América Móvil plans to kick-start growth with prepaid plans for data—the same strategy it used in wireless, which made Slim the world's richest man
Carlos Slim became the world's richest man by recognizing the pent-up demand for mobile phones in Latin America, where just 12 percent of the population had a cellphone when his América Móvil (AMX) went public a decade ago. Now the largest mobile-phone company in the Americas, with more subscribers than AT&T (T) and Verizon Wireless combined, the company is eyeing a similar market that today reaches only a small fraction of Latin Americans: the Internet. In the next five years, the company forecasts, 400 million people in the region will have their own Internet connection, up from 60 million today. Most will use a wireless device to get online, presenting América Móvil with an opportunity. "It's the future," says Daniel Hajj, the company's 45-year-old chief executive officer and a son-in-law of Slim. "Data will be as important as voice was in its own moment."
Hajj believes the Internet is key to reinvigorating what had been Latin America's premier growth company. In 10 years, América Móvil has grown from 10 million customers in Mexico into Latin America's telecom giant, with 225 million wireless clients in 18 countries. Revenue has grown at a 32 percent average clip every year since 2000, when the company split off from then-parent Teléfonos de México (TMX), the Mexican landline company it now controls. Today, with roughly one mobile-phone line for every person in Latin America, wireless is no longer growing so quickly. That's why Hajj is counting on the increasing appetite for movie downloads, music streaming, and video chats to refuel his company's growth for this decade.
Hajj last year bet $23 billion on data by acquiring Slim's Telmex Internacional and its holding company, Carso Global Telecom (which owned 60 percent of Teléfonos), to get land-line phone, Internet, and TV networks across South America. In so doing, he turned a company that produced sales growth of 14 percent in 2009 into one that grew 7.6 percent last year. "Your wonderful growth opportunity of mobile data, when it gets washed through the conglomerate, comes out as something respectable but not stellar in terms of growth," says Richard Dineen, an HSBC Securities analyst in New York.
Nonetheless, Hajj says he considers the money well spent because it gave him a network most customers will never see: 170,000 miles of fiber-optic cable stretching across the continent. Hajj is planning to make an additional $32 billion investment in network capacity over the next four years. Hajj's plan has the backing of Slim, whose stake in América Móvil is worth almost $49 billion, the bulk of his $75 billion in public shareholdings.
It was Slim who a decade ago came up with the novel idea that helped propel América Móvil's growth in the mobile-phone industry to about 2 times the rate of the overall market, Hajj says. The now-71-year-old Slim decided that instead of just signing up customers for service contracts, he would offer wireless minutes using prepaid cards, with subsidized devices. That would allow the company to reach a wider set of customers, since many Latin American countries have large informal economies where credit-card use is not well established. About 87 percent of América Móvil's clients today use such prepaid services. América Móvil now is banking on prepaid plans for data. In Brazil, it's offering 15 days of Internet access for $4. In Mexico, customers can send a text message to activate plans of as little as $1.25 for a day's worth of Web surfing.
Unlike its early growth in wireless, América Móvil this time around may not limit its data strategy to just Latin America. The company in recent months weighed buying a stake in Serbia's Telekom Srbija and a takeover of Poland's Polkomtel before backing away over price. That willingness to kick the tires of telecoms that come on the block—plus its $9.46 billion in cash—has helped make América Móvil one of the "usual suspects" when investment bankers have an acquisition target to unload, Chief Financial Officer Carlos García Moreno says.
Meanwhile, América Móvil is contending with a regulatory debate on its home turf of Mexico, where it has 71 percent of wireless subscribers. Rivals are seeking a reduction in the fees mobile-phone companies are allowed to charge competitors to connect calls to their users. Given its large market share in Mexico, América Móvil collects more so-called interconnection fees than rival carriers. While América Móvil has been reducing its rates, it hasn't been enough for critics such as cellular operator Grupo Iusacell and Grupo Televisa, Mexico's top TV broadcaster and a provider of phone service through its cable-TV units.
The dispute has led this year to antitrust complaints filed by Televisa and Iusacell, and América Móvil's Telmex unit filed its own antitrust complaints against Televisa, which has 70 percent of Mexico's broadcast audience. While Mexico's antitrust agency has already declared América Móvil dominant in the mobile-phone business, the country's top telecommunications regulator, Mony de Swaan, told lawmakers in March it may take years to determine whether tighter rules for the sector can survive court challenges by América Móvil and its rivals.
Cutting interconnection rates could reduce the industry's investments in Mexico as carriers contend with lower revenue, CFO García Moreno told reporters in March. Still, Hajj says América Móvil will maintain a technological advantage in Mexico and the rest of Latin America, with plans to be the first to offer faster 4G mobile data speeds through a technology called Long Term Evolution. "We're always doing things first in the region," he says.
The bottom line: After conquering the mobile-phone market in Latin America, América Móvil wants to do the same with wireless Internet.