Grupo Carso

Grupo Carso was the business group led by Carlos Slim that headed the successful consortium bidding for a controlling stake in Telmex, Mexico’s telecommunications monopoly. Its acquisition illustrates the book’s argument that institutions can determine whether commercial success rests on innovation and competition or on privileged access and protected monopoly power.

The Telmex 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 were received in November 1990. Although Slim did not submit the highest bid, the consortium led by Grupo Carso won the auction. The group’s access to control of Telmex thus came through a privatization in which the winning bid was not the highest.

The terms also shaped the transaction. Slim delayed paying for the shares and used Telmex’s own dividends to finance their purchase. A public monopoly thereby became a privately controlled monopoly, and the resulting business was described as hugely profitable. The acquisition joined ownership, financing, and the company’s existing market position in a single arrangement.

Monopoly and Institutional Protection

The book situates Grupo Carso’s success within the barriers facing Mexican entrepreneurs: costly licenses, bureaucratic hurdles, political obstruction, and difficulty obtaining finance when financial institutions are aligned with established businesses. Such barriers can exclude competitors from profitable sectors, but they can also protect those who have secured influence and exclusive contracts. Grupo Carso’s role in acquiring Telmex is presented as part of this broader environment, rather than as an instance of innovation creating a competitive market.

The Telmex monopoly faced a formal challenge in 1996, when long-distance provider Avantel asked the Mexican Competition Commission to determine whether Telmex held a dominant position. In 1997, the commission found that Telmex had substantial monopoly power in local telephony and national and international long-distance calls, among other areas. Regulatory efforts to limit that power nevertheless came to nothing.

One obstacle was the recurso de amparo, a legal petition seeking protection from the application of a particular law. The book traces the device to Mexico’s 1857 constitution, where it was intended to safeguard individual rights and freedoms. In the hands of Telmex and other monopolies, however, it could help entrench market power: a safeguard associated with rights became a means of avoiding equal application of the law. This account connects Grupo Carso’s acquisition to a system in which the formal recognition of monopoly power did not ensure effective limits on it.

A Contrast in Legal Environments

The book contrasts Grupo Carso’s success in Mexico with its experience in the United States. In 1999, the group bought the computer retailer CompUSA, which had already granted COC Services a franchise to sell CompUSA merchandise in Mexico. Grupo Carso violated that agreement in seeking to establish its own chain of stores without COC as a competitor. COC sued CompUSA in a Dallas court, and the case resulted in a $454 million fine.

The comparison turns on the differing reach of legal protections and business tactics. The book observes that there were no amparos in Dallas: in the United States, the maneuver that could help sustain monopoly power in Mexico did not shield Grupo Carso from the consequences of violating a contract. The case makes the organization’s cross-border contrast concrete—its methods worked within one institutional setting but failed under another.

Significance

Grupo Carso’s role in the Telmex sale serves as a case study in the distributional effects of privatization. A change from public to private ownership did not, by itself, produce competition; the public monopoly became Slim’s monopoly, and regulatory findings did not translate into successful limits on its power. The episode supports the book’s larger claim that economic outcomes depend not simply on who owns a firm, but on the institutions governing entry, enforcement, and the ability of incumbents to influence the rules.