Carlos Slim: New Telecom Regulations? No Problem
In his first extensive interview since the passage of a new telecom law in Mexico, multi-billionaire Carlos Slim told CNBC he does not think the legislation will hurt the profitability of America Movil—the company he founded and which is the dominant wireless provider in Latin America, particularly in Mexico.
"I don't think the profitability is any problem," said Slim, speaking in English at his office in Mexico City. "Profitability is coming from productivity, efficiency, management, austerity, and the way to manage the business."
The new Mexican law takes aim at communications companies with more than 50 percent market share. In Mexico that includes three companies: TelCel & TelMex, Slim's wireless and fixed line business respectively; and Televisa, the dominant broadcast TV network. All three control at least 70 percent of their respective markets.
The law creates a new regulator with vast powers, including the authority to break up the companies. In a regulatory filing with the SEC, the company acknowledged the impact could be material to its earnings.
While Slim himself says he's relaxed about the legislation, investors aren't so sure. The ADR (American Depository Receipt ) of America Movil is down almost 27 percent since the election of Mexico's new president Enrique Pena Nieto in July of last year—who campaigned on major reforms such as the new telecom law.
Telecom analyst Christopher King of Stifel Nicolaus says the shares are suffering from a "significant regulatory overhang" because the outcome of the new legislation is "a great unknown."
"Their goal is to reduce his market share," King said, "and how they go about doing this is the ultimate question."
Price Caps a 'Happy' Outcome
One possible remedy is asymmetric price caps on Telcel or Telmex. In other words, price caps on Slim's companies, but no one else's.
The use of such a remedy has been a topic of speculation among market-watchers, because Slim has long been accused of being a quasi-monopolist and using his dominant position to keep prices higher than they otherwise would be in the face of more competition.
In his interview with CNBC, Slim showed no concern about price caps, even saying that remedy would be a "happy" outcome.
"Because it's an industry that we have [lower] prices constantly [over] 20 years and I think it's an industry where constantly, because of the improvement of technology, and the [increased] volumes of use, prices go down and down and down," he said.
Another possible remedy would be a forced sale of part of the company.
"We don't worry about that," said Slim. He suggested he didn't think that was the intention of the new law, but if it were to happen, he's sure assets would be sold "at a reasonable price."
Slim is the most controversial business man in Mexico in large part because he is so wealthy. He is currently the world's second richest man after Bill Gates, with a net worth of just under $70 billion, according to the latest estimates from Forbes. Between trusts and companies under his command, he controls 31 percent of America Movil. That earns him $267 million in annual dividends.
His critics, of which there are many, say his wealth comes from anti-competitive practices that have prevented new entrants into markets and caused Mexicans to spend too much on telephony. It's a criticism he vigorously rejects—citing the presence of other telephone providers in Mexico. He argues that America Movil's large market share comes from its decision to invest and provide better coverage than any of its competitors.
Buying Up Shares
When asked if he took the law personally, he said, "No, the contrary. Its very important for us that there are definitions."
In fact, within the law he says he sees new opportunity: television. America Movil has long wanted to offer television service as well as telephone service in order to offer customers a bundled set of services, or "triple play" of land line, wireless, and television. Up until now, the government has prevented him from doing so, while television providers such as Televisa can offer telephone services.
Slim, in a joint venture with France Telecom and Southwestern Bell, gained control of the Mexican Telephone Company Telmex in 1990 when it was privatized. The joint venture was granted monopoly power for the first seven years under the condition that it invest heavily in infrastructure.
America Movil is not in Mexico alone. It has a large presence throughout Latin America, with more than 262 million subscribers, of whom 71 million are in Mexico.
Slim has used the selloff in shares of America Movil to increase his and his family's stakes in the company. Reuters reported in April that Slim, his family, and businesses had acquired 500 million shares since October. Additionally, America Movil has been actively buying back its stock throughout the year.
At the age of 73, Slim has no official role at America Movil. Two of his sons, Carlos Slim Domit and Patrick Slim Domit, are co-chairmen of the board. Still, he speaks with deep knowledge of the company.
Correction: An earlier version of this story incorrectly stated the amount of annual dividends received by Carlos Slim.