Carso's Calling.

Mexican holding company's phone franchise is a hot line for growth.

ANYONE LOOKING FOR AN OLD ECONOMY COMPANY thriving in the New Economy need look no further than Carso Global Telecom. The Mexican holding company for Telefonos de Mexico (Telmex) and other ventures is extending its reign over plain old phones to the Internet and computer sales in Mexico and beyond.

Carso's explosive growth--sales up almost 46,000% and profits 552% during the last three years--is largely due to accounting: Principal Carlos Slim Held created the holding company in 1996 as a vehicle to control his shares in Telmex, the former state monopoly that remains Mexico's dominant telephone provider. Since the transfer of assets, though, Telmex continues to explode, with sales increasing 53% to almost US$11 billion and profits doubling to $2.6 billion for the three years ending in June 2000.

Just as important, Carso's interests, thanks to Telmex, now stretch into the Internet, computer sales and other ventures. Carso snapped up Prodigy in 1997 and transformed the ailing U.S. online company into the foremost Internet service provider in Mexico. It serves another million customers north of the Rio Grande.

In its drive to dominate Internet service, Telmex also became Mexico's leading seller of personal computers. The company launched a program with Acer in the summer of 1999 that allowed consumers to buy computers over two years, along with their Internet connection. In the first eight months, Telmex sold more than 100,000 computers. The telephone giant now has deals with all the major manufacturers, including Compaq, IBM, Apple and Hewlett-Packard, as well as Acer. Customers can now buy PCs in Sanborns stores--another Slim Helu-owned enterprise--or by phone.

"You put down 1,000 or 2,000 pesos [$100 or $200], depending on the computer, and then pay the rest in monthly installments:' says Marco Maytorena, editor of InfoChannel, the trade paper of the computer industry in Mexico. "You pay through your telephone bill and, of course, if you don't cough up, then Telmex cuts you off."

Truncated lines. But competitors claim that Telmex's willingness to use its commanding position in the Mexican market is unfair. "Telmex has at times completely prevented competition," says Jorge Escribano, spokesman for long-distance provider Alestra, which is part-owned by AT&T.

Telmex is accused of delaying months before providing access to digital trunk lines necessary for Internet services and setting up punitive charging for long-distance interconnection fees. "The fact that Prodigy has grown as quickly as it has shows that it was given better access than rivals," says Escribano.

Unperturbed by these accusations, Telmex continues to fight Mexican regulator Cofetel, which has ordered the giant to slash long-distance interconnection fees. Meanwhile, the U.S. government is bringing its case against Mexico before the World Trade Organization over what it sees as Telmex intransigence.

In the midst of wrangling about its competitive practices, Carso's Slim Held somewhat fittingly joined forces with Bill Gates. Telmex and Microsoft have launched Tlmsn, a Web site that the pair hopes--ambitiously but not unrealistically--will become the Spanish-speaking world's leading portal.

The portal is only part of Carso's drive to increase its international operations. America Movil its new cellular subsidiary spun off from Telmex, has toeholds throughout the Americas. It is Mexico's dominant cell phone company and, in Colombia, claims a stake in Comcel. It has holdings in Ecuador's Conecel, a quarter share of Brazilian mobile concessionaire Algar Telecom Leste and an 83% holding in Guatemalan provider Telgua.

Further, Slim Held has formed the so-called Telecom Americas strategic alliance with big-hitters Bell Canada International and SBC Communications in the United States to combine the trio's different interests across Latin America and focus on fast-growing broadband and Internet services. The alliance's base includes 97% stakes in Dallas-based fixed telephony specialists Comm South and Miami-based mobile provider Topp Telecom, as well as holdings in broadband service provider Genesis in Venezuela and fixed-line company Techtel in Argentina.

The network marks Carso, unquestionably, as a commanding regional player.

"It makes Telmex and its allies an integrated competitor within the Nafta area and ... throughout Latin America," says Manuel Guerena, head of corporate ratings at Standard & Poor's Mexico office.

With that platform, Telmex is poised to project itself onto the world stage. Only time will tell whether Slim Held is as successful in building his businesses outside Mexico as well as he has on home turf.