UPDATE: Mexico Antitrust Regulator Responds To Telcel Over $1 Billion Fine

Mexico's antitrust regulator responded Wednesday to comments by America Movil SAB (AMX.MX, AMX) unit Telcel against a $1 billion fine that the competition watchdog imposed on the grounds that the mobile operator uses its market weight and high interconnection fees to displace competitors.

Eduardo Perez Motta, president of the Federal Competition Commission, or CFC, said in an emailed statement that, by charging competitors high rates to terminate calls on its network, Telcel pushes their costs up and maintains its ability to charge high rates to its own customers.

Telcel said Tuesday that it will appeal the ruling and fine, which it described as "arbitrary, biased, opportunistic and excessive."

The company, which has about 70% of the country's 91 million mobile users, said it has never been investigated or faced sanctions for practices of the kind for which it is being fined, and "so there is no repeat offense," which the commission cited in imposing the maximum penalty allowed.

Perez Motta said the size of the fine was based on the size of the estimated damage to consumers--$6 billion a year--caused by interconnection rates. "The fine is big because the damage is big," he said.

The CFC said there are 41 disagreements against interconnection rates filed with the telecommunications regulator Cofetel, and that Telcel has systematically taken court action against Cofetel's interconnection rulings. Cofetel recently set a rate of 39 Mexican cents per minute between Telcel and fixed-line operator Alestra.

Telcel's legal director, Alejandro Cantu, said in a telephone interview that the fact there are challenges to the rates confirm that Telcel doesn't set the rate, and defended the company's access to legal recourse when it disagrees with an act of the authorities.

"We have exercised that right ... but I wouldn't say systematically," he said.

Telcel defends its ability to offer cheaper calls to its customers within its own network as part of a market where there is competition. The company's 70% of mobile subscribers in the country is an average, and not evenly distributed, Cantu said. In the more lucrative postpaid market in Mexico City, for example, its share is under 50%, and in some marginal areas it's 100%, he added.

A coalition of smaller phone companies has joined forces in efforts to bring down Telcel's interconnection fees from their current 95 Mexican cents (8 U.S. cents) per minute. That fee was agreed by Telcel, Telmex, and Telefonica SA (TEF), but many operators have rejected it as too high.

The antitrust fine also comes as America Movil and other companies controlled by businessman Carlos Slim are in dispute with the country's main television broadcasters--Grupo Televisa SAB (TV, TLEVISA.MX) and TV Azteca SAB (AZTECA.MX)--over advertising rates and mobile interconnection.

Perez Motta said it was "tempting, but unsustainable" to interpret the fine as politically motivated or a move in favor of the broadcasters.

He said the CFC supports allowing Telefonos de Mexico SAB (TMX, TELMEX.MX), which is 60% owned by America Movil, to compete in the pay-television market, and will back any plans for a third nationwide broadcast network. Currently, Televisa and TV Azteca split the free-to-air television broadcast market about 70%-30%. Telmex, meanwhile, is still seeking government authorization to add television to its services.

The CFC also insisted that Telcel is a repeat offender, citing a previous fine against the company for "relative monopoly practices," although these practices weren't identical to the current case.

Telcel has 30 days to appeal to the CFC, and the commission then has 60 days to respond. After that the case could be taken to the courts, with no set time for a resolution.

-By Anthony Harrup, Dow Jones Newswires; (5255) 5980-5176, anthony.harrup@dowjones.com

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