Breathe
By Barbara Anderson
Each Telcel customer donates 1,424 pesos a year to Carlos Slim
It has been 10 years since the Telecommunications Reform and América Móvil continues to be the preponderant player. Its Mexican rates are twice as high as in the rest of Latin America. Telcel earns an extra 6,384 million dollars each year from its customers.
This is the size of the 'Costo Slim'.
How much does it cost us to have in Mexico a quasi-monopolistic operator in the mobile telephony business such as Telcel? Yes, you read that right, how much money, month after month, do those who have their telephony and mobile internet plans contracted to the América Móvil company give extra to it? What is the 'Slim cost'?
One way to measure this is on an individual basis, calculating how many pesos Telcel customers deposit with the company, regardless of the package they have contracted. And they are not few, since the company accounts for 7 out of every 10 pesos of the mobile telecommunications sector's revenues, valued at more than 300 billion pesos (MXN) per year[1]. To put this in context, Telcel is four times the size of its competitors.
These calculations are interesting as a reference 10 years after the enactment of the Telecommunications Reform (June 10, 2013). Although Mexico was a pioneer in the implementation of these changes in competition in Latin America, it is still the only case where -especially in recent years- Telcel has increased its size, concentrating 73% of the sector's revenues[2].
The 'Slim cost' is the weight it represents for the economy to maintain a quasi-monopolistic operator that allows Mexico to be one of the markets with the most expensive telecommunications services in Latin America, especially in telephony and mobile broadband (BAM). So much so that almost half of what Telcel users pay is overpriced compared to the average rates in the region.
The British agency Cable.co.uk[3] published its 2022 world ranking with the average cost of 1 gigabyte (GB) worldwide. For this list it used the median rate of the data plans offered per country.
How does Mexico compare with the rest of the most important Latin American markets? A sample measured in dollars in 17 countries[4] reveals that Mexican users paid US$2.89 per GB, versus US$1.40 for the same GB on average for customers in the other markets, i.e., in nominal prices, the surcharge that local users had to pay was 48.4%.
However, the fairest way to compare international prices is to adjust these values according to purchasing power, purchasing power and the economy in each market, i.e. using purchasing power parity (PPP) in all cases. Cable.co.uk's rates, with the most recent PPP adjustment from the World Bank[5], give a similar result: 1GB in Mexico costs on average 51.5% more than in any of the neighboring countries.
Within this overall average market number, how big is the extra billions of pesos left in América Móvil's coffers?
This is important because Telcel accounts for 7 out of every 10 customers of these services in the country.
The calculation is simple: according to its 2022 annual report, Telcel had an average of 81.5 million users throughout the year. That same year, it reported revenues of 225.4 billion pesos, meaning that each of its customers generated an income of 2,765 pesos. If we apply the 51.5% surcharge revealed by Cable.com to this amount, it means that these millions of customers contributed an extra 1,424 pesos to Telcel. This difference in favor of the company, multiplied by all its users, represents 114.9 billion pesos, about 6,384 million dollars. What does the total of this extra annual charge by Telcel amount to? To set up a Tesla gigafactory every 12 months, like the one being built in Monterrey.
Slim's weight
Comparing country by country, tariff by tariff and adjusting prices for purchasing power parity,
each Telcel customer pays on average twice as much for a gigabyte as any other Telcel user.
mobile broadband telephony in the region.
Source: www.cable.co.uk
*Average tariff per gigabyte in 2022 in dollars, purchasing power parity (PPP) adjusted tariffs in dollars. Data pricing was based on the costs per gigabyte of the average packages of all operators. In Mexico, 26 available plans were evaluated.
Attempting against welfare
Charging more for a service of massive use is not only a business issue but also generates a loss of welfare at a general level in any country.
In 2012, the OECD published a study in which it also referred precisely to the loss of welfare attributable to the dysfunctionality -until then- of telecommunications in Mexico. The organization calculated that this sector, operated by a quasi-monopoly and with excessive prices compared to other countries in the region, generated a loss equivalent to 1.8% of the country's annual GDP.
Jean Tirole, Nobel Prize in Economics, in his book 'The Economy of the Common Good' refers to inequalities by differentiating between wealth that has been achieved through innovation and creating value for society and wealth that comes from rent extraction. He cites as an example a speech given by another French economist, Philippe Aghion, who explained at an event that "Carlos Slim is one of the richest men in the world, who has made his fortune thanks to being protected against competition and cannot be compared with his counterparts Steve Jobs or Bill Gates who have bet on innovation". Tirole adds that "a monopoly can raise its prices and, if it does so up to a certain limit, only lose a small percentage of customers. The company in a dominant position [...] will not refrain from practicing a policy of high prices or offering goods and services of poor quality. This results in under-consumption and a decrease in purchasing power for citizens. The entry of competitors makes them less captive and puts pressure on prices".
Slim is not only used by Tirole as an example of how a private monopoly affects a country's development. Francis Fukuyama, in his latest book 'Liberalism and its Disenchantments', refers to the dangers of taking neoliberal programs to the extreme, where market efficiency becomes, he explains, "a kind of religion that was opposed on principle to state intervention. Privatization was pushed even in cases of natural monopolies, such as key public resources, leading to pantomimes such as the privatization of Mexico's Telmex, where a public telecommunications monopoly was transformed into a private one, facilitating the rise of one of the world's richest men, Carlos Slim".
In 2011, former Secretary of Finance Carlos Urzúa evaluated in a study the impact of quasi-monopolies on the welfare of Mexican households in different income deciles. There he detailed that the items to which most household income is proportionally allocated are education, energy and telecommunications. "In the urban sector, the loss in social welfare represents, in almost all deciles, about half of the total average household expenditure."[6]
Preponderant that continues to preponderate
"The reform has been the best decade in the sector, the prices of telecommunications services went down although there was no effect on competition and it is still a highly concentrated market. And competition is not only to lower prices, but to provide more services and more quality", explains Ernesto Flores-Roux, telecommunications consultant, "there was a lack of a better application of preponderance, fewer measures and prioritized in such a way that it could fine".
One of the pillars of the Telecommunications Reform was to determine the preponderance, the size of both Telmex (with Telcel) and Televisa, for which an adjustment manual was drafted -with 160 obligations to comply with- and the Federal Telecommunications Institute (IFT) was created to control and steer the new era. "I believe this was not done correctly. The preponderance should have contained fewer measures and prioritized them in such a way that mistakes could be fined. The preponderance document is 1800 pages long and so complex that he who grasps too much grasps too little. It was not implementable, nor is there any regulatory body capable of following up on all this", states Flores-Roux, "in Mexico it was decided to punish the big operator for being big and not for being bad".
In the rest of the countries where América Móvil operates, and which also applied their own pro-competition reforms in telecommunications years later, the companies of the Slim consortium did give up some of their mobile business and increased both the number of clients and the new services of third party operators. In Colombia, where it was also the largest operator, it went from 60 to 48%[7] of the market after the effective application of regulation to its subsidiary Claro.
But in Mexico, a decade after the opening of the sector, full competition represents only 30% of the market against América Móvil, there are companies that left (Nextel, Iusacell), others came to invest such as AT&T that injected $5.6 billion dollars in its third landing in the country and players such as Movistar that only remained with a commercial position.
[1] Annual revenues of the mobile telecommunications sector 2021, Telecommunications Information Bank, IFT.
[2] Annual revenues 2021 Telcel, Banco de Información de Telecomunicaciones, IFT.
[3] https://cable.com/
[4] Mexico, Honduras, Uruguay, Chile, Brazil, Colombia, Ecuador, Peru, Nicaragua, Guatemala, El Salvador, Paraguay, Argentina, Belize, Costa Rica, Bolivia and Panama.
[5] WB 2022
[6] Carlos Urzúa & David Rivera, Market power firms and social welfare in Mexico, 2011.
[7] Mobile subscriber market share 2013 & 2023, GSMA Intelligence.
The opinions expressed are the responsibility of the authors and are absolutely independent of the position and editorial line of Opinion 51.
Comments ()