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Telefonica Mexico chief sees quick move to loosen Slim's grip

Carlos Slim, President of the Carlos Slim Foundation and the Telmex Foundation, speaks during "A Conversation with Larry King and Carlos Sli
Carlos Slim, President of the Carlos Slim Foundation and the Telmex Foundation, speaks during "A Conversation with Larry King and Carlos Sli

By Michael O'Boyle

MEXICO CITY (Reuters) - Spain's Telefonica expects Mexico's new government to quickly implement new regulations designed to challenge billionaire Carlos Slim's dominance in the local telecommunications market, a top company official said.

In the last decade since entering Mexico, Telefonica has battled Slim's firms - the country's dominant fixed-line, Internet and mobile providers - while struggling to convince regulators to level the playing field.

However, President Enrique Pena Nieto successfully pushed a sweeping telecommunication legislation through Congress this spring that should help growth at Telefonica, No. 2 in Mexico in terms of subscribers with about 20 percent of the mobile phone market.

This week a majority of Mexican states approved the constitutional reform designed to circumvent the legal hurdles that have prevented regulators from boosting competition in the sector for so long.

"It's obvious the government is looking for speedy change. They aren't just looking to transform a market as important as this one; they want to do it now," Francisco Gil Diaz, Telefonica's executive president for Mexico and Central America, told Reuters on Wednesday.

The legislation will create a new telecoms regulator that will have unprecedented authority to rein in Slim's America Movil , which previously has been able to use legal maneuvering to defy major rulings from competition authorities.

The new law, which changes the Constitution in a bid to put an end to the years of legal challenges, defines any firm that controls more than 50 percent of its market as predominant and subjects such players to tougher regulation.

Slim, the world's richest man, controls about 80 percent of the country's fixed landlines and 70 percent of mobile traffic. Telefonica fought for years to have them declared dominant players.

But only last month, Mexico's competition watchdog confirmed such a ruling against Slim that was limited in scope.

The new law "in fact provides an automatic declaration of dominance, because it's right there in the Constitution," said Gil Diaz, a former Mexico finance minister. "This is the key element, because it will have so many consequences."

UNBUNDLING ROADBLOCKS

Once the new regulator is up and running, a process that should take about six months, Gil Diaz said it will immediately be able to force Slim's firms to provide rivals with cheaper access to the vast network he built up from the state-run Telmex monopoly.

During the last decade, upstart firms have fought for such access, known as local loop unbundling. Mexico remains the only country of the 34-member Organisation for Economic Co-operation and Development (OECD) that does not have unbundling in place.

The new watchdog will also subject predominant players to asymmetric regulations. This could allow smaller competitors cheaper connection rates while making Slim's firms pay smaller rivals more to use their networks.

"These are critical aspects in order to effectively see the change they are contemplating," he said.

Moreover, the new law will bar dominant players from exclusive distribution arrangements, such as America Movil's deals to be the first to roll out Apple Inc's successive versions of the iPhone in Mexico.

Such exclusivity agreements on lucrative smart phones has hurt Telefonica. Despite selling one of every five mobile phones in Mexico, the Spanish company brings in only about 12 percent of what Mexicans spend on mobile services.

Gil Diaz said he expected several of the current telecom regulator's commissioners to vie for positions on the board of the new agency, to be known as Ifetel.

That could spur a flurry of decisions at existing regulator Cofetel in the coming months on a backlog of cases regarding interconnection fees for 2010 through 2012, he said.

"They could just do nothing," Gil Diaz said. "But if I were in their shoes and if I aspired to be in the new commission, I'd better look busy."

(Reporting by Michael O'Boyle, editing by G Crosse)

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