Google to invest up to $1 billion in Airtel

Google will invest up to $1 billion in India’s second biggest telecom services provider Bharti Airtel through an equity purchase of 1.2% for $700 million and commercial agreement of $300 million on mutual terms over the next five years.  

The investment comes on the back of the internet search giant having invested $4.5 billion in Reliance Jio back in July 2020, both part of the Google for India Digitization Fund, making it an investor in two rival telecom service providers in the sector.  

Bharti Airtel will issue shares to Google on a preferential basis at Rs 734 apiece, the company said in an exchange filing on Friday. Airtel’s shares closed at Rs 715.9 on the BSE, up 1.23%.  

“As a part of its first commercial agreement, Airtel and Google will work together to build on Airtel’s extensive offerings that covers a range of Android-enabled devices to consumers via innovative affordability programs,” the carrier said. The commercial agreements over five years will also be aimed at 5G network enhancement, building use cases besides accelerating cloud ecosystems for enterprises and hyper-scalers.

Bharti Airtel chief executive officer Gopal Vittal said that the company has no plans to build smartphones with Google but will work towards increasing smartphone adoption among consumers as part of its strategic partnership, which in turn will drive up ARPUs for the carrier.  

“We have no plans to build our own device, but instead intend to partner across the ecosystem to further accelerate the adoption of smart from feature phones,” Vittal said in an analyst call on Friday after the announcement.

Making smartphones more affordable will be one of its key commercial programs, which will be done through targeted incentives, cash backs and partnerships across device and e-commerce players.

“We have always mentioned we are not keen on a subsidy game, but equally, we are going to be competitive in the market, so wherever there is an incentive to be given we have developed the software capability to target it into a device in order to be really smart and minimize the economic cost of that,” Vittal said.  

Airtel will also use data models to predict likely upgradation to smartphones among its user base, on the back of having converted over 80 million such users to smartphones.  

“We will continue to actually push for that because we also know that for every smartphone user we get a significant jump in the ARPU, which is part of our premiumization agenda,” Vittal noted. The carrier aims to increase ARPU levels to Rs 200 in the near term and to Rs 300 in the long term, from present levels of Rs 153 as of September.  

Vittal added that the carrier would use existing Android capabilities, indicating that the company would not be keen on developing its own operating system and would prefer to work with players across the ecosystem.  

“I think that requires a very different kind of capability set and we would much rather work across every player, whether it's device manufacturer or e-commerce player to really like provide smartphone access,” Vittal said.  

Airtel will continue to allocate capital to capex towards areas of home broadband, data centres and 5G network. The carrier has allocated $2.5 billion for FY22.  

Vittal added that the company was in a comfortable leverage situation, while generating solid cash flows to continue to fund capex. “We have announced the rights issue and we've made one call, there are residual calls to be made, to fund any additional growth capex that may be required,” he added.  

Airtel had said in August last year that it will raise Rs 21,000 crore through a rights issue, of which one call for Rs 5,000 crore has been made. The balance can be raised via additional calls over a period of three years.  

People aware of the developments said that the deal should get closed in a couple of months following regulatory approvals, including one from the Competition Commission of India, even as discussions between both sides began in the first half of 2021.

Market watchers said that the deal was a win-win for both. “From Google’s point of view, certainly, it is seeing the advantage of tying up with a large telecom provider to create front end solutions,” said Aliasgar Shakir, Telecom Analyst, Motilal Oswal Financial Services Ltd.  

Airtel could leverage Google’s tech platform to explore monetization of digital offerings, leverage Google-enabled affordable devices to target 300 million feature phone subscribers while also using Google's 5G technology solutions and cloud services to offer use cases to businesses including SMEs, he added.  

“We could potentially see entry level smartphones with the optimized Android OS being offered to Bharti subscribers as well... the expertise on the OS side will be valuable, especially if Bharti chooses to launch low cost smartphones with an optimized OS, similar to the JioPhone Next,” said analysts at UBS, terming the deal as positive for Bharti.  

They however flagged that the scale of the deal makes it a non-game changer as the equity stake of 1.2% was too small for Google to be a meaningful strategic partner.  

Google has already partnered with Reliance Jio to launch of low cost smartphone – JioNext - with an optimized Android OS, as part of Google’s investment into Jio last year. Jio Platforms, the holding company of Reliance Jio, has also received a $5.7 billion investment from Facebook, now Meta, for a 9.99% stake.

“Big tech investments in infrastructure have been steadily increasing and seeing it happen in India is a sign of a more symbiotic relationship developing between the telecom and digital sector,” said Vaibhav Kakkar, partner at Saraf & Partners.