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INFO RUEHBR/AMEMBASSY BRASILIA 5724
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2287
RUEHRC/USDA FAS WASHDC 0607
RUEHMN/AMEMBASSY MONTEVIDEO 1824
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RUEHSG/AMEMBASSY SANTIAGO 1569
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RUEHRI/AMCONSUL RIO DE JANEIRO 6847
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RUEHCV/AMEMBASSY CARACAS 0191
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 SAO PAULO 000216 
 
SIPDIS 
 
DEPT FOR WHA/BSC, EB, D - RMILLS 
STATE PASS TO USTR FOR MSULLIVAN 
NSC FOR SUE CRONIN 
TREASURY FOR FPARODI 
USDOC FOR 3134/USFCS/OIO/WH/EOLSON 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD 
 
SIPDIS 
 
E.O.  12958: N/A 
TAGS: EINV ECON ECPS ETRD ASEC BR
SUBJECT: AOL LEAVES BRAZIL, STARBUCKS ARRIVES 
 
SAO PAULO 00000216  001.2 OF 002 
 
 
¶1.  SUMMARY.  After six years in Brazil, bankruptcy crises at parent 
company America Online Latin America have forced America Online 
Brazil to cease operations.  Meanwhile, American retailer Starbucks 
will soon set up (coffee) shop in Brazil, with the first store 
scheduled to open in Rio de Janeiro, April 2006.  END SUMMARY. 
 
----------------- 
AOL LEAVES BRAZIL 
----------------- 
 
¶2.  After six years in Brazil, U.S.-based Internet giant America 
Online (AOL) has decided to shut down its operations in the country. 
 The company plans to cease operations in Brazil next month and 
shift its subscribers to Terra Networks, a subsidiary of Spain's 
Telefonica.  AOL-Brazil placed ads February 7 in major Brazilian 
newspapers to announce plans for a March 17 shutdown. 
 
¶3.  AOL entered Brazil in late 1999 when the dot-com boom was still 
going strong, hoping to make South America's biggest and most 
populous nation the cornerstone of its operations in the region. 
Unfortunately, AOL-Brazil never became a major competitor in the 
country's ISP market, and the broader financial crisis at America 
Online Latin America (AOLA) spelled the end for the Brazilian 
venture.  In May 2005, AOL-Brazil laid off 80 employees at its Sao 
Paulo headquarters, and moved in November to dissolve its 
partnership with Brazil's second-biggest bank, Itau, which held 12 
percent of AOLA.  At that time, AOLA ended its marketing alliance 
with Banco Itau, with the bank agreeing to pay USD 3.7 million to 
AOLA and AOL-Brazil to escape potential liabilities under the 
marketing agreements.  More recently, AOLA agreed to a severance 
package with CEO Charles Herington, who will receive a USD 538,000 
severance payment, as well as USD 461,000 as a bonus for 2005. 
 
¶4.  The decision to pull out of Brazil comes as AOLA struggles to 
emerge from bankruptcy, and was made possible after a U.S. 
bankruptcy court ruled in January that AOLA could transfer its 
subscribers to Spanish ISP group Terra.  AOLA first sought 
bankruptcy protection in June 2005, and in December asked the court 
to allow it to transfer its clients in Brazil to Terra.  The main 
shareholders in AOLA are AOL, the Venezuelan group Cisneros, and 
Banco Itau. 
 
¶5.  While AOL-Brazil's recent ads did not mention Terra, a statement 
on the AOL-Brazil Web site urged subscribers to open an account with 
the Spanish internet service provider (ISP).  "In fact, an accord 
exists whereby subscribers who pass from AOL to Terra have access to 
a series of benefits," said Terra Brasil spokeswoman Luciana Lima. 
A document filed with the U.S. Securities and Exchange Commission 
certifies that Terra is prepared to pay between $760,000 and $1.9 
million to acquire AOL-Brazil's client base of roughly 150,000.  The 
final amount of the payment will depend on how many AOL-Brazil 
customers actually sign up with Terra.  Terra Brasil currently has 
more than 2 million subscribers. 
 
------------------- 
STARBUCKS IN BRAZIL 
------------------- 
 
¶6.  After five years of rumors, the U.S. coffee shop Starbucks 
arrives in Brazil and is confronted with its first dilemma even 
before acquiring the site where it will install its first shop - how 
to charge USD 4.50 for an espresso as it does in the U.S. without 
reducing its target clientele.  Starbucks plans to open 100 shops 
across the country over a two-year period.  Half the initial USD 20 
million investment will be provided by the Brazilian couple Maria 
Luisa and Peter Rodenbeck.  The Rodenbecks were responsible for 
bringing Outback Steakhouse to Brazil in the 1990s and McDonalds in 
the 1980s.  The first Brazilian Starbucks is expected to open in Rio 
de Janeiro by 
April. 
 
¶7.  Founded in Seattle in 1971, Starbucks was named after Starbuck, 
a character in Herman Melville's novel Moby-Dick.  According to the 
 
SAO PAULO 00000216  002 OF 002 
 
 
company's fact sheet, in 2005 Starbucks had 5,715 company-operated 
outlets worldwide: 4,666 of them in the U.S. and 1,049 in other 
countries.  In addition, the company has 3,956 joint-venture and 
licensed outlets: 2,222 of them in the U.S. and 1,734 in other 
countries. 
 
¶8.  COMMENT.  Starbucks has pursued an ambitious campaign of 
expansion in international markets, establishing coffee shops in 32 
countries beyond its U.S. base.  As such it has come to be regarded, 
particularly by the anti-globalization movement, as a flagship of 
globalization and a prime example of the ills some feel 
globalization promotes. Several groups maintain websites decrying 
the company, criticizing its labor relations, environmental impact, 
and holding it as a paragon of what some see as U.S. cultural and 
economic imperialism.  Branches of Starbucks have been attacked 
during protests, including those against the WTO meeting in Seattle. 
 While no public outcry has risen up against Starbucks' plans in 
Brazil, Brazilian demonstrators have attacked symbolic U.S. 
businesses in the past.  For example, shortly after the commencement 
of Operation Iraqi Freedom in March 2003, anti-war protestors 
stormed a McDonald's franchise (twice) on Paulista Avenue (Sao 
Paulo's financial district) causing serious damage to the 
restaurant, and threatening workers' safety.  END COMMENT. 
 
¶9.  This cable was coordinated with Consulate Rio de Janeiro and 
Embassy Brasilia. 
 
McMullen