Slim Near Victory as Mexico’s Record $1 Billion Antitrust Case Loses Steam

Billionaire Carlos Slim’s Mexican wireless carrier is close to prevailing in the country’s biggest antitrust case, a victory over a government seeking to crack down on monopolistic behavior.

Only a reversal by one of the nation’s five antitrust commissioners, an unprecedented last-minute political maneuver or a judge’s intervention can salvage the government’s record $1 billion fine against America Movil SAB. Otherwise, the fine under review by the antitrust commission will be overturned or cut when the decision comes around at the end of September.

The antitrust agency issued the fine in April, saying America Movil had committed anticompetitive practices in the market for fees charged to rivals to connect calls. America Movil asked the agency to review the fine, the first step in the appeals process for antitrust cases, and won a victory in June when the commission recused its own chairman from the case.

“The competition commission has been trying to call Slim and his companies to account for years, and they have maneuvered around every adverse ruling,” said Eleanor Fox, a New York University law professor who specializes in antitrust regulation around the world. “At last it looked like a judgment that would stick, and it would be unfortunate if it does not.”

Photographer: Chris Goodney/Bloomberg

Mexican billionaire Carlos Slim stands for a photograph in New York. Close

Mexican billionaire Carlos Slim stands for a photograph in New York.

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Photographer: Chris Goodney/Bloomberg

Mexican billionaire Carlos Slim stands for a photograph in New York.

President Felipe Calderon has said big companies such as Slim’s phone carriers were the target of antitrust legislation he signed in May to increase fines and equip the antitrust agency with more tools for investigations. Calderon has led an antitrust crackdown since taking office in 2006 in a bid to make Latin America’s second-biggest economy more competitive.

Calderon’s Campaign

“I really respect Carlos Slim, or any other Mexican enterprise,” Calderon told Bloomberg Television in May. “But at the same time, I am the authority and I need to regulate the market in order to avoid monopolistic practices.”

Slim has used the profit from his dominance of Mexico’s phone industry to invest in telecommunications throughout Latin America, making him the world’s richest person, as ranked by Forbes magazine. Mexico’s antitrust agency has said call rates should be lower, and the Federal Telecommunications Commission has taken actions to reduce consumer prices. America Movil says Mexico’s prices compare favorably to those in other countries.

America Movil, based in Mexico City, has said the agency erred in its ruling this year, mistakenly applying a rule intended to punish repeat offenders with larger fines. The company hadn’t been found to commit the same type of violation as it had in earlier cases, the mobile-phone carrier said.

‘A Message’

The Federal Competition Commission, as the antitrust agency is known, approved the fine with a 2-2 tie vote. One of the five commissioners, Agustin Navarro Gergely, recused himself in that vote because of family ties in the phone industry. The agency’s president, Eduardo Perez Motta, voted in favor of the fine, and his vote counts twice in case of a tie.

The agency may have overstepped in trying to assess such a large fine, said Jorge Fernando Negrete, director of Mediatelecom Consulting, a Mexico City firm whose clients include most carriers in the industry with the exception of America Movil’s Mexico unit.

“From the beginning this decision was thought of as a media ploy,” Negrete said in a phone interview. “Perez Motta was trying to send a message from the executive branch.”

No Foregone Conclusions

In its motion for a review of the case, America Movil argued that Perez Motta had made comments to news media that showed he had a bias in the case. The two commissioners who had voted against the fine, Luis Alberto Ibarra Pardo and Miguel Flores Bernes, agreed, voting to recuse Perez Motta from future proceedings in the case.

Perez Motta wasn’t allowed to vote on his own recusal and Navarro Gergely remained recused because of his family ties, so the fifth commissioner, Rodrigo Morales Elcoro, cast the only vote against removing Perez Motta from the process.

The recusal vote leaves only three of the five commissioners eligible to vote on America Movil’s appeal of the fine, and two of them originally voted against the fine. If Ibarra Pardo and Flores Bernes don’t change their minds, the $1 billion fine will be altered or revoked.

While both Ibarra Pardo and Flores Bernes said in interviews in June that they’ll review the case on its merits and have no foregone conclusions, analysts such as Gregorio Tomassi of Banco Santander SA have said the recusal of Perez Motta makes a reversal more likely.

Legal Battle?

“Things are leaning toward a vote against the fine,” said Alejandro Calvillo, president of Consumer Power, a not-for- profit advocacy group in Mexico City. “If things keep going this direction, an awful precedent is going to be set.”

America Movil General Counsel Alejandro Cantu said Perez Motta’s recusal guarantees the company a “neutral and unbiased forum.” The company disagrees with any views suggesting that his recusal hurts Mexico’s pro-competition efforts, Cantu said.

“The recusal is in the law and we were entitled to request it, and we did it after we saw with concern that there was sufficient evidence that Mr. Perez Motta’s participation in the process would not guarantee a neutral resolution,” said Cantu. “We respect Mr. Perez Motta both personally and professionally, but strongly disagree with his views on this case.”

Regardless of the outcome of the vote, Perez Motta’s recusal is likely to become the subject of lawsuits that could drag on for years and would ultimately require a Supreme Court decision to be settled, said Calvillo of the advocacy group.

Already, a Mexican administrative court has granted an injunction against the antitrust commission’s vote on America Movil’s appeal while it reviews Perez Motta’s recusal, the Notimex news agency reported this week.

’Not Over Yet’

There is another twist that could change the outcome of the case. The term of Navarro Gergely, who has been recused from the case all along, expires in mid-September, potentially giving Calderon a chance to appoint a new commissioner before the vote on the America Movil case.

Even in that case, with the absence of Perez Motta, the four remaining members would have to decide which one of them would have the power to cast the tiebreaking vote, a situation that’s never happened before.

“It’s possible somebody can change his mind on the vote,” said Fox of NYU. “It’s not over yet.”

A loss in the America Movil case would be the antitrust agency’s second defeat in a decision to assess a record fine. The agency fined Grupo Mexico SAB and Slim’s Grupo Carso SAB about $27 million in 2009 for violating antitrust laws when they attempted to merge railroad companies despite the agency’s objections. A federal court upheld the 2005 takeover last year.

Overruled Decisions

Slim has repeatedly and successfully taken to the courts to battle resolutions by the antitrust agency that his phone companies dominate the industry. The agency ruled in 1997 and again in 2004 that Slim’s Telefonos de Mexico SAB had substantial power in the market, only to see the decisions overruled in court.

Telmex and America Movil are both currently battling antitrust rulings issued in 2009 and 2010 declaring them dominant in their industries. Telmex has about 78 percent of Mexico’s fixed phone lines, and America Movil has 70 percent of the wireless market.

‘Very Good Record’

A setback on the America Movil fine would hurt the ability of the Federal Competition Commission, created in 1993, to present cases that courts can consider on their merits and not on legal technicalities, said Daniel Sokol, an associate professor of law at the University of Florida in Gainesville who has studied Latin American antitrust regulation.

“Every agency goes through a period of adjustment within the legal structure of its given country when it is relatively new,” Sokol said in an e-mail. He said the Mexican antitrust agency’s record compares “favorably to that of the U.S. record of antitrust in its first 20 years.”

As president of the commission, Perez Motta has made strides in rulings against cartels, said Fox of NYU. The agency fined six drugmakers, including Eli Lilly & Co. and Baxter International Inc., $1.67 million apiece in 2010 after finding they colluded between 2003 and 2006 to keep prices high in sales to the country’s social security agency.

“He has a very good record,” Fox said of the America Movil case. “This won’t wipe out all of the good record. To me it means that very powerful, well-connected monopolies can outmaneuver the competition laws.”

To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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