Vanco Sold to Reliance as Indian Operators Make Play for the Enterprise

| May 27, 2008 | Business Telecom Services - Europe | Competitive Intelligence Report

| Analyst: Sandra O'Boyle

Current Perspective: Neutral
Vendor Importance: High
Market Impact: Moderate

Event Summary

May 26, 2008 -- Reliance Globalcom, a division of India’s Reliance Communications Group, has acquired 100% equity in Vanco for $76.9 million (or approximately GBP 39 million) and free of debt. Reliance Communications has agreed to buy the entire business except Vanco Direct USA, which is being sold separately. The parent company, Vanco PLC, went into administration on May 26. Vanco has over 200 enterprise customers including British Airways, Siemens and Virgin Megastores.

Analytical Summary

• Current Perspective: Neutral on Reliance’s acquisition of Vanco, as the company is essentially buying Vanco’s base of over 200 enterprise customers and its know-how in managing customer networks, but not much more in terms of assets. People were Vanco’s main asset and there is an ongoing brain drain to the competition. In addition, the Vanco brand will not be much good to Reliance, which itself does not have a strong brand in the US and Europe, as it has been damaged as a result of the VNO’s financial difficulties.

• Vendor Importance: High to Reliance Globalcom, as the Vanco acquisition is in line with its strategy to become a leading global service provider and in particular to drive growth in its global enterprise business. Reliance also acquired US Ethernet service provider Yipes in December 2007 and it is rolling out a global Ethernet and IP MPLS network. Vanco was “up for sale” since it suspended its shares at the beginning of May 2008; so, it will be relieved a sale went through so quickly to avoid significant customer churn.

• Market Impact: Moderate on the global managed network services market, as Vanco integrated with Reliance is not likely to be as big a threat as it was at the height of its success as an independent VNO rallying against the asset-based carriers. Vanco has certainly given the competition a run for their money in recent years, taking market share from all of the major global operators (e.g., Orange Business Services, BT and Verizon Business). Apparently, Reliance had competition from around eleven other Vanco suitors, including BT, Cable & Wireless, T-Systems, NTT, Global Crossing and CPCnet, amongst others.

Recommended Competitor Actions

• Competitors can emphasise that Vanco’s whole proposition as an independent VNO is null and void now that it is part of a large global carrier business. In addition, while Vanco is being integrated into the organization, customers may experience service problems and so forth; therefore, all enterprise carriers should make contact with Vanco customers to offer them alternative arrangements to consider.

• Competitors should position Vanco as an entrant that does not have its own network and is heavily reliant on third-party operators to deliver fast, reliable network performance to its customers. Vanco claims to have control over these third-party operators, but as with any provider, such control is inherently limited. Carriers must recognise, as Vanco has, that solid customer service must be an absolute priority, and that the only sustainable way to win is through consistently positive service and support experiences.

• Top-tier global carriers that have carefully architected their networks from scratch and built up enterprise business services through their own sales efforts can describe the new Reliance Globalcom as a collection of acquired networks and services that are not fully integrated nor rationalized. The established carriers can tout their stability and predictability and contrast Reliance Globalcom's integration and future plans as fraught with uncertainty.

• Telecom carriers from India and other Asian countries are seeing most of their new account success come from multinationals headquartered in the carriers' respective “home” countries. In this respect, home field competitor Tata Communications (formerly VSNL International) can highlight that it made large North American and international acquisitions in the form of the Tyco Global Network and Teleglobe International years before Reliance made its bid for Yipes and Vanco.

Recommended End User / Customer Actions

• Vanco customers will need to get a clearer idea from Reliance Globalcom on how the integration will proceed, especially around their MPLS networks and the future implications for customers in terms of changes to their services, SLAs, local support and account management.

• Enterprise network managers looking to migrate legacy TDM, frame relay and/or ATM networks to next-generation networks based in Ethernet and VPLS should consider Reliance Globalcom for a pure-play, best-of-breed, Ethernet-based solution. Businesses with hundreds or even thousands of retail sites or branch office locations would be better served by IP/MPLS VPNs offered by the large global carriers, possible in conjunction with Ethernet access.

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Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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