Avantel and Alestra vs Telmex

MEXICO, 2000


Long distance operators, Avantel, SA de CV (Avantel) and Alestra S de RL de CV(Alestra), filed complaints against Telefonos de Mexico, SA de CV(Telmex) for alleged practices in the market for the provision of domestic long distance service through public telephones. As a result of the investigation the FCC found Telmex responsible for anticompetitive practices derived from charging public telephone users $0.50 pesos per minute for long distance calls when using 800 numbers and for requiring the use of Telmex� prepaid cards (Ladatel) in order to access those numbers. The 800 paid numbers are used to render paid telephone services, whereby the receptor agent absorbs the cost of the call. Commercial firms or social service institutions offer 800 paid numbers to provide their customers with a free communication in order to encourage them to use their information services. These numbers may be accessed from private or public telephones. In the latter case, Telmex charged its competitors�� clients a $0.50 per minute access fee, although users calling to 800 numbers offered by Telmex were not subject to this charge. The investigation covered the following allegations:

Tied sales. The FCC found that the charge imposed by Telmex represented an entry barrier since access to 800 national service through public telephones was only available by using Telmex� prepaid Ladatel card.

Refusal to deal. In 1997 Avantel requested Telmex to enter into a contract which would enable it to absorb the $0.50 charge for 800 number calls originated from public telephones, in order to free its users from this payment. Telmex refused the contract without justification, although it had already subscribed such agreements with foreign providers of 800 numbers. In 1999, following a decision issued by the Federal Telecommunications Commission (Cofetel), Telmex signed contracts with six firms setting technical and operation conditions regarding access to calls originating from public telephones by means of 800 numbers.

Discrimination. By denying direct charge to plaintiffs when accessing to its public network, Telmex created exclusive advantages in its own favor since it offered itself this service to operate its own 800 numbers. Foreign firms offering 800 numbers also operated under a scheme where the final user is not charged for the use of Telmex� public telephone network. Thus, uneven sales conditions were established for agents providing equal services from public telephones

Reduce demand. The object and effect of the behaviour challenged was to offset competition faced by Telmex from its main competitors: Alestra and Avantel. These practices resulted in useless advertising and losses because the plaintiffs were forced to withdraw their prepaid cards from the market, since they would not meet demand given that costumers had to purchase Telmex� Ladatel card as well.

The FCC� decision included a sanction amounting to the highest applicable fine for each of these practices. On deciding this amount, consideration was taken of the harm to competition, the international effect on firms and consumers, and of Telmex� significant market share.

On September 2000, Telmex filed an appeal for review in which it expressed, among other things, that the FCC did not determine the amount of the fine in accordance with the criteria contained in the FLEC. In this point, Telmex was correct in arguing that there is not sufficient evidence to support the degree of dangerousness and the lack of evidence to prove a repeated offense by engaging in monopolistic practices in violation of the FLEC, and therefore the FCC determined the reduction of the fine imposed.