U.S. companies protest Mexican phone-cable deal

June 22, 1995|By New York Times News Service

MEXICO CITY -- In a decision that could threaten U.S. plans to invest in Mexican telecommunications, Mexican government regulators conditionally approved a deal late Tuesday in which Telmex, the national telephone monopoly, would buy a 49 percent stake in the cable television subsidiary of Televisa, Mexico's largest media company.

The $211 million sale would bring together two of Mexico's largest and most aggressive companies and present a formidable challenge for U.S. companies such as MCI, GTE and Sprint, which are planning to enter the Mexican telecommunications market when it opens to foreign investment next year.

The U.S. companies and their Mexican partners had made clear their opposition to the alliance in documents presented to the National Competition Commission, which announced its ruling in favor of the proposed sale Tuesday night.

In a letter to the commission, GTE and its Mexican partner, Bancomer SA, said the new venture would create a new, government-sanctioned monopoly that would dominate the Mexican communications market.

"Such combination would result in monopolistic control over the Mexican telecommunications market," the companies wrote in a letter to the commission dated June 16. "We are not opposed to the combination of telephones and cable services, per se, but we do oppose this unprecedented and plainly uncompetitive alliance of dominant players."

The alliance between Iusacell and Bell Atlantic also objected to the sale, contending it violated the terms under which Telmex, or Telefonos de Mexico, was privatized in 1990.

They contend that Telmex is restricted from offering any type of television service. The commission ruled that Telmex was restricted only from involvement in broadcast television, not from pay TV.

Under the proposed sale, Telmex would acquire 49 percent of Televisa's cable subsidiary, Cablevision. The cable company's franchise is limited now to Mexico City, where it is the largest nonbroadcast television service, with 210,000 subscribers.

Contrary to optimistic early projections, cable television in Mexico has grown slowly, mainly because prices for services are beyond the reach of most Mexican families.

When the Mexican economy slowed during 1994, Cablevision lost 17,000 subscribers. The company has not yet reported how the devaluation of the peso has affected its subscriber base.

For Televisa, which dominates the Mexican television market and produces films and soap operas that are seen around the world, the cable subsidiary has been disappointing. Its sales have never reached expected levels and collections have always been difficult to make.

Financial analysts said Televisa would be helped by Telmex's established distribution network and payment collections systems. Telmex has talked about offering many new services, including home video, through its local and long-distance telephone lines.

Adding cable services would enable Telmex to increase productivity. Demand for new lines has started to level off and, because of political pressure and the strength of its union, Telmex cannot easily trim its work force.

When Telmex announced the proposed sale last November, the Federal Competition Commission, which was established in 1993 to ensure open competition in Mexico, dropped its usual secrecy and warned that such a deal would need the commission's approval.

The commission's approval of the sale is conditional, pending review by the Communications Ministry.

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