Slim's Asset Sales Has People Wondering What He'll Buy Next
Mexican Billionaire Carlos Slim Owns TracFone That Could Serve as Building Block
Billionaire Carlos Slim's move to pare his telecom empire in Mexico is raising questions about what his intentions might be north of the border.
His América Móvil SAB AMX.MX -0.32% said last week that it would sell assets to cut its market share in Mexico to below 50% from about 70% to avoid a regulatory crackdown. The cash he might generate in the process could give him a sizable war chest to expand overseas.
The company's TracFone unit offers prepaid-mobile service and is the fifth largest U.S. wireless provider, selling service under seven brands, including the Straight Talk brand sold at Wal-Mart Stores Inc. WMT +0.63%
TracFone continues to grow via a string of acquisitions of small, prepaid carriers and provides Mr. Slim with a brand and a U.S. foothold should he choose to expand. The business now rents space on networks from big carriers like AT&T Inc. T +0.39% and Sprint Corp. S -1.25%
Some analysts wonder if he might bid for a carrier like No. 4 U.S. provider T-Mobile US Inc., TMUS +0.81% which is preparing for a merger with Sprint that would face high regulatory hurdles.
"A more meaningful entry into the U.S. with the acquisition of [T-Mobile] could make strategic sense," UBS UBSN.VX -0.18% analyst John Hodulik said. He projects Mexican asset sales would yield more than $15 billion for Mr. Slim. That cash also could go toward expanding his telecom businesses in Brazil or Europe.
A T-Mobile acquisition could be a long shot given that it is in advanced talks with Sprint owner SoftBank Corp. 9984.TO -0.30% But other options for Mr. Slim include building up his prepaid empire by buying other carriers that also rent capacity from the major wireless companies, or even acquiring assets that are sold in the event regulators allowed a Sprint and T-Mobile merger to go through.
Mr. Slim, 74 and one of the world's richest people, has expanded his telecom empire across Latin America over the past 15 years and more recently has moved into other markets. He is currently buying a majority stake in Telekom Austria TKA.VI -0.32% and owns a minority stake in Dutch carrier Royal KPN. KKPNY +0.15%
Bankers have pitched him on U.S. targets over the years, including T-Mobile, Leap Wireless and MetroPCS, but Mr. Slim wasn't interested, according to a person familiar with the matter.
When discussing its move into Europe two years ago, the company said it considered increasing its U.S. investment but that it didn't want to jeopardize a TracFone model that has worked well with minimal capital commitment.
"It is a huge market that entails enormous investments," América Móvil Chief Financial Officer Carlos Garcia Moreno said of the U.S. at the time. "So it is really tough to keep up, let alone catch up."
Mr. Slim has been active in the U.S., buying stakes in businesses as varied as luxury retailer Saks Inc., office supplier OfficeMax Inc. and New York Times Co. NYT +1.92% In 2000, he took over retailer CompUSA which closed roughly eight years later.
With the continuing consolidation of the U.S. telecom market, it is unclear if Mr. Slim would want to take a larger role in the business. He has shown a sharp eye for bargains in the past, buying a number of his businesses in Mexico on the cheap during hard times in the 1980s and early 1990s.
Another issue has been his close relationship with AT&T, which until recently owned a stake in his company. The relationship dated to the 1990s when Southwestern Bell Corp., a predecessor to modern AT&T, teamed up with Mr. Slim to buy into the privatized Telefonos de Mexico. Telmex later spun off America Movil.
Current AT&T Chief Executive Randall Stephenson worked for Mr. Slim in Mexico during the 1990s, and Mr. Slim attended the wedding of Mr. Stephenson's daughter. On a conference call in May, Mr. Stephenson described Mr. Slim as "a very dear friend."
The two companies frequently discussed their respective strategies over the years, according to people familiar with the discussions. They considered making international acquisitions together several times and had no desire to directly compete, those people said.
AT&T, however, sold its 8% stake in América Móvil in June after agreeing to buy satellite broadcaster DirecTV, DTV +0.88% which competes with Mr. Slim in the Latin American television market.
Mr. Slim quietly entered the U.S. wireless market in the late 1990s, first by inching into the long distance market with an alliance with Sprint, then by acquiring a controlling stake in 1999 of Topp Telecom Inc., a prepaid-wireless company based in Miami, for $57.5 million.
The company later changed its name to TracFone and helped pioneer the prepaid business by pushing its phones into places where price sensitive customers might buy them, said Rod Nakjavani, co-founder of Simple Mobile, which was acquired by TracFone in 2012.
"They got into big box and grocery stores and every little nook and cranny you could think of," he said.
In 2005, TracFone won approval from the Federal Communications Commission to offer wireless service under a government program that gave subsidized landline service to the poor. In the first year the service became available in some states, subscribers on the program increased by more than 20%. The government later had to overhaul the program to combat fraud, resulting in the loss of millions of subscribers across the industry.
TracFone has outgrown its U.S. rivals—its subscriber count is up 27% over the past two years—in part by acquiring other companies that sell service on space rented from bigger carriers. At the end of March, TracFone had roughly one-third of the prepaid subscribers using major providers, according to UBS, but its average revenue per user was only $21.58 a month, less than half of what Verizon Wireless gets from its prepaid customers.
Its margins aren't strong, either, owing to the high cost of renting network capacity and its lower prices. In Mexico, América Móvil had 2013 adjusted operating margins of about 44% on its wireless business, according to regulatory filings. In the same period, TracFone's were 8%.
That could give Mr. Slim an incentive to try to own a network in the U.S.
"If you don't control the network it is hard to control your destiny," Paul de Sa, a former FCC official who is now a senior analyst at Bernstein Research. "It's a tough business to be in," he added.