Grupo Carso’s Plans for 2011
Mr. Carlos Slim announced that Grupo Carso will invest 44.65 billion pesos in 2011, meaning a 13.6% increase from the year before.
Mexico City, January 31st, 2011
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Mr. Carlos Slim Helú press conference, January 31st, 2011.
Question: What will TELMEX do about all the complaints of TELCEL users? Will it offer users some sort of compensation for all those problems? Do you know if these problems are caused by the interference from another company? And regarding your infrastructure company, do you agree with the point of view of other companies which believe that there are certain zones under threat due to insecurity and violence and that this puts your construction projects at risk?
Carlos Slim Helú: As regards interference, I believe that what is going on is a disgrace. Obviously if there are interferences these are caused by a third party. TELCEL has filed a lawsuit against whoever may be responsible, but so far no one in particular has been identified. Recently we invited a group of very highly qualified experts from abroad to solve this problem. I understand there has been good progress and that we will soon return to the service TELCEL has traditionally offered, which is the service with the best quality and coverage, with the best equipment. As soon as we find out what exactly has happened we will take the proper decisions. We are very sorry that we are causing trouble to our clients, the interference they are experiencing is quite evident, but we are working to eliminate it, and hopefully things will return to normal by Thursday or Friday next week. The causes have not yet been determined and we will proceed legally once the problem is solved.
Regarding the infrastructure areas we have had no trouble at all, except the usual delays due to negotiations with communal landowners. As far as I know there have been no major problems, but we are always on the alert. I would like at this point to describe the investments for this year.
Alejandro Aboumrad: The main areas of activity in the country are on the Pacific coast, especially roads. We are operating the Tepic-Mazatlán-Culiacán corridor. We are modernizing Culiacán and Mazatlán, building the beltways between these two cities and we have not registered any event that has put the construction works at risk. In the center of the country we are involved in the water-treatment plant in Atotonilco, Hidalgo, as well as concluding the works for the Arco Norte highway. We are also about to begin work on the second level of Mexico City’s beltway and on another project in Oaxaca, known as Mitla-Tehuantepec, all of which will bring enormous savings to the population in terms of time.
Question: Are all these investments intended exclusively for Mexico? What is the economic outlook for these investments? What has happened with TELMEX’s project of offering Triple Play?, and finally, what is the outlook on the possibility of opening or modifying the foreign investment law?
Carlos Slim Helú: The 44.66 billion Pesos are exclusively destined to Mexico. As you know América Móvil is investing in other 18 countries in Latin America as well as in the United States. TELMEX International will too. Regarding foreign investment we have always seen it with favorable eyes. We have criticized the use of artificial legal maneuvers such as neutral investment, etcetera, but we are in favor of foreign investment. In fact, speaking of telecommunications, which is a very intensive sector in terms of technology and capital, competition is between very large corporations. In Latin America we compete against companies such as AT&T, MCI WorldCom, and have in the past competed against the largest in the world such as TELEFONICA and Verizon. We believe that this is healthy. Authorities should understand that what we need in this sector are companies that invest large sums; and not small companies that offer free services to the authorities in exchange of contracts. This is a problem in Mexico. If they privilege these small companies there is a risk that TELMEX will stop investing in this sector.
We all invest in Latin America. TELMEX invests in Brazil, Argentina, Colombia, and Peru, to a similar degree than our competitors. In Brazil we control 26% of the market and we are amongst those that invest the most since we still lag in network facilities and connections. This is one of the reasons why our investments in Brazil are so large. The other reason is that in order to compete, instead of trying to obtain networks belonging to others, we invest in our own network. Of course other companies interconnect with us, but they do not provide access to their connections without cost. This is similar to what TELEFONICA does here with its mobile phone network.
We are going to invest 2.5 billion dollars in Brazil, and only 1.6 billion in Mexico. The reason for this is that the population of Brazil is almost twice the Mexican population. The size of Brazil is also more than twice the size of Mexico. Because we lag in investments this forces us to accelerate our rate of investment so as to compete with the former state monopolies and other companies controlling the telephone networks.
Regarding Pay TV in Mexico, we signed the agreement in 2006 and we are still waiting for it to become effective. This has had a consequent delay in technology, less consumer benefits, less alternatives, and less competition.
We believe that it is convenient to authorize foreign investments to enter the market and compete. We know that there are countries where this is limited. Canada for example will not allow foreign investment, and the same is true for the United States. However the majority of countries allow the presence of several competitors.
We mentioned the importance of more competition because it offers the client a better service. When one fails to provide a service there is a risk of losing clients. When one is not at the forefront in investments one has problems. At the end of this year we will be making some important investments to enter the fourth generation, known as 4G. In that perspective we are already performing some tests.
Question: Regarding the mining business represented by Frisco, could you please tell us where you see investment opportunities, beyond 2011? Are you going to purchase more land for exploration? Are you going to buy small mining enterprises in Mexico and abroad? What is your opinion about the perspectives of gold and silver ins 2011?
Carlos Slim Helú: Frisco is an old company. We bought it 25 years ago and incorporated it to CARSO in 1986. Frisco owns many mining lots for exploration. During the past 4 or 5 years we have been exploring and expanding. This is our fourth year at El Coronel mine and we are beginning with a new one next year. We have acquired a vast amount of mining exploration equipment and there is a lot of activity going on in that area.
We are now looking for new mining lots; notwithstanding the fact we have a lot of work at this moment due to ongoing projects. We have reorganized our company’s operations to make them faster and more efficient in comparison to traditional mining so that we can launch new projects as soon as possible. These are large-scale projects; high capacity mines to make production faster. I believe we now own 28 sets of mining exploration equipment. We will soon have 32 mining teams working to determine what we find as we go along. We have focused on this phase due to our own circumstances and because of the current situation of the market for precious metals. Opening sites, if not exclusively, is what we have been doing. And there is more to come. That is why I mentioned that as a part of our programs in association with the Foundation, we are attempting to raise the socio-economic level of the areas where we are working. We are also exploring the environmental impact of our work, and training personnel in mining skills, as well as attracting personnel who comes from areas other than mining engineering but which may be useful for both our exploration and mining projects. We are seeking all of this and designing the plants considering the importance of repetitive operative costs and the need for specialized equipment and personnel, so that we can obtain better mining with the same workforce. We are also open to seek options abroad.
On the subject of markets I prefer not to comment at this time, but we are looking south of the American continent.
Concerning the last question, what is quite clear is that the dollar is extremely weak and that this has had many effects, such as the revaluation of currencies, as well as of other assets due to aggressive monetary and fiscal policies. It has also caused the rise in the prices of gold and silver as well as other metals, and unfortunately probably of other commodities, which is something that may have negative social consequences in all countries. In the context of this special situation, with an important rise in the price of gold, silver and other metals and in the event of a future decrease of those prices, we will try to keep our projects affordable. We have sold some futures in the metal market, but we have acted upon those sales through collars. Do you know what collars are? Through collars we have tried to establish both a put and a col at zero cost. We have collars that guarantee that if silver falls bellow 20 or 21 dollars we are obliged to buy them at 21 and if they rise to 37 or 38 then we have some certainty in the mining operation.
Question: Are these 44.65 billion pesos higher than the amount invested last year? What is your opinion regarding insecurity, do you think it is an obstacle for investments?
Carlos Slim Helú: Yes, our investment is greater. I am asking for the information because I don’t remember how much it was last year. But the figures were published. Yes, it is a much greater amount, about how much percent larger? something like twenty-something percent larger.
Whoever does not invest for whichever reason, due to fear or precaution or whatever, is going to be left behind. Those who will not invest in telecommunications, for example, are then going to say that we are dominating the market and becoming a monopoly or whatever, but we must carry on investing. I said once, I don’t remember where, that in 2009 I believed that in the next three years we were going to grow around 15%. Last year we grew more than anyone had predicted, but this was logical because we had fallen in 2009 and we were recovering. I am confident that we will continue growing in 2011 and 2012. We have a market of 112 million people of which unfortunately a large part is still marginalized. Although there are social programs, such as health, nutrition and education programs, which are fundamental, these programs are not conductive to social and economic welfare. What is needed is more employment for them to enter the market, enter modernity and economic activity. I believe that if one does not invest he/she will be left behind.
I will now comment about insecurity as an obstacle to investment. If there were no insecurity the stimulus for investment would be greater. I don’t know which commercial enterprise is not investing: the competitor will invest. If the others involved in telecommunications do not invest TELMEX will. If TELMEX does not invest the others will. Life in the country goes on. We see all the trouble going on in the world, partly because we now know about everything that happens everywhere whereas in the past we didn’t. In the past we lived in ignorance and maybe some people prefer it that way, but things are happening everywhere, all over the world. Just take a look at the different areas, the international news. There is insecurity for political reasons, violence in some places, and economic uncertainty due to the enormous trade deficits in others. I believe this is even more worrying, at least for someone like me, to see how the industrialized nations, such as the United States and Europe, have these enormous fiscal and trade deficits, high unemployment rates, and financial systems lacking capital investment. They are taking palliative measures when they apply aggressive monetary and fiscal policies, but this is not solving the problems. They are only avoiding an immediate catastrophe. There does not seem to be a program to solve the crisis, and I believe that the circumstances in Latin American and Asian countries are very favorable. Our financial system is capitalized, our public finances are healthy and we have, as a consequence of what is going on outside, cheap money for the long term. This is another favorable stimulus to the economy. We have to weigh the options: which are the reasons to invest and which are the reasons not to? As I mentioned earlier, there are all kinds of problems everywhere and yet there are good reasons to invest, for example our national market has good growth expectations. We have neglected the domestic economy for 25 years now. It is time now to begin taking car of it again, and this will bring about more employment, more economic activity. We should not only think in terms of the foreign sector, but also in terms of the internal or domestic sector of the economy. We have very low interest rates and we lag in many sectors. This gives us many opportunities and alternatives to promote productive investment.
Question: Mr. Slim, you mentioned investments for 2.5 billion dollars in Brazil, can you please specify in which projects, and also specify in which other Latin American countries and areas are you planning to invest in 2011? I would also like to ask you a curious question regarding your museum: there has been a lot of talk by experts, or people who call themselves experts, about private art collectors who show copies during exhibitions. What are you showcasing in your museum? And please could you let us know when it will be opened?
Carlos Slim Helú: I have to answer you correctly because if I do not you will make me pay. We are going to invest in all those countries where we are present; in all of them. This means 18 or 19 countries, Brazil, Argentina, all of them.
Question: How much are you going to invest, Mr. Slim?
Carlos Slim Helú: We are going to invest 8.3 billion.
Question: Dollars?
Carlos Slim Helú: Yes. Most of our investments are in Mexico and Brazil, almost half. And excuse me for making a parenthesis here, but last year’s investments were of 39.3, not 36 billion.
We will invest in all these countries. We will invest more wherever we find ourselves lagging and in the largest countries. In other words Brazil and Mexico, and I believe Colombia, then Peru, Chile and Argentina.
As I mentioned, the museum, will open in March. Most museums, and this is the case of the Soumaya Museum, are formed either by the individual purchase of different works of art or through the acquisition of entire collections. Foreign works account for roughly 95% of the pieces, a large portion of which have been bought at auctions at Sotheby and Christie’s. Bronzes are all copies. There are cases where 86 copies are made or 60 or 5 or 10 or 12. Additionally to the art pieces made in the past, the Rodin Museum is authorized to make, as a question of policy, modern certified numbered editions, sometimes of 12 pieces. In the case of collections, we have bought several, such as the collection of gold and silver coins which belonged to Mr. Eliseo Lagos. This collection goes back to the origins of coin minting in Mexico, back to 1732. We also acquired a spoon collection that belonged to a collector called “The spoon man”, and we want it to remain intact. Another one is the colonial art collection that we acquired from Gonzalo Obregón and his heirs. The other museum will house many other pieces, which have not been exhibited yet. Another important collection is the Galas collection including many different works of art: calendars, original oil paintings and color photographs, which came later. Now we have over one thousand paintings and the original glass engravings of all calendar prints made over the years. And finally there is the Mexican history collection belonging to Grupo Carso which we keep in Chimalistac.
Question: Concerning the connectivity of the net, there is a lot of competition in the market from telecommunication companies. Especially, cable companies are investing heavily in this sector, in fiber optics with speeds of up to 100 Megabytes. What is the strategy of your business in this sense? Or is it that your investments are conditioned by TELMEX’s entry into the Triple play video market?
Carlos Slim Helú: If you ever read the tender document of TELMEX’s privatization, you will find that the only activity that was kept from competition was the long distance telephone service and this for six years. Since then, everything else has been open to competition. That is why there were cellular phones, because there was competition at the local service level. As you know, in the United States today, cable companies have a larger participation in the broadband market than telephone companies. According to Merrill Lynch Bank of America, on the Wireline Matrix for 2002 TELMEX had 28% of the broadband market, while cable companies controlled more than 50%. It was natural for cable companies to control the broadband market, since at that time there was no technology available to speed up transmission in copper. In those days we had a 56 kbps Dial Up. So as I said, in the United States cable companies still hold the majority, whereas here, eight years ago TELMEX held 28%. If you require a copy of this information please raise your hand. Now it is 20 or 25, but then it was 28. Thee cost of providing DSL was $1,500 per client. It was a very expensive service, but it became cheaper and TELMEX began to lower its prices and increase its speed until we passed from 56 kbps to 5 megabytes. This is more than 90 times faster than before.
We began to grow at 94% while cable companies grew around 50% per cent annually. This growth from 2002 onwards is very important. This is why we have often publicly declared that Mexico is one of the countries with the greatest growth rate in the world: 75% per year. We continued to bring fiber closer to home. Most of TELMEX’s 10 billion pesos investment in the past few years was destined to this purpose, to increase speed, to improve our service, to come closer. When a company such as TELMEX realizes that its number of clients is no longer growing, something that happens all over the world, it has to direct its investments towards improving the net and its services to clients. We grew very fast when we first took control of TELMEX, 20 years ago. We invested 2.4 billion dollars. We had to grow because we had no network, we had to step out of electromechanical exchanges and build a new network because the existing one was too old. There was a need for large investments. Nowadays, our network and number of clients do not grow anymore, so all our investments are directed to improving the net and the service. Even if we still don’t have the convergence license, our services are top quality. We don’t send yet a television signal, only voice and data, making our quality better than anyone else’s.
Our investments are going in two directions: on the one hand we are bringing fiber optics closer to our clients. This will allow us to offer broadband to respond to the market’s requirements. On the other hand, we are investing in new generation networks. The entire TELMEX network uses IP, we use Carrier technology for Internet, and we are optimizing fiber for the new technologies. Moreover, fiber optics has become cheaper and thus at the end of the day the presence of fiber optics at home will become more usual.