U.S. will file complaint with WTO over Telmex

By Jim Landers and Brendan M. Case / The Dallas Morning News<br><br><br>WASHINGTON â€“ Federal trade officials said Friday that they will file a complaint against Mexico with the World Trade Organization

Monday, July 31st 2000, 12:00 am

By: News On 6

By Jim Landers and Brendan M. Case / The Dallas Morning News

WASHINGTON â€“ Federal trade officials said Friday that they will file a complaint against Mexico with the World Trade Organization accusing TelÃ©fonos de MÃ©xico SA of stifling competition from U.S. firms.

U.S. Trade Representative Charlene Barshefsky accused Mexico of violating WTO agreements by allowing Telmex to charge competitors far more than it costs the Mexican firm to provide access to its telephone customer base.

Jorge NicolÃn, the president of Mexico's Federal Telecommunications Commission, or Cofetel, rejected the accusations.

"The USTR case is very weak. It doesn't have any substance in the facts," Mr. NicolÃn said. "We are fulfilling all of our commitments with the WTO."

Ms. Barshefsky said Telmex reaps "windfall profits" with some of Latin America's highest telecommunications service rates, while Mexico trails in Internet growth and the number of phone lines available for its population.

"Clearly the regulatory system in Mexico is entirely broken," she said.

"What we have is the failure by the Mexican government to produce effective measures to reduce Telmex's monopolistic behavior. ... The situation is intolerable."

Mr. NicolÃn said the U.S. action amounted to an attempt to influence Mexico's regulatory process.

The Cofetel is preparing new regulations that will reduce Telmex's dominance in several markets.

Telecommunications companies are also about to begin a new round of negotiations on long-distance interconnection rates.

"It makes a lot of sense that while you're taking decisions and actions, you will receive additional pressures," Mr. NicolÃn said.

U.S. charges

The complaint would involve three charges, Ms. Barshefsky said. The first maintains that Cofetel has not disciplined Telmex's tendency to use its dominant market position to block competition.

Telmex has not allowed competitors to connect to Telmex's customer base for local, long-distance and Internet service, she said, and it charges too much for interconnection service when it does provide access.

The complaint will also challenge Telmex's settlement rates for long-distance calls made from the United States into Mexico.

U.S. customers make more than 3 billion minutes a year of telephone calls to Mexico, far more than Mexicans place to the United States.

Telmex and other Mexican telephone companies collect a fee for such calls from U.S. companies at a rate of 19 cents a minute fixed last year between the two governments.

U.S. officials say that fee should be lowered to no more than 10 cents a minute.

AT&T Corp. and WorldCom Inc. have subsidiaries offering long-distance and Internet service in Mexico, and other U.S. conglomerates have formed partnerships seeking to enter the $12 billion Mexican telecommunications market.

AT&T general counsel Jim Cicconi praised the decision to file the WTO complaint.

"Mexico continues to impede low-cost cross-border traffic, lacks cost-based rates for interconnection to Telmex's network, and has not implemented an effective pro-competitive regulatory regime," Mr. Cicconi said.

"Mexico's participation in the information revolution will be in jeopardy as long as these problems remain."

Telmex disputed the perception that the Mexican telecommunications industry is not completely open to competition.

"Telmex is disappointed and concerned by the unilateral, unbalanced nature of the USTR review," the company said in a statement.

"So far, mischaracterizations by the U.S. carriers of both Telmex and the state of competition in Mexico have been taken at face value."

Study results

A February study by the non-partisan research group the Alexis de Tocqueville Institution of Arlington, Va., found Mexican consumers last year paid almost four times as much as U.S. consumers for a basket of telecommunications services.

U.S. trade officials said a request to the WTO to "pursue consultations" with Mexico would be lodged in the next several days.

If those supervised discussions fail to bring an agreement within 60 days, the U.S. side can request a WTO dispute resolution panel.

WTO decisions are binding on the 136 member nations, although cases can drag on for as long as two years.

If the U.S. side wins this argument, Mexico would have to compel changes at Telmex or else face trade penalties from the United States, such as tariffs.

Ms. Barshefsky said she does not expect a resolution to take long. She said she hopes President Ernesto Zedillo's government can reform Cofetel before he leaves office in December.

Earlier this week, Deputy U.S. Trade Representative Richard Fisher met in Mexico City with advisers to President-elect Vicente Fox, who said they intend to make lower telecommunications costs and expanded service a priority.

"If anything, this [WTO complaint] should be a political assist to the Fox administration," Mr. Fisher said, "because the Zedillo administration has within its power the ability to solve this issue and should solve this issue."

In an interview last month with The Dallas Morning News, Telmex chairman Carlos Slim HelÃº criticized his long-distance competitors for lobbying government officials instead of wooing customers with better services.

"Instead of going to the market, they go to the government," he said.

"I think they have more lawyers than engineers. We worry about the quality of our service, our infrastructure and our market position."

He also disputed the notion that Telmex enjoys overwhelming strength in the long-distance market.

After only three years of competition, the Mexican affiliates of AT&T and WorldCom already have a combined market share of more than 30 percent.

Foreign gains

Moreover, the growth in the long-distance market has meant that the Mexican divisions of AT&T and WorldCom now have more long-distance customers than Telmex had in 1990, the year Mr. Slim bought it from the government.

"Ten years after Telmex's privatization, our competitors have more long-distance customers than we had in 1990," said Mr. Slim.

Mr. Fisher said Mr. Slim's vow to put Mexico "in the vanguard of a new digital civilization" wouldn't be easy in the current environment.

"How do you do that with the highest interconnection rates in the hemisphere?" he asked.

Staff writer Brendan M. Case reported on this story from the Mexico City Bureau of The Dallas Morning News.