December 2, 2020

Is this the best time for Amazon, Verizon to invest in Voda Idea?

In order to determine whether this would be sound strategy for them, one needs to look at two issues: One, on the alliances being built globally between telcos, on one hand, and cloud service firms, on the other, especially with the advent of 5G; and two, how their business strategies in India will blend into with such a deal.

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IMAGE: Attendees at Amazon.com Inc annual cloud computing conference walk past the Amazon Web Services logo in Las Vegas, Nevada, US. Photograph: Salvador Rodriguez/Reuters

Does it make business sense for Amazon Web Services (part of Amazon) and Verizon to buy a stake in cash-strapped Vodafone Idea?

As the Vodafone Idea board met to discuss fund raising, there is speculation it has renewed talks with Amazon.

Talks were suspended earlier, in anticipation of the Supreme Court verdict in the AGR (aggregate gross revenue) case.

 

Whether the two global giants will bite the bullet is anyone’s guess.

In order to determine whether this would be sound strategy for them, one needs to look at two issues: One, on the alliances being built globally between telcos, on one hand, and cloud service firms, on the other, especially with the advent of 5G; and two, how their business strategies in India will blend into with such a deal.

At global level, Amazon, with its expertise in cloud, and Verizon, with its telecom network and customers, are waging a battle with the combined power of Microsoft and AT&T to provide cloud and edge computing solutions to enterprise customers, especially with the advent of 5G in the US.

The aim is to provide them low latency, highly secure and high-speed services as numerous devices and machines get connected on the 5G network.

And that is understandable as a substantial portion of the 5G revenue for telcos will come from non-mobile services.

And for cloud companies, it is an opportunity to leverage this exponential increase in business and solutions.

It will be no different in India, especially with telcos looking at alliances to offer cloud and data centres to increase their revenues from the enterprise business segment, which also provides healthy margins.

One needs to look at Vodafone Idea’s enterprise business, which, analysts say, is much smaller than that of Bharti Airtel.

So for firms like Amazon (with or without Verizon as co-investor), which is currently the largest player in the cloud business in the country, picking up a stake could make sense.

Telecom analyst Mahesh Uppal said: “It’s a perfect fit for companies like Amazon,  Verizon or even Microsoft because they can tap  new sources of revenues.”

Uppal pointed out the problem with Vodafone Idea was not about its telecom business, which is doing reasonably well or there is any quality issue.

“The problem is it huge debt. It makes sense for a company which has a ten-year horizon or which sees India as an important market, to buy into Vodafone. Remember, there was talk that Google was once interested.”

A senior executive of a rival cloud company, however, said: “Amazon is in the cloud business but it does not know the complexities of running a telco.

“So getting Verizon as a partner will be a key.”

But there is a catch. AWS in India has a tie-up with Bharti Airtel in the cloud computing and data centre space.

Not only AWS, even Verizon too signed up with Bharti for offering its online video conferencing service, Blue Jeans, recently.

But the play is bigger for AWS. According to Bank of America analysts, the company is locking horns with other global players in the Indian market.

These players include Microsoft Azure (30 per cent share) and Google (with 10 per cent), which are far behind.

Even Alibaba Cloud is present, with its investee firms like Paytm using its cloud infrastructure.

The question is whether AWS will part ways with Bharti to tie the knot with another player.

Or can it invest in both the companies, one through an alliance and the other through equity to further strengthen its hold in the Indian market?

Many analysts say Reliance has shown the way with both Google and Facebook, which fight for the same advertising pie, becoming co-investors in Jio Platforms.

What could make things more pressing for AWS is the fact that Microsoft recently tied up with Reliance Jio to bring its Azure suit of products to the customers and close the gap with Amazon.

Jio and Microsoft have focused their energies in initially wooing 8-10 million small-scale enterprises, a segment that Amazon also seeks to capture.

The Jio-Microsoft combine is using the pricing game to grab customers with offers as low as Rs 1,500 a month.

This also comes with the advantage of bundled services like fixed broadband.

Both Amazon and Reliance (Jio Mart) are getting into a battle to woo India’s 30 million kirana and small shops as partners.

Those shops without PCs could be captured for the cloud services by offering them PoS machines.

With a Vodafone Idea-Bharti alliance, Amazon would be in a strong position in the battle with Microsoft.

What serves caution is the view that the roll-out of 5G services in India has been postponed with telcos left with little financial muscle to buy expensive spectrum.

Experts say this uncertainty could be a deterrent for any investment in the future of cloud and enterprise business as that would need 5G for a big push.

But the good news is the cloud business is expected to hit revenues of over $9 billion by 2022 from a mere $4 billion expected this year – and that makes it pretty attractive for anyone.

The other issue is the history of Vodafone plc and Verizon.

Vodafone pulled out of Verizon after lengthy negotiations but made good money So there is a close relationship.

But Verizon has only played in the US market in the mobile space, so will it take a gamble in India?

Will there be an alliance once again, with the US company becoming investor this time?

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