Mexican Supreme Court Backs America Movil on Interconnection Fees -- Update

By Robbie Whelan and Anthony Harrup Features Dow Jones Newswires

Mexico's Supreme Court ruled Wednesday that a law requiring dominant phone carrier América Móvil SAB to complete calls from rival networks without charge is unconstitutional, leaving it up to regulators to determine interconnection fees.

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América Móvil, controlled by billionaire Carlos Slim, challenged the 2014 law that was seen as a key to increasing competition in the telecommunications market, encouraging U.S. giant AT&T Inc. to invest more than $4 billion in the purchase of two smaller operators and setting up a major challenge to Mr. Slim's company.

Under the reform law passed by Mexico's Congress, América Móvil was prohibited from charging fees to its competitors, which also include the Mexico unit of Spain's Telefónica SA, to complete calls on its network.

Five justices voted unanimously in favor of the ruling, which says Congress doesn't have the authority to set interconnection fees. The IFT, a telecom regulator created as part of the overhaul, is the only body with the power to do so, the court said.

It isn't immediately clear when the IFT will set the interconnection fees. Wednesday's ruling leaves the zero tariff in effect until the end of the year, a Supreme Court spokesman said. The IFT declined to comment.

One bright spot for América Móvil's competitors is the ruling prohibits América Móvil from charging retroactive fees, which would have been costly for them. An analysis by the Competitive Intelligence Unit, a Mexico City pro-competition think tank, estimated that AT&T and Telefónica would have had to pay more than $600 million in back fees.

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América Móvil, which controls roughly two-thirds of Mexico's cellphone market, declined to comment through a spokeswoman.

In a prepared statement, AT&T said it would continue to focus on improving its network and competing for customers.

"AT&T invested in Mexico with trust in the widespread public support for the constitutional and legislative reform of the telecom market. Two years after we arrived, we still face a dominant carrier who holds nearly 65% of the market," AT&T said. "We trust in the leadership of the IFT who will see that the spirit of the reform is respected in benefit of all Mexicans."

"We're putting our hopes in that the tariffs from now on are not too high. If the rate is set high, it could practically demolish our Ebitda, " said Francisco Gil Díaz, who stepped down as president of Telefónica's Mexico unit last year, but continues to work for the company in an advisory role. "The question is whether we will be able to increase our prices to cover those costs."

Write to Robbie Whelan at robbie.whelan@wsj.com and Anthony Harrup at anthony.harrup@wsj.com

MEXICO CITY -- Mexico's Supreme Court ruled Wednesday that a law requiring dominant phone carrier América Móvil SAB to complete calls from rival networks without charge is unconstitutional, leaving it up to regulators to determine interconnection fees.

América Móvil, controlled by billionaire Carlos Slim, challenged the 2014 law that was seen as a key to increasing competition in the telecommunications market, encouraging U.S. giant AT&T Inc. to invest more than $4 billion in the purchase of two smaller operators and setting up a major challenge to Mr. Slim's company.

Under the reform law passed by Mexico's Congress, América Móvil was prohibited from charging fees to its competitors, which include the Mexico unit of Spain's Telefónica SA, to complete calls on its network.

Five justices voted unanimously in favor of the ruling, which says Congress doesn't have the authority to set interconnection fees. The IFT, a telecom regulator created as part of the overhaul, is the only body with the power to do so, the court said.

The Supreme Court said its decision doesn't establish whether there should be a zero tariff for América Móvil to complete calls, but that it is up to regulators to determine such rates.

One bright spot for América Móvil's competitors is the ruling prohibits the dominant phone carrier América Móvil from charging retroactive fees, which would have been costly for them. An analysis by the Competitive Intelligence Unit, a Mexico City pro-competition think tank, estimated that AT&T and Telefónica would have had to pay more than $600 million in back fees.

América Móvil, which controls roughly two-thirds of Mexico's cellphone market, declined to comment through a spokeswoman.

In a prepared statement, AT&T said it would continue to focus on improving its network and competing for customers.

"AT&T invested in Mexico with trust in the widespread public support for the constitutional and legislative reform of the telecom market. Two years after we arrived, we still face a dominant carrier who holds nearly 65% of the market," AT&T said. "We trust in the leadership of the IFT who will see that the spirit of the reform is respected in benefit of all Mexicans."

Wednesday's ruling leaves the zero tariff in effect until the end of the year, a Supreme Court spokesman said. The IFT said it would comply with the court's ruling and determine the rates that apply to América Móvil. It didn't give a timeline.

"We're putting our hopes in that the tariffs from now on are not too high. If the rate is set high, it could practically demolish our Ebitda, " said Francisco Gil Díaz, who stepped down as president of Telefónica's Mexico unit last year, but continues to work for the company in an advisory role. "The question is whether we will be able to increase our prices to cover those costs."

The zero tariff led many Mexicans to switch to services offered by América Móvil competitors, said Manuel Molano, an economist at Mexican competition think tank IMCO.

"To the extent that interconnection charges return, we're going to realize quite quickly that our cellphone bills are going to become scandalous as they used to be," he said.

America Movil has denied a ruling in its favor would cause the cost of cellphone service to rise.

The IFT had previously set rates where América Móvil was required to pay rivals more for outgoing calls than it could charge for incoming calls.

The Senate denied this week that Congress had invaded the functions of the regulator in writing the zero tariff into the law for phone operators with more than a 50% market share, saying the constitutional overhaul allowed lawmakers to include specific measures in secondary legislation.

The impact of removing a measure that has helped level the playing field would be more damaging in the long run than the decision not to allow for retroactive charges, and risks compromising the Congress' ability to legislate on specific sectors, the Senate said in a statement.

Write to Robbie Whelan at robbie.whelan@wsj.com and Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

August 16, 2017 19:52 ET (23:52 GMT)