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Latin America is the last market enjoying network growth rates typical of the U.S. and Europe in late 1990s, and companies such as Terremark Worldwide are driving a stake in the ground to take advantage of the opportunity.
Terremark, the operator of a carrier-neutral network exchange in Miami, plans to replicate its apparent success with NAP of the Americas in Sao Paulo, Brazil. The companys business model is based on independent investors – a coalition of banks in NOTAs case – putting up cash to fund construction of a building that meets tough telephone company-grade requirements. Terremark then leases a portion of the building to run the exchange. Terremark executives said they are getting good enough traction in Brazils financial circles to round up enough capital to pull off a NOTA-like project.
“We are going to be in Sao Paulo fairly soon,” said Manuel Medina, chairman and CEO of Terremark. “Obtaining the critical mass of carriers in order to interconnect is the advantage that we have with NAP of the Americas.”
These are the same carriers that are now asking for a facility like NOTA in Sao Paulo, and eventually in Mexico City, Medina said, adding that he doesnt suffer the “build it and they will come” philosophy. Carrier enthusiasm is explicable now that comparable statistics on network growth in the 2000 to 2001 period are in.
TeleGeographys Packet Geography 2002 survey found that Latin America accounted for much of the network expansion worldwide in 2001, posting a 480 percent gain in compound network growth. Globally, Internet backbones grew 174 percent in 2001, almost half of 2000s 382 percent. Additionally, Latin Americas interregional Internet capacity shot up to 12 percent of total capacity from 3 percent last year; the rest came from connections in the U.S.
Why Sao Paulo?
There were a number of reason why Terremark picked Sao Paulo as the key city to tap Latin networking opportunity. First, the city has an old government-owned Network Access Point (NAP) that needs to be updated, Medina said. Second, Sao Paulo has an abundance of capital to finance a project like that. “In Brazil, there are huge amounts of capital available,” he said.
Terremark is well-positioned to attract both funding and customers because the NAP would be the first real, carrier-neutral facility in Brazil, Medina said. But two competitors that have already built facilities in Sao Paulo disagreed.
“Our business in Sao Paulo works a lot like the NOTA model,” said Manuel Mencia, senior vice president of networking at OptiGlobe Communications. “Our customers have a choice of bandwidth providers, and we provide them cross-connects to connect with any carriers under our roof.”
OptiGlobe, in Bethesda, Md., has 18 carrier customers using its facility as a point of presence. But the companys primary business is managed hosting, and it is getting good traction in the market, having recently signed up Ford Motor.
OptiGlobe competitor Diveo Broadband Networks, which was the first U.S. carrier to enter the Latin American colocation and hosting market, also lends its facilities to NAP-like activities.
“We dont sell our IP bandwidth to peers at the NAP. And carriers and ISPs dont even pay for colocation space as part of the NAP, since the routing and switching equipment used to connect IP networks takes up a very small amount of space,” said Mark Lineaweaver, Diveos director of business development.
But even with its competition alive and well, Terremark is entering the Southern Hemisphere at exactly the right time. Brazil is just now emerging from a tough winter of power blackouts caused by an unprecedented drought. However, instead of curbing investment into outsourced network connectivity, hosting and colocation, the power shortages have pushed a record number of businesses into the arms of outsourcers such as Diveo and OptiGlobe.
“The power crisis in Brazil brought in lots of opportunities, since Diveo has fully redundant energy backup,” Lineaweaver said. OptiGlobes Mencia reported the same phenomenon, explaining that businesses that wanted their servers to run later than 5 p.m., the end of the business day, had to outsource.
Operators such as OptiGlobe already generate their own power with diesel facilities, because Brazilian utilities charge more for peak hour power usage, and it makes better economic sense to cut to diesel power during the prime-time hours between early evening and very early morning.