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Carlos Slim's title as the world's richest person is increasingly under threat as Latin American countries move to crack down on his telecommunications dominance and his European investments turn sour.
Slim's lead over the next-wealthiest man, Bill Gates, narrowed last week to about $4.8 billion - the closest spread in almost a year. The Lebanese immigrant's son, who acquired Mexico's phone monopoly and turned it into a pan-Latin American powerhouse, lost almost a 10th of his net worth last month, winnowing his fortune to $71 billion, according to the Bloomberg Billionaires Index.
The main culprit: Slim's holdings in America Movil SAB, whose dominance in Latin America and especially its home country of Mexico is under fire, with lawmakers and regulators pushing for tighter controls. The shifting landscape in Latin America threatens to close the steady spigot of cash that enabled Slim to make bets in Europe last year. "The challenge facing America Movil starts in Mexico because of the increasing resistance to its dominance," said Mark Mobius, executive chairman of Templeton Emerging Markets Group, which manages funds that include Slim's phone carrier.
"As its competitors become much more viable, you're going to find America Movil in trouble in Mexico, not having the kind of earnings they've had in the past."
Arturo Elias, a spokesman for Slim, declined to comment.
'Most disconcerting'
Outside shareholders in America Movil are selling off the stock as their fears are realised - that even Slim isn't immune as Latin America's days of dizzying growth come to an end. That's driven down the shares to an almost four-year low.
"If they can't hold up their margins, no one else really has a chance," said Christopher King, an analyst at Stifel Nicolaus & Co in Baltimore. "They're going lower for everybody across the board. That is the most disconcerting thing."
America Movil has long faced accusations from competitors and regulators that it wields monopoly power in Mexico, where it holds 70 per cent of the wireless market and about 80 per cent of landlines.
While Slim has said the existence of competitors proves he doesn't have a monopoly, shareholders have clearly valued America Movil's dominance, said Pablo Vallejo, an analyst at Corporativo GBM SAB in Mexico City.
Monopoly premium
"The market used to pay a premium for it to be in the dominant position in two of its operations, Mexico and Colombia," he said. "All the scenarios contemplated in the reform are bad news for America Movil."
A draft of a new telecommunications reform bill in Mexico stipulates that companies with at least 40 per cent market share would be declared dominant and could be forced to rent parts of their network to rivals, the Reforma newspaper said last week. Regulators could also revoke operating licenses for monopolistic behaviour, the paper said, citing the draft it obtained.
America Movil continues to have the largest, most robust telecommunications network in the region, an asset that generates almost $16 billion in cash a year and puts Slim in position to capitalise on growing demand for wireless internet and pay-TV services.
Less lucrative
The challenge is that neither of those services are as profitable as mobile-phone calls and landlines. America Movil and its competitors are offering smartphone discounts to get Internet-accessible devices in customers' hands, cutting into income. To lure satellite and cable television subscribers, the company must pay companies such as Time Warner Inc and Walt Disney Co for programming. That's reducing margins.
Meanwhile, the stable old business of mobile-phone voice service is deteriorating. In Mexico, Brazil and Colombia - which together make up about 70 per cent of America Movil's sales - regulatory agencies have reduced the fees Slim's company can charge competitors to connect calls from their subscribers to its own users.
At the same time, the percentage of Latin America's population that already has a mobile phone has crept closer to 100 per cent - and even higher in countries such as Brazil and Argentina, where people own multiple devices. America Movil's mobile-phone subscriber growth hasn't topped 15 per cent since 2008 after regularly doing so in the previous decade.
Free roaming
With little opportunity to pick up customers who are buying mobile phones for the first time, companies are scrambling to offer better deals on airtime and devices just to lure subscribers away from one another. America Movil, for instance, began last year offering plans with no extra charge for national roaming or long-distance calls.
All these trends converged in America Movil's fourth quarter, which produced profit that fell short of analysts' estimates. The margin of earnings before interest, taxes, depreciation and amortisation dropped 240 basis points, or 2.4 percentage points, to 31.1 per cent, with the Mexican and Brazilian units dropping 260 basis points each.
Investors responded, reducing the stock price by one-tenth. The shares have continued to fall since, closing at 13.32 pesos on March 1, the most recent trading day, down 16 percent since the Feb. 12 report.
Worse still for shareholders, America Movil Chief Executive Officer Daniel Hajj, Slim's son-in-law, said there was no end in sight to the severe level of competition.
Under Pressure
"This quarter revealed a lot," said Vallejo of GBM. "The pressure in margins isn't going to go away as long as these markets remain highly competitive."
Then there's Europe. After spending more than 3 billion euros ($4 billion) last year to acquire a 28 percent stake in Royal KPN NV, America Movil has seen the former Dutch phone monopoly's shares fall 65 percent. It decided last month to spend an additional 900 million euros to help the flailing KPN shore up its finances. Shares of Telekom Austria AG, meanwhile, have dropped 36 percent since America Movil agreed to buy a 21 percent stake.
Slim has said he considers the stakes in European carriers as long-term investments. Still, their failure thus far, combined with America Movil's challenges in its home region, are making shareholders skeptical that bets outside of Latin America are the best use of cash, said Richard Dineen, an analyst at HSBC Holdings Plc in New York.
Cash Pile
America Movil remains flush with cash, with no liquidity concerns on the horizon. Its ratio of debt to earnings, at about 1.4, is better than U.S. carriers Verizon Communications Inc. and AT&T Inc. and almost half the 2.7 ratio of its closest rival, Madrid-based Telefonica SA.
Still, with regulators in Mexico and Colombia threatening to further restrain the company, America Movil may need to use its cash to strike bargains with governments to fend off crippling rules. Slim could offer to extend high-speed Internet access to rural regions or subsidize services for low-income families, said Dineen, who has the equivalent of a buy rating on America Movil.
"You can do an awful lot to win hearts and minds," he said.
