Reliance Bags Yipes for $300M

Ambitious Indian operator Reliance Communications Ltd. (RCom) has furthered its international operations by striking a 12 billion rupees (US$297 million) cash deal to buy Ethernet service provider Yipes Enterprise Services Inc. (See Reliance Acquires Yipes.)

The carrier, which signaled its international intentions with the acquisition of international backbone network operator FLAG Telecom Ltd. in January 2004, said it sees "enormous potential" to expand Yipes's coverage in the U.S. and internationally.

Reliance says it will double Yipes's service coverage in the U.S. and overlay the optical Ethernet specialist's services on FLAG's international network, "allowing Yipes to expand its reach worldwide and enabling FLAG to create significantly more value from its network assets in the strongholds of India, the Middle East, and East Asia." (See FLAG Announces NGN.)

"We confidently expect this acquisition to significantly enhance the growth rate, profitability and returns of our global data business," stated Reliance chairman Anil Ambani in a prepared statement.

Investors liked the move, as Reliance's share price rose by R13.30, about 2.4 percent, to R568 ($14.12) on the Bombay Stock Exchange.

Yipes was one of the pioneers of Carrier Ethernet services in the late 1990s and 2000, but found the going tough during the telecom downturn. It entered Chapter 11 bankruptcy in March 2002, as Yipes Communications Inc., before emerging as Yipes Enterprise Services in July 2002 with a cleaned up balance sheet and a new round of funding. (See Yipes Joins Chapter 11 Club and Yipes Reborn – Amid Accusations.)

Since then, the company has remained one of the best known names in the carrier Ethernet services market, which, according to data from Infonetics Research Inc. , was worth $9.4 billion in 2006, up from $5.7 billion in 2005. The research firm predicts the global Ethernet services market will be worth more than $25 billion in 2010.

Although it doesn't provide detailed financials, Yipes said earlier this year its revenues grew by 41 percent in 2006 and that it became "cash flow positive from recurring operations" in the second half of 2006. (See Yipes Revenues Climb.)

Yipes now claims to have nearly 1,000 enterprise customers, including some of the world's major stock exchanges, connected to its international network, which includes 22,000 kilometers of fiber across 14 metropolitan markets in the U.S. and POPs in London, Beijing, Hong Kong, and Tokyo. (See Yipes Feeds LSE and Yipes Serves Nasdaq, NYSE.)

Its FinancialConnect! Service, an Ethernet-based extranet for electronic trading aimed at banks, brokers, and other financial institutions, won the Best New Service, Private Company gong at the Light Reading Leading Lights 2006 awards, while it won the Innovation award at Heavy Reading's Ethernet Service Provider of the Year awards in October 2006. (See LR Names 2006 Leading Lights, HR Presents Ethernet Provider Awards, and Yipes Intros Extranets.)

The company received its latest round of funding in June 2006 when it bagged $17.5 million. That took its funding (since emerging from Chapter 11) to $106 million. Its investors include Crosslink Capital , Norwest Venture Partners , JPMorgan Partners , and Sprout Group . (See Yipes Scares Up $17.5M.)

Yipes will clearly stand a better chance of competing in the international Ethernet service market with the weight of Reliance and the FLAG network behind it. Its chief rivals in that market include AT&T Inc. (NYSE: T), BT Group plc (NYSE: BT; London: BTA), Global Crossing (Nasdaq: GLBC), Level 3 Communications Inc. (NYSE: LVLT), Masergy Communications Inc. , NTT Communications Corp. (NYSE: NTT), Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY), Verizon Enterprise Solutions , and VSNL International Pte. Ltd. , as well as a number of regional service providers.

— Ray Le Maistre, International News Editor, Light Reading