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AOL to Samba in Brazil

AOL's going south Tuesday with the launch of a Portuguese-language Web site with closely held Venezuelan media conglomerate Cisneros Group.
Written by ZDNET Editors, Contributor on
SAO PAULO, Brazil -- America Online Inc. will take its first big step into Latin America's online market with the launch Tuesday of a Portuguese-language Web site in partnership with closely held Venezuelan media conglomerate Cisneros Group.

But the leading U.S. provider of Internet services will find a slew of slick, local competition well-prepared -- and well-capitalized -- to face the coming onslaught.

The role of underdog in a country home to the world's largest non-English Web site doesn't seem to faze AOL (NYSE:AOL) President Robert Pittman. Pittman says that while Brazil's Internet market is already among the world's most sophisticated, "the game has barely begun here." Promises Gustavo Cisneros, chairman of Cisneros Group: "We will spend what is needed to be a market leader."

Both men declined to comment on market expectations that AOL-Cisneros will stock its Latin America war chest next year by selling as much as $500 million of stock in a public offering of its regional operations. A flurry of Latin American Internet offerings are expected in the coming months.

Last December, Cisneros Group agreed to invest $100 million to fund a 50-50 joint venture with AOL to bring AOL to Latin America, where the online community is expected to triple to more than 35 million users during the next four years, according to Jupiter Communications, an Internet consultant. Brazil's Internet market is by far the largest in the region, estimated at almost six million users.

Local competition is fierce. Brazil's online market is dominated by Universo Online SA, or UOL, which is controlled by Brazilian publishing groups Abril SA and Folha de Sao Paulo SA. With over half-a-million paid subscribers and growth of 12% a month, UOL is the world's largest non-English web site. Fully 80% of Brazilian net surfers visit its site daily. It also boasts a growing war chest, having raised $100 million in September by selling a 12.5% stake to a group of investors led by Morgan Stanley Dean Witter & Co., of New York. A Nasdaq Stock Market offering is expected shortly.

UOL is followed by ZAZ, owned by Spanish telecommunications group Telefonica SA, which controls one of every three phone lines in Latin America and aspires to dominate the region's online market through its Terra Networks unit -- which also plans a public offering. Brazil is already Latin American Internet specialist StarMedia Network Inc.'s (Nasdaq: STRM) largest market, and popular portal Yahoo! Inc. (Nasdaq: YHOO), of Santa Clara, Calif., recently launched its own Portuguese-language site in Brazil. Finally, Microsoft Corp. (Nasdaq: MSFT), of Redmond, Wash., plans next year to launch its own service in partnership with Brazil's largest media group, Organizacoes Globo SA, taking advantage of Globo's extensive cable operations and blue-chip brand name.

Given the competition, Internet pricing in Brazil is cut-throat. Monthly connection charges average almost $15 for unlimited access, with providers such as ZAZ charging as little as $10 -- well below the flat $22 a month AOL, of Dulles, Va., charges in the U.S. That is important because online advertising and commerce revenues are relatively insignificant here.

Pittman declined to discuss AOL's rate structure for Brazil, except to say: "We are rarely the cheapest service, but we are always the best value," given AOL's ability to leverage its global content and sophisticated data networks to create a reliable, user-friendly product.

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