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Indias Reliance Buying Yipes In Move To Dominate Metro Ethernet

Date: 11/13/2007 3:54:32 PM

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."  Phone Card News Stats


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