Telmex: This Dinosaur Is Surprisingly Spry

Telmex holds its own in the voting for long-distance carriers

It's election time in Mexico--for phone companies. Now that Telefonos de Mexico has lost its monopoly, the government is mailing out ballots to business and residential phone users. They're being offered a choice of Telmex and as many as nine new carriers for their long-distance service. Leading the list of new entries are two powerhouses, a joint venture with AT&T called Alestra and another with MCI Communications Corp. called Avantel. But in the battle of the ballots, Telmex is showing surprising agility.

Telmex must be flexible if it's to hang on to a major chunk of Mexico's $4 billion long-distance market. Since 1991, the company has spent more than $13 billion to upgrade its technology. Now it's out to shake its reputation for abysmal service by becoming customer-friendly. It's learning to discount, is calling more frequently on big clients, and is blanketing the airwaves with user testimonials. There are even new offices promoting Internet access and videoconferencing. "We're playing in the world major leagues," says Telmex sales director Isidoro Ambe.

Competitors were counting on consumers' memories of snarled lines and surly operators at Telmex to help them grab market share. But early results suggest the service offensive is helping Telmex hold its own. It's also being helped by default, since nonvoters remain with Telmex and the turnout has been low. In Monterrey, Mexico's third-largest market, only 35% of phone subscribers bothered to vote. Of those, 44% picked Telmex, so it ended up with 80% of the market. "We've been a little surprised," admits Daniel E. Crawford, chief operating officer of Avantel, a partnership between MCI and Mexican bank Banamex. "We would have thought more people would have wanted to participate [in the voting]."

Tempers have flared among the contenders as accusations fly about everything from misleading ads to free concert tickets in exchange for votes. In a new ad, Telmex brings back a gringo huckster named Burton Helms, first used last year, to spoof competitors in his atrocious Spanish.

Telmex' opponents are formidable. Avantel has spent $900 million and has laid down 5,400 kilometers of fiber-optic line linking major cities. The company promises to spend an additional $1.2 billion in the next four or five years. In Avantel's cavernous service center at the western edge of Mexico City, a young staff is calling businesses around the country to persuade them to switch. Alestra, a partnership of AT&T, the Monterrey industrial group Alfa, and Mexican bank Bancomer, has lagged, investing just $450 million last year to lay 4,000 kilometers of line. Marketing under the AT&T name, the sales force is making up for lost time, knocking on doors nationwide to woo customers, even on Sundays.

WAITING GAME. Even Telmex admits it could lose 20% to 25% of its long-distance traffic by mid-1998. Competitors already claim their targeted marketing is plucking out the high-volume callers. The phased-in competition doesn't arrive in Mexico City, which accounts for 40% of the country's lines, until April and May. Some analysts think the real shakeout will come much later. "My guess is that Telmex will have 40% to 45% of the international market by 2000," says Raymond Liguori, an analyst for Merrill Lynch & Co. in New York.

Telmex is already moving to recoup. It plans to apply to enter the U.S., where it will fight for a chunk of the rich U.S.-Mexico long-distance market. That would allow Telmex to collect revenue on both ends of such calls. And expected double-digit growth in Mexico's long-distance traffic means that Telmex revenues could still rise even as its market share drops. Overall, investors are impressed. The price of the company's American depositary receipts are up about 23% this year, to $40.50.

But Telmex faces a tough new world. It's going to have to do better with customers such as teacher Nancy Medina Ramirez, waiting sour-faced for assistance in the company's spiffy new Lago Alberto office in Mexico City. "They have all the technology in the world, and they still make you wait," she says. If Telmex doesn't watch out, she may cast her ballot for a new long-distance operator.

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