Radio And Television Proposal Favors Mexican Monopolies

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Classified By: MINISTER COUNSELOR FOR ECONOMIC AFFAIRS
JAMES T. HEG FOR REASONS 1.4 (B) AND (D)

¶1. (U) Summary: The Mexican Chamber of Deputies unanimously
passed legislation in December to reform the Radio and TV Law
and change the composition of the Mexican Federal
Telecommunications Commission (COFETEL). The Mexican Senate
recently held a series of hearings on the bill and is
expected to vote soon. Although most telecommunications
experts agree that major reforms are needed in Mexico, some
question the validity of the proposed reforms because they
seem to favor the current dominant players as well as give
them a possible advantage over telecommunications companies
in offering traditional telecom services. Several officials
and groups who originally opposed the legislation have
recently changed their position. Opposition parties claim
many people are afraid to speak out because the special
interest groups depend on major broadcasting companies
support for political and campaign advertising and time. End
Summary.

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THE “TELEVISA” BILL
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¶2. (U) The Mexican Chamber of Deputies sped through a bill
aimed at reforming the Radio and TV and Telecommunications
laws. The bill was introduced by PRI Deputy Miguel Lucer
Palma in November. According to press reports and industry,
Televisa drafted the proposal. On December 1, the Chamber
unanimously approved it and sent it to the Senate.

¶3. (U) The proposal states that COFETEL commissioners will be
appointed by the Executive 30 days after the bill has been
approved and published in the Diario Oficial, meaning that
all the commissioners would be designated by the current
administration. Five commissioners will be appointed for an
eight year term (which would prevent the next Administration
from appointing any commissioners). Senate confirmation is
not required, but Senators will have 30 days to object to the
appointees. Previously, four commissioners served a five
year term and appointments required Senate confirmation.

¶4. (U) The proposed legislation changes COFETEL’s regulatory
powers for broadcasting but does not allot the agency
additional power over telecommunications concessions and
licensing. The Secretariat of Communications and Transport
(SCT) will still have discretionary power in this area.
COFETEL, however, will be granted some authority over
deciding whether a city or area needs broadcasting services
once spectrum is freed up by the transition to digital
technology. The new spectrum may be auctioned off and new
authorizations would be granted for a period of 20 years.
However, a grey area exists in the proposal that would most
likely allow broadcasting companies to maintain control of
the freed spectrum. Unlike current practice, SCT is not
obligated to publish the program for auction and companies do
not have obtain the Federal Competition Commission’s (COFECO)
approval before bidding. Companies must only demonstrate
that they requested COFECO’s opinion.

¶5. (U) There is some confusion over whether the new
legislation also prohibits Mexican companies from partnering
with foreign investors, including any neutral investor (i.e.
an investment made in non-voting or limited voting shares).
Under the current Telecommunications Law, foreign investors
may own up to a 49 percent share of a company, but the new
proposed Radio and Television Law forbids any foreign
investment, including neutral investment. Since concession
regulations and spectrum allocation are not adequately
defined, it is difficult for experts to predict who will and
won’t be able to obtain concessions.

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FAVORING THE DOMINANT PLAYERS
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¶6. (C) Econoffs and Econ Specialist met with Javier Lozano of
the Regulatory and Technology Consulting Firm of Javier
Lozano and Associates, S.C. on February 14. Lozano is the
former Undersecretary of Communications as well as the former
President of COFETEL. He considers himself to be
pro-competition and pro-investment. Lozano currently has a
regular column in the Mexican newspaper Universal, runs a
telecommunications consulting firm with four other attorneys,
and is a close advisor to the Calderon campaign. Although,

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he says he currently keeps his consulting work and editorials
on the telecom industry separate from the campaign, he
admitted that he is not sure how long he will be able to
manage both successfully and without conflict.

¶7. (C) Lozano believes the Radio and Television Law in the
form passed by the Chamber of Deputies in December would make
Mexico worse off in telecommunications competitiveness than
if no reforms were passed at all. He believes the bill
favors broadcasting giants like Televisa and TV Azteca,
leaves an unfair playing field in the telecom sector, and
fails to strengthen COFETEL’s regulatory powers.

¶8. (C) Due to the bill’s failure to grant COFETEL authority
over licensing and concessions, Lozano believes that SCT can
and will continue to delay issuance of licenses. He also
believes the legislation, if passed, has the potential to
weaken the telecommunications sector by allowing spectrum
that is freed up by the digitalization process to be allotted
to broadcasting companies for little or no cost, since the
legislation does not establish a cost criteria. Most
telecommunication companies have spent a considerable amount
of money investing in spectrum and participating in
concession auctions. Lozano believes the bill favors the
broadcasting services by not requiring them to make a similar
sacrifice, thus giving them an advantage over
telecommunication companies by offering convergence
technologies such as triple play services (voice, video and
data) without having to wait for concessions and licenses.
Lozano also said the bill fails to promote competition by not
allowing foreign or neutral investment and favors already
established companies like Televisa, Azteca, and Telmex.

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OR ENCOURAGING TECHNOLOGICAL DEVELOPMENT?
—————————————–

¶9. (U) Lozano’s views are at odds with the Director General
of the consulting company Economic Competitive Intelligence
Unit, Ernesto Piedras, a renowned telecommunications academic
and telecommunications consultant. Piedras has also been
outspoken in favor of the legislation because he says the
bill groups Mexico’s telecommunications and broadcasting
industries under one legal framework, thus facilitating the
Mexico’s movement towards the convergence of technologies.

¶10. (U) According to Piedras the bill took the International
Telecommunication Union’s (ITU) suggestion to have one agency
regulate both sectors. He said that it is also taking the
Organization of Economic Cooperation and Development’s (OECD)
suggestion to require a congressional confirmation process
for appointment of the COFETEL Commissioners even though the
legislation actually states that the Senate may object to the
appointment rather than requiring a formal approval process.

¶11. (U) Piedras also claims the legislation will help
jump-start spectrum auctions and push COFETEL and the SCT to
grant concessions through public auctions. Through the
convergence of technologies like digitalization, spectrum
will be freed up and companies will be able to bid for it
through public auctions. Although he acknowledges that the
TV companies could use the spectrum freed up by
digitalization for triple play services, he doubts that they
will because he believes the size of the spectrum is small.

¶12. (C) Lozano believes the bill in its current state has a
70 percent chance of passing in the Senate. He says the PRD
is completely against it but the PAN and PRI are divided.
However, with several key Senators harboring ambitions to
become Governor (PAN Senator Hector Osuna, chair of the
Telecommmunications and Transportation Committee, is planning
a run for Governor of Baja California and PRI Senator Erick
Rubio, also a member of the Telecommunications and
Transportation Committee is planning a run for Governor of
Yucatan) and impending competition for television companies’
support for campaigning, all three parties have a strong
incentive to see the bill pass within the next month.

¶13. (C) Several Senators and Deputies conveyed their thoughts
to Poloff in recent weeks. Deputy Federico Madrazo (PRI),
son of Presidential candidate Roberto Madrazo, admits the
Chamber’s version of the bill has several flaws but believes
the Senate has the opportunity to correct them. He argued
that even an imperfect bill would be preferable to no bill.
He noted that several companies were buying AM stations
hoping that their concessions would be switched to more

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lucrative FM concessions once the bill is implemented. Vice
President of Congress Deputy Francisco Arroyo (PRI) said he
is concerned that the bill will greatly strengthen large
media companies, leaving them with tremendous power. Also,
he worries that the big media companies may associate with
large foreign media conglomerates, facilitating a “back door”
entrance for foreign investment in the sector.

¶14. (C) Senator Gennaro Borrego (PRI) is still studying the
bill to see if it favors the larger media companies, even
though he admitted that they have a big interest in its
passage. He expects the bill to pass this session. Senator
Carlos Chaurand (PRI) says the smaller companies are at a
major disadvantage if the bill becomes law but noted that the
current law needs to be updated and that there are strong
economic interests that favor adoption of the bill. Senator
Cesar Jauregui (PAN) seemed to be one of the critics of the
bill. He says the proposal is a PRI-initiated bill, drafted
by the big media companies. He believes the PRI’s
introduction of the bill was the price they had to pay to get
the media companies to back Madrazo this election season. He
said the legislation, if passed, will give more power to the
bigger media companies and will cause a loss of diversity
among the media outlets. PAN Senator Hector Osuna, a major
backer of the bill, has been criticized in the press as
having a major conflict of interest in promoting the bill and
has changed his opinion regarding telecommunication and
broadcasting reforms many times. He owns G Tel
Comunicaciones, an internet company that currently has a
concession to offer triple play services and already has an
advantage over many other telecommunications companies in
competing with the broadcasting services to offer triple
play.

¶15. (U) Academics such as Denise Dresser from Instituto
Tecnologico Autonoma De Mexico (ITAM), a private University
specializing in Economics, Dr. Raul Trejo Delarbre, an expert
in Telecom and Social Policy from Universidad Nacional
Autonoma De Mexico (UNAM), and Ernesto Velasquez, Director of
TV UNAM and a representative of community radio stations,
have criticized the proposal. Dresser criticized Congress
for supporting a bill that doesn’t eliminate unfair practices
and continues to leave power in the hands of monopolies.
Velasquez complained that Televisa is distorting his
statements to show that he and the entities he represents are
in favor of the bill when they’re not. Dr. Trejo says the
spectrum freed up through the digitalization process would be
adequate enough for Televisa to offer telecommunications
services and noted that there was a “gap” in the proposal’s
language that doesn’t oblige Televisa to pay for the spectrum
nor for it to be sold in an auction by the Government.

¶16. (C) Econoff spoke with Nextel’s Vice-President of
Business Development Gustavo Cantu and Director of
Communications and Institutional Relations Cristina Ruiz on
February 24. Despite being among several U.S. companies
publicly named in recent press articles as supporting the
legislation, Nextel vehemently denied that it is supporting
the measure. However, they noted that they are not opposing
it either. Nextel has declined to make any comments to the
press and it did not participate in any Congressional
meetings on the subject. Nextel gives the bill poor
technical marks but it doesn’t want to fight the powers
behind it (Televisa). Cantu believes the bill will enable
the media companies to enter the telecommunications sector
more easily but Nextel doesn’t want to say anything that
would suggest that they aren’t in favor of more competition
in the sector. Nextel said they have an agreement with the
appropriate people that will enable them to have some
influence over who is appointed to be the next COFETEL
commissioners. Cantu is positive that other companies have
made similar deals.

¶17. (C) When asked why CANIETI, the electronics industry
chamber, abruptly changed its position and decided to support
the bill after two months of complaining, Cantu simply
answered “Televisa.” Jaime Chico Pardo, CEO of Telmex,
recently told Econ Mincouns and Econoff that he believed the
bill, in its current state would “weaken” the
telecommunication’s industry. However, Cantu believes Telmex
and Telcel are currently supporting the bill for the same
reason as Nextel as well as for the most obvious reason –
Telmex Chairman Carlos Slim is a major shareholder in
Televisa.

¶18. (U) The Mexican media strongly criticized the SCT,

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COFETEL, and COFECO for not commenting on a bill that would
heavily impact their agencies’ operations. However, when
COFECO and COFETEL finally offered comments on February 22,
lawmakers felt the agencies comments were unclear and
confusing. COFETEL President Jorge Arredondo and COFECO
President Eduardo Perez Motta said the proposed law fails to
adequately address all the legal issues associated with
concessions as well as transition to convergence
technologies. Perez Motta said it also failed to give any
power to COFETEL to sanction violation of the new law nor
does the proposal include measure to avoid anti-competitive
monopolistic practices.

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COMMENT
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¶19. (C) The media has nicknamed the legislation the “Televisa
bill” and suggested that Televisa will benefit greatly from
its passage by eliminating potential competition. Lozano is
probably correct in assuming that many interest groups and
lawmakers are taking advantage of a time when most are
overwhelmed with election issues to pass legislation that has
so may deficiencies and special interest gains. In addition,
with the campaign season in full swing, no one seems to want
to upset Televisa or Azteca (which also stands to gain much
from the bill) for fear of losing prime advertising slots at
good prices.

¶20. (C) The failure of U.S.-owned telecommunications
companies to oppose a bill that could have significant
negative future consequences for them is also a telling sign
that this bill is backed by the most powerful players in
Mexico. It is also disappointing to watch them purposely
support a policy that favors the status quo, i.e. the Mexican
monopolies which they’ve continuously asked the U.S.
Government’s support in fighting for a more level playing
field and greater access for foreign investment.

¶21. (C) Although some suspect Fox may veto the legislation if
it’s not modified, it’s doubtful that he’ll risk alienating
Televisa at the end of his term. It’s also doubtful that any
Senator will want to risk their future political careers by
rocking the boat at a time when all of the parties are
deciding their political future.

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