Heavy traffic: rising internet use in Latin America is bringing in business--at last.
Internet service providers in Latin America reported 2004 revenues of US$3.36 billion, counting both corporate and residential clients, according to Pyramid Research. That figure is expected to jump 75% to $5.89 billion in five years. Brazil and Mexico will lead the pack, accounting for 71% of those revenues in 2009. Venezuela will grow the fastest, with revenues rising by 82%, Pyramid reports.
For some companies, increasing Internet use literally has been the breath of life. Former real estate company Terremark owns a network access point that caters to Latin America. Called a NAP, the center in downtown Miami is a kind of wired-up technology warehouse where networks can exchange information. Another Florida provider of similar services is Spain's Telefonica, which operates the KeyCenter data center west of Miami. "The recovery period is finished. We are in a very, very high-growth stage right now," says Terremark CEO Manuel Medina. "What we care about is for traffic to continue to grow."
More traffic is good news for Terremark. The highly leveraged company took a beating as it emerged from the dot-com disaster, losing tens of millions of dollars annually through 2004, according to the company's financial statements. But things seem to be looking up. Terremark managed to narrow its net loss to $3 million during the last nine months of 2004 on higher revenues. The company can now get fresh cash on the markets. In March, Terremark raised just under $44 million in a stock offering. Telefonica does not break out financial information for its data operations in the United States.
Phone companies and Internet service providers, as well as large institutions like hospitals, universities and banks, rely on data centers. Internet service providers and other entities drop off data in various forms to other carriers, which shuttle the information toward users around the world. The center also houses facilities for backing up critical information. They are built to withstand category five hurricanes--those with winds in excess of 249 kilometers per hour--and operate under high security standards. At the Terremark operation, for instance, four power generators hum in a separate room, ready to go should something knock out the electricity in the center; a guard gate literally traps cars between two walls if a driver tries to enter without permission. All this to ensure that bank transactions, medical information, any crucial data--but also everyday e-mails--get through without a hitch.
Putting providers of Internet and data transmission services under one roof gives data-hungry clients a chance to bid for those services at cheaper rates. When a household or a business switches to broadband Internet from dial-up, for instance, it not only gets faster service but can also send and receive more information over the Internet, such as telephone calls or heavy amounts of data. That costs providers more, so cutting overhead matters.
Hardware. Voice over Internet protocol (IP)--used to make inexpensive phone calls over the Web--also has boomed with the rise of broadband. Increasing sales of affordable computers in countries such as Brazil has boosted the number of Internet connections, which is good for a Terremark or a Telefonica, since they house all the hardware needed to move data around the world. "As long as there is broadband, there are more people accessing the Internet, and there are more people depending on voice-over-IP," says Medina.
The public sector--government agencies, in particular--is helping Terremark inch toward the black. It has signed deals with the Department of the Defense and 47 additional U.S. federal agencies, including the Walter Reed Army Hospital and the Department of Agriculture. At the end of 2004, 43% of the company's data-center revenues came from the U.S. government, and the company hopes to rake in more public-sector clients with big information technology (IT) needs.
"Who is the largest user of connectivity and services today? It's the federal government," Medina says. "It's the same principal as to why it's advantageous for large enterprises. If you consume large amounts of connectivity, you are running mission-critical applications and you need your IT infrastructure to be able to be guarded against any possible interference."
Apart from the Miami facility, Terremark manages data centers in Sao Paulo, Santa Clara, California and Madrid and is expected to open one near Washington, D.C. The Miami building--a white-and-blue box that might otherwise be mistaken for a warehouse, except for the bulbous antennae and satellite dishes on the roof--is Terremark's hub.
The technology center is not at full capacity, although Medina expects an increasing number of enterprises, both public and private, to demand more storage and space to keep equipment and back-up precious data. And Medina says he knows just where new business will be. "The financial sector will be huge for us as well as healthcare," he says. While the U.S. government has brought in business, Terremark hopes smaller public entities follow suit. It has already signed deals with Miami-Dade County and the city of Coral Gables, which is just south of the city of Miami.
Private companies say working with one-stop-shop Internet backbones can cut costs. Nortel Networks, a telecom equipment maker, chose Telefonica USA to be its network service provider for its Internet operations in Latin America.
"We have selected Telefonica to provide us carrier service based on their network performance, their superior cost performance and security," says Olga Stroud, director of information services for Latin America and the Caribbean for Nortel. Rising Internet traffic in Latin America means more business for Nortel. "Our infrastructure is constantly expanding," says Stroud.
For Lucent Technologies, the need for security is on the rise as Latin America recovers. Brazil, say some experts, is the source of more Internet attacks than any other country in the world. "Before people would think worm attacks and hackers and breaches of security would only be in North America, but unfortunately we're seeing it in our region," says Frank Contijoch, value proposition manager at the marketing and sales unit of Lucent's Latin America and Caribbean division. Lucent provides services to safeguard clients against threats. It also provides technology that allows people to make phone calls over the Internet.
While Internet access is on the rise, broadband Internet penetration is needed for business to take advantage of services such as voice-over-Internet. Internet service providers must invest to offer broadband services, too, a timely and costly process, although more and more are providing broadband instead of dial-up in key markets. While switching from dial-up Internet access to broadband is expensive for both providers and users, many companies in the region are making the jump just the same. "Countries like Brazil are making inroads daily," Contijoch says.
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|Date:||Jun 1, 2005|
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