Slim Out of Favour with Mexican Government

| Jun. 2, 2011 |

Published by Minyanville

World’s richest man Carlos Slim took repeated pummellings this week as Mexican regulators fined his company Telmex $7.86 million for blocking a competitor, refusing to allow Spain’s Telefonica connection to Telmex’s network between 2007 and 2008.

“The behavior was intended to, or had the effect of, substantially impeding access for a competitor,” the Federal Competition Commission said in a statement. “The refusal to provide a connection impedes access to the telephone market and damages free competition, to the detriment of consumers.”

According to the Commission, this is not the first time Telmex has been guilty of such a crime. Also, just two months ago, the Commission fined Telcel—another Slim-owned company—a whopping $1 billion for its high connection charges levied to other providers.

Slim’s companies are often accused of monopolistic practices. Telmex controls 80% of Mexico’s fixed line services. The company was formerly government-owned before becoming privatized in the 1990s. Criticism of the companies took a farcical turn in April when rivals took out full-page advertisements in many Mexican newspapers entitled “The Slimsons”, parodying The Simpsons. The comedic ads slammed the cost, reliability and general services of Slim’s companies operated by America Movil (AMX).

The $7.86 million fine is not the only recent bad news for Slim. Last Friday, the country’s Communications and Transportation Department refused to give Telmex a license to offer television services, harking back to the company’s refusal to fulfill agreements in relation to its telephone services.

Communications and transport minister Dionisio Perez-Jacome added to criticisms of the company, claiming it offered a sub-standard service, partly with interrupted and dropped phone calls.

The television license is a big deal for Slim who said in January that it remained his real ambition. Lorenzo Meyer, a political scientist at the College of Mexico, told Reuters that he believes Mexican president Felipe Calderón is keen to keep television bosses on side in the build up to next year’s presidential elections. “For now the richest man on Earth can't impose his will on the government,” the academic said. “Slim will have to wait until Calderón's government ends and negotiate with the next one. Calderón can take this decision because Slim is not very popular. Mexicans take a dim view of his telephone monopoly because of how expensive it is and its abuses.”

A Telmex official simply responded: “This isn’t the last word.”

Investors in the company were keen for Slim to enter the television market. HSBC estimated that a $5 would be added to each share should the move go ahead, with revenue thought to increase by 6%. Shares have risen 9% since January in the hope of a favorable ruling for the company.

Carstens seeks support for IMF bid
Mexican central bank chief Agustin Carstens sought to drum up support for his bid to run the International Monetary Fund this week. In an interview, Carstens said that he had more experience and better knowledge of the IMF than French finance minister Christine Lagarde, the firm favorite for the post.

His top priorities would be to deal with the crisis in Europe, support the Arab Spring transition in the Middle East and push quota reforms to broaden representation at the IMF.

Both he and Lagarde visited Brazil, one of the most influential emerging markets. Unlike many other emerging markets who have called for a candidate of their own—though failed to back one in particular—Brazil is happy for another European head to the organization. “I don't see why, for the fund ... to contribute to solving the crisis in Europe, a European has to be the managing director,” Carstens said last week.

US companies sued
Pemex, Mexico’s state oil company is suing US companies for buying up to $300 million of fuel stolen by drug gangs and smuggled north of the border. “The defendants have participated and profited—knowingly or unwittingly—in the trafficking of stolen condensate in the United States and have thereby encouraged and facilitated the Mexican organized crime groups that stole the condensate,” the complaint read.

Mexico's drug war efforts praised
The US Senate this week warned that its country must do more to help Mexico’ war on its drug cartels. The Senate praised Mexico’s efforts and even went as far as to echo the government in Mexico’s accusations that the US was not doing enough to stem the flow of drug money and weapons.