Carlos Slim Interview
Financier and Philanthropist
December 2, 2007
Washington, D.C.
MEXICO’S TELECOMMUNICATIOS TYCOON
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When you went into the cell phone business, you introduced a major innovation, selling prepaid phone cards along with the cell phones, so the customers could determine in advance how much they wanted to spend per month. The executives at Telmex all thought this was a mistake. How did you know it would be such a success? After all, you were coming from the insurance industry.
Carlos Slim: Well, insurance is very interesting.
In insurance, if you make the insurance of one car, it's gambling. It's risky. If you make insurance of 100,000 cars, it's statistics. It's clear these risks are not like one car; this is big numbers. Statistics work with big numbers, not with one. When there are other businesses -- let's say we're talking with pre-paid telecommunications. When we think about the pre-paid and we talk about the pre-paid business, what I like (about) the business was they have many positive things. No? Actually, I call it the "Gillette Plan" because in Gillette, you sell the razor -- or you promote the razor -- to sell shaves. Here, we were promoting the handsets, subsidizing handsets to sell phone cards. That was the concept. The concept was make a design of a packaging to have it in the supermarkets and to sell them. That you go, and like you buy a razor, you buy a telephone. You have all this great presentation, it's special, etcetera, etcetera.
It was very interesting in many ways.
First, you will make it very popular because you can have it at the hand in all the supermarkets and every place. Second, you will have expenses, big expenses because there will be more churning, and you need to pay commissions for the cards, and you need to pay commissions for the handsets, but they were a different price. Prepaid has a higher price -- the pre-paid minute than the post-paid. It was interesting, because when you take in business average cost, you have mistakes. You need to make the analysis of everything. It's not for the public, but I shall say that my partners didn't like us, and they went to meet us to say, "We don't agree with the pre-paid program. It is not profitable. You are jeopardizing -- you are cannibalizing the other market," et cetera, et cetera. There was a lot of opposition to this concept. Actually, in Canada, in the U.S. and in other countries, it's not very usual to have these pre-paid programs like you see, in the market that has grown strongly. When you have a country with very low income, many countries with low income, it's the best way. Because they have the handset that they subsidize, and they have the calling party that pays, and they buy cards when they need the cards and when they have the money to buy the cards. They don't need to pay a fixed rate every month, because the revenues they have are not all uniform. Sometimes they have the money, and sometimes they don't have it. Developed countries don't necessarily understand this program, no? But I think it has been very important and very successful. More than 90 percent of our market is pre-paid in many countries of the world. More than 90 percent is pre-paid. I think Nigeria is one of them, and China and India. It's very popular, and I think we were beginning in '94, '95 with the concept, and we have done very well with this program.
You created a product that works with the financial rhythm of the customer.
Carlos Slim: Sure. We also segment the market, and when you segment the market, you can segment in post-paid. With just post-paid, maybe you don't get all the market. With pre-paid, you have all the people that don't have a regular income, that sometimes have money and sometimes don't. They want to have a control of the cost, and they want to manage it this way. No?
When the Mexican government was privatizing different industries, why did you choose the phone business? How did you know that the best return would be in cell phones?
Carlos Slim: When we got into Telmex, it was not very clear.
We were only two or three Mexican groups and 12 or 14 foreign groups, and we began to talk with all the foreign groups. We talk with maybe eight or ten, and we like a lot, as we see. We like France Télécom, and we agree to go for Telmex with them. Actually, we bought 25 percent of the company, not 100 percent -- 25. Telmex was already in the stock exchange. The government has the majority. It was not 100-percent owned by the government. It was 50-something, and we paid like eight or ten times the value it had three years before. And we bought. Grupo Carso, not me. Grupo Carso, that was a public company. We bought five percent, 5.1, something like that, and SBC bought ten percent. The French bought 5.2, something like that. Another group of Mexicans, 5.2, and we bought that. The biggest stockholder was Southwestern Bell -- afterwards called SBC -- and in the market, many people win a lot of money, because the stock went from nothing to -- we paid $8.6 billion for the 100 percent. That is 1.7 for the 20 percent. The mobile service was there. We had 25,000 customers, something like that. Now we have 150 million. We grew 66 percent for 15 years, every year.
How did we see that? Common sense.
That's incredible growth. The Telmex executives thought promoting cell phones would cut into their customer base for land lines, but you found a gigantic untapped customer base for cell phones. How did you foresee that? Was it destiny?
Carlos Slim: Destiny? No.
I believe in circumstances, and I think that you make your own destiny, but your own destiny depends on the circumstances, and that in some way, you can say that circumstances take you to some destiny, but I believe in the freedom to create your own future. No? Because if it's not there, it's another place, but you will find it. It's very clear just by common sense, the growing of mobile, because of many reasons. First, it is cheaper, because there are not the paraphernalia that you have in land line. You have a copper (wire) going from each home to other home, and big copper (wires) to the centrals. It's very complicated, a land line company. No? A land line network. It's like a water or power line. You need to have the pipe. You cannot send water by wireless, or energy, but you can send voice by wireless. You know about broadband TV. You know that with a big antenna, you (can) send to every place the signal. Well, if you can develop a network that you don't need wire and cable and copper and all this, that means that is a lot more efficient and cheaper than the other. When you're giving a land line, you are giving a land line to a house, to a home, but mobile is for a person, and there are more persons than houses. No? You can have maybe three or four persons per house. That means that if you have 20 million or 25 million houses, you have 100 million persons, and it is cheaper. The operation is a lot cheaper for communication.
And it's cheaper to maintain.
Carlos Slim: The maintenance, the investment, everything. It was very obvious.
It wasn't obvious to Telmex before you bought it. They only had 25,000 customers.
Carlos Slim: Well, it was because it was beginning the technology and the operation, and many telephone companies -- land line companies -- didn't want to develop these, because you jeopardize the land lines, and we put them in to compete. We separated Telmex from América Móvil to compete between them, because the biggest competitor for local service is mobile.
Isn't it like picking a favorite child, making them compete?
Carlos Slim: No. They're not children. They're not persons. If you have two organizations, you need to make them the best. If my children were going to be boxers or athletes, they'd need to compete between them. But in life, for your happiness, you don't need to compete with no one.
When Michael Eisner took over the Walt Disney Company, one of the successes he had was the VHS tapes and DVDs of old movies. He had this library of movies that was just sitting there when people first got VCRs. He had assets.
Carlos Slim: That's been done many times. Howard Hughes did it when he bought RKO. The value of RKO was its movie library, because TV was beginning, and they began to look again at old movies on TV. That gave value to RKO.
Content is king?
Carlos Slim: Content and many other things. That is one of the points. But mobile, it was very clear that it needed to grow. Why do you think China has so much growing in mobile? You know, they still have less penetration than Nicaragua. Nicaragua! And Nicaragua is a country without development. No?
There are still a lot of Chinese people that need a phone.
Carlos Slim: Yes. There's a lot of people.
If that was common sense, to get into cell phones when you did, what do you think the next big thing will be? What does your common sense tell you? Where's the next opportunity?
Carlos Slim: Depending for whom and which size, but it's clear that education is very big. People need to be educated.
In cellular and telephony, you're going to convergence. That means that the restricted TV, that if you combine that in our countries, it will be very popular. Everyone will want it. You can make content, like for mobile. Now something interesting is happening, because some companies like Google, and maybe -- I don't know -- others, one will use the infrastructure of the telecommunications companies and maybe the mobile companies to sell advertising. They're taking the model of the broadband in some way. TV is free because they sell advertising. Google gives you free content because they're going to sell advertising. I think they will sell also e-commerce and e-finance. I think in entertainment there are a lot of things that are content -- education and health. People will have a lot of time. It's an economy of services. You need to offer services to many people that are now outside of the market. I think a lot of areas. Mining, because (economist Thomas) Malthus has (made) a mistake and also the Rome Club. Do you remember the Club of Roma? The Rome Club that said in the '60s that there were not going to be commodities, because the population, the demographics. The issue is not the demographics. The issue is the demographics based upon autoconsumption, because if the demographics like China's now (are) in autoconsumption, they don't ask for commodities. They are now in autoconsumption, but now that China is getting out of autoconsumption and India and America and maybe Africa is not very far from it now, all the production of commodities will be very important. I think the new civilization offers a lot of things to do, massively. (Whether) you are looking at iPod -- a way to give music -- the iPhone, or the way for Google to give content, or to give information and entertainment.
Your mobile phone business is a huge customer base. Can you deduce what other products or services these customers might be interested in?
Carlos Slim: You are now going to give more services. You (already) give voice. Now you give data, like we were looking, as a mass effort. Now the digital cameras will get out of the market because the mobile will be the camera and will be everything. No? And you will give data, and you will give some video information and other kinds of services by the phone, also maybe finance and it will be connected to the Internet. Actually, the computers, there is a lot, because which will be the laptop? I think the laptop will be the mobile. Instead of bringing a laptop, you have a small one, and you connect it to -- when you arrive to your home or to your office -- to your PC. But what we are proposing -- I was proposing to the people of Nokia and we met with Steve Jobs (from Apple) and Jim (Balsillie) from BlackBerry -- is for education, to give to all the children with low income, without income, the -- what we're working on, digital alphabetization -- a mobile instead of a laptop, and that he connect it, not to the computer, but to the screen of the TV, because people don't have a PC, but have a screen in his TV.
When you can connect your mobile to the screen in your TV, people with very low income or without income can have access (to the Internet). The other point is that the server can be the school's, or be given by the company. There are going to be many things. In one year or two years, coming very fast. It's interesting because everything I'm telling you, I don't understand very well. I understand that the Internet is very important, that you can be connected, that you can have a chip in your phone and you can connect that to your screen. All the students -- six, eight, ten-year-olds -- with any handset connected to a screen can have a connection to the Internet.
With 150 million customers, you can deduce a little about their income, their financial habits.
Carlos Slim: It's more important to increase their income, to increase the capacity of acquisition. We have 150 million, but we're just growing. We could grow 25 million this year. I don't know. Twenty-five or 30 million. The real challenge is to change our underdevelopment. We have 150 million people, but we have maybe 200 million in poverty that don't have access to all these things. In the U.S., the average revenue per customer is $50. We have $12 or $10. We need to increase the revenue. It's a big gap.
How do you deal with disappointment in business? When things don't go well, how do you channel that disappointment?
Carlos Slim: I think in business, you need to have flexibility. If you're not doing well, correct it. Try to have small mistakes, not big mistakes. Sometimes you have big mistakes. Everyone has big mistakes, but try to make mostly small mistakes in life. I think, in business and in personal life, try not to make big mistakes.
There are so many circumstances outside of your control that can create big mistakes, not because you didn't do your work well, not because it wasn't a good idea, but outside forces, whether it's government regulations or new laws. How do you look at the world today, knowing those outside circumstances exist?
Carlos Slim: I think the future will be great. Maybe in the next year we'll have a big crisis in the world, but for me, it's very clear that a new civilization is developing and sustaining the welfare of others. As much as the others are better, everyone is better.
Fighting poverty is now an economic need. It is not only a social issue or a social justice or ethical problem. It's an economic need, because in the future, I think that everyone will want to have the others educated, the others with income, because they will be the market. They will sustain the growing of the economy, the welfare of the others. That means that I don't know when, but things will be very good.
I'm clear also that there will be problems before we arrive at that stage, like it's happening now.
You have a real sense of purpose, figuring out how to manage your wealth, how to deal with this new civilization, and to eliminate poverty.
Carlos Slim: First of all, I think that telecommunications is like a nervous system of the civilization, in the new civilization, like I was telling, a civilization of services. Technology has gone so far that productivity is very high, and when you have productivity very high, you can create goods and services at a very low cost and a very important scale. That means that people don't need to work so much, so much time, and the productivity so high, it creates wealth more easily, and the issue is how to make the conduct of the society and the economy by the government to make these things work. I think China is doing a great job in that direction. I think they are very clear about the long-term mission, and they understand what globalization is, and they are looking to globalization and making it work for them, develop for them.
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