immunity for all broadcasters for securing the freedom of speech, within the limits of moral standards, public order disruption, felonies and the right of third parties.
10. The creation of a constitutional autonomous institution (Instituto Federal de Telecomunicaciones or "IFETEL"), that will regulate telecommunications in all fields, including antitrust. This institution will be governed by a 7 person board, selected by the Senate, among the top rated candidates selected through a technical examination designed and administered by three autonomous independent bodies of government not linked to the executive branch (the Mexican Central Bank, the Institute of Statistics and the Board for Education Valuation).
11. The new Federal Antitrust Board Comisión Federal de Competencia Económica"), that will have a similar structure than the IFETEL, will regulate all antitrust fields different than telecommunications and broadcast.
12. The two new authorities will be guided by the following main provisions:
• Asymmetric regulation for antitrust, to open new competition markets.
• Limit regional to national and regional economic concentrations, controlling cross ownerships and braking up monopolies by stock/equity or asset compulsory divestments.
• Public bid processes in granting of broadcaster's concessions, excluding public media, avoiding concentrations, securing the best consumer prices.
• Severe sanctions to violators of regulations, including felonies and cancellation of concessions.
• Amparo procedures are the only recourse that is available against the regulator's resolutions, and cannot stop any administrative process, excepting fines, and breakout procedures (this items developed political controversy between the Lower and Upper House of Congress, because the Senate watered down the effectives of the regulator).
13. All amparo procedures are to be substantiated by special courts specialized in the respective fields
14. All television broadcast shall migrate from analog technology to digital technology at the latest by 2015.
15. Local loop availability to all competitors. This will principally enable Telmex competitors to offer telecommunications services to consumers up to their homes or businesses, using Telmex infrastructure, without Telmex blocking access thereof.
16. The Federal Commission of Electricity ("CFE") will grant its telecom infrastructure to Telecom Mexico for the proper use of CFE's infrastructure. This will promote the use of such infrastructure for the development of telecommunications, principally in rural areas.

In conclusion, all of these constitutional reforms will develop the necessary basis to generate a first world set of rules for antitrust and telecommunications, that will effectively break-up Mexican monopolies, and preserve a humble antitrust environment, and that will promote telecommunication business, first for the benefit of end consumers, including businesses, that will lower prices and enhance quality.

We believe Mexico has very sophisticated companies with world class resources, who have been working within a protective environment, that do business in many other parts of the world, and with these changes will easily adapt to a more modern set of fair antitrust rules.

With these profound changes, Mexico will enhance its business opportunity offer, will lower the cost of doing business, creating opportunities for investors that will have the need of Mexican human capital, and will improve its competitiveness; thus increasing its rate of growth badly needed to fight poverty, while improving its democratic governance by having a more open broadcast market.