Thursday, August 15, 2013

No need to be afraid of America Movil

America Movil's planned offer for KPN worries some people. There are probably two reasons for this:
  • Security: the importance of vital national infrastructure. Roads, railroads, water, gas, even electricity: they remain in government hands, even if services companies have been sold.
  • Financial: the risk of breaking up the company, load it with debt, sell-off subsidiaries, extract cash, etc. The TDC scenario looms, i.e. the risk of under-investment.
As to the first, infrastructure is abundantly present and most routes have probably long been duplicated by the likes of Eurofiber (now majority-controlled by Doughty Hanson), Tele2 (incl. Versatel, BBned), Relined (government), BT, Verizon, etc. KPN is still dominant in the access network (DSL, FTTH, FTTO), but not in backhaul and long haul or in connecting network nodes and data centers. Business customers in many cases require redundant connections, i.e. from different providers. Further, there is ample regulation in place that KPN has to adhere to.

There is probably a sentimental reason for being worried as well: after all, America Movil is led by the world's wealthiest man, who unashamedly collected his wealth in a poor country. You can read all about it in this chapter. But if you read carefully, you will learn that:
  • Carlos Slim is crazy about money. It is not he who fails (!), it is the Mexican government, that granted Telmex a 6 year monopoly and has since been unable to regulate the market in a proper way. You can blame Slim, but he acts merely like the hacker (or a Nick Leeson) who is looking for weaknesses in the system. It is the country that fails, and if it weren't for Slim, somebody else would have taken advantage.
  • The Slim empire and Mexico have an 'unhealthy symbiosis', the writers claim. A monopoly does lots of harm, especially in a poor country. It remains to be seen where Mexico would have been without this company gathering all this wealth around it.
  • Slim is now a major philanthropist, but this is all dismissed as 'white-coating', for PR reasons. He is also accused of 'green-washing'. While donating to charity and investing in green technology, Slim supposedly maintains an empire of companies that violate everything charitable or green. However, this is only underpinned by his stakes in cigarette production and by "customers who complain about high consumer rates and unstable connections". This doesn't seem to be enough to completely dismiss his good intentions.
Judge for yourself, but it is Mexican politics that is failing (and hell, all of capitalism if you will). Carlos Slim doesn't appear to be any worse than other people having been able to collect filthy amounts of money.

As to the second reason for worry over America Movil's involvement with KPN, this seems unjustified. America Movil isn't private equity, but a telecoms company. KPN may be broken up, but that isn't necessarily a bad thing. Especially if fixed and mobile are allowed to compete on the Dutch market. And if the government finds a way to block the takeover, they could still break-up KPN along the passive/active line, and deny America Movil the right to acquire passive network elements in the Netherlands. There will be plenty of interest in owning passive components (NBN, CIF, IPO, ...).

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