Sistema ‘no longer interested in GCX’, says Indian report

09 April 2018 | Alan Burkitt-Gray


Russian industrial group Sistema appears to be losing interest in the international subsea cables business of Mumbai-based Reliance Communications.

According to an unconfirmed report in India’s Economic Times, Sistema is still interested in the enterprise business and data centre operations of Reliance Communications (RCom) but no longer wants its subsea operation, Global Cloud Exchange (GCX).

Capacity has asked Bill Barney, CEO of RCom and GCX, and Sistema to comment on the report, which Economic Times says is sourced from “people aware of the development”. Neither GCX nor Sistema has yet responded to Capacity’s request.

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The newspaper, the business news arm of the Times of India, says that Sistema “is now reluctant to buy” GCX “on the grounds that the cable systems are old with a limited residual life”.

Last year GCX announced a plan to build a new 100Gbps cable system, Eagle, stretching from Europe to China via its headquarters in Mumbai. But that will not be in service until 2020, and the investment logic in part relied on connections to the Mumbai data centres.

Some of GCX’s existing cables date back to the late 1990s, when they were built by the old Flag [Fiber-optic Link Around the Globe] Telecom.
 
Estimates last month suggested Sistema was bidding $1.5 billion for the whole of RCom, which has offloaded its consumer mobile phone business and its tower business to rival – and unconnected – operator Reliance Jio.

But now Economic Times says Sistema is offering just $600 million for RCom’s enterprise business and the nine data centres.

Economic Times quotes its source as saying: “The negotiations are on but Sistema has pointed out that the subsea cables under GCX go back to year 2004.” That was the year RCom bought Flag Telecom for $207 million.

The reports may imply Sistema is negotiating by selective leaking and is hoping the owners of RCom reduce the price of the GCX element of the package from $900 million.


In any case Sistema may face challenges buying GCX. The old Flag Telecom was backed by Nynex , one of the ancestors of what is now Verizon, and US and other global regulatory authorities may be cautious about seeing it go to a Russian owner, especially in today’s challenging political climate.

Sistema, which owns the MTS operator in Russia, has strong links with the Russian government: until last year the Russian state was a co-investor, with Sistema, in an Indian mobile operator, MTS India.