U.S. to File WTO Complaint Against Telmex

Frustrated by “barriers to competition” keeping WorldCom Inc., AT&T; Corp. and other carriers from fair access to Mexico’s $12-billion long-distance market, the United States said Friday that it will ask the World Trade Organization to intervene.

The announcement followed a breakdown in talks in Mexico City this week between the Mexican government and the U.S. trade representative’s office.

To be filed next week in Geneva, the complaint against Telmex, the former Mexican national telephone monopoly, will seek WTO mediation or, if that fails after 60 days, binding sanctions.

Shares of Telmex traded over the New York Stock Exchange dropped $2.56 to close at $50.94 on Friday. The stock also tumbled last week on disappointing second-quarter earnings, which Telmex blamed partly on long-distance competition, including so-called illegal bypass operators.

U.S. trade officials contend that Telmex charges excessive access fees on calls originated by competing carriers within and outside Mexico. Those fees “adversely affect U.S. interests and deprive Mexican citizens of the benefits of competition,” U.S. Trade Representative Charlene Barshefsky said in a statement.

Telmex access fees can range between 3 cents and 4.5 cents a minute for domestic long-distance calls and as high as 19 cents a minute for long-distance calls originated outside Mexico, according to the trade representative. Those rates are two to three times the rates charged by most countries.

The high rates are discouraging investment in Mexico’s Internet services and electronic commerce, Barshefsky said, and hobbling efforts to expand Mexico’s relatively sparse telephone service.

Mexico’s “teledensity”--phone lines per 100 people--is just 11%, trailing those of most other Latin American countries. Mexico has nearly as many mobile phones as fixed lines, said Bryan Prohm, senior analyst with Gartner/Dataquest in Raleigh, N.C.

Telmex contends that it has already lowered rates dramatically, and that the U.S. complaint is based on false information.

In a teleconference call to reporters from Mexico City, Telmex spokesman Arturo Elias Ayub said the company welcomed the U.S. challenge as an “opportunity to take the story of the opening of telecommunications in Mexico to an international level. We are confident that the opening is more than adequate.”

In disagreement are WorldCom and AT&T;, which have each invested hundreds of millions of dollars in Mexican long-distance carriers to compete with Telmex, but whose rates can’t come close.

Both Avantel, the WorldCom partner in Mexico, and Alestra, the AT&T; ally, have withheld payment of millions of dollars in access fees to Telmex in protest.

AT&T; and other foreign carriers contend that lowered access fees would prompt such an increase in the volume of calls that Telmex wouldn’t suffer any decline in revenue.

As it is, Telmex concedes that its high rates are costing it as much as $200 million a year in long-distance revenue to the bypass long-distance carriers, which use Internet technology to move international calls over data transmission lines.

Mexican President-elect Vicente Fox has said since winning the July 2 election that he favors opening up the country’s telecommunications industry to more competition and investment.

But any change could be slow in coming, said Gartner/Dataquest analyst Marta Kindya in Stamford, Conn. Telmex’s dominance is in part a reflection of the fact that “Telmex is a popular company, the No. 1 stock in Mexico in market value, and there are lots of vested interests to maintain the status quo.”

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Highly Charged

U.S. trade negotiators complain that Telmex, the former Mexican telephone monopoly, charges too much to handle long-distance calls originated by U.S. and other foreign long-distance firms. Analysts say the rates are among the highest of any major country.

Connection costs

During peak calling periods, for domestic long-distance service, in cents per minute

Argentina: 1.1 cents

Brazil: 2 cents

Chile: 1.7 cents

Mexico: 3.2 cents

Peru: 1.732 cents

Telephone lines

As of April, Mexico’s current “teledensity” level of 11.2 lines per 100 people still remains far behind the goal of 20 lines per 100 in countries at a similar level of development. Other Latin American countries’ teledensity levels are mixed.

Lines per 100 people

Argentina: 19.9 lines

Brazil: 12.1 lines

Chile: 18 lines

Mexico: 11.2 lines

Peru: 9.6 lines

Source: Yankee Group, Boston; AT&T;