July 05 2012
Axtel is a Mexican fixed-line telephone company. Its main competitor, Telmex, controls 80% of Mexico's fixed phone lines.(1) Telcel is a Mexican mobile phone company. It belongs to the same group as Telmex and controls 70% of Mexico's mobile phone lines.
In September 2006 Axtel filed a complaint with the Federal Competition Commission (FCC), claiming that Telcel applied relative monopolistic practices on the market for interconnection services for call termination on mobile networks. Other economic agents filed additional complaints on the same issue, which were joined to Axtel's complaint.
In April 2011 the FCC issued its resolution and fined Telcel nearly Ps12 billion (approximately $859 million) for margin squeezing (ie, artificially raising competitors' costs). This fine was the highest ever imposed in Mexico.
According to the applicable law at that time,(2) the maximum fine for relative monopolistic practices was equivalent to 900,000 times the Mexican minimum wage.(3) However, the FCC considered that practices at issue in this case constituted a second offence;(4) as such, it imposed a fine equivalent to 10% of the economic agent's taxable income.
In May 2011 Telcel filed a motion for reconsideration of the decision. It argued that its billing practices did not violate antitrust law and that the FCC had applied the wrong methodology in quantifying costs.
In March 2012 Telcel filed proposed commitments to be considered by the FCC under Article 33bis2 of the Federal Law on Economic Competition. This article allows economic agents to submit commitments to suspend, prevent, correct or refrain from engaging in a monopolistic practice before the FCC issues a final resolution on the matter. Such commitments must have the effect of restoring or protecting competition. Moreover, the avoidance of the practice at issue must be appropriate, economically viable and without detrimental effect. Article 33bis2 allows the FCC to close the file and either grant full leniency or impose a penalty of up to 50% of the normal fine.
Telcel's commitments were to:
On April 30 2012 the FCC announced that the commitments proposed by Telcel were "suitable and economically viable to avoid such practice and leave it without effects, and have the consequence of restoring or protecting free competition". The FCC stated that it would not impose liability on Telcel, arguing that its function is not to collect fines, but rather to dissuade monopolistic practices. According to the FCC, consumers will benefit by approximately $6 billion a year and Mexico's telecommunications tariffs will be the fourth cheapest of the Organisation for Economic Cooperation and Development countries.
This is only the second time that the FCC has considered commitments by economic agents based on the May 2011 reform of the law. The other application was made during the investigation, before the economic agent in question had formally been accused of monopolistic practices. Therefore, there are no established criteria for the application of Article 33bis2 or the interpretation of the scope, applicability and adequacy of commitments.
The FCC's decision raises the following questions:
The decision may come before the courts if claims are made of flaws in due process or violations of constitutional rights. However, such a challenge could be an opportunity for the judiciary to provide answers to these outstanding questions.
(4) The FCC had initiated an investigation against Telcel in 2004. In 2007 it had imposed a penalty on the company for relative monopolistic practices, in respect of exclusivity arrangements with providers of content for mobile networks (File DE-032-2004).
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