Mexico's dual authority dilemma: navigating antitrust complexities

Mexico, compared to other countries¹, has a particularity that makes it different from an antitrust perspective and that, at least in recent years, has represented a challenge for economic competition and antitrust. Mexico has two competition authorities which have the same powers and authority depending on the relevant market/sector.

How this duality was created

It has been almost ten years since the creation of this duality of competition authorities in Mexico. By virtue of a constitutional amendment in 2014, the Federal Telecommunications Institute (the IFT) was created as a new autonomous constitutional body with exclusive jurisdiction over competition and antitrust matters in the broadcasting and telecommunications sectors. Additionally, the former Federal Competition Commission (the COFECO) was transformed into the new Federal Economic Competition Commission (COFECE) with exclusive jurisdiction over competition matters in all areas of the economy except for the broadcasting and telecommunications sectors, competence in which corresponds to the Federal Telecommunications Institute (IFT and jointly with COFECE, the Competition Authorities in Mexico).

In accordance with this amendment, pursuant to Article 28 of the Mexican Constitution (Constitución Política de los Estados Unidos Mexicanos), the purpose of both competition authorities in Mexico is to guarantee free and open competition and access to the markets, as well as to prevent, investigate and prosecute monopolies, monopolistic practices, unlawful concentrations (mergers) and other restrictions to guarantee the efficient functioning of the markets. However, the IFT will do so exclusively in competition matters related to broadcasting and telecommunications matters, whereas COFECE will cover everything else.

The creation of this distinction 10 years ago may not have implied the challenge it represents today. Likely because there was not as much development or evolution in digital markets and platforms as there is today.

While at first the above distinction on jurisdiction seemed simple, the duality of Competition Authorities in Mexico has posed problems, not only for both of these authorities, but also for individuals and entities who have aimed to fully comply with the Federal Law of Economic Competition (Ley Federal de Competencia Económica; LFCE), as described below.

Jurisdictional conflicts

What happens when both Competition Authorities in Mexico believe to have jurisdiction? In summary, Article 5 of the LFCE empowers the Federal Collegiate Circuit Courts in Economic Competition, Broadcasting and Telecommunications (the Specialized Courts)² to resolve any jurisdictional conflicts arising between the Competition Authorities in Mexico ten days after receiving the relevant file. For that purpose, any relevant Competition Authority in Mexico that is considered competent to resolve the matter may request the Specialized Courts to resolve such jurisdictional conflicts.

To date, there have been six jurisdictional conflicts (five involving merger cases) between the Competition Authorities in Mexico. Of such cases, the last four have been resolved in the last three years. These conflicts relate to:

1. The acquisition of Alcatel by Nokia (2015);³
2. The acquisition of WarnerMedia (formerly Time Warner) by AT&T (2017);⁴
3. The acquisition of Cornershop by Uber (2020);⁵
4. An investigation into barriers to entry and essential facilities in the markets of online search services, social networks, mobile operating systems and cloud computing services (2021);⁶
5. Over-the-top (OTT) services in the context of the merger between Discovery and WarnerMedia (2022);⁷ and
6. The acquisition of Poly by HP (2022).⁸

HP and Poly (C.C.A 42/2022)9

The last jurisdictional conflict resolved to date involved the merger between HP and Poly. In this case, the parties notified the transaction to COFECE in May 2022. However, in July 2022, the IFT determined that it had jurisdiction over the case and could analyze the transaction. Since both Competition Authorities believed to have jurisdiction, the case was submitted to the Specialized Court, in accordance with the provisions set forth in Article 5 of the LFCE.

According to the public version of the resolution issued by the second Specialized Court, the relevant markets involved in the merger were mainly:⁹

1. The design, manufacture and commercialization of terminal equipment (SIP protocol desk phones, conference phones and speaker phones), including solutions and accessories;
2. The design, manufacture and commercialization of headsets;
3. The design, manufacture and commercialization of conferencing solutions and peripherals, such as cameras, loudspeakers, microphones and videoconferencing systems; and
4. The sale of services related to the sale of products and equipment.

The main arguments of the IFT to sustain it had jurisdiction over the merger were that:

1. The relevant products and services are designed, manufactured and commercialized specifically to be integrated with voice telecommunications (calls and audio conferences) and/or video services (video calls and video conferences);
2. The incumbent economic agent in the telecommunications sector participated in their provision (ie, América Móvil);
3. The terminal equipment and handsets comprising the operation must be homologated by IFT¹⁰ in order to be able to connect to a Mexican telecommunications network or use of Mexican radioelectric spectrum, in accordance with the applicable standards and provisions of the Federal Telecommunications and Broadcasting Law (the Telecom Law);
4. The products and services they offer are used to integrate with concessioned voice and video telecommunications services, as well as with a wide range of unified communications platforms and systems provided over the internet; and
5. The effects of the merger would occur in markets that are part of the telecommunications sector.¹¹

On the other hand, COFECE argued that:

1. The telecommunications and broadcasting sectors include only public broadcasting and telecommunications services;
2. Audio and videoconferencing application services do not constitute public telecommunications services as they operate over the Internet, not over concessioned services; and
3. The fact that an activity uses the Internet as an input is not sufficient to resolve the jurisdiction conflict, since no service provided over the Internet is autonomous; adopting this criterion to resolve jurisdiction conflicts would lead to assigning excessive powers to the IFT.¹²

After analyzing the case, the second Specialized Court resolved in December 2022 that COFECE had the authority to analyze the matter, agreeing with COFECE that the mere circumstance that the products included in the transaction must be homologated by the IFT in order to make use of the radioelectric spectrum is not a sufficient factor to attribute jurisdiction over the concentration notified by the parties. The use or exploitation of the radioelectric spectrum or public telecommunications networks is not required per se for the provision of these services since these markets are clearly differentiated from the broadcasting and telecommunications sectors and the parties involved do not participate in such sectors nor require a concession or authorization from the IFT.¹³

After the resolution by the second Specialized Court, the resumption of the review process of the merger in question was ordered. However, the economic agents involved subsequently revealed that they had already closed the transaction on 29 August 29 2022. Consequently, COFECE imposed fines on them that together amounted to MXN61,580,800 (approximately USD3.5 million) for failing to comply with the obligation to previously notify a merger when it should have been legally required to do so (ie, for gun-jumping).¹⁴

It is interesting, but also concerning, to see that the duality of competition authorities in Mexico has come to affect parties that initially tried to comply with the provisions set forth in the LFCE.

Initially, the relevant parties complied with their obligation to notify the concentration before the competition authority they considered to have jurisdiction over their case. In fact, it is important to mention that in most cases, the parties have been right in choosing which authority to notify (like in the HP and Poly merger). However, when the other authority decides that it has jurisdiction over a case, it can suspend the review process, which in the last few cases took around four to six months to be resolved, delaying worldwide cross border deals of millions or billions of USD and in the event the parties close beforehand, the relevant competition authority may even fine for gun-jumping.

Perhaps jurisdictional conflicts would not be such a big concern if the Specialized Courts did not take months to resolve them and adhered to the 10-day requirement set forth in the LFCE. However, when review processes are suspended for months, parties might look for alternatives to close the deal. It will be interesting to see how the Competition Authorities in Mexico might try to solve this problem.

Finally, it is important to mention that there may be some cases that involve markets over which both COFECE and the IFT have jurisdiction. For instance, the merger involving the acquisition of WarnerMedia (formerly Time Warner) by AT&T was resolved by both authorities as it involved markets that were under the jurisdiction of COFECE (such as, IP licensing for consumer products¹⁵, such as videogames and merchandise) and others under the jurisdiction of the IFT (such as Pay-TV services). Therefore, it is of the utmost importance to perform an exhaustive analysis of the markets involved before notifying a merger in order to avoid delays and obtain the authorization of both Competition Authorities in Mexico in time.