The Net Heads South (to Latin America)

By Tim Padgett/Miami

The internet has long been viewed with suspicion by the often insular business and government elites of the Caribbean Basin. It was just one more way, they grumbled, to get trampled by the global economy. But bold investors are finding opportunity in that angst. This year, more than 5,000 miles of undersea fiber-optic cable is being laid from Miami to the Yucatan to the Bahamas, wiring 15 countries and islands. The $450 million venture is led by a firm based in Miami and Bermuda, aptly called New World Network. "It makes sense for us precisely because the Caribbean is so underserved," says CEO David Warnes. The project will see $30 million in revenues this year, and Warnes says that figure should triple next year.

America's vaunted New Economy is heading south--not just on the NASDAQ but on the map. Despite the global slide in tech profits and stocks, firms like New World Network are betting on Latin America, now the world's fastest-growing market for Internet services.

To be sure, Latin America has seen its share of dotcom flameouts and busted deals. Last month Telefonica of Spain withdrew its takeover bid for a Brazilian cellular company, citing financial fallout from the terror attacks against the U.S.

But the share of Latin American households that own a personal computer, now only 5%, grew 30% last year and could grow that fast again this year, according to the analysis firm IDC Latin America, based in Miami. By 2005, about 75 million of Latin America's 500 million people could be online.

Few regions now mix so much demand with such "underconnected, underserviced, uncompetitive markets," says Isaac Lee, editor of the Latin American e-business magazine Poder (formerly Punto-com). One response: Terremark Worldwide of Miami in June launched the first Network Access Point--a giant, $70 million Internet switching station--specifically for Latin America.

Wireless Internet services are especially hot, as companies and consumers try to circumvent the continent's dismal communications infrastructure. Fewer than 2 million Latin Americans use wireless Internet technology today, but the Washington-based Strategis Group forecasts that by 2007, 48 million will. That's a key reason Atlanta-based telecom giant BellSouth this summer spent $25 million for an 11% stake in StarMedia. It hopes to use the ailing multilingual Latin American Web portal as a launching pad for services like e-mail on mobile Internet--"for those epic traffic jams we all know so well in Sao Paulo," says BellSouth's Latin American director, Roberto Peon.

Darby Overseas, the investment firm chaired by former U.S. Treasury Secretary Nicholas Brady, last year injected $20 million into the Mexican telecom firm Protel. Now Darby is leading a new group, which includes IBM and Comcast, to invest solely in Latin American new technology and telecom.

When Mexico's largest flourmaker, Maseca, wanted to exploit the government's recent deregulation of the tortilla industry, its delivery fleet needed instant access to warehouse data. Houston-based Compaq, which sent its new iPAQ pocket PC service south of the border this year, nailed a deal to put its handheld wireless devices in hundreds of Maseca drivers' pockets.

Most big U.S. firms, however, have been slow to recognize Latin America's wireless potential and are "a bit behind in terms of entering with strong investments," says David Bernad, co-founder of Latin Venture, a Miami consulting firm. He notes that despite the North American Free Trade Agreement, European firms like Ericsson "have gotten a better grip" in markets like Mexico.

Smaller U.S. firms, too, have moved aggressively to the south. GiantBear, a young company based in White Plains, N.Y., earlier this year inked a multimillion-dollar deal with Centennial de Puerto Rico, one of the Caribbean's biggest telecom companies. GiantBear president Scott Nevins says Latin America's need to "leapfrog" over its shoddy fixed-wire infrastructure could help his business "showcase what we can do"--provide Web-to-wireless content to any kind of mobile device.

Bernad is putting together an online service, Latin Venture Partners, which will join the growing number of "e-marketplace" services linking firms north and south, big and small. The service helps firms identify B-to-B partnerships that can help improve the firms' supply-chain management--always a tangle in Latin America, with its inefficient transportation and distribution systems. "The Internet is the great equalizer in hemispheric free trade," says Bernad. "It's the vehicle for the little guy to expand beyond his borders."

Douglass Stinson, director of Miami-based LatinTrade.com one of the leading pan-American e-marketplaces, agrees: most of the 3,000-plus businesses using his service are small or medium size. "We greatly reduce the market-entry costs for them," says Stinson. "It helps them winnow out prospects without the $5,000 trips to Argentina or Chicago."

The rise of online databases for Latin American markets has also been a boon: last year, J.P. Morgan Partners invested $10 million in the Sao Paulo start-up comDominio which provides companies with customized databases. Such ventures have IDC predicting that Latin America's B-to-B e-commerce will leap from $2 billion today to more than $8 billion by 2003.

Poder is thriving on all that potential--but not because it heaps hyperventilating praise on every new dotcom. Lee, former editor of Colombia's leading news magazine, Semana, has brought investigative reporting to Latin American e-business, exploring such questionable practices as the allegedly profligate spending that last year brought down the Bogota-based B-to-B website LatinAdvisor. "Because of the Internet downturn in the U.S.," says Lee, "we know investors are being more skeptical, so we want to be more of a magnifying glass than a booster." That's always a refreshing attitude in a fast-growing region.

For more on Latin e-business, see time.com/global.com