Monday, May 9, 2011

Steps in the Right Direction

Macario Schettino, whose impressions of the Mexican political economy are not usually optimistic, is excited about the last few weeks:
In recent weeks, in an unusual way, three decisions that place on the right path occurred. First, the Commission for Economic Competition, Cofeco, decided to impose an extraordinary fine on Telcel, for relapsing into monopolistic practices. It's a fine of almost 12 billion pesos, and that does hurt. The same week, the Supreme Court decided that when there are objections to a decision from the Federal Telecommunications Commission, Cofetel, with respect to the price of interconnectivity, the judges cannot decree a suspension. The objection can be analyzed, but the price from Cofetel proceeds immediately. Finally, at the end of its legislative session, Congress approved changes to the Law of Economic Competition that allows Cofeco, in future findings, can fine companies up to 10 percent of their revenue (which is to say, normal fines as large as the one we mentioned), and even jail for repeat offender companies.

The impact of these decisions will be very deep. In just this week, from Monday to yesterday, Thursday, América Móvil (Telcel) lost 10 percent of its value, and dragged the entire stock market down with it. And that's just the beginning: what these measures imply, basically from today on, is that that business will no longer capture economic rents from users of cell phones, and will reduce their earnings to what is normal from these markets across the world. As a reference, the three companies with the largest revenues in the cell phone market in the world are the Chinese company, Telcel and Telefónica. The first in an authoritarian country; the other two, in Latin America, still prisoner to the rules of 20th century authoritarianism.

Now we need to move on to other markets: telecommunication, health services, pharmacies (especially distributors), and services supplying a good number of products controlled by very few intermediaries, if not only one.

You probably haven't perceived the importance of these weeks. You should, they are historic.

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