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Big-ticket tech deals to help boost telcos digital revenues

Big-ticket tech deals such as Google’s investments in Bharti Airtel and Reliance Jio are set to hasten the digital transformation of telcos and drive the next wave of revenue growth from diverse digital service offerings, analysts and senior industry executives say.Such deals, they said, will boost telco revenue flows from emerging digital business opportunities around cloud computing, CPaas (communication platform as a service), IoT (internet of things), cybersecurity solutions to home entertainment services via fibre-to-the-home (FTTH) networks, and OTT (over-the-top) subscriptions.

Analysts expect this trend to gain momentum once Airtel, Jio and Vodafone Idea (Vi) start deploying next-generation 5G mobile broadband networks later this year after the spectrum auction, likely around April-May.

“This investment will fire up our digital agenda dramatically, and that’s where we will double down,” Bharti Airtel managing director Gopal Vittal told analysts.“As stand-alone businesses, Airtel Payments bank, Nxtra, Wynk, Airtel Ads and Airtel IQ would comfortably add five more unicorns to India’s tally of 83,” he said.

Ambit Capital estimates that new-age digital service offerings are “likely to drive 20% of telcos’ incremental revenue over FY22-27”. This since delivery of new-age digital offerings would entail heavy investments in spectrum and fiberisation, which the big telcos are poised to do, especially as they look to unlock new revenue streams, sweat their network assets better, and enhance returns.

“Telcos are building infrastructure and deploying services on top for new business opportunities that are getting unlocked due to digitisation trends, and we believe Jio and Airtel are best equipped to capitalise as they are closer to the (data) consumers and have strong balance sheets,” Ambit said.

New market opportunities would entail investments in both infrastructure and digital services that integrated telcos like Airtel and Jio are more prepared to tap than others, it said.

To be sure, digital services now account for only a wafer-thin slice of overall telco revenues. Airtel’s combined digital services revenue is estimated at around Rs 500 crore – well below 1% of its overall annual revenue, while only around 6% of Jio Platforms’ overall revenue is estimated to come from digital services.

A senior private telco executive expects the share of digital services in a telco’s overall revenue pie to grow sharply over the next two years. “Large mobile carriers should see healthy double-digit growth in digital service revenues in the near-to-medium term, especially once India goes 5G and telcos start leveraging their multi-year partnerships with global tech giants,” he said on condition of anonymity.

Analysts said the digital transformation of telcos is already underway.

They pointed out that Reliance Jio, by acquiring various entities, has stitched together a gamut of services, ranging from conversational AI-based chatbots to drone technologies.

Likewise, Airtel has organically built new business lines around cybersecurity, home entertainment, CPaas, cloud and adtech, and doubled down on partnerships with specialists for B2B services.

Vi, on its part, has also leveraged on its strong incumbent relationships with enterprises and UK-based co-parent Vodafone Plc’s expertise in IoT.

Airtel’s digital properties include Wynk Music, Thanks, Xstream, payments, and products such as Airtel IQ, and Safe Pay, and employ nearly 2,000 people, which is being scaled up rapidly. The telco has almost 200 million monthly active users (MAU) across its digital assets.

Google on Friday said it plans to invest up to $1 billion in Airtel. Of this, $700 million will be for a 1.28% stake, while the rest $300 million will be invested over five years as part of commercial agreements.

Jio Platforms, which houses the digital and telecom assets of Reliance Industries, has raised over Rs 1.52 lakh crore by selling nearly 33% stakes to 13 investors, including Facebook, Google, Qualcomm and Intel Corp.

Going forward, analysts expect these high-wattage deals between telcos and global tech giants to sharpen telcos’ 5G services monetisation strategies and ring in faster development and traction of India-relevant 5G use cases.

“The deal with Google should speed up monetisation of 5G use cases for Airtel and improve its revenue flows from digital initiatives around cloud computing, enterprise business solutions and the data centres business,” Nitin Soni, senior director (corporates) at global ratings agency Fitch.

Industry executives also expect the arrival of 5G technology to unbundle mobile network hardware and software elements, giving telecom operators more control over network performance, use cases and energy usage. UR ALL NEWS

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