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: As you said you are contemplating the possibility that América Móvil buys the remaining TELMEX stock that is out in the market, this is what you said in reference to investors preferring debt to be in one place, please comment. Regarding interconnection tariffs, although TELMEX has allowed all operators to interconnect they are all complaining about the quality of the connection, the authorities themselves are saying that this undermines competitiveness in the Mexican economy. What are you comments on this? And finally, please comment about what you said in your macroeconomic analysis about the fact that the Chinese government could do a lot to correct fiscal deficits and help industrialized nations if it devalues its currency in order to reduce its large trade surplus.
Carlos Slim Helú: Lets talk about China and the United States: in 2002 the United States began an aggressive fiscal and monetary policy, similar to the one in 2009, and this resulted in enormous fiscal and trade deficits, which has given China large reserves in dollars, more than three quintillions. The problem is the United States has become a consumer society, with service needs but no development or production of goods. The US now has to buy these goods, at a price, from China. Ideally China should devalue its currency and begin to increase the salary of its workers, as well as reduce their workload, so that it strengthens that large domestic market. This would be very beneficial for all, because up to now China has been the world’s factory and has exported enormous quantities of goods. It is now time that it opens its internal market, its domestic economy, and begins to import goods and services too, from the United States, for example. But China doesn’t buy American products, such as Apple computers, films, entertainment DVDs, iPads, or whatever. It would be a good thing, though.
The United States is no longer an industrial nation; it is a country of services. It is therefore useless for them to devaluate their currency, as we have seen as a result of the recent drop in the value of the dollar. The only time the trade balance improved was when there was a reduction in consumer rates in the United States as a result of the crisis of 2009. Except for that, the American trade balance has not had any substantial improvements. What they need to do is try to export commodities to substitute the goods they no longer produce so that their trade balance may adjust. Another possibility is to let American companies own the factories that are producing the goods American consumers are buying, so that what is lost in the trade balance is recovered at the level of the balance of capital.
Regarding your other question, América Móvil bought the remaining stock of TELMEX because it merged with the other company, but I don’t think there is a major interest in the market for that. We are keeping it that way because we believe it is healthier. We separated it from TELMEX and established a competition between TELMEX and TELCEL, which made both companies grow. TELCEL grew enormously although it entered the market later than IUSACELL and what is now TELEFONICA. In other words TELCEL entered a market that was 100% in the hands of competitors. This competition has been very good for both companies. We did the same thing in Latin America but the difference is that since networks and investments are so large, like in Brazil, we compete as one single company, as our competitors do.
Concerning interconnection, looking at the map, it is a question of common sense, and I am not joking when I say that there are cities where it is mostly the competition that is present, or maybe only TELMEX but its presence is not economically productive since it is not charging for the interconnection. In such cases, if there is a need for a new network in an area, for example, there would be no incentive for investment. Nobody will want to invest there, where the only existing thing are cables bought from the Federal Commission for Electricity (CFE), which are only useful as a kind of background to the investment. Of course when even the last mile of cable has been installed they have little to complain about. They should offer cable to low-income consumers as well.
After 40 or 50 years of high prices, there has been an important reduction in the price of cable TV thanks to DISH. The ideal thing in order to eliminate any controversy would be to create a TELMEX affiliate company but separated in terms of competition, and have the other companies pay for its services. In the United States rural areas have already been separated and have different number terminations. How do they call that? Intranet, intra-long distance, intrastate? Over there you have to pay. Let’s imagine that in the future we divide that company and create a new one that uses that same network, works with that same personnel, owns the investment and needs to maintain it in the same way, but now this company is separate from TELMEX. Will TELMEX pay for its services? And if not, how is this company supposed to survive economically? If we want to include these locations in the network we have to pay for it.
Oscar Von Hauske: We mentioned earlier how from the 397 local service areas, some are in competition and some are not. We also spoke about 25% of fixed assets that are needed to give service to 12,700 towns with only 1 million 790 thousand lines. So this gives you an idea of how competition is present in about 10,400 towns, and in these areas there are 13.8 million lines. Cable companies offer services to 14 million homes, proving that this market is really open to competition with all Triple Play services, etc. The other issue regards the rural areas that produce losses, due to the tariffs paid by operators, as well the inability to give proper maintenance to the network. Tariffs are higher in rural areas all over the world, in the United States, in Argentina, and this is logical, since these areas are financed by the traffic entering the location, not by the traffic generated by the local population. So income to maintain service in these rural areas must come from the incoming traffic. I hope I have made myself clear. 90% of traffic is concentrated in 200 local areas, and these areas are open to competition.
Carlos Slim Helú: I don’t know if there are any investment bankers here, but if you find buyers for these areas we are willing to sell, with a contract in which we pay for call termination. I you still have some doubts; we could meet later and discuss the subject in more depth. We can organize a meeting to look at plans, places, to see what the income is and how much it costs.
Question: Are you separating it?
Carlos Slim Helú: I wish we could separate it immediately so that we could present it as such, sell it with a contract with call termination at the present tariffs, that is if we find buyers interested in shares.
Question: Can you tell us more about the Digital University? What will it be like? Who will have access to it? and will it be established as the TELMEX Homes (Casas TELMEX), in different places around the country?
Carlos Slim Helú: No, it is not physical.
Arturo Elías Ayub: The purpose is precisely to give access to everyone who does not have access to a physical university. Our idea is to plan with great care what degrees will be taught in this university and how they will be taught. We would like as many students as possible, especially those who presently do not have the possibility to study in a physical university.
Carlos Slim Helú: It is a large-scale project in which we will seek the highest quality in courses and academic programs. This will be the first part of our job, and then we will invite people to register to this University, which will be subsidized with investments and supported by TELMEX’s infrastructure. The logical thing is to start with a few degrees, not only academic but also some sub-professional degrees, open to anyone interested. Whoever wants to be self-taught can learn about one subject or another, it can also be useful for pseudo-universities to copy our programs and courses, and eventually there will be innovations. Instead of reading material we may give students a series of video-lectures that will be downloaded from the Internet, for example a Steve Jobs conference at Stanford, or others.
The important thing for us is that the project grows as quickly as possible, to a dimension in which it is open, even if not formally, to anyone willing to study, self-learners, for example. Anyone will be able to connect to this University or Technical Institute; that will be probably called IntTELMEX Digital, we haven’t decided the name yet. Anyone interested can connect to study a course, a degree, whichever year or level, and can do it without aspiring to get a degree. Or they can choose to apply for the degree by presenting exams. It could even be free. This is why we want to design very good programs and have as many people as possible connected to the Internet. By this means there will be no need for classrooms and we will be able to prepare a lot of young people who at present do not have access to education.
Question: Regarding the concession title, what is your opinion regarding CANITEC’s opposition to TELMEX’s entry into the video market? What is your opinion regarding the possibility of TELEVISA entering into telephone industry, in association with BESTEL?
Carlos Slim Helú: It is always a good thing when a new player comes into telecommunications market. TELEFONICA, TELEVISA and whoever wants to enter into this field, which is of such importance for the nation, are welcome; since the more competition there is, the better. But there must be large investments, constant technological changes and thus continuous investments. I insist this is a large investment and high technology business. It is important that the players understand the dimensions of the game so that they are prepared to invest what is needed. As I said, small companies seem to want everything for free. They should look for their niche market somewhere else; because at the end of the day they will not be able to survive in a business that requires so much investment and has so much constant technological change.
Question: In which sectors of the economy do you consider that more employment can be generated in Mexico?
Carlos Slim Helú: Considering the next five to ten years, I would say in information technology, in all areas related to telecommunications, mainly in applications and development of contents, as well as in health and education, culture and entertainment. In health, for instance, I believe care for the elderly will become a more important factor. As health care advances and people live longer, this will create the necessity of more people to prepare and specialize in senior citizens’ health and general care. Also, I believe there will be job creation in everything concerning the environment, the preservation of biodiversity, reforestation. There is also the issue of coal energy, where we must develop alternative energies. Also in the agricultural sector, in the development of food production and basic products.
At present we have a population of 7 billion. How many of these people are still in a self-consuming economy? Around 3 to 3.5 billion? A number of these people will join the market; they will come out of poverty. And how many may achieve this each year? Around 50 to 60 million. Every two years the number of people joining the markets will amount to about the whole population of Mexico: in India, China and other Asian countries, as well as in Latin America and to a lesser degree in Africa. By then, agricultural production and many activities related to services, health and mining will become part of a transformation sector. This will also happen with imports, telecommunications, and infrastructure. I was very surprised when I realized that IDEAL was going to invest more in infrastructure than TELCEL or TELMEX, and this is a relatively small company created five years ago. So jobs will also be created in infrastructure, housing areas, urban reconversion in cities such as Mexico City, which had important industrial areas that are now becoming service areas. That is what we are doing now in Plaza CARSO, and what we did earlier with Plaza INBURSA. Instead of the industrial areas, land is used now for other purposes: old buildings and old homes turn into new housing, real estate renovation. Housing is very important as it generates considerable employment and perhaps now even better housing with more space; less like beehives and with more green areas, etc. And finally the whole digital sector in general will become more and more important.
I forgot to mention tourism. Today everyone is seeking pleasure: beach and sun tourism, city tourism, cultural tourism, eco-tourism, this is another very important area. Look at what happens in this city, for example; people work less, they work in services and have more spare time. Everything related to free time is becoming more important, and if people retire at a later age, they will have even more time. This also applies for Internet contents as well as television because the way it was before (with open television with channels 2, 5 or 28) had screen limitations. Now we are going to have multiple screens so that contents are developed in all areas. This is what revitalized baseball for example, since it had no precise time limit compared to soccer which ends within two hours. This applies to films from the past as well as future ones. Creativity will be crucial and there will be persons who may, in a few years, develop three or four products.
The possibilities existing in many fields are countless, but they are already different to those we had before. Repairing a car meant changing tires; we often had flat tires, and other mechanical problems. Now this happens much less than before. This is now done with electronic equipment. Another sector in expansion will be medical tourism. Instead of going to the United States for medical care, which costs four to five times more, people may begin coming here for medical services. Other sectors such as agriculture, fishing and livestock breeding are also growing.
Question: In March 2009, you surprised us with some very specific predictions that materialized with the fall of the GDP and a resulting severe drop in the rate of employment. The government reacted strongly at the time of those predictions. I ask you to surprise us again. What is your projection for this year, and for the next? You insist in the need to foster growth in the economy and in the creation of jobs, but we are not seeing the domestic economy move forward or advance sufficiently. I would also like to ask you if you have any expectations regarding the reforms. You have declared that you are no fan of these fiscal, labor and anti-trust reforms.
Carlos Slim Helú: No, I don’t believe that we should blame the reforms. That is a different question. I believe that some reforms should be made intelligently. We do not have to change the world each year, or every three years as has been proposed regarding fiscal issues. I believe it would be useful to tax those who at present do not pay value added tax, give advantages to those who do pay, and benefit the consumer as well. I spoke of the importance of a basket of tax-exempted products to avoid affecting the least favored population in the country. I also said that in these last three years we would grow at a rate of about 15%, meaning an average of about 4% per annum. It is still my firm belief that there should be more activity in certain public sector areas. It is advisable that they release a number of projects. We have read that there have been unspent budgets in many areas. It doesn’t make sense that being so far behind we are not able to spend our budgets. The private sector could have been of invaluable help in certain of these projects. IDEAL, for instance, is undertaking investments of this magnitude, and there are several companies that bid every time for a contract, maybe 5 or 6 candidates. A good number of us bid for those projects.
There are plenty of actions to be taken. If public sector budgets are often not spent, I think it is a mistake the private sector is not allowed to participate in the proposed projects. With no doubt, the potential for growth is larger than that we have grown so far. I keep suggesting this. It is worth mentioning that the serious economic situation that we faced was not as bad as it could have been. We know it could have been worse if it weren’t for the fact that the United States and the developed world introduced very aggressive monetary and fiscal policies. The crisis could have been more severe in their countries with even harder consequences affecting our countries. But some of the errors were not corrected, and what worries is that they are not being corrected. In my opinion Latin America, Asia, and Mexico in particular, have good conditions regarding their policies, public accounts and macroeconomic data. The financial system is healthy, and being as healthy as it is, it is handled erroneously, because it does not provide the necessary credit the economy requires. That is the reason why more projects should be launched.
For example, regarding the IDEAL’s investment, do you know how much is due to credit? 70%. Therefore, IDEAL is working on this 1.1 billion project with 70% coming from credit. The point is there is long-term credit available in pesos to finance infrastructure projects. It is then clear that what must be done is to launch more projects and make them available to investors. We need more projects to create more economic activity, better employment and greater growth. It is important to underline that the company or companies financing the projects, have the capacity to access the markets, something that the government does not have, due to budget factors and all national and international regulations. That is the reason why it is very important that the government opens its projects to others.
The only real worry we have at the long and medium term is the increases in the prices of food, as well as commodities, and the inflation this may cause. We are also worried by the possible negative consequences due to the weakening of the dollar.
Question: We remember very well that in 2005 and 2006 you had a much larger public or even political presence. You were considerably active in the country and visited all the state governors. Now you seem quite low key. Tell us what this means. Have you had enough of Mexican politicians?
Carlos Slim Helú: Do you really believe that I am withdrawing?
