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Development and Competition policy Panel discussion in ICN Moscow Chair: Alberto Heimler Comments by Eduardo Pérez Motta: “Current State of Competition Policy in Mexico” Until the 80’s, the Mexican economy was strongly centralized by a highly interventionist government. However, during the second half of the decade, Mexican industrial policy turned to create conditions for economic efficiency, with competition policy becoming an essential instrument to increase competitiveness and welfare. For that reason, the Federal Competition Commission (Commission or CFC) was created in 1993 with the objective of protecting competition and free access to markets, and since then has become a strong and active agency, with an increasing role in public policy formulation. In addition, the CFC has a modern institutional design and a stable institutional structure that, combined with technical and operative autonomy, guarantees its independence and impartiality. However, despite the market reforms undertaken since the mid-1980’s, distortions in specific regulated sectors are still widespread, and economic policy is not always geared towards competition. Increased public awareness about the size of these problems has implied the need to strengthen competition policy in regulated sectors. Therefore, the CFC has conducted great efforts to improve competition and efficiency on these sectors through the issuance of opinions and policy recommendations. To successfully tackle such challenges, recent amendments to the competition law fill gaps in the previous legislation, clarifying CFC’s procedures to give added legal certainty. The purpose of these amendments was to enhance operative tools available to the Commission and increase the monetary and non-monetary sanctions for anticompetitive behavior, including the divestiture of assets as a measure of last resort. Moreover, the amendments allowed for the inclusion of competition principles in rule-making and public policy design, strengthening the compulsory nature of the CFC’s opinions on governmental actions in regulated sectors and granting the CFC powers to investigate restraints to local trade. The CFC has recently issued opinions and general recommendations in regulated sectors such as: 1. Pension System; 2. Retail Banking; 3. Telecommunications convergence 4. Audiovisual contents; and 5. Energy. Additionally, the CFC has taken enforcement and advocacy actions to promote competition in the air transport sector. 1. Pension System In 2006 the CFC issued a general recommendation on the competition features of Mexico’s defined contributions pension system, stating that the system still faces challenges related to an inelastic demand and unexploited economies of scale that prevent pension funds administrators (Afores) from competing efficiently. To overcome these challenges, the CFC proposed measures aimed at promoting competition and efficiency in the market. This opinion was one of the triggers for Congress to approve, in March 2007, changes to the pension system law in line with the CFC’s proposals, such as: i) Subject the account administration only to the commission over balance, clarifying the commissions charging. ii) The proposal of a net return index, in order to provide the Afores the incentive for competing in terms of returns. iii) The proposal of criteria to regulate promoting agents fees, in order to reduce the incentives for conducting excessive promotion expenditures. However, the system still faces some challenges such as the need to strengthen the prudential regulation and the establishment of public bidding schemes for account allocation based on returns. 2. Retail Banking The banking system suffers from considerable regulatory barriers that limit supply growth and diversification of services. Furthermore, the common platform for payment systems increases the probability for collusion. For that reason, in March 2007 the Commission issued an opinion proposing the application of competition principles in retail banking, such as: i) the improvement of consumer’s access to information; ii) promotion of product and supplier mobility; iii) reduction of barriers of entry such as the minimum capital requirement; iv) the guarantee of a non discriminatory access to retail banking for every participant in the market; and finally v) the strengthening of sectoral regulators’ autonomy. This effort coincided with the discussion and approval in Congress of law amendments in line with some of the CFC’s proposals. Nevertheless, strengthening regulators and reducing barriers of entry are still challenges the system faces. 3. Telecommunications convergence Technological change makes it possible for telecommunication networks to diversify their services and simultaneously enter the voice, video and data markets. This convergence process, which is still incipient in Mexico, provides an opportunity to promote competition in these markets. Thus, the CFC has issued opinions on the sector to assure that this process takes place under regulatory conditions favoring competition. The CFC proposed specific measures to promote competition and free access to the market. In particular, the CFC proposed the elimination of regulatory barriers and, most importantly, the interconnection among networks and number portability under non- discriminatory conditions. The CFC also proposed that the participation of an agent in both markets of telephony and cable television should be subjected to authorization by the CFC. Finally, the Commission proposed the promotion of other channels such as Wi Fi, IP technology and power line communications. Currently, the rules for this process are being formulated in line with the CFC’s recommendations. Number portability, for example, despite being provided for in the 1996 Telecommunications Law, is only now being enacted as a direct result of the CFC’s recommendation. 4. Audiovisual contents In order to promote competition in the audiovisual contents sector, specifically television services, the CFC proposed, in a 2006 opinion, to develop a consistent and neutral regulatory framework for the audiovisual contents sector and to establish the access terms and conditions for audiovisual contents in the telecommunications law. It also proposed to allocate spectrum through competitive mechanisms considering the CFC’s participation in order to prevent anticompetitive market concentrations and to favor entry of new competitors. In addition, the CFC proposed the application of the must carry and must offer rules for enhancing competition and free access to the markets of audiovisual contents and video services, guaranteeing pay television providers the access to public network channels and viceversa. Finally, the Commission proposed the promotion of independent producers as well as to grant them access to network television channels in order to promote competition in the television audiovisual contents production. This opinion has served as a criterion for the CFC’s decisions on mergers and acquisitions in the restricted TV market, in particular the acquisitions of cable TV companies, which have been subject to conditions based on the must carry and must offer rules. 5. Energy In spite of the Constitutional restrictions in exploration, extraction and basic petrochemicals, which are unlikely to change in the short term, there is a wide field for the promotion of competition in downstream markets, which have been distorted because of these regulatory barriers and restrictions. Thus, the CFC is conducting efforts to promote competition in such sectors, and has issued opinions and policy recommendations to intensify competition and reduce barriers of entry in the gasoline retail sales and transport and distribution of liquefied petroleum gas markets. 6. Air transport The CFC has encouraged competition and free access in the air transport sector, mainly by a resolution which required two state owned airlines, Mexicana and Aeromexico, to be sold as separate firms; and through the promotion of the reduction of barriers of entry for low cost carriers. Consequently, five low cost airlines have entered the market over the past 3 years. Furthermore, contrary to the global tendency which shows increases in air ticket prices, in Mexico these prices have been falling since then and are expected to decrease even more. As a result, there is an important increase of passengers using this kind of transport. The CFC will continue encouraging the adoption of competition principles in regulated sectors such as the autonomy and the horizontal accountability of sectoral regulators in order to promote efficiency and competitiveness. Additionally, the CFC will continue with the promotion of a culture of competition.
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