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8

Monopoly

On December 11, 2014, exactly twenty-five years after Carlos Slim purchased Telmex, former president Carlos Salinas de Gortari, upon request from the newspaper El Financiero, responded to some often-asked questions about this sale with an article published in two parts under the title “Telmex, a successful privatization that was later questioned.” The reason the still-powerful ex-president decided to delve further into this point, as he writes in his introduction, is that it coincided with “the fresh perspective of the great telecommunications reform in 2014.”

In the article, Salinas defends the privatization conducted by his government and cites favorable opinions from the World Bank. The interesting part is that he goes on to question the lack of regulation of Telmex by the governments that followed his term of office (Ernesto Zedillo, Vicente Fox and Felipe Calderón) and quotes recent surveys (which he does not identify) in which “most users complained despairingly about cut-off calls, undue charges, not enough coverage, lack of connectivity and disconnection of the service for no reason.” The politician, who a wide sector of the population in Mexico at some point believed was the person behind Slim, concludes his text saying that, “to many, Telmex has become the ‘black beast’ of Mexican private companies.”

Throughout the article, the ex-president rules out that the privatization of Telmex was done for ideological reasons or that it produced a greater concentration of wealth in Mexico. He also contends that the process was not rushed, nor that it sought to benefit hidden partners. Likewise, he argued that the funds obtained never disappeared from the treasury. This is the position that Salinas has defended in other texts and public speeches. However, Salinas’s last three arguments are direct accusations against Slim, as he claims that Telmex in fact is now a private monopoly, citing a study by the OECD: “Telmex controls 80 percent of the market in landlines and 70 percent of mobile telephony. It is a company with dominant power throughout all sectors of the market (landline, mobile and broadband networks) and across all the regions of the country.” The OECD concludes that Telmex, the dominant operator, “enjoys lasting power over the market that the competition is not denting and which is equally not limited by regulation in any efficient way.”

The ex-president also states that Telmex “is now an inefficient and abusive company” and he again quotes the OECD document:

Its prices are too high: Mexican users pay more than most member countries of the OECD. The case of broadband, the most important one technologically, is the worst: the prices are among the highest and the rate of coverage is lower with very slow speeds. Telmex has profit margins double those of the OECD, and in exchange it occupies the last place in coverage and the last in investment per capita. High costs, high prices, bad quality, and few options have a negative impact on the welfare of all Mexicans.

Finally, Salinas claims it was not the privatization of Telmex—made during his government—that catapulted Slim to his position as richest man in the world:

Slim did not inherit his fortune from Telmex. He took advantage of neoliberal deregulation to consolidate his business in the emergence of a new sector, mobile telephony, and entered as a dominant player in that sector across Latin America (Argentina, Colombia, Ecuador, Guatemala, among others.) The fortune is in América Móvil, which was never a public company. In 2012, that company was worth over $100 million. Telmex, on the other hand, fifteen years after it was sold, had the same value in real terms, when taking into account the size of the investment made during its expansion.

During one of my interviews with Slim, I ask him about this. The tycoon tells me he knows of the article but has not read it, so in order to have his opinion I read him some extracts. As I do so, he interrupts:

“It’s a lie. He’s just covering his own back and everyone else did it all wrong. He says Telmex is inefficient. What does being inefficient mean if competitors have come in, such as Telefónica, AT&T, Verizon, Vodafone? Do you think it’s very inefficient if none of those companies have been successful?” Then he takes a document from the table. It’s an OECD report. He flicks through it until he finds a graph: “This is the income per minute per country. Mexico sells at two cents and only these countries sell at one: Telefónica sells at nine cents in Spain. Are we being abusive by selling at two cents?”

“Salinas also quotes OECD documents to question Telmex…”

“Well, José Ángel Gurría—former secretary of the OECD—was paid 90,000 euros to do a study in which he cut América Móvil to bits and said we were the worst and whatever else, but they’re correcting it now.”

“So, what was Salinas’s motivation to write this article?”

“He wants to prove that he’s brilliant and beyond reproach, that he did everything by the book and everyone else is shady and moronic, and that Telmex is a piece of shit.”

“Does that mean there is no longer a relationship between you and Salinas?”

“No, I do see him… I saw him the other day and told him he was telling a whole lot of lies.”

“And what did he say to that?”

Slim makes a flustered reply and then asks me not to publish what he just said.

Then he completes his answer.

“Maybe I’ll read the whole thing he wrote and point out the lies to him one by one. He wrote for El Financiero to get on the right side of Televisa and the television networks. He was a puppet again. Anyway, if I start arguing, considering the state of the country, I’d only be adding more tension to the current situation.”

“Beyond what Salinas says, there is the widespread perception that the government handed you a monopoly…”

“That’s the lie that gets repeated over and over. Look, in this case my competitor was the beneficiary. In the terms of the call for tenders, he was benefiting, because it said you could give shares as payment or as a guarantee, and we had nothing and he had 10.6 percent of the company… There was a brokerage house that owned 10.6 percent before, because the point was that the amount we offered for the company was far above what it was worth a year prior. You have seen that, right? How much it was worth?”

Slim’s main competitor for the purchase of Telmex was Hernández, who at the time owned Banamex. Before the privatization of the state-owned company, the brokerage house Accival, of which Hernández is a partner, bought Telmex shares until it obtained 10 percent.

In those years, Hernández was the favorite candidate to win the bid for the Mexican telephone company. However, he did not lose out entirely: in December 1984, Telmex had a market value of $316.8 million. Hernández and the other Accival partners, whose names are not all known to us, having accumulated a good amount of Telmex shares prior to the privatization, saw how the value of their investment was going through the roof.

“When Telmex was privatized, 20.4 percent was sold to private investors,” Slim says, as he does some calculations on a piece of paper. “Of which 10.2 percent was to foreign investors, and of the rest we had about 5.2 percent in Carso and Inbursa, of which I owned about 60 percent. So in reality I had about 3.7 percent. They said it was mine, but I only had 3.7 or 3.8 percent of Telmex.”

I also asked Rogozinski about the article penned by the ex-president whose government he had worked for:

“Well, and what do you want me to say?”

“Your opinion on the article.”

“Regardless of what it says there, I want to say that Telmex was a successful privatization. Look, you may criticize all you want, but what you cannot criticize is that today, if you need a phone, you get it installed within days, if not hours.”

“The ex-president recognizes that aspect of the privatization process, but says that afterwards Telmex became inefficient, monopolistic and so on, because there was no regulation.”

“Look, my point of view on that subject is this: is there a regulation problem? Yes, but not because there was none, but because it was not enforced. There’s a difference, even though the end result is the same. The average citizen doesn’t care. I can accept that some of the aspects criticized about Telmex that are due to the lack of regulation enforcement. What I do not accept is that Slim does not invest.”

…

“Explain to me why you want Slim to invest more. If he invests more, his service will improve, and if his service improves, more people will move to Telcel, and if more people move to Telcel, he will make more profit, which is not bad, but aren’t you complaining that Slim is a monopolist, that Slim is dominating? If he does what you say, will he become more or less dominant?”

…

“But, is it a monopoly or not, as the ex-president Salinas claims?”

“That’s another of the old wives’ tales. Let’s see, does Telmex provide 100 percent of users in Mexico City? No. Is it 80 percent? No. Maybe 60 percent. Let’s say it has 60 percent. From 60 percent to 100 percent, there is a huge jump. Now, in the tiny, remote village of Quinchunchu, Telmex has 100 percent. Sure, maybe in that place. Why? Because nobody else is investing there! Telmex may be dominant in some places and in others it may be monopolistic, but that’s not because it wants to be, it’s because Telmex is obliged to go there. Nobody else wants to go there and nobody will. So the question becomes about how to pull that village out of a monopoly if no other service providers want to go there because it’s not profitable. The problem is 100 percent political.”