Continental roaming; Mexican telecom tycoon Carlos Slim's wireless team is on a mission: buy cheap, grow fast. (Connection Special).

It sounds like a late-1990s recipe for telecom disaster: A gigantic former fixed-line monopoly, flush with cash and facing few competitors on home ground, extends into new markets and new technologies, buying up licenses and tiny start-ups at every turn. Revenues climb sharply as thousands of new customers sign on.

Waiting for that sudden veering toward some financial pit and the subsequent stomach-churning crash? Keep waiting.

That's because the giant in question is former state monopoly and still-reigning telecom champ Telefonos de Mexico (Telmex), controlled by Mexican tycoon Carlos Slim Helu. Its mobile unit, America Movil, run by Slim son-in-law Daniel Hajj Aboumrad, has been a spree of late, picking up licenses in Brazil's wealthier, industrialized states, buying competitors, and expanding into underserved nations just down the road in Central America and the northern Andean region. The telecom industry's year of living painfully has been good for Slim, yielding opportunities while all but a few of his largest rivals are on the ropes.

America Movil says it commands 30.7 million subscribers in Argentina, Colombia, Brazil, Ecuador, Guatemala and Mexico (by equity participation), making it No. 1 running away in the region ahead of Spain's Telefonica. It has 20 million subscribers in Mexico, posting an 18% increase in subscribers at home and a 37% increase region wide in 2002.

Part of what makes the Slim machine so effective is what makes any large, incumbent utility work--money, and lots of it. America Movil reported US$1 billion in cash at the end of 2002, which can go a long way if you're buying up former high-fliers at pennies on the dollar. Being big in a big country helps, too. "The cornerstone of the company is their Mexican operations," says Randy Alvarado, an analyst and director for Fitch Ratings. "Other wireless companies in Mexico, with the exception of Telefonica, are increasingly distressed."

So how does America Movil do it? Wally Swain, who managed Colombian cellular company Comcel for Bell Canada at the time it was bought by America Movil, says the Mexican company's philosophy is an apparently contradictory mix. It exhibits the characteristics of a value investor, which buys decent companies with messed up finances on the cheap, and those of a growth investor, which buys only where revenues are sure to increase in the short-term. This mix of acquisition philosophies is topped off with simple hard work.

ARPU, scmharpu. U.S. equity analysts. Swain says, have abandoned growth-at-all-costs as a philosophy, instead concentrating on cellular companies chasing only the best customers, as measured by a yardstick known as average revenue per user, or ARPU. America Movil, meanwhile, sees potential customers from the bottom to the top. 'These guys are much more ] grow, grow':' says Swain, now principal analyst for Latin American wireless at the Yankee Group. "There's a strategy around growth, almost an operating myth around growth. I can tell you that all the conversations I had with America Movil, when I was at America Movil, was how fast you were growing, how much was your absolute revenue and what's your margin. They could care less about ARPU."

Making that happen means winning new customers--loads of new customers, and quickly. One way America Movil does that is by giving customers flexibility, not an idea pioneered by the company but one heavily embraced as a means of insuring lightning-fast growth. Customers can sign up for relatively low-cost fixed plans, say $15 per month for 100 minutes, When a caller runs out of minutes, the plan automatically switches to a pre-paid account, which means the caller can buy as many or as little extra minutes as necessary through calling cards. These so-called control plans remove the fear of ending up with an unmanageable monthly bill, a big obstacle for first-time cellular customers.

The second strategy, Swain says, is massive distribution. While most cellular companies want to make phones easily available, America Movil typically has two to three times as many points of sale, mostly though third-party sellers. "They believe a bigger net catches more fish. They want to get as many phones into as many hands as possible, so they make sure the phones are everywhere," says Swain. "In Colombia, Comcel has two to three time the sales points as BellSouth. It's simple stuff, and it's ruthlessly executed."

And it's effective. In Brazil, America Movil now has 5.2 million customers, not counting the recently announced acquisition of Brazil's BSE (another million subscribers) from U.S. baby bell BellSouth and Verbier, a financing arm of Brazil's banking Safra family. If Slim follows through on widely expected purchase indebted Sao Paulo cellular company BCP, America Movil's base in Brazil will be 7.7 million customers. At the end of 2001, America Movil had less than 3 million customers in Brazil.

Small is beautiful. Even in smaller countries, such as Ecuador, hunger for phone service is rocketing along to Slim's benefit. The customer base there almost doubled in one year, to 923,000 subscribers. In Colombia, the number of clients jumped 50% to 2.8 million. Guatemala shot up similarly, adding 208,000 new customers to 628,000 subscribers total in 2002.

In September 2002, Slim was on the move in Nicaragua, spending $7.2 million for a wireless license there. Soon after that, the Brazilian unit won a $122 million bid on a license to provide wireless service in metropolitan Sao Paulo, Brasil. In February 2003, America Movil completed its 95% purchase in Colombian wireless company Celcaribe for $9.6 million, from Luxembourg's Millicom.

In fact, the only pain for Slim's wireless arm seems to be coming from north of the border, where the U.S. prepaid Tracfone barely eked out 3% growth, to 1.9 million users, and participation in retail chain CompUSA forced America Movil to take a $201 million write-down. "We really try to go for No. 1, of course. That's a goal for every company, but it really depends on the market. We want to be a healthy company, a strong company. ...We're really targeting and focusing," says America Movil spokeswoman Patricia Ramirez-Valdivia.

Simply buying up market is a fool's game when a sector is hot; almost no price can support overblown expectations. But with cellular start-ups deeply in debt, Slim has had his pick, and his wireless unit's managers have picked well. America Movil reported revenues rose 31%, to $5.5 billion in 2002. Net income registered $431 million, including the CompUSA write-down.

"They can just pick and choose operators they can acquire at a good price that they can turn around and make profitable. They're a very Slim company in that they really go in and make these operations profitable," says Juliana Abreu, senior analyst for Latin America at Pyramid Research.

Not all of Slim's competitors have evaporated. Telefonica Moviles, the wireless unit of Spanish telecom giant Telefonica, is already strong across the region in wireless thanks to an aggressive expansion during the last decade, and the marketing and technical support of its fixed-line companies. Now it has taken the battle onto Slim's home turf. Telefonica in September bought 65% of Mexican wireless company Pegaso, forming Telefonica Moviles de Mexico, now Mexico's second-largest mobile telephone operator after Telmex's Telcel, with 2.4 million customers.

Trying harder. Telefonica distantly trails Telcel, America Movil's brand at home, But Telefonica Moviles is stepping up competition, saying in February it would spend up to $634 million to build a new wireless network in Mexico. Like America Movil and most other cellular investors in the region, Telefonica is investing heavily into the GSM mobile standard, which allows carriers to offer premium service like Internet over cellular phones. That's good news for Nokia and other equipment makers that bet on GSM in Europe.

Telefonica Moviles at the end of 2002 counted 9.7 million subscribers, measured by their equity holdings, up 30% from 2001, although Latin America revenues slipped nearly 15% in the year, to $2.4 billion. Pretax earnings fell more than 13% to $622 million.

Competitors are cropping up inside countries as well. In Colombia, an unusual alliance of two public utilities, Empresa de Telecomunicaciones de Bogota and Empresas Publicas de Medellin, formed wireless provider Colombia Movil and in January won a $56 million license to offer mobile services nationwide. Colombia Movil is expected to invest $500 million during the next three years to build its network. In Brazil, fixed-line company Brasil Telecom, too, said it will invest $350 million over three years to build its mobile operations, if approved by regulators.

Old rival BellSouth, meanwhile, although essentially leaving Brazil, remains on the playing field, holding large market shares in Venezuela, Nicaragua and Ecuador, the last two of which were the focus of Slim buys in the past year.

It's not clear to anyone, perhaps not even Slim, if the volley of check-writing should continue. But don't be surprised if America Movil stays true to its method and continues to shop its way to the top.