Telmex

Telmex was Mexico’s telecommunications monopoly, and its privatization made it the defining asset in Carlos Slim’s rise to extraordinary wealth. The company’s passage from public ownership to private control did not dismantle its monopoly: it transferred that market power to a consortium led by Slim, whose ability to secure favorable terms and resist regulation illustrates how Mexico’s institutions could protect incumbents rather than open markets to competition.

Privatization and Slim’s Acquisition

The Mexican government announced in September 1989 that it intended to sell 51 percent of Telmex’s voting stock, equivalent to 20.4 percent of its total stock. Bids followed in November 1990. Slim’s consortium, led by Grupo Carso, won despite not submitting the highest bid. He also arranged not to pay for the shares immediately, instead using Telmex’s own dividends to finance the purchase. A public monopoly thus became Slim’s private monopoly, and the company proved hugely profitable.

The acquisition reflects the broader conditions facing Mexican entrepreneurs in the account: expensive licenses, bureaucratic obstacles, political and incumbent opposition, and a financial sector often aligned with the businesses a newcomer might challenge. Such barriers could exclude competitors from lucrative markets, but they could also protect those who had the connections to get through them. Slim used those connections to obtain exclusive contracts, monopolize Mexican telecommunications, and extend his reach across Latin America.

Market Power and Failed Regulation

Telmex’s dominance was not merely an inference from its ownership history. In 1996, long-distance provider Avantel petitioned the Mexican Competition Commission to investigate whether Telmex held a dominant position. The commission’s 1997 decision found that Telmex possessed substantial monopoly power in local telephone service and in national and international long-distance calls, among other areas.

Regulatory authorities nevertheless failed to limit the company’s monopolies. Telmex and other Mexican monopolies could invoke the recurso de amparo, or appeal for protection, to argue that a particular law did not apply to them. The device originated in Mexico’s 1857 constitution as a safeguard for individual rights and freedoms. In the hands of monopolies, however, it became a means of cementing market power: a remedy intended to protect people’s rights could instead create a loophole in equality before the law.

An Institutional Contrast

The book places Telmex beside Microsoft to show how different institutional settings shaped the fortunes of powerful firms. The United States Department of Justice filed civil actions against Microsoft in 1998 over alleged abuse of monopoly power, including the bundling of Internet Explorer with Windows. After an earlier Federal Trade Commission inquiry, Microsoft reached a settlement with the Justice Department in November 2001 and had its power curtailed, though the penalties were less than many had sought.

Telmex faced no equally effective constraint. In the book’s comparison, the difference is not simply that one company held a monopoly and the other did not; it is that political and legal institutions affected whether monopoly power could be challenged. Mexico’s barriers and the use of amparo helped preserve Telmex’s position, while the U.S. case against Microsoft demonstrates that even a powerful, innovative company could face government action.

The Limits of Familiar Tactics

Slim’s experience in the United States sharpened the contrast. In 1999, his Grupo Carso bought the computer retailer CompUSA. CompUSA had already granted COC Services a franchise to sell its merchandise in Mexico. Slim violated that contract in an effort to establish his own chain of stores without competition from COC. COC sued CompUSA in a Dallas court, where the amparo offered no protection; Slim lost, and the resulting fine was $454 million.

COC’s lawyer, Mark Werner, said the verdict sent a message that firms entering the United States had to respect its rules. The episode gives concrete form to the account’s comparison: tactics that could help Slim preserve a monopoly in Mexico did not work under U.S. institutions. Telmex therefore stands both as a lucrative company and as an example of how the rules surrounding market access, enforcement, and legal protection can determine who benefits from economic power.