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Speech of Eduardo Perez Motta

VIEWS: 6 PAGES: 3

									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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