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. (continue)

Question: Can you tell us more about INBURSA? What are INBURSA’s plans for this year? Since competition is greater all the time, there have been some rumors about internal problems in the selection of its new president amongst those who represent foreign banks and those who represent Mexican capital exclusively. We witness how every quarter the unrecoverable debt portfolio grows within the group.  So we would like to understand what exactly is going on there, especially now that new rules are being set concerning credit reservation, in particular for companies.

Carlos Slim Helú: This year is INBURSA’s 45th anniversary and I prefer to let the expert explain it, but I believe one has to make a difference between unrecoverable debt portfolio and reservations. We are talking about two different things. And concerning the banks I think it is important that there is a president. It is healthy that we should have a president representing Mexican capital, as there are many more of Mexican nationals than foreigners, and I am sure the foreign bank representatives will agree. But I will let the expert explain this…

Marco Antonio Slim: The portfolio is precisely not an unrecoverable portfolio, but rather a creation of reserves. INBURSA has one of the lowest unrecoverable debt portfolios in the system.  We have straightened the balance in time and we have reserves of up to 10% of the total portfolio, which is way above any other bank in the world. This allows us to have reserves that are crisis-proof. INBURSA’s development, especially during the past 3 years, has been to duplicate its credit portfolio, which makes it today the bank with the third largest credit portfolio in Mexico. Concerning infrastructure we have practically tripled our branches, going from less than 90 to 270.  We have focused on retail, entering the sector which generates more employment which is Small and Medium Size Companies (PYMES). We are financing more than 30 thousand PYMES, and if we consider those with less than 2 million pesos sales per annum as “Micropymes”. We are financing over one third of the market. We have been monitoring the possibility of financing infrastructure and other general investments that need to be made. With our current capital we could duplicate the size of our portfolio without requiring any extra capital. This puts us in a comfortable position to carry on with the level of development that we have had so far.

The Caixa de Barcelona, which as you know participates in INBURSA, has increased its capital to 20%, as is shown in the restructuring they made public last week. The Caixa now holds a better position and solid accounts.  Mexican capital banks are also represented. The important thing is that we find a consensus.

Question: Why hasn’t TELMEX used the document from Mr. Casasus? After all he had given you, from the beginning of the year 2000, and all through Vicente Fox’s six-year term, the concession to offer video, and COFETEL and the commissioners are well aware that they could not refute such a document. Why don’t you use it? Another question: what do you think about depreciating the peso versus the dollar, especially in view of your worries regarding the evolution of world markets? Guillermo Ortiz believes that the government should intervene in the market whereas others believe that if you already have exchange flexibility you should leave it free.

Carlos Slim Helú: First of all, one should understand that the government has never stopped to intervene and this is why the reserves have grown. The Bank of Mexico intervenes both directly and indirectly, raising or lowering the interest rates, or through some of its companies such as PEMEX, NAFINSA, etc. He probably meant that the government should intervene more than it does. The problem is not that the peso is depreciating, but rather that the dollar is depreciating as a consequence of a clearly aggressive policy of the American government, and I don’t mean only from the Treasury. The dollar has depreciated in relation to European and Asian currencies, and practically with all countries in the world. There is also a great pressure over China to depreciate. It is a wrong and dangerous policy, and it shows that what matters is not so much what we do, but what they don’t. They are depreciating their currency with zero interest rates and an excess of money in circulation. They expect capital to revalue or devalue the dollar in order to partially adjust their trade balance. This can only be done by reducing consumption, since the United States no longer produces many goods that it has to import from one place or another. It is important for them to study and apply more effective policies with less negative consequences, because depreciating will lower confidence in the dollar and this in turn cause an increase in the prices of basic commodities such as wheat, corn and other food supplies. This has a very delicate social impact. On the other hand the increase in the prices of steel, copper, lead, zinc and other raw materials, cause a dangerously growing inflation. It is a very delicate matter.

Regarding the document you mentioned this is in fact an authorization given to us by COFECO and SCT, because COFETEL did not exist at the time.  It authorizes TELMEX to invest in the cable business. We have not used this authorization.  Technologically speaking, if TELMEX offered video, we would not be sending ones and zeros but data. From the technical and legal standpoint, TELMEX could offer video and let the client convert its data into ones and zeros. We want to do things properly and correctly, but the truth is that TELMEX already offers video through the Internet. Every TELMEX client is receiving video. The era of setting restrictions to technology is over, it doesn’t happen anymore, anywhere in the world.

Oscar Von Hauske.- The restriction or prohibition established in 1990 preventing TELMEX to enter the cable television market is now anachronistic. Nobody understands the prohibition properly, whether it regards open television or pay television. The document simply states that TELMEX cannot offer television to the public. TELMEX complied with a proposal from the federal government and we signed the Convergence Agreement.  We pushed for portability and for new rules regarding interconnection, and yet the government will not let us operate. When you watch television through the Internet on an Apple computer it is the TELMEX concession that allows you to receive sound and data, and today we are all sound and data. I hope it does not take long for the authorities to modify the Concession Title because it is in benefit of consumers.  They should receive better services at better prices, especially all those living outside the high-income service areas. All that portion of the population not receiving the signal is being denied the possibility to watch video.


Question: Speaking of these investments, could you please tell us something about the number of new jobs created, both at the domestic and international level, and could you please make a comparison between the investments that are being undertaken by the different companies that belong to Grupo Carso?

Carlos Slim Helú: I am embarrassed by the question because I should have talked about this before.  The comparison is hard to make since we have sold several companies. Instead of answering wrongly I’d rather ask Alejandro: how many new jobs in the making? and Alberto, tell us about mining?  In TELMEX, employment remains the same because the investment was made last year.  In TELCEL it is about the same with no substantial changes. Where it may be higher is at Frisco and Ideal.  Alejandro, what are the numbers?

Alejandro Aboumrad:  Concerning the constructions we have mentioned and that will last 3 years, we believe a total of 20 thousand jobs will be created, both directly and indirectly, plus another 3 thousand permanent jobs during the process. The projects that will generate more employment are the plant at Atotonilco, with 7 or 8 thousand jobs, the constructions of the beltways in the Pacific coast region, with 3 or 4 thousand, the highway in Oaxaca, with approximately 8 thousand jobs, and 2 thousand more for the rest of the projects.

Carlos Slim Helú: I would like you to describe the project of the plant at Atotonilco in more detail because it is the largest that has ever been built in one single stage.

Alejandro Aboumrad: This plant has been designed to treat approximately 40% of the wastewater from the Valley of Mexico. Today, water comes to Atotonilco through a central channel that will be complemented by an Eastern channel in the future. These wastewaters are used for irrigation but without treatment. The plant will have a capacity of 35 cubic meters and may hold as much as 42 cubic meters during the rainy season. This plant is the first great effort to treat the waters of the Valley of Mexico and will enhance agricultural production in the area. The construction has begun and the project will be finished between the end of 2012 and the beginning or 2013.

Concerning mining, where the projects are at the starting process, we have an estimate of 6 thousand jobs. Once the projects are well on the way we will offer around 3 thousand new jobs.


Question: Now that Sergio Pérez is competing at the highest level, what are your plans regarding Formula 1? Are you considering including other drivers? Will you bring Formula 1 back to Mexico?

Carlos Slim Helú: I really want to congratulate the team because it was amazing how they managed to arrive first and second at the race in Daytona, and it is already the third prize they win in Daytona in four years.

Carlos Slim Domit: Good afternoon, we have been working on this for several years, with local support, through EMBRATEL, which is a Brazilian company, in Argentina with Leonel Pernía, as well as with Juan Pablo Montoya when he was racing at NASCAR. I believe that bringing a Grand Prix back to Mexico requires several conditions.  One is to have pilots that are supported by the public, like Sergio or Esteban Gutiérrez. In 2012 the Grand Prix will come to the United States and this could be an incentive, but for the moment the important thing is to have a project and good Mexican drivers giving results.


Question: Today we learned that you intend to clean the balance sheet by having América Móvil exchange debts with TELMEX. What is the purpose of this? And also, what is your opinion about the discussion regarding the establishment of price-limits to the variety of services offered by TELMEX?

Carlos Slim Helú: When TELMEX merged with Carso Telecom it became, formally speaking, a subsidiary of América Móvil.  Creditors prefer debts concentrated in one place, and by doing so we obtain better interest rates. These are the reasons. The debts are not disappearing, they simply now belong to América Móvil. But I don’t know how the process is advancing.  We will ask our expert.

Regarding price-limits, TELMEX has been lowering its prices for 20 years now.  We have been announcing this every year for the past eleven years. In fact TELMEX’s prices have always been low. It’s the same thing that goes during the negotiation of union wide labor contracts: they ask for 50, obtain 5 and distribute 3. It is not really an important issue. What happens is that when a company has been lowering its prices for 20 years, the first years this it not made public because there are changes in cross subsidies.

When TELMEX was privatized, long distance remained a monopoly and tariffs were lowered while prices recovered their equilibrium. This is the situation concerning the rest of our services today. Then they had the idea to add other things into the basket, contrary to what is established in TELMEX’s concession, and this is where we disagree. The basic basket is defined as a certain number of services, and that basket is still there and will remain so, until the concession itself changes.

Héctor Slim Seade: As Mr. Slim says, the concession is reviewed every 4 years. This is the fourth revision since privatization. The government now wants us to do it through a panel of experts. There are three experts, some are theirs and some are ours. Now it is being reviewed by one of their experts, someone with whom we agree in principle. We are now looking at the terms of reference of the concession title.  The law should be respected.  We should define what exactly is included in the basket:  local services, rent, installation fees, national and international long distance, etc. We are still waiting for the third expert’s decision. What TELMEX wants is that the terms of the concession title are revised and fulfilled.


Question:  Drilling of deep-water wells at depths greater than 1,500 meters begins this year in trans-border reservoirs at the maritime boundaries with the United States. Fifteen opportunities have been signaled for a total of 3,600 million barrels of crude oil. Since Suecomex has worked in the construction of oil rigs, I would like to ask you whether you are interested in increasing your participation in the oil industry, especially now that agreements allow for a larger participation of the private sector.  In which other aspect of the oil industry could you intervene, I mean in deep-water, besides the oil rigs?

Carlos Slim Helú: Deep-water drilling is a whole separate question. What is being explored is at depths of 3,000 meters while drilling is at 7,000. We are not into deep water drilling right now and we are not even considering it as a medium term project. There is no special technology involved, we spoke to some Norwegians, but we are not interested. First comes exploration and then exploitation. What seems evident is that Mexico’s deep-water reserves are enormous in the billions of barrels. For some time now, at Suecomex we have provided supplies for the industry, working for contractors.  We then started participating in the construction, building, and furnishing of oil rigs, the largest one of which was twenty-something tons and 90 or 100 meters high. We also drill inland, in partnership with another drilling company. PEMEX still has a great potential in land oil reserves for future production, especially in three areas, the least productive of which is Chicontepec. We are open to examine our participation and investment in these areas, as well as in other countries. We already have a field in which we are beginning exploration.


Question: It is said that you are already close to an agreement with the Federal Telecommunications Commission regarding the revision of your Concession Title. I know you have already talked about this.  Even the President of the Commission said he made some proposals that TELMEX did not accept. What is the latest on these negotiations and proposals, and will the Concession Title be modified in the short term?

Carlos Slim Helú: I believe the last progress was made in 2006, when we signed the Title of Agreement. Excuse me if I am answering this.  Do we have a map of Mexico? Can you show it somehow?

Héctor Slim Seade: On October 3rd, 2006 we signed the Convergence Agreement. This was an agreement for the industry, and not for TELMEX.  TELMEX was asked to fulfill three conditions, one was inter-operability, and the others were interconnectivity and number portability. All three have been satisfied: all operators are interconnected to TELMEX’s network, interoperability exists as well, and the last to be complied with was number portability which began on July 5th, 2008. Those were the three basic conditions that TELMEX had to fulfill. As we have said, since there was no convergence, Mexico lagged at least six or seven years behind other countries. This affects the development of information society, the amount of investments, and especially the consumer who sees his options reduced due to the lack of competition.

Carlos Slim Helú: I would like to comment about interconnectivity in a little more detail. There are 200 cities where our competitors are connected, maybe I’m wrong, please correct me if I am wrong. There are 200 cities where they are present. When TELMEX was privatized there were around 3,500 service areas.  There were 2,200 local service areas. In Brazil there are five thousand.  And in Spain?  And in the United States?  In Mexico there were 2,200 meaning a local phone call was actually long distance call because you dialed to places outside your own area. How many areas are left now? 397. In the United States there are 26 thousand, in Argentina 2,900; whereas in Mexico there are only 397.  In these areas TELMEX connects all competitors, all those who are authorized to provide telecommunications services, without charging a penny. It is a system known as Bill and keep. This happens in places where the network already exists and the competitor convers segment A or B of the market, while segments C, D and E are already covered by TELMEX. Thus it is not a very profitable business. But lets forget about that system. It exists and clearly benefits the competition. There are around 12,700 towns of important size in Mexico. Exactly 12,755 where our competitors are not present and we have to provide a network. If you go through these places you will see our poles on the roadside and our wiring.  In fact there are two poles: one for electricity and the other for the telephone line.

All this implies very large investments.  They do not want to consider this entire infrastructure and they expect us to give our services for free; mostly in rural areas where the telephone system is not very profitable.

The entire network along these towns is like our backbone, representing around 25% of TELMEX’s assets. We total 1 million 760 thousand clients who mostly use phone service for long distance calls.  In small towns you just need to shout it you want to communicate with you neighbor or maybe use a cell phone.  The point is that they use the telephone to make long distance calls, and obtain a different kind of information.

TELMEX’s concerns are that once the network is free, as some public officials, would like, but not all, there will be no more investments in it. Instead of telecommunications we will end up with another copper mine.  We might as well disconnect all the cables.  Of course we will not do that but it’s not fair, this whole thing is senseless. What we will probably do, and should have begun doing years ago, is keep that area separate in terms of accounting so that we can give information to the investor, to the public, to the government and to competitors.  The idea is to allow anyone to see exactly how much is being invested there, what are the assets, the needed personnel and how the whole thing is managed.  We need to create consciousness about the cost of that network and whether there will be more investments to it or not. I believe it is very important to make this information public. Probably from the next first quarter we will make this division.  I don’t know if we’ll be able to do it on time to include last year’s final quarter, but we should begin to show everything, how much personnel is hired, what the costs are, how much is coming in, how much is being invested, what are the maintenance needs, so that the government understands that there is a network that needs to be in operation if we want those 12,700 towns to make phone calls.

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