Tele.Com / December 6, 1999
By Larry Luxner
SÃO PAULO -- Brazil's fast-growing Internet market is attracting large, well-capitalized firms, including some big U.S. names. But as their numbers grow, experts say a wave of acquisitions, mergers and strategic partnerships is inevitable.
The most recent player to enter the Brazilian ISP fray is America Online Inc. (Dulles, Va).The U.S. company has launched America Online Brasil as a joint venture with Grupo Cisneros, based in Caracas, Venezuela. The new venture hopes to break into the country's competitive Internet market with low-cost Internet access, says Charles Herington, president and chief executive officer of AOL Latin America. Like many of the others, AOL plans to use Brazil as an anchor for expansion into other parts of Latin America. It has earmarked $200 million for investment in the region over the next 12 months.
Today, around 1.7 million Brazilians, including business users, are paying to be connected to the Internet. Experts expect that number to top 7 million by 2002. And there's still plenty of room to grow: Brazil has 165 million people. Whether the number of ISPs will grow to meet this demand is another story, however. A report conducted by the U.S. Commercial Service, which operates out of the U.S. Embassy in Brasilia, says Brazil's budding Internet market has room for a maximum 12 ISPs , or some 390 fewer than exist today. Massive consolidation, the report concludes, is unavoidable.
"I think there's obviously going to be about a dozen very large ISPs," says Philippe J. Kuperman, president of the Latin American operations of PSINet, which is based in Herndon, Va. "But we see the market breaking down into more niche markets. and at the next phase of evolution we see ISPs which will specialize in a vertical market. For example, there might be ISPs concentrating on providing service to lawyers only. Another will serve doctors only. These are the sort of niche players that will abound, not only in Brazil but throughout Latin America."
The battle to win customers is in full swing. All over Brazil -- from Sao Paulo in the south to Recife in the Northeast and even Manaus in the Amazon jungle -- colorful billboards are sprouting up along highways, atop buildings and near shopping malls, advertising one Internet access provider after another. At present, Universo On-Line (UOL), has 31 percent of the ISP market, with 530,000 subscribers. Zaz, owned by Spain's Telefonica, has 330,000, or 19 percent market share. Third-ranked PSINet has 150,000, just under 9 percent, followed by Mandic, with 90,000 or 5 percent, and ZipNet, with 23,000, or about 1 percent.
With the arrival of AOL, industry representatives expect prices to drop further. Already some ISPs have begun offering unlimited Internet access. Experts also reckon with a host of new content offerings. "Access is getting easier and content is growing on the Web," says Andy Castonguay, an analyst at Pyramid Research Latin America (Sao Paulo). "A lot of companies are realizing the Internet is an amazing new way to reach customers."
Most of those customers are in Sao Paulo, but their numbers are rising in other big cities. According to Comite Gestor da Internet no Brasil, a non-profit Internet watchdog, Sao Paulo accounts for 28 percent of all Internet subscribers, followed by Minas Gerais (14.2 percent); Rio Grande do Sul (8.9 percent); Rio de Janeiro (8.4 percent); Parana (7.5 percent); Bahia (6.5 percent) and Santa Catarina (5.8 percent).Broken down by plan, 34.9 percent of these subscribers have unlimited Internet access packages, paying an average $27.55 a month. Another 28.8 percent pay $16.14 a month for 10 hours of usage, plus $1.61 per additional hour), and 23 percent pay $24.72 a month for 20 hours, plus $1.24 per additional hour.
Despite rapid Internet takeup in Brazil, many economic and technical factors threaten to hamper growth in the mass market. Although prices for computers and telephone service continues to fall, they're still too high for most Brazilians, analysts say. And there still aren't enough phone lines to go around. According to USCS, even ISPs can't get enough lines. Telefonica has a backlog of 50,000 lines in Sao Paulo alone. And access alternatives, such as cable, satellite and wireless local loop, are still in their infancy.