Terra, AOL Brasil enter the 'Net fray

MIAMI — The Latin American Internet wars are heating up with the entry of two deep-pocketed players.

Terra Networks arrived with a bang with a Wednesday IPO in Spain and the United States. Floating about 24% of its stock, the subsidiary of Spanish media and communications giant Telefonica (which is keeping a 70% stake) raised $818 million, including shares sold to strategic partners for $315 million. It is now the ninth largest company on the Spanish stock exchange, valued at about $10 billion, and the biggest publicly traded Internet company in Europe.

Vulnerable position

Terra is still primarily an Internet access company, albeit the largest in Latin America due to investments like Brazil’s Zaz. With 80% of business derived from Latin America, most of which is paid Internet access, the company is vulnerable to economic fluctuations in the region.

Yet Terra is preparing to launch its Spanish-lingo Internet portal, which has already bowed in Spain, throughout Latin America and into the U.S. Hispanic market before year-end, going head to head with established portals like StarMedia Networks, Elsitio.com and Yahoo en Espanol.

Growth elsewhere

Terra aims to reduce Latin American business to 60% of revenue, with Spain and the U.S. repping another 20% apiece.

Terra indicates America Online is its model, but AOL is already its competitor.

Partners AOL and the Cisneros Group of Companies formally launched America Online Brasil on Tuesday, after operating a test service since August. They will bow services in Mexico and Argentina next year.

Separately, Cisneros — with U.S. investment firm Hicks Muse Tate & Furst — owns a stake in Elsitio.

Lack of content

Terra’s acknowledged weakness is providing content, and it plans to form partnerships to provide localized content, though the competition is stiff.

Other major Latin media players, such Mexico’s Televisa and Brazil’s Lobo (which sold a stake in its pay TV subsid to Microsoft) are said to be preparing to enter the Internet market as well.

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