Preponderance or substantial power: dissonant elements to implement the telecommunications reform?

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A bit more than a year after the modifications to the Constitutional articles that refer to the judicial framework of telecommunications have been issued, it seems that the Senate has finally decided to conclude their secondary legislation. The Senate commissions will gather this week with the purpose of trying to issue a document that can be discussed in a new extraordinary session period at Congress. As expected, the details regarding the rules that the reform will implement has caused disagreements between PAN and PRD parliamentary groups. One of the most controversial issues is the one related to “preponderance”, whose ambiguity raised a few eyebrows since the Constitutional reform included it as the main technical reference that would establish the principles of the asymmetric regulation that the Federal Institute of Telecommunications (IFT) ought to design in order to provide some equilibrium and conditions that will enable more competition and benefits for users.

The Constitutional reform establishes that an agent that has an involvement that is higher than 50% within a sector will automatically be considered as a “preponderant agent”. The aforementioned legal concept is new in the legislation since it does not appear in equivalent legislation such as the Federal Law of Economic Competition (LFCE). The greatest problem is that the preponderance concept is based solely on market participation – against the best practices – rather than on an economic analysis that uses variables such as: prices, costs, entry barriers, suppliers, clients, etc. Paradoxically, determining relevant markets and substantial powers is a common practice at the Federal Commission of Economic Competition (CFCE). It has taken more than twenty years to achieve the capabilities needed to provide the aforementioned analysis, even for the telecommunications market. The general population now demands clarity in these concepts while at the same time creating more fuss by proposing that preponderance should be defined by service rather than by economic sector in order to comprise all markets and not favor any stakeholder.

At first glance, it can be argued that the preponderance concept is the same as an agent with a substantial power within the market. If it were that way, LFCE as well as legal and administrative precedents already provide valuable standards in order to determine what agents or concessionaries might have the right to hold this qualification and, thus, companies may be able to face the obligations imposed by the law. However, given that nothing included in the Constitutional reform establishes that both concepts are the same, the most recommendable thing to do is that secondary legislation should clarify both concepts, provide IFT with the alternative of making use of LFCE and concede the necessary technical autonomy as to determine relevant markets and substantial powers in order to impose structural and behavior measures for companies and provide judicial certainty to investors. The risk of not doing so is that as soon as the legislative process ends, a battle will start at the judicial stand.

If there is still a lack of certainty on the available elements for IFT to assess damages for exercising substantial power, the preponderance concept will showcase how some economic groups of interest will seek a way to make adjustments in order to not surpass the 50% threshold by avoiding the compliance of obligations that the asymmetric regulation might impose. For those that cannot meet this sort of adjustments, the incentive will be not to invest, thereby, affecting the final consumer. The result of a mistake in harmonizing laws and the lack of clarity in essential principles of regulation might be the source of adverse effects within the telecommunications industry; or, in the best case scenario, of no effect whatsoever within the competition and benefits for consumers. Does Mexico want inadequate or dysfunctional secondary legislation? The price of losing an additional opportunity to enhance further growth and development might be very high.


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