Carlos Slim's Fixed-Line Telephone Empire Under Attack in Mexico

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At the very least, Mexicans can expect that his virtual monopoly will be ameliorated favouring competition among other companies who could easily provide an equivalent service, if not improving it, while offering a more economical alternative.

Carlos Slim, a Mexican national, whose fortune is estimated at close to $70 billion CDN is now believed to hold the title as the richest man in the world. It is through his ownership of Telmex, the country's fixed line telephone company, that Slim has reaped huge profits year after year, while holding back on necessary improvements to the infrastructure and gouging customers by overcharging them.

With new rival Megacable, Mexico's prominent television cable provider, announcing that it will begin offering fixed line telephone services this week, the days of unobstructed obscene earnings for Slim will hopefully become a thing of the past, as other companies start jumping into the fold in the coming months. Thanks to a controversial deal made almost twenty years ago with the Salinas administration in buying the formerly public telephone system from them, Telmex has managed to hang on to an astonishing 90 percent of the fixed-line service in Mexico.

Whereas someone such as Bill Gates has created his fortune through innovation and worldwide sales, Carlos Slim has amassed his wealth almost exclusively at the hands of Mexican citizens, a country with a vastly unequal income distribution, where 20 per cent of the top income earners earn over 50 per cent of the nation’s income. Since the advent of cellular phone use in the country, Telmex has been practically neglecting the fixed-line sector of the telecommunications industry, preferring to focus on its Telcel brand.

Bloomberg reports:

Adolfo Cerezo, Chief Financial Officer for Telmex, in a recent interview with Bloomberg News, cited lower investment in fixed lines since “Mexican consumers are relying more on mobile phones, prompting them to disconnect their land lines”, thereby creating more “idle space” on the network.

This, however, is not entirely the case. A book store owner residing in Puerto Escondido recently mentioned that he has been on a waiting list for over three years in order to receive the privilege of a land line with Telmex. He noted that the company is not bothering to expand service but only offers a land line when someone else discontinues theirs. “Carlos Slim's profiteering off the backs of poor Mexicans is akin to a crime against humanity,” the book store owner passionately remarked.

Megacable joins Cablevision as the only other cable company to segue into providing telephone service under the newly established “triple-play” market whereby television, Internet and telephone services are bundled in one package to the consumer. The interesting twist to the tale was that in 2006, in order for Telmex to obtain approval from the Federal Competition Commission (FCC) to provide this “triple-play” service, the company was required to forego its monopoly on the fixed-line side of the industry.

This development is nothing less than good news for consumers who for years have had to deal with inflated fees and shoddy service provided by the monopoly. Anyone who has attempted to use the Telmex system in Mexico is amply aware of its shortcomings. Making a collect call to another country from Mexico is reminiscent of the systems in place perhaps thirty years ago when operators come on the line and one can actually hearing them punching the number in on their end amidst a flurry of noise in the background. You would expect such an arcane service to be really inexpensive, however, a typical half hour collect call to Canada can cost in the neighbourhood of $150 CDN. The ubiquitous Telmex logo is emblazoned on practically every pay phone in the country, particularly in tourist areas that lure unsuspecting individuals to place calls without informing them of the super steep rates.

Even though the shift in the industry will lead to more services and lower rates, the downside is that the network and infrastructure will still be handled by Telmex, and given the company's reluctance to expand and improve quality of service, it is unlikely such necessary enhancements will take place. In fact, Carlos Slim has his hands full with regulatory squirmishes at the moment. In October of last year, the FCC launched an investigation into Telmex's control of the fixed-line industry and in January of this year, CANITEC, a cable television lobby group, advocated that Slim's firm be declared “dominant” by the government who should restrict its entry into the television sector under the “triple-play” guidelines. Regulatory approval for Telmex to enter the “triple-play” arrangement is expected sometime this year.

In addition to Slim's woes, Reuters reported that Ecuador's telecommunications authority ordered on February 6 America Movil to pay $27 million for the overcharging of customers in that country, dating back to 1999. America Movil, Slim's Latin American version of Telcel will likely comply since it is seeking to expand operations throughout the region, including making huge inroads in Brazil, which may in turn stave off losses on the fixed-line end of things, continuing to bolster Slim's shot at being the richest man alive.