U.S. Invasion

RELIANCE GLOBALCOM

Reliance Globalcom gained real global reach through its 2003 acquisition of undersea cable network Flag Telecom. But it stormed the U.S. in 2007, spending $300 million in cash to acquire Yipes, a U.S. provider of Ethernet services to nearly 1000 businesses in 14 U.S. cities plus Hong Kong, London and Tokyo.

“Reliance has been all over — they're the most diversified company in the world nowadays,” Winogradoff said.

Last year the carrier significantly upgraded its U.S. network, expanding into eight new markets — Boston; Charlotte, N.C.; Indianapolis; Kansas City, Kan.; Minneapolis; Phoenix; Stamford, Conn.; and Wilmington, Del. — for a total of 22 (not including Toronto). Along the way, it added Juniper edge routers in its metro networks to push multiprotocol label-switching (MPLS) closer to its customers and soup up its virtual private line services (VPLS).

“By moving VPLS to the edge, each customer location becomes an endpoint on the VPLS network,” said Keao Caindec, chief marketing officer for Reliance Globalcom. “That allows the customer more granular control and the ability to control traffic within a metro as well as between metros.”

Of its more than 1300 U.S. customers, Reliance said fewer than 50 are true multinational corporations, about 250 are carriers and the rest are mostly international customers outside the Fortune 2000. The typical former Yipes customer has between five and 20 sites around the world, Reliance said.

Analysts say the value of the Yipes acquisition rested mostly in the company's network rather than its retail enterprise customer base, a difficult base for a global carrier like Reliance to maintain long term.

“It's hard to [compete in the domestic business services market] and at same time compete as a global carrier because those are two completely different businesses — one is very localized, the other is very global,” said Melanie Posey, research director for IDC's hosting and telecom services coverage.

Winogradoff suspects Reliance ultimately plans to let the small end of Yipes' customer base fade away through attrition, which would make the most strategic sense, but Reliance denies the notion. “In the mean time,” Winogradoff said, “if you've got some revenue coming in, you might as well keep it up.”

In October, Reliance created a new data business unit designed to assemble the power of its various acquisitions: Yipes, Flag Telecom, and the Vanco Group, the U.K. virtual network operator business that Reliance bought early last year. The new unit is focused squarely on end-to-end managed services for global customers, an area that analysts say could bloom in a harsh economy as businesses move to outsource telecom operations. But the trend is also being fueled by globalization.

“Large global customers in the Fortune 1000 or 2000 are looking more at outsourcing major parts of their network,” Caindec said. “That's being driven by the increasing complexity of operating a network that might touch over 1000 locations and might include the management of 70-plus carriers around the world.”