Cofetel may be in for legal battle with Telcel over interconnection ruling

- Tuesday, March 22, 2011

Cofetel may be in for legal battle with Telcel over interconnection ruling

Mexican telecoms regulator Cofetel could potentially face a legal battle with Latin American mobile giant América Móvil (NYSE: AMX) if the latter chooses to appeal the watchdog's ruling on interconnection rates, Sergio Legorreta, lawyer with Baker & McKenzie, told BNamericas.

Last week, the regulator stepped in to end a dispute over interconnection rates for fixed-to-mobile calls between fixed-line provider Alestra and Mexico's largest mobile operator, Telcel, a unit of América Móvil.

The watchdog's five-member board unanimously set the interconnection for Telcel at just over 0.39 pesos (US$0.03) per minute, a fraction of the 0.95 pesos proposed by the firm.

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Cofetel said that the rate was cost-based and that the ruling is in keeping with the global trend to lower rates.

High interconnection rates for fixed-to-mobile calls is something that was originally intended to buoy startup mobile operators when penetration was still low, but with levels nearing 100% in most Latin American countries, the justification is more or less obsolete.

However, with such a significant drop in rates, Telcel could argue that the change will have an abrupt impact on its business, Legorreta said. The rate that Cofetel decided on is even lower than the 0.42 pesos it was proposing several weeks ago.

"I would expect Telcel to disagree with Cofetel's decision and file a lawsuit. I can't say that will definitely happen, but it would be the most logical thing to do. And that is regrettable. A lot of Cofetel's rulings tend to end up that way," Legorreta said.

"If Cofetel has done its job properly in analyzing tariffs - the tariff is based on costs - Telcel ought not to have much to complain about; the numbers don't lie," he added. "So either Cofetel got it wrong, which I would find hard to believe, or we have an operator that doesn't want to accept the reality of Mexican regulation."

Before the ruling last week, América Móvil CFO Carlos García Moreno was quoted by press as saying that lower interconnection rates would have an impact on Mexican operators' investment levels. He also argued that studies have shown the cost of mobile calls for end users has declined regardless of interconnection and that prices fall with an increase in capacity and supply.

Under Mexican law, Telcel is within its rights to appeal.

Legorreta said he believes that special tribunals should be set up for addressing issues specifically related to telecommunications, as is common in other industries such as energy, insurance and shipping.

However, in Mexico, telecommunications disputes are settled by regular judges who lack the technical expertise to make a ruling on the central issue of debate. That results in the argument often being settled on legal and procedural technicalities, Legorreta said.

The lawyer also underscored that this issue has emerged just as Cofetel is about to introduce a new set of regulations for dominant telecoms operators.

Local newspaper El Economista reported that Cofetel head Mony de Swaan was due to request new powers from the senate to intervene in telecoms disputes such as those over interconnection.