This article is part of a Chronicle. See more from this Chronicle

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.

 

Links to Full Content

Comments

You can't post comments until you have logged in. Please login here or register.

Comments

  • I disagree about the role of impose a fine in this case, even if this case must be review by a competition authority. A margin squeeze may involve foregone profits as with predation: Is it a better strategy to sell an input to rivals and extract greater profits?. Something in this article do not make sense. I agree instead with Dennis Carlton position, margin squeeze tests look at the accounting conduct and are not directed towards examining the effects of the conduct (it is not an effects based method of competition policy) applied. But the point is about regulation and not anticompetitive conduct, the fine in this case does not make any sense.

    Posted by Ramiro Tovar Landa, 01/09/2011 3:02pm (3 years ago)

RSS feed for comments on this page | RSS feed for all comments