Land Grab

If three makes a trend, there’s something going on in the Indian telecom market. Three US tech giants, namely Facebook, Google and Amazon, are eyeing an interest in Indian wireless operators, hoping to gain a foothold into one of the world’s largest markets. These giants are looking for their next billion users and India offers significant opportunities for growth, with about half a billion people having come online during the past five years and another half a billion people still to be connected.

In April 2020, Facebook announced a $5.7 billion investment in Jio Platforms, giving it a 10% stake in the company (see Social Experiment). Jio Platforms is the technology subsidiary of Reliance Industries that provides broadband and online services, including mobile operator Reliance Jio. It is being used to build digital services such as online shopping, gaming and social networks on top of Jio’s network.

Jio already has an immediate reach of about 380 million users. Its tie-up with Facebook is a major deal that will speed up the roll-out and adoption of value-added wireless services in the country. According to the Indian press, Microsoft is also working on making an investment in Jio. The company from Redmond already has a partnership with the operator, offering its Azure cloud platform and Office 365 suite to Jio customers. We note that Jio has also recently attracted investment from a number of private equity firms.

Last week, the Financial Times reported that Google was mulling a 5% stake in Vodafone Idea, India’s second-largest network operator. Google has more than 98% market share in India for search, but is looking for ways to generate revenue from other services and products, including entertainment, cloud and devices. With about 330 million lines, Vodafone Idea would provide Google with a solid market and the potential for service integration.

This news comes at a time when Amazon is reportedly in talks with Bharti Airtel about taking a 5% stake in the operator, having already spent several billion dollars to set up its own operations in India including Amazon Prime shopping and Prime Video. If a deal is reached, it would mean that US-based tech companies would have an interest in all major wireless telecommunication providers in India.

These giants aren’t only looking at each other as competitors, but also at a group of Chinese firms, which have their sights set on expansion. Major Chinese web players are investing in Indian digital services, although they’ve yet to make a play for telecom operators. The investments by US companies represent an alternative front in the competition between the two groups.

From the web players’ perspective, the telecom operators are important because they have such a high share of the nation’s broadband. Of the country’s 688 million broadband connections, 97% are wireless, with 75% of these on 4G LTE. It’s clear that expansion of the range and adoption of digital services — for consumers as well as many business users — will depend on the mobile players rather than on laying huge quantities of fibre connections. If the operators start to struggle with capacity or network investment, there’ll be a natural limit on the growth prospects for Internet-delivered services.

The trend validates a prediction we revealed at our Predictions for 2018 and Beyond event: that big Internet companies would take stakes in major telecom operator groups by 2020. To find out about this year’s event, see here.

This growing interest from US companies is a welcome show of support for the cash-strapped service providers. India’s operators, particularly Bharti Airtel and Vodafone Idea, are going through tough times as a brutal service price war brought average revenue per user in the country to global lows. These operators are also burdened with debt as they’ve invested in their networks to remain competitive.

Adding to their troubles, India’s Supreme Court recently ordered Vodafone Idea and Bharti Airtel to pay a combined $12 billion in unpaid spectrum and licensing fees. The decision was the result of a long-running disagreement between the government and telecom companies about how spectrum licence fees should be calculated. Operators have argued that the fees should be based on income from only their core telecom business, but in a final ruling in 2019, the Supreme Court ruled that they should be calculated on the amount earned from all business dealings, including handset sales and other income (see Telecom Tumult).

The interest from tech heavyweights comes at a time when local operators need cash as well as ways to encourage their customers to spend more. Such deals will also support the eventual establishment of 5G networks and services in the country.

We agree that India’s e-commerce and digital services markets hold fantastic long-term potential, as the population grows accustomed to connected living.