Over the past month, Mexico’s often cosy corporate world has turned into a battlefield as three of its most powerful groups fight for control of the country’s telecommunications and television market – a sector with annual sales of about $30bn.
“It’s total war,” says Ernesto Piedras, director-general of the Competitive Intelligence Unit, a telecommunications consultancy in Mexico City.
Tensions began rising last month when Telmex, the fixed-line telephone company controlled by Carlos Slim, the billionaire media mogul, said it would not place an estimated $100m in advertising this year with Televisa, Mexico’s largest broadcaster and the world’s biggest Spanish-speaking media company. A few days later, Telmex also broke off negotiations with TV Azteca, the country’s second television network.
Each company has its own version of the hostilities. But, at heart, the reason for the brawl lies with “convergence” – the process whereby it is now possible to bundle video, voice and data into one service and transmit it to consumers down a single line.
“Convergence has brought these groups into closer competition with each other than ever before,” says Mr Piedras.
Televisa and TV Azteca have made significant inroads into Mexico’s telecommunications market, which was once almost the exclusive domain of Mr Slim. They complain that Telcel, Mr Slim’s mobile phone operator, and Telmex, which accounts for about 75 per cent of all fixed telephone lines in the country, overcharge for connecting to their networks. The result, they say, is stifled competition and higher costs for consumers.
On Wednesday, in a sign of mounting aggression, 25 of Telmex’s competitors, including the sister companies of Televisa and TV Azteca, filed a complaint with Mexico’s antitrust commission formally accusing Mr Slim of “monopolistic practices”.
Adrián Moreno, legal director at Marcatel, a small fixed-line operator and the company spearheading the legal action against Mr Slim, says that the idea is to get Mexico’s authorities to bring all the companies involved to the table to agree on reducing the charges once and for all.
“Telmex has some of the most expensive interconnection fees in the world,” he says. “To change that, we have to apply pressure through legal action.”
Mr Moreno’s arguments appear to have some echo with the Federal Competition Commission (CFC), the country’s antitrust body. According to one CFC study, interconnection fees are 43.5 per cent higher than the average of those charged by other members of the Organisation for Economic Co-operation and Development.
However, Telmex executives insist that their fees reflect the cost of providing telephony to rural and low-income communities throughout Mexico. And last week, the company appeared to go to extraordinary lengths to prove it: on Tuesday, it announced a decision to split into two companies.
Telmex Social, as the spin-off is expected to be called, will handle telephone coverage to “46 per cent of national territory in which there is no economic interest from any competitor, and in which Telmex has invested and operated in low, and sometimes negative, profit conditions”.
Given that Telmex Social’s numbers will probably show that it is not profitable, Tomás Lajous, strategist at UBS Investment Research in Mexico City, argues that the company’s creation “could be more a function of serving the Slim group’s argument that termination rates are not excessive where Telmex is the only option – and that competitors are not currently investing where it matters most”.
If Telmex’s competitors complain about interconnection fees, the convergence war has brought Mr Slim frustrations of his own: authorities have repeatedly blocked Telmex’s ambitions to offer customers television – even though the company has complied with a 2006 agreement laying down the conditions to do so.
That provides a stark contrast to the rest of the region, where Mr Slim has grown to become the leading provider of pay TV in Latin America.
In the meantime, Mr Slim is fighting back: last week, his companies formally accused the two television networks of collusion.
With no sign of a truce, and with the prospect of lengthy legal processes, experts say the current war could drag on for months. As Mr Piedras puts it, “it’s like a giant knot in which the harder you tug, the tighter it gets”.
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