01 Jun Why Sunil Bharti Mittal should seek out Google’s Pichai, Page & Brin
Over the years, Sunil Mittal, a feisty campaigner, has mostly chosen his partners well. Singtel has been a consistent ally. Vodafone has been too. Walmart was equally charmed after meeting the Mittal brothers at their Bentonville headquarters and decided to team up. So did Axa for a foray in insurance, Rothschild falmily and then Del Monte Pacific for agribusiness.
Even Softbank’s maverick founder Masayoshi Son broke break with Bharti, much to the chagrin of Cyrus Mistry, the former boss of the Tatas, am told by reliable insiders. And those who forget, Mittal can claim some points for the private equity gold rush to India, having ensured a massive payday for Bharti Airtel’s first big investor Warburg Pincus.
The focus is once again on Mittal in this season of Big tech deal dash to leverage his global network and create a digital moat around flagship Airtel. An eco-system of products and offerings along with strategic allies to take advantage of the changing consumption habits of the world’s largest data consumers who view, listen, shopping and even play on mobile. As consumers too, we would want that as a counter to the Jio juggernaut.
Fundamentally, Airtel has always believed it is a telecom company in its core much like a Verizon or an Orange or even partner Singtel and there is nothing wrong in that. That said, the management also realises the strategic importance of digital services to enhance customer value, bump up average revenue per user (ARPUs) and even open up new revenue streams and has hence of late has been talking it up.
The Covid inspired lockdown has upended economic activity but home consumption of data, usage of digital payments and online shopping has seen a massive spurt in the last two months. Truth is, this is a trend that is here to stay.
After a tepid start, of late, Bharti too has been bulking up its digital assets incrementally. Its digital platform now has around 160 million active users across Airtel Thanks, Wynk, and XStream. Further over 60% of Bharti’s own business is digital channels and has 1.1 million retailers on its Mitra App, as per the senior leadership’s own admission.
Comparisons with Jio are inevitable but unlike Ambani, Mittal’s model in telecom and digital has always been open source. Stitch up smart service partnership rather than buy them out outright.
Airtel already has powerful motley in its flank: Netflix to Zee among others for content; Axa and HDFC for financial products to Cisco and Google for enterprise, cyber security, cloud, internet of things offerings.
And that’s exactly how it should double down. Decide its own sweet spot and ramp them up. Bet on emerging trends like gaming and healthcare. Build, back and even buy.
There is enough room to play. Payments alone is a $60 billion market opportunity. Some say $1 trillion by 2023. Bharti already has a payments bank and along with its own applications, it has the ability, to collect both cash and digital payments online. With a far healthier balance sheet — net debt to EBITDA at 2.88 times versus 4.15 times a year back on the back of a series of debt optimisation drives – smart acquisitions of payments companies of scale with beaten down valuations will be opportunistic. Even Son, the biggest supporter of home grown unicorns, would gladly seize upon any consolidation opportunities that are a win-win for all.
Likewise, it is keen to offer more bundled business to business services. Like Tatas, the bigger marque corporate clients are already with Bharti. And they tend to be stickier. Telcos, say pundits, have cornered 10% of the $35 billion information and telecommunication technology market, and its growing at 5% annually.
After limited success with its Android mobile operating system, Google too has been on the prowl in India in search of its next billion users for its fast growing enterprise, payments, already among the market leader in 3 years, cloud and speakers offerings. More will follow. Its widely known that it was competing for the Jio deal but lost to Facebook and now there is speculation that it might be exploring an investment in struggling Vodafone-Idea. But Airtel — with 284 million and growing mobile subscriber base, a pan India fibre and DTH footprint – has far more bang for the buck.
That’s why Mittal should put in a call to Google’s founders Larry Page and Sergey Brin or CEO Sundar Pichai. Like Microsoft and Jio, Google has already partnered with Airtel to offer it G-Suite, a bouquet of cloud solutions to small and medium enterprises. Its time to take the relationship to the next level. Alphabet, Google’s parent, is sitting on a cash pile of $121 billion, says analyst firm FactSet. Even a $4.4 billion buy-in for a 9.9% in Bharti Airtel by paying a 10% premium to current prices will not be that hard to sell.
It will however be futile for Bharti to be a Me Too online retailer and take on a troika of Ambani, Walmart and Amazon in a blood fest having vacated that space in the first place. Reliance’s e-commerce play is built on its existing infrastructure of warehouses and physical stores. Even a merger with Walmart or Amazon to create an alternative flank will lead to down a rabbit hole.