VSNL's acquisition of Tyco Telecom: TeleGeography's View

The announcement today of VSNL's purchase of the Tyco Global Network (TGN) ends months of speculation over who would acquire one of the world's highest-capacity international submarine cable systems. The key component of the TGN is the trans-Pacific submarine cable, which currently accounts for 44 percent of trans-Pacific capacity. According to the authors of TeleGeography's International Bandwidth research service, the Tyco cable has the ability to upgrade its capacity to potentially account for 79 percent of trans-Pacific capacity.

[Ed. update: New data indicates that Tyco Transpacific's share of lit trans-Pacific capacity is 40 percent, not 44 percent. In addition, Tyco Transpacific's share of potential upgradeable trans-Pacific capacity is 85 percent, not 79 percent. Update: April 11, 2005]

The sale of TGN comes on the heels of two other major acquisitions of international networks in the past twelve months. In December 2003, Singapore Technologies Telemedia purchased a 61.5 percent equity stake in Global Crossing for $250 million, then in January 2004, Reliance Infocomm of India purchased FLAG Telecom for $211 million. The $130 million purchase price for TGN translates to roughly 5 cents on the dollar, which is on par with the approximately 6 cents on the dollar that Reliance paid for FLAG.

These acquisition prices reflect the dramatic decline in long distance circuit prices over the last five years, which have fallen by more than 90 percent on some routes. "Even though VSNL has acquired TGN for pennies on the dollar, the cost of operating and maintaining a global submarine network is significant," according to TeleGeography Research analyst Alan Mauldin. "VSNL is taking a long-term view in this acquisition, since there's currently little profit to be made in the hyper-competitive subsea capacity market." However, TeleGeography data reveals that average Internet traffic across the Atlantic and Pacific both grew over 100 percent in 2004, indicating strong demand exists.

The data and analyses cited above are excerpted from both International Bandwidth, TeleGeography's guide to long-haul bandwidth supply and demand, as well as Global Internet Geography, a research service focused on Internet backbones, traffic, and pricing.

Detailed samples, summaries, and tables of contents can be found by following the links above.

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