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Carlos Slim's Patriotic Choice
Monday, 06 October 2008 18:48

Slim: Mexico Internet Hero?Carlos Slim could provide Mexico with a great Internet, affordable for many more. Currently, Mexico is dead last in the OECD broadband stats, well behind Turkey and less than half the rate per hundred of Poland. If Telmex cut prices from the current $25-60 to $10-35, sales might well double, minimizing the direct hit to profits. The increased broadband will hold wireline customers,  discourage new competitors, and open opportunities for wireless bundles and IPTV

  In France and Japan, the low priced broadband innovators (Iliad/Niel, Softbank/Son) are considered national champions and strongly protected by regulators. Telmex is so large a part of of the Mexican economy it will directly benefit from any broadband growth. Telmex's profits could ultimately increase if they move to a low price/high volume model.  Broadband history shows there are two profitable equilibria: high price, low volume (Mexico today) and low price, high volume (France, Japan.) Both are good for the carrier. One is much better for the country.

    Mr. Slim and his family will also know the contribution they have made. 

    Will it be profitable? Yes, with DSL equipment down to less than $40/customer,even low prices are highly profitable. The direct cost of broadband almost anywhere is between $5 and $12/customer/month. Mexico's low wages and dense population probably put them on the low end of that scale. The initial investment for a new customer would be earned back in six months to a year.

     Is it practical?  Telmex and American Móvil have fine engineers and decent operating procedures. Their broadband customers have gone from 1.2M to almost 3M in two years (Point-Topic data.) While they couldn't handle a customer base tripling in a year, they certainly can deal with rapid growth. DSL is now mature technology. WiMAX and 3G wireless data are also now off-the-shelf at moderate prices.

 

    Will profits go up or down? Undoubtedly, some of the customers will switch to a lower price plan where the companies have lower margins.  It's not clear whether profits on the new customers will directly compensate, although careful market research should provide some good estimates. However, the additional customers will also:

  • Drive down the cost per customer because of increased volume.
  • Create or maintain the customer relationship, allowing cross selling, bundles, and direct profits as the new customers upgrade.
  • Provide the opportunity for Telmex to position as driving Mexico's progress. That will aid the always difficult regulatory process in Mexico, as well as the response to Móvil in other Latin American countries.
  I believe some of my readers are senior in Mexico, and hope this idea can be presented to the decisionmakers. It would be good for the country.