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Can This Man Crack Open The Mexican Markets?

International Business: Mexico

Can This Man Crack Open the Mexican Markets?

Mexico's top trustbuster vows to make competition a reality

As Mexico's top antitrust cop, Fernando Sanchez Ugarte has impeccable credentials. He holds a doctorate in economics from the University of Chicago, the noted bastion of free-market thinking. At the Trade & Industrial Promotion Ministry, he earned his technocratic spurs working on tax and industrial promotion policies. And as president of the Federal Competition Commission (CFC) for the past five years, the 49-year-old Sanchez Ugarte is going up against some of the most powerful corporations operating in Mexico, including Telefonos de Mexico and Coca-Cola Co. Can a truly open economy be far off? "People see the CFC as a nuisance," Sanchez Ugarte asserts. "But we have the last word."

If only things were so simple. Sanchez Ugarte has had his victories, certainly. But his years at the CFC are a case study in the problems of fostering competition in an economy long dominated by state and private monopolies. His biggest cases, including investigations of the state airline company, are tied up in courts. Telmex and other giants have so many political and bureaucratic allies that Sanchez Ugarte can't get at them--not easily, anyway. Penalties for price gouging and other monopolistic practices are limited to inconsequential fines. Sanchez Ugarte's goal is to instill the competitive principle in Mexican economic life, much as technocrats have won acceptance of free trade and fiscal stability. "But there's inertia from the past," he cautions."WE'RE MEDDLING." Sanchez Ugarte is resolved to fight that inertia. Appointed to a 10-year term by President Ernesto Zedillo in 1994, Sanchez Ugarte is protected from the political heat generated by his controversial decisions--including attacks by columnists in the financial press. "The system is based on hierarchy and turf," Sanchez Ugarte says in the CFC's modest headquarters. "We're meddling in the traditional structure."

That's not easy. While analysts rank the CFC among Mexico City's most professional institutions, they question how much power Sanchez Ugarte actually has. "He's very aggressive," says Luis Rubio, director of the Research Center for Development, a think tank in the capital. "But he faces political limitations, and he's not willing or able to transcend them."

The CFC's most public struggle is with Telmex, Mexico's largest private company. Competitors, led by joint ventures that include MCI WorldCom Inc. and AT&T, accuse Telmex of subsidizing long-distance prices with high local rates. They also say that Telmex overcharges to let competitors connect with its local network. Last year, the CFC told the Federal Telecommunications Commission to rein in Telmex. But regulators so far have failed to act. They now promise new rules by yearend, but they have broken such promises before. Says Telmex spokesman Arturo Elias Ayub: "We accept competition. But we're not willing to give away market share."

Sanchez Ugarte also has set his sights on Cintra, a state-controlled holding company that runs four airlines, including flag carriers Aeromexico and Mexicana. Cintra's airlines fly 82% of the flights in and out of Mexico's top 50 routes. The CFC says tickets are too expensive on 26 of those routes. Sanchez Ugarte also is looking into a raft of business practices, including discriminatory travel agency commissions. But he's moving cautiously. With the government planning to unload its 55% stake, Sanchez Ugarte wants it to take Cintra apart in the course of privatizing it.

While both the Telmex and Cintra cases have gone to court, Sanchez Ugarte has had some clear-cut triumphs. In May, he blocked Coca-Cola's acquisition of Cadbury Schweppes brands in Mexico, arguing that the deal would lift Coke's market share to more than 70%. Although such successes are small compared with the Telmex and Cintra cases, they are helping make competition a fact of life in Mexico.

But Sanchez Ugarte needs more than modest victories. He wants stiffer penalties and more enforcement power. "There's still resistance when it comes to understanding competition," he says. With half his term to go, Sanchez Ugarte hopes to have the patience to wear that resistance down.By Elisabeth Malkin in Mexico CityReturn to top

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