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Competition Lines Up For Long Distance Opening in Mexico

Telmex prepping for entry of foreign phone companies

WHEN it comes to phone lines, Eric Mancera knows his way around the block. As director of the telecommunications and networking department of one of Mexico's most presitigous universities, Technologico de Monterrey, the young engineer develops links with other universities around North America and dreams of taking Mexico down the information highway.

There's just one hitch: Mexico's telephone system run by Telefonos de Mexico, the country's privatized and much-maligned phone company.

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```Right now the problems are many: lines often busy between Mexican cities, saturated exchanges, long waits to get new lines, calls cutting off, or lines going dead,'' he says.

So what does Mr. Mancera anticipate will happen when the national giant, known as Telmex, is required to open its lucrative long-distance market to competition in 1997? ``People have the feeling of having been used for many years, so when they get the opportunity, so I think that a lot of them will want to get out of Telmex,'' Mancera says.

And Mancera is far from alone. Every few days the respected Mexico City business daily El Financiero runs packages of letters from irate - or simply despondent - readers, detailing their personal or business-related telephone horrors.

With much of Mexico's $6 billion telephone market at stake, not to mention the fast-developing country's tremendous market growth possibilities, it's enough to make potential competitors' mouths water.

Actually, they're doing more than just salivating. In recent months, MCI Communications Corporation and Bell Atlantic Corporation have announced joint-venture plans totalling billions of dollars to enter the Mexican long-distance market. Sprint Corporation is reportedly courting Mexican firms.

Last week, GTE International Telecommunications of Irving, Texas, announced it has found Mexican partners. The subsidiary of GTE Corporation, the world's fourth-largest publicly owned telecommunications company, unveiled an alliance with Mexico's Grupo Financiero Bancomer and the Valores Industriales to enter the Mexican market.

The Monterrey-based Pulsar International announced plans last week to invest $1.7 billion in a five-year project to provide Mexico with 3 million new cellular phone lines - many for poorly served rural areas.

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In June, the Monterrey-based conglomerate Grupo Domos announced its plan to invest more than $4 billion to capture a piece of the long-distance telecommunications pie. It's reportedly talking with BellSouth Corporation about an alliance.

The abundant interest from national and international competitors still seems unlikely to spell the doom of Telmex, however. With Mexico now served by less than 10 phone lines per 100 people - compared with an average of 50 or more in developed countries - suggests plenty of growth potential for both domestic and international companies.

Moreover, the Telmex behemoth - which alone represents some 20 percent of Mexican stock on the New York Stock Exchange - has been improving service and gearing up for competition, analysts say. It's been helped by major infusion of capital and expertise thanks to privatization (in 1990) and the ongoing investment by minority shareholders, Southwestern Bell Corporation and France Telecom.

Telmex says it will be ready the when the competition begins in 1997.

``Our improvements have been substantial,'' says Carlos Kauachi, executive coordinator for Telmex general management, ``[and] we still have two years to do more.''

Telmex is putting in new phone lines at a 12.6 percent annual growth rate, Mr. Kauachi says, while replacing more than 500,000 obsolete lines in the first half of this year alone. An ambitious program for replacing obsolete switching centers has resulted in better than 75 percent digital switching - one of the highest levels in the world, he adds. In all, the company will invest about $2.3 billion in improvements this year, and about the same next year.

IN addition, Telmex has undertaken a major employee training program, aimed at changing the corporate culture.

Reynaldo Bonachoa, AT&T's director of network development in Latin America says ``the biggest challenge'' facing monopolies is ``refocusing to put the emphasis on the customer. When they're all alone these companies tend to see themselves as paternalistic employers first, and that breeds an inertia.''

``The level of [customer] satisfaction is improving,'' says Kauachi, pointing to the results of independent customer surveys.

Telmex may currently be perceived as the very opposite of a ``nimble company,'' Mr. Bonachoa says, ``but so were we before divestiture.'' The progress it is making and the partners it can continue to draw on are two elements suggesting a positive future, he adds.

AT&T already has a valuable agreement with Telmex under which it handles 60 percent of all telephone traffic leaving Mexico for the US. In return, Telmex gets a like percentage of AT&T calls to Mexico. Still, AT&T is investigating partnerships with other Mexican companies for the future - a situation Bonachoa admits is ``delicate.''

Some analysts note the Mexican government's firm stand in favor of market competition to modernize the country's telecommunications gave Telmex no choice but to follow the path hewn by companies like AT&T.

In addition to the North American Free trade Agreement, Michael Patriarche, a vice president at Northern Telecom Ltd., cites as one example of this ``positive policymaking'' Mexico's intentions to award 10 licenses for wireless operations. ``This will create a very competitive market,'' he says, ``more so than what exists in the US.''

Still, Telmex knows it is sitting on a gold mine of unsatisfied telecommunication services demand, which may account for company executives' calm as the competition prepares to enter the market. Mr. Mancera's gripes and letters to El Financiero notwithstanding, the phone giant's future looks relatively static-free.

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