StarMedia, PSINet Hop Into Bed

FORT LAUDERDALE, FLA. (03/16/2000) - Strange bedfellows StarMedia Network Inc. and PSINet Inc. have decided to partner, showing that these days virtually anything goes in the manic Latin America Internet market.

StarMedia, which operates a variety of Web sites and portals geared primarily at Latin America, and PSINet, a global ISP (Internet service provider), will build a portal for the close to 250,000 consumer subscribers that PSINet has in the region, the companies announced today.

StarMedia will supply Web content and services, and the companies will split e-commerce and advertising revenue generated by the portal, which will be rolled out to the region over the next 90 days.

Yet only a month ago StarMedia's Chairman and Chief Executive Officer Fernando Espuelas poured scorn on the fee-based ISP business that companies like PSINet embrace, saying the model has no future in Latin America. Espuelas made his comments during a press conference in which he announced the creation of a free ISP for Latin America backed by StarMedia and several partners. [See "StarMedia Launches Free Access ISP for LatAm," Feb. 16.]Thus, it seems surprising for StarMedia to be partnering with PSINet, who owns 20 fee-based ISPs in six Latin American countries, and for PSINet to be joining forces with a potential competitor, an analyst said.

"If I were PSINet, I'd be asking myself how much of this joint venture ends up competing with StarMedia's free access offering," said Lucas Graves, senior analyst at market research company Jupiter Communications Inc. in New York City.

The partnership would make more sense if PSINet was also to participate in StarMedia's free ISP venture, since PSINet could provide the access component, Graves said.

"The question for PSINet is how long can it sustain the paid-access model while the rest of the market is being swept by free ISPs," Graves said.

A potential way for PSINet to maintain its fee-based ISP model in Latin America would be to eliminate the per-minute or per-pulse charges its subscribers pay for local phone calls that carriers impose in many parts of the region. PSINet could do this in a variety of ways, including providing toll-free numbers for its subscribers, Graves said.

Knowing they are being charged on a per-minute or per-pulse basis for a local call discourages users from remaining online for too long, a situation that not only affects Internet usage but also e-commerce, the analyst said. Eliminating the local phone-call charges could allow PSINet to continue charging a monthly fee for its services, Graves added.

In any case, PSINet will benefit from associating with StarMedia, whose brand is very strong in Latin America, the analyst said.

The companies didn't immediately return calls seeking comment.

StarMedia, in New York City, can be reached at

PSINet, in Herndon, Virginia, can be reached at

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