Telmex tycoon Carlos Slim Helù controls Mexico's local phone service, long distance, and Net access, not to mention half of the nation's stock market. Now he's set his sights north of the border.
Not a day goes by without almost every Mexican consumer paying tribute to Carlos Slim Helù, Latin America's richest individual. The scope of his influence is unquestionably vast. It is felt in the marketplace of El Nith, an Otomi Indian village a few hours from Mexico City, where a dozen campesinos line up to use the pay phones operated by Telmex, Slim's telecom near-monopoly. In Guadalajara, middle-class shoppers crowd into a local branch of Sears, the American retail giant whose Mexican subsidiary is owned by Slim. And the myriad Sanborns, the country's most popular gift shop and restaurant chain, are also owned by Slim. The freeways in Mexico City are clogged with vehicles riding on tires produced in Slim-owned factories. The drivers are en route to offices and homes whose infrastructures rely on metal products churned out by Slim companies, and whose loans are financed by Slim's Grupo Financiero Inbursa - which also sells them insurance and invests their savings in mutual funds and pension plans. And the majority of Mexicans who surf the Web depend on Slim for their Internet access. Slim companies racked up $16 billion in sales in 1999, and together make up almost half the value of the Bolsa, Mexico's stock exchange. Meanwhile, Slim is personally worth about $10 billion. Every two minutes, he makes $5,000 - more than the average Mexican earns in a year.
Still, if his name doesn't ring a bell, you're not alone. Slim is largely unknown outside Mexico - except, that is, in telecommunications, where multinational giants AT&T and WorldCom consider him a ruthless, gouging monopolist who is stifling competition at the expense of the Mexican people. "Competitive carriers in Mexico have essentially been mugged by Telmex - which has used its monopoly position to maintain its stranglehold on Mexican consumers," a typical WorldCom statement claimed last spring. In early November, the US government announced that it would file an official complaint with the WTO, alleging that Mexico is violating its obligations by failing to curb Telmex. "Long distance operators continue to face serious barriers to competition in the Mexican market and the time has come to face this matter in the WTO," says US trade representative Charlene Barshefsky. "The situation has persisted too long." The USTR's decision prompted some even stronger rhetoric from WorldCom: "As long as the Mexican Government allows Telmex to stifle competition, Mexico will miss out on the advantages of the global information economy."
At any time in the last half-century, such complaints would have undoubtedly fallen on deaf ears, but for the American telcos, the recent inauguration of Mexican president Vicente Fox, leader of the center-right National Action Party (PAN), offers a ray of hope. Fox's election brings to an end seven decades of often-corrupt rule by the Institutional Revolutionary Party (PRI) - an era during which strong political connections were considered business as usual. As part of his platform of economic reform, Fox has promised to bolster relations with the US and sever the cozy ties between politicians and Mexico's leading magnates. Making good on that pledge would likely mean butting heads with the magnate most closely identified with the PRI: Carlos Slim.
Though he has never publicly mentioned Slim by name, Fox has made declarations that appear to be aimed at the tycoon. Fox says he wants to foster increased competition to make telecommunications, including Net services, cheaper and more accessible. As a result, Slim may now have to deal with stronger, more independent regulators and judges who disapprove of monopolistic behavior. "Until now, Slim has been widely viewed as a powerful tycoon who is politically untouchable and who has never had to back down," says Rogelio Ramìrez de la O, president of Ecanal, a leading economic consultancy in Mexico City. "That image isn't going to help him in a new era."
Slim deflects the issue in the way you might expect from a man who has weathered decades of third world economic unrest - with confidence. "AT&T and WorldCom want us to give away market share. Well, they're going to have to earn it," he told reporters over the summer; he even suggested that the WTO is investigating the wrong guy: "In the year 2000, there still exists a duopoly in the United States, consisting of AT&T and WorldCom, that has been very protected in a strange way."
What Slim knows - and what American companies and the USTR either don't realize or are loath to admit - is that the scope and breadth of his companies give him considerable leverage. "Mexican officials often point out that Telmex accounts for more than a fourth of the stock market," says Philip Peters, senior fellow at the Lexington Institute, a Virginia-based think tank that monitors regulatory agencies in Latin America. "A ruling against the company could put the Bolsa at risk."
Even if Fox does go after Slim, Telmex has made no secret of its willingness to spend years fighting every decree in the morass that is the Mexican judicial system. Alternatively, if Fox looks the other way, he risks stifling foreign investment, and thus diminishing the country's place in the emerging global economy. All of which means that it may be Fox - and not Slim - who's in the unenviable position. And Slim knows it. Slim can afford to wait for Fox to make the first move, while maintaining for as long as possible the kind of monopoly-level profits he's grown accustomed to.
When I visited Slim's Mexico City headquarters in mid-2000, the 60-year-old patriarch was clearly more interested in talking about the Internet than speculating on international politics and regulatory commissions. Although he's hardly what you'd call new economy, Slim says he knows enough about the Net to see that it's one of the biggest business opportunities in his lifetime. And at a moment in the Net's history when it has become painfully obvious that there are plenty of big ideas, but all too few smart businesspeople to carry them to profitability, Slim thinks he's well positioned.
With only 3 percent of Mexicans online, there's enormous growth in providing Net access. To capitalize, Slim is using Prodigy, the US's third-largest ISP, which he now owns, to focus on the Spanish-speaking world. Slim also thinks he can use the Net to connect his diverse properties, increasing market share, efficiency, and income.
Then there's the opportunity outside Mexico's borders. Last February, Slim purchased the biggest (and notoriously underperforming) US computer retailer, CompUSA, and a month later he launched what he predicts will be the largest Spanish-language portal in all of North and South America, a joint venture between Telmex and Microsoft called T1msn (www.t1msn.com). He also recently directed Telmex to join with Bell Canada International and San Antonio-based SBC Communications in a $3.5 billion venture to provide landline, cellular, and Internet services throughout Latin America. It's all part of Slim's strategy to become a global Internet player in personal communications, entertainment, and ecommerce. Never mind that he doesn't know how to use a computer; he knows business. "I don't know how to pilot a plane, either. But that's never kept me from flying," Slim says. From his desk, he retrieves a sheaf of printouts - the latest financial statements of his companies - and slaps them down in front of me. "This," he says, "is all I need to know about computers."
The running joke about Slim is that he began investing outside Mexico because there was nothing left to acquire inside the border. Slim likes to describe his foreign investments - mostly Internet-related - as a defensive strategy. "Being in the telecommunications business, we couldn't remain aloof to the Internet, especially with Mexico opening up to bigger competitors," he says.
Instead of creating his own ISP, he bought Prodigy, the online service that was considered one of AOL's major competitors back in the mid-'90s but went into a tailspin soon thereafter - despite a $1 billion investment from IBM and Sears. He purchased a small stake in the company in 1996, when it had fewer than 200,000 subscribers. In 1997, he acquired Prodigy outright for $100 million in cash and about $150 million in debt assumption. Three years later, with only 10 percent of the company's shares available to the public (Slim and partner SBC own the other 90 percent), Prodigy's market cap hovers around $330 million. Thanks in large part to Slim's strategy of focusing on Spanish-speaking Web surfers by offering a bilingual service, Prodigy's subscriber base in the US has increased by 1,000 percent, to more than 2.5 million. The company reported $62.8 million in losses during the third quarter of 2000, compared to $23.6 million during the same period a year before. But the losses were some 15 percent lower than analysts were predicting. In Mexico, Slim is using Prodigy as the official ISP of Telmex, which had more than 500,000 accounts in Mexico by midsummer.
Getting Mexicans online hasn't been as easy as making Prodigy bilingual, though. In Mexico as in most developing countries, computer costs are a significant barrier to the rapid growth of Net access. Another impediment has been the dearth of consumer credit - most Mexican banks are still recovering from catastrophic loan defaults suffered in the December 1994 economic depression, the so-called Tequila Crisis. So Slim cobbled together a deal under which subscribers agree to buy PCs - Acer, Apple, and Compaq - from Telmex at fixed interest rates and receive Prodigy for free. North of the border, it's a run-of-the-mill bundling deal. But in Mexico, it was unprecedented and, says a Telmex source, has generated the sale of some 70,000 computers, with Slim's retail operations reaping finance charges on each purchase. "Our department stores make more consumer loans than the third-largest bank in Mexico," Slim says. Some of Slim's Net rivals, most notably Todito.com, have mimicked the strategy and, as a result, US-based research firm IDC says that Mexican computer sales in Q1 2000 were 29 percent higher than Q1 the previous year.
The Prodigy acquisition provided Slim with a blueprint for the CompUSA buyout. He acquired 14.8 percent of the retailer's shares in 1999, which allowed him to assess the firm's potential. Despite $6 billion in annual sales, CompUSA was posting huge losses; it had been slow to get into cheaper computer models and many consumers were buying PCs directly, from Dell and Gateway. But Slim was confident he could turn things around, and in February he bought the remaining shares of CompUSA for almost $800 million. "It has the brand recognition, the positioning, and the network of stores to be successful again - and soon," he says. "Besides, we have a great deal of experience in retail."
Now Slim is using CompUSA to test the mettle of his eldest son, 33-year-old Carlos Slim Domit. Slim Domit heads up Grupo Sanborns, the retail giant that includes 305 Sanborns and Sears outlets in Mexico, and he now oversees the 224 CompUSA stores in the US. Slim Domit impressed investment analysts who traveled to CompUSA's Dallas headquarters in June to hear his presentation on how he intended to remake the company. CompUSA was expecting to be in the red through 2000, but Slim Domit says the company is on track to regain profitability in the first half of 2001. To achieve this, he has vowed to shutter unproductive stores, increase the focus on cell phones and handhelds, add videogames and digital cameras, and improve CompUSA's inadequate ordering system and customer service. To spur the changes, he accepted the resignation of CompUSA CEO James Halpin. "We liked the way Carlos Slim Domit handled the meeting and responded to questions," says Juan Carlos Mateos, an analyst in Merrill Lynch's Mexico City office. "He's come a long way."
Slim Domit has also shown prescience in the face of calls from analysts last year to bolster Web operations. He shut down the company's ill-conceived, money-losing site, Cozone.com, and moved online sales to CompUSA.com. Many expected that, after purchasing 9.2 percent of online CD/DVD retailer CDnow last May, the Slims would scoop up the rest of the company and marry it with CompUSA. Instead, they backed off, and Bertelsmann bought CDnow for $117 million in July. "We were tempted because music is a strategic business for us," says Slim Domit. "But we decided we couldn't involve ourselves at this stage because we have enough on our plate with CompUSA, which is a much bigger operation."
In the event that Slim Domit bungles the CompUSA redirection, his two younger brothers are ready to stand in. Middle son Marco Antonio, 32, runs Grupo Financiero Inbursa, which comprises banking, leasing, insurance, mutual funds, and private pension funds. Patrick, 31, presides over Grupo Carso, a conglomerate of retail outlets, mining operations, automotive parts makers, hotels, tobacco growers, and beverage distributors, among others. The three brothers have always been close, but they're in contact even more often these days, thanks to the rising role of the Net in the family's disparate enterprises. A group of top-ranking managers of Telmex, Carso, Sanborns, and Inbursa meets frequently to discuss Internet developments and how they can be applied to the various holdings. Even businesses as old-fashioned as Slim's mining companies use the Net to compare suppliers. "Look at our Banco Inbursa. It's a bank practically without branches - as if we anticipated the Internet," Slim says of Mexico's eighth-largest bank, which is moving beyond its commercial banking roots toward retail banking, with the help of the Net.
Despite a mounting fortune, Slim's business and lifestyle have changed little in the past decade. Recently widowed, he lives in a house that's even smaller than his childhood residence and has owned the same weekend home in Cuernavaca for decades. He uses a leased yacht, anchored off Ixtápan, mainly for business purposes. His headquarters is still a two-floor concrete bunker dwarfed by skyscrapers in the fashionable Lomas neighborhood of Mexico City. The tiny lobby is filled with burly bodyguards, their suits too tight to hide their pistols. Security is paramount in Mexico's capital - it's in the throes of a lengthy crime wave, and kidnapping is an extremely profitable illegal activity. A cousin of Slim's, billionaire banker Alfredo Harp Helù, was kidnapped a few years ago and released in exchange for more than $30 million in ransom. Inside the offices, the furniture is Naugahyde. There's no valuable art - Slim has turned over his private collection of 19th-century Mexican paintings and Rodin sculptures to a museum.
At every turn in his life, Slim has put his trust in his family. And not just his sons: Samer Salameh, former chair and currently a Prodigy board member, is married to Slim's niece, and Arturo Elìas, a ranking Telmex executive, is married to one of Slim's daughters.
Slim got his knack for business from his father, Julián Slim, a Lebanese Christian who escaped the Ottoman Empire's military draft by fleeing to Mexico in 1902, when he was a teenager. He had such blind faith in Mexico's future that in the midst of the 1910-1920 revolution - just as Pancho Villa and Emiliano Zapata were laying siege to the capital - he bought out his partner in a Mexico City general store and purchased several nearby commercial buildings. "Now that was courage," says his son, who has himself made lucrative investments during the worst moments of Mexico's frequent economic downturns. "He taught me that no matter how bad a crisis gets, Mexico isn't going to disappear, and that if I have confidence in the country, any sound investment will eventually pay off."
Slim made his first investment - a government savings bond - at age 11. "That's how I learned about compound interest," he says, retrieving the original certificate from his notebooks. Soon he was buying stocks. By 1965, shortly after he graduated from UNAM, the National Autonomous University of Mexico, his investments had given him a net worth of $400,000 - enough capital to start a stock brokerage and a real estate firm, and to buy a construction company and a soda bottling plant. These were the core businesses of Grupo Carso, a moniker derived from the first names of Slim (Carlos) and his late wife (Soumaya).
Slim's brokerage was open for business only during the couple of hours a day that the Bolsa was active. Thirty years ago, so few companies were listed that a million dollars in total sales was a heavy trading day. Back then, Slim and a small number of other future billionaires would sit around the trading floor playing dominoes and talking about how they'd shake up the somnolent Bolsa someday. Now the exchange does about $2 billion on an ordinary trading day.
The opportunity that would turn Slim into a tycoon came in the wake of Mexico's 1982 economic crisis. Then-president José Lòpez Portillo, who headed one of the most corrupt administrations in recent history, sought to deflect blame for the peso's massive devaluation and a default in foreign debt payments by nationalizing the banks and threatening a state takeover of other sectors. The business community panicked: Investors pulled out billions of dollars in fear that the economy would come under government control. Slim went on a buying spree. From 1982 to 1984, he used the returns on his acquisition of Cigatam, Mexico's leading cigarette company, to obtain minority positions in Sanborns, Condumex (auto parts), Nacobre (mining), and Segumex (insurance). "The low value of many enterprises was even more irrational than the pessimism of the business community," he recalls. Once he was confident of their inner workings, Slim acquired majority ownership in all these companies. By the early '90s, their market values had appreciated an average of 3,000 percent.
By then, the Mexican government had moved toward capitalist reforms and put hundreds of state companies up for sale; the biggest prize was Teléfonos de México. In 1990, with the help of two foreign partners, SBC and France Telecom, Slim made a successful bid of $1.76 billion to privatize the state-owned telephone monopoly. Telmex's market cap today hovers around $37 billion, and Carso Global Telecom, the holding company headed by Slim, owns 26.2 percent of Telmex - enough, under Mexican corporate law, to give him management control.
Initially, Slim's partners thought they'd be able to leverage their technical know-how and prestige with global investors to assume control. "We thought Slim was just the head of a rich Mexican family business who would be happy to let us run Telmex," says a senior France Telecom executive. "Instead, we turned out to be window dressing."
Slim's relationship with SBC has grown (the US company owns about 10 percent of Telmex), while his ties with France Telecom have unraveled - especially since the Prodigy deal. "We weren't impressed with the company," says the Telecom source. "But he bought it anyway, with no input from us." Recently, Telecom has put its 7 percent share in Telmex up for sale. The official explanation is that the company will pursue a more Europe-oriented strategy.
Slim can be tough on his partners, but he's ferocious with rivals. The two largest US telcos, AT&T and WorldCom, have each started a Mexican joint venture to cash in on the country's lucrative long distance market. Long distance calls between the US and Mexico amount to nearly 3 billion minutes annually, and Americans spent $1.2 billion calling Mexico in 1999. But after three years in the market, the combined share for the US companies and subsidiaries is less than 30 percent. Not only does Telmex control almost 70 percent of the long distance market and a local monopoly, it has the highest return per line of any major carrier in the world: In 1999 it registered profits of $3.9 billion on revenue of $10.2 billion.
Slim hasn't hesitated to play hardball to preserve his advantage, and such is the root of the complaints coming from the American telcos. WorldCom alleges that Telmex's interconnection rates - the fees rivals must pay to use Telmex trunk lines - are several times higher than those charged by dominant telcos in Europe and the US. And even when competitors pay the connection fees, Telmex will often claim there's too much traffic and suspend links for rivals - wreaking havoc on data delivery. At other times, Telmex has suspended service to the AT&T and WorldCom Mexican subsidiaries, Alestra and Avantel, respectively, claiming they owe more than half a billion dollars for unpaid connection charges (an assertion that's heatedly denied by those companies). And when the share of foreign competitors manages to inch forward, Telmex offers special promotions to long distance customers at rates below what it charges rival carriers - and foots the bill for these subsidies by charging high rates on local calls. "Telmex is just one big, constant violation," fumes an official at Avantel. "And they have neutralized the regulatory agency, Cofetel."
In fact, there is no tradition of strong, independent regulatory agencies in Mexico, and the judicial system is notoriously vulnerable to economic and political influence - making Cofetel, Mexico's FCC, a sorry mismatch for someone as powerful as Slim. Even the most ardent Telmex critics agree that foreign competitors have been naive in seeking redress through emasculated regulators and judges. When Cofetel does issue an order against Telmex to desist in its monopolistic practices, Slim's lawyers manage to obtain injunctions against it. "For Telmex," says the Avantel source, "time is golden." The longer the status quo is maintained, the higher Telmex's revenue will be.
"It will take a combination of external pressure from Washington and internal pressure from Fox to change Telmex's practices," says Shanker Singham, a lawyer with Steel Hector & Davis, a Miami-based international law firm that represents AT&T.
Slim has never been tied to any scandal. But he has had unusually close connections to the country's last three presidents and was widely perceived to be the most favored entrepreneur of President Carlos Salinas de Gortari, who served from 1988 to 1994. There were even published allegations - vehemently denied by Slim whenever reporters have asked about them - that he allowed Salinas to invest secretly in his companies, including Telmex. At a notorious 1993 fundraising dinner for Salinas, Slim was among the 30 business leaders who each pledged an average of $25 million to the PRI. Because the PRI wasn't required to disclose information about campaign contributions, it's impossible to say how much of the $750 million actually found its way into party coffers. Shortly after Salinas left office in 1994, the country plunged into economic crisis, and the former president, now reviled, went into virtual exile in Ireland.
But Slim quickly forged ties with Salinas' successor, Ernesto Zedillo. Though Zedillo earned praise for his economic reforms and political liberalization (his insistence on clean elections allowed Fox, the opposition candidate, to win last July's presidential contest), he avoided direct confrontation with Slim.
In his jousts with the USTR and US telecom competitors, Slim hasn't confined himself to occasional press conferences; he has inflamed nationalist sentiment. In August, at a labor rally in Mexico City, Slim's position received support from the telephone workers union that represents Telmex's 49,000 employees. "We're not going to accept turning over the market to foreigners," said union leader Francisco Hernández Juárez. Reforma, a major national newspaper, chimed in with a jab at the WTO: "There is a resurgence of nationalism because nobody accepts that Mexico be judged by an external organization.... It's evident that this is just another pressure tactic by the Americans to claim our appetizing national market."
In early October, Avantel and Alestra began to fire back with some nationalist sentiment of their own. They took out full-page ads in Mexico's national newspapers in which they claimed that their companies were more purely Mexican-owned than Telmex, and said they were trying to put an end to predatory practices. But Slim is credible as a nationalist because, in all of Latin America, Telmex is the only major privately owned telco that's homegrown. And he has labored to gain the goodwill of people on both ends of Mexico's ideological spectrum: He has used his philanthropic foundations and their billion-dollar endowment to court potentially troublesome left-wing critics by granting subsidies to arcane intellectual publications, underwriting education programs, and posting bail for petty criminals in the countryside, where law enforcement is especially skewed against the poor.
But Telmex critics may have a point. The lack of foreign competition might have caused Mexico's telephone industry to fall behind much of Latin America in terms of market penetration. According to a study by Donaldson, Lufkin & Jenrette, by the end of 1998, Mexico had 10.3 telephones per 100 inhabitants, well below the 12.1, 18.0, and 19.1 phone ratios in Brazil, Chile, and Argentina, respectively. The US telcos think such numbers are obvious indicators that something is wrong.
Slim also faces scrutiny for Telmex's pricing. The high price of local phone calls in Mexico has given Slim the cash to invest in Internet ventures, but it has done little to impress consumer advocates, who find nothing patriotic about milking the poor.
Far from being daunted by regulatory inquiries, Telmex continues to focus on growth. It's moving aggressively into wireless with its cell phone subsidiary, Telcel - which is four times larger than its closest competitor, Iusacell. In September, Slim announced that he will spin off Telcel as a separate company, called América Mòvil, once he gets the green light from government regulators. Telmex has also leveraged its extensive infrastructure into a 60 percent share of Mexico's Internet access market.
Slim understands the importance of partnering in the Internet era, and when it came to the company's Web strategy, he found a partner that tends to think like he does: Microsoft. To keep old clients and gain new ones throughout Latin America and the US, Telmex and Microsoft joined forces to form T1msn, a portal that was launched with $50 million from each partner. For Slim, Microsoft offers credibility outside Mexico. For Microsoft, according to Rafael Fernández MacGregor, the company's director of Internet businesses for Latin America, Slim was the only viable partner. "Why Telmex?" he says. "Four reasons: speed, smarts, their regional ambitions, and strategy. They know all about the Internet, especially in the context of a developing economy like Mexico's."
The portal offers standard fare: email, chat rooms, messaging, and a dozen channels - including news, sports, finance, and music. Some of the content is Microsoft's, but most of it is acquired through alliances. "Our business model is to create a federation of independent content providers," says Fernández. Adds Andrés Vázquez, Telmex's 32-year-old Internet maven: "It makes more sense than trying to create our own content. Besides, demand is changing constantly. A year ago, pornography was the most important content. Now it's music."
T1msn has been viewed with skepticism by competitors, and Telmex has no inherent advantage in this area. Tim Parsa, CEO of Todito.com, thinks syndicating content is a losing idea. Adriana Kampfner, president of Mexico operations for StarMedia Network - whose Latin American portal (www.starmedia.com) has a four-year head start over the fledgling Slim-Gates venture - adds that T1msn is late. "Speed is everything," she says. "Being the first mover counts."
But Mexican consumers are sold. In a crowded field (which includes Yahoo!, Terra, Todito, and StarMedia), T1msn is consistently the number one or two portal in Mexico. Banking on the combined reach and power of Microsoft and Telmex, Slim expects T1msn to lead all Spanish-language portals in the Americas within three years, by which time there should be 25 million Spanish-speaking Web surfers in the region (compared to about 9 million at the end of 1999). "Obviously, T1msn is doing something right," says José Linares, an analyst with J. P. Morgan.
Meanwhile, Slim has other, even larger investments to keep him occupied. His biggest venture in South America is a new company - launched in conjunction with SBC and Bell Canada International - with $3.5 billion in cash and assets that will expand holdings in fixed-line telephony, mobile wireless, and Internet services in Brazil, Colombia, and Venezuela.
In the US, Slim is engaged in a more complex Internet strategy involving Prodigy, SBC, and CompUSA. In February, he gave SBC a 43 percent stake in Prodigy in exchange for SBC's 703,000 Internet customers - 137,000 of whom were high-speed DSL broadband clients. This raised Prodigy's total user base in the United States to more than 2 million, and SBC is committed to delivering at least 1.2 million additional subscribers over the next three years. "This moves Prodigy into the lead in broadband, with DSL clearly defining the strategic focus," says Prodigy board member Samer Salameh.
Equally important, SBC's coverage area (Texas and the southwestern US) is home to 60 percent of US Latinos - Slim's primary target. To help spur PC/Net adoption within this demographic, SBC launched a package deal in July, offering free PCs to customers who sign up for Prodigy's DSL services at $60 a month for two years. CompUSA should fit right into the bundling deal.
In the meantime, CompUSA is remaking its ecommerce strategy using the Mexican operations as a model. "In Mexico, we have been using Sanborns and Sears to provide warehouses and ordering systems for other, smaller companies, delivering their products around the country," says Slim Domit. "CompUSA can eventually do the same." Slim has shelled out more than $2 billion for other IT assets in the US - including stakes in cell phone companies in Florida and Puerto Rico and in two firms that build ecommerce sites for small businesses.
But Slim faces plenty of obstacles - on and offline. In Mexico, the biggest challenge on the Net for Telmex is the spread of free ISPs. Since early last year, Spain's Terra Networks (already the second-largest Mexican ISP), StarMedia Network, and Todito.com have all offered unlimited free connections, collecting revenue from advertising and ecommerce. "Slim's telecommunications assets aren't going to help him once the cost of going online goes down to zero," says Todito CEO Tim Parsa. "In the next couple of years, when broadband becomes widespread, his infrastructure will be basically irrelevant, because connections will be wireless."
Telmex officials are characteristically smug about such assertions, saying there's no upside to outpacing demand. "Eventually, basic connections will be free, and people will pay a premium for broadband," says Vázquez. "Once the market is there for broadband, we can guarantee that our prices will be attractive." In the meantime, Telmex has launched a limited broadband service, dubbed Prodigy Turbo, mainly for businesses in the 20 largest Mexican cities.
There's also the question of Slim's longevity. He has a heart condition and a family history of relatively early deaths. When he underwent heart surgery in 1997, rumors that he was near death caused the Bolsa to plummet. Slim is stoic about the situation. "When you have a serious operation, you either die or you don't," he says. "I'm alive and I haven't changed my pace."
A more pressing issue is whether Slim can continue to wield his formidable political clout against business rivals in Mexico's new democratic era. In October, in an effort to assuage Washington, Cofetel cut the interconnection fee Telmex can charge competitors by almost two-thirds - from 3.36 to 1.25 cents per minute. The USTR asserted that this is not enough, but Telmex has said publicly that it would counter the Cofetel decree - and, presumably, any additional sanctions - with its usual barrage of legal appeals. Just to get the process going, Telmex filed a 777-page document in October, arguing that the decree "contravened the public interest." Says Philip Peters, whose Lexington Institute monitors Latin American regulatory agencies, "Nothing has changed. Slim can tangle it all up in the black hole of the Mexican courts."
Others are more sanguine, expecting that the best way for Slim to get on Fox's good side is through compromise. "I expect Fox to create a climate that fosters more competition and investment," says James Jones, formerly the US Ambassador to Mexico and now senior counsel at Washington-based law firm Manatt, Phelps & Phillips. Jones believes Slim will come to "some sort of settlement" with AT&T and WorldCom.
In one of his recent press conferences, Slim seemed to hint that a defeat in the WTO or through a political deal wouldn't be a crushing blow. "Telmex won't stop investing and growing," he said in October. In the meantime, he warned, his US rivals shouldn't expect to increase their share of Mexico's long distance market for free. Nor should Mexican consumers expect a break: Just in case Slim is forced to share more long distance revenue with competitors, he has sent a clear signal that he intends to recoup any losses through his local phone monopoly. Local tariffs, he said, are going up another 6 percent. You don't become a monopolist who earns $5,000 every two minutes by making nice with the little guy.
