EXCLUSIVE-Mexico regulator botches review, aids Telmex
* Mexico launched inquiry into telecom regulator
* Regulator shelved 'no' decision on Slim TV bid
* Deadlines missed in three cases in 2008
By Patrick Rucker
MEXICO CITY, June 7 (Reuters) - Mexico's anti-corruption watchdog is investigating a botched ruling by regulators which handed telephone company Telmex a legal advantage in its bid to enter the television market, according to sources and documents obtained by Reuters.
The documents show that former officials considered the Telmex bid three years ago, swapped memos on the subject and even drafted a "no" decision, but failed to respond as a regulatory stopwatch ticked down. Telmex, controlled by the world's richest man, Carlos Slim, has taken its battle to the courts.
A Mexican court last month found Cofetel, the telecom regulator, did not rule on Telmex's television bid in time and, under industry rules, this led to a tacit approval of the company's request.
The win for Telmex was short-lived, with Mexico's Communications and Transport Ministry (SCT), the final arbiter of telecom disputes, rejecting the Telmex TELMEXL.MX TMX.N TV bid two weeks later. [ID:nN28273536]
But Telmex, which provides roughtly 80 percent of Mexico's home phone lines, said it will keep fighting in court, arguing that regulators must grant the television license on the narrow grounds of the three-year-old filing.
For Telmex, the decision is critical. HSBC estimates that winning a television concession would open a profitable new line of business and increase revenue 6 percent in the first year as its telephone service sheds customers.
A Reuters investigation, which involved a review of Cofetel internal documents and interviews with current and former regulators and industry sources, also found evidence of other mismanaged cases by Cofetel, handing similar legal victories to Telmex and television company TV Azteca TVAZTCACPO.MX.
The SCT and Mexico's anti-corruption and public service organization, the Ministry of Public Administration, are investigating how the Telmex decision was so mishandled, industry and regulatory sources said.
Cofetel has handed over paperwork concerning the decision to authorities and the agency is cooperating with investigators, a regulatory source said.
The case also is an important step as Mexico tries to shake a long-held, public view that a handful of companies controlled by the country's richest men can rely on their political clout to preserve their market power. [ID:nN12110496]
Slim holds the highest profile among this group. He and his family control Telmex and mobile phone company America Movil. His Grupo Carso (GCARSOA1.MX) controls the Sanborns restaurant, pharmacy and department store chain, with many locations throughout Mexico.
MANY RULINGS FOULED
The seeds of the Telmex television controversy were planted in the 2006 Convergence Accord, a decree that set the terms under which Telmex would be allowed to enter the TV business.
The decree was written under the guidance of former president Vicente Fox's telecommunications chief, Pedro Cerisola, a former Telmex executive.
The decree envisions Mexico with a strong national telephone industry before Telmex expanded into television. It also demands that regulators answer any Telmex bid for TV within 60 days or the license would be automatically granted.
In late July 2008, Telmex petitioned Cofetel for a television license, arguing that the company complied with preconditions spelled out in the Convergence Accord.
Despite the importance of the case, a federal court found no evidence that Cofetel responded to the Telmex bid, according to court documents. Telmex declined a Reuters request to provide evidence that it was in touch with Cofetel while the regulator considered the matter.
A memo obtained by Reuters, dated Aug. 6, 2008, from Jorge Mena, the Cofetel technical secretary, to Cofetel chief counsel Carlos Silva acknowledged receipt of the Telmex paperwork.
In a hand-written footnote on that memo, dated Aug. 22, Silva said an answer was drafted and was attached. No attachment was available for Reuters to review.
But Reuters has obtained a separate three-page document dated Oct. 29 -- more than four weeks after the 60-day deadline for a decision passed -- and ready for signature by Cofetel officials, which would have denied the Telmex request.
A Cofetel source said the documents were among those handed over to investigators.
Hector Osuna, then president of Cofetel, declined to discuss the handling of the case in detail, but said officials would not have granted Telmex a television license since the company did not meet fair play standards in its telephone business as regulators demanded.
"All I can say is that for us, there was never evidence that (Telmex) had complied with its requirements," said the former official, who stepped down last June.
Mena, now a legal consultant, declined to comment about the matter.
When Telmex received no answer from the regulator, it began legal action which culminated in last month's ruling. The decision to give Telmex a tacit approval for its television license caught Telmex's rivals off-guard since they were not aware of the legal maneuvering.
Reuters found that on two other occasions in 2008, regulators kept silent on major policy decisions and so handed telecom companies legal victories.
One involved a plan from Mexican broadcaster Azteca to use its analog broadcast channels to deliver on-demand programming, which was brought to Cofetel in April of that year.
In this case, Cofetel had 90 days to reply to the request or it would be automatically approved.
Cofetel never answered the petition and a federal court granted Azteca its petition citing "an omission" on the part of the regulator for not giving a timely reply, according to court documents. Azteca declined to comment.
The other issue of that year involved a communications ministry plan to pare back the number of long-distance telephone zones.
Such a reform would have saved consumers hundreds of millions of dollars a year, the government said, and it would have cost Telmex large sums in lost revenue.
But a press release from October 2008 said Telmex succeeded in blocking the change "because more than the five days envisioned in the Act had elapsed without a response" to Telmex on some points of the plan.
Telmex declined to comment for this story.
(Editing by Robert MacMillan)
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