Mexico Phone Industry Overcharged Users $13.4B

Mexico’s phone industry, dominated by billionaire Carlos Slim’s carriers, overcharged customers $13.4 billion a year from 2005 to 2009, hurting the nation’s economy, according to a report.

The overcharging combined with the potential loss of business caused by high prices equaled 1.8 percent of the nation’s gross domestic product, the Organization for Economic Cooperation & Development said today in a report.

Latin America’s second-biggest economy should eliminate restrictions on foreign investment in telecommunications and should strengthen the powers of its phone regulator, the OECD said. The 70 percent market share of Slim’s America Movil SAB (AMXL) in the mobile-phone business is “extremely high,” the OECD said.

Mexico “needs the socioeconomic boost provided by greater access to more efficient communication services, in particular high-speed broadband,” the OECD said. Mexico had 10.5 high- speed Internet subscriptions per 100 habitants at the end of 2010, placing it 32nd among the 34 OECD member countries and less than half the average of about 25, the report showed.

America Movil is reviewing the documents, said an official who can’t be named under company policy. An official at the company’s Telefonos de Mexico SAB fixed-line unit declined to comment.

Highest Prices

Prices for high-speed Internet service in Mexico are the highest in the OECD, according to the report, which used a comparison method called “purchasing power parity” to adjust for economic differences between countries. America Movil Chief Financial Officer Carlos Garcia-Moreno said last year that the method is questionable for comparing specific prices.

While prices for wireless communications have improved, they are still above the OECD average in most cases, according to the report.

Mexico’s government has struggled in its attempts to reduce Slim’s dominance of the market, which he began to build by acquiring control of Telmex in a privatization sale in 1990. He pushed Telmex’s wireless unit, Telcel, to offer prepaid plans that were accessible for Mexican consumers, building that division into America Movil, which has 242 million mobile subscribers across the Americas.

Injunctions and Appeals

The companies controlled by Slim, 72, have responded to regulators’ actions by using injunctions and appeals to keep rules from being enforced.

After the competition commission ruled in 1998 that Telmex was the nation’s dominant carrier, the company challenged the constitutionality of the resolution in a Mexican federal court. The panel withdrew its ruling in 2007 following revisions and subsequent lawsuits.

Beginning in 2008, the antitrust agency issued six rulings finding America Movil and Telmex dominant in different segments of the telecommunications industry. Those rulings, which the companies are challenging, are being used by the telecommunications commission to craft new rules that would target the companies specifically.

Mexico’s broadcast television market is dominated by two companies, Grupo Televisa SAB (TV) and TV Azteca SAB (AZTEF), and also needs more competition, according to the report. The phone regulator last week postponed a vote on whether to proceed with plans to make more airwaves available for broadcast TV.

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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