Compete - or else

MEXICAN corporate oligarchs have never had much to fear from the country’s competition authorities. Until recently, investigators politely had to give notice the day before raiding premises. Offenders stalled for years in court before coughing up their fines. Even then, the maximum penalty for first-time violators of competition rules was 85m pesos ($7.3m)—“not even peanuts, but plankton,” one prosecutor admits. And so Mexico’s corporate whales grew fatter.

But last month the Federal Competition Commission hit the country’s biggest whale with a fine of 11.99 billion pesos ($1 billion), the heaviest penalty ever. It claimed that Telcel, which has 70% of Mexico’s mobile-phone market and is controlled by Carlos Slim, the world’s richest man, had abused its dominant position by charging competing networks sky-high connection fees. Telcel, whose connection charges are 44% higher than the average in the mainly rich countries that are members of the OECD, will appeal.

The billion-dollar fine was made possible by a 2006 law that allowed repeat offenders such as Telcel to be charged up to 10% of their assets. On April 28th Congress approved a new law that introduces even tougher penalties. Those found guilty of collusion—but not abuse of market dominance, of which Telcel is accused—face up to ten years in prison. All offenders, not just recidivists, will face fines of up to 8% of annual sales for abuse of market dominance, and 10% in the case of collusion. The commission will now be able to carry out surprise inspections, allowing it to gather evidence before it is shredded. The abolition of the notice requirement will allow Mexico to take part in co-ordinated international swoops, from which it had often been excluded for fear that it would tip off suspects in other countries.

Enforcement remains a problem. Officials fear that Mr Slim’s lawyers could stall payment of Telcel’s fine by a decade or more. The commission is still fighting a case against a drinks-bottling company that it brought in 2000. But it says that its court cases now take an average of two years, whereas a decade ago they took five or six. And it now wins three-quarters of them, up from a third. An official says this is partly because it has learned to gear its arguments towards lawyers, rather than economists.

A government scheme to bring in foreign experts to teach Mexican judges about antitrust has also sped things up. The new law makes provision for a special tribunal to consider competition cases; its details are to be hammered out in Congress over the next six months. But already judges are becoming tougher. On May 3rd the Supreme Court ruled that Telcel must obey an order by the telecommunications regulator to cut some connection fees by more than half, which it had previously resisted.

Ironically, the corporate whales themselves have helped to raise public consciousness of market dominance. A very public spat between Mr Slim (who wants to enter the television market) and a pair of broadcasting billionaires (who want more of the phone business) has seen each complain of the unfairness of the others’ alleged monopoly. This has made it easier for politicians to acknowledge that monopolies hurt Mexican consumers rather than strengthening Mexican companies.

But many industries remain competition-free zones. Juan Pardinas of the Mexican Institute for Competitiveness, a think-tank, points out that the new law will do nothing to loosen the grip of state-run monopolies in oil and electricity.

Even in the private sector, some companies may not worry too much about the threat of higher fines. The commission reckons that excessive connection fees have cost mobile-phone customers $6 billion a year, most of which has gone into the pockets of the telephone companies. Suddenly Telcel’s $1 billion fine doesn’t look so hard to swallow.