Reliance shoots for big-time with $1.5b cable

Matt Walker/Ovum
06 Sep 2007
00:00

FLAG Telecom, a unit of India's Reliance Communications, this week formally awarded Fujitsu with part of its massive undersea NGN buildout. FLAG NGN, estimated to cost $1.5 billion in total, consists of four sub-projects: South East Asia, East Africa, Mediterranean, and Trans-Pacific. Fujitsu's win is limited to a 10,000-km build covering the first and the third elements, but it has signed a letter of intent for the other two. In total, the project will expand FLAG's network by 50,000km, to 115,000km.

Reliance is one of three large private telco groups in India, along with Bharti and Tata. Each has played a part in India's wireless boom, and each also has substantial international assets. Reliance has been most aggressive on this front, through its FLAG unit: after completing the India-Middle East cable last year, FLAG has since acquired Yipes, a privately-held US enterprise services specialist.

FLAG's four-stage NGN expansion is not news, as it was announced in December 2006. With the first turnkey contract formalized, though, and in light of the Yipes purchase, it is now clear that Reliance is committed to becoming a truly global carrier, able to compete with BT, AT&T and the like. It is serious about leveraging its reach, vast international network, alliance of local partners, and for Yipes to enter enterprise data services markets in a large number of countries.

Reliance's push will help give a kickstart to the Ethernet services market, which is growing fast but heavily tilted towards metro services in most geographies. Reliance has a long way to go before its revenues match its rhetoric, but its strategy is winning more converts as time goes by.

No surprise

This deal is a major one for Fujitsu's submarine division. After several quiet years, the undersea optical communications market has picked up in recent quarters, with many projects planned over the next two to three years. Much of the pickup has occurred in and around the Asia region. However, elsewhere we have seen a number of capacity upgrades to existing cables, and small gap-filling builds on niche or underserved routes (e.g. East Africa).

Fujitsu has, so far, not benefited much from this resurgence: despite having a full portfolio of repeatered and unrepeatered subsea optical products, it is a distant third behind Alcatel-Lucent and NEC, and has few recent wins.

Winning the Reliance NGN build is, therefore, significant as it will help Fujitsu keep its factories, installation, and R&D teams busy, and maintain visibility in the market, not to mention revenues.

At the same time, Fujitsu's win is not a surprise. The undersea cable construction business is facing some capacity limits, particularly in the supply of cable ships, but also at the cable and optical system production end. Fujitsu has been less affected than its competition by these shortages. Given Fujitsu's need for a win, and Reliance's history of aggressiveness in price negotiations, it seems likely that Fujitsu had to show flexibility on pricing to get this deal. However, the project's initial cost estimate ($1.5 billion) has not changed, and Fujitsu is not known as a price-focused supplier - so the flexibility was likely exercised with care.

Matt Walker is a senior analyst in Ovum RHK's Network Infrastructure practice, specializing in Asia-Pacific telecoms markets.

Related content

Comments
No Comments Yet! Be the first to share what you think!