Free Net access rocking Latin American ISP market

From...

May 12, 2000
Web posted at: 9:24 a.m. EDT (1324 GMT)

by Juan Carlos Perez

(IDG) -- The spread of free Internet access is changing Latin America's Internet Service Provider (ISP) market by removing a significant barrier for getting online, said speakers at an event in Miami this week.

In a region where only about 2 percent of the population is online, free access offers are accelerating the Internet population's growth, a key factor for e-commerce success, speakers said.

"Free Internet access is taking the region by storm," said Grant Smith, a senior analyst at Yankee Group, a Boston-based consultancy and market researcher, at the Internet Service Provision Latin America 2000 show.

In Latin America, fee-based Internet access is on average higher than in other regions, and most users also have to pay a per-minute or per-pulse charge on local calls, which makes connecting to the Internet a costly proposition in many of the region's countries.

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"In Latin America, price matters," Smith said.

Users paid an average of $30 per month for dial-up Internet access in Latin America in 1998, although that figure dropped to $19 per month in 1999, according to International Data Corp. (IDC) estimates.

But the arrival of free Internet access to the region about five months ago is allowing many new users to get online and many existing users to spend more time surfing the Web, speakers said. The number of ISPs providing free service in the region grows constantly, and includes Brazil's UOL, Spain's Terra Networks and U.S.-based IFX.

Surprisingly, many ISPs offering free access are providing a high-quality service, which makes their offers even more enticing for users, Smith said. He pointed out that a recent Yankee Group study revealed that in Colombia, a noticeable number of users abandon their fee-based service after signing up with a free ISP.

"Free Internet access has created a new price reference point for dial-up service in Latin America," Smith said. "And that price point is zero."

Estimates about the number of people who are online in Latin America vary. Yankee Group expects to see 25.5 million Internet users in Latin America by the end of the year, up from 12.4 million in 1998, Smith said. There should be 66.6 million Internet users in Latin America by 2005, according to estimates from Jupiter Communications in New York.

U.S.-based Prodigy Communications, which manages the 410,000 Internet accounts of Mˇxico's dominant telecommunications company Telˇfonos de Mˇxico, see free access in Latin America as a complement and not a threat to fee-based access, said David Trachtenberg, the company's president and chief operating officer.

"Free Internet service has definitely taken off in Latin America," he said.

In addition to free access, other drivers for Internet adoption in Latin America are an increase in PC penetration, thanks in part to popular PC leasing plans offered by ISPs, such as Telmex, and to widespread use of wireless products, such as cellular phones and pagers, speakers said.

"The dominant mode of access to the Internet in Latin America will be wireless," said Tracy Leeds, senior vice president of corporate development at StarMedia Network.

That is why StarMedia -- a company that operates a variety of Web sites and portals and is considered an Internet pioneer in Latin America -- has been busy signing agreements with wireless carriers lately to provide StarMedia content and services to wireless subscribers, she said.

"We're focusing on this," she said.

StarMedia, along with CMGI, also has an ownership stake in a new provider of free Internet access for Latin America called Gratis1, an investment the company made to help increase the region's Internet population, which is key for the success of companies like StarMedia.

While free dial-up offers are meeting the needs of individual consumers, and costly dedicated lines are being used by large corporations, the segment of small and medium-size companies is having trouble finding the right Internet access offer, Yankee's Smith said.

"These companies are too big for dial-up, but too small for dedicated access," Smith said.

In fact, IDC estimates that 98 percent of all Internet access accounts in Latin America are dial-up accounts. Using dial-up accounts in a business environment is not the most convenient scenario, Smith said, and predicted that many small and medium-size companies will sign up for broadband options as they become more widely available in the region.

"This is a market that needs to -- and will -- receive attention" in the coming years, he said.

FirstCom is one company that believes that Latin American companies are underserved in terms of broadband access to the Internet, said Patricio Northland, the company's chief executive officer, chairman and president. That is why it is in the process of merging with AT&T's Latin America division to create a new company whose goal will be to provide "high bandwidth communication services to businesses in key Latin America markets," he said.

The forecast for Latin America's ISP market is rosy. IDC earlier this year predicted that ISP revenue in Latin America will increase at a 42 percent compound annual rate, from $1.41 billion in 1999 to $8.13 billion in 2004.

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Internet Service Provision Latin America 2000
Telefonos de Mexico
Star Media

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