Mr. Slim, Meet Mr. Gates
Over the years, Mexican mogul Carlos Slim spent billions assembling a sprawling communications empire. He started out with the acquisition of Telefonos de Mexico (Telmex), the former telecoms monopoly, in 1990. Investments in computer makers, retailers, media companies, and Internet service providers followed. But investors and analysts kept wondering when Slim would start up a truly multinational operation.
On Oct. 18 they got their answer: Slim announced a $100 million joint venture with Microsoft Corp. to create a Spanish-language Internet portal for the Americas. For Microsoft, this is a chance to expand into foreign-language Internet services with a savvy Latin American partner. Telmex' pockets are nearly as deep as Microsoft's, to boot. For Slim, the venture will be key to his plans to go regional.
It's also part of his strategy to reduce Telmex' dependence on long-distance telephony, with its ever-smaller margins, and move into the fast-growing market for data transmission and Internet-related services. By the end of 2000, analysts expect that these services, along with cellular, will account for around 20%, or $2 billion, of Telmex' annual revenues. "The Internet right now is in its diaper stage," says Slim. "We want to develop as many associated businesses as possible."
Telmex and Microsoft will be going head to head with big players throughout the region. U.S. heavyweights such as America Online Inc. and Yahoo! Inc. and homegrown Internet service providers such as Brazil's Universo Online are already battling for position. Early entrants such as New York-based StarMedia Network Inc. will not give up market share easily. "We are far ahead not only in product development but audience creation," says StarMedia CEO Fernando J. Espuelas.
But Telmex is battle-ready. Since 1990, Slim has streamlined the company and invested more than $14 billion to modernize its operations. It now boasts a client base of 10.5 million fixed-line customers and 4.1 million cellular subscribers, along with a market capitalization of $30 billion.
Over the past year alone, Telmex and Slim's Carso Global Telecom and Inbursa financial groups have invested nearly $1.5 billion in related businesses: telephone companies in Guatemala, Puerto Rico, and the U.S., PC maker Apple Computer and retailer CompUSA, online music store CDnow, and Mexico media giant Televisa. "They bring a healthy cash flow and deep pockets. That is important as you try to create a franchise in this very capital-intensive business," notes Zain A. Manekia, an analyst at Warburg Dillon Read in New York.
The Telmex-Microsoft venture will come online in January, 2000. Already, a team from both companies is starting to develop content for the as yet unnamed new portal. The first line of attack will be Mexico, home to 17% of Latin America's Net users. There, Telmex already has its own ISP, which it markets under the name of Prodigy: That's the online service, originally launched by Sears, CBS, and IBM, in which Slim and Telmex hold an 80% stake. The service, with 311,000 subscribers in Mexico, will be upgraded with the new joint venture's content. Then Slim and Microsoft will go after the 17-million-strong Hispanic population in the U.S. and Canada.
WANTED: ISPs. The one country the venture will stay clear of is Brazil, where Microsoft already has a relationship with cable-TV operator Globo Cabo. In the rest of South America, Telmex and Microsoft will pursue alliances with local ISPs and content providers. "You have to adapt to the reality of each country and each region," says Slim.
To encourage more Latin Americans to log on, Slim plans to export strategies developed in Mexico. For example, in the past three months more than 75,000 have signed on to the Prodigy service thanks to a marketing ploy that allows subscribers to pick up a new Acer, Compaq, or Apple computer at a discount price. Subscribers pay as little as $100 down and $50 a month (Internet fees included) over two years, interest-free. Slim also aims to set up public Internet booths and Internet-linked computers at schools and in low-income housing where not every family has a telephone line.
Soon, Slim hopes to offer Latin consumers Internet access over cable TV, wireless telephones, and pagers. Latin America's universe of Internet users is still small, at less than 8 million. But those numbers are expected to grow significantly as new entrants such as Telmex and Microsoft come up with new ways to bring the Net to more people. Watch for Slim and Gates to shake up this fast-evolving market.