U.S. Titan Sputters.

AOL-Time Warner merger has little impact in Brazil--for now.

THE RECENT MERGER OF AMERICA Online, the world's largest Internet service provider, and Time Warner, the world's biggest media conglomerate, hasn't made a ripple in Portuguese-speaking Brazil, Latin America's largest nation.

"The merger doesn't mean that much for Brazil and Latin America," says Caio Tulio Costa, executive director of Universo Online, the world's largest non-English website with 650,000 subscribers in 2,000 Brazilian cities. "Its media content is in English and totally focused on the American market."

The question, however, is how long Brazil will enjoy its holiday from the full onslaught of the new media monster.

Executives at ZAZ, Brazil's second-largest Internet portal with 480,000 subscribers, are already gearing up to battle AOL and others by investing heavily in a high-speed connection. "This is a difficult, dynamic and rapidly changing market," says Silvia de Jesus, executive director of ZAZ, which is owned by Spain's Telef[acute{o}]nica. "To date, AOL-Time Warner has failed to identify with the Brazilian consumer."

Kirsten A. Powers, AOL's director of international communications, foresees the company's powerful new partner providing a boost to operations in Brazil. "With Time Warner's extensive presence in global markets, we envision many opportunities with our interactive music brands, magazines and cable programming," she says.

"There's a whole new world ahead of us," adds Roberto Boaventura, president of Warner Music Brasil, whose labels include Atlantic, Reprise and Electra. "Through AOL's website, we can launch our artists, sell our products and include tour schedules and reviews."

Botched launch. However, an inauspicious debut seems likely to keep AOL from becoming Brazil's leading Internet provider anytime soon.

When AOL entered Brazil last November it couldn't use its well-known domain name--aol.com--since a Curitiba-based Internet company had previously registered that address. When AOL failed to buy it back; it field a lawsuit, which is still pending. In the meantime, subscriber access is accomplished via www.americaonline.com.br.

Then, some of the 20 million AOL installation disks distributed in shopping malls, stores and schools, or tucked into newspapers and magazines, turned out to be incompatible with some PCs and altered their browsers. As a result, the Rio de Janeiro consumer protection agency filed a court action to fine AOL US$1.5 million for subscribers who complained of complications resulting from installation.

"They didn't do their homework," says Cora R[acute{o}nai, Brazil's leading Internet columnist for the Rio daily O Globo. "AOL knew there were similar problems when UOL and ZAZ launched its service, but didn't learn from that lesson.

Adding to AOL'S woes, Banco Bradesco a leading bank, shook up Brazil's Internet industry last December by offering free Internet access to its 8 million clients. Since then, many providers have followed the bank's freebie policy, with one company--Netgratuita--claiming to have signed up 806,000 subscribers in just two weeks.

Powers, however, says AOL has no plans to give anybody free access. "We see two segments, one that is free and another which is paid," she says. "Both appeal to different kinds of users."

To be sure, nobody is writing AOL-Time Warner off in the battle for the lucrative Brazil Internet market. Most here agree that they will be a tough act to beat once Time Warner's multimedia package is available online in Portuguese. To date, AOL translates a smattering of information on weather, sports, news and the day's horoscope.

But that is slowly changing. In recent months, AOL has forged agreements with the Jornal do Brasil and Gazeta Mercantil newspapers and is seeking other partners to beef up its Portuguese-language offerings. "If they translate their content into Portuguese, they could become unbeatable," says O Globo's R[acute{o}]nai.

UOL's Costa predicts that AOL-Time Warner's mere presence will force local service providers to improve their quality so they can compete with a firm that owns such household names as CNN, Time and Warner Music.

Still others predict the U.S. giant's future success in Brazil will be based more on economic muscle--AOL Latin America plans to issue some US$575 million in stock--than on Portuguese-language content.

"With all the money they have, what if AOL Time Warner decides to buy UOL, or O Globo?" says Marcos Wettrech, president of iBest, a popular Internet firm that doles out awards for the nation's best websites. "That is the real threat."