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HomeAll newsMost read newsBusiness Leaders Biography
Birthday : 01/28/1940
Place of birth : Mexico - Mexico
Biography : Carlos Slim Helú is a businessperson who founded Teléfonos de México SAB de CV and Inversora Bursáti

Carlos Slim, One of World's Richest Men, Gets Schooled by an Old Pupil

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01/30/2018 | 12:12pm EST
By Robbie Whelan 

MEXICO CITY -- Carlos Slim has dominated telecommunications in Mexico so thoroughly for decades that profits from his company, América Móvil SAB, have helped make him among the richest people in the world. The deal that launched his career included a partnership with Southwestern Bell Telephone Co., during which he mentored a young executive dispatched to Mexico for the project.

Today, Mr. Slim's empire is taking some direct hits. The value of his controlling stake in América Móvil, Mexico's leading wireless provider, has fallen by more than $8 billion, or 20%. His wealth has declined by about $10 billion, knocking Mr. Slim out of the top echelon of the world's richest people.

His main rival is AT&T Inc., which has won 5.7 million new Mexican customers since entering the wireless market in late 2014. And the man atop AT&T is Randall Stephenson, the old friend who learned the business from Mr. Slim two decades ago.

The world's largest telecommunications firm has just an 11% market share, compared with 65% for América Móvil, but their battle has fueled a bitter price war, an upheaval in the once staid Mexican cellular market and an uncomfortable reckoning for the two men.

Messrs. Slim and Stephenson haven't seen each other since the Mexican billionaire attended the 2009 wedding of Mr. Stephenson's eldest daughter. "Make no mistake about it, Carlos was a mentor to me," says Mr. Stephenson, AT&T's chairman and chief executive, but "for him and me to socialize wouldn't be right, wouldn't be appropriate."

Mr. Slim says: "We had a good relationship." Now, though, "he lives on one side. I live on the other."

One analyst who has met both men and follows the two companies puts it more bluntly. "The tablecloth between them has been cut," says Roger Entner, founder of Recon Analytics Inc. in Dedham, Mass.

Mr. Slim went all the way to the Mexican Supreme Court to fight a 2014 law that cut to zero what América Móvil can charge rivals to complete calls on its network. The court ruled last summer that the company could resume charging fees, though at a far lower rate than before the law was passed.

"We have seen radical changes in four years to a market that didn't change at all in the previous 20," says Luis Aldo Sánchez, coordinator of strategic planning for the Federal Telecommunications Institute, Mexico's telecom regulator. More than 50 million customers have upgraded to smartphones with broadband data plans, and most wireless customers pay far less than half of what they did in 2012.

Mr. Slim built his fortune, estimated at $67 billion by Bloomberg, on the back of América Móvil's dominance in Mexico, using it to expand across Latin America by snapping up carriers across the region.

"Carlos is very good not only in competing in the marketplace but also competing in regulation, legislation, and the legal world," said AT&T's CEO. "I had no fantasies that going in and taking market share from América Móvil would be an easy layup."

Mr. Slim says he is the one who is being taken advantage of by AT&T. "We are subsidizing them with an interconnection fee of zero," he said in an interview before the Supreme Court ruling. "It doesn't favor the market."

Analysts and Mexico's telecom regulator expect AT&T to surpass the No. 2 wireless carrier, Spain's Telefónica SA, within a few years. The Mexican telecom market has gone from one of the world's most expensive and dysfunctional to resembling those in the U.S. and Western Europe.

"América Móvil has never faced a competitor like AT&T in the wireless business," says Kevin Roe, a prominent independent telecom analyst. "As the small, nimble challenger, they've got a lot of upside, and it's been very difficult for América Móvil to compete with that."

Mr. Slim is 78 years old, almost exactly 20 years older than Mr. Stephenson. They met in 1992, just after Mexico completed the sale of government-run phone monopoly Teléfonos de México to Mr. Slim and his two outside partners, Southwestern Bell and France Télécom.

The sale included a national concession to operate wireless mobile phone service, which Mr. Slim launched in Mexico several years later.

Southwestern Bell sent Mr. Stephenson to oversee its Mexico investment. The son of an Oklahoma cattle feedlot owner, he started at the telecom company with a part-time job feeding tape into billing machines.

At their first meeting, in a conference room in Mexico City's upscale Polanco neighborhood, Mr. Slim asked Mr. Stephenson to tell him more about Southwestern Bell's capital expenditures, according to Mr. Stephenson.

"I was getting ready to answer, and then he answered himself. He just recited our numbers from memory," Mr. Stephenson recalls. "He knew our numbers better than we did."

Over the next few years, Mr. Stephenson watched closely as Mr. Slim schooled him on the habits of Mexican customers, how to run lean businesses with anemic cost structures and how to value companies rationally in order make smart acquisitions.

In 1994, when the Mexican government devalued the peso, halving the currency's value almost overnight, Mr. Slim faced a do-or-die moment. His costs for telephone cables, handsets and radio equipment were mostly in dollars, while his revenues were in pesos.

Mr. Slim took a hatchet to Telmex's balance sheet, cutting outlays quickly and dramatically. Mr. Stephenson says the lesson was: "In those types of situations, you have to be bold, decisive and quick."

One banker who knew both men during the 1990s describes them as having had a "very casual relationship" that was "full of warmth." Outside the office, they dined and attended Dallas Cowboys and New York Yankees games together.

The North American Free Trade Agreement, which took effect in 1995, led to billions of dollars in foreign direct investment in Mexico, and its leaders hoped the privatization of Telmex would attract more telecom competition.

Bell Atlantic Corp., one of the Baby Bells formed in the breakup of AT&T and now part of Verizon Communications Inc., was the first foreign entrant. U.K. telecom giant Vodafone Group PLC later paid nearly $1 billion for a stake in the same carrier that Bell Atlantic backed, called Iusacell.

Mr. Slim spun off América Móvil from Telmex in 2000. No one could match his company's heft or wireless network, called Telcel, and the foreign firms gave up one by one and left Mexico. Verizon and Vodafone wrote off a total of nearly $2 billion in failed investments.

América Móvil expanded to 15 more countries across Latin America and the Caribbean, bought stakes in carriers in Europe and the U.S., and amassed nearly 300 million wireless subscribers and a stock-market value of $59 billion.

Mr. Slim says he outfoxed wireless rivals with better products and service, including prepaid cellphone cards introduced in 1997 for Mexico's largely cash-based consumer economy.

"We always wanted there to be intelligent competition in the market," he says. "Competition always makes you better."

Mr. Slim's critics say he outlasted competitors by attacking regulations that sought to limit his market power. He has often found a sympathetic ear in Mexico's courts.

One of Mr. Slim's lawyers says his strategy in the wireless business is to invest heavily in Telcel's mobile network while "containing" competitors by "making the very best legal effort to not share infrastructure and increase the fees and termination rates" paid to Mr. Slim's company.

Since the advent of wireless networks, the main tool regulators have used to ensure fair competition is interconnection fees, which carriers charge to rivals for completing calls in their network. If one company dominates traffic, high interconnection fees are a boon -- and a fatal drag on competitors.

"Telcel and Telmex have challenged every piece of legislation that has sought to control him," says lawyer Gerardo Soria, who represented América Móvil from 2002 to 2011 and now works for rivals of Mr. Slim. "In his ideal world, he wouldn't have to interconnect with anyone."

In 2013, Mexico's new president, Enrique Peña Nieto, pushed Congress to break Mr. Slim's chokehold. The bill included a new, independent regulator to police the telecom and broadcast industries, and the cut to zero in interconnection fees paid to Telcel. The law passed in 2014.

AT&T soon paid $4.4 billion to buy Iusacell and Nextel Mexico, the third- and fourth-largest carriers in Mexico. They were rebranded in 2015 as AT&T Mexico, which then launched an aggressive push to attract subscribers.

Taking a page from Apple Inc.'s playbook, AT&T opened thousands of sleek, full-service, storefront locations, many with free coffee and Wi-Fi, cafe tables and customer help desks. The company announced $3 billion in planned upgrades to its network and the slogan, "The More Trustworthy Network," to win customers away from Mr. Slim's Telcel.

In response to the rising threat, Telefónica began offering discounts to its roughly 26 million subscribers. So did Telcel and AT&T, triggering a price war that cut consumer costs for mobile phones by more than 40%, according to Mexico's telecom regulator. The OECD says the cuts were even steeper.

Since 2015, AT&T has reported more than $2.1 billion in operating losses in Mexico but increased its subscriber base 60% to 13.8 million. AT&T also has nearly 22% of all wireless revenue in Mexico and 14% of mobile broadband service, according to the telecom regulator.

Francisco Gil Díaz, a former finance minister who also led Telefónica's Mexico unit, says AT&T "has had considerably more muscle than the previous two or three companies that have emerged here." The U.S. company has stores "all over the place" and caters to high-end customers.

(MORE TO FOLLOW) Dow Jones Newswires

01-30-18 1212ET

Stocks mentioned in the article
ChangeLast1st jan.
AMÉRICA MÓVIL, S.A.B. DE C.V. 2.68% 15.71 End-of-day quote.1.32%
AT&T 0.86% 38.58 Delayed Quote.-1.28%
CHALLENGER LIMITED 0.58% 8.71 End-of-day quote.7.05%
FEEDER CATTLE?FUTURES (GF) - CMG (ELECTRONIC)/C1 0.04% 142.1 End-of-day quote.-2.25%
LIVE CATTLE (LE) - CMG (ELECTRONIC)/C1 0.08% 122.25 End-of-day quote.-1.96%
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