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 Business News | August 2007 
Slim Wields His Mexico Monopoly in Brazil Market
 Romina Nicaretta - Bloomberg
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| | Monica Borges looks at mobile phones at a Claro store in Sao Paulo, on Aug. 21, 2007. (Paulo Fridman/Bloomberg News) |
Carlos Slim, whose telephone monopoly in Mexico helped make him the world's richest man, is using legal loopholes to add customers in the faster-growing Brazilian market.
After spending $2.76 billion in the past three years, Slim took sales from Sao Paulo's dominant phone company, Telefonica SA. He provides what Telefonica can't match so far: phone, Internet and television service over one network, the industry's so-called triple play.
"Slim saw a great business opportunity in Brazil, and he went after it," said Arthur Barrionuevo Filho, a business administration professor at Getulio Vargas Foundation in Sao Paulo who specializes in telecommunications. "Telefonica was late and has not yet been able to match the offer."
He doesn't need another monopoly in Brazil, the world's fifth-largest country. Controlling even a small portion of the telecommunications market would translate into higher earnings. Brazil may account for 26 percent of revenue next year at Slim's Telefonos de Mexico SAB, up from 19 percent in 2005, said Rodrigo Ortega Salazar, an analyst at BBVA Bancomer in Mexico City.
By snapping up bankrupt long-distance companies and a stake in the top cable provider, the 67-year-old billionaire built a Brazilian unit that is growing twice as fast as its Mexican parent. After three years in Brazil, sales there reached 2.9 billion reais ($1.44 billion) last quarter, and gains in Brazil may help drive a 25 percent increase in the stock by year's end, Salazar says.
Telmex, as Slim's Mexican land-line company is known, dropped 6 centavos to 18.7 pesos at 9:55 a.m. in Mexico City trading and has advanced 22 percent this year.
Diversifying
"Triple play will be very strong in Latin America, and since the Brazilian economy is bigger than Mexico's, there is a much bigger growth potential there," said Rogelio Gallegos, who manages 3 billion pesos ($270 million) of Mexican shares at Actinver SA in Mexico City. He increased his Telmex stake in the past year.
Telmex runs 90 percent of Mexico's 20 million land lines, and antitrust regulators won't let Slim offer TV service there until he agrees to make his network available for cable companies to offer phone service. Revenue from local land-line service in Mexico has been falling since 2002.
Slim declined to comment for this story.
"Telmex needs to diversify to other markets because traditional telecom services in Mexico have no growth," said Raul Ochoa, a Scotia Capital analyst in Mexico City. He has a "neutral" rating on the stock and doesn't own any.
Brazilian Law
Telefonica, the second-biggest phone company in Brazil, began offering packaged high-speed Internet, phone and TV services in the state of Sao Paulo on Aug. 12. Since Brazilian law prevents land-line operators from offering pay-TV services on their own network, Telefonica can't use just one system as Slim does.
High-speed Web usage will grow as much as 15 percent in Brazil annually over the next five years, said Ronaldo Sa, a partner at Brasilia consulting firm Orion Consultores Associados. Ochoa put growth in Mexico at 10 percent a year.
Telmex entered Brazil in 2004, buying AT&T Latin America Corp. and long-distance operator Embratel Participacoes SA.
Through Embratel, Slim bought a 49 percent voting stake in Net Servicos de Comunicacao SA, Brazil's biggest cable company in 2005 -- letting him offer the package of voice, Internet and TV.
With cables passing 8.9 million homes in 10 states, Net gave Slim a chance to sell phone and Internet services. Brazil has 6.4 million high-speed Web users. Mexico has 4 million, and Telmex already has 60 percent market share there.
Canceled
Since the first quarter of 2006, Embratel's share of the high-speed Internet market rose to 18 percent from 11 percent, while Madrid-based Telefonica dropped 2 points to 28 percent.
Embratel may hit 25 percent in five years, meaning Brazil could deliver as much as 30 percent of Telmex's sales, Sa said.
Social worker Maria Marotto canceled Internet and telephone service with Telefonica in Sao Paulo this year to subscribe to the package offered by Net. She saves about 230 reais ($114) a month, more than a third of what she used to spend. "It's worth it because of the price and quality," she said.
Telefonica in October agreed to buy assets of TVA, the second-biggest cable company in Brazil. The purchase needs regulatory approval. Operators also are pressuring the government to lift the ban.
Rule Change?
"The rules have to be the same for all players," Antonio Carlos Valente da Silva, president of Telefonica's Brazilian unit, told journalists Aug. 7.
If ownership rules change, Telmex has the first right to buy full control of Net from Globo Comunicacaoes e Participacoes, South America's biggest media company. An increase in control for Slim may allow Net to expand beyond the 44 cities it serves now, BBVA's Salazar said.
"Brazil is an important market because they need to expand given that Mexico is not growing," Salazar said. BBVA manages 12 billion pesos of Mexican stocks, including Telmex. "But Brazil will never have the same importance as Mexico for Telmex because it is a market with a lot of players."
To contact the reporter on this story: Romina Nicaretta in Sao Paulo at rnicaretta@bloomberg.net |
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