Brazil's Woes No Threat to Internet

StarMedia sees revenues not hurt by inflation, recession.
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So what if Brazil sneezes? World markets were roiled after Brazil devalued its currency yesterday, accompanied by the resignation of the country's central bank president. Even tech investors became jittery on the news. But the companies who have a vested interest in the development of the Internet in Brazil say the Internet is unlikely to catch a cold and in fact will grow by leaps and bounds.

"Even if your economy is in shambles, the Internet is growing at rates that would be embarrassingly large for an established business," says Bill Bass, an analyst at

Forrester Research

.

Just ask Jon Diamond, vice chairman and CEO of Internet music retailer

N2K

(NTKI)

. Brazil is one of the top 10 foreign countries accounting for N2K's international sales, which amount to 20% to 25% of the company's revenues, Diamond says. "I'd be surprised to see any impact on sales that is that material," says Diamond. Customers pay by credit card in U.S. dollars.

The U.S. Internet company with the most prominent stake in Brazil is the privately held

StarMedia Network

, which operates general-interest Spanish- and Portuguese-language Web sites for Latin American computer users. More than 38% of the visitors to StarMedia's portal come from Brazil, making it the company's biggest source of visitors by far. StarMedia director Susan Segal, who is also general partner for Latin America at

Chase Capital Partners

, a StarMedia investor, says the company's revenues haven't been depressed by Brazil's continuing recession and high inflation rate. "We've seen no decline in our advertising revenue to date." (Chase Capital Partners is an investor in

TheStreet.com

.)

Segal says short-term volatility in Latin American markets and currencies will not stop the development of the Internet, which Forrester estimates has less than a 1% penetration of the Latin American population. "The trend to the Internet is coming, is here and is continuing," she says. "The demographics are so compelling," Segal adds. "There's so little usage today, the penetration rates are so low and communication is so important." There's plenty of room for growth among the wealthiest 20% of the Latin American population, from which StarMedia currently draws the bulk of its audience.

America Online

(AOL)

announced last month it would be launching Latin American-targeted services within a year -- starting in Brazil, Argentina and Mexico -- in a joint venture with the

Cisneros Group of Companies

media conglomerate. "We have plenty of reasons to feel optimistic about investing in Brazil," says the Cisneros Group in a statement issued today. "The country's Internet market of over one million users is growing rapidly and will continue to grow despite temporary ups and downs in the financial market, such as we are witnessing at the moment." An AOL spokeswoman says the company's plans regarding Latin America haven't changed.

Other players may not be far behind. Internet-focused data communcations carrier

PSINet

(PSIX)

, which does not operate in Brazil, has announced its intention to move into the world's top 20 communications markets, which would include the country. A company spokesman had no comment on the day's news but pointed out that recent economic weakness in Asia had given the company opportunities to expand in that region of the world.

The international markets may be beset by financial turmoil, but it seems there is no stopping the Internet from growing.

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