Margin Squeeze in Mexican Mobile Telecommunications
Victor Pavon-Villamayor, Aug 30, 2011
On April 7th 2011, the Mexican Competition Commission ("CFC") imposed a historic fine against TELCEL, the largest mobile operator in Mexico and a subsidiary of the Latin American telecommunications giant America Movil. The fine was motivated by the identification of allegedly anticompetitive conduct in the market for the "termination" of mobile and fixed calls into TELCEL's mobile network during a period of time that spanned June 2006 to September 2009. In particular, the competition authority argued that TELCEL was engaging in a margin squeeze of its fixed and mobile competitors through the combination of high wholesale prices for interconnection and low retail pricing. A margin squeeze represents a violation of Article 10-XI of the Mexican Competition Law since it has the effect of raising the costs of downstream rivals and, hence, reducing their competitiveness in the industry.
The CFC's determination that TELCEL induced a margin squeeze of mobile and fixed operators has been hotly debated in Mexico for different reasons. First, the CFC´s finding led to the largest fine ever imposed in the Mexican competition regime: approximately 12,000 millions of Mexican pesos-roughly, U.S. $1,000,000,000. Second, the fine was released in the context of a polarized vote of the CFC´s Commissioners. And, third, there is a chance that the fine may be reversed as part of the administrative review process of the decision.
As of today, the discussion of this fine in national and international antitrust forums has been dominated by its political implications and, unfortunately, there has not been much analysis on the economic reasoning through which the case was constructed. This paper intends to fill this gap by providing a brief overlook of some of the economic arguments exposed in the analytical core of this antitrust case.