How Carlos Slim Built América Móvil into a Global Player
Slim didn’t just construct América Móvil. He constructed an entire empire of capital allocation. Here’s how he achieved this impressive feat:
Wealth can be expanded, and in the case of Carlos Slim, it was easier for him to expand empires from telecom companies. He took a monopoly on a local telecom industry and turned it to a $68 billion empire.
Success is an abstract concept to many and obscure to some. People get the numbers, the deals, and the headlines but fail to understand how the real game is played in the brain.
This is a way to deconstruct Cristiano Ronaldo’s Slim’s blueprint:
Capital is Only a By-product
The systems that make money are the ones worth building.
At the tender age of 11, Slim knew, even then, the principles of making wealth. It started in his father’s store: he took an interest in recording everything of value. He didn’t just record expenditures and incomes. He recorded inter-workings of money.
When he was twenty-five years old, he owned many companies, but none made a profit. Even so, each instance was an experience. He experienced companies in the retail sector that dealt with understanding customer behavior. He saw how real estate worked and how the dollar signs multiplied in the finance industry.
The automobile revolutionized the way toll roads, and the electricity screen of telecommunications worked. These sectors have been pioneered to maintain prosperity with mass decentralization.
The telecom also turned out to be an ideal system in which high initial costs made competition irrelevant. The regular billings guaranteed the cash flow. The network became even more valuable with each of its new subscribers.
The operation outlined in the preceding paragraphs was a straightforward business. A money-making business model.
When All Else Fails, Be Bullish
Every market is based on emotions, and the economy is no different. It is human nature to buy in a moment of greed but sell in a moment of panic. Slim went against the tide.
Mexico encountered a crisis in 1982 with a notable decline of 30% in peso value. 2% of book value, that’s how much companies were selling for. The exodus was widespread.
Slim purchased businesses in order to expand horizontally. Rather than acquiring the fast movers, he bought firms with strong assets and weak balance sheets.
It was simple mathematics. Companies needed cash. Banks were not lending. Slim possessed cash. He literally had the ability to dictate whatever price he wanted.
He acquired control of more than 50 fledgling firms between 1982 and 1984. He didn’t need all of them to succeed. His only objective was to acquire them at low costs; the succeeding companies would outpace the failing ones.
The Network Effect Strategy
Networks become more valuable with the addition of new users. One phone has no real use. One million phones have an immeasurable scope for connections.
Slim understood this quite clearly when he acquired Telmex in 1990. The firm had 2 million phone lines. Mexico had an estimated 90 million population. The gap was not merely an opportunity. It was a cash register.
He adopted the following approaches:
- Reduced prices to increase adoption
- Put up significant funds in infrastructure.
- Grew to new, unfulfilled markets
While Slim went after all customers, traditional telcos were content with stealing premium customers. He understood that with every new customer, the net worth of his network improved.
By 1997, Telmex had reached the 10 million mark in terms of lines. Each line was able to generate larger returns than it previously would have. The network got to be as vicious as it was anticipated to be.
It was not only about phones anymore. It was about how to possess the central systems, which today’s society depends heavily on.
The Leverage of Inefficient Markets
People normally talk about general market efficiency. However, the greatest opportunities are those opportunities are the ones right in front of us.
Slim was not just purchasing cheap assets. He acquired assets in areas that were obscure to many people.
Consider this for a moment: At the point where Slim sourced Telmex, the international investors went bankrupt over the fact that the:
- The system was foul
- Regulations were cumbersome.
- The politics were stable.
Carlos Slim observed a lot of information asymmetry. Those who were foreign investors were able to understand through third-party brokers what the Mexican market was all about. Slim, however, did not even need these brokers.
The Capital Allocation Game
There’s a true mystery in economics that no one addresses. It is not making money that helps people get rich. Rather, it is simply the allocation of capital.
Slim understood this early on in his development at América Móvil. When he was acquiring companies, he was not simply acquiring businesses. He was acquiring streams of cash that he could exploit in other ventures.
The majority of people believe that business is about the provision of goods and services. Well, it’s not. It is about changing an initially small volume of currency into a larger volume.
- Profit is a primary concern for any ordinary business
- For any great business, the primary concern is where to reinvest their profits
- A true empire builder is only concerned with capital allocation
Slim did not only construct América Móvil. He constructed an empire of capital allocation.
Every single peso of profit did not just go into savings accounts. It was pulled towards immediate objectives, including:
- Network expansion
- Other competitor’s acquisition
- Continued investment into future networks
This is how one generates billions out of millions. You do not set funds aside. You spend the money and put it to better use somewhere else.
Build Once, Sell Forever
Almost all builders lose out on the best aspect of being a builder: making a profit that is not based on hours worked. You work, you get paid. All it takes is for you to be transferred completely to cease receiving remuneration. The actual game is creating systems that promote growth even in your absence.
For Slim, this came naturally. He simply went after infrastructure when everyone else was running after contracts.
Take the example of cell towers in Mexico City. It does not matter whether only one or a million consumers harness the facility. The cell tower will still cost the same, and that is enough to leverage.
The brilliance? The maintenance cost isn’t a linear function of size. You can service 10,000 calls or 10 million calls and the operating costs don’t fluctuate to a great extent. Every additional customer is almost a hundred percent margin.
But it is not just about telecom systems. It is about the ratio between fixed costs and variable costs. You set up the cost center only once. And wait for it to generate revenue forever.
Build Equity, not Paycheck
For Slim, América Móvil was not only a business firm. It was a structure for the domination of revenue-generating businesses. A cell site here, fiber cable there, spectrum license, and the list goes on to fill in his share of the future. Carlos also valued philanthropy. There are a number of charity endeavors in Carlos Slim’s philanthropy empire.
Vertical Integration is the Name of the Game
The way most people see competition is as an endless struggle to win a share of the market. This is a game of checkers. Real wealth creation is playing chess – where a business wants to own the entire board.
Slim did not just focus on telecom and go. He owned the businesses that sold him the phones. The companies that constructed the towers. Beyond that, he owned the land where the equipment was located.
Every individual component added value to the business as a whole. Retail allowed him access to consumer analytics. Construction minimized the budgets. Real estate appreciated in value since cities surrounded his infrastructure development.
This is not about monopolistic tendencies. This has to do with the reduction of friction. Each middleman that is cut out is money saved and leverage earned.
The only problem here is vertical integration is not child’s play. It requires resources. Money. Time. Strategy.
Focus on Decades and not Years
In 1990, most people thought that Mexico was “too poor” a country for mobile phones – it was. Slim, on the other hand, only saw 90,000,000 more clients.
The secret? You make very different decisions when you think in terms of decades. You develop actual infrastructure. You do not pay attention to the fluctuations of the market in the short run. You look at things that are bound to happen.
Key Lessons From América Móvil
That said, the concept of wealth generation isn’t new. However, wealth generation comes with different strategies today.
If you want to generate real wealth, then stop trying to cut corners; instead, create systems that:
- Work without demanding your time
- Get better when expanded
- Are difficult to replicate
However, do not forget that, following the exact moves of someone else is pointless. You should learn how the game is played instead.
Almost daily, we encounter founders who idolize Carlos Slim, and fantasize about being the ‘next Carlos Slim’. It’s not even worth thinking of because they are focusing on the wrong lessons. Do not mimic the man’s behavior. Solve problems like he does.
The Three Layers of Value
Every move Carlos Slim made under América Móvil created three kinds of value:
- The obvious one – The asset
- The positioning value – The asset is a leverage for other deals
- The game changer value – Influencing how the markets grow now and in the future
Just imagine, if you own the only cellular network in that area, then you can charge those adjascent regions any price.
The Brazil Chess Move
In 2000 it was believed that Slim had lost money on the cellular licenses he acquired in Brazil. The classical business analysis claimed he had overpaid.
Those licenses were not only relevant to Brazil. It altered the bargaining power of América Móvil in all the Latin America. Henceforth every telecom deal was routed through Slim.
He did not just acquire market share. He acquired market influence.
The Future Playbook
Here is a question that more and more people are asking: “Is Carlos Slim’s playbook from his time at América Móvil still valid in the time of digital?”
This is the wrong question. Specifics change. Fundamentals don’t.
Networks still matter. Infrastructure still matters. Scale still matters. But now instead of cell towers, it is cloud infrastructure. Instead of physical networks, it is digital networks.
Look at that: What would today’s versions of the telecom infrastructure be? What systems can you deploy once and then make money from them for infinity? What appears ‘too poor’ in today’s world but will definitely be ‘common sense’ in tomorrow’s world?
What is actually happening now is that the ecosystem has changed; the business procedures remain the same. And this remains true up to today: the most attractive opportunities, just as back in the days of Slim’s time, are for those who build the future but offer no quick wins.
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