Mexico, the second-largest economy in Latin America, cannot reach its growth potential until the cost of phone and internet access comes down and more people have easy access to telecom services, the report from the Organization for Co-operation and Development said.

From 2005 to 2009, Mexican consumers paid $13.4 billion a year excess for phone and internet services, with high fees disproportionately hitting the poor, according to the report. In total, overcharging cost the economy $129 billion over the five-year period, the report found, nearly 2 percent of the country's economic output.

"Inefficient telecommunication markets impose a significant cost on the Mexican economy and the welfare of its population," according to the report that reviewed the country's telecom sector.

Mexican home phone service is dominated by Slim's Telefonos de Mexico, or Telmex, which provides about 80 percent of services while the billionaire controls about 70 percent of the cellphone market through his America Movil.

"This is a critical study...that exposes the weakness of the telecommunications sector in Mexico," Dionisio Perez-Jacome, minister of Communications and Transport, said at a press event accepting the report.

The report found Mexico had the lowest per capita public investment in telecommunications in the 34-member OECD, while Slim's Telmex had very high profit margins compared to other countries.

In 2008, Telmex had a profit margin of 47 percent, while the average for countries including Canada, the United Kingdom and the United States was 28 percent.

A Slim spokesman declined to comment on the findings of customers being overcharged, but pointed to other reports that Mexico enjoys a relatively-affordable broadband base.

The report found broadband internet speeds are low compared to the OECD average and comparatively expensive, while a three-minute call from a cellphone to a local phone would cost a Mexican travelling in another OECD country $8.65, compared to the OECD average of $6.76.

It suggested that Mexico eliminate restrictions on foreign investment in the telecom sector and cut judicial red tape that lets the telecom industry stall new rules, fines and restrictions.

Mexico's President Felipe Calderon, at a separate event, said that his government planned to auction strands of fiber optic cable that would increase broadband service across the country.

Mexico's cable giant, Megacable, is in a partnership with cellphone company Telefonica and television giant Televisa to share one fiber optic project that should deliver more high-speed internet and telecom services.

(Reporting by Patrick Rucker and Krista Hughes; Editing by Gary Hill and Matt Driskill)

• A Permanent Economic Emergency