Kill the ref: a competition watchdog struggles to grow teeth in a changing Mexico. (Government).

Carlos Slim, Latin America's top tycoon and richest man, was asked at a recent press luncheon what he thought of Mexico's Federal Competition Commission, the five-member body that has made headlines by ruling against companies like Slim's telephone giant Telmex, Coca-Cola and Wal-Mart de Mexico, among others.

"They won't let us do anything," groans Slim, who controls the former state telephone carrier. "They won't let us buy and they won't let us sell."

Sour grapes? Telmex has a virtual monopoly in local telephone and broadband Internet access. Until recently, Telmex charges for U.S. long distance carriers to complete their calls within Mexico were up to five times higher than elsewhere.

Telmex's market dominance is by no means unique. With nearly half of the domestic market, cement producer Cemex is twice as profitable in Mexico compared to its own, growing U.S. operations. Nor is it a matter of Mexicans in charge. Coca-Cola, with a 70% market share in soft drinks, makes gross margins of 56% versus 42% in the United States, according to Salomon Smith Barney.

Founded in 1993, Mexico's anti-trust authority has had a busy year. Besides knocking down a Slim-engineered railway merger and investigating Wal-mart de Mexico on grounds it strong-arms suppliers, the watchdog board found time to criticize Coca-Cola's marketing practices. Coke calls the ruling--which blocks it from favoring distributors who give it exclusive contracts--meaningless. "The effect on our business is almost nil," says Coca-Cola spokesman Rodrigo Calderon.

Pepsi, which brought the charge, is equally unimpressed with the board's ruling. "Today, nobody can stop Coca-Cola from monopolistic practices," says Juan Carlos Zepeda, Pepsico's spokesman. Zepeda hopes media coverage of the ruling will raise awareness among consumers. Not quite a knockout blow against Coke.

Slim says that his competitors in the telecom business simply failed to invest. But newcomers say they face a powerful incumbent and are hampered by minority ownership. "We believe the entry of new investors is constrained as a result of Telmex's dominance," says Elaine McHale, international law vice president for AT&T Business Services, which invested in carrier Alestra in 1997. "Mexican regulation today reinforces that position."

Competition is not what it could be in Mexico, says Fernando Sanchez Ugarte, chairman of the competition board. "But, over the years, we have grown more versed and more certain of what we are doing," he says.

Old boys. Part of the problem, Sanchez says, is that vested interests in business and their government allies resist change. Fox's policy has been "more than anything, an omission rather than a decision," says Rogelio Ramirez, of economic consultancy Ecanal.

It doesn't help, either, that four of the five commissioners are holdovers from the previous administration, whose Partido Revolucionario Institucional ruled Mexico for 71 years until Fox's breakthrough mid-2000 election.

Fox named his first commissioner in 2001, Jose Agustin Navarro Gergely, a free-market evangelist from the rightwing of Fox's own National Action Party. Insiders say Navarro's strong opposition to any type of regulation or intervention in markets leaves him isolated.

For all the clamor, the Mexican marketplace remains largely unchanged. "I give them high marks for ruling against big companies that try to merge," says Eduardo Cepeda, who heads JPMorgan's Mexico office, "but not so high for solving problems from the past."

For many Mexicans, too, it is hard to imagine buying gasoline from anyone but state oil company and sole gasoline retailer Pemex. Until the North American Free Trade Agreement, imported goods were scarce and often illegal.

Will things change? Much depends on Fox, who appoints three new commissioners before his term ends in 2005; each term lasts 10 years. Even then, Mexico Inc.'s lawyers could slow down the game with appeals until after elections--and a friendlier face is in charge at Los Pinos.