Decoding the Google-Airtel Deal | What is in it for the companies? 

These investments are a part of Google’s $10-billion India Digitisation Fund announced in 2020.

While this investment is significant, two experts Moneycontrol spoke to said that the $700 million (Rs 5200 crore) might not change fortunes for the telecom operator.

Sanjay Kapoor, former CEO, Bharti Airtel, and Entrepreneur & TMT Adviser, said, “This does not change anything in terms of capital requirement for Bharti. This investment is more strategic in nature.” Kapoor further added that the government wants to sell its stake in Bharti Hexacom and this is just enough to buy the government stake.

Also read: Bharti Airtel CEO says devices, networks, cloud adoption will be fired up with Google partnership

Aditya Kondawar from JST Investments too agreed that the Rs 5,200 crore is a token investment and will likely be used for buying government stake in the Bharti Hexacom.

Bharti Airtel has a debt of about Rs 1.66 lakh crore as of September 2021. According to reports, the government is looking to raise Rs 7,000 crore by selling its stake in TCIL, a joint venture between Bharti Airtel and the government. This also comes at a time when the company is investing significantly in 5G, and needs to build its war chest for implementation.

However, according to Kapoor, the investment, though timely, is inadequate to pursue its 5G strategy, which is a long-term strategy for the company.

While there might not be a direct monetary benefit for the telecom operator, analysts pointed out that the synergies could benefit both the companies as millions of users in tier-2 and tier-3 towns adapt to digital.

Google’s interest in Airtel

India, with its 1.3 billion population, is one of the most attractive markets for large technology players. Prabhu Ram, Head – Industry Intelligence Group, CyberMedia Research, said that India’s digital economy is on an upward growth curve, with more first-time digital users from Tier-II, Tier-III cities and towns coming online.

Tarun Pathak, Research Director, Counterpoint, shared that India will see close to 500 million smartphone users in the next five years, with as many as 270 million feature phones users upgrading it to smartphones.

Thomas George, President, CyberMedia Research, said with the consumption market in India so high, all the major tech players in the US, like Amazon, Apple, and Meta are looking at India for future growth opportunity.

While this could unlock huge growth potential for these companies, these users also need products and solutions that cater to their language needs, and also affordable. For companies to tap into this user base, they need to partner with enterprises that can help them reach the users at scale. The partnerships, including the deal with Airtel, are clearly the reflection of that.

In 2020, Google invested $4.5 billion and Meta, formerly Facebook, invested $5.7 billion on Jio Platforms. Google has also been making a series of investments in the Indian startups that will help the firm tap into the growing vernacular user base and humongous small and medium business community in India.

What is in it for Google and Airtel?

Neil Shah, Vice President, Counterpoint, said that there are multiple angles as to why Google has invested in the firm. “This is the largest Android market for the company globally, and the biggest for them in the next 10 years in terms of advertisement.”

Of the 1.3 billion users in the country, only over 500 million have smartphones, and many will be upgrading from feature phones to smartphones. Shah pointed out that there is a lot of upside to adding these users to Android, as they will over time generate advertising revenue for Google.

Let us consider that close to 500 million users will be added to the Android ecosystem in the next five years. Shah explained that if Google can get $0.5 per month (for ads) from a single user, this would be close to $6 per user per year. Translating this for 500 million users would be $3 billion in ad revenue for the firm.

“So this $3 billion per year from India is just by adding 500 million smartphone users. They can monetise more as they grow their user base. That is why Facebook (now Meta) is also eyeing India in such a big way,” Shah said.

Kapoor, who was quoted above, said that Google will also benefit hugely by getting inroads into profitable customer bases of India’s top two telcos, Airtel and Jio, through the partnerships.

The tech major will also be able to cross-sell Google Services by bundling this with the Airtel’s and sweeten the deal for the SMBs. Airtel and Google Cloud already have a partnership in place, where Airtel offers Google’s suite of services such as Gmail, Docs, and Drive to the SMBs using the telco’s service.

Airtel serves over 2,500 large businesses and over 500,000 SMBs and technology startups across India. The latest partnership can further build on this.

CyberMedia’s George, who was cited earlier, said that Airtel can also gain from Google’s software development strength to drive the digital services. Ram, who was quoted above, said that Google and Airtel’s unique strengths would potentially contribute to the development of India-specific 5G use cases, including, for healthcare, agriculture and education.

But there are challenges as well.

Challenges

Airtel had stayed away from discounting and subsidising smartphones so far.

Kapoor, Bharti Airtel former CEO, said, “The fact that Bharti (Airtel) will receive $300 million to develop the digital ecosystem and affordable devices does raise a question around Airtel’s participation in device subsidy that they have refrained from in the past.”

Unlike software, building hardware is challenging. Take for instance the recent launch of the JioNext phone. Experts added that the price of what was expected to be the cheapest smartphone went haywire due to supply side challenges. Affordable smartphones should be in the sub Rs 3,500 range, which was not the case with the Jio phone.

Though this could be resolved, firms will also have to find right partnerships to take this forward.

Counterpoint’s Pathak, said that the there is a need for sharper focus in these partnerships to make execution easier. “For instance, if you are talking about healthcare, what within healthcare are you focusing on? That would be important,” Pathak added.