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Reliance Globalcom: Strong presence in undersea cable segment

March 15, 2011
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The demand for bandwidth is accompanied by an increasing dependence on intercontinental communication, which is almost entirely supported by undersea cables. These cable networks, which carry over 95 per cent of the international telecom traffic, are vital for global commerce.

Reliance Globalcom, which spearheads the global telecom operations of Reliance Communications (RCOM), owns one of the world’s largest private undersea cable systems spanning 65,000 km and connecting 40 countries. This makes RCOM a carrier’s carrier as it provides global connectivity solutions to carriers and internet communities across the globe through its submarine cable system.

Reliance Globalcom has a vast network in Europe, the Middle East and Southeast Asia, which will be the major growth drivers of international data and voice traffic over the next few years. In the Middle East and Africa, deregulation has opened the market to private players, which is expected to fuel growth rates more rapidly than in most other markets.

Besides, this global business subsidiary of RCOM offers a bouquet of retail products and services including global voice, internet solutions and value-added services. As of March 2010, Reliance Globalcom served over 2,100 enterprises, 200 carriers and 2.5 million retail customers across 160 countries and five continents.

Background 

RCOM entered the submarine cable business in 2004 with the acquisition of Flag Telecom, a distressed asset, for $207 million. This ended Tata Communications’ monopoly in this field. Flag, which had emerged from Chapter 11 bankruptcy proceedings and had been on the block for over a year before Reliance acquired it, was still recording huge losses; in the six-month period ended June 2003, the company recorded losses of $41 million. However, this acquisition gave Reliance a foothold in the global business arena with over 50,000 km of submarine cables.

From 2005, Flag embarked on an expansion path and broke even in September 2006. It introduced several higher value-added products, including international private leased circuits, virtual private networks and Ethernet services. This  accelerated its revenue growth and increased its profitability.

In 2006, Flag sold bandwidth worth $450 million to China Netcom, a fixed line operator in northern China, and Bahrain-based Batelco.

The company played an important role in increasing the EBITDA (earnings before interest, taxes, depreciation and amortisation) margin of RCOM’s global business revenues from 4.7 per cent in June 2005 to 24.3 per cent in September 2006.

In 2008, the company received a major shot in the arm with an international arbitration body allowing Flag access to Tata Communications’ landing station in Mumbai, and upgrade and sell international bandwidth capacity. Flag and Tata Communications had approached the International Court of Arbitration in December 2004 to settle disputes on three fronts – Flag’s right to access Tata Communications’ landing station in Mumbai; its right to upgrade and sell its cable system at the station; and its right to charge access fees and monetary compensation from Tata Communications for loss to Flag’s business. The decision of the arbitration court led to the availability of higher international bandwidth capacity for telecom traffic towards the west of India (West Asia and Europe) and a reduction in prices.

In February 2008, RCOM integrated its international operations under the Reliance Globalcom brand, which became the holding company for RCOM’s global operations. It included Flag Telecom (renamed Flag Reliance) and the Yipes Enterprise Service (renamed Reliance Globalcom Services).

Network 

The company’s submarine cable system, FLAG, consists of three main segments: FA-1, FNAL and FEA. The cable started commercial services in 1997. In 2006, the company commissioned Falcon, the first private terabit cable system connecting the Middle East and India to the rest of the world, with an initial capacity of 90 GB, which can be scaled up to 2.5 Tbps.

The system provides multiple landings throughout the Gulf region, with submarine links stretching to Egypt in the west and Hong Kong in the east. With 14 landing stations along the way, Falcon’s aim is to provide connectivity to markets that are either not connected by submarine cables (like Maldives, which is primarily connected by satellite) or are under a monopolistic telecom regime.

In Saudi Arabia, Reliance Globalcom has two landing stations on the Falcon network. It has tied up with Saudi Telecom, the incumbent operator, and Etihad-Etisalat, the competing operator, for these stations. Through this arrangement, Reliance has a 100 per cent market share in the region for international connectivity. Flag had sold 50 per cent of lit capacity on Falcon soon after its launch.\

FA-1, a 14,500 km dual multi-terabit subsea and terrestrial cable system connecting New York to London and Paris, is the first multi-terabit system across the Atlantic and was launched in 2001. The system recorded pre-sales of over $800 million six months before its launch and offers seamless connectivity to several cities in the US, Europe, the Middle East and the Asia-Pacific region.

FNAL, which is designed to support the strong growth in intra-Asian internet traffic and the pace of deregulation in the region, offers intra-regional and intercity connectivity in Hong Kong, Seoul, Tokyo and Taipei. It is connected to the FLAG Europe-Asia cable at landing stations in Hong Kong and Japan, thereby providing global connectivity through the FLAG Atlantic-1, Japan-US and Tyco Global Network Pacific networks.

Other services 

As part of its retail voice offering, Reliance Globalcom provides virtual international calling services to retail customers for calls to 200 international destinations including India under the Reliance Global Call brand. Its retail services are available in several countries including the US, Canada, the UK, Australia, New Zealand, Hong Kong and Malaysia.

In order to leverage Reliance Global Call’s portal, the company is now planning to introduce additional features such as ringback tones and content-based services.

Network expansion plans 

In 2007, the company announced plans to invest $1.5 billion in laying 50,000 km of submarine cables across 60 countries over the next three years. The FLAG Next Generation Network (NGN) submarine cable involves the construction of four cable systems across the Mediterranean, East Africa, Asia and Pacific regions.

The FLAG NGN contract was awarded to Fujitsu and Alcatel-Lucent for constructing cable systems in Asia, East Africa, the Mediterranean and Pacific regions. With the construction of the NGN cable, FLAG will be the only service provider to cater to over 60 countries through a privately owned cable system. The capex for this project will be funded through pre-build commitments and the company has already signed contracts for the Mediterranean system.

The FLAG NGN cable will increase the length of the existing FLAG network from 65,000 km to 115,000 km. The following is the current status of the system:

• FLAG NGN System 1 is Asia based and runs from India to Hong Kong with a potential connection to Thailand, Malaysia, Singapore, Indonesia, Vietnam, the Philippines and Cambodia.

•FLAG NGN System 2 covers Africa; it runs from India to Kenya with initial potential extensions to South Africa and further potential extensions to Mozambique, Tanzania, Madagascar, Mayotte and Mauritius.

• FLAG NGN System 3 covers the Mediterranean region; it will link Egypt to France with potential extensions to Syria, Greece, Cyprus, Turkey, Malta, Libya, Tunisia and Italy.

•  FLAG NGN System 4 will bridge the Pacific region, from Japan to the west coast of the US. 

Going forward, the company will continue expanding on its enterprise carrier model in emerging markets for greater connectivity to North America and Europe, particularly in light of outsourcing of information technology (IT) and IT-enabled services from developed economies to low-cost markets.

 
 
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