Billionaire Slim Criticizes OECD Report on Mexico’s Phone Industry

Source: Business Week

Billionaire Carlos Slim was out of context and off the mark in his criticism of a study finding a lack of competition in Mexico’s phone industry, the Organization for Economic Cooperation and Development said.

Slim told reporters yesterday that the group’s report, released earlier this week, seemed to use data “pulled out of thin air.” The 72-year-old, who controls Mexico’s largest wireless and landline-phone companies, denied the study’s claims that Mexican carriers overcharged consumers $13.4 billion a year for phone and Internet services from 2005 to 2009.

Mexico’s government, which commissioned the study, is using it to validate efforts to create more competition in telecommunications. The findings support the government’s plan to auction off fiber-optic lines owned by the state power company and contracts to push high-speed Internet into communities where it’s not available, Communications and Transportation Minister Dionisio Perez-Jacome said this week.

“The OECD stands by its report in full,” the group said today in an e-mailed statement.

In addition to $13.4 billion a year in overcharges, the study concluded that Mexican phone companies missed out on $12.4 billion in sales a year because their prices weren’t low enough. Adding up those figures, the OECD said Mexico’s phone market had an “opportunity cost” of $25.8 billion a year.

Purchasing Power Parity

Slim dismissed that $25.8 billion figure, saying that the OECD was implying that the industry, which generates sales of $30 billion a year, should give up most of its revenue.

Instead, the OECD said, its report showed that if companies had offered lower prices, the decrease in sales would have been almost completely offset by an increase in new subscriptions.

Slim also criticized the use of a method called “purchasing power parity” used by the OECD to compare prices in different countries. He gave reporters copies of a separate OECD document that said the method wasn’t appropriate “to undertake price level comparisons at low levels of aggregation.”

The statisticians that developed the method endorse the way the OECD used it in the Mexico study, the group said today. Using simple price comparisons based on foreign exchange, the method Slim endorsed to show that Mexico’s prices are lower than in most other OECD member countries, is too vulnerable to currency swings, the OECD said.

Lower Broadband Adoption

Slim also took issue with the OECD’s conclusion that Mexico’s rate of broadband adoption, at 10.5 high-speed Internet subscribers per 100 habitants in 2010, was near the bottom of the rankings of its 34 member countries. It would have been more fair to divide those rates by the per-capita gross domestic product of each country, a measure which would make Mexico compare much more favorably, Slim said.

The report took GDP into account in its calculations of how lower prices would affect subscriptions, the OECD said today.

The OECD met with Slim’s America Movil SAB and with other carriers last year, the group said. Representatives of all 34 member countries reviewed the study in an October 2011 meeting in which America Movil had a representative present, the OECD said. Afterward, America Movil submitted comments on the study that were “given serious consideration” as the report was being finished, the OECD said.

An official at America Movil’s Telefonos de Mexico SAB fixed-line unit didn’t have an immediate comment today.