- The Washington Times - Wednesday, January 1, 2003

QUERETARO, Mexico, Jan. 1 (UPI) — This is a serious case, of excommunication. The pope, however, is not involved, but rather a more worldly body: Mexico's private phone service provider, Telmex, which enjoys a near monopoly of the market.

From the point of view of investors, Telmex is a good company. A Wall Street analyst has this to say about it: "It is considered to be well-managed. Telmex avoided the silly investments of the Internet era. It operates in a relatively shareholder-friendly way, paying a regular dividend and making large share buybacks. Thus, unlike many other Latin American companies, profitability at the company has translated into good returns at the minority-shareholder level."

But what is the reason for the company's profitability? The same analyst, speaking anonymously, has this to say: "Telmex is highly regarded because it has managed the regulatory process so as to avoid too much competition. The threat from the U.S.' long-distance operators WorldCom and AT&T; has been warded off." In other words, Telmex enjoys a near-monopoly. And it profits from it, handsomely, by charging much more for phone service than U.S. companies charge in their home market.

And what of its service? Consider these stories.

In a mid-sized town in central Mexico about four years ago, a small private school wants an additional phone line. The one it already had, it turns out, comes from a pole owned not by Telmex but by the state-run electricity company, the CFE. It was no longer possible to add any lines to a CFE pole, Telmex said, and if the school wanted more lines, it must pay for the cost of putting up telephone poles. The cost would be 24,398.28 Mexican pesos, about $2,500 at the then-exchange rate.

The school said that was too expensive. Telmex then recommended clubbing together with nine people in the neighborhood, but the different recipients of phone service should not be more than 50 meters apart.

It took time, years, but the school eventually found eight homes in the vicinity that wanted telephone service and requested three additional lines for itself. A Telmex engineer congratulated the school. And — unexpected generosity — Telmex said that because more than 10 new lines were being supplied, Telmex would itself bear the cost of putting in telephone poles and cable. The work would be done by April or May 2002.

As a new year begins, the school is still waiting. The saga has gone on for four years.

Or take the story of an individual who did something presumptuous: He had a house built on a street; a house that was new and would therefore require a brand-new line. This was indeed audacious.

He applied early to Telmex for service. This application, it should be said, cannot be made by phone, only in person at the Telmex office — which, in this case, happened to be 10 miles away. A Telmex employee said it would take 20 days to evaluate whether it was possible to supply a new phone line. The applicant was given a folio number and a telephone number to call. After 20 days, he rang the number many times. There was never any response. And no one ever contacted him.

So he returned to the office and was told by a different Telmex officer that there was no cable supplying phone service to that part of town. This was odd because a house 50 meters away has phone service. He was recommended to suspend his phone service at the house he and his wife had rented for many years. Then it might be possible eventually to transfer that number to the new house if a line were to become available.

The following month he again returned to the Telmex office. A different Telmex officer told him that that there was in fact a cable supplying service to that part of town, but each cable supported only 10 telephone lines and they were all taken.

Moreover, suspending the phone service on his previous number, this officer said, was impossible; too many people had asked for the suspension service, and it had itself been suspended. The only way forward at this point was to make a formal request to Telmex to investigate the cost of putting in additional telephone posts. The applicant would have to pay for the new infrastructure.

The applicant therefore returned to the office some days later with the formal letter asking Telmex to investigate the cost of providing him telephone service: service he would have to pay for, once he had paid for Telmex's own installation costs. Another Telmex employee told him the whole process might take two years.

In this still-unresolved case, remember that there was a telephone installed already 50 meters away. But what of the numerous villages and communities of Mexico that have no service at all? Consider another anecdote.

In a village in the state of Queretaro, Telmex said that if 100 deposits could be gathered, it would provide the necessary infrastructure. It is not a wealthy village, and the villagers were wary. They did not want to give the money to Telmex without the reassuring sight of at least a telephone pole. Distrust won the day. Progress lost. The deposits were not gathered. The village remains incommunicado.

How much does this matter? The cliche that we are in the Information Age is true. Mexico is a backward country. It needs economic development. Not being able to communicate is a huge obstacle to the country's advancement.

Are we saying the privatization of Telmex was a mistake? No. The unfortunate thing was that Telmex has been allowed to remain faithful to the standards of service of the old state-run company.

This is the sort of privatization that gives privatization a bad name. A competitive market needed to be and must still be created. There needs to be some pressure to encourage Telmex to reduce its prices and improve its service.

Instead, what we are left with? A foreigner who has lived in Mexico for 20 years describes Telmex as "like God, really. You have to believe and hope for a miracle."

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Inside Mexico is a weekly column in which our international economics correspondent reflects on the country in which he lives some of the time. Comments to [email protected]


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