Rumor: Reliance to Sell Flag, Yipes

December 14th, 2009 by · 4 Comments

According to a Reuters news report, Indian telecommunications giant Reliance Communications may be trying to sell off all or part of Reliance Globalcom.  That unit’s primary assets are its FLAG undersea cable assets and US metro Ethernet operator Yipes.  There are also the Vanco assets which were not mentioned.  Supposedly, Reliance is trying to sell the unit to someone like KDDI, Verizon, or AT&T for some $3B.  On the other hand, a Reliance spokesperson has ‘vehemently’ denied the rumor.  Personally, I smell a not-so-subtle trial balloon floating through the air here.

The argument in favor of such a sale is that Reliance needs capex for its wireless buildouts in India, which I suppose is an entirely valid reason.  The international fiber and data arm is small in comparison, and has less growth potential.  If they need cash and can’t get it another way, this is a reasonable possibility.  And I have been hearing all year the the company has been looking to improve its cash position.  One could also see Reliance Globalcom’s intention to spend capex on a datacenter buildout as a drain they could do without.

So why a trial balloon?  The price tag looks a bit steep.  Last summer, Qwest put itself up for sale for that amount, but it probably had quite a bit more revenue.  Reliance bought Flag for $209M back in 2003, then Yipes two years ago for $300M,  and Vanco for about $77M just last year, which altogether makes less than $600M invested plus whatever else they had.  The submarine cable business has improved in the last couple years, but not THAT much, and they paid up for Yipes before valuations fell.  Vanco was falling apart a year ago, how much could it be worth after 12 months of recession?  Qwest tried to sell its network for $2-3B over the summer, but they had a billion or two in revenue (depending on it might be divieded) plus nationwide fiber and conduit in the US.  I just don’t think Reliance Globalcom has much of a better chance of reaching that number.

So I think it is a trial balloon, i.e. they want to see what people think it’s worth without actually putting it up for sale.

Who would buy Reliance Globalcom if it were really for sale?  Probably a Japanese telecom or perhaps someone out of Singapore.  I actually doubt the US operators would, they just don’t need it enough right now and are focusing more and more on wireless.  The same goes for the European PTTs.  In a world where there were no international rivalries, I would say perhaps China Telecom.  But politically that is probably out of the question.  A wildcard could be Global Crossing, if their Singaporean backers decided to make a play.  But not at the kind of prices mentioned here.

If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!

Categories: ILECs, PTTs · Internet Backbones · Mergers and Acquisitions · Undersea cables

Join the Discussion!

4 Comments So Far


  • fluids_only says:

    This story sounds plausible.

    The value for an acquirer will be all about the FLAG network and associated wholesale business, not so much the Yipes or Vanco enterprise businesses – both of which lack a customer base of any significance compared to those of any aspirant acquirers.

    The core FLAG cable assets – FALCON, FEA, FNAL, FA-1 – are all well built and (contrary to a very poor article I read in the New York times) with plenty of life left in them. FLAG has also held back from any new major infrastructure investments which is problematic as an ongoing concern but a positive if the company is being shopped to a T, VZ or KDDI – each of whom have made or are making major investments in new Asia systems (Unity, TPE, AAG, APCN3).

    I’d guess the FLAG assets and businesses would be worth more in the range $1.5 – 2B.

    Yipes would make more sense to be sold as a standalone business, to the extent that it hasn’t been integrated. Plenty of US or Euro/Asian carriers seeking a US foothold would be interested in the Yipes domestic VPLS metro network – even an Equinix or a Switch and Data could plausibly be interested.

    Vanco is another story – maybe a UK operation might be prepared to give them a few dollars to take it off their hands, but that would be it.

    It would be interesting if both RGC/FLAG and Global Crossing were to be taken out next year. This is certainly on the cards. It will also be interesting to see whether a cash-strapped Anil Ambani would accept a low-ball though realistic offer and the consequent damage to his monstrous and fragile ego. And if an acquirer does end up shaking hands on a deal with him, they had better count their fingers.

  • DaveRusin says:

    The question on the value of Yipes from a potential acquirer that actually owns a real (fiber) network is that Yipes customers can be moved on to that network — is it a multiple of ebitda or is it your typical cost of acquisition per customer multiplied by the number of customers.

    I had a fairly large fiber-based carrier CEO tell me once: “Why buy Yipes, when I can steal their customers one at a time because I own a network”

    I imagine lots of FUD being thrown at Yipes customers.

  • Truth says:

    Yipes is another psuedo carrier with little to no value past VAS. If they don’t find a buyer soon, value will dwindle as the segment opens it’s eyes.

  • Fred says:

    Any new rumors? Is this the time for them to divest?

Leave a Comment

You may Log In to post a comment, or fill in the form to post anonymously.





  • Ramblings’ Jobs

    Post a Job - Just $99/30days
  • Event Calendar