Why Did Google Invest In Bharti Airtel?

On 28 January 2022, Google first announced its plans to invest $1 billion in India's second-largest mobile phone operator, Bharti Airtel.

The deal seems to have closed now with Bharti Airtel's board allotting over 71.1 million shares to Google on a preferential basis, earlier this month.

The aim of the investment is to increase its presence in the only billion people plus market open to foreign companies.

India is the third largest economy in Asia and is currently a key growth driver for Silicon Valley. It has been a key region after China's crackdown on its technology industry.

The decision to invest in the wireless carrier may complement other investments of Google in India.

Google previously purchased a $4.5 billion stake in billionaire Mukesh Ambani's Jio Platform.

Here are the details.

The deal

As part of the agreement, Google will invest the money using both commercial and equity methods.

The company will acquire a 1.28% stake in Airtel for $700 million.

The remaining $300 million will be part of a corpus that will be invested over five years in the areas of devices, networks, and cloud technologies.

Google International LLC will receive about 71.1 million equity shares of Bharti Airtel.

Allotment will be on a preferential basis at Rs 734 a piece, aggregating to Rs 5,220 crore ($700 million).

Why is Google investing in Airtel?

The deal between Google-Airtel is a link to the Google-Jio deal. Google-Jio aimed to collaborate on developing a customised version of the Android mobile operating system for Indian users.

The Google-Airtel deal will help build low-cost, entry-level smartphones for Indian users. Airtel is also investing heavily in satellite connectivity to offer internet in India's remote locations.

In July, it established a joint venture for satellite broadband with the local branch of Hughes Network Systems, a business that Reliance Jio has yet not entered.

What is in it for Airtel?

The funds invested by Google will help Airtel to develop a variety of consumer electronics. The electronics will be across different prices to make them affordable for the users.

The funding will further give more resources to the company to boost its 5G plan. The company is already using Google's 5G-ready Evolved Packet Core (EPC) and software-defined network platforms.

It will immunise Airtel against its telecom rival Jio in its 5G plan. It will also enhance the functionality of its current 4G network.

This deal will help Airtel improve the online ecosystem and speed up network access.

To conclude

Google plans to invest in dominant companies rather than acquiring them to support digital growth.

Reliance and Airtel are multinational corporations that pioneer innovative technologies and dominate their respective markets.

Google's investment strategy is to fund such significant move-making businesses to reach Tier 2 and Tier 3 locations and close the language gap.

In India, there are already 500 million Internet users, and Google's strategy is to reach an additional 500 million people. This will decrease wide gap of multilingual internet services.

For more details about the company, you can have a look at Bharti Airtel's factsheet and quarterly result.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)