Google and Indian Telcos - A Win-Win Partnership For Everyone

On 28th January, Google and Bharti Airtel announced a strategic agreement that saw the former pick up a nominal 1.28% stake in the latter, for a cool $700 million. The investment, coming under the tech giant's Google for India Digitization Fund, will also include an additional $300 million. This investment will go towards various commercial agreements between Google and Airtel. However, that was not the first time the tech giant invested in an Indian telco; last year, it picked up a 7.73% stake in Reliance Jio, India's largest telco, for ₹33,737 crores.

This brings up the question: why has Google sunk $5.5 billion in two of the largest Indian telcos?

Google for India Digitization Fund

On 13th July 2020, almost two years ago now, Sundar Pichai announced the fund; it saw the tech giant invest $10 billion in India or about ₹75,000 crores. Back then, Pichai said that the fund will accelerate Google's efforts to help augment India's digital economy. The tech giant would achieve that with the help of a mix of equity investments, partnerships, operations, infrastructure, and ecosystem investments.

The Fund focused on enabling internet access affordably across the country, in regional languages. Setting aside that kind of money to achieve a specific goal, is in fact a long-term investment for Google. With more internet users, its stake in India will increase; India already remains one of the largest markets for the tech giant in terms of users. However, once India gets its billionth internet user, Google would feel that the $10 billion it invested was a deal and a half.

Thinking back to Google's goals with the fund, it makes a lot of sense that it would invest in the telcos. After all, India relies heavily on its telcos to provide internet access. According to the latest statistics from TRAI, India has 777.19 million wireless broadband users, and out of those, 775.93 million use mobile broadband. Therefore, putting telcos first should have been Google's tactic, and it has followed that.

Reliance Jio - The Largest Beneficiary

In July 2020, Google bought a 7.73% stake in Reliance Jio, for a hefty ₹33,737 crores, or $4.5 billion. In a rare event, the tech giant decided to back the same company its rival, Meta, had backed; weeks ago, Facebook had bought a 9.99% stake in Jio for $5.7 billion. Google's investment meant that it sunk nearly half of the Digitization Fund in one company. Why?

One of the agreements during the investment was to develop an affordable smartphone. 11 months later, and at the RIL's Annual General Meeting, 2021, Mukesh Ambani announced the JioPhone Next, one of the cheapest 4G-enabled smartphones on the market. The phone went for sale on November 4th. Customers can either buy the phone upfront for ₹6,499 or in EMIs for 18/24 months, which will also recharge the Jio-SIM powered phone. While the price point left something to be desired, the phone will help Google achieve its goal. However, no one’s expecting it to be the revolution that it was deemed to be anymore.

Reliance Jio has made little secret of targeting the vast 2G user base of 300 million. From JioPhone 1, the telco has tried to bring those 2G users to its 4G network. The first two iterations of the JioPhone, 1 and 2, did pretty well; the telco has sold about 100 million units of those two combined. And with the JioPhone Next, the telco has set a target to sell about half of that number.

All of the investment's worth depends on how well JioPhone Next sells. With hard hitters like Xiaomi, and multiple local brands offering better phones at a similar price point, that might prove difficult.

Bharti Airtel - Google for 5G

With Google's investment in Bharti Airtel chalking off another $1 billion from the Digitization Fund, this means that 55% of the total fund has been sunk into Indian telcos. The companies said that the two will have a long-term, multi-year agreement. This will see Google pick up a relatively minor 1.28% stake in Airtel, at ₹734/share for $700 million. The share does not seem anything interesting at first, but it will sure give the telco a pick-me-up, along with some cash to play with at the 5G spectrum auction later this year.

Afterward, it will invest up to $300 million to implement commercial agreements. These agreements include investing in the telco’s products and services and developing its network infrastructure and ecosystem. First, it will see Google invest in Airtel's product portfolio, and develop affordability programs. Second, the companies will develop methods to deliver connectivity to the financially challenged parts of society. Third, the two companies will partner to develop India-specific use cases for 5G. Lastly, the two companies will also focus on growing the cloud ecosystem in the country, with Google’s cloud-native solutions already being used in Airtel’s networks.

The Silicon Valley giant's investment in Airtel has a two-pronged focus; it will look towards the top and the bottom end of the telecom users in the country. For one, with affordability programs, Google will allow bringing connectivity to the users that need it the most. India has a large 2G user base, too, and bringing that to 4G remains one of the key objectives for the investment as well. For two, the companies will develop 5G use cases, looking towards the future of connectivity.

Connectivity Starts at Telcos

While India represents a great opportunity for Google, the investment it makes now will certainly pay dividends in the near future. The world has recognized India as a country with unlimited potential when it comes to the connectivity and internet economy, just because of the sheer number of users. Google has become one of the early movers with its investment in India, and other tech giants will likely follow suit soon thereafter.

India has the world's second-largest telecom market, after China. But given how China is, India automatically becomes the most lucrative market in terms of availability and scope of development. Expect to see more and more companies come to India, seeking a vast user base and unlimited potential.