Why is big tech flirting with Indian telcos?
Murmurs of big tech investments in Indian telcos have stirred up the telecom sector. These big tech-telco combinations are a threat as much as they are an opportunity
The current lockdown has been manna from heaven for the technology and telecom sectors. With people working from home, video-conferencing to stay in touch with colleagues, family and friends, and relying on streaming services for entertainment and e- commerce for even the essentials, there seems to be a general consensus that digital is the future. Despite the economic slowdown, technology and telecom sectors stood tall with data consumption going up by 12-15 per cent during the lockdown. Most companies have had to revaluate how they do business and are investing in new technologies to become future-ready.
According to a recent report by the Internet and Mobile Association of India and Nielsen Holdings Plc, in 2019, India recorded 94 per cent of the total internet traffic on mobile networks with only 6 per cent on Wi-fi networks. Eighty eight per cent of mobile data was accessed on 4G networks indicating an exodus of consumers from 2G/3G networks. Surprisingly, the number of internet users i n rural India (227 million) exceeded those in urban India by over 10 per cent (205 million). What is interesting is that 70 per cent of the rural Indian population does not have access to the internet. This highlights the tremendous growth potential for telecom companies in India.
What is hidden in Facebook’s 9.99 per cent acquisition of Jio Platforms (JPL) is Facebook’s indirect acquisition of at least 9.99 per cent eco - nomic interest in Jio Infocomm (Jio). Before the announcement of the Facebook deal, Reliance strategically made Jio a wholly-owned subsidiary of JPL. What made an investment in JPL so attractive was a slice of the world’s largest telco with huge growth potential. This deal has changed investors’ perception about the Indian telecom sector and set the ball rolling for big investments in Indian telcos. Tech companies such as G oogle, Microsoft and Amazon which lost to Facebook in the Jio race are, in the fear of missing out, exploring possible tieups with other telcos.
Opportunity: Backscratching
With over a billion telecom users in India, big tech companies want to leverage this vast subscriber base through collaborations with telcos. This could help them grow multi-fold almost instantaneously which may otherwise take years. Telcos, on the other hand, need money to survive, especially with the 5G auction being just around the corner.
To understand these backscratching tech-telco arrangements, let’s take the example of a telco offering a free Amazon Prime subscription to its customers. For a multi-sided platform like Amazon, such an arrangement would increase the userbase of its e - commerce and over-the-top services, on one side. On the other side, such an arrangement would not only increase Amazon’s value for sellers and content creators but also boost its advertisement revenues. For telcos, such freebies would help them gain/retain market share and monetise increased data consumption.
With around 83 per cent of the total data consumption in India using highspeed 4G, becoming 5G -ready is inevitable for a telco. No telco wants to allow its competitors to get the first mover advantage in 5G. Based on the reserve price recommended by the Telecom Regulatory Authority of India (Trai), telcos would be required to pay around ~50,000 crore for the minimum spectrum required for 5G. This means that 5G spectrum auction requires Vodafone and Airtel to have a massive war chest, especially with Jio sitting with its pockets full to wipe-out the market. In these circumstances, it is not difficult to predict that Airtel and Vodafone-idea need aid from external investors to fight this existential crisis and compete with Jio.
Threat: Concentration of data power
Gatekeeper problem: Big tech-telco combinations may result in a consolidation of big-data. Large companies are likely to exploit their “conglomerate data holdings” and make it harder for smaller ones to break in. This issue gained traction with the Facebook-jio deal which is currently being scrutinised by the Competition Commission of India (CCI).
Net neutrality: Digital services offered by tech companies require internet access provided by telcos, establishing a vertical relationship between the two. Telcos have access to advanced tools such as “deep packet inspection” to monitor data traffic and ensure better user experience for a specific digital service. Tech-telco combinations may, therefore, threaten net neutrality, if not meticulously scrutinised for discreet biases.
In the absence of a data protection authority, the two authorities that can don the mantle of assessing these techtelco combinations are Trai and CCI. But are these authorities equipped enough? Competition authorities are struggling to address digital market issues based on traditional competition rules. The CCI cleared the Facebook/jio deal without demur and it remains to be seen if the CCI order would provide any guidance for assessing similar bigticket data-driven transactions. When it comes to Trai, there is no certainty that it could effectively enforce net neutrality and curb discreet biases by telcos to the advantage of their tech partners. Although telecom licences mandate net neutrality since 2018, there have been no enforcement initiatives despite many alleged net neutrality violations.
In the current economic crisis, big tech-telco combinations may come in handy, but they come with their own threats to the existing competitive landscape. It is, therefore, indispensable to carefully examine such combinations and address potential competition law concerns arising out of them. The internet, given its increasingly essential role in trade and commerce, may be referred to as the "railroad" of our times. State authorities must learn to break the vicious cycle of allowing the creation of monopolies only to break them to reinstate competition, as was the case with the "railroads" in the 19th century.
As a closing remark, I am reminded of what Charles Francis Adams had said about the railroad problem in 1878. He said that the time was nigh “when the railroads would manage the state, if the state did not manage the railroads”. Nothing much seems to have changed since, except that the new railroad of the 21st century is big data which may get concentrated in tech magnates in the absence of apposite regulation of these big tech-telco combinations.