The Static Over Mexico's Airwaves

President Ernesto Zedillo Ponce de Len has promised to chill the traditionally cozy relations between Mexican Big Business and government. But a deal that Mexico's antimonopoly commission approved in late June between telecommunications giant Telefonos de Mexico and Mexico's dominant broadcaster, Televisa, has many observers questioning Zedillo's commitment.

The ruckus started when the Federal Competition Commission, which is supposed to guard against monopolies, went along with a plan by Telmex to buy 49% of Cablevision, Televisa's cable subsidiary. The Communications Secretariat also signed off on the $211 million deal. Then the howls started, with other potential investors warning that the Telmex-Cablevision deal gave the telephone monopoly an unfair advantage. Now, members of congress from the leading opposition group, the National Action Party (PAN), are pushing the government to reconsider the decision.

PAN is saying that in permitting the linkup, the government is bending the rules on behalf of two of Mexico's richest and most politically influential executives, Carlos Slim HelPound , chairman of Telmex, and Emilio Azcarraga Milmo, president of Televisa. Just as Telmex was about to lose its long distance monopoly, a change scheduled for 1997, the government seems to be handing Telmex, which was privatized in 1990, a new advantage. "This authorization is going to have a politically dear cost to the authorities--it's proving to be a big embarrassment," says Rogelio Ramirez de la O, a Mexico City-based economic consultant.

The chief worry is that the Telmex-Cablevision combo will create a telecom behemoth that will discourage other groups, including foreign phone and media giants, from entering the Mexican market for online services, video-on-demand, and other Information Highway traffic. "We think the government rushed into this decision without studying the implications sufficiently," says PAN Congressman Jorge Ocejo Moreno, head of the Commission on Commerce within the Federal Chamber of Deputies. "We want more competition, so consumers can have better prices."

Although potential competitors were dismayed by the decision, they still plan to enter Mexico's telecom market. But they want government regulations that will ensure fairness. Grupo Financiero Bancomer, which has teamed with GTE Corp. to bid for a long-distance license, wrote to the government before the announcement was made and expressed concern about the deal. "Given the size of the partners, we felt there was a possibility of a monopoly situation," says Arturo Gonzalez-Arquieta, director of planning for Bancomer. "But it won't be the end of the world, as long as regulators make sure the alliance doesn't block real competition."

Bancomer wants regulators to ban Televisa and Telmex from offering combined video and telephone services for several years. Gonzalez-Arquieta is also asking that the two companies be required to offer their services to all competitors without restriction.

NO WORRIES. Telmex' Slim thinks that his competitors have little to worry about. He says that if Mexican companies are to compete in multimedia with major multinationals, they need to join forces. "The two companies together [Telmex and Televisa] are one-tenth the size of AT&T," Slim scoffs. "What the country needs to compete and become global are strong Mexican companies."

Analysts say that any payoff for Telmex and Televisa is still far in the future. Although Telmex has installed 18,105 kilometers of fiber-optic cable throughout Mexico and has digitized 83% of telephones, almost all homes are wired with copper, which cannot carry video signals. Cablevision has only 210,000 subscribers, putting it second to Multivision, which broadcasts its signal to subscribers. Given Mexico's economic crisis, it is unlikely that pay-TV services will grow significantly before 1998.

Still, Zedillo has to be careful about how he handles deregulation of the sensitive telecommunications industry. If it appears to investors that he is playing favorites, he could set back his plans to raise $10 billion through privatizations in the next two years. "Investors will be looking at the telecommunications opening as a proxy for the other planned openings," says Bancomer's Gonzalez-Arquieta. And that scrutiny gives the government a lot to consider as it ponders how to respond to the doubts about the Telmex deal.

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