MEDIA WARS: THE CONTINUING DEBATE OVER

UNCLAS SECTION 01 OF 03 MEXICO 007054

SIPDIS

SENSITIVE
SIPDIS

STATE: WHA/MX FOR MATT ROTH, EB/CIP FOR NICK FETCHKO; USTR
FOR JONATHAN MCHALE, CATHERINE HINKLEY; FCC FOR EMILY
TALAGA; DOC FOR GERI WORD

E.O. 12958: N/A
TAGS: ECON ECPS MX EINV
SUBJECT: MEDIA WARS: THE CONTINUING DEBATE OVER
ESTABLISHING A THIRD TV NETWORK IN MEXICO

REF: MEXICO 1080


1. (U) Summary: The new head of the Secretariat of
Transportation and Communications (SCT) Luis Tellez has been
sending mixed signals this past week over whether or not the
Calderon administration will push for the opening of a third
television broadcast channel in Mexico. Both Tellez and a
commissioner of Cofetel have been quoted as saying that
Q&additional analysisQ8 is required before granting a license
for a new company to compete with broadcast television
duopolists Televisa and TV Azteca. For their part, the two
broadcasters have continued to attack potential rival General
Electric (GE) and its Mexican partner Isaac Saba. The debate
has also reached the halls of the Senate. Even if the new
government does indeed press for a third station, the steps
that need to be taken to open the doors to a new channel in
Mexico still remain unclear. Some analysts claim that the
apparent hesitancy is due not to inexperience in opening new
licenses but to lack of political will. End Summary.

Mixed Signals from SCT
--------------


2. (U) Media reported on December 14 that Tellez had met
earlier in the week with Cofetel to inform the commissioners
of president Felipe CalderonQ,s goal of opening the market to
a third television broadcaster. Currently, Televisa controls
258 of MexicoQ,s 455 television stations while TV Azteca
controls 179. The two companies are responsible for 80% of
television concessions and 90% of audiovisual content in
Mexico. According to unconfirmed reports in the media, which
were later rejected by Cofetel commissioner Eduardo Ruiz
Vega, Tellez informed Cofetel that it should work with the
SCT to find a way to counter the duopoly and find a legal
formula to open the way for NBC-Telemundo to enter the
market. Columnist Dar!o Celis of Reforma charged that Tellez
had threatened the Cofetel commissioners not to make public
their discussion.


3. (U) On December 15, however, Tellez held his first press
conference as head of the SCT and evaded directly answering
questions about authorizing a third television network. He
said that CalderonQ,s plans do not include a third national
network, but instead focus on licensing regional radio and
television channels. Tellez did say that the GOM would be
ready to open the fixed telecommunications sector and media
to greater foreign investment, but only if the United States
and other countries open their radio and television markets
to Mexican companies. The statement may have been in
reference to NBC/UniversalQ,s suit filed with the FCC against
TV AztecaQ,s participation in KAZA in Los Angeles.
Undersecretary for Communications Rafael del Villar said at
the press conference that the idea for a third channel had
not been rejected but that it would Q&be analyzed.Q8


4. (U) On December 14, media reported Cofetel commissioner
Gerardo Gonz lez Abarca as saying that the conditions do not
yet exist in Mexico to merit the licensing of a third
national television channel in the short run. He claimed
that Q&Mexico does not have experience in licensing radio and
television frequencies Q( and there is no study over the real
necessity of a new alternative, or above all of the type of
content that should be offered (by a third channel).Q8 In
order to create these conditions, Gonz lez Abarca said it is
necessary to reach agreement between Hacienda (the
Secretariat of Finance),the SCT, the Secretariat of

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Governance (Segob),and Cofetel. Gonz lez did recognize that
opening a licensing process in the first trimester of 2007 is
one of Felipe CalderonQ,s promises for his first 100 days in
office, though Secretary Tellez denied this in his press
conference the next day.

The Politics of TV
--------------


5. (U) The debate on opening a third channel has also surged
in the Senate. PAN senators Federico DQring and Marco
Antonio CortQs Mendoza (both on the SenateQ,s Radio,
Television, and Cinema (RTC) Committee) came out in favor of
a serious debate on the issue, saying that the Federal Radio
and Television law need to be revised, particularly regarding
the regulation of content. DQring acknowledged that there
are frequencies available for a third channel, and said that
the idea of a third network formed by educational and
cultural stations should not be discarded. However, DQring

MEXICO 00007054 002 OF 003


also accused PRD senator Ricardo Monreal, who is not on the
RTC committee, and his party of trying to pressure the
Calderon government to open a third network through
Q&political beatings and insultsQ8 directed at Secretary
Tellez. The president of the RTC, PRD senator Carlos Sotelo,
has not commented on the issue. One PRI senator on the
committee voiced objection to opening the sector, claiming
that it would run the risk of augmenting the exorbitant costs
of political campaigns.


6. (SBU) Comment: The political nature of the debate becomes
more apparent every day, from the rumors of Q&secretQ8
meetings between Secretary Tellez and Cofetel to TellezQ,s
denial of such a meeting and carefully worded, ambiguous
statements on the subject. Cofetel commissioner Gonz lez in
the daily Q&El FinancieroQ8 accused the old SCT leaders of
leaving Cofetel with Q&a hot potato.Q8 Q&You have to ask the
ex-officials (of the SCT) why they didnQ,t grant new
frequencies or commence licensing in their six years in
office.Q8 The answer is likely that they lacked the
political will to do so. Though no officials like to admit
it, the PRI senator's objection may explain why: candidates
depend on Televisa and TV Azteca for advertising during the
political campaigns. PRD's support of a third channel stems
from its opposition to the so-called Q&Televisa LawQ8 passed
by Congress in April (reftel),which the PRD and others
condemned as strengthening the existing duopoly. Televisa
and Azteca in turn angered PRD leaders with their coverage of
the hotly contested presidential election and CalderonQ,s
inauguration. End Comment.

Televisa and Azteca Pick a Fight
--------------


7. (U) Outside the political realm, the media wars rage on as
Televisa and TV Azteca continue their coordinated attack on
Mexican businessman Isaac Saba and his Grupo Xtra, General
Electric's (GE) partner in Palmas 26. GE, owner of
NBC/Universal and Telemundo, formed Palmas 26 with Grupo Xtra
in April, and the partnership was approved by the GOM in May.
In September, Palmas 26 officially requested that Cofetel
and SCT start the process needed for a spectrum auction to
open a new network. Since November 20, Mexicans have been
treated a series of almost nightly Q&exposQsQ8 on both
Televisa and TV Azteca news program, delving into the world
of pharmaceutical distributors. The programs blamed two
dominant companies, most prominently Isaac SabaQ,s Grupo
Saba, in that industry for killing Mexicans because of the
high price of medicines. Both networks have aired interviews
with sick and dying Mexicans dependent on medications, as
well as with the new Secretary of Health and the president of
the Federal Competitive Commission (CFC),to demonstrate how
Casa Saba and the other major firm controlling pharmaceutical
distribution in Mexico, the Nadro company, had created a
monopolistic market, contributing to the deaths of thousands
of Mexicans. The interview with CFC president Eduardo PQrez
Motta was a particularly interesting inclusion, since PQrez
Motta had recently advised Congress that opening a third
network would be good for competition. In late November, the
CFC also issued a recommendation to open the spectrum and to
develop mechanisms to prevent monopolies from building in
broadcasting.


8. (U) One reporter for duopolist TV Azteca noted:

Q&It is almost impossible to think that someone can create
competition in this country, not even foreign competition.
If some company from the United States or Canada wanted to
compete with Casa Saba, it couldn't because it is prohibited
by NAFTA. Q( The worst is that neither Mexican laws nor
international treaties have been able to impede Isaac Saba
and his empire in the pain they cause Mexicans.Q8 End quote.


9. (U) The irony of TV Azteca, which has so strongly fought
against Telemundo entering the Mexican market, condemning
NAFTA for not allowing foreign investment, has not been lost
on other media outlets. Radio and print media commentators
quickly picked up on the connection between the reports on
Casa Saba and Palmas 26Q,s attempt to enter the television
market, while acknowledging that the high price of medicine
is indeed a problem in MexicoQ*and has been for decades. On
December 7, TV Azteca turned its attention to GE as well as
Isaac Saba. The network's news reporters described the
Q&black history Q( a story of impunity, abuses, and
injusticesQ8 of the Saba family, which Q&has made its fortune

MEXICO 00007054 003 OF 003


on the suffering of millions of MexicansQ8 through Casa Saba
and its other companies. The reporter went on to say, Q&All
this is not enough, and now Isaac Saba Raffoul plans to unite
with General Electric, a transnational company accused of
unfair monopolistic practices, deception, fraud, and all that
you can imagine.Q8 He detailed cases brought against GE in
the 1980s and 1990s, as well as problems the company has had
in Japan and Spain.


10. (U) GE, for its part, responded to the attacks
immediately with a paid announcement in newspapers and
through radio and newspaper interviews with the company's
Mexico director Rafael D!az Granados. D!az drew the line
between Palmas 26 and the Televisa/TV Azteca attacks clearly,
telling one radio reporter that the Azteca program Q&is very
much related to GEQ,s public interest in participating in
MexicoQ,s television market. It seems to us at GE that this
is another attempt on the part of the television company to
impede free competition Q( we consider this to be part of a
strategy on the part of the duopoly that wants to protect
itself and avoid the participation of GE and its partners in
the media market.Q8 Isaac Saba and Casa Saba have refused
to comment on the media attacks.

Comment
--------------

11. (SBU) So far, the Televisa/TV Azteca exposQs have done
little more than provoke some discussion in Congress over the
price of medications- and more than a little discussion
within the SCT, Congress, and the press over the options for
opening a third national network. By apparently coordinating
an attack on Casa Saba, Televisa and TV Azteca have
demonstrated exactly why Mexico needs another competitor in
the television market. Still, regulators seem hesitant to be
seen as favoring Telemundo. Cofetel commissioner Gonz lez
said to Q&El Financiero,Q8 Q&From what I know, only one
company has expressed interest in this opening (of the TV
market) and that is Palmas 26; but we cannot open the process
for only one company, neither can we fix a price or a
concession fee for only one interested party.Q8


12. (SBU) For the moment, any talk of opening a third network
in Mexico is just talk. After stories in the media that
Tellez was pushing Cofetel to immediately look into setting
procedures to grant a license for a third network, Tellez and
del Villar seemed to backtrack in their press conference,
focusing on the need for studies to examine the necessity of
a new network and the content it might provide. Even without
studies, setting up a licensing and concession process could
take years. If they are serious about opening licensing for
an additional national TV network or networks, CalderonQ,s
team should set a clear timeline for opening the television
market, both regionally and at a national level, and enforce
deadlines for when Cofetel must issue guidance on the
licensing process.


13. (SBU) In meetings over the coming months with the new
Calderon government, Post will stress the importance of
encouraging competition, especially in the telecommunications
sector. Given commissioner Gonz lezQ,s assertion that Mexico
lacks experience in licensing, we also encourage views from
Washington as to how to provide support to Cofetel and the
SCT on the licensing process. Competition is not the only
issue in play here. MexicoQ,s laws limit foreign investment
in the country's media. Earlier in December, Senator Javier
Orozco demanded vigilance of GEQ,s role in Palmas 26, and
Secretary Tellez alluded to the U.S.Q,s own restrictions on

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foreign ownership of media in his press conference.




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