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Mexico News-Apr.20

Posted by the Generals on April 27, 2011, 3:35 pm

Weekly Report - 20 April 2011 (WR-11-16)
MEXICO: Slim’s record US$1bn fine may be a phantom
The Comisión Federal de Competencia (Cofeco) announced on 15 April that it was fining Radiomóvil Dipsa, controlled by América Móvil which is ultimately owned by Carlos Slim Helú, the richest man in the world, precisely M$11,988bn (US$1.018bn). There are several curious aspects to Cofeco’s decision. The most obvious is that the complaint about América Móvil’s market dominance comes not from ripped-off customers but from frustrated competitors who cannot make their Mexican mobile businesses pay. Another is the curious way the decision became public. A third is the curious way the Cofeco board reached its decision. It is also worth noting that Cofeco’s action came too late for AT&T from the US which announced, also on 15 April, that it was selling its Mexican telecoms business, Alestra, to its long-term Mexican partner, Alfa.
Cofeco said it was fining Radiomóvil Dipsa for market abusing practices in the mobile telecoms market. Cofeco said that it had been investigating the mobile telecoms market since 2006. It said that the fine was for monopolistic practices in the market for fees charged to complete calls to a wireless network.
América Móvil immediately announced that it would appeal against both the fine and Cofeco’s findings. Nevertheless its shares fell 2% on the news. The big question is whether Cofeco’s action will prise open the Mexican mobile telecoms market which is dominated by América Movil with a 71% market share.
Mexico accounts for half América Móvil’s sales this year and half its profit before interest, taxes, depreciation and amortization (ebitda).
Technically, Cofeco told América Móvil, whose main Mexican subsidiary is Telcel, of its decision on 7 April. It was Telcel, in fact, which announced the decision, as it was clearly market-sensitive, to the Mexican stock market, on 15 April. Cofeco has yet to publish its decision. Even odder are the off-record justifications Cofeco executives have given for the fine. One, quoted by Reforma, said that there was nothing extraordinary about the (record) fine because it was only “equivalent to M$131 for each of Mexico’s 91m mobile telephone users”. The number of users seems irrelevant to the size of the fine: most normal anti-trust regulators would have calculated the unfair profits Telcel had made since 2006 and then levied a fine which was a multiple of this figure.
Cofeco’s peculiar behaviour clearly gives Telcel opportunities for its appeal. The local press also reports that the five-person Cofeco board was deadlocked over whether to punish Telcel. This deadlock, 2:2 with one abstention, was resolved when Eduardo Pérez Motta, the Cofeco chairman who had voted for punishing Telcel, used his (additional) casting vote to uphold the fine. As this was the first time that the board had considered the issue, he should not have used this provision but deferred the matter to a subsequent meeting.
Telecoms analysts in Mexico note that Cofeco has tended to be swayed by arguments made by Televisa, the country’s dominant broadcaster, which now wants to break into the telecoms industry. Cofeco has not ruled on the announcement that Televisa is going into partnership with Iusacell, the telecoms company controlled by the main shareholder in the only other major Mexican broadcaster, TV Azteca. In 2010, Televisa tried to get into the telecoms market by buying 30% of Nextel de México, but this deal was thwarted by legal objections from Iusacell, among others, to the award of a concession which would have allowed Televisa the so-called ‘quadruple play’, allowing it to transmit its content to mobile telephones. The controlling shareholder in both Iusacell and TV Azteca is Ricardo Salinas Pliego.
In Mexico and internationally, América Móvil had 225m subscribers at the end of 2010. Of these 64m were in Mexico. América Móvil represents about two-thirds of Slim’s US$78.3bn publicly quoted holdings, according to data compiled by Bloomberg, a financial information company. América Móvil is cash-rich: at the end of 2010 it had over US$9bn in cash and short-term investments.
The company’s Mexican mobile unit, Telcel, and its Teléfonos de México SAB fixed-line unit have battled this year over interconnection fees, which each carrier has to pay to competitors to connect calls. Iusacell and Televisa began an advertising campaign in February claiming that interconnection charges were the main reasons for high mobile phone service prices in Mexico.
In March, Mexico’s phone industry regulator, the Comisión Federal de Telecomunicaciones (Cofetel), ruled against América Móvil in an interconnection-fee dispute with a smaller fixed-line carrier, Alestra. Cofetel ordered América Móvil to more than halve the interconnection fee. Realistically, Mony de Swaan, Cofetel’s president, told Congress in March that he expected the ruling to be stuck in legal challenges for the next two or three years.
América Móvil claims that the company has already been cutting interconnection fees and that the prices are competitive in dollar terms with the fees charged in European and Latin American countries. The company says that it needs decent fees to pay for investment.
Telefónica (owned by the Spanish company) is the second biggest mobile company in Mexico. Iusacell, with 4m subscribers, comes third and NII Holdings Inc fourth.
AT&T and Alfa
On 15 April Alfa, a Monterrey-based conglomerate, announced that it would buy out its partner AT&T Inc’s 49% stake in their joint telecommunications company Alestra. Alfa said that increasing its stake to 100% in Alestra would allow Alestra to offer advanced IT and telecommunications solutions with an emphasis on the new generation of cloud services for the Mexican companies. Alestra is the smallest of Alfa's four businesses, which also include petrochemicals, auto parts and processed foods. Alestra offers data transmission, Internet, IT security, hosting and other services along with local and long-distance telephony, serving 200 cities in Mexico. Its main focus is on value-added corporate services, where growth has been compensating for declines in traditional phone use. Alestra had revenue of US$96m for the first quarter of this year, and US$361m for 2010.
The current maximum antitrust penalty for first-time violations in Mexico is about M$85m (US$7.2m). América Móvil’s fine was larger because of repeated incidents, Cofeco indicated. The agency last fined América Móvil in 2007, but the details have been sealed in court.

Weekly Report - 20 April 2011 (WR-11-16)
MEXICO: Top Tamaulipas gangster seized
The Mexican navy arrested on 16 April the alleged ringleader of the killers who buried 145 bodies in unmarked graves in the northern border state of Tamaulipas. The navy said that Omar Martín Estrada Luna was the leader of the ‘Los Zetas’ gang in the municipality of San Fernando, where 145 bodies have been found in the past couple of weeks. The navy also accused Estrada Luna of being behind the murder of 72 (mostly Central American) migrants whose bodies were discovered in August 2010, also in San Fernando.
The San Fernando death toll is likely to rise because there are heaps of unclaimed bags at the Matamoros bus station. The authorities’ hypothesis is that Los Zetas have been kidnapping people from buses in Tamaulipas. San Fernando is the municipality which straddles the roads linking the state capital, Ciudad Victoria, with the border towns of Reynosa and Matamoros. The unclaimed bags suggest that passengers who boarded a bus did not reach their intended destination.
The surging death toll in Tamaulipas has prompted changes in the state government. It has replaced its security minister, Brigadier (rtd) Ubaldo Ayala Tinoco, with another soldier, a former infantry captain, Rafael Lomeli Martínez. The state government only took office at the beginning of this year. Lomeli Martínez is known to be close to the controversial federal public security minister, Genaro García Luna.
So far this year (to 15 April) 401 people have been killed by drug gangs in Tamaulipas. In 2010 725 were killed, but in the whole of 2009 only 49 people were killed by gangsters in the state.
The discovery of the mass graves in Tamaulipas is the first test of the new Procuradora General de la República (PGR), Marisol Morales. She has already announced that 16 state police officers are to be investigated for their possible involvement in killing the people whose bodies have been found in the mass graves. Morales revealed that after interrogating local policemen, her department (the PGR) believes that some of them had provided protection for Los Zetas. Morales also announced that four Zetas, suspected of being responsible for the murders, have been identified. She offered a M$45m (US$3.8m) reward for information on their whereabouts. It is not clear whether this reward has been claimed following the arrest of Estrada Luna.

Since being appointed, Morales has taken the initiative in investigating what has been happening in San Fernando. As a result, further mass graves were found.
President Felipe Calderón Hinojosa has also ordered the federal police and the army to be deployed in Tamaulipas. Explaining the executive decision on 13 April, Francisco Blake Mora, the interior minister, said that the situation in Tamaulipas “provides evidence of the fragile local institutions and the incapacity to act promptly and efficiently against crime”.

“The discovery of the mass graves in Tamaulipas is the first test of the new Procuradora General de la República (PGR), Marisol Morales. She has already announced that 16 state police officers are to be investigated for their possible involvement in killing the people whose bodies have been found in the mass graves.”
Weekly Report - 20 April 2011 (WR-11-16)
MEXICO | Violence. The past week has been a mixed one in the war against organised crime in Mexico. On the positive side the government claims to have arrested the people responsible for organising car bomb attacks in Hidalgo. On the negative side, three children were killed in Ciudad Juárez by a petrol bomb and 11 people were gunned down in a single day (14 April) in Monterrey. Furthermore on 17 April 10 people launched an attack on a federal police station at Lagos de Moreno in Jalisco.
MEXICO | Church-state relations. The interior ministry announced on 19 April that it would fine the spokesman of the cardinal Archbishop of Mexico City for breaking the longstanding laws that restrict the rights of clerics to comment in public. What makes the decision interesting is that the interior ministry is taking up a complaint from the left-wing Partido de la Revolución Democrática (PRD) which objected to a statement, made in January by the spokesman, Hugo Valdemar Romero, that the PRD was a threat to family life because of its support for gay marriage. Valdermar called on all Catholics to vote against the PRD for this reason. It is not clear what form the interior ministry’s punishment of Valdemar will take. The interior ministry has also warned the Instituto Federal Electoral (IFE) to take note of what the church says in the run-up to next year’s presidential and congressional elections.

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  • Mexico News-Apr.20 - the Generals April 27, 2011, 3:35 pm
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