Mexico: Mexican Competition Commission Accepts Commitments And Revokes Monopolization Fine Imposed On Telcel

The Mexican Federal Competition Commission ("CFC") has revoked a fine of approximately US $1 billion that it had imposed on Mexican telecommunications company Radiomóvil Dipsa, S.A de C.V. (Telcel), a subsidiary of América Móvil, owned by Mexican billionaire Carlos Slim.The revocation resulted from Telcel having agreed to comply with certain commitments, including suspending the conduct that led to the CFC investigation and decision to fine, taking advantage of a peculiar feature of Mexican Competition Law.

In April 2011, the CFC decided to fine Telcel for monopolistic conduct in how it charged competitors for terminating their calls on the Tecel mobile telephone network. The CFC action resulted from a complaint filed in 2006 by Axtel, Alestra, Marcatel, Megacable, Protel and Telefónica. The CFC determined that Telcel had increased its competitors costs by fixing an interconnection fee (off-net) that was higher than the fee charged on calls in its own network (on-net) and higher than charges to its own users.

The US $1 billion fine, the largest ever imposed by CFC, was equivalent to 10% of the value of Telcel's assets.

In 2011, Telcel filed with the CFC a petition for reconsideration and, according to a just-released report from CFC, Telcel agreed to assume certain commitments, including not engaging in any monopolistic practice, suspend any such practice that might be ongoing, and reduce interconnection fees based on a model proposed by the Mexican Telecommunications Commission. In particular, Telcel agreed to:

  1. Reduce its interconnection fee.
  2. Offer the reduced interconnection fee to any provider that requests it.
  3. Desist from any legal action regarding interconnection fees against the Mexican Telecommunications Commission.
  4. Offer plans and promotions, including more flexible use of air time.
  5. Provide CFC with all information needed to verify compliance with the commitments.

The CFC report also indicates that, if Telcel breaches any of these commitments, the CFC will be entitled to impose a fine of up to 8% of Telcel's annual revenues. The report states that the commitments resolve, in an efficient, durable, and continuous manner, one of the main competition issues in this market: the high interconnection fees that have inhibited the capacity of smaller networks and forced users to pay artificial prices. According to the report, this is the first time Telcel has accepted a governmental resolution on interconnection fees. It observes that one of the purposes of the recent amendments to Mexican Competition Law is met, since fines are intended to dissuade agents from engaging in unlawful practices. CFC also mentions that the expected annual economic benefits for consumers will far exceed the amount of the fine.

Mexican Competition Law allows companies to avoid penalties imposed by the CFC by making such commitments, but this benefit can be claimed only once every five years. This benefit is available before the CFC issues a final resolution in its investigation, and it requires that the company determined to have violated the merger or monopolization rules submit a written commitment agreeing to suspend, cancel or correct the allegedly illegal action. According to the Law, the request must substantiate that the commitment has the potential to restore free competition and that the proposed means are appropriate. If the CFC is satisfied, it may revoke the fine. However, private parties injured by the alleged violation still have a right to seek payment of damages from the alleged violator of the Law. If within the next 5 years Telcel enters into a merger or engages in a monopolistic practice in violation of the Law, for which the CFC decides to impose a fine, Telcel could not again seeks to revoke the fine by agreeing to suspend the practice.

The telecommunications market in Mexico is complex, and despite the revocation of the fine, the CFC's actions here reinforce the CFC's commitment to challenge monopolistic practices and promote free competition. Avoiding a fine by making commitments to correct the conduct is a "benefit" that may only be claimed once every five years according to Mexican Competition Law, Telcel therefore will have to be cautious about future activities to avoid being fined again by CFC.

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