Flag Telecom aiming for services with higher margin

Flag Telecom aiming for services with higher margin

The undersea cable business unit of Reliance Communications Ltd, Flag Telecom Group Ltd, plans to increase its revenues from non-bandwidth services to try and improve its operating profit margins through services such as data hosting.

Telecom bandwidth has been the traditional revenue stream for the company and constitutes about 50% of total sales. However, the business has a lower operating profit margin of 12-15%, whereas network services and value-added offerings, such as managed network services, have margins of at least 30%.

Managed network services involve running company networks and associated applications across multiple locations rather than just provide the bandwidth.

Closely-held Flag does not disclose financial results. Reliance, which acquired Flag in 2003, clubs all international revenues without breaking out the cable firm’s results.

“Capacity (bandwidth) services with the new wave of next generation network will be a big push for next two to three years," said Jarrett Appleby, chief strategy and marketing officer of Flag in a recent phone interview. “But real focus would be on connectivity and managed services suite; bulk of our growth investments will be going for that."

The company aims to have an equal revenue contribution from bandwidth services, network services and managed services in two years Flag, which has 65,000km of undersea cable, plans to add 50,000km of optic cable to its network by 2010 with capital expenditure of $1.5 billion (Rs5,925 crore). The firm had earlier planned an initial public offering (IPO) in 2007 but the plan was postponed after a recent acquisition. “The formalities of Yipes acquisition will be over this week; and we will be bringing the IPO some time next year," said Punit Garg, president of the firm.