Indias second largest mobile phone
company, Reliance Communications Ltd.
(RCOM), this morning signed a deal to
buy San Franciscobased Yipes Holdings,
the seventh largest
service provider in the
U.S., for $300 million in cash.
According to recent studies Yipes, a
Metro Ethernet pioneer, holds a 5.4
percent share of the U.S. business
Ethernet market (Broadband Business
Forecast, Feb. 21). RCOMs plan is
to run Yipes as a whollyowned
subsidiary of Flag Telecom, the undersea
cable unit that Flag Telecom bought in
2003 for $209 million, and bring Yipes
Ethernet services into those markets
where Flag is active. The goal, RCOM
said, is to create a company that owns
510 percent of the entire worldwide
business Ethernet market, creating what
will be the global leader in a market
RCOM estimates will top $25 billion in
2010.
"Yipes pioneered Metro Ethernet
services, extended it across the US and
is poised to expand globally. With
Reliance Communications, we aim to
replicate our success in the US across
the rest of the world," said Yipes CEO
John Scanlon. RCOM chairman Anil D.
Ambani, at a press conference in Mumbai
this morning, said the goal is to
quickly double Yipes coverage in the
U.S. from 14 markets currently to
about 30 while at the same time
bringing Yipes services to nearly 40 new
markets globally where Reliance is
already present in the Middle East, Asia
and India.
"This is the largest acquisition that
Reliance Communications has ever made.
The acquisition of Yipes drives forward
our strategy to offer the most
sophisticated, cutting edge data
communication products and services,
specialising in application and content
distribution, spanning developed and
emerging markets," said Ambani. We see
enormous potential to rapidly expand
Yipes coverage in the US and to
globalize Yipes service by leveraging
our customer relationships and network
reach around the globe. We confidently
expect this acquisition to significantly
enhance the growth rate, profitability
and returns of our global data
business."
RCOM is buying Yipes from a group of
venture capital and private equity firms
including Norwest Venture Partners,
Crosslink Capital, Sprout Group, and JP
Morgan Partners. It was not known how
much they have invested in Yipes, which
was founded in 1999. However, Ambani
said that Yipes is "cash positive and
highly profitable, indicating that
Yipes owners have probably earned a
handsome return on their investments.
Ambani added that, since buying Flag
RCOM had turned the company around and
it is showing a net profit for the first
time in its history. RCOM has previously
said that it plans to float a public
offering of Flag shares sometime in its
current fiscal year, which began April
1.
Yipes has nearly 1,000 enterprise
customers, concentrated across four
industry verticals financial, legal,
government and healthcare which the
company estimates currently account for
50 percent of the Ethernet market. The
company brags of being "the leading
direct communications provider" to the
New York Stock Exchange, Chicago
Mercantile Exchange and NASDAQ. It owns
more than 22,000 route kilometers of
fiber across the 14 U.S. metropolitan
markets where it is already present, a
coverage area that it estimates covers
around 40 percent of the total US
datacom market. Outside of the U.S. the
company already is present in London,
Hong Kong and Tokyo.
"The acquisition of Yipes will place
Reliance Communications among the top
three global Ethernet service providers
in the world," said RCOM Global Business
President Punit Garg. "Reliance
Communications with FLAG has a strong
foothold in India, the Middle East and
Asia, including China, Hong Kong and
Taiwan. We plan to leverage the
significant headstart of Yipes in
Ethernet services, double the coverage
in the US domestic market, and rollout
Yipes services over the FLAG global
network. We are fully committed to
bringing Ethernet services to nearly 40
new countries."