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Reliance Communications Subsea cable business
May 2012
IMPORTANT NOTICE
This presentation and the discussion that follows may contain “forward looking statements” by Reliance
Communications Ltd (“RCOM”) that are not historical in nature. These forward looking statements,
which may include statements relating to future results of operation, financial condition, business
prospects, plans and objectives, are based on the current beliefs, assumptions, expectations,
estimates, and projections of the directors and management of RCOM about the business, industry
and markets in which RCOM operates. These statements are not guarantees of future performance,
and are subject to known and unknown risks, uncertainties, and other factors, some of which are
beyond RCOM’s control and difficult to predict, that could cause actual results, performance or
achievements to differ materially from those in the forward looking statements. Such statements are
not, and should not be construed, as a representation as to future performance or achievements of
RCOM. In particular, such statements should not be regarded as a projection of future performance of
RCOM. It should be noted that the actual performance or achievements of RCOM may vary
significantly from such statements.
Disclaimer
1
Subsea cable business
– Subsea cables are the backbone of global internet,
data and voice communications
– Subsea cables are the most economical mode of
carrying data from one point to another around
globe
– Subsea cable business is similar to a leasing
business
– Three dimensions: connectivity, bandwidth and
contract length
– Point to point prepaid leases of 10-15 years,
called IRU;
– Point to point leases, typically contracted for 1-3
years, called IPLC;
– Point to multipoint connections to access the
internet, called IP (Internet Protocol), typically
contracted for 1 year
Cable Landing
Station
Cable Landing
Station
Metro PoP
Area
Metro PoP
Area
Branching
Unit
Subsea
repeaters
Subsea System
Metro land
backhaul
links
Customer
Customer
Cable Landing
Station
Cable Landing
Station
Metro PoP
Area
Metro PoP
Area
Branching
Unit
Subsea
repeaters
Subsea System
Metro land
backhaul
links
Customer
Customer
Subsea network infrastructure
Business highlights
2
Stable free cash flows with no debt for an attractive yield play
Favourable industry dynamics
Significant unused capacity available for monetisation
Strong relationships with a diverse customer base
Unique assets in an industry with high entry barriers
Presence in key global markets with strong regional connectivity 1
2
3
4
5
6
Overview of subsea cable network
3
(a) CLS = Cable landing station, IP / Tx PoP = IP points of presence
(a)
(a)
Global business, with a leading presence in high growth emerging and developed markets covering US,
Europe, Middle East, and Asia, including China and India
Overview of subsea cable business
4
Subsea cable assets spanning 68,000 Route Kilometers
Landing at 46 locations in 26 countries with 31 partners
Metropolitan networks in 45 cities
85,000 sq. ft. of data centre space
403 customers including ISPs, content providers, mobile and integrated telecom operators
326 employees including 68 sales employees in 13 regional offices
Excellent customer base, with more than 70% of customers with us for > 3 years
Routes
Cables Trans-Atlantic Intra-Asia
Middle
East-West
Middle
East-East
India-West India-East
FA-1
FEA
FNAL
FALCON
HAWK
Our subsea cable network has a significant position in 6 out of 8 global data traffic routes…
5
Source: TeleGeography
Lit capacity %
Trans-Atlantic 30%
Trans-Pacific 22%
Intra Asia 20%
Latin America 14%
Middle-East and India 13%
Share of serviced routes 63%
…which have the highest growth potential
14.7%
16.4%
2.2%
34.3%
1.6%
34.3%
85.3%
83.6%
97.8%
65.8%
98.4%
65.8%
0% 20% 40% 60% 80% 100%
Trans-Atlantic
Intra Asia
Middle East-West
Middle East-East
India- Wast
India- East
% utilized % unutilized
Our subsea cable network has significant spare capacity …
6
(a) Based on subsea cable with longest useful life operating on respective routes
(b) Middle East-East route capacity is used by the same customer on the India-East route and counted only once in the total utilized lit capacity
Substantial capacity available for sale (Mar 12) Significant useful life (year end)(a)
(b)
2026
2027
2031
2022
2031
2022
2012 2016 2020 2024 2028 2032
Trans-Atlantic
Intra Asia
Middle East-West
Middle East-East
India- Wast
India- East
Year end
…80% of capacity available to be monetised
Four key trends are driving the growth in IP traffic
7
Increasing
number of
devices
– By 2015, there will be nearly 15 billion network connections via devices (up from 7 billion in 2010), including
machine to machine, and more than 2 connections for each person
More internet
users – By 2015, there will be nearly 3 billion internet users – more than 40% of the world’s projected population
Faster
broadband
speed
– Average fixed broadband speed is expected to increase four-fold from 7 Mbps in 2010 to 28 Mbps in 2015.
The average broadband speed has already doubled in the past year from 3.5 Mbps to 7 Mbps
More video – By 2015, 1 million video minutes – the equivalent of 674 days – will traverse the internet every second
Source: CISCO VNI (Visual Networking Index) – Forecast of June 1, 2011
Global IP traffic has increased eightfold over the past 5 years and will increase fourfold from 2010 to 2015
Global IP traffic is expected to grow 4x between 2010-2015
Japan
Asia-Pacific
Middle East / Africa
Central / Eastern Europe
Western Europe
Latin America
North America
2.2 billion
27 Mbps (266%)
22.3 EB/month (218%)
1.3 billion
8 Mbps (191%)
4.7 EB/month (604%)
1.3 billion
7 Mbps (154%)
2.0 EB/month (699%)
5.8 billion
25 Mbps (359%)
24.1 EB/month (350%)
727 million
63 Mbps (312%)
4.8 EB/month (235%)
902 million
20 Mbps (229%)
3.7 EB/month (424%)
2.3 billion
36 Mbps (290%)
18.9 EB/month (295%)
Connection IP traffic growth Broadband speeds
8
Source: CISCO VNI (Visual Networking Index) – Forecast of June 1, 2011
Connections will double and speeds will quadruple by 2015
3 Billion Global internet users
14.6 Billion Global network connections
1.9 Billion Global internet users
7.4 Billion Global network connections
100,000,000 100,000,000
Annual Global IP Traffic
966 Exabytes
7.2 Billion World’s 2015 Population
2015
28 Mbps
300% Average Global Fixed
Broadband Speed
Growth
7.0Mbps 2010 January 2010
January 2015
24.8 Gigabytes Traffic generate by average
internet user per month
9
Source: CISCO VNI (Visual Networking Index) – Forecast of June 1, 2011
Demand doubling every 18 months
Trans-Atlantic (Tbps) Intra-Asia (Tbps) Middle East-West (Tbps)
Middle East-East (Tbps) India-East (Tbps) India-West (Tbps)
3.4 13.0
78.0
2005 2011 2016
CAGR
25%
CAGR
43%
1.2
9.5
52.4
2005 2011 2016
0.1 0.6
4.0
2005 2011 2016
0.0 0.2
1.7
2005 2011 2016
0.0 0.7
5.6
2005 2011 2016
0.0 0.6
5.0
2005 2011 2016
CAGR
41%
CAGR
41%
CAGR
50%
CAGR
46%
CAGR
52%
CAGR
54% CAGR
106%
CAGR
52% CAGR
78%
CAGR
50%
Rapidly increasing number of devices, growing internet user base, faster broadband speeds and more video
driving demand
10
Source: TeleGeography
Forecast : demand growth to exceed price decline
11
Growth in demand is forecast to more than offset the decline in prices on all routes
Forecast demand growth
(2011-2016 CAGR)(a)
Historical price decline(b)
Forecast price decline
(2011-2016 CAGR)(b)
Trans – Atlantic(c) 43% (12)% (17)%
Intra – Asia(c) 41% (20)% (20)%
Middle East – West(d) 46% (22)% (26)%
Middle East – East(d) 50% (22)% (26)%
India – West(e) 52% (21)% (20)%
India – East(e) 54% (21)% (22)%
(a) Change in cumulative purchased capacity
(b) Change in median monthly lease prices for single, unprotected 10 Gbps wavelengths which exclude installation fees and local access
(c) Historical price decline CAGR between 2005-2011
(d) Historical price decline CAGR between 2007-2011
(e) Historical price decline CAGR between 2008-2011
Source: TeleGeography
One time capex completed
12
Design capacity increased 7x to 48.5 Tbps by using 40G technology
Added new landing stations and improved existing terrestrial networks in Asia, Middle East
and Continental Europe
In the two-year period ending Mar-11, invested US$297m in capex
After this investment, future capex would be modest
Financial performance for fiscal year ending Mar-12
13
Billed Income of US$330m
Stable operating cost structure at US$153m
Billed EBITDA of US$178m resulting in Billed EBITDA
margin of 54%
Capex of US$70m which included payment of new
landing station and terrestrial backhaul
US Dollar denominated revenue
Zero Debt
Low marginal tax rate
Distributable free cash flow of US$116m
Conclusion
14
Uniquely positioned global business with significant competitive advantages and high entry barriers
Operating in key markets with highest growth potential where demand is doubling every 18 months
Excellent customer base
80% of asset capacity to be monetised
No debt on these assets
Well positioned to deliver predictable and sustainable free cash flows
Competitive dynamics
Design, installed and utilized capacities
Appendix I
Competitive dynamics: differing motivations of key competitors
Consortium
subsea cable
owners
– Typically two types of consortium members;
domestic focused operators and regional/global
players
– Domestic focused operators reserve capacity for
serving home markets and do not sell capacity in
the open market
– Some regional/global players sell capacity in the
open market
Private subsea
cables, acquired in
early 2000’s
– Purchased at fractions of construction costs
– Harvesting cash, upgrade their capacities only
when needed
– Some have debt service obligations
New private
subsea cables
– Primary consideration is recovering investment
cost
– Some have debt service obligations
15
Source: Company's data, TeleGeography
Route Consortium Private In construction /
Planning
Trans-Atlantic
(FA-1 and 7 other
systems)
TAT-14 (34 members),
Columbus III
(30 members)
AC-1 & AC-2 (Level3),
Apollo (C&W), Hibernia
Atlantic, TGN-Atlantic
Hibernia Express
(privately owned)
Intra-Asia
(FEA, FNAL and 5 other
systems)
SEA-ME-WE 3
(33 members),
APCN-2 (43 members)
Reach NAL,
EAC-C2C (Pacnet),
TGN-IA
ASE, SJC and APG (all
consortium)
Middle East – East and
West
(FEA, FALCON, HAWK
and 5 other systems)
SEA-ME-WE 3, SEA-
MEWE 4 (16 members),
IMEWE (9 members),
EIG (16 members)
(partially complete)
TGN-Eurasia
(partially complete)
GBI, TGN-Gulf (all
private)
India – East and West
(FEA, FALCON, HAWK
and 2–4 other systems)
SEA-ME-WE 3, SEA-
MEWE 4, IMEWE, EIG
(partially complete)
TGN-Eurasia (India
West) TGN-Indicom, i2i
(India East)
GBI
Cable ownership and indebtedness levels Key competing assets
Each route has different key players and different demand and price dynamics
Design and installed capacity by route
16
Gbps Mar-10 Mar-11 Mar-12
Design capacity(a)
Trans – Atlantic 18,720 18,720 18,720
Intra – Asia 10,120 10,120 10,120
Middle East – West 9,800 9,800 9,800
Middle East – East 160 160 160
India – West 9,560 9,560 9,560
India – East 160 160 160
Total 48,520 48,520 48,520
Installed capacity(b)
Trans – Atlantic 2,390 4,750 4,750
Intra – Asia 3,770 3,770 6,670
Middle East – West 1,925 3,000 5,100
Middle East – East 55 55 80
India – West 1,440 1,440 2,700
India – East 55 100 140
Total 9,635 13,115 19,440
(a) Design capacity at 40G is the capacity of a cable between its start and end points if it were upgraded to 40G
(b) Installed capacity is the maximum capacity available between the start and end points of the cable
Utilized lit capacity by route
17
Gbps Mar-10 Mar-11 Mar-12
IRU
Trans – Atlantic 586 686 876
Intra – Asia 1,116 1,139 1,269
Middle East – West 16 30 120
Middle East – East – – –
India – West 28 28 28
India – East – – –
Total 1,746 1,882 2,293
IPLC
Trans – Atlantic 782 963 1,641
Intra – Asia 280 286 294
Middle East – West 53 75 75
Middle East – East(a) 1 3 5
India – West 39 41 27
India – East 1 3 5
Total(a) 1,154 1,367 2,041
IP
Trans – Atlantic 152 191 242
Intra – Asia 64 88 96
Middle East – West 12 14 17
Middle East – East(a) 50 50 50
India – West 30 41 95
India – East 50 50 50
Total(a) 308 384 500
Total utilized lit capacity(a) 3,208 3,633 4,835
(a) Middle East-East route capacity is used by the same customer on the India-East route and counted only once in the totals
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