Carlos Slim

Mexico's thriving communications market has made Carlos Slim the world's richest man

Mexico's thriving communications industry has made Carlos Slim the world's richest man.

We all know how the world's richest man made his billions. He came up with a clever three-step plan: first, write a user-friendly operating system and compatible office toolkit; second, get a critical mass of computer users hooked on it; and third, release a new version every couple of years.

If you've been following the news, you will know that everything I've just written is wrong. Bill Gates, for a long time the world's richest man, did make his billions by doing exactly that. However, as of March 2010, the richest man on earth is Mexican engineer Carlos Slim Hel'. Slim and his family are now worth $500m more than the Microsoft founder, and a staggering $10bn more than third-placed investment guru Warren Buffett.

There's only one way to understand how such a fortune could be amassed in a developing economy in a relatively short space of time - and that is by delving into Mexico's unique telecoms landscape.

Telmex, the Mexican telephony incumbent, was born in 1947 as a private company. In the early 1970s the Mexican government acquired what was already in effect a monopoly, before privatising it again in 1990.

That's when Señor Slim came in. The winning bid went to a group of investors led by Grupo Carso - a local real estate, industrial and retail corporation that Slim had started in 1965 - as well as two foreign players more familiar to the telecoms world: Southwestern Bell and France Telecom.

The privatisation process was controversial from the outset. For a start, it was argued that the price paid for Telmex was way below its market value. Carlos Slim has frequently been likened to Warren Buffett because of his ability to identify and buy failing companies and then turn them into profitable businesses.

Telmex may well have been viewed as a crumbling public burden in the early 1990s, but it was still the owner of the country's sole terrestrial telecommunications infrastructure with a national footprint in a country with the world's 11th-largest population.

After financing his acquisition of a controlling stake in the company by purchasing standby letters of credit that opened the door to a set of guaranteed loans, the Mexican magnate was given plenty of time to actually make the payments - enough time to end up paying with money generated by Telmex several years after its privatisation.

Mexico's approach to privatisation also differed to that adopted by Brazil and Argentina, the two other large Latin American nations that - instead of handing the whole telecoms pie on a silver platter to one operator - divided their countries into a number of geographic areas and allocated each to a different operator.

José Otero, president and founder of Signals Telecom Consulting, says that the terms of the Mexican public tender effectively shielded Telmex from competition for an unusually long period.

'Six or seven years passed before the first competitors were allowed to enter the market,' he says. 'When they eventually did, they were obviously very weak players because of the soft regulatory environment, which was quite favourable to Telmex.'

From domestic to regional dominance

Twenty years on from the controversial sale of Telmex, it is clear that Carlos Slim is sitting on what is still a gold mine. No doubt aware of the rare privilege he has been given, he seems compelled to masquerade the telco as one operating in a highly competitive market.

What other conclusion can possibly be drawn from Telmex's choice of highlighted facts in its 2009 fourth-quarter results? Take the second highlight, where the company states that, 'including cellular and fixed lines from other operators, Telmex has currently 15.8 per cent of total telephony lines, making it Mexico's third operator in this category behind Telcel and Telefónica'.

This may be more than a little disingenuous.

Telmex is a fixed-line operator and, in that category, it has a commanding 81 per cent market share in Mexico. If you're going to throw in cellular telephony lines to create a novel category in which your share of the market is suddenly 15 per cent, then it should be noted that Telcel (which Telmex correctly credits as Mexico's largest mobile operator with 59 million subscribers, or 75 per cent of total cellular lines) is actually owned by América Móvil, another company controlled by the Slim family.

Calling América Móvil 'another company' does not do it justice. Currently the world's fourth-largest cellular operator in terms of subscribers behind China Mobile, Vodafone and Telefónica, the company started life in 1989 as the humble mobile arm of Telmex.

For a few years, the unit remained under the shadow of Iusacell, then Mexico's leading cellular provider. Its big break came in 1995 in the midst of the Mexican economic crisis. Backed by the weight of its parent Telmex, Telcel began offering the country's first, and to this day only, prepaid mobile phone service. It was a move that would signal the beginning of phenomenal growth for the operator.

In 1997 Telcel surpassed Iusacell to become Mexico's number-one mobile network. In 2000 the unit was spun off from Telmex and became América Móvil, a sister company under the Carso Group umbrella.

Having established a firm grip at home on both the fixed-line and cellular fronts, Slim set out to conquer the rest of Latin America. Telmex's regional expansion gathered pace in 2004, when the company acquired several undervalued telcos in Argentina, Brazil, Colombia, Uruguay, Peru, Chile and even the United States of America.

On the mobile front, a similar strategy saw América Móvil establishing a foothold in practically every Latin American market save Venezuela and Bolivia. Branded as Claro in most countries, Comcel in Colombia, Conecel in Ecuador and TracFone in the US, these services are already used by 201 million people.

In line with global trends, the Mexican group's mobile-phone business significantly outgrew its fixed-line operations. Today, while Telmex has revenues of $7bn and 54,000 employees, América Móvil has revenues four times higher with 13,000 fewer staff.

It came as little surprise when, this January América Móvil announced its intention to buy Telmex and Telmex International. Approved in less than a month by Mexico's federal antitrust office, the operation will put Slim in an even stronger position to compete with Telefónica on a regional scale.

Pay-TV battles

There is one major area of Mexico's communications landscape where Slim's influence has been - well, slim: broadcasting. From 1930, when XEW-AM, Mexico's first radio station was launched, to this day, the media business in Mexico has been dominated by the Azcárraga family.

Televisa, the jewel in the Azcárragas' crown, is the largest media and entertainment conglomerate in the Spanish-speaking world. Its tentacles stretch from radio/TV production and distribution to film, music, publishing, broadband, telephony and ownership of football teams and stadiums.

'When it comes to the distribution of pay-TV services in Mexico, cable networks are the main platform,' says Otero. Televisa owns Cablevision, which has an alliance with the country's largest cable operator (Megacable).

Of the two existing digital satellite television (DTH) providers, the market leader (Sky) is also a Televisa subsidiary. The other one, Dish Network Mexico, was jointly launched in early 2009 by Echostar and MVS Comunicaciones. Of the one million subscribers that Dish was expecting to sign in its inaugural year, it fell short by nearly 400,000.

Otero says that, while regulatory rules currently prevent Telmex from offering pay-TV services, the telco has tried to circumvent this prohibition by setting up a commercial alliance with the new DTH provider, whereby subscribers can opt to have their pay-TV and telephony bills consolidated into a single piece of paper by Telmex.

It might sound like a harmless little step for a company with the ambition to enter the pay-TV business. Yet when that step is made by the new Bill Gates, Televisa and others would be well advised to ignore at their peril.

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