VZCZCXYZ0008
PP RUEHWEB

DE RUEHME #4399/01 2282221
ZNR UUUUU ZZH
P 162221Z AUG 07
FM AMEMBASSY MEXICO
TO SECSTATE WASHDC PRIORITY 8458

UNCLAS MEXICO 004399 
 
SIPDIS 
 
INFO ALL CONSULATES IN MEXCIO COLLECTIVE PRIORITY 
DEPT OF COMMERCE WASHDC, PRIORITY 
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STATE FOR WHA/MEX, EB/IFD/OIA, AND EB/CIP 
STATE PASS TO USTR FOR MCHALE AND HINCKLEY 
FCC FOR EMILY TALAGA 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD 
ITA FOR MICHELLE O'NEILL AND DAMON GREER 
NTIA FOR JANE COFFIN 
 
E.O. 12958: N/A 
TAGS: ECPS ECON EINV PGOV MX
SUBJECT:  SUPREME COURT RULES IN FAVOR OF COMPETITION IN MEXICO'S 
BROADCASTING AND TELECOM SECTORS 
 
REF:  A. MEXICO 4344 
      ¶B. MEXICO 4291 
      ¶C. MEXICO 3931 
      ¶D. MEXICO 2506 
      ¶E. 06 MEXICO 6542 
      ¶F. 06 MEXICO 1716 
 
¶1.  (U) SUMMARY:  Below is an analysis and English-language summary 
of the 900-page final decision by Mexico's Supreme Court (SCJN) that 
some provisions of the April 2006 Radio and Television Law are 
unconstitutional. The Court threw out the most blatant 
anti-competition measures that led the 2006 Law to be dubbed the 
"Televisa" law because it favored the duopolies Televisa and TV 
Azteca that dominate broadcasting in Mexico. The Court decision 
supports competition because it has prevented this broadcast duopoly 
from becoming stronger by eliminating those provisions that most 
favored them. We will have to see if President Calderon and Congress 
will use the space opened by the Court's decision to make changes to 
actually promote competition in broadcasting and/or other telecom 
services.  The Calderon Administration and Congress will have to 
decide how public bidding for frequencies can proceed in light of 
the Supreme Court's ruling against public auctions.  The Ministry of 
Communications and Transport (SCT) is seeking support from the 
August 20-21 North American Leader's Meeting in order to facilitate 
its efforts to promote competition at least in some parts of 
Mexico's telecom sector.  End Summary 
 
-------------- 
EMBASSY ANALYSIS OF THE SUPREME COURT'S DECISION: 
------------- 
 
The key points of the Court's ruling are: 
 
The April 2006 Radio and TV Law is Valid 
-------------------- 
 
¶2.  (U) The Court ruled that the April 2006 Radio and Television Law 
is valid, and only declared certain articles invalid. 
 
Foreign Investment Still Not Allowed in Broadcasting 
------------------------- 
 
¶3. (U) The Court declined to comment on foreign investment in 
broadcasting. The 47 Senators who filed the Constitutional challenge 
to the Radio and TV Law opposed foreign investment in broadcasting, 
and believed that the Radio and TV law would allow foreign 
investment in broadcasting allowing broadcasting companies to 
provide triple play services (video, data and phone).  Their 
reasoning was that the Radio and TV law's provision allowing 
broadcasting companies to render "additional telecommunications 
services" would enable these companies to use the more flexible 2006 
Telecommunications Law to allow foreign direct investment in 
broadcasting. The Court ruling did not give the Senators the 
explicit rejection of foreign investment in broadcasting that they 
wanted, but the Court's silence on this point leaves matters under 
the Foreign Investment Law, which does prohibit foreign investment 
in broadcasting. 
 
COFETEL, The Telecom Regulator, 
is strengthened (But Not Enough) 
-------------------- 
 
¶4. (U) By approving those provisions of the 2006 Radio and TV Law 
that strengthened Cofetel, the Court has given Cofetel more teeth 
and autonomy.  Analysts have said, however, that the Radio and Law 
TV did not do enough to strengthen Cofetel or make it into a fully 
independent regulator. 
 
¶5. (U) The Court's decision that the Senate cannot object to the 
appointment of Cofetel Commissioners was widely expected, but it is 
unclear what will happen to the legal challenges filed by current 
Undersecretary for Communications Rafael Del Villar and SCT Director 
of Legal Affairs Gonzalo Martinez Pous. Rumors abound that the two 
Commissioners who took Del Villar's and Gonzalez's place when the 
Senate rejected their nominations will have to step down and 
President Calderon will bill able to appoint two Commissioners, who 
would presumably be close to him rather than to former-President Fox 
or to Televisa and TV Azteca. Del Villar and Gonzalez have said 
 
publicly that they would not seek to become Cofetel Commissioners if 
they win their challenge. 
 
¶6. (U) The Court ruled that those Cofetel Commissioners who were 
replaced by new Commissioners under the Radio and TV Law could have 
been eligible to remain at Cofetel. The Court, however, did not say 
that the new Cofetel Commissioners should step down, nor that all 
Cofetel Commissioners must be replaced.  Post does not think all 
Cofetel Commissioners would be replaced because such a move would 
negatively affect investment. 
 
The Broadcast Duopolies Lose Some Power 
------------ 
 
¶7. (U) The Court's elimination of Article 28 of the April 2006 Radio 
and TV law is a step forward for competition.   Article 28 would 
have given broadcasting companies already holding spectrum a strong 
competitive advantage over new competitors.  As digitalization 
proceeds, Televisa and Azteca would have been able to retain 
freed-up spectrum and use it for new telecommunications services 
without bidding and without being explicitly obliged to pay.  New 
market entrants would have had to bid and pay for such spectrum. The 
Senators who filed the Court challenge believed the Radio and TV Law 
also favored Telmex by allowing it to instantly provide video 
services without bidding or having to pay.  Telmex, however, is 
still waiting for government permission to provide video services 
under the Convergence Accord approved by the Fox Administration (Ref 
E). (In December 2006, a court rejected the injunction filed by one 
cable TV company that had blocked Telmex from providing video 
services.  Telmex expects to meet the Accord's requirements for 
number portability and interconnection, and start providing video 
services in early 2008.) 
 
The Ruling Promotes Competition 
----------------- 
 
¶8.  (U) The ruling on the Radio and TV Law is believed to be the 
first time the Supreme Court has over-ruled laws that blatantly 
favor one company, in this case Televisa and TV Azteca.  It was also 
the first time a Supreme Court ruling like this was made completely 
public, including broadcast on the judicial TV channel of a public 
hearing before the Supreme Court, and publication on the internet of 
the Court's 500-page draft decision and its 900-page final decision. 
 Throughout its ruling, the Court stressed the importance of free 
competition and made the Federal Competition Commission (Cofeco) a 
mandatory part of the process of allocating broadcast frequencies. 
 
Unclear how Congress and the 
President Will Decide to Allocate 
Frequencies 
----------------- 
 
¶9. (SBU) In the short run, however, public bidding for frequencies 
will remain disrupted by the Court's actions.  It remains unclear 
how public bidding for spectrum will work now that the Court has 
eliminated "subastas publicas" (public auctions). One of the 
justifications for the Radio and TV Law was that the old process for 
allocating spectrum was completely non-transparent, bids for 
spectrum were not made public and the Ministry of Communications and 
Transportation (SCT) had complete discretion on which bid to choose. 
Public auctions is a more transparent process.  In fact, one U.S. 
broadcasting company interested in entering the TV market through 
partnership with Mexican broadcasters told Embassy Officers that the 
court challenge to public auctions was a step backwards, because it 
suspended what progress the government was making in opening at 
least regional television frequencies for public bidding.  The Court 
did affirm public bidding, however.  But since the Court rejected 
public auctions, the Calderon Administration and the Congress will 
have to decide how to conduct public bidding for frequencies. 
 
Loopholes Remain 
---------- 
 
¶10. (U) One of the nine Supreme Court judges Genaro Gongora 
Pimentel, published his own interpretation of the Court's ruling to 
explain why he did not agree with the majority.  Post agrees with 
Pimentel that the final ruling was not sufficiently detailed on some 
key points and left some loopholes that could be misinterpreted by 
 
lawyers. Post expects that the Congress will have to fill in these 
gaps. 
 
Embassy Comment: 
------------- 
 
¶11. (U) The April 2006 Radio and TV Law, despite its flaws, was a 
much-needed measure to replace the obsolete radio and television law 
of 1960.  It would have been better for Congress to have passed a 
more comprehensive reform that did not so blatantly benefit the 
handful of broadcast companies that already dominate Mexican media 
and telecommunications.  Rather than having been rushed leading into 
the July 2006 Presidential elections, reforming Mexico's 
telecommunications and broadcasting should have been a more careful 
process used to promote competition and allow triple play and 
technological convergence. Instead, the April 2006 Law was done on a 
fast track, pushed by Televisa and other economic and political 
interests.  Now that the Supreme Court has eliminated those parts of 
the April 2006 law that most blatantly stifled competition, it will 
be up to the Calderon Administration and Congress to pass a new law 
that allows the competition needed for Mexico's telecom and 
broadcast systems to move into the modern age. 
 
¶12. (SBU) As indicated by its recent proposal for the North American 
Leaders Meeting August 20-21 (refs A and B), SCT seems to want to 
promote some competition in telecommunications. On August 3, during 
the HLCC U.S.-Mexico telecom negotiations, SCT Secretary Tellez and 
Undersecretary Del Villar said they were trying to convince 
Calderon's Office to make a bold proposal at this August Security 
and Prosperity Partnership (SPP) summit that the Presidents of the 
U.S. and Mexico and Canada's Prime Minister announce a goal of 
making the necessary policy and regulatory changes so that telecom 
carriers can have low cost "local" calling rates regardless of 
whether the call is within a country or across the U.S.-Mexico 
border.  SCT wants to do this to pressure Telmex to dramatically 
lower its international "interconnection" rates it charges U.S. 
carriers to complete a call from the U.S. to Mexico.  SCT hopes to 
strengthen its efforts to promote competition by linking them to 
efforts under the Security and Prosperity Partnership (SPP) to 
improve competitiveness in North America.  While they may be willing 
to take on Telmex at least to some extent in order to meet President 
Calderon's goal of modernizing telecommunications, SCT is not yet 
willing to take on Televisa and TV Azteca. SCT officials have been 
careful to say both publicly and privately that allowing a third 
national television network would have to be a decision by President 
Calderon himself. 
 
 
 
¶13. (U) Begin Embassy Summary of the Final Ruling: 
------------------------------ 
 
Title of Ruling:  "Constitutional violations and Supreme Court of 
Justice's ruling re. Telecommunications and Broadcasting Laws" 
 
(1)  Complaint from the 47 Senators that filed the challenge): The 
process in which the law was approved violates the Constitution 
because it was approved by the Chamber of Deputies with mistakes in 
the text and sent to the Senate, which changed the text with only a 
notice from the Chamber. 
 
Ruling: The Court did not agree.  The Court ruled that corrections 
made by the Chamber did not modify the general content of the law, 
but made it more accurate. 
 
(2)  Complaint: The creation of Cofetel is an exclusive faculty of 
the Executive, and Congress cannot intervene. 
 
Ruling: The Court did not agree.  The Court said Cofetel was created 
by the Executive in a previous decree, so Cofetel as an independent 
body was not created in this April 2006 Radio and TV Law by 
Congress. 
 
(3)  Complaint: Senators cannot ratify or object to the appointment 
of Cofetel's commissioners. (Article 9-C) 
 
Ruling:  The Court agreed with the accusing party that Senators 
cannot object to the appointment of commissioners, since this is the 
 
Executive's exclusive right. The Court ruled that the Senate can 
only ratify the following Executive's appointments: the Attorney 
General, Ministry of Finance high-level officials; the Army; and 
Ambassadors.  The Court ruled that the Executive will appoint 
Commissioners. 
 
(4)  Complaint: Congress cannot force the Ministry of Communications 
and Transport (SCT) to issue Cofetel's regulations in a period of 30 
days.  Congress cannot tacitly eliminate SCT regulations and 
transfer them to Cofetel, such as broadcasting regulations, which 
were under the Department of Radio and Broadcasting under SCT. 
 
Ruling:  The Court did not agree.  The Court ruled that a law is 
more important than regulations. The Court said that when a previous 
law is eliminated, its regulations are automatically eliminated. 
The Court also said that there is no need to establish a period of 
30 days since the Constitution obliges the Executive to implement a 
law.   (Embassy Comment:  Cofetel and the industry have loudly 
complained that SCT has so far failed to issue Cofetel regulations 
for implementing either the 2006 Radio and TV Law, or the 2006 
Telecommunications Law.  End Comment) 
 
(5)  Complaint: The way Congress decided on Cofetel Commissioners 
over a staggered period violates the Constitution.  Although 
staggered terms is a positive measures to protect Cofetel from the 
pressure of elections and give continuity to its operations, by 
approving the reform legislators just wanted to protect Cofetel 
Commissioners selected by broadcasting companies (duopolists 
Televisa and TV Azteca) from the new Mexican President (since it was 
possible that Andres Manuel Lopez Obrador could have won). (Embassy 
Comment:  Obrador was a leftist candidate strongly opposed to most 
business monopolies in Mexico, and critical of Televisa and Azteca 
for favoring the ruling party in their TV broadcasts.  End 
Comment). 
 
Ruling:  The Court agreed with staggered terms for Cofetel 
Commissioners. 
 
(6)   Complaint: It goes against democracy and equal opportunity of 
employment that former Commissioners were not eligible to remain in 
Cofetel. Congress invaded the Executive's scope of action. 
 
Ruling:  The Court agreed with this complaint, ruling that former 
commissioners could have been eligible to remain in Cofetel. 
(Embassy Comment:  The Court did not say that the former 
Commissioners should be re-instated. End Comment.) 
 
(7)   Complaint: By excluding broadcasting services from the 
Telecommunications Law and including them under a different law (the 
2006 Radio and TV Law), legislators created an exemption regime 
preventing technological convergence.  The reform created a special 
telecommunications regime for broadcasting services.  Under this 
provision, Telmex would have been allowed to provide "additional" 
video services not established in its concession contract via its 
network without being forced to comply with content regulations. 
The existence of two laws would make it difficult for the Federal 
Competition Commission (Cofeco) to determine "relevant markets," 
i.e. to determine monopolies or anti-trust practices.  Monopolies 
would allege that convergent services provided by them were covered 
by two different laws. On the other hand, existing broadcasting 
companies would have been allowed to provide telecommunication 
services through the spectrum assigned to them for broadcasting 
purposes only, without paying anything in exchange and without 
bidding for that spectrum (which will be  released after the 
digitalization process). They would have been able to keep the 
spectrum.  Article 28 of the Radio and TV Law provided a 
preferential treatment to existing broadcasting companies and 
discriminated against, and represented a trade barrier against, 
those companies interested in obtaining frequencies to provide 
telecommunication services since they alone would have to 
participate in a bidding process. 
 
Ruling:  The Court agreed that allowing broadcasting companies to 
keep and use at no cost the spectrum freed up through 
digitalization, thereby getting free concessions to provide 
telecommunications services, would stimulate the creation of 
monopolies and prevent fair competition particularly for 
telecommunications companies and new competitors that had to 
 
participate in bidding. 
 
(8)  The power granted to Cofetel to sanction dominant companies 
violates the Constitution because Cofetel cannot determine relevant 
markets (monopolies and anti-trust practices) in the 
telecommunications sector. The only authority that can do that is 
the Federal Competition Commission (Cofeco). The law also failed to 
determine the sanctions to be applied to dominant companies. 
 
Ruling:  The Court did not agree.  It said that the 2006 Federal 
Telecommunications Law establishes in what cases Cofetel can impose 
sanctions, and that Cofetel can use the concepts established in the 
Federal Competition Law to determine relevant markets. The Court 
said it would not be invading Cofeco's scope of action because the 
Constitution also establishes a prohibition of monopolies. 
 
(9) Complaint:  The power granted to Cofetel to collect fees for the 
right to use spectrum violates the Constitution since this power 
belongs to the Ministry of Finances. 
 
Ruling:  The Court did not agree. The Court said the Constitution 
does not specify that Ministry of Finance is the only agency in 
charge of collecting fees for use of such rights.  Other government 
agencies can collect such fees. 
 
(10)  The power granted to Cofetel to intervene in international 
telecommunication violates the Constitution because a responsibility 
of the Executive Power. 
 
Ruling:  The Court did not agree.  The Court said that Cofetel, as 
an independent body but hierarchically subordinated to SCT, can 
intervene in international matters, and along with the Foreign 
Ministry to accede to agreements.  The Court said this power will be 
included in Cofetel's internal regulation. 
 
(11)   The power granted to Cofetel with regard to broadcasting 
issues violates the Constitution because it is an issue under the 
responsibility of the SCT. 
 
Ruling:  The Court did not agree.  The Court said that Cofetel, as 
an independent body but hierarchically subordinated to SCT, can 
oversee broadcasting issues.  The Court said that the power to 
oversee broadcasting issues will be included in Cofetel's internal 
regulations, and that international standards establish that 
broadcasting and telecom issues should fall under the same 
regulator. 
 
(12)   Complaint:  The fact that broadcasting companies could obtain 
permission to provide telecommunications services by merely 
requesting it from the authority without paying anything in 
exchange, or having to compete for the frequencies, violates the 
Constitution.  The government has the right to administer the 
spectrum, recover and bid frequencies. (Article 28) 
 
Ruling:  The Court agreed.  The Court ruled that frequencies have to 
be granted through public biddings to guarantee free competition and 
prevent the creation of monopolies. In addition, the government has 
the right to receive a payment in exchange. 
 
(13)  Complaint: The 2006 Radio ant TV Law violates equity 
principles since it discriminates between broadcasting concessions 
(commercial companies) and permits (social companies).  Those 
requesting permits have to comply with more requirements. 
 
Ruling:  The Court partially agreed. 
 
(14)   Complaint: The reform violates the rights of community and 
indigenous radio broadcasters. 
 
Ruling:  The Court did not agree. 
 
(15)  Complaint: The accusatory party questioned the use of public 
auctions based only on economic considerations as the mechanism to 
grant concessions for the use of spectrum.  (Article 17-G) 
 
Ruling:  The Court agreed.  The Court said this aspect of the law 
was unconstitutional because it ignored the "social side" of 
broadcasting services by allowing concessions to be granted only on 
 
the basis of economic power and not the public/social role of the 
broadcaster, the programming, and the effective use of the spectrum. 
 The Court said that granting concessions based only on economic 
criteria violates the Constitution because it stimulates the 
creation of monopolies.  The Court determined that concessions will 
be granted according to the congruence between the program and the 
use of the frequency, as well as the result of the public bidding 
process. 
 
(16)  Complaint: Having two laws, one for telecommunications and one 
for broadcasting, becomes an obstacle for the Federal Competition 
Commission (Cofeco) to determine monopolies and implement sanctions 
in a technological convergence market. Some companies considered to 
be dominant companies (monopolies) for some services 
(telecommunications or broadcasting) could use their power to block 
the entrance of competitors in other markets (telecommunications or 
broadcasting).   Monopolies can allege that there are two different 
markets: telecommunications and broadcasting. 
 
Ruling:  The Court did not agree.  The Court said that although 
there are two laws, both coincide in technological convergence. The 
Court said that technological convergence will allow a company to 
provide triple play services.  The Court said the April 2006 Radio 
and TV law links the regulation of broadcasting and 
telecommunications in accordance with by international standards. 
The Court said the existence of two laws will not prevent Cofeco 
from determining monopolies or relevant markets since there are 
clear rules for such determinations. 
 
(17)  Complaint: The fact that broadcasting companies can renew 
their concessions automatically and keep their spectrum over 
interested third-parties without the need to bid for it or to comply 
with new quality requirements violates the Constitution, especially 
because telecommunication companies have to comply with certain 
obligations and even new ones imposed by the authority. (Article 28 
and 28-A) 
 
Ruling:  The Court agreed.  Although the Court said that concessions 
can be renewed, broadcasting companies have to participate in a 
public bidding process to renew their concessions. 
 
(18)   Complaint: To bid for a concession, companies must have the 
favorable opinion that the company would not become a monopoly from 
the Federal Competition Commission (Cofeco). The Radio and TV Law 
only required that the company provide evidence that it had 
requested Cofeco's opinion. (Article 17-E V) 
 
Ruling:  The Court agreed that this violates the Constitution.  The 
Court said companies must provide a favorable opinion from Cofeco 
when participating in public bidding for a concession. 
 
(19)  Complaint: The reform authorized neutral foreign investment in 
the broadcasting sector.  Only Mexicans can invest in the 
broadcasting sector (with the exception of cable TV). Since the 
April 2006 Radio and TV Law considered the provision of "additional 
telecommunication services," foreigners could use this to invest 
more than 49% in broadcasting. 
 
Ruling:  The Court side-stepped this issue by saying the analysis of 
this Article is not needed since Article 28, in which broadcasting 
companies were allowed to provide telecommunication services without 
bidding for them, was considered to be illegal. 
 
(20)   Complaint: Concessions are for 20 years. 
 
Ruling:  The Court agreed that concessions for 20 years violate the 
government's right over the spectrum and its responsibility to 
administer the adequate and effective use of the spectrum.  The 
Court said that not even the investment made by the industry 
justifies the 20-year term.  The Court suggested changing the text 
to "grant concessions up to 20 years" in order to give to the 
government the possibility of not renewing a concession and 
recovering the spectrum.  (Article 16) 
 
(21)  Complaint about electoral propaganda/advertising:  Only 
political parties and not their candidates can purchase publicity 
time from broadcasting companies. 
 
Ruling:  The Court did not agree. 
 
 
BASSETT