FCC accepts commitments by Telcel - International Law Office

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:

• charge an interconnection rate of 36.18 cents per minute in 2012, to be reduced to gradually 30.94 cents by 2014 and to be charged per second without rounding;
• publicly offer this rate to any interested entity;
• withdraw from all judicial proceedings against the resolutions issued by the Federal Telecommunications Commission in 2011 in relation to interconnection rates;
• ensure that where it offers plans or promotions, the calltime included in such promotions can be used on Telcel's network or other networks without distinction; and
• provide the FCC with the information needed to verify compliance with these commitments, including data regarding the usage of its commercialisation plans - this commitment will be valid from December 2014.

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:

• Was Telcel still entitled to present commitments after the April 2011 resolution? The FCC considered that it was, but this view may yet be challenged in court.
• In what circumstances should the FCC close a file without imposing liability? Does the procedural stage at which commitments are submitted affect the decision to close a file with or without imposing liability?
• Are other competitors' or consumers' claims for damages affected in any way by the fact that a file was closed without determining liability?
• Should commitments be aimed to restore past damages caused to the market and competition or should they refer only to future obligations?

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.

For further information on this topic please contact Lucia Ojeda Cardenas at SAI Law & Economics by telephone (+52 55 59 85 6618), fax (+52 55 59 85 6628) or email (loc@sai.com.mx).

(1) Data from a study of Mexican telecommunications policies and regulations, published in 2012.

(2) In May 2011 the law was amended. Among other changes, fines for relative monopolistic practices were increased, to a maximum of 8% of the revenue of the economic agent.

(3) The minimum wage for 2011 was Ps59.82. Therefore, the maximum fine on this basis would have been approximately Ps53.8 million.

(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).