The life of Mexico's largest telecom company: Telmex
The beginningTeléfonos de México was founded in 1947 with the aim of buying up two foreign telecommunications companies operating in Mexico. The idea was that a domestic company would be the largest telecom company. In that year a group of investors bought the Mexican part of the Swedish company Ericsson, which continued as Telmex. In 1950, the same investors bought the other foreign telecom company operating in Mexico, called ITT Corporation. After buying these two telecom companies operating in Mexico, Telmex was the only telecom company that operated in Mexico.
From the establishment of Telmex, the company was run by the Mexican government. The Mexican government increased its influence when it decided that there should be a national telephone network. The reason behind this decision was the feeling that Mexico, compared to America and Europe, would be left behind if they did not. During the 1950s and 1960s, Telmex was the only private company to provide telecom services to the population in collaboration with the Mexican government.
From private company to government ownershipIn 1972, the Mexican government took the lead again by buying 51 percent of the Telmex shares. Telmex became a state-owned company. The government determined what happened within the company. However, not only government members were present within the board of directors, but also private entrepreneurs took place on the board of directors. Even the CEO of the company was a private manager who was seen as one of the best managers in Mexico. During the 1970s, the company operated very well compared to other state-owned companies, thanks in part to the fact that it was in part still a private company. Mexico was in a major economic crisis in those years, but it hardly affected the telecommunications sector.
Because the company made big profits, the Mexican government used money from the company to finance non-telecom related government affairs. Telmex became a dairy cow for the Mexican government in the 1980s. In the mid-1980s, bureaucratic influences became visible within Telmex. Employees received a too high salary, while the telecom service hardly improved. At least 10 percent of all telephone lines did not work and obtaining a new telephone line could take up to three years.
Light on the horizonBetween 1976 and 1982, Mexico suffered from the lax leadership of Jose Lopez Portillo, which also had a major impact on Telmex. While the company continued to make a profit and could pay its shareholders, the company was no longer innovative and the service that the company provided deteriorated. As a result, the company lagged further and further behind America and many European countries. When Portillo was dropped off in 1982, it was hoped that changes would be made to government policy.
The leadership of Mexico was taken over by Miguel De la Madrid, former Minister of Budget and Planning. He wanted to put an end to the economic nationalism that had arisen under the Portillo regime. De la Madrid introduced the free market economy, which made the economy pick up but made many daily products more expensive. A further change that he wanted to implement was a large-scale privatization of state-owned companies, including Telmex.
However, privatization did not take place during the presidency of De La Madrid, although the plans were already ready.
Under the new policy, not only the economy in Mexico but Telmex also improved. The company made a profit and paid out its shareholders as before, but this was mainly achieved by the high telephone tax that was levied on, for example, long-distance calls. Also a large part of the profit was still used to finance other state programs. Finally, the company's employees continued to work very inefficiently.
Actual changeOnly in the early 90s, after the election of Carlos Salinas as the new president, did something really begin to change in Telmex's policy. During his presidency he continued the economic policy of De La Madrid and 85% of state-owned companies were privatized. Initially, these measures had an effect, inflation fell from 159.17% to 7.05%.
One of the reasons for privatizing Telmex was to increase the efficiency of the company. Salinas, who had served on the board of directors, knew that the company had enormous growth potential. Selling the shares held by the government could reduce the national debt by as much as $ 2 billion. The company was taken over by three partner companies called Southwestern Bell, France Telecom and Grupe Carso. Grupe Carso eventually gained operational control over the company since it had paid half of the purchase amount. The other two partners would focus on improving the divisions within the company and modernizing.
The new CEO of Telmex became Carlos Slim, owner of Grupe Carso and at that time one of the richest people in the world. As a condition for the purchase, Telmex should drastically improve its services. A three-year plan was devised by the government for this. Furthermore, the company would have to give up its monopoly position from 1996 onwards in order to compete with other telecom companies where it concerned the provision of long-distance telecommunications.
Movable yearsUntil 1993 the new regime led to positive results. More profit was made and the service improved. In 1994, however, total sales decreased and in 1995 the profit was even more than 22% lower than the previous year. This decrease in sales and profit was mainly due to the increase in competition pushed by the government, while Telmex still had great advantages over its competitors. Only in 1997 did Telmex lose its monopoly position over the long-distance telecommunications market. The company succeeded in significantly increasing in 1998 by placing more emphasis on the digital services that the company provided. From that year onwards, the company's turnover increased every year and it started to invest in other companies. The economic recession in America in 2003, together with the low economic growth in Mexico, led to a fall in sales of $ 1 billion, which caused difficulties. To keep the company growing, people focused more on innovation.
In 2004 the son, like his father named Carlos Slim, became CEO. He developed major expansion plans and implemented them steadily, after which the company increasingly positioned itself on the international market. A market share of 95% was achieved in Mexico. Reasons for America Movil, the largest telephone company in Latin America, to take over Telmex and thus be able to compete better with other telecom companies.