Google’s new $700 million investment in Airtel, with up to $300 million to follow over five years, is part of an initiative by Airtel to reduce the cost of Android devices in the Indian market. The deal includes a 1.2 percent ownership stake in Airtel.
But that is not the first investment Google has taken in an India mobile operator Google in 2020 invested $4.5 billion for a 7.73 percent stake in Reliance Jio Platforms.
Separately, Facebook invested $5.7 billion in Reliance Jio Platforms in 2020.
In part, such investments can be driven by multiple different values. Securing market entry in a key new growth area is one reason for such hyperscale app provider investments in mobile service providers. Protection from overzealous regulation is another possible benefit.
Seizing early market share leadership and user base when there are rivals is another obvious value. To the extent that hyperscalers benefit from ingesting more data, that is another value.
Such investments in mobile and other connectivity firms are not primarily driven by the desire to replace connectivity providers in the ecosystem.
On the other hand, it is hard to avoid noting that two hyperscale app providers are owners of stakes in India’s largest mobile services provider, while Google now becomes a stakeholder in India’s second-largest mobile operator.
In other cases Google has worked with mobile operators to seek ways to reduce infrastructure costs, as the Telecom Infra Project is doing. TIP seeks to “accelerate the development and deployment of open, disaggregated, and standards-based technology solutions” that deliver high-quality connectivity.
As a clear byproduct, TIP expects costs of infrastructure to drop.
Keep in mind the firm and ecosystem role advantages. Looking only at the internet of things value chain, suppliers of platforms and applications depend on the connectivity function to create their business models. In other words, Facebook and Google benefit from universal, high-quality broadband. Their businesses actually require that affordable, high-quality internet access be as widespread as possible, everywhere in the world.
Instead of a value chain, think of the concept of layers as incorporated in the Open Systems Interconnection model or TCP/IP. By design, applications can run independently of the ownership of networks. The modular design means different suppliers, vendors or entities can operate at each layer, independently of ownership.
Unlike the older “closed” model of telecom, where every app on a network was either directly owned by the infrastructure owner or operated with its permission, the layers model separates each layer.
That creates the business model we call “over the top,” where any lawful applications can be used by any person or machine without the permission of the internet access provider.
But layers also dictate possible business models. OTT exists precisely because any lawful app can be used by any user on any network. The bundled or closed approach to creating and using applications or platforms is replaced by an open and disaggregated model.
That has profound implications. Hyperscale app or platform suppliers benefit from universal, affordable, quality internet access. Anything that increases the ability to access the internet (such as home broadband, Wi-Fi, mobility networks, satellite and fixed wireless networks) is the foundation for app provider revenue models.
Hence their interest in ensuring that internet access is easier to deploy, everywhere, at lower costs, since lower costs mean “everyone” can use the internet.
Conversely, the same drivers operate almost in the opposite way for connectivity providers, in some ways. The business objective of driving down internet access costs obviously limits connectivity provider gross revenues and profit margins.
For a hyperscale or any other app or platform provider, internet access is a cost of doing business. So there is an incentive to promote lower input costs. For a connectivity provider, the access is the business, so there is an incentive to raise prices when possible.
On the other hand, TIP, for example, aims to help lower infrastructure costs by creating open approaches to infrastructure that lead to lower costs, as functions are disaggregated and designed according to open standards any supplier can build upon.
Investing in important, fast-growing access providers sometimes is strategic when a big new market is opening and early scale is desired. But there are other potential benefits, such as deflecting regulatory opposition or gaining mobile operator marketing push.
That explains why Facebook and Google made their investments.
But it also is worth noting that hyperscale application and platform providers now also operate as forces to reduce infrastructure costs in ways that are helpful to connectivity providers.
In one sense, among the changes is a shift from supplier-driven technology development to connectivity-provider led development.
We may see other forms of connectivity role encroachment over time. At least some of that activity is a logical drive by an ecosystem participant to lower the costs of an essential business input, while increasing the revenue opportunity it can chase.
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