Carlos Slim and Mexico’s Telecom Reforms

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Here is a link to a recent on AQBlog article of mine, titled “Carlos Slim and Mexico’s Telecom Reforms“, published on May 12th, 2014.

Please feel free to visit and comment.

Here is a verbatim copy of it in case you prefer to read it on my personal blog, though I recommend actually going to the site because of additional content, other blogger’s articles, etc.

Every year around February, Carlos Slim Helú’s name is tossed around in the offices of Forbes magazine. Numbers are crunched, and Forbes’editors determine if they will publish the Mexican businessman’s name with a 1 or a 2 beside it in their famous “World’s Richest People” list.

In a country ranked 88th in the world in GDP per capita in 2013, with 52.3 percent of its population living below the poverty line in 2012, one has to wonder how it is that Slim is able to accrue so much wealth.

Forbes calculates Slim and his family’s net worth at $72 billion dollars. Other publications calculate his worth at around $75 billion, so let’s settle for $73, give or take a few billion. Putting things into perspective, based on last year’s GDP per capita estimates, Slim’s $73 billion net worth is equivalent to more than the wealth of 4.6 million average Mexicans put together.

There are a number of explanations for how Slim got this rich. Some appeal to theromantic story of an entrepreneurial boy who learned to invest from his father at the age of 12. Others, more critical of Slim, point towards the moment that Slim bought Teléfonos de México (Telmex)  in 1990 during the privatizations of former President Carlos Salinas Gortari.  In reality, Slim was a wealthy man well before 1990, but I’m sure that gaining control of the only phone company in the country at the time helped grow his assets, which include ownership and/or shareholder participation in over 200 companies in Mexico.

One of the keys to Slim’s success has been his ability to find his way into companies with little or no competition in the commercial market. Let’s take a look:

Slim is the chairman of Telmex and América Móvil. This means he controls the phone lines, the largest local and long distance phone providers, the largest broadband Internet service provider and the largest mobile phone company in the country (Telcel), which has70.8 percent of the market share, according to IFC estimates.

So, practically every time a Mexican makes a phone call or connects to the Internet, he’s giving money to the second-richest man in the world—and not at a cheap price.  According to the OECD, Mexico’s mobile rates are the fifth most expensive in the world.

But Slim doesn’t just control Mexico’s telecom sector. Quick, think chocolate! Chances are you thought of Hershey’s, right? So do most Mexicans. And every time they buy a Hershey’s bar, they’re also helping Slim accumulate wealth, since he holds a 50 percent interest in the Mexican branch of this company. Does he have any real competitors? Yes, one: Mars Mexico.

Meanwhile, every time a Mexican buys music at a Mixup or Tower Records location, Slim gets a cut.

Mexico also has only two cafeteria chains nationwide. One is Vips, currently in the midst ofbeing acquired from Walmart by the Alsea conglomerate. The other one is Sanborns, with over 125 stores—and helping Slim make money each day. Sanborns is much more than a cafeteria—it’s actually an integrated restaurant/bar/bakery/gift shop/book store concept.

Slim also provides Mexicans the opportunity to contribute to his wealth by shopping at any of nearly 50 Sears stores and the one Saks Fifth Avenue store in Mexico City. Want to open a bank account? If you do it at Banco Inbursa, guess who gets the profits?

Grupo Carso, one of three main holding companies led by Slim (Carso is a contraction of the first letters in Slim’s first name and that of his late wife, Soumaya), is also the umbrella for energy, construction, infrastructure and automotive industry companies such asCondumex and CILSA, to name a couple.

Slim also owns a real estate and hotel company called OSTAR Grupo Hotelero, and an upscale shopping mall in Mexico City called Plaza Carso.

With all this in mind, it may come as a surprise to most Mexicans that Slim hates monopolies and duopolies—especially when he’s not a part of them. That’s why, in March of 2013, he supported the telecom reform, interpreting it as an opportunity to open up the market for him in Open TV and broadband services. Slim recently launched Claro TV, a broadband TV service similar to Netflix, and has been pushing to become the third player in the open TV market for some time now.

Yet the congratulatory words Slim bestowed on the federal government in 2013 have turned into criticism, now that the secondary telecommunication legislation is being discussed in Congress (the final version is set for a vote in June).

When the federal government’s legislative proposal was presented in March, it met public rejection on the grounds that parts of the bill violated freedom of speech and privacy rights. However, Slim had other reasons to be mad.

One of the key aspects of the telecom proposal now opposed by Slim’s mobile company, América Móvil, is the premise that the “preponderant economic actor” will be obligated to provide its competitors free interconnection to its network. In a statement it released to the news media, América Móvil explains that this action “rewards the lack of investment from its competitors and harms end consumers.”

The statement also mentions that the proposed legislation “creates entry barriers to the highly concentrated markets of open and restricted television broadcasting,” and gives theInstituto Federal de Telecomunicaciones (Federal Telecommunications Institute—IFETEL) a window of up to two years to evaluate if Slim’s Telmex can enter the open television market. In layman’s terms, Televisa CEO, President and Chairman Emilio Azcárraga would be allowed to enter the telephone sector at a lower cost, and Slim’s dream of entering the open TV industry would be put on hold. Azcárraga: 2, Slim: 0.

The telecom discussion-turned-telenovela now includes accusations from Televisa-friendly news pundits claiming that Slim was behind the #EPNvsInternet protests, and responses to those attacks calling Televisa an “ill-willed disinformation provider”.

The fate of the country’s telecom industry will be settled by Congress’ decision in June, while average Mexicans are hooked to their TV sets watching the World Cup—but depending on the outcome, these reforms could be less about opening markets up, and more about which of Mexico’s oligarchs are favored by them.

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