Carlos Slim Domit Shares Management Insights

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Carlos Slim Domit is the eldest son of Carlos Slim Helu and, now that his father has semi-retired to head up the family’s philanthropy, Slim Domit is the public face of one of the fastest growing business groups in world history.  In addition to chairing the Grupo Carso conglomerate since 1998, he also became co-chair of America Movil (NYSE: AMX)(NASDAQ: AMOV) in 2010, and is an active board member of several subsidiaries of both companies.  A graduate of the globe-spanning Anahuac University, he went to work full-time at age nineteen in the wholesale division of Sanborns and has spent his professional life in various roles (ranging from accounting and strategic planning to communications and merchandising) through out the Slim family holdings. 

Nick Slepko:  Are the Slims monopolists?

Carlos Slim Domit:  I think some people say that based on our market share.  However, it is important to go deeper than just pure market share.  In Mexico, we have 70%, but why is that?  If you take a look at all the incumbent companies in the world, you will find the same pattern where the incumbent companies have similar figures, including in the US.  America Movil has presence and gives service in 200,000 towns in Mexico. Our closest competitor covers around 80,000 towns.  Usually the incumbent companies are the ones with nationwide coverage, while competitors usually concentrate in the best economic areas.  In those 80,000 towns or small cities that we are competing actively, we have around 54% market share whereas we have 100% of the market in 120,000 towns because our competitors have chosen to invest in areas where they will have faster profit recovery.  I’d note that we have the same prices nationwide in competitive cities as we have in cities where only we serve.  There is no price discrimination.  It is important for anyone interested to do the simple task of looking up the published numbers so the truth does not get distorted as sometimes our competitors try to do. 

Slepko:  So, why are America Movil, Telmex, and Telcel often characterized in the media as monopolies?

Slim Domit:  We believe that a country needs comprehensive coverage and access to all telecommunication services.  In order to accomplish this, we have invested over USD 42 billion.  Depending on the year, we account for 70-80% of the investment in the telecommunications sector in Mexico.  Just as in any industry, if other companies want to compete, they must invest.  Our competitors do not say this because they know that their investment is low even though the voice, data, and video sector has high competition. 

You can’t cut corners if you want to stay ahead.

To attack and disparage a company, organization, or any other human endeavor just because it is big and successful is a mistake.  If the problem is that you are big because you invest more and manage better, what would the solution be?  If we need to reduce our market share, it would mean that we would need to abandon the places where we are the only provider and reduce our investment in the sector where no one else serves; cutting service to the most underserved areas – areas that our competitors refuse to serve.  That would for sure make us smaller, but that would leave millions of people without access to all the opportunities ICT brings.

Regulation should boost investment, improve coverage, and increase competition.  Regulation should rest on two main objectives: good services and products, and prices and rates on an international basis average.  Regulations should produce companies that invest, compete in all sectors and serve the entire country, offering prices that are internationally comparable (or better).  We do all of that intensively. 

Of the 120,000 towns we serve exclusively, many have less than a thousand inhabitants.  It costs more to reach these places.  They have less economic activity, and less purchasing power – especially when compared to the concentrated urban areas.  If we were not there with our services, no one else would be.  In these 120,000 localities, the majority of people are using our pre-paid services.  This means that a customer may switch carriers very easily.  They are not tied to a contract with our company.

Slepko:  Are these towns where no competitors go profitable?

Slim Domit:  Some of them are. Some of them are not. Here the issue is that you are being penalized for being the only one investing in those communities.  We believe that companies should be penalized for their practices, not for their size.  The first step should be to have current and truthful data.  In an industry that grows two digits every year, you cannot use figures from three or four years ago. 

Second, you need to look beyond absolute numbers and study why there are differences.  So, when you don’t have current facts and data and when you don’t study the impacts, differences, and details, the result is the development of regulations that deteriorate investment and competition.  For example, if the concern is just our size, the solution as a consequence of regulation would oblige us to stop investments in places where we´ll be the only provider because no one else chooses to enter.  To me, this is not the solution and could lead to this bad result.  Instead, current data and a deep understanding of the market differences should prompt rules and regulations that encourage further investment, competition, and access to all – and of course growth.

So to your question, profitability in these towns should not be the discussion.  The discussion should be the delivery of quality services with internationally competitive based prices that reach all of Mexico regardless of where you live or work or go to school.  We believe that.  And we believe that the industry has an obligation to invest and participate in all areas.

Slepko:  It sounds like the Google mentality where you pursue the passion with excellence and let talented employees figure it out as the business develops.  Yet, over this last year, in the media there has been a lot of negative coverage in the English-language press about America Movil and within one sentence they call you a monopoly or something along those lines.  Does that impact your company or do you care at all about media?

Slim Domit:  I think the customers have the final say.  However, telling the America Movil story and discussing the facts every chance we get allows investors, the media, and the public to understand what is really going on.

Since the privatization, we made a decision to invest heavily on infrastructure, educating our workforce, and reaching areas in Mexico where others wouldn’t.  This strategy has allowed us to cover more territory, provide better service, and deliver more innovative products that consumers prefer.  Our competitors – all 668 of them (there are at least three big companies with capacity to invest and compete in every service we are involved in) have the same opportunity to present their offer and service to the consumer so that they can chose.  We try to have good management, good service, and good products with the best conditions that offer superior consumer choice and preference.

America Movil has invested USD 42 billion dollars in infrastructure in Mexico.  This allows us to be in over 200,000 localities while our competition is only in 80,000.  By simply being and serving more areas through more investment we are able to serve more people and thus, our number of subscribers is larger.  Everyone can opt to expand into all areas; however, our primary competitors chose to only service the lucrative urban markets. 

Here we are talking about are facts, not opinions.  Investment capital, coverage, prices, these are all things that can be verified publicly by anyone interested.  In the case of our competitors, there are many services that only they are allowed to provide.  Real monopolies are the case in some services and areas of our competitors. What this leads to is that these regulatory service restrictions only provide an unfair advantage to our competitors. Yet, of even greater significance to us, is the fact that this limits access for many people to these new services - either because they are unaffordable (because only a limited few are allowed to provide them) or they are simply not available, particularly in rural or poor areas.  This, of course, bans competition. 

Slepko:  Would it actually be better for shareholders if you did have monopolies?

Slim Domit:  No.  Competition has always been good for us as a company and for the consumer.  I believe that it challenges us to find better ways to evolve and provide more value and benefit to the people we serve.  It also increases investment into the industry, and allows us to attract better employees and provide better and more jobs because the investments allow us to grow.

We focus strongly on talent.  In 1990, the average years of school for a Telmex employee was 5.7 years.  Now, it is about 15.9 years.

Not only have we modernized the technology delivery and availability and not only does competition help provide better services and products for our customers, it also helps our workforce and families that are able to take advantage of the economic activities the market investments generate.

Furthermore, we are a very big team. We are engaged in many sectors where all of them are public companies. We have a very strong corporate structure, yet we are very lean and efficient on the inside. We are a team of more than 260,000 people. We are present in 30 countries – 18 in the Americas and 12 in Europe.  Clear objectives and management is the main factor of the success of the company. We have a very strong team in every one of the different areas and we have very clear objectives.

The philosophy within the group on the social side is very clear:  First, business management consists of responsibilities and commitments.  Second, use our skills, business experience, and management talent to solve the problems of our society.  And, third, given an opportunity, everybody can be a success story.

It has been the same philosophy since my father started his entrepreneurship career and it is part of the culture of always seeing business as a long-term commitment. We get involved with the operations. We are focused on our strategy, and we are clear about the social responsibility we have. That philosophy is something that is not going to change. 

[continued in Carlos Slim Domit Discusses the Era of Access]

 


Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus