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UPDATE 3-Reliance Comm selling FLAG, U.S. units - sources

* Reliance seeks $3 bln for FLAG, other units - sources

* Seeks to raise cash; bids due late in January

* Global operations contribute nearly a third of revenue

* AT&T, Verizon decline comment (Adds AT&T, Verizon declining comment)

By Doug Young and Janaki Krishnan

BEIJING/MUMBAI, Dec 14 (Reuters) - India's Reliance Communications RLCM.BO is looking to sell its undersea fiber optic network and U.S. network businesses, hoping to raise around $3 billion in cash, three sources with direct knowledge of the matter said.

Reliance acquired the FLAG network, which lies at the heart of its global operations, in 2003 for $207 million, and now sells both capacity on the network as well as more lucrative telecoms services to other carriers and companies around the world.

The sources, who did not want to be identified because they were not authorised to speak publicly about the deal, said that Reliance had hired Deutsche Bank DBKGn.DE to advise on the sale and that bids were due in late January. Deutsche Bank declined to comment.

“It is an extreme option ... selling its overseas operations,’ said Yogesh Kirve of Anand Rathi Securities.

Analysts said the large debt of the company and its ongoing capital expenditure for GSM expansion in India had required it to scout around for various options to raise funds.

“They have very few choices to raise funds,” said Hitesh Kuvelkar, research head at brokerage First Global.

“Their capex requirement for expanding their GSM network is huge and they have to raise that from somewhere,” he said.

A Reliance spokesman, who did not want to be named, said: “We vehemently deny these speculations and rumours.”

The FLAG business, which stands for Fiber-optic Loop Around the Globe, is run by Reliance Globalcom, the company’s overseas arm. Reliance is also selling Yipes, a California-based ethernet service provider it bought in 2007.

Yipes, which was renamed Reliance Enterprise Solutions, provides managed services for companies in the United States.

The adviser is shopping the assets to Japan's KDDI 9433.T and U.S. operators AT&T T.N and Verizon VZ.N, the sources said. Spokesmen for AT&T and Verizon declined to comment.

First Global’s Kuvelkar said other funding options for Reliance included diluting the founder’s holding or selling a stake in its tower arm Reliance Infratel, which has filed for an initial public offering.

Reliance Communication shares, valued at around $8.1 billion, were down 1.3 percent at 181.35 rupees in the afternoon. The stock has fallen about 19 percent so far this year while the main index .BSESN has risen nearly 80 percent.

INVESTMENT, COMPETITION

Last month, Reliance Globalcom, the global unit of Reliance Communications, told Reuters it would more than double its data centre operations over the next 18 months, in a bid to compete with world leaders such as AT&T and BT BT.L. [ID:nHKG359769]

Reliance Communications has most of its customers on the CDMA platform. Earlier this year, it expanded the GSM business to all of India with a $2 billion investment. The company is part of the business empire of Anil Ambani, who Forbes magazine last month ranked as India’s third-richest man with wealth of $17.5 billion.

It has said capital expenditure for the year to March would be lower by a third from its previous estimate. [ID:nDEL128465]

Data from Reliance Communications showed global operations contributed 31 percent, or 22.6 billion rupees ($485 million), of revenues in the September quarter, and 26 percent, or 5.23 billion rupees, to its operating profit.

At the end of September, the company had about 225 billion rupees of debt on its books, with cash reserves of about 45 billion rupees.

Reliance competes with the likes of Bharti Airtel BRTI.BO, Tata Teleservices [TATASL.UL] and Vodafone Essar in India's fast-growing but increasingly competitive mobile market, where average revenue per users have been steadily falling.

In addition to dealing with stiff competition, companies have also had to watch their cash as they get ready to bid on third-generation (3G) mobile licences being auctioned early next year, and then build new networks to offer services. ($1=46.7 rupees) (Reporting by Doug Young in Beijing and Janaki Krishnan in Mumbai; additional reporting by Michael Flaherty in Hong Kong, Narayanan Somasundaram in Mumbai, and Ritsuko Ando in New York; Editing by Jacqueline Wong and Muralikumar Anantharaman)

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