Tyco to sell its Pacific undersea cable business

Fiber Optics Weekly Update, Nov 5, 2004

Tyco International executives said on Monday, November 1, 2004 that the company would sell its undersea cable business to the Indian telecommunications company Videsh Sanchar Nigam (VSNL) for $130 million, giving that company a significant foothold in the fast-growing Asia-Pacific market.

The sale will end Tyco's failed experiment with operating cables. Tyco, a leading supplier of undersea cable equipment, spent more than $2.5 billion laying more than 37,000 miles of undersea cable connecting three continents.

By becoming a cable operator, Tyco entered its customers' business. And like its rivals, Tyco was stung by the slowdown in demand for new phone and data capacity after the telecommunications bubble collapsed four years ago. Many operators have gone bankrupt or sold their networks. Increasingly, Asian phone companies, including many former government monopolies, have been the buyers.

"It was a very bad idea for Tyco to compete with their customers," said Dr. Hui Pan, an analyst at IGI Consulting in Boston. The Asian carriers "are the ones with the capital and the impetus from deregulation to go out and pick up these distressed assets," he added.

Tyco International said it earned $454 million, or 22 cents a share, in the fourth quarter, after losing $297 million, or 22 cents a share, in the same quarter last year. Sales grew 13 percent, to $10.4 billion, with revenue increasing in every division.

Tyco lost money in the fourth quarter of 2003 after it wrote down the value of its cable network. In the last year, Tyco has eliminated 8,100 jobs and sold 27 other businesses.

By purchasing Tyco's network, VSNL, part of the Tata Group, has become a major carrier of data between Asia and the United States.

Tyco's trans-Pacific cable has 7.6 terabits of capacity, or more than three times as much as the combined capacity of all the other major cables on that route. Only a fraction of Tyco's cable is being used, while most of the other cables are nearing their limits. As a result, analysts said, VSNL can expect steady demand for several years.

In January, VSNL's rival, Reliance Infocomm, bought a 31,000-mile undersea network run by FLAG Telecom. VSNL and Reliance expect to provide capacity to serve India's increasingly global software, engineering and call center businesses, and offset competition at home by expanding overseas.