Google is reportedly in early discussions to buy a 5% stake in Vodafone Idea, according to the Financial Times. The deal would escalate US tech giants’ efforts to accelerate growth in India by way of network operators. In April, Facebook purchased a $5.7 billion, 10% stake in Jio, formalizing a collaborative effort by the companies to build a super-app for the Indian market that will include payments, messaging, e-commerce, and gaming functionality.
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And last week, Microsoft was said to be negotiating the terms of a $2 billion deal that would give the US tech giant a 2.5% equity stake in Jio, according to Mint. Vodafone Idea and Jio — with 329 million and 377 million subscribers, respectively — are the two largest network operators by subscribers in India, the world’s second-largest mobile market by connections, behind only China.
Investments in India’s network operators come at a pivotal moment — operators are saddled with debt, and the market is still very much up for grabs. Jio entered India’s telecoms market in 2016 as a subsidiary of oil and gas conglomerate Reliance. This gave Jio a crucial advantage over incumbents Vodafone Idea and Airtel, as Jio could turn to Reliance for funding, whereas the incumbents were limited to the debt and equity markets.
Jio therefore took an aggressive pricing strategy, offering plans for as little as Rs 200 ($2.60) per month, with comparable plans from Airtel and Vodafone Idea priced around Rs 250 ($3.30). Vodafone Idea and Airtel loaded their balance sheets with debt to remain competitive in the market and stave off Jio, though both still lost tens of millions of subscribers. We are now seeing a new phase in this competition, whereby the network operators are looking to raise funds by selling equity, which can help them offload unwieldy debt and subsidize low-data plans to attract subscribers.
By investing in India’s network operators, Facebook, Google, and Microsoft gain favored access to a distribution platform in the Indian market. Just as Facebook turned its Jio investment into an opportunity to expand the reach of its core advertising business, Microsoft and Google would likely look to do the same with their investments. Already, Microsoft has partnered with Jio to offer its Azure IoT platform on the mobile service, and to subsidize Office 365 subscriptions for Jio Fiber customers.
An equity investment would help Microsoft further entrench its services in Jio’s network offerings. Similarly, Google works with Bahari Airtel to subsidize access to its G Suite enterprise productivity suite, and an investment in Vodafone Idea could result in similar offerings. One concern with these sorts of partnerships is that they could hurt the growing domestic tech startup scene in India — if US tech giants are subsidizing their software through telecoms partnerships, then it may be harder for small players to compete.
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